SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-7258
CHARMING SHOPPES, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1721355
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
450 WINKS LANE BENSALEM, PA 19020
(Address of principal executive offices) (Zip Code)
(215) 245-9100
(Registrant's telephone number, including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES (X) NO ( )
102,797,094 common shares were outstanding as of July 30, 1994.
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CHARMING SHOPPES, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
July 30, 1994 and January 29, 1994.....................1-2
Consolidated Statements of Income
Thirteen weeks ended July 30, 1994 and
July 31, 1993............................................3
Consolidated Statements of Income
Twenty-six weeks ended July 30, 1994 and
July 31, 1993............................................4
Consolidated Statements of Cash Flows
Twenty-six weeks ended July 30, 1994 and
July 31, 1993............................................5
Notes to Consolidated Financial Statements................6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............9-11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders...........................................12
Item 6. Exhibits and Reports on Form 8-K..................13
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
July 30, January 29,
1994 1994
(In Thousands) -------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 80,440 $ 52,390
Available-for-sale securities 42,476 45,290
Merchandise inventories 313,915 259,527
Prepayments and other 87,961 83,097
-------- -------
Total Current Assets 524,792 440,304
Property, equipment and leasehold improvements 451,505 416,029
Less: accumulated depreciation and amortization 181,469 161,695
-------- --------
Net property, equipment and leasehold
improvements 270,036 254,334
Available-for-sale securities (including
a fair value adjustment of ($526) and $0,
respectively) 49,447 83,695
Other assets 48,596 50,900
-------- --------
Total Assets $892,871 $829,233
======== ========
See Notes to Unaudited Consolidated Financial Statements
(1)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
July 30, January 29,
1994 1994
(In Thousands Except Shares) -------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $199,956 $147,638
Accrued expenses 85,503 97,234
Income taxes 2,654 8,521
Current portion - long-term debt 5,007 5,005
-------- --------
Total Current Liabilities 293,120 258,398
Deferred taxes 27,437 26,437
Long-term debt 21,937 22,298
Stockholders' Equity
Common Stock $.10 par value
Authorized 300,000,000 shares
Issued and outstanding 102,797,094 and
102,735,437 shares 10,280 10,274
Additional paid in capital 54,918 54,208
Deferred employee compensation (6,506) (7,015)
Unrealized loss (net of income taxes of
$184 and $0, respectively) (342) 0
Retained earnings 492,027 464,633
-------- --------
Total Stockholders' Equity 550,377 522,100
-------- --------
Total Liabilities and Stockholders' Equity $892,871 $829,233
======== ========
See Notes to Unaudited Consolidated Financial Statements
(2)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For Twenty-six Weeks Ended
(In Thousands Except Share and July 30, July 31,
Per Share Amounts) 1994 1993
-------- --------
Net sales $621,028 $583,936
Other income 4,571 5,015
-------- --------
Total Revenue 625,599 588,951
-------- --------
Cost of goods sold, buying and
occupancy expenses 440,450 402,100
Selling, general and administrative expenses 136,772 131,522
Interest expense 1,151 1,339
-------- --------
Total Expenses 578,373 534,961
-------- --------
Income before income taxes and cumulative
effect of an accounting change 47,226 53,990
Income taxes 15,207 17,169
-------- --------
Income before cumulative effect
of accounting change 32,019 36,821
Cumulative effect of adoption of SFAS 109 0 3,991
-------- --------
Net Income $ 32,019 $ 40,812
======== ========
Weighted average number of common shares
outstanding 107,830,329 108,640,007
=========== ===========
Per Share Data:
Income before cumulative effect of
accounting change $.30 $.34
Cumulative effect of adoption of SFAS 109 .00 .04
------ ------
Net Income $.30 $.38
====== ======
Cash Dividends $.0450 $.0450
====== ======
See Notes to Unaudited Consolidated Financial Statements
(3)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For Thirteen Weeks Ended
(In Thousands Except Share and July 30, July 31,
Per Share Amounts) 1994 1993
-------- --------
Net sales $323,417 $308,637
Other income 2,396 2,840
-------- --------
Total Revenue 325,813 311,477
-------- --------
Cost of goods sold, buying and
occupancy expenses 229,735 212,017
Selling, general and administrative expenses 68,849 68,561
Interest expense 585 690
-------- --------
Total Expenses 299,169 281,268
-------- --------
Income before income taxes 26,644 30,209
Income taxes 8,580 9,607
-------- --------
Net Income $ 18,064 $ 20,602
======== ========
Weighted average number of common shares
outstanding 107,515,611 108,560,444
=========== ===========
Per Share Data:
Net Income $.17 $.19
====== ======
Cash Dividends $.0225 $.0225
====== ======
See Notes to Unaudited Consolidated Financial Statements
(4)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For Twenty-six Weeks Ended
July 30, July 31,
(In Thousands) 1994 1993
Operating Activities ------- -------
Net income $32,019 $40,812
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred income taxes 1,000 1,000
Depreciation & amortization 22,130 19,474
Amortization of deferred compensation expense 1,293 1,583
Gain on sale of available-for-sale securities (184) (20)
Cumulative effect of accounting change 0 (3,991)
Changes in operating assets and liabilities:
Prepayments & other (5,163) (3,687)
Merchandise inventories (54,388) (76,110)
Accounts payable 52,318 31,221
Accrued expenses (11,731) (1,870)
Income taxes payable (5,867) (762)
-------- --------
Net Cash Provided by Operating Activities 31,427 7,650
-------- --------
Investing Activities
Investment in capital assets (35,476) (41,523)
Sales of available-for-sale securities 65,314 43,720
Purchases of available-for-sale securities (28,594) (56,983)
Increase in other assets (52) (5,540)
-------- --------
Net Cash Provided by (Used in)
Investing Activities 1,192 (60,326)
-------- --------
Financing Activities
Proceeds from long-term borrowings 0 1,200
Reduction of long-term debt (359) (328)
Proceeds from exercise of stock options 415 825
Dividends paid (4,625) (4,616)
-------- --------
Net Cash Used in Financing Activities (4,569) (2,919)
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 28,050 (55,595)
Cash and Cash Equivalents, Beginning of Year 52,390 98,786
-------- --------
Cash and Cash Equivalents, End of Period $ 80,440 $ 43,191
======== ========
See Notes to Unaudited Consolidated Financial Statements
(5)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Consolidated Financial Statements
The consolidated balance sheet as of July 30, 1994, the
consolidated statements of income for the three and six month periods
ended July 30, 1994 and July 31, 1993 and the consolidated statements
of cash flows for the six month periods then ended have been prepared
by the Company, without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position, results of operations and
cash flows at July 30, 1994 and for all periods presented have been
made.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these condensed consolidated financial statements be read in
conjunction with the financial statements and notes thereto included in
the Company's January 29, 1994 annual report on Form 10-K. The results
of operations for the periods ended July 30, 1994 and July 31, 1993 are
not necessarily indicative of the operating results for the full year.
2. Stockholders' Equity
During the six months ended July 30, 1994, shareholders' equity
changed to reflect the following items: net income of $32,019,000;
dividends paid of $4,625,000; amortization of deferred compensation
expense of $1,293,000; an increase in common stock and additional paid
in capital of $315,000 from the exercise of options for common stock; a
reduction of common stock and additional paid-in capital of $383,000
from the retirement of common stock; an increase in stockholders'
equity of $1,357,000 from the cumulative effect of adopting Statement
of Financial Accounting Standards No. 115; and a decrease in
stockholders' equity of $1,699,000 from the unrealized loss on
available-for-sale securities.
3. Income Taxes
Effective January 31, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for
Income Taxes" and has separately reported the cumulative effect of that
change in the Consolidated Statement of Income for the twenty-six weeks
ended July 31, 1993. SFAS 109 requires a change from the deferred
method of accounting for income taxes under APB Opinion 11 to the
liability method of 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
(6)
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financial statement and income tax carrying value differences. As
permitted by SFAS 109, the Company elected not to restate the financial
statements for any prior years. The cumulative effect of the change
for the twenty-six weeks ended July 31, 1993 was an increase in net
income of $3,991,000 or $0.04 per share.
4. Accounting Changes
In May, 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 115 ("SFAS 115"),
"Accounting for Certain Investments in Debt and Equity Securities."
The Company adopted the provisions of the new standard for investments
held as of or acquired after January 30, 1994. In accordance with SFAS
115, prior period financial statements have not been restated.
Pursuant to SFAS 115, management has determined that the Company's
investments should be classified as available-for-sale. As available-
for-sale investments, these securities are carried at fair value
(previously carried at amortized cost) and unrealized gains and losses
are reported in a separate component of stockholders' equity. The
amortized 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 are also included
in other income. The cost of securities sold is based on the specific
identification method. Interest from investments is included in other
income.
The following is a summary of available-for-sale securities as of July
30, 1994:
(in thousands)
Net
Unrealized Estimated
Cost Gain(Loss) Fair Value
-------- ----- --------
CAFCO, Inc. certificates $ 15,873 $ 0 $ 15,873
Seller certificates 14,702 0 14,702
Municipal bonds 23,280 (501) 22,779
Government agency mortgage
backed securities 12,168 (885) 11,283
U.S. Treasury and government
agency bonds 15,380 796 16,176
Low income housing partnerships 3,187 0 3,187
Preferred stocks 3,178 83 3,261
Other 4,681 (19) 4,662
-------- ----- --------
$ 92,449 $(526) $ 91,923
======== ===== ========
(7)
<PAGE>
The contractual maturities of available-for-sale securities at July
30, 1994 were:
(in thousands)
Estimated
Cost Fair Value
-------- --------
Due in one year or less $ 42,476 $ 42,476
Due after one year through five years 16,606 17,401
Due after five years 14,833 14,315
-------- --------
73,915 74,192
Mortgage backed securities 12,168 11,283
Equity Securities 6,366 6,448
-------- --------
$ 92,449 $ 91,923
======== ========
(8)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net sales,
certain items appearing in the Consolidated Statements of Income for
the thirteen week and twenty-six week periods ended July 30, 1994 and
July 31, 1993.
Thirteen Weeks Ended Twenty-six Weeks Ended
July 30, July 31, July 30, July 31,
1994 1993 1994 1993
-------------------- --------------------
Net Sales 100.0% 100.0% 100.0% 100.0%
-------------------- --------------------
Cost of Goods Sold,
Buying, and Occupancy 71.0 68.7 70.9 68.9
-------------------- --------------------
Selling, General and
Administrative 21.3 22.2 22.0 22.5
-------------------- --------------------
Interest Expense .2 .2 .2 .2
-------------------- --------------------
Income Taxes 2.6 3.1 2.4 3.0
-------------------- --------------------
Income before cumulative
effect of accounting changes N/A N/A N/A 6.3
-------------------- --------------------
Cumulative effect of
adoption of SFAS 109 N/A N/A N/A .7
-------------------- --------------------
Net Income 5.6% 6.7% 5.2% 7.0%
-------------------- --------------------
Thirteen Weeks Ended July 30, 1994 and July 31, 1993
Net sales for the second quarter of the fiscal year ending January
28, 1995 ("Fiscal 1995") totaled $323,417,000 as compared to
$308,637,000 for the corresponding period of the fiscal year ended
January 29, 1994 ("Fiscal 1994"), a 4.8% increase. The Company had a
4.0% decrease in sales of existing stores compared to Fiscal 1994.
11.0% of sales for the second quarter of Fiscal 1995 are attributable
to stores opened since the second quarter of Fiscal 1994. Sales for
stores closed since the second quarter of Fiscal 1994 accounted for
2.2% of sales during that quarter. The number of retail stores
increased from 1,248 on July 31, 1993 to 1,368 on July 30, 1994.
During the second quarter of Fiscal 1995 the Company opened 29 new
stores and closed 5 existing stores. The Company anticipates a net
(9)
<PAGE>
addition of approximately 100 new stores in Fiscal 1995 and a 14%
expansion of selling square footage.
Cost of goods sold, buying and occupancy expenses expressed as a
percentage of sales increased 2.3% in the second quarter of Fiscal 1995
as compared with the corresponding period of Fiscal 1994. The primary
reason for this decrease was the October 1993 purchase and resale of
private label credit card receivables previously owned and administered
by BancOhio National Bank. This transaction lowered the cost of
servicing the Company's private label credit card program as compared
to the corresponding period of the prior fiscal year. This was
partially offset by the effects of lower comparative store sales on
relatively fixed general and administrative costs.
Selling, general and administrative expenses expressed as a
percentage of sales decreased 0.9% in the second quarter of Fiscal 1995
as compared to the corresponding period of Fiscal 1994. The primary
reason for this decrease was the favorable effect of lower interest
rates on the costs of the Company's private label credit card program
as compared to the corresponding period of the prior year. This was
offset by the effects of lower comparative store sales on relatively
fixed general and administrative costs.
Twenty-six Weeks Ended July 30, 1994 and July 31, 1993
Net sales for the first two quarters of Fiscal 1995 totaled
$621,028,000 as compared to $583,936,000 for the corresponding period
of Fiscal 1994, an 6.4% increase. The Company had a 2.2% decrease in
sales of existing stores compared to Fiscal 1994. 11.4% of sales for
the first two quarters of Fiscal 1995 are attributable to stores opened
since the second quarter of Fiscal 1994. Sales for stores closed since
the second quarter of Fiscal 1994 accounted for 2.8% of sales during
the first two quarters of Fiscal 1994.
Cost of goods sold, buying and occupancy expenses expressed as a
percentage of sales increased 2.0% in the first two quarters of Fiscal
1995 as compared with the corresponding period of Fiscal 1994. The
primary reasons for this increase were the effect of lower comparative
store sales on relatively fixed buying and occupancy costs and a
decline in merchandise margins as compared to the prior year.
Selling, general and administrative expenses expressed as a
percentage of sales decreased 0.5% in the first two quarters of Fiscal
1995 as compared to the corresponding period of Fiscal 1994. The
primary reason for this decrease was the favorable effect of the lower
cost of servicing the Company's private label credit card program as
compared to the corresponding period of the prior year. This was
partially offset by the effects of lower comparative store sales on
relatively fixed general and administrative costs.
(10)
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At July 30, 1994, the Company had working capital of $231,672,000
as compared with $181,906,000 at January 29, 1994. The ratio of
current assets to current liabilities was 1.8 to 1 at July 30, 1994 and
1.7 to 1 at January 29, 1994.
Cash provided by operating activities was $31,427,000 during the
first six months of Fiscal 1995 as compared to $7,650,000 during the
corresponding period of Fiscal 1994. This $23,777,000 increase was
primarily due to the relative decrease in the Company's net investment
in inventory (inventory increase less accounts payable increase).
Through July 30, 1994, capital expenditures amounted to
$35,476,000. During Fiscal 1995, the Company anticipates incurring
capital expenditures of approximately $88 million primarily for the
construction of 130 new stores, the remodeling and expansion of 60
existing stores, and the expansion of the distribution facility in
Greencastle, Indiana. It is anticipated that the capital required for
expenditures will be financed principally through internally generated
funds.
Cash dividends were $4,625,000 for the six months ended July 30,
1994 as compared to $4,616,000 for the comparable period of Fiscal
1994.
(11)
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders The
Company's annual meeting of shareholders was held on June 28, 1994.
Election of Directors
The following nominees were elected as Directors of the Company:
NOMINEE NUMBER OF VOTES TERM
FOR WITHHELD
Mordechay Kafry 84,000,078 2,247,537 1997
Marvin L. Slomowitz 84,077,931 2,169,684 1997
Geoffrey W. Levy 84,399,834 1,847,781 1997
APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN
The proposal for the adoption of the Employee Stock Purchase Plan was
approved and received the votes of the number of shares set forth
below:
FOR AGAINST ABSTAIN BROKER NONVOTES
82,694,410 679,131 2,452,674 421,400
(12)
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended July 30, 1994
(13)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CHARMING SHOPPES, INC.
-----------------------------------
(Registrant)
Date: September 12, 1994 S/David V. Wachs
------------------ -----------------------------------
David V. Wachs
(Chairman of the Board)
Date: September 12, 1994 S/Ivan Szeftel
------------------ -----------------------------------
Ivan Szeftel-Executive Vice
President Finance (Chief Financial
Officer)
