UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 3, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-7258
CHARMING SHOPPES, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1721355
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
450 Winks Lane, Bensalem, Pennsylvania 19020
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 245-9100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $.10 per share)
(Title of Class)
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. (X) YES ( ) NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (S.229.405 of this chapter) 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. ( )
As of April 16, 2001, 101,742,782 common shares were outstanding. The
aggregate market value of the common shares (based upon the closing price
on April 16, 2001), held by non-affiliates was approximately $487 million.
DOCUMENTS INCORPORATED BY REFERENCE: As stated in Part III of this annual
report, portions of the following document are incorporated herein by
reference:
Definitive proxy statement for annual shareholders meeting to be filed
within 120 days after the end of the fiscal year covered by this Annual
Report.
PART I
Item 1. Business
General
Charming Shoppes, Inc., a Pennsylvania corporation formed in 1969, operates
through its subsidiary corporations 1,754 women's specialty retail apparel
stores in 48 states, under the names Fashion Bug(R), Fashion Bug Plus(R),
Catherine's Plus Sizes(R), The Answer(TM) and Added Dimensions(R) (as of
the fiscal year ended February 3, 2001 ("Fiscal 2001"). Unless the context
indicates otherwise, the term "Company" refers to Charming Shoppes, Inc.
and, where appropriate, one or more of its subsidiaries.
Charming Shoppes opened its first store on September 13, 1940 in
Philadelphia, Pennsylvania. In 1971, Charming Shoppes became a public
corporation, trading on the over-the-counter market (Nasdaq) under the
ticker symbol "CHRS".
During the fiscal year ended January 29, 2000, the Company acquired the
Catherines Stores Corporation, a chain of 436 retail stores, and the Modern
Woman chain of 136 retail stores. Both chains served a similar customer --
the plus-size woman. The Company consolidated the two businesses so as to
benefit from synergies. The combination provided the Company with an
enhanced platform to strengthen and accelerate its large-size growth
strategy. Charming Shoppes has become a leading provider of large-size
fashion, a segment that continues to outpace the overall growth of the
women's apparel market. In addition to synergies and efficiencies in
buying and administrative functions, the Company achieved improved
geographic diversity in its overall store base and resulting revenue
stream. During Fiscal 2001, the Company completed the integration of the
Modern Woman stores into the Catherines Stores Corporation.
With $1.6 billion in sales and 1,754 stores nationwide, Charming Shoppes is
the largest women's specialty apparel retailer in the strip shopping
center. The Company is a leading women's specialty retailer in plus sizes,
servicing the plus-size woman through three distinct brands: Fashion Bug
(including Fashion Bug Plus), Catherine's Plus Sizes and The Answer/Added
Dimensions. Through varied fashion concepts, the Company offers
merchandise at budget to moderate price points, with classic to updated
fashion tastes, for a wide range of ethnically diverse women. The fashion
apparel needs of the Misses and Junior customer are served through the
Fashion Bug, Monsoon, and Accessorize brands.
The Company's Brands
Fashion Bug(R) and Fashion Bug Plus(R)
The Company's 1,230 Fashion Bug and Fashion Bug Plus stores specialize in
selling a wide variety of plus-size, misses and junior sportswear, dresses,
coats, lingerie, accessories, and casual footwear. The stores sell both
developed product, uniquely designed for the Fashion Bug customer, and
brand-name merchandise. The majority of these stores are located in the
Northeast quadrant of the United States, in strip shopping centers. The
Company's Fashion Bug stores average 8,900 square feet in size and are
located in 46 states. Customers are in the 20- to 49-year-old age group,
shop in the low to moderate price range, and are on trend with current
fashions. Plus-size sportswear is the largest merchandise category, with
41% of sales represented by plus-sizes.
Catherine's Plus Sizes(R)
The Catherine's Plus Sizes customer wears size 16 and larger, and generally
shops in the moderate price range. The brand targets women 40-65 years old
and offers classic apparel and accessories for career and casual lifestyles
in a one-to-one selling environment. The target customer has classic but
fashion-conscious tastes, and is primarily concerned with fit and value in
apparel selection. As a size specialist, Catherine's also has developed an
expertise in providing merchandise catering to plus-size women wearing
sizes 28 and above, as well as petite sizes. These 414 stores, which
exclusively sell plus-size women's apparel, are located in 45 states,
primarily in the Southeast, Mid-Atlantic, and Eastern Central regions of
the United States, and average 4,000 square feet in size. Employing a
strip shopping center strategy, Catherine's Plus Sizes is a destination
store, with a competitive advantage in super sizes, petites, and the body
basics fit program, designed to help a woman choose the merchandise styles
that flatter her figure.
The Answer(TM)/Added Dimensions(R)
The Answer and Added Dimensions stores cater to an ethnically diverse,
plus-size woman, over 35 years of age, who shops in the moderate to better
price range. The brand caters to her need for career, church, social
occasion, and casual apparel and accessories offering high quality fashion.
She is fashion forward, has a strong fashion attitude, and prefers dramatic
styles and bold colors. These 110 stores, which exclusively sell plus-size
women's apparel, are located primarily in metropolitan areas throughout the
Southeastern and Midwestern United States, and average 3,900 square feet in
size. The stores employ a strip center strategy, and are located in 23
states and the District of Columbia.
Monsoon(R) and Accessorize(R)
On October 26, 2000, Charming Shoppes, Inc. and Monsoon plc of London
announced the signing of a joint venture agreement, for the purpose of
bringing the successful apparel and accessories concepts of Monsoon and
Accessorize stores from the United Kingdom to the United States. The
Company plans to open approximately 10 Monsoon and/or Accessorize stores
during the fiscal year ending February 2, 2002 ("Fiscal 2002") and will be
evaluating the performance of these stores in developing a longer-term
growth strategy for the brands.
The Monsoon concept is a women's apparel specialty store in the "better"
price range, with locations in premier malls. All product is private label
and created by Monsoon's team of designers and buyers using manufacturing
resources throughout the world. Product offerings include leading fashion
in both career and special occasion dressing. The target customer is 25 to
55 years old.
Accessorize specializes in women's accessories in the "moderate" to
"better" price range. All product is private label and is sourced from
around the world using Accessorize's design, buying, and development teams.
Product offerings include bags, necklaces, bracelets, earrings, hair
accessories, hats, purses, scarves, sunglasses, and sarongs, among others.
The target customer is 16 to 45 years old.
The Company's real estate strategy for Fashion Bug, Catherine's Plus Sizes,
and The Answer/Added Dimensions stores is focused on locating stores in
strip shopping centers. As of the end of Fiscal 2001, approximately 85% of
the Company's stores were located in strip shopping centers. The Company
believes that its low to moderate customer base visits strip shopping
centers more frequently than malls for their shopping needs as a result of
the mix of the tenants in, and the convenience of, strip shopping centers.
In addition, the Company benefits from substantially lower occupancy costs
as compared to store occupancy costs in malls.
Growth Strategy
The Company's primary growth strategy is to increase its market share in
women's specialty plus-size apparel. In support of this strategy, the
Company plans to increase store units aggressively. The Company expects to
fund store growth plans from internally generated funds. During Fiscal
2001, the Company announced plans to eliminate the girls merchandise from
the Fashion Bug stores. Store space and inventory previously committed to
girls will primarily be redirected to the expansion of the plus-size
apparel offerings. Through branded websites, the Company also plans to
develop an online marketing medium for plus-size women, and to introduce e-
commerce for plus-size women's apparel.
Merchandising and Marketing
The Company employs a merchandise strategy that emphasizes a variety of
choices in its merchandise assortment. The Company uses domestic fashion
market guidance, fashion advisory services, and in-store testing to
determine the optimal product assortment for its customer base. Management
believes that this strategy results in a higher degree of accuracy in
predicting consumer preferences while reducing the Company's inventory
investment and risk. The purpose of this strategy is to enable the Company
to provide merchandise assortments to meet its customers' preferences.
The Company offers an assortment of both casual and career-oriented
products, in plus (large-size), misses, petite, and junior sizes.
Merchandise that complements these areas, such as accessories, intimate
apparel, and footwear, are also featured. In addition, Catherine's Plus
Sizes stores offers a broad assortment of merchandise in extended sizes
(over size 26), making the Company one of the few retailers to emphasize
these sizes. The Company has eliminated girls apparel from its Fashion Bug
stores as of the end of the 2000-2001 winter. Sales of girls apparel
represented approximately 3% of Fashion Bug sales. Store space and
inventory commitments previously allocated to girls apparel will be
redirected primarily to growth in plus-size apparel.
Product assortments are generally tailored to the demographics of an area,
and merchandise is available for six seasons -- spring, summer,
transitional, fall, holiday, and transitional. The Company maintains
quality standards with respect to merchandise fabrication, construction,
and fit. Realistic initial pricing is also part of the business strategy.
The pricing provides sufficient margin to permit merchandise discounts in
order to stimulate customer purchases.
In order to meet the demands of its primary customers, the Company uses the
domestic wholesale apparel marketplace for a significant portion of its
purchases. This allows management to maintain short lead times, respond
quickly to current fashion trends, and quickly replenish merchandise
inventory as necessary. The Company uses its overseas sourcing operation
and agency relationships to procure basic low-risk commodity merchandise,
which generally requires longer lead times.
The Company continues to redefine its merchandise assortments to reflect
the needs and demands of diverse customer groups. The Company has
distribution systems in place whereby stores that are identified as having
certain customer profiles can be merchandised with products specifically
targeted to such customers. In addition, the Company continues to work to
improve inventory turnover by better managing the flow of seasonal
merchandise to its stores across all geographic regions. Further, the
Company addresses the different lifestyle needs of its customers with
respect to fashion by varying the depth and assortments of career and
casual merchandise.
The Company employs a realistic pricing strategy that is aimed at setting
the initial price markup of fashion merchandise in order to increase the
percentage of sales at the ticketed price. Management believes this
strategy has resulted in a greater degree of credibility with the customer,
reducing the need for aggressive price promotions. The pricing does allow
sufficient margin to permit merchandise discounts in order to stimulate
customer purchases when necessary. The Company expects to continue to
achieve a higher initial markup in the basic low-risk commodity merchandise
that is purchased through its overseas sourcing operations.
The retail sale of women's apparel is a highly competitive business with
numerous competitors, including moderate-price department stores, discount
department stores, other low- to moderate-price, moderate-price, and
moderate-to-better-price specialty apparel stores, and mail-order
companies. The Company cannot reasonably estimate the number of
competitors due to the large number of companies selling women's apparel.
However, the Company believes that it currently holds an estimated 20%
market share of the women's large-size specialty apparel business. The
primary elements of competition are merchandise style, size, selection,
quality, display, and price, as well as store location, design,
advertising, and promotion and personalized service to the customers.
The Company's stores experience a normal seasonal sales pattern for the
retail apparel industry, with peak sales occurring during the Easter, Labor
Day, and Christmas seasons. The Company generally builds inventory levels
prior to these peak selling periods. To keep inventory current and
fashionable, the Company reduces the price of slow-moving merchandise
throughout the year. End-of-season sales are conducted with the objective
of carrying a minimal amount of seasonal merchandise over from one season
to another. Sales for the four quarters of Fiscal 2001, as a percent of
total sales, were 23.6%, 26.7%, 22.6% and 27.1%, respectively.
The Company continues to be promotionally oriented. The Company's
advertising expenditures are focused on stimulating customer traffic
through targeted direct mail advertising to preferred customers. These
customers are selected from a database of more than 18 million proprietary
credit card, third-party credit card, and cash customers. The Company also
may use radio, television, and newspaper advertising to stimulate traffic
at certain strategic times of the year. Pricing policies, displays, store
promotions, and convenient store hours are also used to attract customers.
With the planning and guidance of specialized home office personnel, each
store provides such displays and advertising as may be necessary to feature
certain merchandise or certain promotional selling prices from time to
time.
The Company encourages sales through its proprietary credit cards. The
Company's proprietary credit card programs have approximately 2.8 million
active accounts, which accounted for approximately 33% of retail sales in
Fiscal 2001. The Company believes that the credit card is a promotional
vehicle in itself, engendering customer loyalty, creating a substantial
base for targeted direct mail promotion, and encouraging incremental sales.
The Company controls and services its entire Fashion Bug proprietary credit
card file, and has entered into various agreements whereby it securitizes
and sells all of these receivables. In each securitization, the
receivables are transferred by the Company's credit card bank to a trust,
which issues certificates representing ownership interests in the trust.
Under these agreements, the Company continues to service the receivables
and control credit policies. This allows the Company to continue to fund
receivable growth, provide customer service, and collect past-due accounts.
Accordingly, its relationship with its credit card customers is not
affected by the securitization agreements.
The Company's Fashion Bug proprietary credit card portfolio is originated
by Spirit of America National Bank, a national banking association and
wholly owned subsidiary of the Company. Spirit of America National Bank
approves credit applications and a third party performs all billing and
collection activities. The Company's proprietary credit card customers
tend to be a higher credit risk than bank-issued credit card customers.
Catherine's Plus Sizes and The Answer/Added Dimensions also offer customers
the convenience of a private-label credit card. The Company uses a third-
party bank to finance and service these private-label credit card programs.
This third-party bank provides new account approval, credit authorization,
billing, and account collection services. Under a non-recourse agreement
with the third-party bank, the Company is reimbursed daily with respect to
sales generated by the private-label credit cards. The agreement may
require the Company to repurchase receivables from the third-party bank
under certain conditions relating to a change in control of the Company.
Purchasing
Purchasing is conducted on a departmental basis for each of the Fashion
Bug, Catherine's Plus Sizes, and The Answer/Added Dimensions merchandise
groups by staffs of buyers supervised by one or more merchandise managers.
The Company believes that specialization of buyers within their departments
enhances their expertise in obtaining quality merchandise at a cost that
will permit attractive selling prices, while obtaining the desired markup
for the Company.
The merchandising staffs obtain store and chain-wide inventory information
generated by merchandise information systems that use point-of-sale
terminals. Through these terminals, merchandise can be followed from the
placement of the order to the actual sale. Based upon this data, the
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.
During Fiscal 2001, the Company's stores purchased merchandise from
approximately 1,150 suppliers, none of which accounted for more than 4% of
the Company's purchases. The Company purchased approximately 70% of its
Fashion Bug merchandise and 80% of its Catherine's Stores merchandise in
the domestic market on an open account basis, with the remainder being
obtained through the Company's sourcing organization.
Sourcing
In order to meet the demands of its primary customers, the Company uses the
domestic wholesale apparel marketplace for a significant portion of its
purchases. This allows management to maintain short lead times, respond
quickly to current fashion trends, and quickly replenish merchandise
inventory as necessary. The Company uses its overseas sourcing operation
to procure basic low-risk commodity merchandise, which generally requires
longer lead times. In Fiscal 2001, the Company purchased approximately 70%
of its Fashion Bug merchandise and 80% of its Catherine's Stores
merchandise in the domestic market, with the remainder being developed by
the Company's sourcing organization. The Company anticipates a reduction
in the percentage of domestically sourced product for Catherine's Stores to
a level closer to the Company's Fashion Bug domestic sourcing percentage of
70%.
During Fiscal 2001, the Company conducted its sourcing operations in 24
countries through its offices in Hong Kong and Singapore. Merchandise
purchases outside the United States are done via letter of credit with
third party vendors, with the Company being the importer of record. To
date, the Company has not experienced difficulties in purchasing
merchandise overseas or importing such merchandise into the United States.
Should political instability result in a disruption of normal activities in
a country with which the Company does business, the Company believes it
would have adequate alternative sources of supply.
Distribution
The Company operates two distribution centers. For its Fashion Bug and The
Answer/Added Dimensions stores, the Company uses a distribution center in
Greencastle, Indiana. The 150-acre tract of land contains a building of
approximately 1,000,000 square feet. The Company estimates that, by
operating multiple shifts, it would have the ability to service over 2,000
stores from this distribution center. For Catherine's Plus Sizes stores,
the Company operates a 213,000 square foot distribution center in Memphis,
Tennessee, which is designed to handle up to approximately 800 stores.
The majority of merchandise purchased by the Company is received at the
Greencastle and Memphis facilities, where it is prepared for distribution
to the stores. The functions performed at these central facilities include
quality control inspection, receiving, ticketing, packing, and shipping.
The Company's automated sorting systems in these distribution centers
enhance the flow of merchandise from receipt to shipment. Merchandise is
shipped to each store by trucks operated principally by common carriers.
The Company uses computerized automated distribution models that enhance
the efficiency of the distribution operations. These models enable the
distribution operations to build various customer profiles into each
store's plan. These profiles determine not only the number of units, but
also the type of unit to be distributed to each store.
The Company's merchandise and purchasing strategy, and enhancements to the
Company's inventory management, facilitate the timely and orderly purchase
and flow of merchandise. This enables the Company's stores to offer fresh
product assortments on a regular basis.
Stores
The Company's stores feature wall and selling-floor displays that
coordinate merchandise in order to promote multiple sales. The stores,
which the Company believes must present a fresh, contemporary shopping
environment, are redecorated or remodeled as necessary. The Company is
constantly testing and implementing new store designs and fixture packages
aimed at providing an effective merchandise presentation.
The Company emphasizes customer service, including the presence of
salespeople in the stores, rather than self-service; lay-away plans; and
acceptance of merchandise returns for cash or credit within a reasonable
time period.
The Company's real estate strategy for Fashion Bug, Catherine's Plus Sizes,
and The Answer/Added Dimensions stores is focused on locating stores in
strip shopping centers. The Company's 1,754 stores (as of February 3,
2001) are primarily located in suburban areas and small towns.
Approximately 85% of these stores are located in strip shopping centers,
while the balance are located in community and regional malls. The Company
believes that its low to moderate customer base visits strip shopping
centers more frequently than malls for their shopping needs as a result of
the mix of the tenants in, and the convenience of, strip shopping centers.
In addition, the Company benefits from substantially lower occupancy costs
as compared to store occupancy costs in malls. Typically, stores are open
seven days per week, eleven hours per day Monday through Saturday, and
seven hours on Sunday.
The Company's Fashion Bug stores range in size, generally, from 5,000
square feet to 15,000 square feet, averaging approximately 8,900 square
feet. The Company's Catherine's Plus Sizes and The Answer/Added Dimensions
stores range in size, generally, from 2,000 square feet to 6,000 square
feet, averaging approximately 3,900 square feet. Total leased space was
13,067,000 square feet as of the end of Fiscal 2001, as compared to
12,911,000 square feet as of the end of the fiscal year ended January 29,
2000 ("Fiscal 2000").
The Company has developed new store designs for each of its store concepts.
During the fiscal year ended January 30, 1999, the Fashion Bug store design
was elevated to a brighter, well-defined, easier-to-shop format. By the
end of Fiscal Year 2001, 27% of the Company's 1,230 Fashion Bug stores were
in the new format. New, remodeled, and relocated stores will use the new
design. The Company has also developed new store designs for the
Catherine's Plus Sizes and The Answer/Added Dimensions concepts. The new
Catherine's Plus Sizes store design was introduced in August 2000, and the
updated The Answer/Added Dimensions format was introduced during February
2001. Going forward, new, remodeled, and relocated Added Dimensions stores
will operate under The Answer tradename.
The Company's real estate strategy for Monsoon and Accessorize stores is
focused on locating stores in better-rated mall locations, street fronts
and life-style strip centers.
The Company plans to open 110-120 new stores, remodel approximately 45-50
stores, and relocate approximately 75-80 stores during Fiscal 2002. The
Company continues to seek new locations that meet its financial and
operational objectives.
During Fiscal 2001, the Company opened 94, closed 49, and relocated 18
Fashion Bug stores. The Company opened 11, closed 7, and relocated 9
Catherine's Stores and converted 87 Modern Woman stores to the Catherine's
Plus Sizes and Added Dimension/The Answer formats. As a result of the
integration of Modern Woman stores into the Catherines Stores Corporation,
35 Modern Woman stores were closed during Fiscal 2001.
The Company's store openings and closings over the past five fiscal years
are set forth in the following table:
Year Ended
Feb. 3, Jan. 29, Jan. 30, Jan. 31, Feb. 1,
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Number of stores
Open at beginning
of period.............. 1,740 1,135 1,135 1,134 1,301
Opened during period..... 105 75 65 25 5
Acquired during period... 0 572 0 0 0
Closed or combined
during period.......... (91)(1) (42) (65) (24) (172)
----- ----- ----- ----- -----
1,754 1,740 1,135 1,135 1,134
===== ===== ===== ===== =====
Store Type
Fashion Bug and Fashion
Bug Plus............... 1,230 1,185 1,135 1,135 1,134
Catherine's Plus Sizes,
The Answer, and Added
Dimensions............. 524 555(2) 0 0 0
----- ----- ----- ----- -----
1,754 1,740 1,135 1,135 1,134
===== ===== ===== ===== =====
--------------------
[FN]
(1) Includes 35 Modern Woman stores that were closed as a result of the
consolidation of Modern Woman stores into the Catherine's Plus Sizes/The
Answer/Added Dimensions formats during the year ended February 3, 2001.
(2) Includes 122 Modern Woman stores that were closed or converted to the
Catherine's Plus Sizes/The Answer/Added Dimensions formats during the year
ended February 3, 2001.
Store Management and Employees
All stores are operated under the direct management of the Company. Each
store has a manager and an assistant manager, who are in daily operational
control. The Company has 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 approximately 11
stores. Regional managers, who report to a Director of Stores, supervise
the district managers. Generally, store managers are appointed from the
group of assistant managers, and district managers are appointed from the
group of store managers. The Company's policy is to motivate its store
personnel through promotion from within, with competitive wages and various
incentive, medical, and retirement plans. Store operational and purchasing
policies are developed centrally, leaving individual store management with
the principal duties of display, selling, and reporting through point-of-
sale terminals.
As of the end of Fiscal 2001, the Company employed approximately 19,750
people, which included approximately 13,800 part-time employees. In
addition, a number of temporary employees are hired during the Christmas
season. Approximately 36 of the Company's Memphis, Tennessee distribution
center employees are represented by the Upholstery and Allied Industries
Division of the United Steelworkers of America. The Company and the union
have ratified their contract, which expires in November 2001. There have
been no material effects on the Company's operations to date as a result of
the union representation.
Trademarks and Servicemarks
The Company owns, or is in the process of obtaining, all rights to the
trademarks and trade names it believes are necessary to conduct its
business as presently operated. "FASHION BUG"(R), "FASHION BUG PLUS"(R),
"L.A. BLUES"(R), "CATHERINE'S"(R), "CATHERINE'S PLUS SIZES"(R), "ADDED
DIMENSIONS"(R), "THE ANSWER"(TM), "CST STUDIO"(R), "CST SPORT," "MAGGIE
BARNES"(R), "KATHY WHITE"(R), "LIZ & ME"(R), "AD SPORT"(R), "GROVE
AVENUE"(R), "JON LAWRENCE"(R), "CAPISTRANO"(R), "FITTING IMAGE"(R), and
"MODERN WOMAN"(R) and several other trademarks and servicemarks of lesser
importance to the Company have been registered or are in the process of
being registered with the United States Patent and Trademark Office and in
other countries.
The Company is the owner of the following domain name registrations:
charming.com, charmingshoppes.com, fashionbug.com, fashionbugplus.com,
catherines.com, and others of lesser importance.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
The Company has made in this report, and from time to time may otherwise
make, forward-looking statements concerning the Company's operations,
performance, and financial condition. This report includes, in particular,
forward-looking statements regarding the Company's growth strategy, future
performance following its acquisitions, joint ventures, restructurings, and
expense reduction initiatives, and the expected benefits thereof. In
addition, the information contained herein includes certain forward-looking
statements regarding earnings, sales performance, store openings and
closings, cost savings, capital requirements, the Company's exposure to
fluctuations in interest rates, and other matters. Such forward-looking
statements are subject to various risks and uncertainties that could cause
actual results to differ materially from those currently anticipated due to
a number of factors, including those identified below.
Dependence on Key Management
The Company's success and its ability to successfully execute its business
strategy depends largely on the efforts and abilities of Dorrit J. Bern,
the Company's Chairman of the Board, President and Chief Executive Officer,
and her management team. The loss of the services of one or more of such
key personnel could have a material adverse effect on the Company's
business and financial results. The Company does not maintain key-man
insurance policies with respect to any of its employees.
Other Factors
Actual results could also differ materially from those currently
anticipated due to (i) rapid changes in or miscalculation of fashion
trends, (ii) extreme or unseasonable weather conditions, (iii) economic
downturns, a weakness in overall consumer demand, inflation, and cyclical
variations in the retail market for women's fashion apparel, (iv) a further
increase in the Federal (or State) Minimum Wage, (v) an acceleration in the
rate of business failures in the retail industry, (vi) the loss of certain
or all of the collateral pledged under the Company's credit facilities,
(vii) the availability and/or cost of receivables securitization
arrangements, (viii) an increase in the rate of bad debt expense among the
Company's proprietary credit card customers, (ix) the risks attendant to
the sourcing of the Company's merchandise needs abroad, including exchange
rate fluctuations, political instability, trade sanctions or restrictions,
changes in quota and duty regulations, delays in shipping, or increased
costs of transportation, (x) the interruption of merchandise flow to the
Company's retail stores from its centralized distribution facilities, (xi)
the availability and cost of external financing, (xii) competitive
pressures, (xiii) failure to realize merger-related synergies, (xiv) the
imposition of more onerous payment terms for merchandise purchases, (xv)
the ability to hire and train associates, (xvi) the availability of
suitable store locations on appropriate terms, and (xvii) failure to
achieve the expected benefits of the plus-size growth strategy. In
addition, the market price of the Company's Common Stock, which is quoted
on the Nasdaq National Market, may be subject to significant fluctuation in
response to quarter-to-quarter variations in the Company's revenues and
earnings, variations in monthly sales figures, and general stock market
volatility unrelated to the Company's operating performance.
Item 2. Properties
The Company leases all store premises, with the exception of 6 stores,
which the Company owns. Typically, store leases have initial terms of 5 to
20 years and contain provisions for renewal options, additional rental
charges based on sales performance, and payment of real estate taxes and
common area charges.
With respect to leased stores open as of February 3, 2001, the following
table shows the number of store leases expiring during the periods
indicated, assuming the exercise of the Company's renewal options:
Number
of Leases
Period Expiring
------ --------
2001 65
2002 - 2006 341
2007 - 2011 324
2012 - 2016 307
2017 - 2021 350
2022 - 2026 306
Thereafter 61
The Company owns a 1,000,000 square foot distribution center in
Greencastle, Indiana that services the Company's Fashion Bug, Fashion Bug
Plus, and The Answer/Added Dimensions stores and a 213,000 square foot
distribution center in Memphis, Tennessee that services the Company's
Catherine's Plus Sizes stores.
The Company leases 91,000 square feet of office space in Bensalem,
Pennsylvania, which houses the Company's corporate headquarters, and owns
approximately 22 acres in Bensalem with a 145,000 square foot office
building housing the Company's data processing facility and additional
administrative offices. In addition, the Company owns a 99,000 square foot
facility in Memphis, Tennessee, which houses the Catherine's Stores
corporate headquarters, data processing facility, and administrative
offices. Spirit of America National Bank, the Company's wholly owned
credit card bank subsidiary, occupies 30,000 square feet of leased office
space in Miami Township, Ohio. The Company also maintains a buying office
in New York City that occupies 13,000 square feet of leased space. The
Company owns or leases a total of 43,000 square feet of office and
warehouse space in Asia.
Item 3. Legal Proceedings
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company or any
of its subsidiaries is a party or of which any of their property is the
subject.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
Item 4a. Executive Officers of the Registrant
The following list contains certain information relative to Executive
Officers of the Company as of April 17, 2001. There are no family
relationships among any Executive Officers. The term of each Executive
Officer expires at the next annual meeting of the Board of Directors
following the Annual Meeting of Shareholders scheduled to be held during
June 2001, or until their successors are duly elected and qualified.
Dorrit J. Bern, 50, has served as Chairman of the Board of Directors since
January 1997. Prior to that, she served as Vice Chairman of the Board of
Directors from September 1995 to January 1997. She has also served as
President and Chief Executive Officer since September 1995. Ms. Bern's
term as a Director expires in 2002.
Anthony A. DeSabato, 52, has served as Executive Vice President and
Corporate Director of Human Resources for more than five years.
Eric M. Specter, 43, has served as Executive Vice President - Chief
Financial Officer since January 1997. He also served as Treasurer from
February 1998 to March 2000. Prior to that he served as Vice President -
Chief Financial Officer from December 1995 to January 1997.
Colin D. Stern, 52, has served as Executive Vice President and General
Counsel for more than five years. He has also served as Secretary since
February 1998.
Elizabeth Williams, 47, was appointed President of Fashion Bug in December
1999. Prior to that, she served as Executive Vice President -
Merchandising from October 1995 to December 1999. Prior to that, she
served as Divisional Vice President - Misses Sportswear and Special Sizes
for Sears, Roebuck & Co. from February 1994 to October 1995.
Erna Zint, 57, has served as Executive Vice President - Sourcing since
January 1996.
Carmen Monaco, 54, has served as Vice President - Marketing since May 1997.
Prior to that he served as Senior Vice President - Marketing/Advertising
for Goody's Family Clothing Inc. from August 1992 to May 1997.
John J. Sullivan, 54, has served as Vice President - Corporate Controller
since October 1998. Prior to that, he served as Senior Vice President and
Chief Financial Officer for National Media Corp. from January 1998 to
October 1998 and from September 1991 to April 1995, and as Senior Vice
President of Administration from April 1995 to January 1998.
Jeffery A. Warzel, 44, has served as Senior Vice President - Infrastructure
Operations and Strategic Planning since January 2000. Prior to that, he
served as Vice President - Operations Support and Business Development for
Western Auto, a subsidiary of Sears Roebuck & Co. from August 1996 to
December 1999. Prior to that, he served as Vice President - Process
Improvement for Melville Corporation from 1992 to 1996.
Jonathon Graub, 42, has served as Senior Vice President - Real Estate,
since December 1999. Prior to that, he served as Vice President - Real
Estate for more than five years.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
(a) Principal Market: The Company's Common Stock is traded on the over-
the-counter market and quoted on the Nasdaq National Market under the
symbol CHRS.
(b) The following table sets forth the high and low sale prices for the
Company's Common Stock during the indicated periods, as reported by Nasdaq.
Fiscal 2001 Fiscal 2000
High Low High Low
---- --- ---- ---
1st Quarter.... $8 $4 15/16 $4 5/8 $2 13/16
2nd Quarter.... 7 1/32 4 5/8 7 1/16 3 9/16
3rd Quarter.... 6 3/16 4 7/8 6 13/16 4 9/16
4th Quarter.... 7 1/8 5 3/8 8 1/4 5
On October 2, 1995, the Company's Board of Directors announced an
indefinite suspension of dividends on the Company's Common Stock. On
November 30, 1995, the Company entered into borrowing agreements that
require, among other things, that the Company not pay dividends on its
Common Stock (see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial
Statements; Debt" below).
(c) Approximate Number of Holders of Common Stock:
The approximate number of holders of record of the Company's Common
Stock as of April 16, 2001 was 2,240. This number excludes individual
stockholders holding stock under nominee security position listings.
(d) Recent Sales of Unregistered Securities
Not applicable.
Item 6. Selected Financial Data
The following table presents selected financial data for the Company for
each of the five fiscal years ended as of February 1, 1997 through February
3, 2001. All of the selected financial data are extracted from the
Company's audited financial statements and should be read in conjunction
with the financial statements and the notes thereto included under "Item 8.
Financial Statements and Supplementary Data" of this Form 10-K.
CHARMING SHOPPES, INC. AND SUBSIDIARIES
FIVE-YEAR COMPARATIVE SUMMARY
Year Ended
(in thousands, except Feb. 3, Jan. 29, Jan. 30, Jan. 31, Feb. 1,
per share amounts) 2001(1)(2) 2000(1) 1999 1998 1997
---------- ------- ---- ---- ----
Net sales.............. $1,607,079 $1,196,529 $1,035,160 $1,016,537 $1,016,297
Restructuring charge
(credit)............ 0 (3,471)(3) 54,246(4) 0 0
Non-recurring gain from
demutualization of
insurance company.... 0 6,700(5) 0 0 0
Non-recurring gain from
asset securitization. 0 0 0 13,018(6) 0
Extraordinary gain on
early retirement
of debt, net of tax.. 0 1,232 0 0 0
Cumulative effect of
accounting change,
net of tax........... (540)(7) 0 0 0 0
Net income (loss)...... 51,098 45,059 (20,135) 19,334 (7,237)
Basic net income (loss)
per share............ .50 .46 (.20) .18 (.07)
Net income (loss)
per share, assuming
dilution............. .48 .43 (.20) .18 (.07)
Dividends(8)........... .00 .00 .00 .00 .00
At year end:
Total assets........... $852,767 $784,796 $684,649 $709,738 $710,397
Current portion -
long-term debt....... 4,954 1,920 16 16 16
Long-term debt......... 113,540 105,213 119,475 138,116 138,128
Working capital........ 208,389 161,376 192,274 163,208 224,144
Stockholders' equity... 493,269 436,263 383,572 416,810 421,035
--------------------
[FN]
(1) Results for the fiscal years ended February 3, 2001 ("Fiscal 2001") and
January 29, 2000 ("Fiscal 2000") include the results of Catherines Stores
Corporation, acquired January 7, 2000, and Modern Woman Holdings, Inc.,
acquired August 2, 1999, from the dates of their respective acquisitions
(See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Item 8. Financial Statements and
Supplementary Data; Notes to Consolidated Financial Statements;
Acquisitions" below.)
(2) The fiscal year ended February 3, 2001 consisted of 53 weeks.
(3) During Fiscal 2000, the Company revised its estimates of costs
recognized during the fiscal year ended January 30, 1999 ("Fiscal 1999")
relating to the closing of the Company's Bensalem distribution center and
elimination of the Company's men's business (see note (4) below). As a
result, the Company recognized pre-tax restructuring credits of $2,834,000
relating to the closing of the distribution center and $2,096,000 relating
to the elimination of the men's business. In addition, the Company
recognized a pre-tax restructuring charge of $1,459,000 in Fiscal 2000 in
conjunction with the consolidation of the Modern Woman chain of stores into
the Catherine's Stores chain. (See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations; Results of
Operations; Restructuring Charge (Credit)" and "Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial
Statements; Restructuring Charge (Credit)" below.)
(4) During Fiscal 1999, the Company's Board of Directors approved a
restructuring plan in conjunction with the elimination of the Company's
men's business, which resulted in a pre-tax charge of $34,000,000. In
addition, the Company's Board of Directors approved a restructuring plan in
conjunction with the decision to consolidate the Company's distribution
center operations, which resulted in a pre-tax charge of $20,246,000. (See
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations; Results of Operations; Restructuring Charge
(Credit)" and "Item 8. Financial Statements and Supplementary Data; Notes
to Consolidated Financial Statements; Restructuring Charge (Credit)"
below.)
(5) During Fiscal 2000, the Company received a stock distribution from one
of its mutual insurance carriers in connection with the carrier's
conversion to a publicly held corporation (demutualization). The Company
recorded the distribution at its fair value and recognized the resulting
non-recurring gain in income from continuing operations (see "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations; Results of Operations; Non-recurring Gain from Demutualization
of Insurance Company" and "Item 8. Financial Statements and Supplementary
Data; Notes to Consolidated Financial Statements; Non-recurring Gain from
Demutualization of Insurance Company" below).
(6) During the fiscal year ended January 31, 1998, the Company adopted SFAS
No. 125, which included the valuing of an "I/O Strip" consisting of excess
finance charges and past-due fees over the sum of the return paid to
certificate holders and credit losses. As a result, the Company eliminated
its loss reserve related to its retained interest and related recourse
provisions of its credit card certificates, and recognized a non-recurring
gain of $13,018,000. (See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations; Results of Operations;
Non-recurring Gain from Asset Securitization" and "Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial
Statements; Asset Securitization" below).
(7) The Company changed its method of accounting for sales returns and
layaway sales in accordance with the provisions of Securities and Exchange
Commission Staff Accounting Bulletin No. 101 ("SAB 101") effective as of
January 30, 2000. The cumulative effect of the change as of January 30,
2000 was a reduction in income of $540,000, net of a tax benefit of
$334,000.
(8) On October 2, 1995, the Company's Board of Directors announced an
indefinite suspension of dividends on the Company's Common Stock. In
addition, the Company's revolving credit facility requires that the Company
not pay dividends on its Common Stock. (See "Item 5. Market for the
Registrant's Common Equity and Related Stockholders' Matters" above).
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 should be read in conjunction with the financial
statements and the notes thereto included under "Item 8. Financial
Statements and Supplementary Data" of this Form 10-K.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain forward-looking statements
concerning the Company's operations, performance, and financial condition.
In particular, it includes forward-looking statements regarding the
Company's growth strategy, future performance following its acquisitions,
joint ventures, restructurings, and expense reduction initiatives, and the
expected benefits thereof. In addition, the information contained herein
includes certain forward-looking statements regarding earnings, sales
performance, store openings and closings, cost savings, capital
requirements, the Company's exposure to fluctuations in interest rates, and
other matters. Such forward-looking statements are subject to various
risks and uncertainties that could cause actual results to differ
materially from those indicated in the forward-looking statements. Such
risks and uncertainties may include, but are not limited to, (i) rapid
changes in, or miscalculation of, fashion trends, (ii) extreme or
unseasonable weather conditions, (iii) economic downturns, a weakness in
overall consumer demand, inflation, and cyclical variations in the retail
market for women's fashion apparel, (iv) the risks attendant to the
sourcing of the Company's merchandise needs abroad, including exchange rate
fluctuations, political instability, trade sanctions or restrictions,
changes in quota and duty regulations, delays in shipping, or increased
costs of transportation, (v) the interruption of merchandise flow to the
Company's retail stores from its centralized distribution facilities, (vi)
competitive pressures, and (vii) failure to realize merger-related
synergies. These, and other risks and uncertainties are detailed further
in this Item 7, in "Part I, Item 1 - Business: Cautionary Statement for
Purposes of the "Safe Harbor" Provisions of the Private Securities
Litigation Reform Act of 1995," and in the Company's reports filed with the
Securities and Exchange Commission from time to time.
RESULTS OF OPERATIONS
In January 2000, the Company acquired Catherines Stores Corporation
("Catherine's Stores"). Catherine's Stores operated 436 retail apparel
stores in 40 states and the District of Columbia, specializing in large-
size women's apparel. In August 1999, the Company acquired Modern Woman
Holdings, Inc. ("Modern Woman"). Modern Woman operated 136 retail apparel
stores in 24 states, specializing in large-size women's apparel. The
Company has converted the Modern Woman stores into Catherine's Stores. The
acquisitions have been accounted for under the purchase method of
accounting, and the results of operations of the acquired companies are
included in the Company's results of operations from their dates of
acquisition. Prior-period results have not been restated.
Assets acquired and liabilities assumed have been recorded at their
estimated fair values. In connection with the Catherine's Stores
acquisition, the purchase price exceeded the fair value of identifiable net
assets acquired. The excess purchase price, approximately $97.7 million,
has been accounted for as goodwill, and is being amortized over a 20-year
period. The results of operations for the fiscal year ended February 3,
2001 ("Fiscal 2001") include $4.9 million of goodwill amortization.
Financial Summary
The following table sets forth certain financial data expressed as a
percentage of net sales and on a comparative basis:
Percentage Increase
(Decrease)
Percentage of Net Sales From Prior Year
Fiscal Fiscal Fiscal Fiscal Fiscal
2001 2000 1999 2001-2000 2000-1999
---- ---- ---- --------- ---------
Net sales.............. 100.0% 100.0% 100.0% 34.3% 15.6%
Other income........... 0.6 0.8 1.5 12.2 (43.8)
Cost of goods sold,
buying, and occupancy 70.6 71.4 74.5 32.7 10.9
Selling, general, and
administrative....... 23.9 23.6 23.8 35.8 14.7
Non-recurring gain from
demutualization of
insurance company.... -- 0.6 -- ** **
Restructuring charge
(credit)............. -- (0.3) 5.2 ** (106.4)
Amortization of
goodwill............. 0.3 -- -- ** --
Interest expense....... 0.5 0.6 1.0 21.7 (27.3)
Income tax provision
(benefit)............ 2.1 2.2 (1.0) 22.9 **
Income (loss) before
extraordinary item
and cumulative effect
of accounting change. 3.2 3.7 (1.9) 17.8 **
Gain on early
retirement of debt,
net of taxes......... -- 0.1 -- ** **
Net income (loss)...... 3.2 3.8 (1.9) 13.4 **
--------------------
[FN]
** Not meaningful
Net Sales
The following table sets forth certain information related to the Company's
net sales:
Year Ended Year Ended
February 3, 2001 January 29, 2000
---------------- ----------------
Fiscal Fourth Fiscal Fourth
Year Quarter Year Quarter
---- ------- ---- -------
Increase (decrease) in comparable
Fashion Bug store sales (1)(2)..... 0.5% (0.9%) 8.7% 11.1%
Sales from new Fashion Bug stores as
a percentage of total prior-period
sales (2).......................... 7.6 7.1 5.2 7.3
Increase in sales from Catherine's
and Modern Woman stores as a
percentage of total prior-period
sales (2)(3)....................... 27.6 14.2 5.6 13.8
Prior-period sales from closed
Fashion Bug stores as a percentage
of total prior-period sales (2).... (3.2) (3.1) (3.6) (3.7)
Increase in sales from additional
week in Fiscal 2001................ 2.0 7.5 -- --
Increase in total sales.............. 34.3% 24.8% 15.6% 28.0%
--------------------
[FN]
(1) Sales from stores in operation during both periods. Stores are added
to the comparable store base after 13 full months of operation.
(2) Based on comparable 52-week fiscal years and 13-week fiscal quarters.
(3) Sales from Catherine's Stores acquired in January 2000 and Modern Woman
stores acquired in August 1999.
Net sales for the fiscal year ended February 3, 2001 ("Fiscal 2001")
totaled $1,607.1 million as compared to net sales of $1,196.5 million for
the fiscal year ended January 29, 2000 ("Fiscal 2000") and net sales of
$1,035.2 million for the fiscal year ended January 30, 1999 ("Fiscal
1999"). Net sales for Fiscal 2001 include $394.0 million of sales from
Catherine's Stores, including Modern Woman stores, which have been
converted into Catherine's Stores. Net sales for Fiscal 2000 include $58.2
million of sales from Catherine's and Modern Woman stores. Net sales for
the fourth quarter of Fiscal 2001 totaled $434.7 million as compared to net
sales of $348.4 million for the fourth quarter of Fiscal 2000 and net sales
of $272.2 million for the fourth quarter of Fiscal 1999. Net sales for the
fourth quarter of Fiscal 2001 include $93.9 million of sales from
Catherine's and Modern Woman stores. Net sales for the fourth quarter of
Fiscal 2000 include $37.6 million of sales from Catherine's and Modern
Woman stores.
The Company adopted the provisions of Securities and Exchange Commission
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements," effective as of the beginning of Fiscal 2001. As a
result of the adoption of SAB 101, the Company established a reserve for
estimated future sales returns based on an analysis of actual returns
received subsequent to the end of each fiscal period, and deferred
recognition of layaway sales to the date of delivery. The effect of the
adoption of SAB 101 on net sales for Fiscal 2001 was immaterial. Due to
the seasonal nature of the Company's business, the pro forma effect of
adoption of SAB 101 on net sales for the fourth quarter of Fiscal 2000
would have been an increase of $2.0 million. The pro forma effect of the
adoption of SAB 101 on net sales for Fiscal 2000 would have been
immaterial.
During Fiscal 2001, increases in Fashion Bug comparable store sales of
junior and plus-size sportswear, coats, intimate apparel, and footwear were
offset by decreases in sales of dresses, accessories, and girls. In
January 2001, the Company announced plans to support growth in large-size
apparel and eliminate girls apparel from Fashion Bug stores, effective at
the end of the 2000-2001 winter season. Sales of Fashion Bug girls apparel
were approximately $38.0 million during Fiscal 2001. Store space and
inventory previously committed to girls will primarily be redirected to the
expansion of the large-size apparel offerings. During Fiscal 2000,
increases in comparable Fashion Bug store sales were achieved in
sportswear, coats, intimate apparel, accessories, and girls, as customers
responded favorably to the Company's merchandise offerings throughout the
year. The number of retail stores in operation was 1,754 at the end of
Fiscal 2001 and 1,740 at the end of Fiscal 2000 (including Catherine's and
Modern Woman stores), and 1,135 at the end of Fiscal 1999.
Other Income
Other income increased 12.2% in Fiscal 2001 as compared to Fiscal 2000,
primarily as a result of a decrease in net realized losses on sales of
available-for-sale securities in Fiscal 2001 as compared to Fiscal 2000.
During the second half of Fiscal 2000, the Company incurred realized losses
from sales of available-for-sale securities to finance the Catherine's
Stores and Modern Woman acquisitions. Interest income decreased as a
result of reduced levels of available-for-sale securities during Fiscal
2001 as compared to Fiscal 2000. Other income expressed as a percentage of
sales decreased 0.7% in Fiscal 2000 as compared to Fiscal 1999, primarily
as a result of a decrease in interest income from the Company's available-
for-sale securities and realized losses from sales of available-for-sale
securities. The decrease in interest income and the realized losses on
sales of available-for-sale securities during Fiscal 2000 were a result of
the sales of securities during the second half of Fiscal 2000 to finance
the Catherine's Stores and Modern Woman acquisitions. In addition to the
sales of available-for-sale securities for the acquisitions of Modern Woman
and Catherine's Stores, the Company sold available-for-sale securities to
finance the repurchase of portions of the Company's convertible notes and
Common Stock during Fiscal 1999 and the first half of Fiscal 2000. The
decrease in other income resulting from these sales was partially offset by
the decrease in interest expense that resulted from the repurchases of the
convertible notes.
Cost of Goods Sold, Buying, and Occupancy
Cost of goods sold, buying, and occupancy expenses, expressed as a
percentage of sales, decreased 0.8% in Fiscal 2001 as compared to Fiscal
2000. Cost of goods sold as a percentage of sales decreased 1.2% in Fiscal
2001 as compared to Fiscal 2000. The improvement in merchandise margins
was primarily a result of the effect of relatively higher gross margins for
the Company's Catherine's Stores. Cost of goods sold for the Company's
Fashion Bug stores decreased 0.2% as a percentage of sales in Fiscal 2001
as compared to Fiscal 2000. Cost of goods sold includes merchandise costs,
net of discounts and allowances, freight, and inventory shrinkage. Net
merchandise costs and freight are capitalized as inventory costs. Buying
and occupancy expenses, expressed as a percentage of sales, increased 0.4%
in Fiscal 2001 as compared to Fiscal 2000. The increase in buying and
occupancy expenses was primarily a result of increased utilities expenses
and relatively higher occupancy expenses for new and relocated stores as
compared to the Company's existing stores. Buying expenses include
payroll, payroll related costs, and operating expenses for the Company's
buying departments and warehouses. Occupancy expenses include rent, real
estate taxes, insurance, common area maintenance, utilities, maintenance,
and depreciation for the Company's stores and warehouse facilities and
equipment. Buying and occupancy costs are treated as period costs and are
not capitalized as part of inventory.
Cost of goods sold, buying, and occupancy expenses, expressed as a
percentage of sales, decreased 0.5% in the fourth quarter of Fiscal 2001 as
compared to the corresponding period of Fiscal 2000. Cost of goods sold,
as a percentage of sales, decreased 1.5% in the fourth quarter of Fiscal
2001 as compared to the fourth quarter of Fiscal 2000. The improvement in
merchandise margins was primarily a result of the effect of relatively
higher gross margins for the Company's Catherine's Stores, and, to a lesser
extent, an improvement in gross margins at the Company's Fashion Bug
stores. Cost of goods sold for the Fashion Bug stores, as a percentage of
sales, decreased 0.3% in the fourth quarter of Fiscal 2001 as compared to
the fourth quarter of Fiscal 2000. Buying and occupancy expenses,
expressed as a percentage of sales, increased 1.0% in the fourth quarter of
Fiscal 2001 as compared to the fourth quarter of Fiscal 2000. The increase
in buying and occupancy expenses was primarily a result of increased
utilities expenses and relatively higher occupancy expenses for new and
relocated stores as compared to the Company's existing stores.
Cost of goods sold, buying, and occupancy expenses, expressed as a
percentage of sales, decreased 3.1% in Fiscal 2000 as compared to Fiscal
1999. Cost of goods sold as a percentage of sales decreased 1.7% in Fiscal
2000 as compared to Fiscal 1999. The improvement in merchandise margins
was primarily a result of reduced levels of markdowns and reductions in
store-wide promotions in Fiscal 2000. Merchandise margins also benefited
from a reduction in inventory shrinkage costs. Buying and occupancy
expenses as a percentage of sales decreased 1.4% in Fiscal 2000 as compared
to the prior year, primarily as a result of cost savings from consolidation
of the Company's distribution centers and the leveraging effect of
increased sales volume on relatively fixed store occupancy and buying
expenses. Cost of goods sold, buying, and occupancy expenses for Fiscal
2000 include the results of Catherine's Stores and Modern Woman from the
dates of their acquisitions.
Cost of goods sold, buying, and occupancy expenses, expressed as a
percentage of sales, decreased 2.6% in the fourth quarter of Fiscal 2000 as
compared to the corresponding period of Fiscal 1999. Cost of goods sold as
a percentage of sales decreased 1.5% in the fourth quarter of Fiscal 2000
as compared to the fourth quarter of Fiscal 1999. This decrease was
primarily attributable to improvements in gross margins as a result of
reduced levels of markdowns as compared to the prior year and a reduction
in inventory shrinkage costs. Buying and occupancy expenses, expressed as
a percentage of sales, decreased 1.1% in the fourth quarter of Fiscal 2000
as compared to the fourth quarter of Fiscal 1999. The decrease was a
result of the leveraging effect of increased sales volume on relatively
fixed store occupancy and buying expenses. Cost of goods sold, buying, and
occupancy expenses for the fourth quarter of Fiscal 2000 include the
results of Catherine's Stores and Modern Woman from the dates of their
respective acquisitions.
Selling, General, and Administrative
Selling, general, and administrative expenses expressed as a percentage of
sales increased 0.3% in Fiscal 2001 as compared to Fiscal 2000. The
increase reflects relatively higher expenses for Catherine's Stores as a
percentage of sales. Selling, general, and administrative expenses for the
Fashion Bug stores were relatively unchanged as a percentage of sales.
Selling expenses were constant as a percentage of sales. Increases in
payroll costs were offset by lower marketing expenses as a percentage of
sales and a reduction in the cost of the Company's proprietary credit card
program. General and administrative expenses increased 0.3% as a
percentage of sales in Fiscal 2001, primarily as a result of the lack of
sales leverage and relatively higher expenses for Catherine's Stores, which
have been partially offset by improvements arising from the integration and
consolidation of Catherine's Stores. Selling, general, and administrative
expenses for the fourth quarter of Fiscal 2001 increased 0.8% as a
percentage of sales as compared to the fourth quarter of Fiscal 2000.
Improvements in selling expense as a result of lower marketing expenses in
relation to sales and a reduction in the cost of the Company's proprietary
credit card program were offset by an increase in general and
administrative expenses, primarily as a result of relatively higher
expenses for Catherine's Stores as a percentage of sales.
Selling, general, and administrative expenses expressed as a percentage of
sales decreased 0.2% in Fiscal 2000 as compared to Fiscal 1999. This
decrease was primarily attributable to the leveraging effect of the
increase in sales volume on relatively fixed general and administrative
expenses. Selling expenses were constant as a percentage of sales.
Increases in payroll costs, store incentive programs, and certain volume-
related expenses, and inclusion of expenses incurred by Modern Woman, were
offset by the leveraging effect of increased sales volume. Selling,
general, and administrative expenses for the fourth quarter of Fiscal 2000
increased 0.2% as a percentage of sales as compared to the fourth quarter
of Fiscal 1999, primarily as a result of the inclusion of expenses incurred
by Modern Woman and Catherine's Stores.
Restructuring Charge (Credit)
STORE RESTRUCTURING AND ELIMINATION OF MEN'S MERCHANDISE FROM THE COMPANY'S
FASHION BUG STORES
On March 5, 1998, the Company's Board of Directors approved a restructuring
plan that resulted in a pre-tax charge of $34,000,000. The plan was
approved in conjunction with the decision to eliminate men's merchandise
from the Company's Fashion Bug stores. To date, 72 stores have been closed
in connection with the plan and 100 stores have been downsized.
Elimination of the men's merchandise from the stores was completed in
October 1998, the balance of the men's inventory has been sold, and the
selling space used for men's merchandise has been re-merchandised. In
Fiscal 2000, the Company determined that 21 of the stores originally
included in the plan would remain open as a result of negotiations with
landlords and changes in economic conditions. As a result, the Company
reversed reserves related to these stores and recognized a pre-tax
restructuring credit of $2,096,000. As of February 3, 2001, this
restructuring plan has been completed, and there are no remaining
restructure accruals relating to this plan.
The restructuring charge included a $10,000,000 write-off of the carrying
value of fixtures and improvements in the stores to be reduced in size or
closed. The fixtures and improvements had no alternative use or salvage
value, and were expected to be scrapped at the time of the closing or
downsizing of the stores. The restructuring charge also included accruals
for anticipated payments to landlords for the early termination of existing
store leases of $19,700,000, severance payments of $320,000, costs to
remove store signs and entrances of $3,300,000, costs of supplies to be
scrapped of $400,000, and legal and architectural fees of $280,000. The
accrual for severance payments was for 650 store employees expected to be
terminated as a result of the store closings. The number of employees
actually terminated was reduced to 590 as a result of the 21 stores that
remained open, as discussed above, and the excess severance accrual was
reversed as part of the restructuring credit of $2,096,000 recognized in
Fiscal 2000. During Fiscal 2001, the Company closed 1 store and completed
the downsizing of 28 stores in connection with the plan.
DISTRIBUTION CENTER RESTRUCTURING
On December 10, 1998, the Company's Board of Directors approved a plan to
close the Company's Bensalem, Pennsylvania distribution center and sell the
facility. The plan was approved in conjunction with the decision to
consolidate the Company's distribution center operations in the Company's
Greencastle, Indiana distribution center. The plan resulted in a pre-tax
restructuring charge of $20,246,000 during Fiscal 1999.
The restructuring charge included a $17,969,000 write-down of the cost of
the Bensalem facilities from a carrying value of $23,631,000 to a net
realizable value of $5,662,000, based on an independent appraisal. The
restructuring charge also included an accrual of $1,556,000 for severance
costs resulting from the termination of 90 warehouse and distribution
personnel and 11 management employees. In addition, the restructuring
charge included an accrual of $721,000 for incremental warehouse handling
costs, outplacement services for terminated employees, legal fees related
to the sale of the facility, and other non-recurring costs relating to the
closure.
The Bensalem distribution center closed on December 10, 1998, and the
Company completed the sale of the Bensalem facility during Fiscal 2000.
Upon completion of the sale of the facility, the Company recognized a pre-
tax restructuring credit of $2,834,000 in Fiscal 2000, which primarily
represented sales proceeds in excess of the estimated net realizable value
of the Bensalem facility. As of February 3, 2001, this restructuring plan
has been completed, and there are no remaining restructure accruals
relating to this plan.
CLOSING OF MODERN WOMAN STORES
During the fourth quarter of Fiscal 2000, the Company recorded a
restructuring charge of $1,459,000 in connection with the Company's
acquisitions of Modern Woman and Catherine's Stores. At the time of the
Catherine's Stores acquisition, the Company planned to consolidate Modern
Woman stores into the Catherine's Stores division. The restructuring
charge was primarily for lease termination costs related to the closing of
11 Modern Woman stores that geographically overlapped Catherine's Stores.
During Fiscal 2001, the Company closed 10 of the 11 stores, and lease
termination costs of $1,086,000 related to the closed stores were paid. As
of February 3, 2001, $373,000 of accrued restructuring charges related to
the remaining store were unpaid.
Non-recurring Gain From Demutualization of Insurance Company
During Fiscal 2000, the Company received a stock distribution from one of
its mutual insurance carriers in connection with the carrier's conversion
to a publicly-held corporation (demutualization). In accordance with the
consensus reached in Emerging Issues Task Force Issue No. 99-4, "Accounting
for Stock Received from the Demutualization of A Mutual Insurance Company,"
the Company recorded the distribution at its fair value and recognized the
resulting non-recurring gain in income from continuing operations, and
subsequently sold the securities received.
Interest Expense
Interest expense increased in Fiscal 2001 as compared to Fiscal 2000 as a
result of an increase in long-term lease financing. During Fiscal 2001,
the Company acquired $14.9 million of point-of-sale equipment for its
stores under long-term capital leases. Interest expense decreased in
Fiscal 2000 as compared to Fiscal 1999 as a result of the Company's
repurchases during Fiscal 2000 of $23.3 million aggregate principal amount
of its 7.5% Convertible Subordinated Notes due 2006.
Income Tax Provision (Benefit)
The income tax provision for Fiscal 2001 was $33.0 million, resulting in a
39% effective tax rate, as compared to an income tax provision for Fiscal
2000 of $26.9 million, resulting in a 38% effective tax rate. Included in
the Fiscal 2001 and Fiscal 2000 tax provisions are $3.5 million and $2.0
million, respectively, related to one of the Company's employee insurance
programs. The increase in the effective tax rate from Fiscal 2000 to
Fiscal 2001 is primarily a result of the non-deductibility for tax purposes
of goodwill related to the Catherine's Stores acquisition. The income tax
benefit for Fiscal 1999 was $10.9 million, resulting in a (35%) effective
tax rate. The change in the effective tax rate from Fiscal 1999 to Fiscal
2000 is primarily attributable to the $2.0 million provision in Fiscal 2000
related to one of the Company's employee insurance programs.
Gain on Early Retirement of Debt
During Fiscal 2000, the Company repurchased $23.3 million aggregate
principal amount of its 7.5% Convertible Subordinated Notes due 2006 at a
total cost of $21.0 million. The notes had an aggregate carrying value of
$22.9 million as of the repurchase dates. The repurchases resulted in an
extraordinary gain of $1.2 million, net of income taxes of $0.7 million.
Performance Analysis
The following ratios measure the Company's overall performance as shown by
the return on average stockholders' equity and return on average total
assets.
Fiscal Fiscal Fiscal
2001 2000 1999
---- ---- ----
Including restructuring charge (credit) and
non-recurring items:
Net return on average stockholders' equity.. 11.0% 11.0% (5.0)%
Net return on average total assets.......... 6.2 6.1 (2.9)
Excluding restructuring charge (credit) and
non-recurring items:
Net return on average stockholders' equity.. 10.6 8.6 3.7
Net return on average total assets.......... 6.2 5.3 2.2
FINANCIAL CONDITION
Liquidity and Capital Resources
The Company's primary sources of working capital are cash flow from
operations, its proprietary credit card receivables securitization
agreements, its investment portfolio, and its credit facilities described
below. The following table highlights certain information related to the
Company's liquidity and capital resources:
Fiscal Fiscal Fiscal
(dollars in thousands) 2001 2000 1999
---- ---- ----
Working capital................ $208,389 $161,376 $192,274
Cash and cash equivalents...... 56,544 34,299 43,789
Available-for-sale securities.. 125,278 115,829 246,625
Cash provided by
operating activities......... 93,269 57,894 63,371
Current ratio.................. 1.9 1.7 2.1
Long-term debt to equity ratio. 23.0% 24.1% 31.2%
The Company's cash flow from operations increased $35.4 million in Fiscal
2001 as compared to Fiscal 2000. Earnings before interest, taxes,
depreciation, and amortization ("EBITDA") and excluding non-recurring gains
increased by $39.7 million from Fiscal 2000 to Fiscal 2001. This increase
was primarily attributable to the acquisitions of Catherine's Stores and
Modern Woman in Fiscal 2000. EBITDA excluding non-recurring gains for
Fashion Bug stores increased by $1.7 million from Fiscal 2000 to Fiscal
2001. A reduced level of growth in inventories from Fiscal 2000 to Fiscal
2001 was substantially offset by increased payments of prepaid and accrued
expenses.
The Company's cash flow from operations decreased $5.5 million in Fiscal
2000 as compared to Fiscal 1999. The decrease resulted primarily from
payments related to restructurings (see "Results of Operations;
Restructuring Charge (Credit)" above) and an increase in inventories, net
of accounts payable, partially offset by an increase in net income.
On August 2, 1999, the Company completed the acquisition of 100% of the
outstanding stock of Modern Woman Holdings, Inc. ("Modern Woman") for $8.7
million, net of cash acquired of $1.1 million. On January 7, 2000, the
Company completed the acquisition of 100% of the outstanding stock of
Catherines Stores Corporation ("Catherine's Stores") for $21 per share.
The total cost of the acquisition was approximately $136.6 million, net of
cash acquired of $18.3 million. The Company also assumed $11.2 million of
short-term and long-term debt and capital lease obligations. These
acquisitions were accounted for under the purchase method of accounting and
were funded from the Company's existing cash and available-for-sale
securities. Assets and liabilities of the acquired companies are included
in the Company's consolidated balance sheets at February 3, 2001 and
January 29, 2000.
In July 1996, the Company completed a public offering of $138 million
aggregate principal amount of 7.5% Convertible Subordinated Notes due 2006
(the "Notes"). The Notes are convertible into shares of the Company's
Common Stock at a conversion price of $7.46 per share. The Notes are
redeemable, at the Company's option, at 103.125% of principal through July
14, 2001 and at declining prices thereafter, decreasing to 100% on or after
July 15, 2005. Holders of the Notes may require the Company to repurchase
some or all of the Notes under certain circumstances involving a change in
control of the Company. There is no sinking fund for the Notes. During
Fiscal 1999, the Company repurchased $18.6 million aggregate principal
amount of the Notes, which had a net carrying value of $18.3 million as of
the date of purchase, at a total cost of $17.8 million. During Fiscal
2000, the Company repurchased an additional $23.3 million aggregate
principal amount of the Notes, which had a net carrying value of $22.9
million as of the date of purchase, at a total cost of $21.0 million. The
Company will continue to evaluate market conditions to determine if
additional Notes will be repurchased during Fiscal 2002.
As part of the acquisition of Catherine's Stores, the Company assumed a
7.5% Mortgage Note (the "Mortgage Note") and certain capital lease
obligations. The mortgage financing agreement provides for a $6.9 million
mortgage facility with a seven-year term and annual payments based on a 20-
year amortization period. The Mortgage Note is secured by land and
buildings at the Memphis, Tennessee office of Catherine's Stores. The
capital leases are for data processing and point-of-sale ("POS") equipment.
At the end of the initial lease term, the Company has the option of
purchasing the equipment at fair market value (or at $1 in the case of the
POS equipment), renewing the leases, or returning the equipment to the
lessor.
During Fiscal 2001, pursuant to a program to replace its existing POS
equipment, the Company acquired $14.9 million of POS equipment for its
Fashion Bug and Catherine's Stores under capital leases. These leases
generally have an initial lease term of 60 months and contain a bargain
purchase option. The Company anticipates acquiring additional POS
equipment at a total cost of approximately $15.0 million over the next 12-
18 months which will be financed through additional capital leases.
The Company has debt maturity payments of approximately $5.0 million in
Fiscal 2002, which are primarily for amounts due under the Company's
capital lease obligations and the Catherine's Stores Mortgage Note.
The Company has an agreement with a commercial finance company to provide a
revolving credit facility with a maximum availability of $150 million,
subject to limitations based upon eligible inventory. The facility, which
expires June 30, 2004, enables the Company to issue letters of credit for
overseas purchases of merchandise and provides for seasonal cash
borrowings, if necessary. The facility is secured by merchandise
inventory, furniture and fixtures at the Fashion Bug retail stores, and
certain other Company assets. The interest rate on borrowings is 0.5%
above the Prime rate. There is a fee of .25% on the unused portion of the
first $105 million of the facility, and an annual servicing fee of $100
thousand. As of the end of Fiscal 2001, the availability under the
facility was approximately $131.4 million, against which the Company had
outstanding letters of credit of $48.4 million. There were no cash
borrowings outstanding under the agreement as of the end of Fiscal 2001.
The agreement requires that, among other things, the Company maintain a
minimum net worth of $350 million and not pay dividends on its Common
Stock.
As a result of the Catherine's acquisition, the Company has an agreement
with a bank to provide a revolving credit facility with a maximum
availability of $20 million. The facility, which expires June 29, 2001,
enables the Company to issue letters of credit for overseas purchases of
merchandise and provides for seasonal cash borrowings, if necessary, by
utilizing a $5 million swingline credit facility. The agreement is secured
by inventory, general intangibles, patents, trademarks, and proceeds of the
foregoing. The interest rate on borrowings is equal to the agent bank's
prime rate. At February 3, 2001, the combined availability under the
working capital and swingline facilities was $20 million, against which the
Company had outstanding letters of credit of $284 thousand. The Company is
currently negotiating the extension of this agreement.
As a result of the acquisition of Modern Woman, the Company also has an
agreement with a bank to provide a revolving credit facility with a maximum
availability of $10 million. As of February 3, 2001, $5 million was
available under this agreement, against which the Company had outstanding
letters of credit of $139 thousand. In exchange for the bank's release of
its security interest in all of the assets of Modern Woman, the Company
pledged $5 million of available-for-sale securities as security for the
line of credit.
The Company's Board of Directors has approved the repurchase of up to
20,000,000 shares of the Company's Common Stock. Shares repurchased will
be held as treasury stock available for use under the Company's employee
benefits program or for other corporate purposes. As of the end of Fiscal
2001, the Company has repurchased an aggregate total of 9,105,000 shares at
an aggregate cost of $41.5 million. The Company will continue to evaluate
market conditions to determine if additional shares will be repurchased
during Fiscal 2002.
The Company has formed a trust to which the Company's credit card bank has
transferred, at face value, its interest in receivables created under the
Company's Fashion Bug proprietary credit card program. The Company,
together with the trust, has entered into various agreements whereby it can
sell, on a revolving basis, interests in these receivables for a specified
term. When the revolving period terminates, an amortization period begins
whereby the principal payments are made to the party with whom the trust
has entered into the securitization agreement.
If such securitization agreements were to become unavailable to the Company
or prohibitively expensive, this could have a material adverse effect on
the Company's results of operations and financial position. The Company
receives loan servicing proceeds from the Charming Shoppes Master Trust
representing income from credit card finance charge income and fees in
excess of interest paid to certificate holders, credit losses, and other
expenses. As a result, although the Company's securitization agreements
provide for the Company to continue to service the credit card receivables
and control credit policy, a significant decrease in loan servicing
proceeds could have a material adverse effect on the Company's results of
operations. A significant decrease in loan servicing proceeds could result
from increases in interest paid to certificate holders, credit losses, or
other expenses.
The Company securitized $437.7 million and $398.6 million of credit card
receivables in Fiscal 2001 and Fiscal 2000, respectively, and had $301.7
million of credit card receivables under securitizations outstanding as of
February 3, 2001. The Company had retained interests in its
securitizations of $47.7 million as of the end of Fiscal 2001, which were
generally subordinated in right of payment to certificates issued by the
trust to third-party investors. The Company's obligation to repurchase
receivables sold to the trust is limited to those receivables that, at the
time of their transfer, fail to meet the trust's eligibility standards
under normal representations and warranties. To-date, the amount of
receivables repurchased pursuant to this obligation has been immaterial
(see "Item 8. Financial Statements and Supplementary Data; Notes to
Consolidated Financial Statements; Asset Securitization" below).
During Fiscal 2000, the Company, through the trust, completed an offering
of $150 million of asset-backed certificates with a five-year term to
replace its five-year facility that matured in April 1999.
These securitization agreements improve the overall liquidity of the
Company by providing short-term sources of funding. The agreements provide
for the Company to continue to service the credit card receivables and
control credit policies. This control allows the Company to fund continued
credit card receivable growth and to provide the appropriate customer
service and collection activities. Accordingly, its relationship with its
credit card customers is not affected by these agreements.
Charming Shoppes Receivables Corp. and Charming Shoppes Street, Inc.,
wholly owned indirect subsidiaries of the Company, are separate special
purpose corporations. At February 3, 2001, Charming Shoppes Receivables
Corp. had $36.8 million of Charming Shoppes Master Trust Certificates
(included in the $47.7 million of retained interests, discussed above), and
Charming Shoppes Street, Inc. had $1.1 million of cash. These assets will
be available first and foremost to satisfy the claims of the respective
creditors of these separate corporate entities, including certain claims of
investors in the Charming Shoppes Master Trust. The providers of the
credit enhancements and trust investors have no other recourse to the
Company. The Company does not receive collateral from any party to the
securitization, and the Company does not have any risk of counter-party
non-performance.
The Company has a non-recourse agreement to permit a third party to provide
an accounts receivable proprietary credit card sales funding program for
its Catherine's Stores, which expires in January 2005. Under this
agreement, the third party reimburses the Company daily with respect to the
proprietary credit card sales generated by the Catherine's Stores credit
card accounts. The agreement may require the Company to repurchase
receivables from the third party under certain conditions relating to a
change in control of the Company. Net proceeds received from sales of
Catherine's Stores receivables for Fiscal 2001 and for the month of January
2000 (the period subsequent to the Company's acquisition of Catherine's
Stores), were approximately $121.1 million and $6.6 million, respectively.
The net balance of accounts receivable held by the third party was
approximately $99.6 million and $93.6 million at February 3, 2001 and
January 29, 2000, respectively.
Capital expenditures amounted to $57.9 million, $39.2 million, and $32.4
million in Fiscal 2001, 2000, and 1999, respectively. These expenditures
were primarily for the construction, remodeling, and fixturing of new and
existing retail stores, loss-prevention equipment, and systems technology.
Fiscal 2000 expenditures included approximately $6.1 million for expansion
of the Company's Greencastle, Indiana distribution center.
During Fiscal 2002, the Company anticipates capital expenditures of
approximately $60-$65 million. These expenditures will primarily be for
construction and fixturing of new stores, remodeling and fixturing of
existing retail stores, investments in management information systems
technology, and improvements to the Company's corporate offices and
distribution centers. In addition to these capital expenditures, the
Company anticipates entering into additional capital leases for new point-
of-sale equipment. The total commitment under capital leases, including
leases already incurred, is expected to be approximately $30 million. Each
of the capital leases is expected to have a five-year term. It is
anticipated that the funds required for capital expenditures will be
financed principally through internally generated funds.
The Company plans to open approximately 110-120 new stores, remodel
approximately 45-50 stores, and relocate approximately 75-80 stores during
Fiscal 2002. The following table sets forth information with respect to
store activity for Fiscal 2001:
Fashion Catherine's Modern
Bug Stores Woman Total
--- ------ ----- -----
Stores at January 29, 2000...... 1,185 433 122 1,740
----- --- --- -----
Stores opened................... 94 11 0 105
Stores converted................ 0 87 (87) 0
Stores closed................... (49) (7) (35) (91)
----- --- --- -----
Net change in stores............ 45 91 (122) 14
----- --- --- -----
Stores at February 3, 2001...... 1,230 524 0 1,754
===== === === =====
Stores relocated during period.. 18 9 0 27
Stores remodeled during period.. 69 11 0 80
During Fiscal 1999, the Company recorded total restructuring charges of
$54.2 million. During Fiscal 2000, the Company recognized credits of $4.9
million for revisions of the estimated charges recorded in 1999, and
recognized a restructuring charge of $1.4 million. All of these
restructuring costs had been paid or incurred as of February 3, 2001,
except for $373 thousand of costs which are expected to be incurred in
Fiscal 2002. See "Results of Operations: Restructuring Charge (Credit)"
above, and "Item 8. Financial Statements and Supplementary Data; Notes to
Consolidated Financial Statements: Restructuring Charge (Credit)" below.
On October 26, 2000, the Company announced the signing of a joint venture
agreement with Monsoon Plc. Monsoon Plc operates 321 stores, primarily in
the United Kingdom, offering women's clothing and accessories under the
"MONSOON" and "ACCESSORIZE" brand names. The joint venture will be a
separate consolidated operating unit of the Company. During the first full
year of operation, the joint venture plans to open as many as 20 "MONSOON"
and/or "ACCESSORIZE" stores in the United States. The Company invested
$4.0 million, or 80% of the initial capital in the joint venture, during
Fiscal 2001 and plans to invest an additional $4.0 million over the next
three years. The joint venture did not have a material impact on the
Company's earnings for Fiscal 2001 and is not expected to have a material
impact on earnings for Fiscal 2002.
The Company has not paid cash dividends since Fiscal 1996. On October 2,
1995, the Company's Board of Directors announced an indefinite suspension
of dividends on the Company's Common Stock. In addition, the Company's
$150 million revolving credit facility (discussed above) requires that the
Company not pay dividends on its Common Stock during the term of such
agreement.
The Company believes that cash flow from operations, its proprietary credit
card receivables securitization agreements, its investment portfolio, and
its revolving credit facilities are sufficient to support current
operations.
MARKET RISK
The Company manages its Fashion Bug proprietary credit card program through
various operating entities that are wholly owned by the Company. The
primary activity of these entities is to service the proprietary credit
card portfolio, the balances of which are sold under a credit card
securitization program. Under the securitization program, the Company can
be exposed to fluctuations in interest rates to the extent that interest
rates charged to its customers vary from the rates paid on certificates
issued by the trust. Until November 2000, the credit card program billed
finance charges based on a fixed rate. As of November 2000, finance
charges on all accounts are billed using a floating rate index (the Prime
lending rate), subject to a floor and limited by legal maximums. The
floating rate index on all of the certificates is either one-month LIBOR or
the commercial paper rate, depending on the issue. Consequently, the
Company has reduced its exposure to fluctuations in interest rates.
However, the Company has exposure in the movement of basis risk between the
floating rate index on the certificates and the Prime rate. As of February
3, 2001, the floating-rate finance charge rate was below the contractual
floor rate, thus exposing the Company to a portion of interest-rate risk.
To the extent that short-term interest rates were to increase by one
percentage point by the end of Fiscal 2002, an increase of approximately
$500 thousand in selling, general, and administrative expenses would
result.
In Fiscal 2000, the Company had entered into an interest rate swap, with a
notional value of $50 million, that limited the Company's exposure to
rising interest rates should interest rates increase to a rate above the
agreement's specified rate of 6.51%. The swap agreement required the
Company to pledge certain assets if the market value of the interest rate
swap fell below an amount set forth in the agreement. As of January 29,
2000, there were no pledged amounts required under the terms of the
agreement. During Fiscal 2001, the Company terminated the swap agreement,
and, in Fiscal 2002, the deferred loss related to this termination will be
recognized in comprehensive income and amortized to selling, general, and
administrative expenses over 44 months (the remaining life of the original
swap period) in accordance with SFAS No. 133.
The Company is not subject to material foreign exchange risk, as the
Company's foreign transactions are primarily U. S. Dollar-denominated and
the Company's foreign operations do not constitute a material part of its
business.
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.
Item 8. Financial Statements and Supplementary Data
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
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 3, 2001 and January 29, 2000,
and the related consolidated statements of operations and comprehensive
income (loss), stockholders' equity, and cash flows for each of the three
fiscal years in the period ended February 3, 2001. 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 auditing standards generally
accepted in the 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 3, 2001 and January 29, 2000,
and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended February 3, 2001, in
conformity with accounting principles generally accepted in the United
States.
As discussed in Notes to Consolidated Financial Statements; Summary of
Significant Accounting Policies; Revenue Recognition, in the fiscal year
ended February 3, 2001, the Company changed its method of accounting for
sales returns and allowances and layaway sales.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 12, 2001
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 3, January 29,
(dollars in thousands) 2001 2000
---- ----
ASSETS
Current assets
Cash and cash equivalents........................... $ 56,544 $ 34,299
Available-for-sale securities, including fair
value adjustments of $3 as of February 3,
2001 and $0 as of January 29, 2000................ 48,817 41,339
Merchandise inventories............................. 259,127 260,792
Deferred taxes...................................... 10,678 10,801
Prepayments and other............................... 56,748 47,090
-------- --------
Total current assets................................ 431,914 394,321
-------- --------
Property, equipment, and leasehold
improvements - at cost............................ 504,071 450,401
Less accumulated depreciation and amortization...... 286,208 259,477
-------- --------
Net property, equipment, and leasehold improvements. 217,863 190,924
-------- --------
Available-for-sale securities, including fair value
adjustments of $77 as of February 3, 2001
and ($2,222) as of January 29, 2000............... 76,461 74,490
Goodwill............................................ 92,520 97,405
Other assets........................................ 34,009 27,656
-------- --------
Total assets........................................ $852,767 $784,796
======== ========
[FN]
See Notes to Consolidated Financial Statements.
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
February 3, January 29,
(dollars in thousands, except per share amounts) 2001 2000
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.................................... $ 94,881 $ 88,721
Accrued expenses.................................... 123,317 134,033
Accrued restructuring expenses...................... 373 8,271
Current portion -- long-term debt................... 4,954 1,920
-------- --------
Total current liabilities........................... 223,525 232,945
-------- --------
Deferred taxes...................................... 21,433 10,375
Long-term debt...................................... 113,540 105,213
Minority interest in consolidated subsidiary....... 1,000 0
Stockholders' equity
Common Stock $.10 par value
Authorized - 300,000,000 shares
Issued - 110,731,483 shares and 109,639,425 shares 11,073 10,964
Additional paid-in capital.......................... 80,977 76,125
Treasury stock at cost - 9,105,000 shares and
8,955,000 shares................................. (41,537) (40,824)
Deferred employee compensation...................... (1,629) (1,792)
Accumulated other comprehensive income (loss)....... 74 (1,423)
Retained earnings................................... 444,311 393,213
-------- --------
Total stockholders' equity.......................... 493,269 436,263
-------- --------
Total liabilities and stockholders' equity.......... $852,767 $784,796
======== ========
[FN]
See Notes to Consolidated Financial Statements.
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Year Ended
(in thousands, except February 3, January 29, January 30,
per share amounts) 2001 2000 1999
---- ---- ----
Net sales........................................... $1,607,079 $1,196,529 $1,035,160
Other income........................................ 10,094 8,993 16,003
---------- ---------- ----------
Total revenue....................................... 1,617,173 1,205,522 1,051,163
---------- ---------- ----------
Cost of goods sold, buying, and occupancy expenses.. 1,134,554 854,774 771,107
Selling, general, and administrative expenses....... 384,188 282,932 246,747
Amortization of goodwill............................ 4,885 0 0
Restructuring charge (credit)....................... 0 (3,471) 54,246
Non-recurring gain from demutualization of
insurance company................................. 0 (6,700) 0
Interest expense.................................... 8,894 7,308 10,052
---------- ---------- ----------
Total expenses...................................... 1,532,521 1,134,843 1,082,152
---------- ---------- ----------
Income (loss) before income taxes, extraordinary
item, and cumulative effect of accounting change.. 84,652 70,679 (30,989)
Income tax provision (benefit)...................... 33,014 26,852 (10,854)
---------- ---------- ----------
Income (loss) before extraordinary item and
cumulative effect of accounting change............ 51,638 43,827 (20,135)
Extraordinary item - gain on early retirement of
debt, net of income taxes of $664................. 0 1,232 0
---------- ---------- ----------
Income (loss) before cumulative effect of
accounting change................................. 51,638 45,059 (20,135)
Cumulative effect of accounting change, net of
income tax benefit of $334........................ (540) 0 0
---------- ---------- ----------
Net income (loss)................................... 51,098 45,059 (20,135)
---------- ---------- ----------
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on available-for-sale
securities, net of income tax (expense) benefit of
($718) in 2001, $214 in 2000, and ($86) in 1999... 1,335 (343) 164
Reclassification of realized losses (gains) on
available-for-sale securities included in net
income, net of income tax (benefit) expense of
($87) in 2001, $726 in 2000 and $124 in 1999...... 162 (1,347) (229)
---------- ---------- ----------
Total other comprehensive income (loss)............. 1,497 (1,690) (65)
---------- ---------- ----------
Comprehensive income (loss)......................... $ 52,595 $ 43,369 $ (20,200)
========== ========== ==========
Basic net income (loss) per share:
Before extraordinary item and cumulative effect
of accounting change............................ $ .51 $ .45 $(.20)
Extraordinary item................................ .00 .01 .00
Cumulative effect of accounting change............ (.01) .00 .00
----- ----- -----
Net income (loss)................................. $ .50 $ .46 $(.20)
===== ===== =====
Diluted net income (loss) per share:
Before extraordinary item and cumulative effect
of accounting change............................ $ .49 $ .42 $(.20)
Extraordinary item................................ .00 .01 .00
Cumulative effect of accounting change............ (.01) .00 .00
----- ----- -----
Net income (loss)................................. $ .48 $ .43 $(.20)
===== ===== =====
[FN]
See Notes to Consolidated Financial Statements.
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional
Common Stock Paid-in Treasury Stock
(dollars in thousands) Shares Amount Capital Shares Amount
------ ------ ------- ------ ------
Balance, January 31, 1998... 106,249,385 $10,625 $64,019 (5,580,000) $(25,382)
Issued to employees......... 109,928 11 876
Exercise of stock options... 475,061 47 434
Shares withheld for payment
of employee payroll taxes
due on shares issued under
employee stock plans...... (3,778) (16)
Purchases of treasury stock. (3,130,000) (14,023)
Tax expense - employee stock
programs.................. (389)
----------- ------- ------- --------- --------
Balance, January 30, 1999... 106,830,596 10,683 64,924 (8,710,000) (39,405)
Issued to employees......... 354,620 36 1,575
Exercise of stock options... 3,364,058 336 13,952
Shares received in payment
of stock option exercises. (909,849) (91) (6,374)
Purchases of treasury stock. (245,000) (1,419)
Tax benefit - employee stock
programs.................. 2,048
----------- ------- ------- --------- --------
Balance, January 29, 2000... 109,639,425 10,964 76,125 (8,955,000) (40,824)
Issued to employees......... 224,141 22 1,020
Exercise of stock options... 906,701 91 3,831
Shares withheld for payment
of employee payroll taxes
due on shares issued under
employee stock plans...... (38,784) (4) (214)
Purchases of treasury stock. (150,000) (713)
Tax benefit - employee stock
programs.................. 215
----------- ------- ------- --------- --------
Balance, February 3, 2001... 110,731,483 $11,073 $80,977 (9,105,000) $(41,537)
=========== ======= ======= ========= ========
Accumulated
Deferred Other
Employee Comprehensive Retained
(in thousands) Compensation Income (Loss) Earnings
------------ ------------- --------
Balance, January 31, 1998... $(1,073) $ 332 $368,289
Issued to employees......... (688)
Amortization................ 710
Unrealized losses, net of
tax benefit of $38........ (65)
Net loss.................... (20,135)
------- ------- --------
Balance, January 30, 1999... (1,051) 267 348,154
Issued to employees......... (1,488)
Amortization................ 747
Unrealized losses, net of
tax benefit of $940....... (1,690)
Net income.................. 45,059
------- ------- --------
Balance, January 29, 2000... (1,792) (1,423) 393,213
Issued to employees......... (785)
Amortization................ 948
Unrealized gains, net of
income taxes of $805...... 1,497
Net income.................. 51,098
------- ------- --------
Balance, February 3, 2001... $(1,629) $ 74 $444,311
======= ======= ========
[FN]
See Notes to Consolidated Financial Statements.
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
February 3, January 29, January 30,
(in thousands) 2001 2000 1999
---- ---- ----
Operating activities
Net income (loss)................................... $ 51,098 $ 45,059 $ (20,135)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization..................... 43,397 32,650 35,091
Amortization of goodwill.......................... 4,885 302 0
Deferred income taxes, net of acquisitions........ 10,375 18,250 (14,099)
Non-recurring gain from demutualization of
insurance company............................... 0 (6,700) 0
Write-down of capital assets due to restructuring. 0 0 27,969
Net (gain) loss from disposition of capital assets 2,587 (1,469) 3,139
Tax benefit (expense) related to stock plans...... 215 2,048 (389)
Net (gain) loss on sale of available-for-sale
securities...................................... 249 4,627 (353)
Net gain on repurchase of notes................... 0 (1,896) (466)
Changes in operating assets and liabilities, net
of acquisitions:
Merchandise inventories......................... 1,665 (29,703) 4,458
Accounts payable................................ 6,160 (1,797) 8,183
Prepayments and other........................... (8,841) (5,097) 1,563
Accrued expenses................................ (10,716) 16,349 1,533
Income taxes payable............................ 0 (4,552) (1,571)
Accrued restructuring expenses.................. (7,805) (10,177) 18,448
--------- --------- ---------
Net cash provided by operating activities........... 93,269 57,894 63,371
--------- --------- ---------
Investing activities
Gross purchases of available-for-sale securities.... (102,228) (393,393) (406,651)
Proceeds from sales of available-for-sale securities 94,840 523,545 452,263
Acquisitions of Catherine's Stores and Modern Woman,
net of cash acquired.............................. 0 (145,309) 0
Investment in capital assets........................ (57,921) (39,211) (32,369)
Proceeds from sales of capital assets............... 833 10,556 368
Increase in other assets............................ (6,444) (4,927) (14,302)
--------- --------- ---------
Net cash used in investing activities............... (70,920) (48,739) (691)
--------- --------- ---------
Financing activities
Reduction of long-term borrowings................... (3,535) (21,237) (17,806)
Proceeds from short-term borrowings................. 0 30,600 0
Reduction of short-term borrowings.................. 0 (34,393) 0
Purchases of treasury stock......................... (713) (1,419) (14,023)
Proceeds from exercise of stock options............. 3,144 7,804 589
Minority shareholder investment in joint venture.... 1,000 0 0
--------- --------- ---------
Net cash used in financing activities............... (104) (18,645) (31,240)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents.... 22,245 (9,490) 31,440
Cash and cash equivalents, beginning of year........ 34,299 43,789 12,349
--------- --------- ---------
Cash and cash equivalents, end of year.............. $ 56,544 $ 34,299 $ 43,789
========= ========= =========
Non-cash transactions
Purchases of assets under capital leases............ $ 14,896 $ 0 $ 0
========= ========= =========
[FN]
See Notes to Consolidated Financial Statements.
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED FEBRUARY 3, 2001
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Company operates retail specialty stores located throughout the
continental United States that merchandise large-size, misses, and junior
sportswear, dresses, coats, and lingerie, as well as accessories and casual
footwear at a wide range of prices.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority-owned subsidiaries. All significant
intercompany accounts and transactions are eliminated. The parent and its
subsidiaries have a 52-53 week fiscal year ending on the Saturday nearest
to January 31. The fiscal year ended February 3, 2001 consisted of 53
weeks. As used herein, the terms "Fiscal 2001," "Fiscal 2000," and "Fiscal
1999" refer to the fiscal years ended February 3, 2001, January 29, 2000,
and January 30, 1999, respectively.
On October 26, 2000, the Company announced the signing of a joint venture
agreement with Monsoon Plc. The joint venture will be a separate
consolidated operating unit of the Company. The Company invested $4.0
million, or 80% of the initial capital in the joint venture, during Fiscal
2001. The impact of the joint venture on the Company's earnings for Fiscal
2001 was immaterial.
Foreign Operations
The Company uses a December 31 fiscal year for all foreign subsidiaries in
order to expedite the year-end closing. There were no intervening events
or transactions with respect to the Company's foreign subsidiaries during
the period from January 1, 2001 to February 3, 2001 that would have a
material effect on the Company's financial position or results of
operations.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
Cash Equivalents
The Company considers 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.
Investments
The Company's 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. The cost of investments is adjusted for amortization of premiums
and the accretion of discounts to maturity. Such amortization is included
in other income. Realized gains and losses and interest from investments
are also included in other income. The cost of securities sold is based on
the specific identification method. Short-term investments include
investments with an original maturity of greater than three months and a
remaining maturity of less than one year. Long-term investments have an
original maturity of greater than one year, but are available on an as-
needed basis to support working capital needs.
Inventories
Merchandise inventories are valued at the lower of cost or market as
determined by the retail method (average cost basis).
Property and Depreciation
For financial reporting purposes, depreciation and amortization are
principally computed using the straight-line method over the estimated
useful lives of the assets, or in the case of leasehold improvements, over
the lives of the respective leases. Accelerated depreciation methods are
used for income tax reporting purposes. Depreciation expense was
$38,066,000, $30,483,000, and $32,323,000 in Fiscal 2001, 2000, and 1999,
respectively.
Amortization of Goodwill
Goodwill is amortized on a straight-line basis over 20 years. The Company
periodically evaluates goodwill to determine if a revision to the remaining
estimated useful life is required, or if a reduction in the carrying value
is required because of an impairment of the asset.
Asset Securitizations
The Company adopted the disclosure provisions of SFAS No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" (a replacement of SFAS No. 125), as of Fiscal 2001.
Transaction expenses related to securitizations are deferred and amortized
over the reinvestment period of the transaction. Net securitization income
is included as a reduction of selling, general, and administrative expenses
in the accompanying consolidated statements of operations.
Common Stock Plans
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and its related interpretations. Deferred
compensation expense attributable to stock awards and stock options having
an exercise price less than the market price on the date of grant is
amortized over the vesting period. No compensation expense is recognized
for option plans having an exercise price equal to the market price on the
date of grant or for the Company's Employee Stock Purchase Plan. The
Company has adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation."
Revenue Recognition
Revenues from merchandise sales are net of returns and allowances, and
exclude sales tax. The Company adopted the provisions of Securities and
Exchange Commission Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements," effective as of the beginning of
Fiscal 2001. As a result of adoption of SAB 101, the Company established a
reserve for estimated future sales returns based on an analysis of actual
returns received subsequent to the end of each fiscal period, and deferred
recognition of layaway sales to the date of delivery. The cumulative
effect of the adoption of SAB 101 as of January 30, 2000 was a decrease in
income, net of taxes, of $540,000. The effect of adoption of SAB 101 on
the results of operations for Fiscal 2001 was immaterial. The pro forma
effect of adoption of SAB 101 for Fiscal 2000 and Fiscal 1999 was
immaterial.
Cost of Goods Sold, Buying, and Occupancy Expenses
Cost of goods sold includes merchandise costs, net of discounts and
allowances, freight, and inventory shrinkage. Net merchandise costs and
freight are capitalized as inventory costs. Buying expenses include
payroll, payroll related costs, and operating expenses for the Company's
buying departments and warehouses. Occupancy expenses include rent, real
estate taxes, insurance, common area maintenance, utilities, maintenance,
and depreciation for the Company's stores and warehouse facilities and
equipment. Buying and occupancy costs are treated as period costs.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs
charged to expense were $39,529,000, $28,876,000, and $29,442,000 in Fiscal
2001, 2000, and 1999, respectively.
Income Taxes
The Company uses the liability method of accounting for income taxes as
prescribed by SFAS No. 109, "Accounting for Income Taxes." Under the
liability method, deferred tax assets and liabilities are adjusted to
reflect the effect of changes in enacted tax rates on expected reversals of
financial statement and income tax basis differences.
U.S. income taxes have not been provided on undistributed earnings of
foreign subsidiaries accumulated prior to February 3, 2001 because the
Company intends to reinvest such undistributed earnings in foreign
operations. Presently, income taxes would not be significantly increased
if such earnings were remitted because of available foreign tax credits.
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. 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 the Company's 7.5% Convertible Subordinated Notes Due 2006,
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 antidilutive.
Comprehensive Income (Loss)
The consolidated statements of operations and comprehensive income (loss)
include transactions from non-owner sources that affect stockholders'
equity. Unrealized gains and losses recognized in comprehensive income are
reclassified to net income (loss) upon their realization.
Business Segments and Related Disclosures
The Company's Fashion Bug and Catherine's Stores operate within a single
segment -- retail sales of women's apparel, and within a single geographic
area -- the continental United States. The Company's foreign sourcing
operations do not constitute a material geographic segment.
Costs of Computer Software Developed or Obtained for Internal Use
The Company adopted the provisions of American Institute of Certified
Public Accountants ("AICPA") Statement of Position 98-1 ("SOP 98-1"),
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," effective as of January 31, 1999. 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. The adoption of SOP 98-1 did
not have a material effect on the Company's consolidated financial
statements.
Impact of Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires the recognition
of all derivative instruments as either assets or liabilities in the
statement of financial position, and the measurement of those instruments
at fair value. SFAS No. 133 also specifies the conditions under which
derivative instruments qualify as hedging activities, and the accounting
for changes in the fair value of derivatives designated as hedges. In June
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement
No. 133." SFAS No. 137 defers the effective date of SFAS No. 133 to all
fiscal quarters of fiscal years beginning after June 15, 2000. The Company
will adopt the provisions of SFAS No. 133 as of the beginning of the fiscal
year ending February 2, 2002.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities." This statement
amends the accounting and reporting standards of SFAS No. 133 for certain
derivative instruments and hedging activities.
Prior to the end of Fiscal 2001, the Company terminated its interest rate
swap agreement, which was used to limit the Company's interest rate risk on
assets related to the management of its proprietary credit card program.
The Company expects that adoption of SFAS No. 133 and SFAS No. 138 will not
have a material effect on its financial position, results of operations, or
comprehensive income.
In September 2000, The FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," a
replacement of SFAS No. 125. SFAS No. 140 carries over most of the
provisions of SFAS No. 125, but revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures. Under SFAS No. 140, the accounting and
reporting standards are based on application of a financial-components
approach that focuses on control. Under this approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets
it controls and the liabilities it has incurred, de-recognizes financial
assets when control has been surrendered, and de-recognizes liabilities
when extinguished. SFAS No. 140 also requires disclosures about
securitizations entered into during the period and retained interests in
securitized financial assets at the balance sheet date, accounting
policies, sensitivity information relating to retained interests, and cash
flows distributed to the transferor.
SFAS No. 140 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after March 31, 2001, and is
effective for recognition and reclassification of collateral and for
disclosures relating to securitization transactions and collateral for
fiscal years ending after December 15, 2000. The Company has adopted the
disclosure provisions of SFAS No. 140 as of Fiscal 2001, and will adopt the
accounting requirements of SFAS No. 140 to the extent that it issues new
beneficial interests after March 31, 2001. Management is currently
assessing the effect that SFAS No. 140 will have on the Company's results
of operations and financial position.
ACQUISITIONS
In August 1999, the Company acquired 100% of the outstanding stock of
Modern Woman Holdings, Inc. ("Modern Woman") for $9,773,000 ($8,709,000 net
of cash acquired). Modern Woman operated 136 retail apparel stores in 24
states, specializing in large-size women's apparel. In January 2000, the
Company acquired 100% of the outstanding stock of Catherines Stores
Corporation ("Catherine's Stores") for $154,884,000 ($136,600,000 net of
cash acquired). Catherine's Stores operated 436 retail apparel stores in
40 states and the District of Columbia, specializing in large-size women's
apparel. The Company has converted the Modern Woman stores into
Catherine's Stores. The acquisitions have been accounted for under the
purchase method of accounting, and the results of operations of the
acquired companies are included in the Company's results of operations from
their dates of acquisition. Prior-period results have not been restated.
Assets acquired and liabilities assumed have been recorded at their
estimated fair values. In connection with the Catherine's Stores
acquisition, the purchase price exceeded the fair value of identifiable net
assets acquired. The excess purchase price, approximately $97,707,000, has
been accounted for as goodwill, and is being amortized over a 20-year
period. In connection with the Modern Woman acquisition, the fair value of
the net assets acquired exceeded the purchase price, and the excess was
applied to reduce the fair value of non-current assets. The acquisitions
were financed through the use of internally-generated funds.
The following unaudited pro forma information is based on historical data,
and gives effect to the Company's acquisition of Catherine's Stores as if
the acquisition had occurred on January 31, 1999. Pro forma adjustments
primarily represent a reduction in interest income from the use of
investments and amortization of goodwill resulting from the acquisition.
The pro forma information does not include the acquisition of Modern Woman,
as the effect would have been immaterial.
(in thousands except per share amounts) 2000
----
Net sales......................................... $1,487,053
Income before extraordinary items................. 45,693
Net income........................................ 46,925
Net income per share:
Basic........................................... $0.48
Diluted......................................... 0.45
The unaudited pro forma information is not necessarily indicative of the
actual results of operations that would have occurred if the acquisition
had occurred as of January 31, 1999, and is not necessarily indicative of
results that may be achieved in the future. The unaudited pro forma
information does not reflect adjustments for operating synergies that the
Company may realize as the result of the acquisition. No assurances can be
made as to the amount and timing of any financial benefits that the Company
may realize as the result of the acquisition.
PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
Lives
(in thousands) (Years) 2001 2000
----- ---- ----
Land.......................... $ 1,757 $ 1,757
Buildings and improvements.... 10 to 40 54,232 52,543
Store fixtures................ 5 to 10 108,069 141,331
Equipment..................... 3 to 10 166,906 134,099
Leasehold improvements........ 10 to 20 173,107 120,671
-------- --------
Total at cost................. 504,071 450,401
Less accumulated depreciation
and amortization............ 286,208 259,477
-------- --------
$217,863 $190,924
======== ========
AVAILABLE-FOR-SALE SECURITIES
Unrealized Estimated
(in thousands) Cost Gains Losses Fair Value
---- ----- ------ ----------
February 3, 2001
U. S. Treasury and government
agency bonds........................ $ 69,192 $ 99 $ (19) $ 69,272
Charming Shoppes Master Trust
retained interest................... 47,724 0 0 47,724
Low income housing partnerships....... 7,952 0 0 7,952
Other................................. 330 0 0 330
-------- ---- ------- --------
$125,198 $ 99 $ (19) $125,278
======== ==== ======= ========
January 29, 2000
U. S. Treasury and government
agency bonds........................ $ 68,520 $ 4 $(2,226) $ 66,298
Charming Shoppes Master Trust
retained interest................... 41,245 0 0 41,245
Low income housing partnerships....... 7,952 0 0 7,952
Other................................. 334 0 0 334
-------- ---- ------- --------
$118,051 $ 4 $(2,226) $115,829
======== ==== ======= ========
Gross realized gains and (losses) on available-for-sale securities were
$43,000 and ($292,000), respectively, during Fiscal 2001. Gross realized
gains and (losses) were $6,910,000 and ($4,837,000), respectively, during
Fiscal 2000.
Contractual maturities of available-for-sale securities at February 3, 2001
were:
Estimated
(in thousands) Cost Fair Value
---- ----------
Due in one year or less................ $ 48,814 $ 48,817
Due after one year through five years.. 68,432 68,509
-------- --------
117,246 117,326
Equity securities...................... 7,952 7,952
-------- --------
$125,198 $125,278
======== ========
INCOME TAXES
Income (loss) before income taxes, extraordinary item, and cumulative
effect of accounting change:
(in thousands) 2001 2000 1999
---- ---- ----
Domestic........ $79,716 $65,615 $(34,479)
Foreign......... 4,936 5,064 3,490
------- ------- --------
$84,652 $70,679 $(30,989)
======= ======= ========
Income tax provision (benefit):
(in thousands) 2001 2000 1999
---- ---- ----
Current:
Federal....... $ 17,345 $ 5,431 $ 4,321
State......... 1,683 1,158 692
Foreign....... 883 514 192
-------- ------- --------
19,911 7,103 5,205
Deferred(1)..... 13,103 19,749 (16,059)
-------- ------- --------
$ 33,014 $26,852 $(10,854)
======== ======= ========
[FN]
(1) Primarily Federal
The Company made income tax payments of $20,041,000, $9,692,000, and
$5,982,000 during Fiscal 2001, 2000, and 1999, respectively. Included in
"Prepayments and other" in the accompanying consolidated balance sheet as
of January 29, 2000 is an income tax receivable of $6,808,000.
Reconciliation of the effective tax rate with the statutory Federal income
tax rate:
2001 2000 1999
---- ---- ----
Statutory Federal income tax
(benefit) rate................ 35.0% 35.0% (35.0)%
State income tax, net
of Federal income tax......... 1.9 1.0 1.5
Foreign income.................. (1.0) (1.7) (3.4)
Employee benefits............... 2.5 3.1 1.4
Amortization of goodwill........ 2.0 -- --
Other, net...................... (1.4) 0.6 0.5
---- ---- ----
39.0% 38.0% (35.0)%
==== ==== ====
Components of deferred tax assets and liabilities:
Net Current Net Long-Term
Assets Assets
(in thousands) (Liabilities) (Liabilities)
----------- -----------
February 3, 2001
Property, equipment, and leasehold
improvements........................... $ (208)
Accrued expenses......................... $ 9,990
Inventory................................ (1,853)
Deferred compensation.................... 2,729
Prepaid employee benefits................ 3,406
Investments.............................. (6,907)
Deferred rent............................ 2,099
Employee insurance program............... (11,100)
Other.................................... (2,964) (5,947)
------- --------
$10,678 $(21,433)
======= ========
Net Current Net Long-Term
Assets Assets
(in thousands) (Liabilities) (Liabilities)
----------- -----------
January 29, 2000
Property, equipment, and leasehold
improvements........................... $ (2,112)
Tax net operating losses
and credit carryforwards............... 8,467
Accrued expenses......................... $10,461
Inventory................................ (3,317)
Deferred compensation.................... 1,585
Prepaid employee benefits................ 2,233
Investments.............................. (6,184)
Deferred rent............................ 2,059
Employee insurance program............... (7,600)
Other.................................... (635) (4,531)
------- --------
$10,801 $(10,375)
======= ========
[FN]
Certain prior period amounts have been reclassified to conform to the
current presentation.
The Company's Federal tax returns for the fiscal years ended January 1994
through January 1997 are currently under audit. The Company anticipates
that the outcome of these audits will not have a material adverse effect on
its financial condition or results of operations.
DEBT
Long-term debt at year end:
(in thousands) 2001 2000
---- ----
7.5% Convertible Subordinated Notes
Due 2006............................. $ 96,047 $ 96,047
Capital lease obligations.............. 15,890 4,332
7.5% mortgage note..................... 6,449 6,652
Other.................................. 108 102
-------- --------
Total long-term debt................... 118,494 107,133
Less current portion................... 4,954 1,920
-------- --------
$113,540 $105,213
======== ========
The 7.5% Convertible Subordinated Notes (the "Notes") are convertible at
any time prior to maturity into shares of Common Stock of the Company at a
conversion price of $7.46 per share. The Notes are redeemable at the
Company's option, in whole or in part, at 103.125% of principal through
July 14, 2001 and at declining prices thereafter, decreasing to 100% on or
after July 15, 2005. Under certain circumstances involving a change in
control of the Company, holders of the Notes may require the Company to
repurchase all or a portion of the Notes at 100% of the principal amount
plus accrued and unpaid interest, if any. There is no sinking fund for the
Notes.
During Fiscal 2000, the Company repurchased $23,316,000 aggregate principal
amount of the Notes, which had a net carrying value of $22,927,000 as of
the dates of purchase, at a total cost of $21,031,000. The repurchases
resulted in an extraordinary gain of $1,232,000, net of income taxes of
$664,000, for Fiscal 2000. During Fiscal 1999, the Company repurchased
$18,637,000 aggregate principal amount of the Notes, which had a net
carrying value of $18,268,000 as of the dates of purchase, at a total cost
of $17,802,000. The net gain on the repurchases of the Notes during Fiscal
1999 was not material.
During Fiscal 2001, pursuant to its program to replace its existing point-
of-sale ("POS") equipment, the Company acquired $14,896,000 of POS
equipment for its Fashion Bug and Catherine's Stores under capital leases.
These leases generally have an initial lease term of 60 months and contain
a bargain purchase option.
The 7.5% Mortgage Note (the "Mortgage Note") and $2,753,000 of capital
lease obligations were assumed in January 2000 in connection with the
acquisition of Catherine's Stores. The mortgage financing agreement
provides for a $6,919,000 mortgage facility with a seven-year term and
payments based on a 20-year amortization period. The mortgage includes a
final payment of $5,585,000 in April 2005. The Mortgage Note is secured by
land and buildings at Catherine's office in Memphis, Tennessee. The
capital leases are for data processing and point-of-sale equipment. At the
end of the initial lease term, the Company has the option of purchasing the
equipment at fair market value (or at $1 in the case of the point-of-sale
equipment), renewing the leases, or returning the equipment to the lessor.
The Company has an agreement with a commercial finance company to provide a
revolving credit facility with a maximum availability of $150,000,000,
subject to limitations based upon eligible inventory. The facility, which
expires June 30, 2004, enables the Company to issue letters of credit for
overseas purchases of merchandise and provides for seasonal cash
borrowings, if necessary. The facility is secured by merchandise
inventory, furniture and fixtures at the Fashion Bug retail stores, and
certain other Company assets. The interest rate on borrowings is 0.5%
above the Prime rate. There is a fee of .25% on the unused portion of the
first $105,000,000 of the facility, and an annual servicing fee of
$100,000. As of February 3, 2001, the availability under the facility was
approximately $131,424,000, against which the Company had outstanding
letters of credit of $48,381,000. There were no cash borrowings
outstanding under the agreement as of February 3, 2001. The agreement
requires that, among other things, the Company maintain a minimum net worth
of $350,000,000 and not pay dividends on its Common Stock.
As a result of the Catherine's Stores acquisition, the Company has an
agreement with a bank to provide a revolving credit facility with a maximum
availability of $20,000,000. The facility, which expires June 29, 2001,
enables the Company to issue letters of credit for overseas purchases of
merchandise and provides for seasonal cash borrowings, if necessary, by
utilizing a $5,000,000 swingline credit facility. The agreement is secured
by inventory, general intangibles, patents, trademarks, and proceeds of the
foregoing. The interest rate on borrowings is equal to the agent bank's
prime rate. At February 3, 2001, the combined availability under the
working capital and swingline facilities was $20,000,000, against which the
Company had outstanding letters of credit of $284,000. The Company is
currently negotiating the extension of this agreement.
As a result of the acquisition of Modern Woman, the Company also has an
agreement with a bank to provide a revolving credit facility with a maximum
availability of $10,000,000. As of February 3, 2001, $5,000,000 was
available under this agreement, against which the Company had outstanding
letters of credit of $139,000. In exchange for the bank's release of its
security interest in all of the assets of Modern Woman, the Company pledged
$5,000,000 of available-for-sale securities as security for the line of
credit.
During Fiscal 2001, 2000, and 1999, the Company made interest payments of
$8,712,000, $7,519,000, and $9,756,000, respectively.
Aggregate maturities of long-term debt principal during the next five
fiscal years are:
7.5%
Capital Mortgage
(in thousands) Leases Note Other Total
------ ---- ----- -----
2002 $4,741 $188 $25 $4,954
2003 3,626 203 24 3,853
2004 3,360 199 19 3,578
2005 2,868 234 16 3,118
2006 1,295 5,625 16 6,936
STOCKHOLDERS' EQUITY
The Company's capital consists 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; and
300,000,000 shares of Common Stock, $.10 par value.
In November 1997, the Company's Board of Directors ("the Board") authorized
the repurchase of up to 10,000,000 shares of the Company's Common Stock.
In March 1999, the Board authorized the repurchase of an additional
10,000,000 shares of Common Stock. Shares repurchased will be held as
treasury stock available for use under the Company's employee benefits
program or for other corporate purposes. As of February 3, 2001, the
Company has repurchased an aggregate total of 9,105,000 shares of its
Common Stock at an aggregate cost of $41,537,000.
STOCK OPTION AND STOCK INCENTIVE PLANS
At February 3, 2001, the Company had various stock-based compensation
plans, which are described below. The Company applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations in
accounting for its stock plans. Accordingly, no compensation has been
recognized in the financial statements for options issued under such plans
with an exercise price equal to the market price of the Company's Common
Stock at the date of grant. In addition, no compensation expense has been
recognized for shares of stock issued under the Company's Employee Stock
Purchase Plan. Compensation cost recognized in the financial statements
for discounted stock options, restricted stock awards and performance share
awards granted was $948,000, $747,000, and $710,000 in Fiscal 2001, 2000,
and 1999, respectively.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires pro forma
disclosures of the effect of using fair values at the dates of grant to
determine compensation cost for awards under stock-based compensation
plans. Using the method prescribed under SFAS No. 123 to determine
compensation cost for the Company's plans, the Company's net income (loss)
and net income (loss) per share would have changed to the pro forma amounts
shown below:
(in thousands, except per-share data) 2001 2000 1999
---- ---- ----
Pro forma net income (loss).......... $49,185 $43,102 $(21,629)
Pro forma net income (loss) per share
Basic net income (loss) per share.. $.49 $.44 $(.22)
Diluted net income (loss) per share $.47 $.41 $(.22)
For purposes of determining the pro forma disclosures, the fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model. In applying the Black-Scholes model, the following
assumptions were used: dividend yield of 0%; expected stock price
volatility of 37.6%; expected lives of 3 months for the Employee Stock
Purchase Plan, 1 to 3 years for stock award plans, and 6 to 7 years for
stock option and stock incentive plans; and the following risk-free
interest rates:
2001 2000 1999
---- ---- ----
Employee stock purchase plan..... 4.9% 5.4% 4.7%
Stock award plans................ 4.8 6.5 5.1
Stock option and incentive plans. 5.1 6.6 5.2
In accordance with the transition provisions of SFAS No. 123, the pro forma
disclosures presented above reflect the statement's application only to
option grants and stock awards dated on or after January 29, 1995. Option
grants and awards generally vest over several years and the Company expects
to grant additional awards in the future. Therefore, the pro forma results
should not be considered to be representative of the effects on reported
results for future years.
The Company's Board of Directors adopted the 2000 Associates' Stock
Incentive Plan on January 27, 2000. The plan provides for the grant of
options, stock appreciation rights, restricted stock awards, deferred
stock, or other stock-based awards to purchase up to 5,000,000 shares of
the Company's Common Stock. The form of the grants, exercise price, and
maximum term, where applicable, are at the discretion of the Board of
Directors and the Stock Option Committee of the Board of Directors. As of
February 3, 2001, 177,690 options were exercisable under this plan.
The Company's Amended and Restated Non-Employee Directors Program was
adopted by the Board of Directors on July 1, 1999. This program provides
for the automatic annual grant of options to purchase 20,000 shares of
Common Stock to each non-employee director. The options vest in equal
installments over five years. The exercise price of such options shall be
equal to the fair market value of the stock on the date of grant. As of
February 3, 2001 and January 29, 2000, 28,000 options and 0 options,
respectively, were exercisable under this plan. The program also provides
for a one-time grant of 10,000 shares of Restricted Common Stock to each
newly elected non-employee director. The grants vest in equal amounts over
three years. During Fiscal 2001 and Fiscal 2000, 10,000 shares and 20,000
shares, respectively, were granted and issued as one-time grants under this
program. The weighted average market value at date of grant for shares
granted in Fiscal 2001 and Fiscal 2000 was $5.13 and $6.21, respectively.
The Company's Board of Directors adopted the 1999 Associates' Stock
Incentive Plan in February 1999. The plan provides for the grant of
options to purchase up to 1,000,000 shares of the Company's Common Stock.
The exercise price of such options may not be less than the fair market
value at the date of grant. The maximum term of options issued under the
plan is ten years. As of February 3, 2001 and January 29, 2000, 127,500
options and 0 options, respectively, were exercisable under this plan.
The Company's 1993 Employees' Stock Incentive Plan provides for the grant
of options to purchase up to 9,000,000 shares of Common Stock plus 9% of
shares issued by the Company after the effective date of the plan and any
shares available but unissued under the 1990 Plan described below. The
form of the grants and exercise price, where applicable, are at the
discretion of the Board of Directors and the Stock Option Committee of the
Board of Directors. The maximum term of options issued under the plan is
ten years. As of February 3, 2001, January 29, 2000, and January 30, 1999,
4,380,640 options, 3,415,250 options, and 2,465,230 options, respectively,
were exercisable under this plan. During Fiscal 2001 and Fiscal 2000,
88,000 shares and 306,307 shares, respectively, were granted as restricted
stock awards under this plan. The weighted average market value at date of
grant for the Fiscal 2001 and Fiscal 2000 awards was $6.81 per share and
$4.61 per share, respectively. During Fiscal 2001, 38,308 shares granted
as restricted stock awards under this plan were issued and awards totaling
10,300 shares were cancelled. As of February 3, 2001, restricted stock
awards totaling 345,699 shares were outstanding under this plan.
The Company's 1990 Employees' Stock Incentive Plan provides for the grant
of options to purchase Common Stock to key employees of the Company. The
exercise price of such options may not be less than the fair market value
at the date of grant. As a result of adoption of the 1993 Employees' Stock
Incentive Plan, the Company no longer intends to issue options under this
Plan. As of February 3, 2001, January 29, 2000, and January 30, 1999,
144,000 options, 483,800 options, and 3,522,142 options, respectively, were
exercisable under this plan.
The Company's 1989 Non-Employee Director Stock Option Plan provides for the
grant of options to purchase up to 30,000 shares of Common Stock to each
member of the Board of Directors who is not an employee of the Company.
The exercise price of such options shall be equal to the fair market value
of the stock on the date of grant. As of February 3, 2001, January 29,
2000, and January 30, 1999, 66,000 options, 78,000 options, and 90,000
options, respectively, were exercisable under this plan. As a result of
the adoption of the Amended and Restated Non-Employee Directors Program on
July 1, 1999, the Company no longer intends to issue options under this
plan.
The Company's 1988 Key Employee Stock Option Plan provides for the grant of
options to purchase up to 3,000,000 shares of Common Stock to key employees
of the Company. The exercise price of options granted under this plan is
$1.00 per share. As of February 3, 2001, January 29, 2000, and January 30,
1999, 92,937 options, 205,330 options, and 412,245 options, respectively,
were exercisable under this plan.
The table below summarizes the activity in all Stock Option Plans:
Average Option
Option Option Prices
Shares Price Per Share
------ ----- ---------
Outstanding at January 31, 1998...... 10,612,111 $5.512 $ .222-17.000
Granted-option price equal to market. 1,551,722 4.306 3.594- 5.250
Granted-option price less than market 18,500 1.000 1.000- 1.000
Canceled/forfeited................... (1,279,938) 7.797 .500-17.000
Exercised............................ (475,061) 1.013 .222- 5.375
---------- ------ -------------
Outstanding at January 30, 1999...... 10,427,334 5.249 .500-16.875
Granted-option price equal to market. 1,794,970 4.077 3.625- 6.625
Granted-option price less than market 16,000 1.000 1.000- 1.000
Canceled/forfeited................... (417,387) 5.068 .500-15.750
Exercised............................ (3,364,058) 4.247 .500- 6.188
---------- ------ -------------
Outstanding at January 29, 2000...... 8,456,859 5.400 .500-16.875
Granted-option price equal to market. 2,192,050 6.633 5.000- 6.813
Granted-option price less than market 37,700 1.000 1.000- 1.000
Canceled/forfeited................... (682,035) 6.225 1.000-16.875
Exercised............................ (906,701) 4.326 .500- 6.188
---------- ------ -------------
Outstanding at February 3, 2001...... 9,097,873 $5.724 $ .500-15.813
========== ====== =============
Weighted average grant date fair value for options granted, using Black-
Scholes model and assumptions described above:
2001 2000 1999
---- ---- ----
Option price equals market price............$2.35 $1.92 $1.94
Option price less than market price......... 5.32 2.96 3.59
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 3, 2001 for the ranges
of exercise prices shown:
Weighted Weighted
Average Average
Option Option Remaining
Ranges of Option Prices Shares Price Life
----------------------- ------ ----- ----
$0.50-$1.00:
Options outstanding........ 170,023 $.855 4.8
Options exercisable........ 92,937 .735
$1.01-$5.00:
Options outstanding........ 4,478,400 $4.015 6.2
Options exercisable........ 2,750,600 4.083
$5.01-$10.00:
Options outstanding........ 3,593,000 $6.347 7.4
Options exercisable........ 1,382,180 6.209
$10.01-$15.81:
Options outstanding........ 856,450 $13.011 2.3
Options exercisable........ 791,050 13.032
At February 3, 2001, 1,031,050 shares were available for grant under the
2000 Associates' Stock Incentive Plan, 248,327 shares were available for
grant under the Amended and Restated Non-employee Directors Program,
249,900 shares were available for grant under the 1999 Associates' Stock
Incentive Plan, 2,356,324 shares were available for future grant under the
1993 Employees' Stock Incentive plan, and 184,549 shares were available for
grant under the 1988 Key Employee Stock Option Plan.
The Company's 1998 Restricted Stock Award Program provides for the grant of
rights to receive shares of the Company's Common Stock subject to
attainment of specified performance goals for Fiscal 2000. During Fiscal
2001, 77,450 shares were issued under this plan and rights to receive
33,605 shares were cancelled. During Fiscal 2000, rights to receive 4,591
shares were granted and rights to receive 7,768 shares were cancelled.
During Fiscal 1999, rights to receive 114,232 shares were granted. The
weighted average market value at date of grant for awards granted in Fiscal
2000 and Fiscal 1999 was $4.03 per share and $4.31 per share, respectively.
Associates pay no cash consideration for shares received under the plan.
The Company's Non-Employee Director Compensation Program and the
Compensation Program for the Non-Employee Chairman of the Board of
Directors were adopted on August 21, 1996 and approved by shareholders on
June 19, 1997. These programs stipulate that, effective June 27, 1996, 60%
of Non-Employee Director and 50% of Non-Employee Chairman compensation
shall be paid in Common Stock of the Company. During Fiscal 2000, 1,500
rights were granted under this plan, and 1,500 shares were issued. During
Fiscal 1999, 41,904 rights were granted under this plan, and 41,904 shares
were issued. The weighted average market value at date of grant for awards
granted in Fiscal 2000 and Fiscal 1999 was $4.00 per share and $4.80 per
share, respectively. Awards under this program were discontinued as of
July 1, 1999 as a result of adoption of the Amended and Restated Non-
Employee Directors Program.
The Company's Board of Directors adopted the Restricted Stock Award Plan
for Associates on January 26, 1995. The plan provides for discretionary
awards of rights to receive up to 200,000 shares of restricted Common Stock
to associates who are not directors or executive officers of the Company.
Associates will pay no cash consideration for restricted stock received
under an award. During Fiscal 2001, 5,500 shares were issued under this
plan. During Fiscal 2000, 5,500 rights were granted under this plan, and
5,500 shares were issued. During Fiscal 1999, 5,500 rights were granted
under this plan, and 12,783 shares were issued. The weighted average
market value at date of grant for awards granted in Fiscal 2000 and Fiscal
1999 was $3.63 per share and $4.31 per share, respectively.
The shares issued and options granted under the above plans are subject to
forfeiture if the employees do not remain employed by the Company for a
specified period of time. Under the 1989 Non-Employee Director Stock
Option Plan, the Non-Employee Director Compensation Program, the
Compensation Program for the Non-Employee Chairman of the Board of
Directors, and the Amended and Restated Non-Employee Directors Program,
shares issued and options granted are subject to forfeiture if the
individual ceases to remain a Director of the Company except, under certain
circumstances, in the case of retirement.
EMPLOYEE STOCK PURCHASE PLAN
The Company's 1994 Employee Stock Purchase Plan permits employees to
purchase shares during each quarterly offering period at a price equal to
85% of the market price of the Company's Common Stock on either the first
day of the offering period or the fifth business day after the end of the
offering period, whichever is lower. The shares are purchased through the
accumulation of payroll deductions of up to 10% of each participating
employee's compensation during such offering period. Under this plan,
2,000,000 shares have been reserved for grant. During Fiscal 2001 and
Fiscal 2000, 57,527 shares and 31,343 shares, respectively, were purchased
under the plan. The weighted average grant date market value for shares
purchased during Fiscal 2001 and Fiscal 2000 was $5.41 per share and $4.84
per share, respectively. At February 3, 2001, 1,673,964 shares were
available for future purchase under this plan.
SHAREHOLDER RIGHTS PLAN
In February 1999, the Company's Board of Directors adopted a Shareholder
Rights Plan to replace the existing Shareholder Rights Plan with effect
from April 26, 1999, when the existing Shareholder Rights Plan expired.
The Board of Directors also increased the authorized shares of
Participating Series A Junior Preferred Stock, $1.00 par value, from
300,000 shares to 500,000 shares, and declared a dividend of one Right for
each outstanding share of Common Stock, payable as of the close of business
on April 26, 1999 to shareholders of record as of the close of business on
April 12, 1999. Such Rights only become exercisable or transferable apart
from the Common Stock ten days after a person or group (Acquiring Person)
acquires, or obtains the right to acquire, beneficial ownership of twenty
percent (20%) or more of the Company's outstanding common shares. Each
Right then may be exercised to acquire one three-hundredth of a share of
newly created Series A Junior Participating Preferred Stock or a
combination of securities and assets of equivalent value at a purchase
price of $20, subject to adjustment.
Upon the occurrence of certain events (for example, if the Company is a
surviving corporation in a merger with an Acquiring Person), the Rights
entitle holders other than the Acquiring Person to acquire Common Stock
having a value of twice the exercise price of the Rights. Upon the
occurrence of certain other events (for example, if the Company is acquired
in a merger or other business combination transaction in which the Company
is not the surviving corporation), the rights entitle holders other than
the Acquiring Person to acquire Common Stock of the Acquiring Person having
a value twice the exercise price of the Rights. The Rights may be redeemed
by the Company at $.01 per Right at any time until the tenth day following
public announcement that a twenty percent (20%) position has been acquired.
Prior to February 1, 2001, redemption of the Rights by the Company required
the approval of a majority of those directors who were members of the Board
of Directors at the time of execution of the Rights Agreement (the
"Continuing Directors") or any person who subsequently became a member of
the Board of Directors if such director's election to the Board of
Directors was recommended or approved by a majority of the Continuing
Directors. On February 1, 2001, the Company's Board of Directors approved
an amendment and restatement of the Rights Agreement dated as of April 26,
1999 that deletes the concept of Continuing Directors and provides that
redemption of the Rights requires approval by the Board of Directors
(regardless of whether such directors would have been Continuing
Directors). The Rights will expire on April 25, 2009.
NET INCOME (LOSS) PER SHARE
(in thousands) 2001 2000 1999
---- ---- ----
Basic weighted average common shares
outstanding.......................... 101,119 98,609 99,441
Dilutive effect of assumed conversion
of convertible notes................. 12,875 16,001 0
Dilutive effect of stock options....... 1,033 1,278 0
------- ------- ------
Diluted weighted average common
shares and equivalents outstanding... 115,027 115,888 99,441
======= ======= ======
Income (loss) before extraordinary item
and cumulative effect of accounting
change............................... $51,638 $43,827 $(20,135)
Decrease in interest expense from
assumed conversion of notes, net of
income taxes......................... 4,455 4,708 0
------- ------- --------
Income (loss) before extraordinary item
and cumulative effect of accounting
change used to determine diluted
earnings per share................... 56,093 48,535 (20,135)
Extraordinary item, net of income taxes 0 1,232 0
Cumulative effect of accounting change,
net of income taxes.................. (540) 0 0
------- ------- --------
Net income (loss) used to determine
diluted earnings per share........... $55,553 $49,767 $(20,135)
======= ======= ========
Options with weighted average exercise
price greater than market price,
excluded from computation of diluted
earnings per share:
Number of shares (in thousands)..... 3,762 4,089 6,147
Weighted average exercise price..... $8.06 $6.95 $6.61
The effect of an assumed conversion of the Company's Convertible Notes into
18.5 million shares of Common Stock was excluded from the computation of
diluted net loss per share for Fiscal 1999 because the effect would have
been antidilutive. Options to purchase 0.7 million shares of Common Stock
at January 30, 1999, with exercise prices below the average market price of
the Company's Common Stock, were excluded from the calculation of diluted
net loss per share because the effect would have been antidilutive.
Grants of stock awards under the Company's 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.
EMPLOYEE RETIREMENT BENEFIT PLAN
The Company provides a comprehensive retirement benefit program for its
employees. This plan provides for a noncontributory profit-sharing
contribution which covers substantially all full-time employees who meet
age and service requirements. The contribution is completely discretionary
and is determined by the Board of Directors on an annual basis.
The program also includes a 401(k) employee savings plan, whereby eligible
participating employees may elect to contribute up to 15% 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 6 years of service, retirement, death, or disability, as
defined in the plan.
The total expense for the above plans amounted to $2,137,000, $1,312,000,
and $1,556,000 for Fiscal 2001, 2000, and 1999, respectively.
As of the dates of their respective acquisitions, Catherine's Stores and
Modern Woman provided retirement plans for its employees with benefits
substantially the same as the Company's plan. The Catherine's Stores and
Modern Woman plans have been merged into the Company's plan. Participants
in the Catherine's and Modern Woman plans retain credited years of service
earned under those plans.
Also available to officers and certain key executives is a non-qualified
deferred compensation plan. Under this plan, which was adopted January 1,
1998, participants may contribute up to 77% of their base compensation and
100% of bonus compensation.
ASSET SECURITIZATION
Asset securitization involves the transfer by the Company's credit card
bank of Fashion Bug proprietary credit card receivables to a special
purpose corporation, which in turn transfers the receivables to a single
purpose trust (the "Trust") created for the securitization. Asset-backed
certificates issued by the Trust represent undivided interests in those
credit card receivables transferred into the Trust. Certificates issued by
the Trust are sold to investors, with any remaining undivided interest
retained by the Company. These asset-backed certificates issued to
investors are generally credit-enhanced by a third party to provide various
levels of an investment-grade credit rating at the time of issuance. The
Company includes the remaining undivided interest and any other retained
interest in investment securities available for sale in the accompanying
consolidated balance sheet. The carrying value of these retained interests
approximates their fair value.
The Company records gains or losses on the securitization of Fashion Bug
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 the Company has retained over the
estimated outstanding period of the receivables. This excess cash flow
essentially represents an "interest-only" ("I/O") strip, consisting of the
excess finance charges and past due fees over the sum of the return paid to
certificate holders and credit losses. During Fiscal Years 2001, 2000, and
1999, the Company recognized additions to the I/O strip of $11,973,000,
$9,876,000, and $9,765,000, respectively, and of those balances,
$10,979,000, $9,814,000, and $10,254,000 were amortized during each
respective Fiscal Year. In addition, the Company recognized a servicing
liability of $3,864,000, $2,744,000, and $2,370,000 in Fiscal Years 2001,
2000, and 1999, respectively, and of those balances, $3,260,000,
$2,797,000, and $2,579,000 were amortized in each Fiscal Year,
respectively. The Company amortizes additions to 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. The
expected life is computed using the 12-month rolling average of principal
payments as a percent of outstanding trust receivables sold.
Proceeds from the sale of new loans to the Trust were approximately
$437,697,000, $398,646,000, and $360,686,000 for Fiscal 2001, Fiscal 2000,
and Fiscal 1999, respectively. At February 3, 2001 and January 29, 2000,
approximately $301,704,000 and $285,782,000, respectively, of investor
certificates remained outstanding. The investor certificates mature as
follows: $66,500,000 in the fiscal year ending February 2, 2002 ("Fiscal
2002"), $85,204,000 in the fiscal year ending February 1, 2003 ("Fiscal
2003") and $150,000,000 in the fiscal year ending January 29, 2005 ("Fiscal
2005"). The Company's retained interests in its securitizations, which
aggregated $47,724,000 and $41,245,000 at February 3, 2001 and January 29,
2000, respectively, are generally subordinated in right of payment to
certificates issued by the Trust to third party investors. The Company's
obligation to repurchase receivables sold to the Trust is limited to those
receivables that, at the time of their transfer, fail to meet the Trust's
eligibility standards under normal representations and warranties. To
date, the amount of receivables repurchased pursuant to this obligation has
been immaterial
In September 2000, The FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," a
replacement of SFAS No. 125. The Company has adopted the disclosure
provisions of SFAS No. 140 as of Fiscal 2001, and will adopt the accounting
requirements of SFAS No. 140 to the extent that it issues new beneficial
interests after March 31, 2001. Management uses key valuation assumptions
in determining the fair value of its I/O strip. Key valuation assumptions
relate to the average lives of the receivables sold and anticipated credit
losses, as well as the appropriate market discount rate. The Company
estimates the average lives of the receivables and the anticipated credit
losses using the rolling average of the past twelve months experience,
adjusted as necessary for the future impact of these key assumptions. The
key assumptions used for the following sensitivities are a loan payment
rate of 13.5%, a discount rate of 14.0% and a credit loss percentage of
8.1%. The average life of the receivables sold is approximately 0.6 years.
A 10% and 20% adverse change in the loan payment rate would impact the fair
value of the I/O strip by $401,000 and $739,000, respectively. A 10% and
20% adverse change in the discount rate would impact the fair value of the
I/O strip receivable by $14,000 and $32,000, respectively. A 10% and 20%
adverse change in the credit loss percentage would impact the fair value of
the I/O strip receivable by $442,000 and $885,000, respectively. These
adverse changes are hypothetical in nature and are presented in accordance
with SFAS No. 140.
Collections reinvested in revolving-period securitizations for Fiscal 2001
were $445,576,000. Cash flows received on retained interests and servicing
fees received for Fiscal 2001 were $34,963,000 and $5,708,000,
respectively. The Company is the servicer of the Master Trust, and
receives a servicing fee of approximately 2% of the investor interest.
During Fiscal 2001, total net credit losses were $22,602,000, and credit
card accounts that were 90 or more days delinquent at February 3,2001 were
$9,153,000.
Charming Shoppes Receivables Corp. and Charming Shoppes Street, Inc.,
wholly owned indirect subsidiaries of the Company, are separate special
purpose corporations. At February 3, 2001, Charming Shoppes Receivables
Corp. had $36,792,000 of Charming Shoppes Master Trust Certificates (which
are included in the $47,724,000 of retained interests at February 3, 2001),
and Charming Shoppes Street, Inc. had $1,127,000 of cash. These assets
will be available first and foremost to satisfy the claims of the
respective creditors of these separate corporate entities, including
certain claims of investors in the Charming Shoppes Master Trust. The
providers of the credit enhancements and trust investors have no other
recourse to the Company. The Company does not receive collateral from any
party to the securitization, and the Company does not have any risk of
counterparty non-performance.
The Company has a non-recourse agreement to permit a third party to provide
an accounts receivable proprietary credit card sales funding program for
its Catherine's Stores, which expires in January 2005. Under this
agreement, the third party reimburses the Company daily with respect to the
proprietary credit card sales generated by the Catherine's Stores credit
card accounts. The agreement may require the Company to repurchase
receivables from the third party under certain conditions relating to a
change in control of the Company. Net proceeds received from sales of
Catherine's receivables for Fiscal 2001 and for the month of January 2000
(the period subsequent to the Company's acquisition of Catherine's), were
approximately $121,093,000 and $6,611,000, respectively. The net balance
of accounts receivable held by the third party was approximately
$99,571,000 and $93,648,000 at February 3, 2001 and January 29, 2000,
respectively.
DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
Although the Company securitizes credit card receivables from its Fashion
Bug proprietary credit card program in a non-consolidated master trust, the
Company is exposed to fluctuations in interest rates. On September 15,
1999, the Company entered into an interest rate swap transaction with a
notional amount of $50,000,000 that limited the Company's exposure to
rising interest rates should the one-month LIBOR rate increase to a rate
above the agreement's specified rate of 6.51%. The swap agreement required
the Company to pledge certain assets if the market value of the interest
rate swap fell below an amount set forth in the agreement. As of January
29, 2000, there were no assets required to be pledged under the terms of
the agreement. During Fiscal 2001, the Company terminated the swap
agreement, and, in Fiscal 2002, the deferred loss related to this
termination will be recognized in comprehensive income and amortized to
selling, general, and administrative expenses over 44 months (the remaining
life of the original swap period) in accordance with SFAS No. 133.
LEASES
The Company leases substantially all of its stores under non-cancelable
operating lease agreements. Generally, these leases have initial periods
of 5 to 20 years and contain provisions for renewal options, additional
rentals based on a percentage of sales, and payment of certain real estate
taxes. The Company also leases certain other buildings and equipment.
Rental expense was:
(in thousands) 2001 2000 1999
---- ---- ----
Minimum rental...... $117,824 $ 86,438 $80,058
Contingent rental... 18,901 15,399 13,399
-------- -------- -------
$136,725 $101,837 $93,457
======== ======== =======
Minimum annual rental commitments for all non-cancelable leases for the
next five fiscal years and thereafter are: 2002 - $125,995,000; 2003 -
$108,404,000; 2004 - $89,170,000; 2005 - $66,241,000; 2006 - $42,573,000;
Thereafter - $87,565,000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following is a summary of the carrying amounts and estimated fair
values of the Company's financial instruments:
February 3, 2001 January 29, 2000
Carrying Fair Carrying Fair
(in thousands) Amount Value Amount Value
------ ----- ------ -----
Assets:
Cash and cash equivalents.... $ 56,544 $ 56,544 $ 34,299 $ 34,299
Available-for-sale securities 125,278 125,278 115,829 115,829
Liabilities:
7.5% Convertible Subordinated
Notes due 2006............. 96,047 93,012 96,047 98,448
7.5% mortgage note........... 6,449 6,449 6,652 6,652
Other long-term debt......... 108 108 102 102
Off-Balance-Sheet Financial
Instruments:
Interest rate caps........... 0 0 0 116
Interest rate swaps.......... 0 0 0 1,096
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, except for certain equity securities that have no available
bid/ask or sales prices as they are not traded in the open market. The
carrying amount of these equity securities ($7,952,000 at February 3, 2001
and January 29, 2000) was used to approximate fair value. The fair value
of the Company's 7.5% Convertible Subordinated Notes is based on quoted
market prices for the securities. The fair values of the 7.5% Mortgage
Note and other long-term debt approximate their carrying amounts based on
estimated current interest rates that the Company could obtain on similar
borrowings. The fair values of interest-rate caps and swaps were
determined on the basis of valuation pricing models which take into account
current market and contractual prices of the underlying instruments, as
well as the time value and yield curve or volatility factors underlying the
positions.
RESTRUCTURING CHARGE (CREDIT)
On March 5, 1998, the Company's Board of Directors approved a restructuring
plan that resulted in a pre-tax charge of $34,000,000. The plan was
approved in conjunction with the decision to eliminate men's merchandise
from the Company's Fashion Bug stores. To-date, 72 stores have been closed
in connection with the plan and 100 stores have been downsized.
Elimination of the men's merchandise from the stores was completed in
October 1998, the balance of the men's inventory has been sold, and the
selling space used for men's merchandise has been re-merchandised. In
Fiscal 2000, the Company determined that 21 of the stores originally
included in the plan would remain open as a result of negotiations with
landlords and changes in economic conditions. As a result, the Company
reversed reserves related to these stores and recognized a pre-tax
restructuring credit of $2,096,000. As of February 3, 2001, this
restructuring plan has been completed, and there are no remaining
restructure accruals relating to this plan.
The restructuring charge included a $10,000,000 write-off of the carrying
value of fixtures and improvements in the stores to be reduced in size or
closed. The fixtures and improvements had no alternative use or salvage
value, and were expected to be scrapped at the time of the closing or
downsizing of the stores. The restructuring charge also included accruals
for anticipated payments to landlords for the early termination of existing
store leases of $19,700,000, severance payments of $320,000, costs to
remove store signs and entrances of $3,300,000, costs of supplies to be
scrapped of $400,000, and legal and architectural fees of $280,000. The
accrual for severance payments was for 650 store employees expected to be
terminated as a result of the store closings. The number of employees
actually terminated was reduced to 590 as a result of the 21 stores that
remained open, as discussed above, and the excess severance accrual was
reversed as part of the restructuring credit of $2,096,000 recognized in
Fiscal 2000.
The following is a summary of other restructure charges accrued in
connection with the plan to eliminate men's merchandise from the Company's
Fashion Bug stores, and payments charged against the accrual:
Sign and
Lease Entrance
Termin- Removal Total
ation and Other Sever- Accrued
(in thousands) Costs Costs ance Costs
----- ----- ---- -----
Beginning accrual................. $19,700 $ 3,980 $ 320 $24,000
Fiscal 1999:
Payments........................ (6,071) (551) (200) (6,822)
------- ------- ----- -------
Balance, January 30, 1999......... 13,629 3,429 120 17,178
Fiscal 2000:
Payments........................ (6,955) (1,340) (90) (8,385)
Revision of cost estimate....... (1,784) (282) (30) (2,096)
------- ------- ----- -------
Balance, January 29, 2000......... 4,890 1,807 0 6,697
Fiscal 2001:
Payments........................ (4,890) (1,807) -- (6,697)
------- ------- ----- -------
Balance, February 3, 2001......... $ 0 $ 0 $ 0 $ 0
======= ======= ===== =======
On December 10, 1998, the Company's Board of Directors approved a plan to
close the Company's Bensalem, Pennsylvania distribution center and sell the
facility. The plan was approved in conjunction with the decision to
consolidate the Company's distribution center operations in the Company's
Greencastle, Indiana distribution center. The plan resulted in a pre-tax
restructuring charge of $20,246,000 during Fiscal 1999.
The restructuring charge included a $17,969,000 write-down of the cost of
the Bensalem facilities from a carrying value of $23,631,000 to a net
realizable value of $5,662,000, based on an independent appraisal. The
restructuring charge also included an accrual of $1,556,000 for severance
costs resulting from the termination of 90 warehouse and distribution
personnel and 11 management employees. In addition, the restructuring
charge included an accrual of $721,000 for incremental warehouse handling
costs, outplacement services for terminated employees, legal fees related
to the sale of the facility, and other non-recurring costs relating to the
closure.
The Bensalem distribution center closed on December 10, 1998, and the
Company completed the sale of the Bensalem facility during Fiscal 2000.
Upon completion of the sale of the facility, the Company recognized a pre-
tax restructuring credit of $2,834,000 in Fiscal 2000, which primarily
represented sales proceeds in excess of the estimated net realizable value
of the Bensalem facility.
The following is a summary of other restructure charges accrued in
connection with the closing of the Bensalem facility, and payments charged
against the accrual:
Contractual
Warehouse
Handling Other Total
(in thousands) Severance Costs Costs Costs
--------- ----- ----- -----
Beginning accrual........ $1,556 $ 436 $ 285 $ 2,277
Fiscal 1999:
Payments............... (981) (0) (26) (1,007)
------ ----- ----- -------
Balance, January 30, 1999 575 436 259 1,270
Fiscal 2000:
Payments............... (575) (436) (144) (1,155)
------ ----- ----- -------
Balance, January 29, 2000 0 0 115 115
Fiscal 2001:
Payments............... -- -- (115) (115)
------ ----- ----- -------
Balance, February 3, 2001 $ 0 $ 0 $ 0 $ 0
====== ===== ===== =======
During the fourth quarter of Fiscal 2000, the Company recorded a
restructuring charge of $1,459,000 in connection with the Company's
acquisitions of Modern Woman and Catherine's Stores. At the time of the
Catherine's Stores acquisition, the Company planned to consolidate Modern
Woman stores into the Catherine's Stores division. The restructuring
charge was primarily for lease termination costs related to the closing of
11 Modern Woman stores that geographically overlapped Catherine's Stores.
There were no payments charged against this accrual as of January 29, 2000.
During Fiscal 2001, the Company closed 10 of the 11 stores, and accrued
restructuring charges of $1,086,000 related to the closed stores were paid.
As of February 3, 2001, $373,000 of accrued restructuring charges related
to the remaining store were unpaid.
NON-RECURRING GAIN FROM DEMUTUALIZATION OF INSURANCE COMPANY
During Fiscal 2000, the Company received a $6,700,000 stock distribution
from one of its mutual insurance carriers in connection with the carrier's
conversion to a publicly-held corporation (demutualization). In accordance
with the consensus reached in Emerging Issues Task Force Issue No. 99-4,
"Accounting for Stock Received from the Demutualization of A Mutual
Insurance Company," the Company recorded the distribution at its fair value
and recognized the resulting non-recurring gain in income from continuing
operations, and subsequently sold the securities received.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(in thousands, except First Second Third Fourth
(per share amounts) Quarter Quarter Quarter Quarter
------- ------- ------- -------
Fiscal 2001(1)
Net sales........... $378,925 $429,658 $363,812 $434,684
Gross profit........ 107,409 133,128 108,236 123,752
Net income.......... 7,733(2) 26,841 7,377 9,147
Basic net income
per share......... .08(2) .27 .07 .09
Diluted net income
per share......... .08(2) .24 .07 .09
Fiscal 2000
Net sales........... $258,975 $311,743 $277,441 $348,370
Gross profit........ 68,913 96,971 78,264 97,607
Net income.......... 6,002(3) 22,225(4) 8,276(5) 8,556(6)
Basic net income
per share......... .06(3) .23 .08 .09
Diluted net income
per share......... .06(3) .21 .08 .08
--------------------
[FN]
(1) In the fourth quarter of Fiscal 2001, the Company changed its method of
accounting for sales returns and layaway sales, as required by Securities
and Exchange Commission Staff Accounting Bulletin No. 101 ("SAB 101"),
"Revenue Recognition in Financial Statements." The Company adopted SAB 101
effective as of the beginning of Fiscal 2001 and restated its results of
operations for the first three quarters of Fiscal 2001. Quarterly
financial data for the first three quarters of Fiscal 2001 as previously
reported, prior to restatement for the adoption of SAB 101, are as follows:
(in thousands, except First Second Third
(per share amounts) Quarter Quarter Quarter
------- ------- -------
Net sales............................ $381,334 $428,229 $365,690
Gross profit......................... 108,493 132,485 109,081
Net income........................... 8,943 26,444 7,899
Basic net income per share........... .09 .26 .08
Diluted net income per share......... .09 .24 .08
(2) Includes cumulative effect of adoption of SAB 101 of ($540) (($.01) per
share).
(3) Net income includes an after-tax extraordinary gain from early
retirement of debt of $1,232 ($.01 per share).
(4) Net income includes an after-tax restructuring credit of $1,842.
(5) Net income includes an after-tax non-recurring gain from
demutualization of insurance company of $4,355.
(6) Net income includes an after-tax restructuring credit of $1,362 and an
after-tax restructuring charge of $948.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
There are no matters that are required to be reported under this Item 9.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding Directors of the Company is included under the
caption "Election of Directors" of the Company's definitive proxy
statement, which is incorporated herein by reference. Information
regarding Executive Officers is included under "Item 4A. Executive
Officers of the Registrant," in Part I of this Report.
Item 11. Executive Compensation
Information regarding executive compensation is included under the captions
"Management Compensation" and "Report of the Compensation and Stock Option
Committees of the Board of Directors on Executive Compensation" of the
Company's definitive proxy statement, which is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding the security ownership of certain beneficial owners
and management is set forth under the caption "Principal Shareholders and
Management Ownership" of the Company's definitive proxy statement, which is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is set
forth under the captions "Certain Relationships and Related Transactions"
and "Compensation Committee Interlocks and Insider Participation" of the
Company's definitive proxy statement, which is incorporated herein by
reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
The following Consolidated Financial Statements of Charming Shoppes, Inc.
and its subsidiaries are included in Part II, Item 8:
Report of Independent Auditors
Consolidated Balance Sheets - February 3, 2001 and January 29, 2000
Consolidated Statements of Operations and Comprehensive Income (Loss) -
years ended February 3, 2001, January 29, 2000, and January 30, 1999
Consolidated Statements of Stockholders' Equity - years ended
February 3, 2001, January 29, 2000, and January 30, 1999
Consolidated Statements of Cash Flows - years ended
February 3, 2001, January 29, 2000, and January 30, 1999
Notes to Consolidated Financial Statements
(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 is included in
the consolidated financial statements or notes thereto included in Part II,
Item 8 of this Report on Form 10-K.
(b) Reports on Form 8-K
No reports were filed during the quarter ended February 3, 2001.
(c) 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 by footnote, 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.
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.
(Exhibit 3.1).
3.2 By-Laws, as Amended and Restated, incorporated by reference to Form
10-Q of the Registrant for the quarter ended July 31, 1999. (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.
Material Contracts
10.1.1 Series 1997-1 Supplement dated as of November 25, 1997 to the
Second Amended and Restated Pooling and Servicing Agreement dated as of
November 25, 1997 by and among Charming Shoppes Receivables Corp., as
Seller, Spirit of America National Bank, as Servicer and First Union
National Bank, as Trustee on behalf of the Series 1997-1 Certificate
Holders ($83,500,000 Charming Shoppes Master Trust Series 1997-1),
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended January 31, 1998. (Exhibit 10.1.9).
10.1.2 Release Agreement, dated as of February 28, 1997, among (a)
Congress Financial Corporation (Lender) and (b) Charming Shoppes, Inc.,
Charming Shoppes of Delaware, Inc., CSI Industries, Inc. and FB Apparel,
Inc. (collectively, the Borrowers), incorporated by reference to Form 10-K
of the Registrant for the fiscal year ended February 1, 1997. (Exhibit
10.1.15).
10.1.3 Second Amended and Restated Loan and Security Agreement, Dated
February 28, 1997, by and between (a) Congress Financial Corporation, as
Lender, (b) Charming Shoppes, Inc., Charming Shoppes of Delaware, Inc., CSI
Industries, Inc. and FB Apparel, Inc., as borrowers and (c) Charming
Shoppes of Delaware, Inc., as Borrower's Agent, incorporated by reference
to Form 10-K of the Registrant for the fiscal year ended February 1, 1997.
(Exhibit 10.1.16).
10.1.4 Amendment of Second Amended and Restated Loan and Security
Agreement, dated February 28, 1997 among Charming Shoppes, Inc. (the
"Company"), certain subsidiaries of the Company which are parties thereto,
Borrowers' Agent and Congress Financial Corporation, dated as of May 1,
1998, incorporated by reference to Form 10-Q for the quarter ended May 2,
1998. (Exhibit 10.1).
10.1.5 Amendment No. 2 to Second Amended and Restated Loan and Security
Agreement, dated February 28, 1997 (as amended and supplemented) among
Charming Shoppes, Inc. (the "Company"), certain subsidiaries of the Company
which are parties thereto, Borrowers' Agent and Congress Financial
Corporation, dated as of December 21, 1998, incorporated by reference to
Form 10-K of the Registrant for the fiscal year ended January 30, 1999.
(Exhibit 10.1.14).
10.1.6 Consent of Congress Financial Corporation, dated July 30, 1999, to
the Modern Woman Acquisition, Re: Second Amended and Restated Loan and
Security Agreement, dated February 28, 1997, as amended and supplemented,
among Charming Shoppes, Inc. (the "Company"), certain subsidiaries of the
Company which are parties thereto (collectively, with the Company,
"Borrowers"), Borrower's Agent, and Congress Financial Corporation,
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended January 29, 2000. (Exhibit 10.1.14).
10.1.7 Amendment, dated as of October 19, 1999, to Second Amended and
Restated Loan and Security Agreement, by and among Congress Financial
Corporation, as Lender, Charming Shoppes, Inc., Charming Shoppes of
Delaware, Inc., CSI Industries, Inc., and FB Apparel, Inc., as Borrowers,
and Charming Shoppes of Delaware, Inc., as Borrower's Agent, dated February
28, 1997, incorporated by reference to Form 10-K of the Registrant for the
fiscal year ended January 29, 2000. (Exhibit 10.1.15).
10.1.8 Consent of Congress Financial Corporation, dated November 1999, to
Catherine Stores Merger Transaction, Re: Second Amended and Restated Loan
and Security Agreement, dated February 28, 1997, as amended and
supplemented, among Charming Shoppes, Inc. (the "Company"), certain
subsidiaries of the Company which are parties thereto (collectively, with
the Company, "Borrowers"), Borrower's Agent, and Congress Financial
Corporation, incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended January 29, 2000. (Exhibit 10.1.16).
10.1.9 Amendment No. 3, dated as of December 27, 1999, to Second Amended
and Restated Loan and Security Agreement, dated February 28, 1997, as
amended and supplemented, among Charming Shoppes, Inc. (the "Company"),
certain subsidiaries of the Company which are parties thereto
(collectively, with the Company, "Borrowers"), Borrower's Agent, and
Congress Financial Corporation, incorporated by reference to Form 10-K of
the Registrant for the fiscal year ended January 29, 2000. (Exhibit
10.1.17).
10.1.10 Amendment No. 4, dated as of October 26, 2000, to Second Amended
and Restated Loan and Security Agreement, dated February 28, 1997, as
amended and supplemented, among Charming Shoppes, Inc. (the "Company"),
certain subsidiaries of the Company which are parties thereto
(collectively, with the Company, "Borrowers"), Borrower's Agent, and
Congress Financial Corporation.
10.1.11 Amendment No. 5, dated as of January 31, 2001, to Second Amended
and Restated Loan and Security Agreement, dated February 28, 1997, as
amended and supplemented, among Charming Shoppes, Inc. (the "Company"),
certain subsidiaries of the Company which are parties thereto
(collectively, with the Company, "Borrowers"), Borrower's Agent, and
Congress Financial Corporation.
10.1.12 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 Receivables Corp., (No. 333-71757) dated July 22,
1999. (Exhibit No. 4.1).
10.1.13 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 Receivables Corp., (No. 333-71757) dated July 22,
1999. (Exhibit No. 4.2).
10.1.14 Receivables Purchase Agreement, dated as of May 28, 1999, among
Charming Shoppes Street, 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 January 29, 2000. (Exhibit
10.1.22).
10.1.15 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.
(Exhibit 10.1.23).
10.1.16 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.
10.1.17 Certificate Purchase Agreement, dates 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.
10.1.18 Agreement and Plan of Merger, dated as of November 15, 1999, by
and among Catherines Stores Corporation, Charming Shoppes, Inc., and Rose
Merger Sub, Inc., incorporated by reference to Schedule 14(D)-1 of the
Registrant filed November 19, 1999. (Item 11(c)(1)).
10.1.19 Merchant Services Agreement, between Hurley State Bank and
Catherines, Inc., incorporated by reference to Form 10-Q of Catherines
Stores Corp. (Commission File No. 000-19372) for the quarter ended May 1,
1999. (Item 6. (A)(1).)
10.1.20 Credit Agreement, Dated July 31, 2000, by and between Catherines,
Inc., Catherines Stores Corporation, and their subsidiaries, as Borrowers,
and Amsouth Bank and Hibernia National Bank, as Banks, and Amsouth Bank, as
Agent, incorporated by reference to Form 10-Q of the Registrant for the
quarter ended October 28, 2000. (Exhibit 10.1).
Management Contracts and Compensatory Plans and Arrangements
10.2.1 The 1986 Employees' Stock Option Plan of Charming Shoppes, Inc.,
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended February 1, 1992. (Exhibit 10.2.2, Pg. 240).
10.2.2 The 1988 Key Employee Stock Option Plan of Charming Shoppes, Inc.,
as amended, incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended January 30, 1993. (Exhibit 10.2.3, Pg. 486).
10.2.3 The 1990 Employees' Stock Incentive Plan of Charming Shoppes, Inc.,
as amended, incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended January 30, 1993. (Exhibit 10.2.4, Pg. 492).
10.2.4 The 1989 Non-Employee Director Stock Option Plan of Charming
Shoppes, Inc., as amended, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 30, 1993. (Exhibit 10.2.5,
Pg. 499).
10.2.5 Non-Employee Director Restricted Stock Plan of Charming Shoppes,
Inc., as amended, incorporated by reference to Form 10-K of the Registrant
for the fiscal year ended January 30, 1993. (Exhibit 10.2.6, Pg. 503).
10.2.6 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. (Exhibit 10.1).
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. (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. (Exhibit 10.3).
10.2.9 Subplan and Summary Description of the Annual Incentive Plan of
Charming Shoppes, Inc., incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended February 1, 1992. (Exhibit 10.2.13,
Pg. 251).
10.2.10 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. (Exhibit 10.2.10).
10.2.11 The 1993 Employees' Stock Incentive Plan Stock Option Agreement
(regular vesting schedule) of Charming Shoppes, Inc., incorporated by
reference to Form 10-K of the Registrant for the fiscal year ended January
29, 1994. (Exhibit 10.2.11).
10.2.12 The 1993 Employees' Stock Incentive Plan Stock Option Agreement
(accelerated vesting schedule) of Charming Shoppes, Inc., incorporated by
reference to Form 10-K of the Registrant for the fiscal year ended January
29, 1994. (Exhibit 10.2.12).
10.2.13 The Charming Shoppes, Inc. 1993 Employees' Stock Incentive Plan
Restricted Stock Agreement, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 30, 1999. (Exhibit 10.2.10).
10.2.14 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. (Exhibit 10.2.10).
10.2.15 The Charming Shoppes, Inc. Restricted Stock Award Plan for
Associates, incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended February 3, 1996. (Exhibit 10.2.11).
10.2.16 The Charming Shoppes, Inc. 1996 Restricted Stock Award Program,
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended February 3, 1996. (Exhibit 10.2.12).
10.2.17 The Charming Shoppes, Inc. 1996 Restricted Stock Award Program
Restricted Stock Agreement, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended February 3, 1996. (Exhibit 10.2.13).
10.2.18 Employment Agreement, dated as of May 17, 1995, by and between
Charming Shoppes, Inc., and David V. Wachs, incorporated by reference to
Form 10-K of the Registrant for the fiscal year ended February 3, 1996.
(Exhibit 10.2.14).
10.2.19 Employment Agreement, dated as of August 22, 1995 by and between
Charming Shoppes, Inc., and Dorrit J. Bern, incorporated by reference to
Form 10-K of the Registrant for the fiscal year ended February 3, 1996.
(Exhibit 10.2.15).
10.2.20 Employment Agreement, dated as of October 12, 1999, by and between
Charming Shoppes, Inc. and Dorrit J. Bern, incorporated by reference to
Form 10-Q of the Registrant for the quarter ended October 30, 1999.
(Exhibit 10.1).
10.2.21 1993 Employees' Stock Incentive Plan Stock Option Agreement, dated
as of August 23, 1995, by and between Charming Shoppes, Inc., and Dorrit J.
Bern, incorporated by reference to Form 10-K of the Registrant for the
fiscal year ended February 3, 1996. (Exhibit 10.2.16).
10.2.22 1993 Employees' Stock Incentive Plan Restricted Stock and Stock
Bonus Agreement, dated as of March 20, 1996, by and between Charming
Shoppes, Inc., and Dorrit J. Bern, incorporated by reference to Form 10-K
of the Registrant for the fiscal year ended February 3, 1996. (Exhibit
10.2.17).
10.2.23 1993 Employees' Stock Incentive Plan Restricted Stock Agreement,
dated as of October 12, 1999, by and between Charming Shoppes, Inc. and
Dorrit J. Bern, incorporated by reference to Form 10-Q of the Registrant
for the quarter ended October 30, 1999. (Exhibit 10.2).
10.2.24 The Charming Shoppes, Inc. Non-Employee Directors Compensation
Program, incorporated by reference to Registration Statement on Form S-8
(Registration No. 333-22323), of the Registrant, dated February 25, 1997.
(Exhibit 4.1).
10.2.25 The Charming Shoppes, Inc. Compensation Program for the Non-
Employee Chairman of the Board of Directors, incorporated by reference to
Registration Statement on Form S-8 (Registration No. 333-22323), of the
Registrant, dated February 25, 1997. (Exhibit 4.2).
10.2.26 Charming Shoppes, Inc. 1998 Restricted Award Program, incorporated
by reference to Form 10-K of the Registrant for the fiscal year ended
January 31, 1998. (Exhibit 10.2.22).
10.2.27 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. (Exhibit 10.2.24).
10.2.28 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. (Exhibit 10.2.25).
10.2.29 Charming Shoppes, Inc. Amended and Restated 2000 Associates' Stock
Incentive Plan.
10.2.30 Charming Shoppes, Inc. 2000 Associates' Stock Incentive Plan Stock
Option Agreement, incorporated by reference to Form 10-K of the Registrant
for the fiscal year ended January 29, 2000. (Exhibit 10.2.32).
10.2.31 Forms of Executive Severance Agreements by and between the
Company, the named executive officers in the Company's Proxy Statement for
the Annual Meeting to be held on June 15, 2000, and certain other Executive
Officers of the Company, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 29, 2000. (Exhibit 10.2.33).
10.2.32 Charming Shoppes, Inc. Employees' Retirement Savings Plan, as
Amended and Restated, Effective January 1, 1998, Including Amendments
Adopted Through August 1, 2001.
Other Exhibits
Exhibit 21 - Subsidiaries of Registrant
Exhibit 23 - Consent of independent auditors
SIGNATURES
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.
/S/ DORRIT J. BERN
-------------------------------------
By: Dorrit J. Bern
Chairman of the Board
President and Chief Executive Officer
Date: April 26, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/S/ DORRIT J. BERN /S/ ERIC M. SPECTER
------------------------------------- ------------------------------------
Dorrit J. Bern, April 26, 2001 Eric M. Specter, April 26, 2001
Chairman of the Board Executive Vice President
President and Chief Executive Officer Chief Financial Officer And Treasurer
/S/ JOHN J. SULLIVAN /S/ JOSEPH L. CASTLE II
------------------------------------- ------------------------------------
John J. Sullivan, April 26, 2001 Joseph L. Castle II, April 26, 2001
Vice President, Corporate Controller Director
Chief Accounting Officer
/S/ ALAN ROSSKAMM /S/ MARVIN L. SLOMOWITZ
------------------------------------- ------------------------------------
Alan Rosskamm, April 26, 2001 Marvin L. Slomowitz, April 26, 2001
Director Director
/S/ PAMELA S. LEWIS
------------------------------------- ------------------------------------
Marjorie Margolies-Mezvinsky Pamela S. Lewis, April 26, 2001
Director Director
/S/ CHARLES T. HOPKINS
------------------------------------- ------------------------------------
Kenneth S. Olshan, Charles T. Hopkins, April 26, 2001
Director Director
/S/ KATHERINE M. HUDSON
-------------------------------------
Katherine M. Hudson, April 26, 2001
Director