As filed with the Securities and Exchange Commission on May 21, 1996
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
Form S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
CHARMING SHOPPES, INC.
(Exact name of Registrant as specified in its charter)
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Pennsylvania 23-1721355
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or organization)
450 Winks Lane
Bensalem, Pennsylvania 19020
(215) 245-9100
(Name, address, including zip code, and
telephone number, including area code,
of Registrant's principal executive offices)
Colin Stern, Esq.
Charming Shoppes, Inc.
450 Winks Lane
Bensalem, Pennsylvania 19020
(215) 245-9100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------
Copies of communications to:
Francis J. Morison, Esq. Donald B. Brant, Jr., Esq.
Davis Polk & Wardwell Milbank, Tweed, Hadley & McCloy
450 Lexington Avenue One Chase Manhattan Plaza
New York, New York 10017 New York, New York 10005
(212) 450-4000 (212) 530-5618
Approximate date of commencement of proposed sale to the public: as soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box
and list the Securities Act registration statement number of earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration for
the same offering. [ ]
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Amount
Title of Each Class of being
Securities to be Registered Registered(1)
--------------------------- ____________
<S> <C>
Convertible Subordinated Notes Due 2006 $115,000,000
Common Stock, par value $0.10 per share (3)
Proposed Proposed
Maximum Maximum
Offering Price Aggregate Amount of
Per Unit(2) Offering Price(2) Registration Fee
_________________ ________________ _________________
<C> <C> <C>
Convertible Subordinated Notes Due 2006 100% $115,000,000 $39,656
Common Stock, par value $0.10 per share None None None
<FN>
- -------------------
(1) Includes $15,000,000 of Convertible Subordinated Notes Due 2006 as to which
the Underwriters have been granted an option to cover over-allotments.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Such indeterminate number of shares of Common Stock as may be required for
issuance upon conversion of the Convertible Subordinated Notes Due 2006.
</TABLE>
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
[Photographs to be filed by amendment]
SUBJECT TO COMPLETION, DATED MAY 21, 1996
PROSPECTUS
$100,000,000
Charming Shoppes, Inc.
% Convertible Subordinated Notes Due 2006
--------------
The % Convertible Subordinated Notes Due 2006 (the "Notes") are
convertible at any time prior to maturity, unless previously redeemed or
otherwise repurchased, into shares of common stock, par value $.10 per
share (the "Common Stock"), of Charming Shoppes, Inc. (the "Company") at a
conversion rate of shares per $1,000 principal amount of Notes (equivalent
to a conversion price of approximately $ per share), subject to adjustment
in certain circumstances. The Common Stock is quoted on the Nasdaq
National Market ("Nasdaq") under the symbol "CHRS". On May 17, 1996, the
last reported sales price of the Common Stock on Nasdaq was $7 5/16 per
share.
Interest on the Notes is payable on and of each year, commencing ,
1996. The Notes will be redeemable at the Company's option, in whole or in
part, at any time on or after , 1999, at the redemption prices set forth
herein, plus accrued interest to the date of redemption. In the event of a
Change of Control (as hereinafter defined), each holder of the Notes may
require the Company to repurchase all or a portion of such holder's Notes
at 100% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the date of repurchase. There is no sinking fund for the Notes.
See "Description of the Notes".
The Notes are unsecured and subordinated in right of payment to all
existing and future Senior Debt (as defined herein) of the Company and will
be effectively subordinated in right of payment to all indebtedness and
other liabilities of the Company's subsidiaries. As of February 3, 1996,
as adjusted for this offering, including application of the proceeds
thereof, and the repayment of certain indebtedness of the Company in May
1996 as described herein, the Senior Debt of the Company and the aggregate
indebtedness of its subsidiaries, on a consolidated basis, totalled
approximately $ (excluding accrued interest). See "Description of the
Notes--Subordination of Notes".
The Notes will be represented by a Global Security registered in the
name of the nominee of The Depository Trust Company ("DTC"), which will act
as Depository. Beneficial interests in the Global Security will be shown
on, and transfers thereof will be effected only through, records maintained
by DTC and its direct and indirect participants. Except as described
herein, Notes in definitive form will not be issued. See "Description of
the Notes--Book-Entry; Delivery and Form".
See "Risk Factors" beginning on page 10 for a description of certain
factors that should be considered in connection with an investment in the
Notes.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting
Price to Discount and Proceeds to
Public (1) Commissions(2) Company (1)(3)
------------ ---------------- ----------------
Per Note ..... % % %
Total(4) ..... $ $ $
__________________
(1) Plus accrued interest, if any, from , 1996.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".
(3) Before deducting estimated expenses of $ payable by the Company.
(4) The Company has granted the Underwriters an option to purchase up to
an additional $15,000,000 aggregate principal amount of Notes at the
Price to Public, less the Underwriting Discount and Commissions, solely
to cover over-allotments. If such option is exercised in full, the
total Price to Public, Underwriting Discount and Commissions and
Proceeds to Company will be $ , $ and $ , respectively. See
"Underwriting".
____________________
The Notes offered hereby are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters,
subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve their
right to withdraw, cancel or modify such offer and to reject orders in
whole or in part. It is expected that delivery of the Notes will be made
through the facilities of DTC on or about , 1996.
____________________
Lazard Freres & Co. LLC Bear, Stearns & Co. Inc.
____________________
The date of this Prospectus is , 1996.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
THE REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY
NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
AVAILABLE INFORMATION
Charming Shoppes, Inc. is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information may be inspected and
copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at its
Regional Offices located at: Seven World Trade Center, 13th Floor, New
York, New York 10048; and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may
also be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Common Shares are quoted on Nasdaq, and reports, proxy
statements and other information concerning the Company are on file for
inspection at the offices of Nasdaq, 1735 K Street, N.W., Washington, D.C.
20006.
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Notes offered hereby (the "Registration
Statement"). This Prospectus does not contain all of the information
included in the Registration Statement and the exhibits thereto.
Statements contained in this Prospectus as to the contents of any contract
or other document referred to herein and filed as an exhibit to the
Registration Statement are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as
an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information with
respect to the Company and its subsidiaries and the Notes, reference is
hereby made to the Registration Statement and the exhibits thereto which
may be obtained from the Commission in the manner set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company has filed with the Commission (i) pursuant to Section 13
or 15(d) of the Exchange Act, an Annual Report on Form 10-K for the fiscal
year ended February 3, 1996 and (ii) pursuant to Section 12 of the Exchange
Act, a Registration Statement on Form 8-A relating to the Common Stock,
each of which is hereby incorporated by reference in and made a part of
this Prospectus.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date of this Prospectus and prior to the termination of the Notes offering
shall be deemed to be incorporated by reference in this Prospectus and to
be a part hereof from the date of filing of such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will furnish, without charge, to each person to whom this
Prospectus is delivered, upon written or oral request of such person,
including any beneficial owner, a copy of any and all of the information
that has been incorporated by reference into the Registration Statement of
which this Prospectus is a part but which has not been delivered with this
Prospectus (not including exhibits to the information that is incorporated
by reference unless such exhibits are specifically incorporated by
reference into the information that the Registration Statement incorporates
by reference); such requests should be directed to Charming Shoppes, Inc.,
450 Winks Lane, Bensalem, Pennsylvania 19020, Attention: Bernard Brodsky,
Vice President, Secretary and Treasurer.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE
NOTES OR THE COMMON SHARES OR BOTH OF THEM AT LEVELS ABOVE THOSE WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON NASDAQ OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
Fashion Bug[Registered] and Fashion Bug Plus[Registered] are
registered trademarks used by the Company.
PROSPECTUS SUMMARY
THE COMPANY
The following summary is qualified in its entirety by the more
detailed information (including the financial statements and the notes
thereto) included elsewhere or incorporated by reference in this Prospectus.
Each prospective investor is urged to read this Prospectus in its entirety.
Unless otherwise indicated, all references herein to "Charming Shoppes, Inc."
or the "Company" include its subsidiaries, and references to a "Fiscal" year
specify the calendar year in which the fiscal year ended; for example, Fiscal
1996 refers to the fiscal year ended February 3, 1996. In addition, unless
otherwise indicated, information contained herein assumes no exercise of the
Underwriters' over-allotment option.
Charming Shoppes, Inc. operates a chain of Fashion Bug[Registered]
and Fashion Bug Plus[Registered] stores selling moderately and popularly
priced women's specialty apparel. Fashion Bug[Registered] stores specialize
in selling a wide variety of fashionable merchandise, including junior,
misses, large-size and girls-size sportswear, dresses, coats, lingerie,
accessories and casual footwear. Fashion Bug Plus[Registered] stores
specialize in similar merchandise for the large-size customer. An assortment
of men's casual apparel and accessories is also available in most Fashion
Bug[Registered] stores and certain stores carry a selection of petite women's
apparel. The Company's stores sell both brand-name and private label
merchandise. As of May 4, 1996, the Company operated a total of 1,225 stores
in 46 states, the substantial majority of which are located in strip shopping
centers in the Northeast quadrant of the United States. 1,159 of such stores
were operated as Fashion Bug[Registered] stores, with the remainder operated
as Fashion Bug Plus[Registered] stores.
From Fiscal 1990 to Fiscal 1994, the Company significantly expanded
its market presence in the value oriented women's specialty apparel industry
as the number of Fashion Bug[Registered] and Fashion Bug Plus[Registered]
stores grew from 1,013 in Fiscal 1990 to 1,333 in Fiscal 1994. Net income
increased from $36,410,000 to $75,765,000 during the same period. The Company
pursued a strategy of (i) offering its customer one-stop shopping for her
apparel needs, gradually expanding the variety and depth of its merchandise
assortment, (ii) strategically locating its stores in strip shopping centers
which have lower store occupancy costs as compared to malls and (iii)
increasing the internal development of fashion merchandise and its manufacture
in lower cost foreign markets, which by Fiscal 1994 accounted for
approximately 59% of the Company's purchases.
In Fiscal 1995, then-current management made the strategic decision
to increase significantly the Company's reliance on overseas sourcing, narrow
the assortment of merchandise offered and raise the initial markup on its
merchandise to allow for increased promotional pricing. By Fiscal 1996, over
70% of the Company's merchandise was developed in-house by product developers,
and then purchased primarily through the Company's overseas sources which
generally required lead times of six to twelve months in advance of the
selling season. A higher initial markup was achieved on the products
purchased overseas, but because the Company's foreign sourcing operations
required such lengthy lead times, the Company was unable to react quickly to
changes in fashion trends. In addition, the customer did not respond
favorably to the Company's narrow merchandise selections. As a result, sales
productivity and profitability declined sharply from Fiscal 1994 levels
resulting in a significant loss in Fiscal 1996.
New Management Team
In response to this declining sales productivity and profit
performance, the Company made significant changes in its management, with
Dorrit J. Bern joining the Company as President and Chief Executive
Officer in September 1995. Ms. Bern had been employed by Sears, Roebuck &
Co. ("Sears") since 1987 and had most recently held the position of Group
Vice President for Women's Apparel and Home Fashions at Sears. Ms. Bern
was instrumental in the creation and execution of the women's apparel
strategy at Sears. In addition to Ms. Bern, the Company is led by new
senior merchandising executives, a newly appointed Chief Financial Officer
and a new Executive Vice President of Sourcing.
New Business Strategy
Under the direction of Ms. Bern and her new management team, during
the fourth quarter of Fiscal 1996 management re-examined many aspects of the
Company's business strategy and made significant changes in merchandising,
marketing, purchasing, distribution and finance. The new business strategy is
aimed at enhancing sales productivity and improving financial performance,
while capitalizing on the Company's competitive strengths. Such strengths
include (i) the Company's strategically located stores (the substantial
majority of which are located in strip shopping centers), (ii) its customer
base, including approximately 3,300,000 active proprietary credit card
customers, (iii) its existing management information systems and (iv) its
recently upgraded distribution centers. During the fourth quarter of Fiscal
1996, the Board of Directors approved a restructuring plan to support the
Company's new business strategy and management implemented an expense
reduction initiative to further reduce operating costs. The Company's new
business strategy focuses on meeting the demands of its primary customers,
generally 20 to 45 year old women with lower-middle to middle incomes who look
for value, fashion and convenience. These customers tend to follow fashion
trends and visit strip shopping centers more frequently than malls for their
shopping needs because of the mix of the tenants in, and the convenience of,
strip shopping centers.
bullet Improved Merchandise Selection. The Company has responded
to the needs of its customers by expanding the variety of choices in its
merchandise assortment. Furthermore, the Company is expanding its
merchandise assortment in previously underdeveloped products such as career
wear and dresses, and petite sizes are being offered for the first time.
Product assortments are also being tailored to area demographics, and
merchandise will be available for six distinct seasons -- spring, summer,
transitional, fall, holiday and transitional -- rather than two seasons as
in the past. Quality standards have also been raised with respect to
merchandise fabrication, construction and fit.
bullet Switch to a More Realistic Value Pricing Strategy. The
Company has implemented a more realistic value pricing strategy which
reduces the initial price markup of fashion merchandise in order to
increase the percentage of sales at the ticketed price. Management
believes this new strategy should result in a greater degree of credibility
with the customer, reducing the need for aggressive price promotions. The
Company expects to continue to achieve a higher initial markup in basic
low-risk commodity merchandise that is purchased through its overseas
sourcing operation.
bullet Shift to Responsive Sourcing Strategy. The Company, which
had previously placed heavy reliance on internally developed product
sourced overseas, has shifted a significant portion of its purchases to the
domestic market. This allows management to respond more quickly to current
fashion trends. While overseas sourcing resulted in lower product costs
and increased initial markups, long lead times were generally required to
procure merchandise. Use of the domestic market allows the Company to make
purchase decisions generally with two to four month lead times and quickly
replenish merchandise inventory as necessary (generally with one to two
month lead times). The Company continues to use its overseas sourcing
operation, which has been reorganized to support this strategic change, to
procure basic low-risk commodity merchandise. Management expects that such
merchandise will account for approximately 35% of the Company's purchases
in Fiscal 1997.
bullet Shift Toward Direct Mail and Mass-Media Advertising. The
Company has shifted a greater proportion of its advertising expenditures
from in-store promotions to radio and newspaper advertising, and management
is actively utilizing targeted direct mail advertising to its list of
3,300,000 active proprietary credit card customers.
bullet Improvement in Inventory Flow. The Company's new
merchandise and purchasing strategy, and enhancements to the Company's
inventory management, facilitate the timely and orderly purchase and flow
of merchandise, thereby enabling the stores to offer fresh product
assortments on a regular basis. Management expects that such changes and
enhancements should improve inventory turnover, reduce the expense of
outside storage facilities and decrease borrowing costs incurred in
connection with merchandise procurement.
bullet Increased Liquidity. In November 1995, the Company (i)
entered into an agreement with a commercial finance company to provide a
revolving credit facility with a maximum availability of $157,000,000,
subject to limitations based upon eligible inventory, (ii) negotiated the
conversion of $82,862,000 of existing trade obligations into a term loan,
and (iii) renegotiated an outstanding term loan in the amount of
$9,488,000. As described below under "--Recent Developments", the maximum
availability under the Company's revolving credit facility was reduced to
$150,000,000 following release of a $7,000,000 cash deposit in May 1996.
This resulted from the receipt of the Company's $56,726,000 tax refund
which was used to repay a portion of the Company's $82,862,000 term loan.
In accordance with the provisions of the Company's term loan agreements, a
portion of the proceeds of the Notes offering will be used to repay all
amounts remaining outstanding thereunder. Management believes that its
revolving credit facility together with cash flow from operations and
certain proprietary credit card securitization agreements are sufficient to
support current operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Financial Condition--
Liquidity and Capital Resources".
Management expects that this new business strategy will (i) enhance
sales productivity by expanding the number of choices available to its
customer at competitive, value oriented prices, (ii) increase the number of
store visits by customers by changing product selections more frequently and
by direct mail and mass-media advertising, (iii) improve gross margins by
reducing the need for aggressive price promotions, (iv) allow the Company to
respond more quickly to current fashion trends while enhancing inventory
management flexibility and (v) increase financial flexibility through
increased liquidity.
Recent Restructuring and Expense Reduction Initiative
The Restructuring Plan approved by the Board of Directors during the
fourth quarter of Fiscal 1996 resulted in a fourth quarter pre-tax charge of
$103,000,000. The primary components of the Restructuring Plan are (i) the
planned closing through Fiscal 1997 of 290 under-performing Fashion
Bug[Registered] and Fashion Bug Plus[Registered] stores, (ii) the
reorganization and reduction of foreign merchandise sourcing operations
discussed above and (iii) reductions in corporate support operations which
were not necessary to support the Company's new business strategy. The
pre-tax operating loss for Fiscal 1996 for these 290 stores, exclusive of the
restructuring charge and before allocation of fixed overhead, was
approximately $34,000,000. Given the Company's disappointing performance in
Fiscal 1996 and the implementation of its new business strategy, however, such
operating loss is not indicative of future savings resulting from the closing
of such stores, which are likely to be lower. As of May 4, 1996, the Company
had closed 200 stores.
The Company has also implemented an expense reduction initiative to
further reduce operating costs. The primary components of this initiative are
(i) the further reduction of distribution, merchandising, and administrative
personnel, (ii) the renegotiation of store lease obligations and (iii) the
reduction of various other overhead costs. The Restructuring Plan and the
further expense reduction initiative are expected to result in a workforce
reduction of approximately 2,300 store employees and 800 non-store employees.
Recent Developments
During May 1996, the Company received a $56,726,000 income tax refund
as a result of net operating loss carrybacks for taxes paid in prior years.
In accordance with the terms of the Company's $82,862,000 term loan entered
into in November 1995, the tax refund has been used to reduce the amount of
such term loan to $26,136,000 as of May 15, 1996. In addition, as a result of
such payment, a letter of credit in the amount of $22,000,000 issued under the
Company's revolving credit facility as security for the payment of such tax
refund has been cancelled and a $7,000,000 cash deposit in support of such
letter of credit has been released. As a result of the release of such cash
deposit, the maximum availability under the revolving credit facility has been
reduced from $157,000,000 to $150,000,000, subject to limitations based upon
eligible inventory.
The Company, a Pennsylvania corporation, was formed in 1969. The
Company's principal executive offices are located at 450 Winks Lane, Bensalem,
Pennsylvania 19020, telephone (215) 245-9100.
THE OFFERING
Securities Offered................. $100,000,000 aggregate principal amount
of % Convertible Subordinated Notes
Due 2006.
Maturity Date...................... , 2006.
Interest Payment Dates............. and commencing
, 1996.
Conversion Rights.................. Each Note will be convertible, at the
option of the Holder, at any time on or
prior to maturity, unless previously
redeemed or otherwise purchased by the
Company, for Common Shares of the Company
at the conversion rate of shares per
Note, subject to adjustment in certain
circumstances. See "Description of the
Notes--Conversion".
Subordination...................... The Notes will be subordinated in
right of payment, as set forth in the
Indenture, to the prior payment in
full of all existing and future Senior
Debt (as defined herein) of the
Company. The Company is a holding
company and its assets consist almost
entirely of investments in its
subsidiaries. Accordingly, the
Company's right and the rights of its
creditors (including holders of Notes)
to participate in the distribution of
assets of any subsidiary upon such
subsidiary's liquidation or
reorganization will be effectively
subordinated to all existing and
future liabilities of the Company's
subsidiaries. As of February 3, 1996,
as adjusted for this offering,
including the application of the
proceeds thereof, and the repayment of
certain indebtedness of the Company as
described under "--Recent
Developments", Senior Debt of the
Company and the aggregate indebtedness
of its subsidiaries, on a consolidated
basis, totaled approximately $ ,
excluding accrued interest. See
"Capitalization" and "Description of
the Notes-- Subordination of Notes".
Sinking Fund....................... None.
Redemption of Notes at the Option
of the Company................. The Notes will not be redeemable at the
option of the Company prior to
, 1999. Beginning on , 1999,
the Company may redeem the Notes for cash
as a whole at any time, or from time to
time in part, at the redemption prices
set forth herein. See "Description of
the Notes--Optional Redemption--
Redemption at the Option of
the Company".
Purchase of Notes at the Option
of the Holder.................. In the event of a Change of Control
(as defined herein), then each holder
of Notes will have the right, at the
holder's option, subject to the terms
and conditions of the Indenture, to
require the Company to purchase for
cash all or any part (provided that
the principal amount at maturity must
be $1,000 or an integral multiple
thereof) of the holder's Notes equal
to 100% of the principal amount plus
interest. The Change of Control
purchase feature of the Notes may in
certain circumstances have an anti-
takeover effect. See "Description of
the Notes-- Repurchase Rights".
Use of Proceeds.................... The net proceeds of this offering will
be approximately $ million. The
Company intends to use a portion of
such proceeds to repay outstanding
amounts under its term loans which
totaled approximately $35,624,000 as
of May 15, 1996, plus accrued interest
to the date of payment of approximately
$ . The balance of such net
proceeds will be used for general
corporate purposes. See "Use of
Proceeds".
SUMMARY FINANCIAL AND OPERATING INFORMATION
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------------------------------
February 3, January 28, January 29, January 30,
1996(1) 1995 1994 1993
----------- ----------- ----------- -----------
(in thousands, except share and per share amounts,
ratios and operating data)
<S> <C> <C> <C> <C>
Statement of Income Data:
Net sales........................ $ 1,102,384 $ 1,272,693 $ 1,254,122 $ 1,178,714
Costs of goods sold, buying
and occupancy expenses......... 917,064 932,138 863,381 804,963
Gross profit(2).................. 185,320 340,555 390,741 373,751
Interest expense................. 3,666 2,304 2,557 2,958
Restructuring charge............. 103,000(3) -- -- --
Income (loss) before income taxes
and cumulative effect of
accounting change.............. (214,988) 62,519 111,732 119,133
Net income (loss)................ (139,241) 44,689 79,756(4) 81,127
Net income (loss) per share(5)... (1.35) .42 .74(4) .75
Dividends per share.............. .045(6) .09 .09 .08
Weighted average
number of common
shares and share
equivalents(5)................. 103,038,224 107,207,660 108,390,583 108,681,305
Ratio of earnings to fixed
charges(7)..................... --(8) 2.8 4.7 5.5
Operating Data:
Percentage (decrease) increase in
total comparable store sales... (17.1%) (6.3%) (1.8%) 6.5%
Net sales per square foot(9)..... $85 $105 $120 $130
Number of stores open at the end
of the period.................. 1,301 1,428 1,333 1,220
Total square footage at the end
of the period.................. 12,238,000 13,073,000 11,468,000 9,695,000
Capital expenditures............. $30,007,000 $75,656,000 $79,023,000 $64,988,000
Depreciation and amortization.... $49,183,000 $49,459,000 $46,084,000 $38,577,000
Working capital turnover(10)..... 5.6 6.8 6.6 6.2
February 1,
1992
-----------
<C>
Statement of Income Data:
Net sales........................ $ 1,020,656
Costs of goods sold, buying
and occupancy expenses......... 705,047
Gross profit(2).................. 315,609
Interest expense................. 3,473
Restructuring charge............. --
Income (loss) before income taxes
and cumulative effect of
accounting change.............. 85,472
Net income (loss)................ 58,302
Net income (loss) per share(5)... .55
Dividends per share.............. .06
Weighted average
number of common
shares and share
equivalents(5)................. 106,267,242
Ratio of earnings to fixed
charges(7)..................... 4.8
Operating Data:
Percentage (decrease) increase in
total comparable store sales... 6.2%
Net sales per square foot(9)..... $126
Number of stores open at the end
of the period.................. 1,137
Total square footage at the end
of the period.................. 8,667,000
Capital expenditures............. $46,678,000
Depreciation and amortization.... $34,684,000
Working capital turnover(10)..... 6.4
As of February 3, 1996
-------------------------------------------
Actual As Adjusted(11)
--------------------- -------------------------------------------
Balance Sheet Data: (in thousands)
Working capital.................. $199,457
Total assets..................... 681,746
Long-term debt, including
current portion................ 95,793
Total stockholders' equity....... 419,029
<FN>
_______________
(1) Fiscal 1996 consists of 53 weeks.
(2) Gross profit equals net sales less cost of goods sold, buying and occupancy expenses.
(3) During the fourth quarter of Fiscal 1996, the Company's Board of Directors approved the Restructuring Plan
that resulted in a fourth quarter pre-tax charge of $103,000,000. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of Operations--Restructuring Charge."
(4) Net income and net income per share for Fiscal 1994 is after an increase for the cumulative effect of an
accounting change of $3,991,000 or $0.04 per share. See Notes to Consolidated Financial Statements
"Summary of Significant Accounting Policies--Income Taxes" contained herein.
(5) Net income per common share is based on the weighted average number of shares and share equivalents
outstanding during each period. Common stock equivalents include the effect of dilutive stock options.
Share equivalents are not included in the weighted average shares outstanding for determining net loss per
common share as the result would be antidilutive.
(6) On October 2, 1995, the Company's Board of Directors announced an indefinite suspension of dividends on
the Company's Common Stock. See "Market Prices and Dividend Policy".
(7) The ratio of earnings to fixed charges is based on income from continuing operations and has been computed
on a total enterprise basis. Earnings represent income (loss) before income taxes, cumulative effect of
accounting change and fixed charges, net of capitalized interest. Fixed charges consist of interest expense
before reduction for capitalized interest, debt amortization costs, and one-third (the percent deemed
representative of the interest factor) of minimum lease payments.
(8) Earnings for Fiscal 1996 were insufficient to cover fixed charges by $215,548,000. Excluding the
restructuring charge in connection with the Restructuring Plan, earnings for Fiscal 1996 were insufficient to
cover fixed charges by $112,548,000.
(9) Net sales per square foot is determined by dividing total net sales by the average of total square footage at the
beginning and end of each fiscal quarter.
(10) Working capital turnover is determined by dividing total net sales by the average of working capital at the
beginning and end of the period.
(11) As adjusted to give effect to (i) this offering and the application of the net proceeds therefrom and (ii) the
repayment in May 1996 of $56,726,000 of one of the Company's term loans with the proceeds of an income
tax refund. See "--Recent Developments".
</TABLE>
RISK FACTORS
The Notes are subject to a number of material risks, including those
enumerated below. Investors should carefully consider the risk factors
enumerated below together with all of the information set forth or
incorporated by reference in this Prospectus in determining whether to
purchase any of the Notes.
Recent Operating Losses and Ability to Implement New Business Strategy
Net income has decreased significantly since the fiscal year ended
January 30, 1993 and the Company experienced a significant loss for the fiscal
year ended February 3, 1996 ("Fiscal 1996"). Under the direction of Dorrit J.
Bern and her new management team, during the fourth quarter of Fiscal 1996,
management began implementing a new business strategy in response to the
Company's declining sales productivity and profit performance. See
"Description of Business--New Business Strategy". Management expects this new
business strategy will likely result in lower initial unit sales prices and
higher unit costs of merchandise product. However, management also believes
that such results will be offset by (i) a reduced need for aggressive price
promotions, resulting in improved gross margins, (ii) increased sales
productivity and (iii) enhanced inventory management flexibility, resulting in
reduced inventory investment, in each case, as compared to Fiscal 1996. Due
to purchase commitments made by the Company in Fiscal 1996 for planned sales
in the fiscal year ending February 2, 1997 ("Fiscal 1997"), however, the full
effect of this strategic change is not expected until the later half of Fiscal
1997. The Company's future results and financial condition are dependent on
the successful implementation of this new business strategy. While the
Company believes that this strategy will enable it to improve its financial
results, there can be no assurance that this new strategy will be successful,
that the anticipated benefits of this new strategy will be realized, that
management will be able to implement such strategy on a timely basis, that the
Company will return to profitability levels experienced prior to Fiscal 1996
or that losses will not continue in the future.
Recent Restructuring
While the Company believes that the $103,000,000 restructuring charge
taken in the fourth quarter of Fiscal 1996 in connection with the
Restructuring Plan should be sufficient to cover all expenses associated with
the Restructuring Plan, in the event such costs, including litigation expenses
in relation to the Restructuring Plan, are higher than anticipated, or
additional restructuring charges are taken, either in connection with the
Restructuring Plan or otherwise, this could have a material adverse effect on
the Company's results of operations and financial condition. In addition,
certain aspects of the Company's expense reduction initiative, such as
renegotiation of store lease obligations, are not fully within the control of
the Company and as a result there can be no assurance that such initiative
will be successful. To the extent these anticipated costs savings do not
materialize, this will have an adverse effect on the Company's expenses and
will reduce expected earnings levels.
Dependence on Key Management
The Company's success and its ability to successfully implement its new
business strategy depends largely on the efforts and abilities of Ms. Bern 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.
Nature of Industry and Competition
Predicting fashion trends is often difficult and since a significant
portion of the Company's sales are related to fashion merchandise, rapid
changes in or miscalculation of fashion trends have in the past and may in the
future require higher than expected markdowns resulting in a decrease in gross
margins and either losses or reduced profits. In particular, the Company
believes that its disappointing results in Fiscal 1996 are attributable to a
disappointing response to the Company's merchandise assortment resulting in
the need for aggressive price reductions to stimulate consumer demand. While
management believes that the new business strategy will allow it to reduce
these risks by decreasing inventory lead times and allowing it to respond more
quickly to current fashion trends, there can be no assurance that this new
strategy will be successful and that significant markdowns will not be
required in the future. Retail sales are also frequently affected by weather
conditions. As a result, any extreme or unseasonable weather conditions may
also have a significant effect on the Company's sales requiring significant
markdowns thereby reducing gross margins and resulting in losses or reduced
profits. In addition, the retail industry, and particularly the women's
apparel retail sector, is a highly competitive industry which has operated and
continues to operate in a highly promotional environment. The Company
competes primarily with moderate price department stores, discount department
stores and certain other low to moderate price specialty apparel stores, many
of which are larger and have greater resources than the Company. This
competitive environment may also force the Company to lower prices to meet
competition.
Impact of Economic Conditions on Industry Results
As with other retail businesses, the Company's operations may be
adversely affected by a number of factors beyond its control, including
economic downturns and cyclical variations in the retail market for women's
fashion apparel. In particular, the Company's results for Fiscal 1996 were
affected by a continuing general weakness in women's apparel sales. Demand
for apparel at the retail level is largely dependent on the strength of the
overall economy. A weakness in overall consumer demand, or increased
inflation, could have an adverse effect on the Company's sales and gross
margins. As a result, changes in governmental trade, monetary, fiscal and
taxing policies may all adversely affect the Company's sales and earnings. In
addition, as store payroll is the single largest expense in the Company's
retail operations, any increase in the Federal (or State) Minimum Wage could
have a major impact on the Company's hourly pay rates, which would have an
adverse effect on the Company's selling and administrative expenses. A
prolonged economic downturn and weakness in demand for women's apparel would
have a material adverse impact on the Company's results of operations. In
addition, the recent acceleration in the rate of business failures in the
retail industry can also have a cascade effect on other retailers, including
an increased need for price promotions. Such acceleration in the rate of
business failures, among other things, may result in vendors requiring more
onerous payment terms, resulting in increased financing costs or the
unavailability of certain merchandise. Any of these results could have a
material adverse effect on the Company's results of operations and financial
condition.
Reliance on Revolving Credit Facility
Following this offering, the Company's primary source of liquidity
(other than cash flow from operations and its proprietary credit card
securitization agreements) will be its revolving credit facility which expires
on June 1, 1998. As of May 15, 1996, such facility had a maximum availability
of $150,000,000, subject to limitations based on eligible inventory, against
which the Company had outstanding letters of credit of $52,192,000. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Developments". The primary purpose of this facility is to
enable the Company to issue letters of credit for overseas purchases of
merchandise as well as to provide for seasonal cash borrowings. There were
cash borrowings outstanding under this agreement of $5,636,000 as of May 15,
1996. Such facility contains covenants, including a minimum net worth
covenant of $350,000,000, limitations on the ability of the Company to incur
indebtedness and restrictions on the payment of dividends. In addition, such
facility is secured by substantially all of the assets of the Company and its
subsidiaries. The loss of certain or all of such collateral would have a
material adverse effect on the Company's results of operations and financial
condition. In addition, availability under the facility will be affected by
reductions in eligible inventory (as defined therein) and may be reduced or
eliminated at the discretion of the lender in certain circumstances. As the
Company relies on such facility to provide liquidity, if such facility 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
condition. In addition, the terms of this facility could impair the Company's
ability to obtain financing in the future or to take advantage of significant
business opportunities that may arise. The terms of this facility may also
increase the vulnerability of the Company to an increase in interest rates,
adverse general economic and retailing industry conditions and to increased
competitive pressures.
Ability to Securitize Credit Card Receivables and Credit Risk
During Fiscal 1996, credit cards sales under the Company's
proprietary credit card program accounted for approximately 40% of net
sales. The Company has formed a trust to which it has transferred, at face
value, its interest in receivables created under this 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. Through the end of Fiscal 1996,
the trust has securitized $371.8 million of receivables, of which $28.5
million were retained by the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations". These
securitization agreements improve the overall liquidity of the Company and
lessen the effect of interest rate volatility by providing short-term
sources of funding. 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. In addition, given the nature of the Company's
business, the Company's credit card customers tend to have a higher credit
risk than traditional credit card customers. As a result, although the
Company's securitization agreements provide for the Company to continue to
service the credit card receivables and control credit policies, a
significant increase in the rate of bad debt experience among its credit
card customers, could have a material adverse effect on the Company's
results of operations. Since late 1995, the Company, like certain other
retailers with proprietary credit cards, has experienced an increase in its
bad debt experience. Management does not believe that this increase has
had a significant effect on the Company's results of operations.
Foreign Sourcing
While the Company has significantly reduced its dependence on foreign
sourcing, it expects to continue to source approximately 35% of its
merchandise abroad. The Company's foreign sourcing operation will continue to
be based primarily in its Hong Kong office and China's assumption of control
of Hong Kong in 1997 could potentially create a disruption in the operations
of this office. The overseas sourcing operation could also be adversely
affected by political instability in countries from which merchandise and/or
fabrics are purchased, including but not limited to: Hong Kong, Singapore,
Indonesia, Korea, Philippines, Pakistan, India, the Dominican Republic,
Turkey, China, Macau and Taiwan. Moreover, trade restrictions or sanctions
imposed by the United States or foreign governments, changes in quota
regulations and reductions in quota, by either the United States or foreign
governments, or increases in duty rates applicable to these foreign-made goods
imported into the United States, could cause products to become unavailable or
wholesale prices to increase, resulting in increased prices at the retail
level and a decrease in unit sales and gross margins. In addition, such
operation may be adversely affected by exchange rate fluctuations. Any events
giving rise to a delay in shipping of merchandise, or increased costs of
transportation, including but not limited to increased energy prices and
adverse weather conditions, could also have an adverse effect on the Company's
earnings.
Subordination
The payment of principal of, and interest on, and any premium or other
amounts owing in respect of, the Notes will be effectively subordinated to the
prior payment in full of all existing and future Senior Debt (as defined
herein) of the Company and indebtedness of the Company's subsidiaries. As of
February 3, 1996, as adjusted for this offering, including application of the
proceeds thereof, and the repayment of certain indebtedness of the Company in
May 1996 as described under "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Recent Developments", Senior Debt of the
Company and the aggregate indebtedness of its subsidiaries, on a consolidated
basis, totalled approximately $ , excluding accrued interest. The
Notes do not contain any restrictions on the creation of additional Senior
Debt or any other indebtedness of the Company or any subsidiary of the
Company. Consequently, in the event of any bankruptcy, liquidation,
dissolution, reorganization, or similar proceeding with respect to the
Company, assets of the Company will be available to pay obligations on the
Notes only after all Senior Debt of the Company has been paid in full, and
there can be no assurance that there will be sufficient assets to pay amounts
due on all or any of the Notes. In addition, the Company effectively operates
through its network of approximately 1,300 subsidiaries. As a result, any
right of the holders of the Notes to participate in the assets of any of the
subsidiaries upon such subsidiary's liquidation or recapitalization will be
effectively subordinated to the claims of such subsidiary's creditors, except
to the extent that the Company is itself recognized as a creditor of such
subsidiary.
Holding Company Structure
The Company is a holding company, substantially all of the operations of
which are conducted through subsidiaries. Consequently, the Company relies
principally on dividends or advances from its subsidiaries for the funds
necessary for, among other things, the payment of principal of and interest on
the Notes and the other indebtedness of the Company. The ability of such
subsidiaries to pay dividends is subject to applicable state law and certain
other restriction, including restrictions contained in the revolving credit
facility.
Volatility of Price of Common Stock
The market price of the Company's Common Stock has been highly volatile
in recent years and on November 28, 1995 reached a 52-week low of $2 1/16.
Factors such as quarter-to-quarter variations in the Company's revenues and
earnings and variations in monthly sales figures have caused and will continue
to cause the market price of the Company's Common Stock to fluctuate
significantly. In addition, in recent years the stock markets have experienced
significant volatility, which often may be unrelated to the operating
performance of the affected companies. Such volatility may also adversely
affect the market price of the Company's Common Stock. See "Market Prices and
Dividend Policy--Market Prices".
Dividend Policy; Restrictions on Payment of Dividends
On October 2, 1995, the Company's Board of Directors announced an
indefinite suspension of dividends on the Company's Common Stock.
Additionally, the Company's revolving credit facility requires, among other
things, that the Company not pay dividends on its Common Stock. See "Market
Prices and Dividend Policy--Dividends" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations". Certain
institutional investors may invest only in dividend-paying equity securities
or may operate under other restrictions that may prohibit or limit their
ability to invest in the Common Stock.
Shareholders Rights Plan and Certain Other Antitakeover Provisions
In April 1989, the Board of Directors adopted a Shareholder Rights Plan.
In addition, the Company's Articles of Association and By-laws, as well as the
Pennsylvania Business Corporation Law contains certain "anti-takeover"
provisions. See "Description of Capital Stock--Shareholder Rights Plan" and
"--Antitakeover Provisions of Applicable Pennsylvania Law and the Company's
Articles and Bylaws". Such Shareholders Rights Plan and provisions may
discourage open market purchases of the Company's Common Stock or a
non-negotiated tender or exchange offer for such stock and, accordingly, may
limit a shareholder's ability to realize a premium over the market price of
the Common Stock in connection with any such transaction.
Lack of Public Market for the Notes
The Company does not intend to list the Notes on any securities exchange
or over-the counter quotation system. The Notes are a new series of
securities with no established trading market. The Company has been advised
by the Underwriters that they intend to make a market in the Notes but they
are not obligated to do so and may discontinue market making at any time
without notice. No assurance can be given as to the liquidity of the trading
market for the Notes or whether any active market will develop. See
"Underwriting".
Forward Looking Statements
This Prospectus contains certain forward looking statements concerning
the Company's operations, performance and financial condition including, in
particular, forward looking statements regarding the Company's expectations of
future performance following implementation of its new business strategy,
recent restructuring and expense reduction initiative and the expected
benefits thereof. In addition, the information contained herein includes
certain forward looking statements regarding store openings and closings,
foreign sourcing operations, capital requirements and other matters. Such
forward looking statements are subject to various risks and uncertainties.
Actual results could differ materially from those currently anticipated due to
a number of factors, including those identified under "Risk Factors" and
elsewhere in this Prospectus.
USE OF PROCEEDS
The net proceeds of this offering will be approximately $
million. The Company intends to use a portion of such proceeds to repay all
outstanding amounts under its term loans which totaled $35,624,000 as of May
15, 1996, plus accrued interest to the date of payment of approximately $
. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Financial Condition-- Liquidity and Capital Resources".
The term loans mature on June 1, 1998. One term loan bears interest at 11.8%
and the other term loan bears interest at 2% - 3.5% above the prime rate
(10.25% - 11.75% at February 3, 1996). The balance of such net proceeds will
be used for general corporate purposes. See "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition--Liquidity and Capital Resources".
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the periods set forth
below has been computed on a consolidated basis and should be read in
conjunction with the Company's Consolidated Financial Statements and the
notes thereto contained herein.
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------------------------------
February 3, January 28, January 29, January 30,
1996 1995 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Ratio of earnings to fixed charges...... -- 2.8 4.7 5.5
Deficiency of earnings to fixed
charges (in thousands)............... $215,548,000(1) -- -- --
February 1,
1992
-----------
<C>
Ratio of earnings to fixed charges...... 4.8
Deficiency of earnings to fixed
charges (in thousands)............... --
<FN>
_______________
(1) Excluding the restructuring charge in connection with the Restructuring Plan, earnings for Fiscal 1996 were insufficient to
cover fixed charges by $112,548,000.
</TABLE>
The ratio of earnings to fixed charges is based on income from
continuing operations and has been computed on a total enterprise basis.
Earnings represent income (loss) before income taxes, cumulative effect of
accounting change and fixed charges, net of capitalized interest. Fixed
charges consist of interest expense before reduction for capitalized interest,
debt amortization costs, and one-third (the percent deemed representative of
the interest factor) of minimum lease payments.
CAPITALIZATION
The following table sets forth as of February 3, 1996 (i) the actual
cash and cash equivalents, short-term debt and capitalization of the Company
and (ii) the pro forma cash and cash equivalents, short-term debt and
capitalization of the Company as adjusted to give effect to (A) the sale by
the Company of the Notes and the application of the estimated net proceeds
therefrom and (B) the partial repayment in May 1996 of $56,726,000 of the
Company's term loans with the proceeds of an income tax refund. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Recent Developments" This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and the notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year Ended February 3, 1996
-----------------------------------
Actual As Adjusted
---------------- ----------------
(In thousands)
<S> <C> <C>
Cash and cash equivalents.............................................. $ 25,117 $
================ ===============
Short-term debt:
Current portion - long-term debt................................. $ 57,691 $
================ ===============
Long-term debt, excluding current portion:
Total long-term debt, excluding current portion.................. $ 38,102 $
Notes offered hereby............................................. --
---------------- ---------------
Total long-term debt, excluding current portion........................ 38,102
Stockholders' Equity:
Common stock; $.10 par value, 300,000,000 shares
authorized, 103,252,650 shares issued and outstanding.................. 10,325
Additional paid-in capital....................................... 54,913
Unrealized losses on available-for-sale securities (net of 13
income taxes of ($9))..................................................
Retained earnings................................................ 356,192
---------------- ---------------
Total stockholders' equity............................................. 419,029
---------------- ---------------
Total capitalization................................................... $457,131 $
================ ===============
</TABLE>
MARKET PRICES AND DIVIDEND POLICY
Market Prices
The Company's Common Stock is traded on the over-the-counter market and
quoted on Nasdaq under the symbol "CHRS". The following table sets forth, for
the periods indicated, the high and low closing sales prices for the Company's
Common Stock as reported by Nasdaq.
<TABLE>
<CAPTION>
High $ Low $
---------- ---------
<S> <C> <C> <C>
Fiscal 1993 First Quarter $16 7/16 $12 11/16
Second Quarter 16 3/8 13 5/16
Third Quarter 18 1/2 14 1/16
Fourth Quarter 19 16 5/8
Fiscal 1994 First Quarter 19 1/8 13 3/4
Second Quarter 18 1/4 12 1/4
Third Quarter 14 7/8 11 1/2
Fourth Quarter 14 1/4 10 3/4
Fiscal 1995 First Quarter 13 7/8 10 1/4
Second Quarter 10 5/8 8 15/16
Third Quarter 9 3/8 7 1/4
Fourth Quarter 7 1/2 5 15/16
Fiscal 1996 First Quarter 6 5/8 5
Second Quarter 5 3/8 3 7/8
Third Quarter 5 5/8 2 1/4
Fourth Quarter 3 1/2 2 1/8
Fiscal 1997 First Quarter 6 9/16 3
Second Quarter 7 5/16 6 9/16
(through May 17, 1996)
</TABLE>
On May 17, 1996, the last reported sales price of the Common Stock on
Nasdaq was $7 5/16 per share. As of May 17, 1996, the Company's Common Stock
was held of record by 3,278 holders. This number excludes individual
stockholders holding stock under nominee security position listings.
Dividends
The following table sets forth, for the periods indicated, the dividends
declared and paid with respect to the Company's Common Stock.
<TABLE>
<CAPTION>
Dividends
Per Share
---------
<S> <C> <C>
Fiscal 1995 First Quarter $.0225
Second Quarter .0225
Third Quarter .0225
Fourth Quarter .0225
Fiscal 1996 First Quarter $.0225
Second Quarter .0225
Third Quarter --
Fourth Quarter --
Fiscal 1997 First Quarter --
</TABLE>
On October 2, 1995, the Company's Board of Directors announced an
indefinite suspension of dividends on the Company's Common Stock.
Additionally, the Company's revolving credit facility, entered into in
November 1995, requires, among other things, that the Company not pay
dividends on its Common Stock. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Financial Condition--
Liquidity and Capital Resources".
SELECTED FINANCIAL AND OPERATING INFORMATION
The following table sets forth selected historical statement of income,
operating and balance sheet data of the Company. The statement of income and
balance sheet data has been derived from the Company's consolidated financial
statements, which have been audited by Ernst & Young LLP, independent
auditors. Their report for each of the three fiscal years in the period ended
February 3, 1996 appears elsewhere herein. The information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and notes thereto of the Company contained elsewhere in this
Prospectus. All references to years are to the fiscal year of the Company,
which ends on the Saturday nearest January 31 in the following calendar year.
All fiscal years for which financial information is set forth below had 52
weeks, with the exception of Fiscal 1996, which had 53 weeks.
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------------------------
February 3, January 28, January 29, January 30,
1996 1995 1994 1993
----------- ----------- ----------- -----------
(in thousands, except share and per share amounts, ratios and operating data)
<S> <C> <C> <C> <C>
Statement of Income Data:
Net sales........................ $ 1,102,384 $ 1,272,693 $ 1,254,122 $ 1,178,714
Costs of goods sold, buying
and occupancy expenses......... 917,064 932,138 863,381 804,963
Gross profit(1).................. 185,320 340,555 390,741 373,751
Interest expense................. 3,666 2,304 2,557 2,958
Restructuring charge............. 103,000(2) -- -- --
Income (loss) before income taxes
and cumulative effect of
accounting change.............. (214,988) 62,519 111,732 119,133
Net income (loss)................ (139,241) 44,689 79,756(3) 81,127
Net income (loss) per share(4)... (1.35) .42 .74(3) .75
Dividends per share.............. .045(5) .09 .09 .08
Weighted average
number of common
shares and share
equivalents(4)................. 103,038,224 107,207,660 108,390,583 108,681,305
Ratio of earnings to fixed
charges(6)..................... --(7) 2.8 4.7 5.5
Operating Data:
Percentage (decrease) increase in
total comparable store sales... (17.1%) (6.3%) (1.8%) 6.5%
Net sales per square foot(8)..... $85 $105 $120 $130
Number of stores open at the end
of the period.................. 1,301 1,428 1,333 1,220
Total square footage at the end
of the period.................. 12,238,000 13,073,000 11,468,000 9,695,000
Capital expenditures............. $30,007,000 $75,656,000 $79,023,000 $64,988,000
Depreciation and amortization.... $49,183,000 $49,459,000 $46,084,000 $38,577,000
Working capital turnover(9)...... 5.6 6.8 6.6 6.2
Balance Sheet Data (as of
period end):
Working capital.................. $ 199,457 $ 191,815 $ 181,906 $ 200,083
Total assets..................... 681,746 840,809 829,233 737,251
Long-term debt, including
current portion................ 95,793 22,300 27,303 31,074
Total stockholders' equity....... 419,029 558,822 522,100 445,309
February 1,
1992
-----------
<C>
Statement of Income Data:
Net sales........................ $ 1,020,656
Costs of goods sold, buying
and occupancy expenses......... 705,047
Gross profit(1).................. 315,609
Interest expense................. 3,473
Restructuring charge............. --
Income (loss) before income taxes
and cumulative effect of
accounting change.............. 85,472
Net income (loss)................ 58,302
Net income (loss) per share(4)... .55
Dividends per share.............. .06
Weighted average
number of common
shares and share
equivalents(4)................. 106,267,242
Ratio of earnings to fixed
charges(6)..................... 4.8
Operating Data:
Percentage (decrease) increase in
total comparable store sales... 6.2%
Net sales per square foot(8)..... $126
Number of stores open at the end
of the period.................. 1,137
Total square footage at the end
of the period.................. 8,667,000
Capital expenditures............. $46,678,000
Depreciation and amortization.... $34,684,000
Working capital turnover(9)..... 6.4
Balance Sheet Data (as of
period end):
Working capital.................. $ 182,289
Total assets..................... 637,015
Long-term debt, including
current portion................ 36,019
Total stockholders' equity....... 362,208
<FN>
_______________
(1) Gross profit equals net sales less cost of goods sold, buying and occupancy expenses.
(2) During the fourth quarter of Fiscal 1996, the Company's Board of Directors approved the Restructuring Plan
that resulted in a fourth quarter pre-tax charge of $103,000,000. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of Operations--Restructuring Charge".
(3) Net income and net income per share for the fiscal year ended January 29, 1994 is after an increase for the
cumulative effect of an accounting change of $3,991,000 or $0.04 per share. See Notes to Consolidated
Financial Statements "Summary of Significant Accounting Policies--Income Taxes" contained herein.
(4) Net income per common share is based on the weighted average number of shares and share equivalents
outstanding during each period. Common stock equivalents include the effect of dilutive stock options.
Share equivalents are not included in the weighted average shares outstanding for determining net loss per
common share as the result would be antidilutive.
(5) On October 2, 1995, the Company's Board of Directors announced an indefinite suspension of dividends on
the Company's Common Stock. See "Market Prices and Dividend Policy".
(6) The ratio of earnings to fixed charges is based on income from continuing operations and has been computed
on a total enterprise basis. Earnings represent income (loss) before income taxes, cumulative effect of
accounting change and fixed charges, net of capitalized interest. Fixed charges consist of interest expense
before reduction for capitalized interest, debt amortization costs, and one-third (the percent deemed
representative of the interest factor) of minimum lease payments.
(7) Earnings for Fiscal 1996 were insufficient to cover fixed charges by $215,548,000. Excluding the
restructuring charge in connection with the Restructuring Plan, earnings for Fiscal 1996 were insufficient to
cover fixed charges by $112,548,000.
(8) Net sales per square foot is determined by dividing total net sales by the average of total square footage at the
beginning and end of each fiscal quarter.
(9) Working capital turnover is determined by dividing total net sales by the average of working capital at the
beginning and end of the period.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Recent Developments
During May 1996, the Company received a $56,726,000 income tax refund as
a result of net operating loss carrybacks for taxes paid in prior years. In
accordance with the terms of the Company's $82,862,000 term loan entered into
in November 1995, the tax refund has been used to reduce the amount of such
term loan to $26,136,000 as of May 15, 1996. In addition, as a result of such
payment, a letter of credit in the amount of $22,000,000 issued under the
Company's revolving credit facility as security for the payment of such tax
refund has been cancelled and a $7,000,000 cash deposit in support of such
letter of credit has been released. As a result of the release of such cash
deposit, the maximum availability under the revolving credit facility has been
reduced from $157,000,000 to $150,000,000, subject to limitations based upon
eligible inventory.
Results of Operations
Financial Summary
The following table sets forth certain financial data expressed as a
percentage of net sales and on a comparative basis:
<TABLE>
<CAPTION>
Percentage of Net Sales
--------------------------------------
Fiscal Fiscal Fiscal
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
Net sales................................... 100.0% 100.0% 100.0%
Cost of goods sold, buying and occupancy.... 83.2 73.2 68.9
Selling, general and administrative......... 27.1 22.4 22.8
Interest.................................... 0.3 0.2 0.2
Restructuring charge........................ 9.3 -- --
Income tax (benefit) expense................ (6.9) 1.4 2.9
Net income (loss)........................... (12.6) 3.5 6.1(1)
Percentage Increase
(Decrease)
From Prior Year
------------------------
Fiscal Fiscal
1995-1996 1994-1995
--------- ---------
<C> <C>
Net sales................................... (13.4)% 1.5%
Cost of goods sold, buying and occupancy.... (1.6) 8.0
Selling, general and administrative......... 5.0 (0.2)
Interest.................................... 59.1 (9.9)
Restructuring charge........................ NA NA
Income tax (benefit) expense................ NA (50.4)
Net income (loss)........................... NA (41.0)
<FN>
_______________
(1) Net income for the fiscal year ended January 29, 1994 is before the cumulative
effect of an accounting change of $3,991,000 or $.04 per share. See Notes to
Consolidated Financial Statements "Summary of Significant Accounting Policies
--Income Taxes".
</TABLE>
Implementation of New Business Strategy and Recent Restructuring
Dorrit J. Bern joined the Company as President and Chief Executive
Officer in September 1995. During the fourth quarter of Fiscal 1996, Ms. Bern
and her new management team began implementing a new business strategy in
response to the Company's declining sales productivity and profit performance.
This strategy is aimed at enhancing sales productivity and improving financial
performance beginning in Fiscal 1997 through expansion of the variety of
choices in its merchandise assortment, improvement in merchandise quality and
implementation of a more realistic value pricing strategy. In addition, the
Company is expanding its merchandise assortment in previously underdeveloped
products, such as career wear and dresses, and petite sizes are being offered
for the first time. As part of this new business strategy, management has
placed increased focus on meeting the demands of its primary customers. Such
customers are generally in the 20 to 45 year old age group, and in the
lower-middle to middle income range, and tend to follow, rather than set,
fashion trends. Therefore, the Company, which had previously placed heavy
reliance on internally developed product sourced overseas, has shifted a
significant portion of its purchases to the domestic market, allowing
management to decrease lead times and respond more quickly to current fashion
trends. The Company continues to use its overseas sourcing operation, which
has been reorganized to support this strategic change, to procure basic
low-risk commodity merchandise. Management expects that this strategy will
likely result in lower initial unit sales prices and higher unit costs of
merchandise product. However, management also believes that such results will
be offset by (i) a reduced need for aggressive price promotions, resulting in
improved gross margins, (ii) increased sales productivity and (iii) enhanced
inventory management flexibility, resulting in reduced inventory investment,
in each case as compared to Fiscal 1996. Due to purchase commitments made by
the Company in Fiscal 1996 for planned sales in Fiscal 1997, the full effect
of this strategic change is not expected until the latter half of Fiscal 1997.
During the fourth quarter of Fiscal 1996, the Company's Board of
Directors approved the Restructuring Plan to support the Company's new
business strategy. The Restructuring Plan resulted in a fourth quarter
pre-tax charge of $103,000,000. The primary components of the Restructuring
Plan are (i) the planned closing through Fiscal 1997 of 290 under-performing
Fashion Bug[Registered] and Fashion Bug Plus[Registered] stores, (ii) the
reorganization and reduction of foreign merchandise sourcing operations
discussed above and (iii) reductions in corporate support operations which
were not necessary to support the Company's new business strategy. The
pre-tax operating loss for Fiscal 1996 for these 290 stores, exclusive of the
restructuring charge and before allocation of fixed overhead, was
approximately $34,000,000. Given the Company's disappointing performance in
Fiscal 1996 and the implementation of its new business strategy, however, such
operating loss is not indicative of future savings resulting from the closing
of such stores. The Company has also implemented an expense reduction
initiative to further reduce operating costs. The primary components of this
initiative are (i) the further reduction of distribution, merchandising, and
administrative personnel, (ii) the renegotiation of store lease obligations
and (iii) the reduction of various other overhead costs. The Restructuring
Plan and the further expense reduction initiative are expected to result in a
workforce reduction of approximately 2,300 store employees and 800 non-store
employees. In addition, the Company (i) entered into an agreement with a
commercial finance company to provide a revolving credit facility with a
maximum availability of $157,000,000, subject to limitations based upon
eligible inventory, (ii) negotiated the conversion of $82,862,000 of existing
trade obligations into a term loan and (iii) renegotiated an outstanding term
loan in the amount of $9,488,000. As described above under "--Recent
Developments", the maximum availability under the Company's revolving credit
facility was reduced to $150,000,000 following release of a $7,000,000 cash
deposit in May 1996. This resulted from the receipt of the Company's
$56,726,000 tax refund which was used to repay a portion of the Company's
$82,862,000 term loan.
Net Sales
Net sales for Fiscal 1996 totaled $1,102,384,000, a 13.4% decrease from
$1,272,693,000 for the fiscal year ended January 28, 1995 ("Fiscal 1995").
The Company experienced a 17.1% decrease in Fiscal 1996 from Fiscal 1995 in
comparable store sales (sales generated by stores in operation during the same
weeks of each period). In addition, sales from new stores open less than a
full year equaled 5.4% of Fiscal 1995 sales; sales of stores closed in Fiscal
1996 equaled 2.7% of Fiscal 1995 sales; and an additional week of sales in
Fiscal 1996 equaled 1.1% of Fiscal 1995 sales. The number of retail stores
decreased from 1,428 on January 28, 1995 to 1,301 on February 3, 1996.
Sales for the fourth quarter of Fiscal 1996 totaled $321,822,000, a
6.8% decrease from $345,382,000 for the corresponding period of Fiscal
1995. The Company experienced a 10.5% decrease in the fourth quarter of
Fiscal 1996 from the fourth quarter of Fiscal 1995 in comparable store
sales. In addition, sales from new stores open less than a full year
equaled 3.7% of Fiscal 1995 fourth quarter sales; sales of stores closed in
Fiscal 1996 equaled 3.9% of Fiscal 1995 fourth quarter sales; and, an
additional week of sales in the fourth quarter of Fiscal 1996 equaled 4.2%
of Fiscal 1995 fourth quarter sales.
The decreases in sales were primarily attributable to a disappointing
response to the Company's merchandise assortment resulting in aggressive price
reductions to stimulate customer demand. In addition, the Company was also
affected by a continuing general weakness in women's apparel sales. The
Company believes that its new merchandising strategy should reduce the risks
associated with predicting emerging fashion trends and, combined with a new
marketing strategy of realistic value pricing, should reduce the need for
aggressive price reductions in the future.
The net sales increase of 1.5% in Fiscal 1995 was primarily attributable
to the sales generated from the net addition of new stores which was partially
offset by a 6.3% decrease in comparable store sales. Net sales for the fourth
quarter of fiscal 1995 decreased 3.3% as compared to the corresponding period
during the fiscal year ended January 29, 1994 ("Fiscal 1994"). This decrease
in sales was primarily due to a 10.1% decrease in comparable store sales which
was partially offset by sales attributable to newly-opened stores.
Cost of Goods Sold, Buying and Occupancy
Cost of goods sold, buying and occupancy expenses expressed as a
percentage of sales increased 10.0% in Fiscal 1996 as compared to the prior
year and increased 4.3% in Fiscal 1995 as compared to Fiscal 1994. The
Company's cost of goods sold in relation to sales increased during Fiscal
1996, and to a lesser extent in Fiscal 1995, as a result of aggressive price
reductions initiated to stimulate consumer demand, which caused a reduction in
merchandise gross margins. In Fiscal 1996, merchandise price reductions were
taken earlier, more frequently and more aggressively than in Fiscal 1995.
Buying and occupancy expenses, which are relatively unaffected by
comparable store sales fluctuations, increased in Fiscal 1996 and Fiscal 1995,
as a percentage of sales, as a result of spreading these costs over decreased
comparable store sales.
Cost of goods sold, buying and occupancy expenses expressed as a
percentage of sales increased 15.7% in the fourth quarter of Fiscal 1996 as
compared to the corresponding period of Fiscal 1995 and increased 8.2% in the
fourth quarter of Fiscal 1995 as compared to the corresponding period of
Fiscal 1994. During the fourth quarter of Fiscal 1996 and Fiscal 1995, the
Company's cost of goods sold as a percentage of sales increased as compared to
cost of goods sold as a percentage of sales for the corresponding period of
the previous fiscal year. The increases resulted from aggressive price
reductions initiated to stimulate consumer demand. Buying and occupancy
expenses, as a percentage of sales, increased in both the fourth quarter of
Fiscal 1996 and the fourth quarter of Fiscal 1995 as a result of spreading
these costs over decreased comparable store sales.
Selling, General and Administrative
Selling, general and administrative expenses expressed as a
percentage of sales increased 4.7% in Fiscal 1996 as compared to Fiscal
1995. This was primarily attributable to an increase in advertising and
promotional expenses as a result of promotions to stimulate customer demand
and the effect of lower comparable store sales on relatively fixed general
and administrative costs. In Fiscal 1995, selling, general and
administrative expenses, as a percentage of sales, decreased 0.4% from
Fiscal 1994. The primary reason for the decrease was the favorable effect
of the lower cost of servicing the Company's proprietary credit card
program as compared to the corresponding period of the prior fiscal year.
This was partially offset by the effect of lower comparable store sales on
relatively fixed general and administrative expenses.
Interest Expense
Interest expense increased in Fiscal 1996 primarily due to renegotiation
of the terms of certain of the Company's outstanding liabilities and the
resulting increase in long-term debt in November 1995. See "--Financial
Condition--Liquidity and Capital Resources" and Notes to Consolidated
Financial Statements "Debt". Interest expense remained relatively constant in
Fiscal 1995.
Restructuring Charge
During the fourth quarter of Fiscal 1996, the Company's Board of
Directors approved the Restructuring Plan that resulted in a fourth quarter
pre-tax charge of $103,000,000. The restructuring charge includes an
amount of $58,878,000 related to the closing of the 290 stores, including
(i) $39,260,000 for the write-off of store fixtures, equipment and
inventories, (ii) $17,270,000 for the early termination of store leases and
(iii) $2,348,000 for severance benefits and other expenses. Charges of
$34,487,000 relate to the reorganization of foreign merchandise sourcing
operations. These charges include the write-off of joint venture
investments and advances, settlements related to non-fulfillment of
production commitments, employee severance benefits, and the write-down of
other Company-owned investments. Other charges include $5,445,000 for
severance benefits and a $4,190,000 write-off of surplus store construction
fixtures and equipment.
As of the end of Fiscal 1996, the Company had closed 122 stores as part
of the Restructuring Plan. As of May 4, 1996 the Company had closed 200
stores. The remaining stores are expected to be closed during the remainder
of Fiscal 1997. As of the end of Fiscal 1996, approximately 960 store
employees and 250 non-store employees had been terminated. As of May 4, 1996
approximately 1,500 store employees and 600 non-store employees had been
terminated.
Income Tax (Benefit) Expense
The income tax benefit for Fiscal 1996 was $75,747,000, resulting in a
35.2% effective rate, compared with a $17,830,000 income tax expense,
resulting in a 28.5% effective tax rate for Fiscal 1995. The increase in the
effective tax rate is primarily attributable to a reduction in tax-exempt
investment income and other non-taxable permanent differences. This compares
with a $35,967,000 income tax expense, resulting in a 32.2% effective tax rate
for Fiscal 1994. The decrease in the effective tax rate for Fiscal 1995 as
compared to Fiscal 1994 is attributable to an increase in tax-exempt
investment income and other non-taxable permanent differences. See Notes to
Consolidated Financial Statements "Income Taxes".
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
1996 1995 1994
------ ------ ------
Net return on average stockholders' equity. (28.5%) 8.3% 16.5%
Net return on average total assets......... (18.3%) 5.4% 10.2%
Financial Condition
Liquidity and Capital Resources
The Company's primary sources of working capital are cash flow from
operations, and its proprietary credit card receivables securitization
agreements and revolving credit facility described below. The Company
considers, and currently uses for internal management purposes, the following
measures of liquidity and capital resources:
Fiscal Fiscal Fiscal
1996 1995 1994
------ ------ ------
(dollars in thousands)
Working capital.............. $199,457 $191,815 $ 181,906
Cash provided by (used in) (55,434) 70,700 90,236
operating activities.......
Current ratio................ 2.0 1.8 1.7
Debt to equity ratio......... 22.9% 4.0% 5.2%
The Company's cash flow from operations decreased $126.1 million in
Fiscal 1996 as compared to Fiscal 1995. The primary reason for this decrease
was a $139.2 million loss in Fiscal 1996 as compared to $44.7 million of net
income in Fiscal 1995. In addition, the increases in the income tax refund
receivable and current deferred taxes served to further reduce cash flow from
operations. However, the effects of losses from abandonment of capital
assets, the accrual of restructuring expenses, the reduction of merchandise
inventories, net of accounts payable, and the reduction of prepayments
contributed to offset the majority of the negative impact on cash flow from
operations. In Fiscal 1995, the Company's cash flow from operations decreased
$19.5 million as compared to Fiscal 1994. This was primarily as a result of a
reduction in net income of $35.1 million and a reduced benefit from an
increase in accrued expenses which was offset in part by a reduction in the
net investment in inventory.
In November 1995, the Company entered into an agreement with a
commercial finance company to provide a revolving credit facility with a
maximum availability of $157,000,000, subject to limitations based upon
eligible inventory. As described above under "--Recent Developments", the
maximum availability under such facility following receipt of the Company's
$56,726,000 tax refund and release of a $7,000,000 cash deposit with the
commercial finance company in May 1996, was reduced to $150,000,000. The
primary purpose of this facility, which expires on June 1, 1998, is to enable
the Company to issue letters of credit for overseas purchases of merchandise
as well as to provide for seasonal cash borrowings. This facility is secured
by merchandise inventory, cash, mortgages on the Company's Bensalem,
Pennsylvania and Greencastle, Indiana corporate and distribution facilities,
rights to mortgages on certain retail store properties, liens on the cash
surrender value of Company-owned life insurance policies and certain other
Company assets. As of the end of Fiscal 1996, the availability under this
facility was approximately $132,000,000, against which the Company had
outstanding letters of credit of $65,400,000, including a $22,000,000 letter
of credit which was cancelled upon receipt of the Company's tax refund as
described above under "--Recent Developments". There were no cash borrowings
outstanding under this agreement as of the end of Fiscal 1996. This
agreement, as well as the term loans discussed below, requires that, among
other things, the Company maintain a minimum net worth of $350,000,000 and not
pay dividends on its Common Stock.
In November 1995, the Company renegotiated portions of existing trade
obligations. As a result, $82,862,000 of trade acceptances which had been
recorded as accounts payable were converted into a term loan. The loan is
scheduled to mature on June 1, 1998. The loan is secured by mortgages on the
Company's Bensalem, Pennsylvania and Greencastle, Indiana corporate and
distribution facilities, mortgages on certain retail store properties, liens
on the cash surrender value of Company-owned life insurance policies and liens
on all income tax refunds. The loan is also secured by liens on merchandise
inventory, equipment and certain other Company assets. The Company is
required to make payments on the loan equal to the proceeds of all income tax
refunds, and among other things, certain asset sales and a portion of the
proceeds of any debt or equity offerings. As described above under "--Recent
Developments", the Company's $56,726,000 tax refund was used to repay a
portion of such term loan in May 1996.
Additionally, the Company renegotiated an outstanding term loan in the
amount of $9,488,000. This note originally had scheduled annual amortizations
through 1998 and carried an interest rate of 9.3%. The loan presently carries
an interest rate of 11.8%, is due June 1, 1998 and is secured by the same
collateral as the aforementioned term loan, although priority with respect to
the collateral varies. The Company is required to make payments on the loan
equal to the proceeds of, among other things, certain asset sales and a
portion of the proceeds of any debt or equity offerings.
A portion of the proceeds of this offering will be used to repay all
outstanding amounts under the aforementioned term loans which at May 15, 1996
totaled in aggregate approximately $35,624,000, plus accrued interest to the
date of repayment of approximately $ .
The Company has formed a trust to which it has transferred, at face
value, its interest in receivables created under the Company's 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. Through the end of Fiscal 1996, the trust has
securitized $371.8 million of receivables, of which $28.5 million were
retained by the Company. See Notes to Consolidated Financial Statements
"Asset Securitization".
These securitization agreements improve the overall liquidity of the
Company and lessen the effect of interest rate volatility 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.
The Company has historically entered into interest-rate swap and
interest-rate cap agreements to reduce the impact of increases in interest
rates on the Company's floating-rate credit card securitizations. During
1996, the Company terminated all of its interest-rate swap agreements and no
such agreements were outstanding as of the end of Fiscal 1996. The Company
had entered into interest-rate cap agreements with an aggregate notional
amount of $538.9 million as of the end of Fiscal 1996. See Notes to
Consolidated Financial Statements "Derivative Financial Instruments Held For
Purposes Other Than Trading".
The Company believes that cash flow from operations, its proprietary
credit card receivables securitization agreements and its revolving credit
facility are sufficient to support current operations. The Company continues,
however, to evaluate alternative financing options.
Capital Requirements
Capital expenditures amounted to $30.0 million, $75.7 million, $79.0
million in Fiscal 1996, 1995 and 1994, respectively. These expenditures were
primarily for new store construction, the remodeling and expansion of existing
stores and the expansion of the Company's Greencastle, Indiana distribution
center.
During Fiscal 1997, the Company anticipates capital expenditures of
approximately $8 million, which are principally for the fixturing of existing
retail stores. The Company plans to open approximately 4 stores during Fiscal
1997. It is anticipated that the funds required for capital expenditures will
be financed principally through internally generated funds.
The Company has estimated debt maturity payments of $57.7 million in
Fiscal 1997. This is comprised primarily of required amortization of one of
the Company's term loans as a result of income tax refunds of approximately
$57.0 million anticipated as of the end of Fiscal 1996. See "--Recent
Developments".
In connection with the Restructuring Plan, as of the end of Fiscal 1996,
the Company had approximately $19,983,000 of accrued, unpaid restructuring
costs, of which approximately $7,390,000 relate to severance benefits. These
costs, which are included in current liabilities, are expected to be paid by
the end of Fiscal 1997.
Cash dividends were $4,634,000 during Fiscal 1996 as compared to
$9,255,000 during Fiscal 1995. 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 and term
loans (discussed above) require the Company to refrain from paying dividends
on its Common Stock during the term of such agreements.
Inflation
The Company's financial statements are presented on a historical cost
basis. The Company believes that the impact of inflation during Fiscal 1996
has not been material to its financial condition and results of operations.
Adoption of New Accounting Standards
The Company adopted the provisions of SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and For Long-Lived Assets to be Disposed Of"
and SFAS 123, "Accounting for Stock-Based Compensation" for the fiscal year
which began February 4, 1996. The adoption of these standards is not expected
to have a material impact on the Company's financial statements. SFAS 123
provides two alternative forms of accounting for stock compensation:
pro-forma disclosure of the effects on net income and earnings per share, or a
charge to earnings. The Company intends to adopt the pro-forma disclosure
alternative in its financial statements.
DESCRIPTION OF BUSINESS
General
Charming Shoppes, Inc. operates a chain of Fashion Bug[Registered] and
Fashion Bug Plus[Registered] stores selling moderately and popularly priced
women's specialty apparel. Fashion Bug[Registered] stores specialize in
selling a wide variety of fashionable merchandise, including junior, misses,
large-size and girls-size sportswear, dresses, coats, lingerie, accessories
and casual footwear. Fashion Bug Plus[Registered] stores specialize in
similar merchandise for the large-size customer. An assortment of men's
casual apparel and accessories is also available in most Fashion
Bug[Registered] stores and certain stores carry a selection of petite women's
apparel. The Company's stores sell both brand-name and private label
merchandise. As of May 4, 1996, the Company operated a total of 1,225 stores
in 46 states, the substantial majority of which are located in strip shopping
centers in the Northeast quadrant of the United States. 1,159 of such stores
were operated as Fashion Bug[Registered] stores, with the remainder operated
as Fashion Bug Plus[Registered] stores.
From Fiscal 1990 to Fiscal 1994, the Company significantly expanded its
market presence in the value oriented women's specialty apparel industry as
the number of Fashion Bug[Registered] and Fashion Bug Plus[Registered] stores
grew from 1,013 in Fiscal 1990 to 1,333 in Fiscal 1994. Net income increased
from $36,410,000 to $75,765,000 during the same period. The Company pursued a
strategy of (i) offering its customer one-stop shopping for her apparel needs,
gradually expanding the variety and depth of its merchandise assortment, (ii)
strategically locating its stores in strip shopping centers which have lower
store occupancy costs as compared to malls and (iii) increasing the internal
development of fashion merchandise and its manufacture in lower cost foreign
markets, which by Fiscal 1994 accounted for approximately 59% of the Company's
purchases.
In Fiscal 1995, then-current management made the strategic decision to
increase significantly the Company's reliance on overseas sourcing, narrow the
assortment of merchandise offered and increase the initial markup on its
merchandise to allow for increased promotional pricing. By Fiscal 1996, over
70% of the Company's merchandise was developed in-house by product developers
and then purchased from overseas sources which generally required lead times
of six to twelve months in advance of the selling season. A higher initial
markup was achieved on the products purchased overseas, but because foreign
sourcing required such lengthy lead times, the Company was unable to react
quickly to changes in fashion trends. In addition, the customer did not
respond favorably to the Company's narrow merchandise selections. As a
result, sales productivity and profitability declined sharply from Fiscal 1994
levels resulting in a significant loss in Fiscal 1996.
New Management Team
In response to this declining sales productivity and profit performance,
the Company made significant changes in its management, with Dorrit J. Bern
joining the Company as President and Chief Executive Officer in September
1995. Ms. Bern had been employed by Sears, Roebuck & Co. ("Sears") since 1987
and had most recently held the position of Group Vice President for Women's
Apparel and Home Fashions at Sears. Ms. Bern was instrumental in the creation
and execution of the women's apparel strategy at Sears. In addition to Ms.
Bern, the Company is led by new senior merchandising executives, a newly
appointed Chief Financial Officer and a new Executive Vice President of
Sourcing.
New Business Strategy
Under the direction of Ms. Bern and her new management team, during the
fourth quarter of Fiscal 1996 management re-examined many aspects of the
Company's business strategy and made significant changes in merchandising,
marketing, purchasing, distribution and finance. The new business strategy is
aimed at enhancing sales productivity and improving financial performance,
while capitalizing on the Company's competitive strengths. Such strengths
include (i) the Company's strategically located stores (the substantial
majority of which are located in strip shopping centers which have lower store
occupancy costs as compared to malls), (ii) its customer base, including
approximately 3,300,000 active proprietary credit card customers, (iii) its
existing management information systems and (iv) its recently upgraded
distribution centers. During the fourth quarter of Fiscal 1996, the Board of
Directors approved a restructuring plan to support the Company's new business
strategy and management implemented an expense reduction initiative to further
reduce operating costs. The Company's new business strategy focuses on
meeting the demands of its primary customers, generally 20 to 45 year old
women with lower-middle to middle incomes who look for value, fashion and
convenience. These customers tend to follow fashion trends and visit strip
shopping centers more frequently than malls for their shopping needs because
of the mix of the tenants in, and the convenience of, strip shopping centers.
bullet Improved Merchandise Selection. The Company has responded to the
needs of its customers by expanding the variety of choices in its merchandise
assortment. Furthermore, the Company is expanding its merchandise assortment
in previously underdeveloped products such as career wear and dresses, and
petite sizes are being offered for the first time. Product assortments are
also being tailored to area demographics, and merchandise will be available
for six distinct seasons -- spring, summer, transitional, fall, holiday and
transitional -- rather than two seasons as in the past. In addition, the
Company has raised its quality standards with respect to merchandise
fabrication, construction and fit.
bullet Switch to A More Realistic Value Pricing Strategy. The Company
has implemented a more realistic value pricing strategy which reduces the
initial price markup of fashion merchandise in order to increase the
percentage of sales at the ticketed price. Management believes this new
strategy should result in a greater degree of credibility with the
customer, reducing the need for aggressive price promotions. The Company
expects to continue to achieve a higher initial markup in basic low-risk
commodity merchandise that is purchased through its overseas sourcing
operation.
bullet Shift to Responsive Sourcing Strategy. The Company, which had
previously placed heavy reliance on internally developed product sourced
overseas, has shifted a significant portion of its purchases to the domestic
market. This allows management to respond more quickly to current fashion
trends. While overseas sourcing resulted in lower product costs and increased
initial markups, six to twelve month lead times were generally required to
procure merchandise. Use of the domestic market allows the Company to make
purchase decisions generally with two to four month lead times and quickly
replenish merchandise inventory as necessary (generally with one to two month
lead times). The Company continues to use its overseas sourcing operation,
which has been reorganized to support this strategic change, to procure basic
low-risk commodity merchandise. Management expects that such merchandise will
account for approximately 35% of the Company's purchases in Fiscal 1997.
bullet Shift Toward Direct Mail and Mass-Media Advertising. The
Company has shifted a greater proportion of its advertising expenditures
from in-store promotions to radio and newspaper advertising, and management
is actively utilizing targeted direct mail advertising to its list of
3,300,000 active proprietary credit card customers.
bullet Improvement in Inventory Flow. The Company's new merchandise and
purchasing strategy, and enhancements to the Company's inventory management,
facilitate the timely and orderly purchase and flow of merchandise, thereby
enabling the stores to offer fresh product assortments on a regular basis.
Management expects that such changes and enhancements should improve inventory
turnover, reduce the expense of outside storage facilities and decrease
borrowing costs incurred in connection with merchandise procurement.
bullet Increased Liquidity. In November 1995, the Company (i)
entered into an agreement with a commercial finance company to provide a
revolving credit facility with a maximum availability of $157,000,000,
subject to limitations based upon eligible inventory, (ii) negotiated the
conversion of $82,862,000 of existing trade obligations into a term loan,
and (iii) renegotiated an outstanding term loan in the amount of
$9,488,000. As described above under "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Recent Developments", the
maximum availability under the Company's revolving credit facility was
reduced to $150,000,000 following release of a $7,000,000 cash deposit in
May 1996. This resulted from the receipt of the Company's $56,726,000 tax
refund which was used to repay a portion of the Company's $82,862,000 term
loan. In accordance with the provisions of the Company's term loan
agreements, a portion of the proceeds of the Notes offering will be used to
repay all amounts remaining outstanding thereunder. Management believes
that its revolving credit facility together with cash flow from operations
and certain proprietary credit card securitization agreements are
sufficient to support current operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Financial
Condition--Liquidity and Capital Resources".
Management expects that this new business strategy will (i) enhance
sales productivity by expanding the number of choices available to its
customer at competitive, value oriented prices, (ii) increase the number of
store visits by customers by changing product selections more frequently and
by direct mail and mass-media advertising, (iii) improve gross margins by
reducing the need for aggressive price promotions, (iv) allow the Company to
respond more quickly to current fashion trends while enhancing inventory
management flexibility and (v) increase financial flexibility through
increased liquidity.
Recent Restructuring and Expense Reduction Initiative
The Restructuring Plan approved by the Board of Directors during the
fourth quarter of Fiscal 1996 resulted in a fourth quarter pre-tax charge
of $103,000,000. The primary components of the Restructuring Plan are (i)
the planned closing through Fiscal 1997 of 290 under-performing Fashion
Bug[Registered] and Fashion Bug Plus[Registered] stores, (ii) the
reorganization and reduction of foreign merchandise sourcing operations
discussed above and (iii) reductions in corporate support operations which
were not necessary to support the Company's new business strategy. The
pre-tax operating loss for Fiscal 1996 for these 290 stores, exclusive of
the restructuring charge and before allocation of fixed overhead, was
approximately $34,000,000. Given the Company's disappointing performance
in Fiscal 1996 and the implementation of its new business strategy,
however, such operating loss is not indicative of future savings resulting
from the closing of such stores, which are likely to be lower. As of May
4, 1996, the Company had closed 200 stores.
The Company has also implemented an expense reduction initiative to
further reduce operating costs. The primary components of this initiative are
(i) the further reduction of distribution, merchandising, and administrative
personnel, (ii) the renegotiation of store lease obligations and (iii) the
reduction of various other overhead costs. The Restructuring Plan and the
further expense reduction initiative are expected to result in a workforce
reduction of approximately 2,300 store employees and 800 non-store employees.
Merchandising and Marketing
The Company has implemented a new merchandise strategy which increases
the variety of choices in its merchandise assortment. The Company now
utilizes 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 should result in a higher degree of
accuracy in predicting consumer preferences while reducing the Company's
inventory investment and risk. The purpose of this new strategy is to enable
the Company to provide merchandise assortments to meet its customers'
preferences.
In addition, the Company is expanding its merchandise assortment in
previously underdeveloped products such as career wear and dresses, and petite
sizes are being offered for the first time. Product assortments will also be
tailored to area demographics, and merchandise will be available for six
distinct seasons -- spring, summer, transitional, fall, holiday and
transitional -- rather than two seasons as in the past. The Company has also
begun to redefine its merchandise assortments to reflect the needs and demands
of diverse customer groups and distribution systems are in place whereby
stores which are identified as having certain customer profiles, can be
merchandised with products specifically targeted to such customers. The
Company intends to improve inventory turnover by better managing the inventory
receipt flow of seasonal merchandise to its stores across all geographic
regions. Further, the Company has addressed the different lifestyle needs of
its customers with respect to fashion by varying the depth and assortments of
career and casual merchandise. Quality standards have also been raised with
respect to merchandise fabrication, construction and fit.
The Company has implemented a more realistic value pricing strategy
which reduces the initial price markup of fashion merchandise in order to
increase the percentage of sales at the ticketed price. Management believes
this new strategy should result in a greater degree of credibility with the
customer, reducing the need for aggressive price promotions. The Company
expects to continue to achieve a higher initial markup in basic low-risk
commodity merchandise that is purchased through its overseas sourcing
operation.
The Company continues to be promotionally oriented. In accordance with
its new strategy, the Company has shifted a greater proportion of its
advertising expenditures from in-store promotions to radio and newspaper
advertising, and management is actively utilizing targeted direct mail
advertising to its list of approximately 3,300,000 active proprietary credit
card customers. In addition, the Company is exploring alternative forms of
advertising such as network television in selected markets. 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.
As a result of management's increased focus on meeting the demands of
its primary customer, the Company has shifted a significant portion of its
purchases to the domestic market. This allows management to decrease lead
times and respond more quickly to current fashion trends. Use of the domestic
market allows the Company to make purchase decisions generally with two to
four month lead times, and quickly replenish merchandise inventory as
necessary (generally with one to two month lead times). In previous years,
the Company had placed an increasing reliance on its ability to develop and
dictate fashion trends to its customers. By Fiscal 1996, over 70% of its
merchandise was developed in-house by product developers, and then purchased
primarily through the Company's overseas sources (see "--Purchasing") which
generally required lead times of six to twelve months in advance of the
selling season. A higher initial markup was achieved on the products
purchased overseas, but because the Company's foreign sourcing operations
required such lengthy lead times, the Company was unable to react quickly to
changes in fashion trends. Further, the Company had narrowed the assortment
of its merchandise, and the customer did not respond favorably to the
Company's selections. These factors led to large price reductions and losses
in Fiscal 1996. The Company continues to use its overseas sourcing operation,
which has been reorganized to support this strategic change, to procure basic
low-risk commodity merchandise which generally requires three to eight months
lead time. Management expect that such merchandise will account for
approximately 35% of the Company's purchases in Fiscal 1997.
The retail sale of women's apparel is a highly competitive business with
numerous competitors, including moderate price department stores, discount
department stores and other low to moderate price specialty apparel stores.
The Company cannot estimate the number of competitors or its relative
competitive position, due to the large number of companies selling women's
apparel. 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 experiences a normal seasonal sales pattern for the retail
apparel industry, with its peak sales occurring during the Christmas season
and other, less significant, increases around Easter and Labor Day. 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 seasonable
merchandise over from one season to another. Sales for the four quarters of
Fiscal 1996, as a percent of total sales, were 22.2%, 24.3%, 24.3% and 29.2%,
respectively.
The Company encourages sales on its proprietary credit card. The
proprietary credit program has approximately 3,300,000 active accounts which
accounted for approximately 40% of retail sales in Fiscal 1996. 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 proprietary credit card file, and has entered into various
agreements whereby it securitizes and sells substantially all of these
receivables. In each securitization, the receivables are transferred to a
trust which issues and sells 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 proprietary credit
card portfolio is administered 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.
The Company's stores feature wall and selling-floor displays which
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.
Purchasing
Purchasing is conducted on a departmental basis for each of the
Fashion Bug[Registered] and Fashion Bug Plus[Registered] merchandise groups
by a staff 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 which
will permit attractive selling prices, while obtaining the desired markup
for the Company.
The merchandising staff obtains store and chain-wide inventory
information generated by a merchandise information system utilizing
point-of-sale terminals, through which 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 indicated, including re-order, markdowns and changes in the
buying plans for upcoming seasons.
The Company does not own or operate any significant manufacturing
facilities. During Fiscal 1996, the Company purchased merchandise from
approximately 700 suppliers, none of which accounted for more than 4% of its
purchases. The shift in the Company's merchandising strategy toward greater
reliance on the domestic market will result in an increase in the size of the
Company's vendor base. As a result of the Company's merchandise strategy of
shifting to the domestic market, the Company's wholly-owned contracting and
buying offices, headquartered in Hong Kong, have been reorganized. The
Company has also reduced the size and scope of this office's operation.
During Fiscal 1996, the Company's Hong Kong office conducted its sourcing
operations in 23 countries with satellite offices in 14 of these countries.
By the end of Fiscal 1997, the Company expects to be sourcing merchandise from
approximately 12 countries while maintaining satellite offices in 4 of these
countries. For Fiscal 1997, the Hong Kong office is expected to manage the
procurement of approximately 35% of the Company's merchandise purchases.
Distribution
The Company operates two distribution centers. One is located in
Bensalem, Pennsylvania, adjacent to the Company's corporate headquarters.
This automated facility, which also contains executive, administrative and
buying offices, occupies approximately 515,000 square feet. The second
distribution facility is located in Greencastle, Indiana. The 150-acre
tract of land contains a building of approximately 525,000 square feet,
which includes a 175,000 square foot expansion completed during Fiscal
1996. Although the Company intends to open only approximately 4 new stores
during Fiscal 1997, the Company estimates that, by operating multiple
shifts, it would have the ability to service over 2,000 stores from these
two distribution centers.
The majority of merchandise purchased by the Company is received at
these centers, 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 sortation system in its Bensalem, Pennsylvania distribution center
enhances the flow of merchandise from receipt to shipment. A similar system
was implemented in the Greencastle, Indiana facility during Fiscal 1996.
Shipments to each store are made by trucks operated principally by common
carriers. The Company utilizes a computerized automated distribution model
which enhances the efficiency of the distribution department and enables that
department to build various customer profiles into each store's plan to
determine not only the number of units, but also the type of unit to be
distributed to each store.
The Company's new merchandise and purchasing strategy, and enhancements
to the Company's inventory management, facilitate the timely and orderly
purchase and flow of merchandise, thereby enabling the stores to offer fresh
product assortments on a regular basis. Management expects that changes and
enhancements should reduce the expense of outside storage facilities, and
decrease borrowing costs incurred in connection with merchandise procurement.
Stores
The Company's 1,225 stores, as of May 4, 1996, are primarily located in
suburban areas and small towns. Approximately eighty percent of these stores
are located in strip shopping centers, while the balance are located in
community and regional malls. Typically, stores are open seven days per week,
eleven hours per day Monday through Saturday and seven hours on Sunday.
The Fashion Bug[Registered] stores range in size, generally, from 6,000
square feet to 14,000 square feet, averaging approximately 9,700 square feet.
The Fashion Bug Plus[Registered] stores range in size, generally, from 3,000
square feet to 5,000 square feet, averaging approximately 4,000 square feet.
During the fourth quarter of Fiscal 1996, the Company announced that it would
close 290 of its under-performing Fashion Bug[Registered] and Fashion Bug
Plus[Registered] stores as part of its Restructuring Plan. As of the end of
Fiscal 1996, 122 of these 290 stores were closed, and as of May 4, 1996, 200
of these 290 stores were closed. The Company expects to close the remaining
stores during Fiscal 1997. Total leased space decreased to 12,238,000 square
feet as of the end of Fiscal 1996, from 13,073,000 square feet as of the end
of Fiscal 1995, a 6% decrease. Although the Company has suspended its
expansion program, it intends to open approximately 4 new stores during Fiscal
1997. The Company's store expansion over the past five fiscal years is set
forth in the following table:
<TABLE>
<CAPTION>
Fiscal Year Ended
___________________________________________________________________
Number of Stores Feb. 3, Jan. 28, Jan. 29, Jan. 30, Feb. 1,
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Open at beginning of period........... 1,428 1,333 1,220 1,137 1,058
Opened during period.................. 47 126 157 129 111
Closed or combined during period...... (174) (31) (44) (46) (32)
-------- -------- -------- -------- --------
Total............................. 1,301 1,428 1,333 1,220 1,137
======== ======== ======== ======== ========
Fashion Bug[Registered]............... 1,234 1,346 1,248 1,116 1,011
Fashion Bug Plus[Registered].......... 67 82 85 104 126
-------- -------- -------- -------- --------
Total............................. 1,301 1,428 1,333 1,220 1,137
======== ======== ======== ======== ========
</TABLE>
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 106 district managers who travel to all stores in
their district on a frequent basis to supervise store operations, each having
responsibility for an average of approximately 12 stores. The district
managers are supervised by 12 regional managers who report to the Director of
Stores. Generally, store managers are appointed from the group of assistant
managers, and district managers are appointed from the group of existing 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 1996, the Company employed approximately 14,200 people,
approximately 7,500 of whom were employed on a part-time basis. In addition,
a number of temporary employees are hired during the Christmas season.
Properties
The Company leases all store premises, with the exception of 9 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. During the fourth quarter of Fiscal 1996, the Company announced the
intention to close 290 under-performing stores, of which 3 operated on
Company-owned real estate. The Company has either entered into termination
agreements or is negotiating termination agreements for those leased stores
scheduled to close. The 3 Company-owned properties scheduled to close are
currently for sale or lease. As of May 4, 1996, 200 of these 290 stores were
closed. With respect to leased stores open as of February 3, 1996 that the
Company intends to continue to operate or for which the Company has no
agreed-upon termination as of May 4, 1996, 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
----------- -----------
1996 7
1997 - 2001 50
2002 - 2006 104
2007 - 2011 216
2012 - 2016 211
2017 - 2043 621
The Company owns offices and an approximately 515,000 square foot
distribution center in Bensalem, Pennsylvania and a 525,000 square foot
distribution center in Greencastle, Indiana. The Company also owns
approximately 22 acres in two parcels across the street from the Company's
offices and distribution center in Bensalem, Pennsylvania. This 22-acre tract
contains a 110,000 square foot office building which houses the Company's data
processing facility and additional administrative offices. Spirit of America
National Bank, a wholly owned subsidiary of the Company, which is the
Company's proprietary credit card bank, occupies 15,000 square feet of leased
office space in Milford, Ohio. The Company owns or leases a total of 100,000
square feet of office and warehouse space in Hong Kong.
Trademarks and Servicemarks
Fashion Bug[Registered], Fashion Bug Plus[Registered],
Glitter[Registered], Sopre[Registered], Maggie Lawrence[Registered],
Stefano[Registered], Stefano Man[Registered], L.A. Blues[Registered],
Details[Registered], Best United Garment Company[Registered] and several other
trademarks and servicemarks of lesser importance to the Company have been
registered with the United States Patent and Trademark Office and in other
countries.
Legal Matters
The Company is from time to time involved in routine litigation incident
to the conduct of its business. The Company does not believe that any
currently pending litigation to which it is a party will have a material
adverse effect on its results of operations or financial condition.
MANAGEMENT
The executive officers of the Company and their respective ages and
positions are as follows:
Name Age Position
- ------------------- --- --------------------------------------------------
Dorrit J. Bern 46 Vice Chairman of the Board, President and Chief
Executive Officer
Patricia DeRosa 43 Executive Vice President-Business Development
Anthony A. DeSabato 47 Executive Vice President and Corporate Director of
Human Resources
Colin D. Stern 47 Executive Vice President and General Counsel
Elizabeth Williams 42 Executive Vice President-Merchandising
Jeffrey M. Zelenko 40 Executive Vice President-Merchandising
Erna Zint 52 Executive Vice President-Sourcing
Eric M. Specter 38 Vice President-Chief Financial Officer
Vivian Behrens 43 Vice President-Marketing
Bernard Brodsky 56 Vice President, Treasurer and Secretary
Jon A. Goldberg 36 Vice President, Corporate Controller
Terry G. Pritikin 47 Vice President-Director of Stores
Dorrit J. Bern, has served as President, Chief Executive Officer and Vice
Chairman of the Board of Directors since September 1995. Prior to that, she
served as Group Vice President of Women's Apparel and Home Fashions at Sears,
Roebuck & Co. from December 1993 to August 1995. She also served at Sears,
Roebuck & Co. as Category Vice President of Women's Apparel from December 1992
to December 1993 and as Divisional Vice President of Misses and Junior
Sportswear, Dresses, Outerwear, Petite and Large Size Sportswear and Dresses,
and Maternity from 1987 to December 1992. Ms. Bern's term as a Director
expires in 1996.
Patricia DeRosa, has served as Executive Vice President - Business Development
since August 1995. Prior to that, she served as President, Gap Kids Division
at Gap Stores, Inc. from August 1993 to April 1995 and as Executive Vice
President, Gap Division from April 1991 to July 1993.
Anthony A. DeSabato, has served as Executive Vice President and Corporate
Director of Human Resources for more than five years.
Colin D. Stern, has served as Executive Vice President and General Counsel for
more than five years.
Elizabeth Williams, has served as Executive Vice President - Merchandising
since October 1995. Prior to that, she served as Divisional Vice President -
Misses Sportswear and Special Sizes at Sears, Roebuck & Co. from February 1994
to October 1995 and as Divisional Merchandise Manager from August 1990 to
February 1994.
Jeffrey M. Zelenko, has served as Executive Vice President - Merchandising
since June 1995. Prior to that, he served as Senior Vice President - General
Merchandise Manager - Junior Division of Petrie Retail, Inc. from August 1993
to June 1995. From June 1992 to August 1993, he was self-employed in the
garment manufacturing industry. Prior to that, he was Vice President -
Merchandising at Charming Shoppes, Inc. for more than five years.
Erna Zint, has served as Executive Vice President - Sourcing since January
1996. Prior to that, she served as Corporate Vice President - Southeast Asia
Operations for Leslie Fay Companies, Inc. from December 1990 to December 1995.
Eric M. Specter, has served as Vice President - Chief Financial Officer since
December 1995. Prior to that, he served as Vice President - Corporate
Controller for more than five years.
Vivian Behrens, has served as Vice President - Marketing since September 1994.
Prior to that, she served as Vice President - Marketing with the Lane Bryant
Division of The Limited, Inc. from November 1990 to August 1994.
Bernard Brodsky, has served as Vice President, Treasurer and Secretary for
more than five years.
Jon A. Goldberg, has served as Vice President - Corporate Controller since
December 1995. Prior to that, he served as Vice President - Retail Controller
from May 1995 to December 1995 and as Retail Controller from August 1990 to
May 1995.
Terry G. Pritikin, has served as Vice President - Director of Stores since
November 1994. Prior to that, he served as President of Retail Specialty,
Tommy Hilfiger, USA, from March 1994 until November 1994 and as Executive Vice
President of Stores with the Lerner Division of The Limited, Inc. from May
1988 to March 1994.
There are no family relationships among any executive officers.
DESCRIPTION OF THE NOTES
General
The Notes will be issued pursuant to an Indenture dated as of
, 1996 (the "Indenture"), between the Company and as trustee (the
"Trustee"). The following summary of certain provisions of the Indenture does
not purport to be complete and is qualified in its entirety by reference to
the Indenture, copies of which will be available for inspection at the
corporate trust office of the Trustee in The City of New York and at the
offices of the Paying Agent referred to below. The definitions of certain
terms used in the following summary are set forth below under "--Certain
Definitions". Capitalized terms used but not defined herein have the meanings
ascribed to them in the Notes and the Indenture.
The Notes will be unsecured obligations of the Company, subordinated in
right of payment to all existing and future Senior Debt of the Company to the
extent set forth in the Indenture. The Indenture does not limit the amount of
other indebtedness or securities that may be issued by the Company or any of
its Subsidiaries.
Principal, Maturity and Interest
The Notes will bear interest from , 1996, at the rate per
annum set forth on the cover page of this Prospectus and will mature on
, 2006. The Notes will be limited to $100,000,000 aggregate principal
amount (subject to increase in the event of exercise of all or a portion of
the Underwriters' over-allotment option).
Interest on the Notes will be payable semiannually on and
of each year (each an "Interest Payment Date"), commencing on ,
1996, to holders of record at the close of business on the of
or of (each a "Regular Record Date") immediately preceding
such Interest Payment Date. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from , 1996. See also "--Payment and
Conversion" below.
Book-Entry; Delivery and Form
The certificates representing the Notes will be issued in fully
registered form. The Notes will each initially be represented by a global
certificate in fully registered form (the "Global Note") which will be
deposited with the Trustee as custodian for The Depository Trust Company
("DTC") and registered in the name of DTC or its nominee.
Global Note
The Company expects that upon the issuance of the Global Note, DTC or
its custodian will credit, on its book-entry registration and transfer system,
the respective principal amount of Notes of the individual beneficial
interests represented by such Global Note to the accounts of persons who have
accounts with such depositary. Such accounts initially will be designated by
or on behalf of the Underwriters. Ownership of beneficial interests in the
Global Note will be limited to persons who have accounts with DTC
("participants") or persons who hold interests through participants.
Ownership of beneficial interests in the Global Note will be shown on, and the
transfer of that ownership will be effected only through, records maintained
by DTC or its nominee (with respect to interests of participants) and the
records of participants (with respect to interests of persons other than
participants).
So long as DTC, or its nominee, is the registered owner or holder of the
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an
interest in the Global Note will be able to transfer that interest except in
accordance with DTC's applicable procedures.
Payments of the principal of, premium, if any, and interest on, the
Global Note will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. Neither the Company, the Trustee nor any Paying
Agent will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the Global Note or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment
of principal, premium, if any, or interest in respect of the Global Note, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in such Global Note
held through such participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts
of customers registered in the names of nominees for such customers. Such
payments will be the responsibility of such participants.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more participants
to whose account the DTC interests in the Global Note are credited and only in
respect of such portion of the aggregate principal amount of Notes as to which
such participant or participants has or have given such direction. However,
if there is an Event of Default under the Notes or the Indenture, DTC will
exchange the Global Note for definitive Notes in certificated form
("Certificated Notes"), which will be distributed to its participants.
DTC has advised the Company that DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers (including
the Underwriters), banks, trust companies and clearing corporations and
certain other organizations. Indirect access to the DTC system is available
to others, such as banks, brokers, dealers and trust companies, that clear
through or maintain a custodial relationship with a participant, either
directly or indirectly ("indirect participants").
Certificated Securities
If DTC is at any time unwilling or unable to continue as a depositary
for the Global Note and a successor depositary is not appointed by the Company
within 90 days, or in the circumstances set forth in "--Global Note" above,
Certificated Notes will be issued in exchange for the Global Note.
The Company will initially appoint the Trustee at its corporate trust
office as Paying Agent, Transfer Agent, Registrar and Conversion Agent for the
Notes. In such capacities, the Trustee will be responsible for, among other
things, (i) maintaining a record of the aggregate holdings of Notes and
accepting Notes for exchange and registration of transfer, (ii) ensuring that
payments of principal, premium, if any, and interest in respect of the Notes
received by the Trustee from the Company are duly paid to the holders of the
Notes, (iii) transmitting to the Company any notices from holders, (iv)
accepting conversion notices and related documents, and transmitting the
relevant items to the Company and (v) delivering certificates for Common Stock
issued on conversion of the Notes.
The Company will cause to be kept at the office of the Registrar a
register in which, subject to such reasonable regulations as it may prescribe,
the Company will provide for the registration of the Notes and registration
of transfers of the Notes. The Company may vary or terminate the appointment
of any Paying Agent, Transfer Agent, Registrar or Conversion Agent, or appoint
additional or other such agents or approve any change in the office through
which any such agent acts, provided that until the Notes have been delivered
to the Trustee for cancellation, or moneys sufficient to pay the principal of
and premium, if any, and interest on the Notes have been made available for
payment and either paid or refunded to the Company as provided in the
Indenture, there shall at all times be a Paying Agent, a Transfer Agent, a
Registrar and a Conversion Agent in The City of New York. The Company will
cause notice of any resignation, termination or appointment of the Trustee or
any Paying Agent, Transfer Agent, Registrar or Conversion Agent, and of any
change in the office through which any such agent will act, to be provided to
Holders of the Notes in accordance with "--Selection and Notice" below.
At the option of the holder thereof and subject to the terms of the
Notes and of the Indenture, Certificated Notes, if any, will be exchangeable
for an equal aggregate principal amount of Certificated Notes of different
authorized denominations at the office of the Trustee in The City of New York,
in each case without service charge (other than the cost of delivery) and upon
payment of any taxes and other governmental charges. The registered holder of
a Note will be treated by the Company, the Trustee and their respective agents
for all purposes as the owner of such Note.
In the event of a partial redemption, the Company will not be required
(i) to register the transfer of Notes for a period of 15 days immediately
preceding the date on which notice is given identifying the serial numbers of
the Notes called for such redemption or (ii) to register the transfer or
exchange of any Note, or portion thereof, called for redemption.
Optional Redemption
Redemption at the Option of the Company
The Notes will not be subject to redemption prior to , 1999,
and will be redeemable on such date and thereafter at the option of the
Company, in whole or in part (in any integral multiple of $1,000), upon prior
notice as described under "--Selection and Notice" below, at the following
redemption prices (expressed as percentages of the principal amount), if
redeemed during the 12-month period beginning of the years indicated:
Redemption
Year Price
- ---- ----------
1999......................................... %
2000.........................................
2001.........................................
2002.........................................
2003.........................................
2004.........................................
and at , 2005 and thereafter, 100%, in each case together with
accrued interest to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on an Interest
Payment Date). If less than all Notes are to be redeemed, the Trustee will
select the Notes to be redeemed by lot, pro rata or by such other method as
the Trustee shall deem fair and appropriate. On or after the redemption date,
interest will cease to accrue on the Notes, or portion thereof, called for
redemption unless the Company defaults in making such redemption.
Redemption Procedures
Notice of intention to redeem Notes will be given to holders of the
Notes in accordance with "--Selection and Notice" below, not more than 60 nor
less than 30 days prior to the redemption date.
Notice of redemption will specify, among other things, the redemption
date, the applicable redemption price and, in the case of partial redemption,
the aggregate principal amount of Notes to be redeemed and the aggregate
principal amount of the Notes which will be outstanding after such partial
redemption. In addition, in the case of a partial redemption, such notice will
specify the last date on which exchanges or registration of transfers of Notes
may be made pursuant to the provisions described under "--Book-Entry; Delivery
and Form--Certificated Securities" above and will specify the serial numbers
and the portions thereof called for redemption, which will be selected in such
manner as the Trustee shall deem to be fair and appropriate.
Cancellation and Reacquisition
All Notes that are redeemed or purchased by the Company or any of its
Subsidiaries will forthwith be canceled and accordingly may not be reissued or
resold.
The Company or any Subsidiary or affiliate of the Company may at any
time purchase Notes in the open market or otherwise.
Mandatory Redemption
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
Selection and Notice
If less than all of the Notes are to be redeemed at any time, selection
of Notes for redemption will be made by the Trustee, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate, provided
that no Notes of $1,000 or less shall be redeemed in part. Notice of
redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each holder of Notes to be redeemed at
its registered address. If any Note is to be redeemed in part only, the
notice of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal
to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest ceases to accrue on Notes or portions of them called for
redemption.
Repurchase Rights
Upon any Change of Control (as defined below) with respect to the
Company, each holder of Notes will have the right (the "Repurchase Right"),
at the holder's option, to require the Company to repurchase all of such
holder's Notes, or a portion thereof which is $1,000 or any integral
multiple thereof, on the date (the "Repurchase Date") that is 45 days after
the date of the Company Notice (as defined below) at a price equal to 100%
of the principal amount of the Notes, plus accrued interest, if any, to the
Repurchase Date; provided, however, that installments of interest due on an
Interest Payment Date occurring on or prior to the Repurchase Date shall be
payable to the registered holders of the applicable Notes on the relevant
Regular Record Date.
Within 30 days after the occurrence of a Change of Control, the
Company is obligated to give notice (the "Company Notice") as provided in
the Indenture, of the occurrence of such Change of Control and the
Repurchase Right arising as a result thereof. To exercise the Repurchase
Right, a holder of Notes must deliver on or before the 30th day after the
date of the Company Notice irrevocable written notice to the Company (or an
agent designated by the Company for such purpose) and the Trustee of the
holder's exercise of such right together with the Notes with respect to
which the right is being exercised, duly endorsed for transfer. The
submission of a Note pursuant to the exercise of a Repurchase Right will be
irrevocable on the part of the holder (unless the Company fails to
repurchase the Note on the Repurchase Date) and the right to convert such
Note will expire upon such submission.
The Company will comply with the requirements of Rules 13e-4 and 14e-
1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of the Notes in connection with a Change of
Control.
On the Repurchase Date, the Company will, to the extent lawful, (1)
accept for payment Notes or portions thereof tendered, (2) deposit with the
Paying Agent an amount equal to the purchase price in respect of all Notes or
portions thereof so tendered plus accrued interest thereon payable on such
Repurchase Date and (3) deliver or cause to be delivered to the Trustee the
Notes so accepted together with an Officers' Certificate stating the Notes or
portions thereof tendered to the Company. The Paying Agent shall promptly mail
to each holder of Notes so accepted payment in an amount equal to the purchase
price for such Notes plus accrued interest thereon payable on such Repurchase
Date, and the Trustee shall promptly authenticate and mail to each holder a
new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided, that each such new Note shall be in a principal
amount of $1,000 or an integral multiple thereof. The Company will publicly
announce the results of the offer to repurchase on or as soon as practicable
after the Repurchase Date. There can be no assurance that the Company will
have the financial resources necessary to repurchase the Notes in such
circumstances.
A "Change of Control" will be deemed to have occurred when: (i) any
"person" or "group" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than the Company, any Subsidiary of the Company or any
employee benefit plan of the Company or any Subsidiary of the Company is or
becomes the "Beneficial Owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, including all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total voting
power of the Voting Stock of the Company or (ii) the merger or consolidation
of the Company with or into another Person or the merger of another Person
with or into the Company, or the sale of all or substantially all the assets
of the Company to another Person (other than a Person that is controlled by
the Company), and, in the case of any such merger or consolidation, the
securities of the Company that are outstanding immediately prior to such
transaction and which represent 100% of the aggregate voting power of the
Voting Stock of the Company are changed into or exchanged for cash, securities
or property, unless pursuant to such transaction such securities are changed
into or exchanged for, in addition to any other consideration, securities of
the surviving corporation that represent, immediately after such transaction,
at least a majority of the aggregate voting power of the Voting Stock of the
surviving corporation.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding
and normally entitled (without regard to the occurrence of any contingency)
to vote in the election of directors, managers or trustees thereof.
Except as described above with respect to a Change of Control, the
Indenture does not contain any other provisions that permit the holders of the
Notes to require that the Company repurchase or redeem the Notes in the event
of a takeover, recapitalization or similar restructuring.
The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a takeover of the Company,
and, thus, the removal of incumbent management. Such purchase feature,
however, is not the result of management's knowledge of any specific effort to
accumulate the Company's stock or to obtain control of the Company by means of
a merger, tender offer, solicitation or otherwise, or part of a plan by
management to adopt a series of anti-takeover provisions. Instead, such
purchase feature is a result of negotiations between the Company and the
Underwriters. Management has no present intention to engage in a transaction
involving a Change of Control, although it is possible that the Company could
decide to do so in the future. Subject to the limitation on mergers,
consolidations and sale of assets described herein, the Company could, in the
future, enter into certain transactions, including acquisitions, refinancings
or other recapitalizations, that would not constitute a Change of Control
under the Indenture, but that could increase the amount of debt (including
Senior Debt) outstanding at such time or otherwise affect the Company's
capital structure or credit ratings. The payment of the purchase price is
subordinated to the prior payment of Senior Debt as described under
"--Subordination of Notes" below.
Current credit agreements of the Company contain, and future credit
agreements or other agreements relating to debt of the Company may contain,
prohibitions or restrictions on the Company's ability to effect the repurchase
of the Notes. In the event a Change of Control occurs at a time when such
prohibitions or restrictions are in effect, the Company could seek the consent
of its lenders to the purchase of Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such
a consent or repay such borrowings, the Company will be effectively prohibited
from purchasing Notes. In such case, the Company's failure to purchase
tendered Notes would constitute an Event of Default under the Indenture.
Conversion
The holder of any Note will have the right, exercisable at any time
prior to maturity, to convert the principal amount thereof (or any portion
thereof that is an integral multiple of $1,000) into shares of Common Stock
at the conversion price set forth on the cover page of this Prospectus,
subject to adjustment as described below (the "Conversion Price"), except
that if a Note is called for redemption, the conversion right will
terminate at the close of business on the business day immediately
preceding the date fixed for redemption, and except that if a Note is
submitted pursuant to the exercise of a Repurchase Right, the right to
convert such Note will expire upon such submission. Except as described
below, no adjustment will be made on conversion of any Notes for interest
accrued thereon or for dividends on any Common Stock issued. If Notes are
converted after a record date for the payment of interest and prior to the
next succeeding Interest Payment Date, such Notes must be accompanied by
funds equal to the interest payable on such succeeding Interest Payment
Date on the principal amount so converted (unless such Notes are subject to
redemption on a redemption date between such record date and the business
day immediately following such Interest Payment Date). No fractional
shares will be issued upon conversion but a cash adjustment will be made
for any fractional interest.
The Conversion Price is subject to adjustment upon the occurrence of
certain events, including: (i) the issuance of shares of Common Stock as a
dividend or distribution on the Common Stock; (ii) the subdivision or
combination of the outstanding Common Stock; (iii) the issuance to all
holders of Common Stock of rights or warrants to subscribe for or purchase
Common Stock (or securities convertible into Common Stock) at a price per
share less than the then current market price per share (determined as
provided in the Indenture); (iv) the distribution of shares of Capital
Stock of the Company (other than Common Stock), evidences of indebtedness
or other assets (excluding dividends or distributions in cash, except as
described in clause (v) below) to all holders of Common Stock; (v) the
distribution, by dividend or otherwise, of cash to all holders of Common
Stock in an aggregate amount that, together with the aggregate of any other
distributions of cash that did not trigger a Conversion Price adjustment to
all holders of its Common Stock within the 12 months preceding the date
fixed for determining the stockholders entitled to such distribution and
all Excess Payments (as defined below) in respect of each tender offer by
the Company or any of its Subsidiaries for Common Stock concluded within
the preceding 12 months not triggering a Conversion Price adjustment,
exceeds 10% of the product of the market price per share (determined as
provided in the Indenture) on the date fixed for the determination of
stockholders entitled to receive such distribution times the number of
shares of Common Stock outstanding on such date; (vi) payment of an Excess
Payment in respect of a tender offer by the Company or any of its
Subsidiaries for Common Stock, if the aggregate amount of such Excess
Payment, together with the aggregate amount of cash distributions made
within the preceding 12 months not triggering a Conversion Price adjustment
and all Excess Payments in respect of each tender offer by the Company or
any of its Subsidiaries for Common Stock concluded within the preceding 12
months not triggering a Conversion Price adjustment, exceeds 10% of the
product of the market price per share (determined as provided in the
Indenture) on the expiration of such tender offer times the number of
shares of Common Stock outstanding on such date; and (vii) the distribution
to substantially all holders of Common Stock of rights or warrants to
subscribe for securities or other assets (other than those securities
referred to in clause (iii) above). In the event of a distribution to
substantially all holders of Common Stock of rights to subscribe for
additional shares of the Company's Capital Stock (other than those
securities referred to in clause (iii) above), the Company may, instead of
making any adjustment in the Conversion Price, make proper provision so
that each holder of a Note who converts such Note after the record date for
such distribution and prior to the expiration or redemption of such rights
shall be entitled to receive upon such conversion, in addition to shares of
Common Stock, an appropriate number of such rights. No adjustment of the
Conversion Price will be made until cumulative adjustments amount to one
percent or more of the Conversion Price as last adjusted.
If the Company reclassifies or changes its outstanding Common Stock,
or consolidates with or merges into any person or transfers or leases all
or substantially all its assets, or is a party to a merger that
reclassifies or changes its outstanding Common Stock, the Notes will become
convertible into the kind and amount of securities, cash or other assets
which the holders of the Notes would have owned immediately after the
transaction if the holders had converted the Notes immediately before the
effective date of the transaction.
The Indenture also provides that if rights, warrants or options expire
unexercised, the Conversion Price shall be readjusted to take into account the
actual number of such warrants, rights or options which were exercised.
An "Excess Payment" means the excess of (A) the aggregate of the cash
and fair market value of other consideration paid by the Company or any of its
Subsidiaries with respect to the shares acquired in the tender offer over (B)
the market value of such acquired shares after giving effect to the completion
of the tender offer.
In the event of a taxable distribution to holders of Common Stock (or
other transaction) which results in any adjustment of the Conversion Price,
the holders of Notes may, in certain circumstances, be deemed to have received
a distribution subject to United States income tax as a dividend; in certain
other circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock.
The Company may, at its option, make such reductions in the
Conversion Price, in addition to those set forth above, as the Board of
Directors deems advisable in order that any stock dividend, subdivision of
shares, distribution of rights to purchase stock or securities or
distribution of securities convertible into or exchangeable for stock made
by the Company to its stockholders will not be taxable to its recipients.
Subordination of Notes
The payment of the principal of, premium, if any, and interest on or any
other amounts due on the Notes will be subordinated in right of payment to the
prior payment in full of all existing and future Senior Debt of the Company.
Upon the maturity of any Senior Debt of the Company by lapse of time,
acceleration or otherwise, such Senior Debt shall first be paid in full, or
duly provided for, before any payment may be made with respect to the Notes.
In addition, no payment on account of principal, premium, if any, or interest
on, or redemption or repurchase of, the Notes may be made by the Company if
there is a default in the payment of principal, premium, if any, or interest
or other amounts (including a default under any repurchase or redemption
obligation) with respect to any Senior Debt or if any other event of default
with respect to any Senior Debt, permitting the holders thereof to accelerate
the maturity thereof, shall have occurred and shall not have been cured or
waived or shall not have ceased to exist after written notice to the Company
and the Trustee by any holder of Senior Debt.
As of May 15, 1996, as adjusted for this offering, including application
of the proceeds thereof, the Senior Debt of the Company and the aggregate
indebtedness of its Subsidiaries, on a consolidated basis, totalled $
(excluding accrued interest). In addition, the Notes will be structurally
subordinated to all indebtedness and other liabilities (including trade
payables and lease obligations) of the Company's Subsidiaries, as any right of
the Company to receive any assets of its Subsidiaries upon their liquidation
or reorganization (and the consequent right of the holders of the Notes to
participate in those assets) will be effectively subordinated to the claims of
that Subsidiary's creditors (including trade creditors), except to the extent
that the Company itself is recognized as a creditor of such Subsidiary, in
which case the claims of the Company would still be subordinate to any
security interest in the assets of such Subsidiary and any indebtedness of
such Subsidiary senior to that held by the Company. There are no restrictions
in the Indenture on the creation of additional Senior Debt or any other
indebtedness of the Company or any Subsidiary of the Company.
Upon any distribution of its assets in connection with any dissolution,
winding-up, liquidation or reorganization of the Company or acceleration of
the principal amount due on the Notes because of an Event of Default, all
Senior Debt must be paid in full before the holders of the Notes are entitled
to any payments whatsoever.
If payment of the Notes is accelerated because of an Event of Default,
the Company or the Trustee shall promptly notify the holders of Senior Debt or
the trustee(s) for such Senior Debt of the acceleration. The Company may not
pay the Notes until five days after such holders or trustee(s) of Senior Debt
receive notice of such acceleration and, thereafter, may pay the Notes only if
the subordination provisions of the Indenture otherwise permit payment at that
time.
As a result of these subordination provisions, in the event of the
Company's insolvency, holders of the Notes may recover ratably less than
general creditors of the Company.
The Company will be obligated to pay reasonable compensation to the
Trustee and to indemnify the Trustee against any losses, liabilities or
expenses incurred by it in connection with its duties relating to the Notes.
The Trustee's claims for payments will be senior to those of holders of Notes
in respect of all funds collected or held by the Trustee.
Payment and Conversion
Payment of principal of and premium, if any, on the Notes will be made
to the registered holder thereof against surrender of such Notes at the
corporate trust office of the Trustee in The City of New York, or, subject to
any applicable laws and regulations, at the office of the Paying Agent, by
dollar check drawn on, or by transfer to, a dollar account (such transfer to
be made only to holders of an aggregate principal amount of Notes in excess of
$5,000,000) maintained by the holder with a bank in The City of New York.
Interest on the Notes will be payable semiannually on and of
each year to the person in whose name such Note is registered at the close of
business on the preceding and (a "Regular Record Date"),
subject to certain exceptions in the case of Notes redeemed or repurchased
upon a Change of Control between a Regular Record Date and the next succeeding
Interest Payment Date. Payments of such interest will be made by a dollar
check drawn on a bank in The City of New York mailed to the holder at such
holder's registered address or, upon application by the holder thereof to the
Registrar, not later than the applicable Regular Record Date, by transfer to a
dollar account (such transfer to be made only to holders of an aggregate
principal amount of Notes in excess of $5,000,000) maintained by the holder
with a bank in The City of New York.
The Company has initially appointed the Trustee at its corporate trust
office as Paying Agent and Conversion Agent. The Company may at any time
terminate the appointment of any Paying Agent or Conversion Agent and appoint
additional or other Paying Agents and Conversion Agents, provided that until
the Notes have been delivered to the Trustee for cancellation, or moneys
sufficient to pay the principal of and premium, if any, and interest on the
Notes have been made available for payment and either paid or refunded to the
Company as provided in the Indenture, it will maintain a Paying Agent and
Conversion Agent in The City of New York for payments with respect to the
Notes and for surrender of the Notes for conversion. Notice of any such
termination or appointment and of any change in the office through which any
Paying Agent or Conversion Agent will act will be given in accordance with
"--Selection and Notice" above.
All monies paid by the Company to a Paying Agent for the payment of
principal of or premium, if any, or interest on any Notes which remain
unclaimed at the end of two years after such payment has become due and
payable will be repaid to the Company, and the holder of such Note will
thereafter look only to the Company for payment thereof.
In any case where the due date for the payment of the principal of and
premium, if any, on or interest with respect to any Note or the date fixed for
redemption or repurchase of any Note shall be at any place of payment a day
on which banking institutions are authorized or obligated by law to close,
then payment of principal and premium, if any, or interest need not be made on
such date at such place but may be made on the next succeeding day at such
place which is not a day on which banking institutions are authorized or
obligated to close, with the same force and effect as if made on the date for
such payment or the date fixed for redemption or repurchase, and no interest
shall accrue with respect to the period after such date.
Merger, Consolidation or Sale of Assets
The Indenture will provide that the Company may not consolidate or merge
with or into any Person (whether or not the Company is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets unless (i)(a) the Company
is the surviving or continuing corporation or (b) the person formed by or
surviving any such consolidation or merger (if other than the Company), or the
person which acquires by sale, assignment, transfer, lease, conveyance or
other disposition the properties and assets of the Company, is a corporation
organized or existing under the laws of the United States, any state hereof or
the District of Columbia; (ii) the entity or person formed by or surviving any
such consolidation or merger (if other than the Company) assumes all the
obligations of the Company, pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee, under the Notes and the Indenture,
(iii) such sale, assignment, transfer, lease, conveyance or other disposition
of all or substantially all of the Company's properties or assets shall be as
an entirety or virtually as an entirety to one person and such person shall
have assumed all the obligations of the Company, pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee, under the Notes
and the Indenture; (iv) immediately after such transaction no Default or Event
of Default exists; and (v) the Company or such person shall have delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such transaction and the supplemental indenture comply with the Indenture
and that all conditions precedent in the Indenture relating to such
transaction have been satisfied. Under certain circumstances described above
involving a Change of Control, each holder of Notes may have the right to
require the Company to repurchase such Notes. See "--Repurchase Rights".
Events of Default and Remedies
The Indenture will provide that each of the following constitutes an
Event of Default: (i) default for 30 days in the payment when due of interest
on the Notes; (ii) default in payment when due of principal, or premium, if
any, on the Notes; (iii) failure by the Company to make a payment with respect
to repurchase of the Notes in accordance with the provisions described under
"--Repurchase Rights" above; (iv) failure by the Company for 60 days after
notice to comply with any other covenants and agreements contained in the
Indenture or the Notes; (v) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any indebtedness for money borrowed by the Company or any of its
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Subsidiaries), whether such indebtedness or guarantee now exists or is
created after the date on which the Notes are first authenticated and issued,
which default (a) is caused by a failure to pay when due principal or interest
on such indebtedness within the grace period provided in such indebtedness
(which failure continues beyond any applicable grace period) (a "Payment
Default") or (b) results in the acceleration of such indebtedness prior to its
express maturity and, in each case, the principal amount of any such
indebtedness, together with the principal amount of any other such
indebtedness under which there has been a Payment Default which is continuing
or the maturity of which has been so accelerated, aggregates $15 million or
more; provided, however, that no such default by a Subsidiary shall be covered
by this clause (v) unless such Subsidiary alone or together with all other
Subsidiaries which are then in default as described by subclauses (a) or (b)
in this clause (v), would, in the aggregate, constitute a Material Subsidiary;
(vi) failure by the Company or any Subsidiary of the Company to pay final
judgments (other than any judgment as to which a reputable insurance company
has accepted full liability) aggregating in excess of $15 million, which
judgments are not stayed within 60 days after their entry; provided, however,
that no such failure by a Subsidiary shall be covered by this clause (vi)
unless such Subsidiary alone or together with all other Subsidiaries which
then have such final judgments outstanding, would, in the aggregate,
constitute a Material Subsidiary and (vii) certain events of bankruptcy or
insolvency with respect to the Company or any of its Material Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company or any Material
Subsidiary, all outstanding Notes will become due and payable without further
action or notice. Subject to certain limitations, holders of a majority in
principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
Notes notice of any continuing Default or Event of Default (except a Default
or Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
In the event of a declaration of acceleration under the Indenture
because an Event of Default set forth in subclause (v) of the preceding
paragraph has occurred and is continuing, such declaration of acceleration
will be automatically annulled if the holders of the indebtedness which is the
subject of such Event of Default have waived such Payment Default or rescinded
their declaration of acceleration in respect of such indebtedness or if such
Payment Default has been cured within 30 days thereof and no other Event of
Default has occurred during such 30-day period which has not been cured or
waived. The holders of a majority in aggregate principal amount of
outstanding Notes may, under certain circumstances, rescind and annul a
declaration of acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all Events of Default, other than
the nonpayment of amounts which become due by acceleration, have been cured or
waived as provided in the Indenture.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
Amendment, Supplement and Waiver
Except as provided in the next succeeding paragraph, the Indenture or
the Notes may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the then outstanding Notes (including
consents obtained in connection with a tender offer or exchange offer for
Notes), and any existing Default or Event of Default or compliance with any
provision of the Indenture or the Notes may be waived with the consent of the
holders of a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange
offer for Notes).
Without the consent of each holder affected, an amendment or waiver may
not (with respect to any Notes held by a nonconsenting holder of Notes) (i)
reduce the amount of Notes whose holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes, (iii) reduce the rate of or change the time for payment of interest
on any Note, (iv) waive a default in the payment of principal of, premium, if
any, or interest on any Notes (except a rescission of acceleration of the
Notes by the holders of at least a majority in aggregate principal amount of
the Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any Note payable in money other than that stated in
the Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or Events of Default or the rights of holders of
Notes to receive payments of principal of or interest on the Notes, (vii)
waive a redemption payment with respect to any Note, (viii) impair the right
to convert the Notes into Common Stock or waive or otherwise adversely affect
the Repurchase Rights, (ix) modify the conversion or subordination provisions
of the Indenture in a manner adverse to the holders of the Notes or (x) make
any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of
Notes, the Company and the Trustee may amend or supplement the Indenture or
the Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of Certificated Notes, to
provide for the assumption of the Company's obligations to holders of the
Notes in the case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the holders of the Notes or that
does not adversely affect the legal rights under the Indenture of any such
holder, or to comply with requirements of the Commission in order to maintain
the qualification of the Indenture under the Trust Indenture Act of 1939.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that, in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any holder of Notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
Certain Definitions
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Capital Stock" means any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in
(however designated) equity of such Person, including any preferred stock, but
excluding any debt securities convertible into such equity.
"Default" means any event that is or, with the passage of time or the
giving of notice or both, would be an Event of Default.
"Material Subsidiary" means any Subsidiary of the Company including its
Subsidiaries, which meets any of the following conditions:
(1) The Company's and its other Subsidiaries' investments in and
advances to the Subsidiary exceed 10 percent of the total assets of the
Company and its Subsidiaries consolidated as of the end of the most
recently completed fiscal year (for a proposed business combination to
be accounted for as a pooling of interest, this condition is also met
when the number of common shares exchanged or to be exchanged by the
Company exceeds 10 percent of its total common shares outstanding at the
date of combination is initiated); or
(2) The Company's and its other Subsidiaries' proportionate share
of the total assets (after intercompany eliminations) of the Subsidiary
exceeds 10 percent of the total assets of the Company's and its
Subsidiaries consolidated as of the end of the most recently completed
fiscal year; or
(3) The Company's and its other Subsidiaries' equity in the
income from continuing operations before income taxes, extraordinary
items and cumulative effect of a change in accounting principle of
the Subsidiary exceeds 10 percent of such income of the Company and
its Subsidiaries consolidated for the most recently completed fiscal
year; or
(4) Except in the case of an Event of Default specified in (vii)
in which case this clause (4) shall not apply, the total revenues of the
Subsidiary exceed 5 percent of total revenues of the Company and its
Subsidiaries consolidated as of the end of the most recently completed
fiscal year.
For purposes of making the prescribed income test set forth above, the
following guidance should be applied:
1. When a loss has been incurred by either the Company and its
Subsidiaries consolidated or the tested Subsidiary, but not both, the
equity in the income or loss of the tested Subsidiary should be excluded
from the income of the Company and its Subsidiaries consolidated for
purposes of the computation.
2. If income of the Company and its Subsidiaries consolidated
for the most recent fiscal year is at least 10 percent lower than the
average of the income for the last five fiscal years, such average
income should be substituted for purposes of the computation. Any
loss years should be omitted for purposes of computing average
income.
"Senior Debt" means (a) all indebtedness of the Company, including the
principal of, premium, if any, and interest on such indebtedness whether
outstanding on the date of the Indenture or thereafter created (including
interest accruing after the filing of a petition in bankruptcy), and all
reasonable fees, costs, expenses and indemnity payments in connection
therewith (i) for borrowed money, (ii) constituting purchase money
indebtedness for the payment of which the Company is directly or contingently
liable, (iii) constituting reimbursement obligations under bank letters of
credit, (iv) under interest rate and currency swaps, caps, floors, collars or
similar agreements or arrangements intended to protect the Company against
fluctuations in interest or currency exchange rates, (v) for commitment,
standby and other fees due and payable to financial institutions with respect
to credit facilities available to the Company, (vi) under any lease of any
real or personal property, whether outstanding on the date of execution of the
Indenture or thereafter created, incurred or assumed, which obligations are
(x) capitalized on the books of the Company in accordance with generally
accepted accounting principles or (y) made as part of any sale and leaseback
transaction, (vii) indebtedness or obligations of others of the kinds
described in the preceding clauses (i)-(vi) that the Company has guaranteed
the payment thereof, or (viii) constituting indebtedness or obligations of
others secured in whole or in part by a lien on any of the Company's property,
unless, in any such case, by the terms of the instrument creating or
evidencing such indebtedness it is provided that such indebtedness is not
superior in right of payment to the Notes or to other indebtedness which is
pari passu with, or subordinated to, the Notes, and (b) any modifications,
refundings, deferrals, renewals or extensions of any such Senior Debt, or
securities, notes or other evidences of indebtedness issued in exchange for
such Senior Debt. As used in the preceding sentence the term "purchase money
indebtedness" shall mean indebtedness evidenced by a note, debenture, bond or
other similar instrument (whether or not secured by any lien or other security
interest) given in connection with the acquisition of any business, properties
or assets of any kind acquired by the Company or any Subsidiary; provided,
however, that, without limiting the generality of the foregoing, such term
shall not include any account payable.
"Subsidiary" means any corporation, association or other business entity
of which more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled directly or indirectly, by any person or one or more of the other
Subsidiaries of that person or a combination thereof.
Governing Law
The Indenture and the Notes will be governed by and construed in
accordance with the law of the State of New York.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 300,000,000 shares of
Common Stock, $.10 par value per share, and 1,000,000 shares of preferred
stock, $1.00 par value per share, of which 300,000 shares of Series A Junior
Participating Preferred Shares, $1.00 par value per share ("Series A Preferred
Shares"), have been authorized for issuance pursuant to the Company's
Shareholder Rights Plan discussed below.
Common Stock
Holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by shareholders generally, including the election
of directors. Shareholders are entitled to receive such dividends as may
be declared from time to time by the Board of Directors out of funds
legally available for dividends and in the event of liquidation,
dissolution or winding up of the Company, to share ratably in all assets
remaining after the payment of liabilities and any liquidation preference
associated with outstanding preferred stock. On October 2, 1995, however,
the Company's Board of Directors announced an indefinite suspension of
dividends on the Company's Common Stock. Additionally, the Company's
revolving credit facility requires, among other things, that the Company
not pay dividends on its Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Financial
Condition--Liquidity and Capital Resources". The holders of Common Stock
have no cumulative voting rights, no preemptive rights and no conversion
rights. The Common Stock outstanding as of the date of this Prospectus is
fully paid and nonassessable.
The transfer agent for the Company's Common Stock is Chemical Mellon
Shareholder Services, LLC.
Preferred Stock
The Board of Directors is authorized under the Company's restated
articles of incorporation, as amended (the "Articles"), to provide, without
further shareholder action, for the issuance of preferred stock in one or more
series with such designations, rights and preferences as shall be set forth in
resolutions adopted by the Board of Directors of the Company. Accordingly,
the Board of Directors is empowered to issue preferred stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect
the voting power or other rights of the holders of the Company's Common Stock.
For example, the issuance of series preferred stock could result in a class
of securities outstanding that will have certain preferences with respect to
dividends and in liquidation over the Common Stock, and may enjoy certain
voting rights, contingent or otherwise, in addition to that of the Common
Stock, and could result in the dilution of the voting rights, net income per
share and net book value of the Common Stock.
Except for the Series A Preferred Shares, the Company has not authorized
for issuance any preferred stock.
Series A Preferred Shares
In connection with the adoption of the Shareholder Rights Plan described
below, the Board of Directors authorized 300,000 Series A Preferred Shares.
As of the date of this Prospectus, there were no Series A Preferred Shares
outstanding. The following description of voting, dividend and liquidation
rights for the authorized Series A Preferred Shares in the succeeding three
paragraphs reflects the effects of the Company's two-for-one Common Stock
split, which was effected on December 7, 1992.
As of the date of this Prospectus, holders of Series A Preferred Shares
are entitled to 600 votes per share on all matters to be voted upon by
shareholders of the corporation. If the Company shall at any time after the
date of this Prospectus: (i) declare a dividend on Common Stock payable in
shares of Common Stock; (ii) subdivide the outstanding shares of Common Stock;
or (iii) combine the outstanding shares of Common Stock into a smaller number
of shares (with each of (i)-(iii) being a "Preferred Adjustment Event"); then,
in each such case, the number of votes per share to which a holder of Series A
Preferred was entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately after such event, and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such event (the "Preferred Adjustment
Factor").
Dividends on Series A Preferred Shares accrue quarterly, on a cumulative
basis, and shall be paid out of funds legally available for such purpose. As
of the date of this Prospectus, the rate of dividends payable on the first day
of March, June, September and December or such other quarterly date as shall
be specified by the Board of Directors shall be in an amount per Series A
Preferred Share equal to the greater of (i) $1.50 or (ii) subject to the
provision for adjustment set forth below, 600 times the aggregate per share
amount of cash dividends and 600 times the aggregate per share amount of all
non-cash dividends or other distributions, other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock, declared on the Common Stock since the immediately preceding quarterly
dividend payment date, or with respect to the first quarterly dividend payment
date, since the first issuance of any share or fraction of a share of the
Series A Preferred Shares. If a Preferred Adjustment Event occurs at any time
after the date of this Prospectus, the amount of dividends specified in (ii)
to which holders of Series A Preferred Shares were entitled immediately prior
to such event shall be adjusted by multiplying such number by the Preferred
Adjustment Factor.
In the event of any liquidation, dissolution or winding up of the
Company, holders of Series A Preferred Shares shall be entitled to receive the
greater of (i) $1 per Series A Preferred Share, plus accrued dividends to the
date of distribution, whether or not earned or declared, or (ii) an amount per
share, subject to the provision for adjustment set forth below, equal to 600
times the aggregate amount to be distributed per share to the holders of
Common Stock. If a Preferred Adjustment Event occurs any time after the date
of this Prospectus, then the liquidation payment contemplated by (ii) shall be
adjusted by multiplying such amount by the Preferred Adjustment Factor.
In the event that dividends upon the Series A Preferred Shares shall be
in arrears in an amount equal to six full quarterly dividends thereon, the
holders of such series shall be entitled solely to elect two directors. Such
voting rights shall continue until all accumulated and unpaid dividends have
been paid or set aside for such purpose. At any time when such a right to
elect directors has vested, the Company may, and upon the written request of
not less than 20% of the then outstanding total number of Series A Preferred
Shares having the right to elect directors in such circumstances shall, call a
special meeting of holders of such Series A Preferred Shares for the election
of directors; provided that the Company shall not be required to call a
special meeting if the request is received less than 120 days before the next
scheduled annual meeting or special meeting of the shareholders.
The Series A Preferred Stock is not redeemable, and will rank junior
with respect to payment of dividends and on liquidation to all other series of
the Company's preferred stock, except to the extent that any such series
specifically provides that it shall rank on parity with or junior to the
Series A Preferred Stock.
Shareholder Rights Plan
In April 1989, the Board of Directors adopted a Shareholder Rights Plan
(the "Shareholder Rights Plan") and declared a dividend of one right (a
"Right") for each outstanding share of Common Stock. In connection with the
Company's two-for-one stock split which was effected on December 7, 1992, the
number of Rights associated with each outstanding share of Common Stock was
adjusted from one Right per share of Common Stock to one-half of a Right per
share of Common Stock.
The Rights will separate from the Common Stock and a distribution date
("Distribution Date") will occur upon the earlier of (i) 10 days following a
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 20% or more of the outstanding Common Stock (the
"Stock Acquisition Date"), or (ii) the close of business on such date as may
be fixed by the Board of Directors, which date shall not be more than 65 days
following the commencement of a tender offer or exchange offer that would
result in a person or group beneficially owning 20% or more of the outstanding
Common Stock. The surrender for transfer of any certificates of Common Stock
outstanding will also constitute the transfer of the Rights associated with
the Common Stock represented by such certificates.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on April 26, 1999, unless earlier redeemed by
the Company as described below or unless certain transactions set forth in the
Shareholder Rights Agreement have occurred.
Except in the circumstances described below, after the Distribution
Date, each Right will be exercisable into one three-hundredth of a Series A
Preferred Share (a "Series A Preferred Share Fraction"). The voting and
dividend rights of the Series A Preferred Shares are subject to adjustment in
the event of dividends, subdivisions and combinations with respect to the
Common Stock of the Company. In lieu of issuing certificates for Series A
Preferred Share Fractions which are less than an integral multiple of one
Series A Preferred Share (i.e. 300 Series A Preferred Share Fractions), the
Company may pay cash representing the current market value of the Series A
Preferred Share Fractions.
In the event that at any time following the Stock Acquisition Date, (i)
the Company is the surviving corporation in a merger with an Acquiring Person
and its Common Stock remains outstanding, (ii) a Person becomes the beneficial
owner of more than 20% of the then outstanding Common Stock other than
pursuant to a tender offer that provides fair value to all shareholders, (iii)
an Acquiring Person engages in one or more "self-dealing" transactions as set
forth in the Shareholder Rights Agreement, or (iv) during such time as there
is an Acquiring Person an event occurs that results in such Acquiring Person's
ownership interest being increased by more than one percent (e.g., a reverse
stock split), each holder of a Right will thereafter have the right to
receive, upon exercise, Common Stock (or, in certain circumstances, cash,
property or other securities of the Company) having a value equal to
approximately two times the exercise price of the Right. In lieu of requiring
payment of the Purchase Price upon exercise of the Rights following any such
event, the Company may permit the holders simply to surrender the Rights, in
which event they would be entitled to receive Common Stock (and other
property, as the case may be) with a value of 50% of what could be purchased
by payment of the full Purchase Price. Notwithstanding any of the foregoing,
following the occurrence of any of the events set forth in clauses (i), (ii),
(iii) or (iv) of this paragraph, all Rights that are, or (under certain
circumstances specified in the Shareholder Rights Agreement) were,
beneficially owned by any Acquiring Person who was involved in the transaction
giving rise to any such event will be null and void. However, Rights are not
exercisable following the occurrence of any of the events set forth above
until such time as the Rights are no longer redeemable by the Company as set
forth below.
In the event that, at any time following the Stock Acquisition Date, (i)
the Company is acquired in a merger or other business combination transaction
in which the Company is not the surviving corporation (other than a merger
that is described in, or that follows a tender offer or exchange offer
described in, the preceding paragraph), or (ii) 50% or more of the Company's
assets or earning power is sold or transferred, each holder of a Right (except
Rights that previously have been voided as set forth above) shall thereafter
have the right to receive, upon exercise, common shares of the acquiring
company having a value equal to approximately two times the exercise price of
the Right. Again, provision is made to permit surrender of the Rights in
exchange for one-half of the value otherwise purchasable. The events set
forth in this paragraph and in the preceding paragraph are referred to as the
"Triggering Events".
The Purchase Price payable and/or the number of Units of Series A
Preferred Shares or other securities or property issuable upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Series A Preferred Shares, (ii) if holders of the
Series A Preferred Shares are granted certain rights or warrants to subscribe
for Series A Preferred Shares or convertible securities at less than the
current market price of the Series A Preferred Shares, or (iii) upon the
distribution to holders of the Series A Preferred Shares of evidences of
indebtedness or assets (excluding regular quarterly dividends) or of
subscription rights or warrants (other than those referred to above).
At any time until ten days following the Stock Acquisition Date, the
Company may redeem the Rights in whole, but not in part, at a price of $.01
per Right. That ten day redemption period may be extended by the Board of
Directors so long as the Rights are still redeemable. Under certain
circumstances set forth in the Shareholder Rights Agreement, the decision to
redeem will require the concurrence of a majority of the Continuing Directors
(as defined below). Immediately upon the action of the Board of Directors
ordering redemption of the Rights, with, where required, the concurrence of
the Continuing Directors, the Rights will terminate and the only rights of the
holders of Rights will be to receive the $.01 redemption price.
The term "Continuing Directors" means any member of the Board of
Directors of the Company who was a member of the Board prior to the date of
the Shareholder Rights Agreement, and any person who is subsequently elected
to the Board if such person is recommended or approved by a majority of the
Continuing Directors, but shall not include an Acquiring Person, or an
affiliate or associate of an Acquiring Person, or any representative of the
foregoing entities.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to shareholders or to the Company, shareholders may,
depending upon the circumstances, recognize taxable income in the event that
the Rights become exercisable for Series A Preferred Shares (or other
consideration) of the Company or for common shares of the acquiring company as
set forth above.
Other than those provisions relating to the principal economic terms of
the Rights, any of the provisions of the Shareholder Rights Agreement may be
amended by the Board of Directors of the Company prior to the Distribution
Date. After the Distribution Date, the provisions of the Shareholder Rights
Agreement may be amended by the Board (in certain circumstances, with the
concurrence of the Continuing Directors) in order to cure any ambiguity, to
make changes that do not adversely affect the interests of holders of Rights
(excluding the interests of any Acquiring Person), or to shorten or lengthen
any time period under the Shareholder Rights Agreement; provided, however,
that no amendment to adjust the time period governing redemption shall be made
at such time as the Rights are not redeemable.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the
Company without conditioning the offer on a substantial number of Rights
being acquired or redeemed. The Rights should not interfere with any
merger or other business combination approved by the Board of Directors of
the Company because (i) the Board of Directors (under certain
circumstances, with the concurrence of the Continuing Directors) may, at
its option, at any time prior to the close of business on the earlier of
(a) the tenth day following the Stock Acquisition Date or (b) April 21,
1999, redeem all but not less than all of the then outstanding Rights at
$.01 per Right, and (ii) in any event, the Shareholder Rights Agreement
does not apply to an offer which is determined by the Continuing Directors
to provide fair value to all shareholders. The Board of Directors may, as
discussed above, extend the ten day redemption period so long as the Rights
are still redeemable.
Antitakeover Provisions of Applicable Pennsylvania Law and the Company's
Articles and Bylaws
Certain provisions of the Pennsylvania Business Corporation Law of 1988,
as amended (the "PBCL"), and the Company's Articles and Bylaws, summarized in
the following paragraphs, may be deemed to have an antitakeover effect and may
delay, deter or prevent a tender offer or takeover attempt that a shareholder
might consider in his or her best interest, including those attempts that
might result in a premium over the market price for the shares of Common Stock
held by shareholders.
Pennsylvania Business Combination Law
Generally, Subchapters 25E, F, G, H, I and J of the PBCL place
certain procedural requirements and establish certain restrictions upon the
acquisition of voting shares of a corporation which would entitle the
acquiring person to cast or direct the casting of a certain percentage of
votes in an election of directors. In 1990, the Company's Bylaws were
amended so as to provide that only Subchapter 25F of the PBCL applies to
the Company.
In general, Subchapter 25F of the PBCL delays for five years, and
imposes conditions upon, "business combinations" between an "interested
shareholder" and the Company. The term "business combination" is defined
broadly in the PBCL to include various merger, consolidation, division,
exchange or sale transactions, including transactions utilizing the
Company's assets for purchase price amortization or refinancing purposes.
An "interested shareholder", in general under the PBCL, would be a
beneficial owner of at least 20% of the Company's voting shares. The
foregoing description of the PBCL does not purport to be complete.
Articles and Bylaws Provisions
Certain provisions of the Company's Articles and Bylaws may have the
effect of discouraging unilateral tender offers or other attempts to takeover
and acquire the business of the Company. These provisions may discourage some
potentially interested purchaser from attempting a unilateral takeover bid for
the Company on terms which some shareholders might favor. These provisions
may also reduce the likelihood of a change in the management or voting control
of the Company without the consent of the then incumbent Board of Directors.
The Articles and Bylaws provide for a classified Board of Directors
consisting of three classes as nearly equal in number as practicable. The
members of each class are elected for a period of three years, and the term of
at least one class shall expire in each year. The terms of the existing three
classes expire in 1996, 1997 and 1998, respectively. The Board of Directors,
a class of the Board Directors, or any individual director may be removed from
office without assigning cause by the vote of the holders of at least 80% of
the combined voting power of the then outstanding shares of stock of all
classes and series of the Company then entitled to vote generally in the
election of directors, voting together as a single class ("Voting Power").
The Articles provide that at least 80% of the Voting Power shall be
required to approve any "business combination" with an "interested
shareholder" unless the Board of Directors shall have approved by resolution,
prior to the time such person became an "interested shareholder", a memorandum
of understanding or agreement with the "interested shareholder" setting forth,
in general, the substance of the terms of the "business combination"
transaction to be consummated. The term "business combination" is broadly
defined in the Articles to include, among other things, specified mergers,
consolidations, sales or similar dispositions involving $5 million or more in
consideration, transfers of securities involving $5 million or more in
consideration, liquidation or dissolution proposals, and reclassifications or
recapitalizations involving in each case the Company, or its securities or
subsidiaries, and an "interested shareholder" and his, her or its affiliates
and associates. The term "interested shareholder" is broadly defined in the
Articles to include, among other things, a person or persons, and his, her,
its or their affiliates and associates, who acquire or beneficially own 10% or
more of the Company's Voting Power, unless in certain circumstances such
Voting Power has been maintained for more than ten years. A majority of the
Board of Directors who are disinterested (i.e., unaffiliated with an
"interested shareholder" and on the Board of Directors before such person
became an "interested shareholder") shall have the power and duty to determine
"interested shareholder", "Voting Power", "affiliation", "association" and
"business combination" matters, as such terms are defined or provided for in
the Articles.
At least 80% of the Voting Power is required to alter, amend or repeal,
or adopt provisions inconsistent with, the provisions of the Articles
described in the two preceding paragraphs.
The Company's Articles do not permit cumulative voting in the election
of directors. Under cumulative voting, it is possible for representation on a
class of the Board of Directors to be obtained by an individual or group of
individuals which owns less than a majority of the Voting Power.
The Company's Bylaws establish advance notice procedures with regard to
the nomination, other than by or at the direction of the Board of Directors or
a committee thereof, of candidates for election as directors. These
procedures generally provide that the notice of proposed shareholder
nominations for the election of directors must be given in writing to the
Secretary of the Company not later than the date on which a shareholder
proposal would be required to be submitted to the Company in order to be set
forth in the Company's proxy statement, in accordance with Exchange Act rules.
Such notice generally must (i) identify the name and address of the nominating
shareholder and nominee, (ii) contain representations concerning the
nominating shareholder's ownership of Common Stock and intention to appear at
the meeting and make the nomination and (iii) include all relevant information
concerning the nominee and his or her relationship or transactions with the
Company that are required to be disclosed in the proxy statement pursuant to
Exchange Act rules.
UNDERWRITING
Under the terms and subject to the conditions set forth in the
underwriting agreement dated the date hereof (the "Underwriting Agreement")
between the Company and each of the Underwriters named below (the
"Underwriters"), each of the Underwriters has severally agreed to purchase,
and the Company has agreed to sell to them, the aggregate principal amount of
Notes set forth opposite their names below:
Principal
Amount
Underwriter of Notes
----------- ------------
Lazard Freres & Co. LLC...................................
Bear, Stearns & Co. Inc...................................
------------
Total............................................... $100,000,000
============
The Underwriting Agreement provides that the several obligations of the
Underwriters to pay for and accept delivery of the Notes offered hereby are
subject to the approval of certain legal matters by counsel and to certain
other conditions. The Underwriters are obligated to purchase all Notes if any
are purchased.
The Company has been advised by Lazard Freres & Co. LLC that the
several Underwriters propose initially to offer the Notes offered hereby
directly to the public at the public offering price set forth on the cover
page of this Prospectus and to certain dealers at such price less a
concession of % of the principal amount of the Notes. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of % of the
amount of the Notes to other Underwriters or to certain other dealers.
After the offering, the public offering price and such concessions may be
changed by the Underwriters.
The Notes are a new issue of securities with no established trading
market. The Company has been advised by the Underwriters that they intend to
make a market in the Notes but are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes.
The Company has agreed that, subject to certain limited exceptions,
during the period beginning on the date of this Prospectus and continuing to
and including the date 90 days after the date of this Prospectus, it will not
offer, sell, contract to sell, or otherwise dispose of any securities of the
Company that are substantially similar to the Notes or the Common Stock,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Common Stock or any
such substantially similar securities without the prior written consent of the
Underwriters.
Lazard Freres & Co. LLC has provided investment banking services to the
Company from time to time for which it has received customary fees. In
addition, Michael Solomon, a Managing Director of Lazard Freres & Co. LLC, is
a director of the Company.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
Certain legal matters and the validity of the Notes will be passed upon
for the Company by Davis Polk & Wardwell. The validity of the Common Shares
issued upon conversion thereof will be passed upon for the Company by Morgan,
Lewis & Bockius. Certain legal matters will be passed upon for the
Underwriters by Milbank, Tweed, Hadley & McCloy.
EXPERTS
The Consolidated Financial Statements of the Company as of February 3,
1996 and January 28, 1995, and for each of the three fiscal years in the
period ended February 3, 1996 included herein have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of independent auditors.............................................F-2
Consolidated Balance Sheets - February 3, 1996 and January 28, 1995........F-3
Consolidated Statements of Income - years ended February 3, 1996,
January 28, 1995 and January 29, 1994................................F-4
Consolidated Statements of Cash Flows - years ended February 3, 1996,
January 28, 1995 and January 29, 1994................................F-5
Consolidated Statements of Stockholders' Equity - years ended
February 3, 1996, January 28, 1995 and
January 29, 1994.....................................................F-6
Notes to Consolidated Financial Statements.................................F-7
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, 1996 and January 28, 1995,
and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three fiscal years in the period ended
February 3, 1996. 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 generally accepted auditing
standards. 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, 1996 and January 28, 1995,
and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended February 3, 1996, in
conformity with generally accepted accounting principles.
As discussed in the Notes to Consolidated Financial Statements, the Company
changed its method of accounting for investments as of January 30, 1994 and
its method of accounting for income taxes as of January 31, 1993.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 20, 1996
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
(in thousands except shares and per share amounts)
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $25,117 $43,923
Restricted Cash 7,000 0
Available-for-Sale Securities 34,054 40,180
Income Tax Refund Receivable 56,953 7,493
Merchandise Inventories 220,850 258,552
Deferred Taxes 13,409 2,376
Prepayments and Other 48,178 79,191
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 405,561 431,715
Property, Equipment and Leasehold Improvements - at Cost 435,531 483,372
Less: Accumulated Depreciation and Amortization 200,943 197,119
- --------------------------------------------------------------------------------
NET PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS 234,588 286,253
AVAILABLE-FOR-SALE SECURITIES [including a fair value
adjustment of $22 as of February 3, 1996 and ($2,591)
as of January 28, 1995] 7,309 76,988
OTHER ASSETS 34,288 45,853
- --------------------------------------------------------------------------------
TOTAL ASSETS $681,746 $840,809
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $40,471 $137,622
Accrued Expenses 87,959 97,276
Accrued Restructuring Expenses 19,983 0
Current Portion - Long-Term Debt 57,691 5,002
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 206,104 239,900
DEFERRED TAXES 18,511 24,789
LONG-TERM DEBT 38,102 17,298
STOCKHOLDERS' EQUITY
Common Stock $.10 par value
Authorized 300,000,000 Shares
Issued and Outstanding 103,252,650 and 102,894,239
Shares 10,325 10,289
Additional Paid-In Capital 54,913 55,176
Deferred Employee Compensation (2,414) (5,025)
Unrealized Gains (Losses) on Available-for-Sale
Securities [net of
income tax (expense) benefit of ($9) as of February
3, 1996 and $906 as of January 28, 1995] 13 (1,685)
Retained Earnings 356,192 500,067
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 419,029 558,822
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $681,746 $840,809
- --------------------------------------------------------------------------------
</TABLE>
Certain prior-year amounts have been reclassified to conform to current-year
presentation.
See Notes to Consolidated Financial Statements
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 3, JANUARY 28, JANUARY 29,
(in thousands except shares and per share amounts) 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $1,102,384 $1,272,693 $1,254,122
Other Income 5,655 9,358 9,352
- ----------------------------------------------------------------------------------------------
TOTAL REVENUE 1,108,039 1,282,051 1,263,474
Cost of Goods Sold, Buying and Occupancy Expenses 917,064 932,138 863,381
Selling, General and Administrative Expenses 299,297 285,090 285,804
Interest Expense 3,666 2,304 2,557
- ----------------------------------------------------------------------------------------------
TOTAL EXPENSES 1,220,027 1,219,532 1,151,742
Restructuring Charge 103,000 0 0
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE (214,988) 62,519 111,732
Income Tax (Benefit) Expense (75,747) 17,830 35,967
- ----------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE (139,241) 44,689 75,765
Cumulative Effect of Adoption of SFAS 109 0 0 3,991
- ----------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(139,241) $ 44,689 $ 79,756
- ----------------------------------------------------------------------------------------------
PER SHARE DATA
- --------------
Net Income (Loss) Before Cumulative Effect of
Accounting Change $(1.35) $.42 $.70
Cumulative Effect of Accounting Change .00 .00 .04
- ----------------------------------------------------------------------------------------------
Net Income (Loss) $(1.35) $.42 $.74
- ----------------------------------------------------------------------------------------------
Cash Dividends $.045 $.09 $.09
- ----------------------------------------------------------------------------------------------
Weighted Average Number of Common Shares
and Share Equivalents Outstanding During
the Year 103,038,224 107,207,660 108,390,583
- ----------------------------------------------------------------------------------------------
</TABLE>
The fiscal year ended February 3, 1996 consists of 53 weeks.
See Notes to Consolidated Financial Statements
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 3, JANUARY 28, JANUARY 29,
(in thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) $(139,241) $44,689 $79,756
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by (Used In) Operating Activities:
Deferred Income Taxes (21,065) 4,682 2,007
Depreciation and Amortization 46,988 46,924 42,487
Amortization of Deferred Compensation Expense 2,195 2,535 3,597
Cumulative Effect of an Accounting Change 0 0 (3,991)
(Gain) loss on Sale of Available-for-Sale Securities 44 (174) (115)
Loss from Abandonment of Capital Assets 37,546 1,153 2,333
Changes in Operating Assets and Liabilities:
Income Tax Refund Receivable (49,460) (7,493) 0
Merchandise Inventories 37,702 975 (51,082)
Accounts Payable (14,289) (10,016) 413
Prepayments and Other 33,480 (4,096) (9,475)
Income Taxes Payable 0 (8,521) 2,949
Accrued Expenses (9,317) 42 21,357
Accrued Restructuring Expenses 19,983 0 0
- -----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (55,434) 70,700 90,236
INVESTING ACTIVITIES
Investment in Capital Assets (30,007) (75,656) (79,023)
Gross Purchases of Available-for-Sale Securities (30,525) (91,118) (107,557)
Proceeds from Sales of Available-for-Sale Securities 108,898 100,518 87,107
(Increase) Decrease in Other Assets 8,703 706 (25,022)
Purchase of Accounts Receivable 0 0 (186,857)
Sale of Accounts Receivable 0 0 186,857
- -----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 57,069 (65,550) (124,495)
FINANCING ACTIVITIES
Proceeds from Short-Term Borrowings 247,822 0 0
Reduction of Short-Term Borrowings (247,822) 0 0
Proceeds from Long-Term Borrowings 0 0 1,200
Reduction of Long-Term Borrowings (9,369) (5,003) (4,971)
Increase in Restricted Cash (7,000) 0 0
Proceeds from Exercise of Stock Options 562 641 870
Dividends Paid (4,634) (9,255) (9,236)
- -----------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (20,441) (13,617) (12,137)
DECREASE IN CASH AND CASH EQUIVALENTS (18,806) (8,467) (46,396)
Cash and Cash Equivalents, Beginning of Year 43,923 52,390 98,786
- -----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 25,117 $ 43,923 $52,390
- -----------------------------------------------------------------------------------------------
</TABLE>
The year ended February 3, 1996 consists of 53 weeks.
Certain prior-year amounts have been reclassified to conform to current-year
presentation.
See Notes to Consolidated Financial Statements
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL DEFERRED
COMMON STOCK PAID-IN EMPLOYEE
(in thousands except shares) SHARES AMOUNT CAPITAL COMPENSATION
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 30, 1993 102,448,158 $ 10,245 $ 51,708 $(10,757)
Issued to Employees, Net (69,193) (7) (822) 145
Exercise of Stock Options 356,472 36 1,524
Amortization 3,597
Tax benefit - Employee Stock Programs 1,798
- ------------------------------------------------------------------------------------------
BALANCE, JANUARY 29, 1994 102,735,437 10,274 54,208 (7,015)
Issued to Employees, Net (44,939) (5) 87 (545)
Exercise of Stock Options 203,741 20 506
Amortization 2,535
Tax Benefit - Employee Stock Programs 375
----------------------------------------------------------------------------------------
BALANCE, JANUARY 28, 1995 102,894,239 10,289 55,176 (5,025)
Issued to Employees, Net 88,406 9 (169) 416
Exercise of Stock Options 270,005 27 279
Amortization 2,195
Tax Expense - Employee Stock Programs (373)
----------------------------------------------------------------------------------------
BALANCE, FEBRUARY 3, 1996 103,252,650 $ 10,325 $ 54,913 $ (2,414)
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED GAINS
(LOSSES) ON
AVAILABLE-FOR-SALE RETAINED
(in thousands) SECURITIES EARNINGS
- ------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, JANUARY 30, 1993 $ 0 $394,113
Cash Dividends (9,236)
Net Income 79,756
- ------------------------------------------------------------------------------------------
BALANCE, JANUARY 29, 1994 0 464,633
Unrealized Losses [net of income taxes of $906] (1,685)
Cash Dividends (9,255)
Net Income 44,689
- ------------------------------------------------------------------------------------------
BALANCE, JANUARY 28, 1995 (1,685) 500,067
Unrealized Gains [net of income taxes of ($914)] 1,698
Cash Dividends (4,634)
Net Loss (139,241)
- ------------------------------------------------------------------------------------------
BALANCE, FEBRUARY 3, 1996 $ 13 $356,192
- ------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED FEBRUARY 3, 1996
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The Company operates a chain of specialty stores located throughout the
continental United States which merchandises moderately priced junior, misses,
large-size and girls size sportswear, dresses, coats, lingerie, accessories and
casual footwear. The Company also has a selection of petite women's apparel in
certain stores. An assortment of casual men's apparel and accessories is also
available in most stores.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. All significant intercompany
accounts and transactions are eliminated. The parent and its subsidiaries have
a 52-53 week fiscal year ending the Saturday nearest January 31.
FOREIGN OPERATIONS
The Company follows the practice of using a December 31 fiscal year for all
foreign subsidiaries in order to expedite the year-end closing.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles 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
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. The cumulative effect of adopting SFAS 115 was an increase in
Stockholders' Equity of $1,357,000. In accordance with SFAS 115, prior-period
financial statements were not 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 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. Short-term
investments are stated at cost which approximates market value.
INVENTORIES
Merchandise inventories are valued at the lower of cost or market as determined
by the retail method (average cost basis).
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED FEBRUARY 3, 1996
PROPERTY AND DEPRECIATION
Depreciation and amortization for financial reporting purposes are principally
computed by 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 $44,126,000, $42,583,000 and
$36,417,000 in Fiscal 1996, 1995 and 1994, respectively.
COMMON STOCK PLANS
Deferred compensation expense relating to Employee Stock Option and Stock
Incentive Plans is amortized over the required employment period.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising costs charged
to expense were $26,211,000, $11,894,000 and $13,242,000 in Fiscal 1996, 1995
and 1994, respectively.
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 fifty-two weeks ended January 29,
1994. 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 financial statement and income tax carrying value differences. As
permitted by SFAS 109, the Company has elected not to restate the financial
statements for any prior years. The effect of the change on pre-tax income
from continuing operations for the twelve months ended January 29, 1994 was not
material; however, the cumulative effect of the change increased net income by
$3,991,000 or $.04 per share.
U.S. income taxes have not been provided on undistributed earnings of foreign
subsidiaries accumulated prior to February 3, 1996 because the Company intends
to reinvest such undistributed earnings in the operations. Presently, income
taxes would not be significantly increased if such earnings were remitted
because of available foreign tax credits.
NET INCOME PER SHARE
Net income per common share is based on the weighted average number of shares
and share equivalents outstanding during each fiscal year. Common stock
equivalents include the effect of dilutive stock options. Share equivalents
are not included in the weighted average shares outstanding for determining net
loss per common share as the result would be antidilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company will adopt the provisions of SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and For Long-Lived Assets to be Disposed Of"
and SFAS 123, "Accounting for Stock-Based Compensation" in the fiscal year
beginning February 4, 1996. The adoption of these standards is not expected to
have a material impact on the Company's financial statements. SFAS 123
provides two alternative forms of accounting for stock compensation: pro-forma
disclosure of the effects on net income and earnings per share, or a charge to
earnings. The Company intends to adopt the pro-forma disclosure alternative in
its financial statements.
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED FEBRUARY 3, 1996
RESTRICTED CASH
The Company has a $7,000,000 cash deposit with a commercial finance company
which provides the Company's working capital line of credit. The cash is
collateral against a letter of credit issued to guarantee payment of up to
$22,000,000 of the Company's tax refund receivable by January 31, 1997 to
certain long-term debt lenders. To the extent that such refunds are less than
$30,000,000 and the long-term lenders draw against such letter of credit, the
restricted cash will be paid to the commercial finance company.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
LIVES
(in thousands) (YEARS) 1996 1995
- -------------------------------------------------------------------
Land $ 4,191 $ 4,845
Buildings and Improvements 10 to 33 72,822 69,718
Store Fixtures 5 to 10 102,127 120,808
Equipment 3 to 10 116,995 105,216
Leasehold Improvements 10 to 20 139,396 172,168
Construction in Progress 0 10,617
- -------------------------------------------------------------------
Total at Cost 435,531 483,372
Less Accumulated Depreciation
and Amortization 200,943 197,119
- -------------------------------------------------------------------
$234,588 $286,253
- -------------------------------------------------------------------
AVAILABLE-FOR-SALE SECURITIES
The following is a summary of available-for-sale securities as of February 3,
1996:
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED ESTIMATED
(in thousands) COST GAINS LOSSES FAIR VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charming Shoppes Master Trust Certificates $ 28,502 $ 0 $ 0 $ 28,502
Charming Shoppes Master Trust Note 5,500 0 0 5,500
U. S. Treasury and Government Agency Bonds 2,202 22 0 2,224
Low Income Housing Partnerships 4,560 0 0 4,560
Other 577 0 0 577
- --------------------------------------------------------------------------------------------
$ 41,341 $ 22 $ 0 $ 41,363
- --------------------------------------------------------------------------------------------
</TABLE>
The gross realized gains and (losses) on available-for-sale securities totaled
$592,000 and ($636,000), respectively, for the fiscal year ended February 3,
1996.
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED FEBRUARY 3, 1996
The following is a summary of available-for-sale securities as of January 28,
1995:
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED ESTIMATED
(in thousands) COST GAINS LOSSES FAIR VALUE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charming Shoppes Master Trust Certificates $ 30,680 $ 0 $ 0 $ 30,680
Charming Shoppes Master Trust Note 5,500 0 0 5,500
Municipal Bonds and Municipal Bond Funds 49,743 18 (926) 48,835
Government Agency Mortgage-
Backed Securities 11,428 0 (1,746) 9,682
U. S. Treasury and Government Agency Bonds 15,324 470 (295) 15,499
Low Income Housing Partnerships 3,208 0 0 3,208
Preferred Stocks 3,096 52 (144) 3,004
Other 780 0 (20) 760
- ----------------------------------------------------------------------------------------------
$ 119,759 $ 540 $(3,131) $ 117,168
- ----------------------------------------------------------------------------------------------
</TABLE>
The gross realized gains and (losses) on available-for-sale securities totaled
$198,000 and ($24,000), respectively, for the fiscal year ended January 28,
1995.
The contractual maturities of available-for-sale securities at February 3.1996
were:
ESTIMATED
(in thousands) COST FAIR VALUE
- ------------------------------------------------------------
Due in One Year or Less $34,054 $34,054
Due After One Year Through Five Years 2,727 2,749
- ------------------------------------------------------------
36,781 36,803
Equity Securities 4,560 4,560
- ------------------------------------------------------------
$41,341 $41,363
- ------------------------------------------------------------
INCOME TAXES
The Company adopted SFAS 109 as of January 31, 1993. The cumulative effect of
this change in accounting for income taxes of $3,991,000 was determined as of
January 31, 1993 and is reported separately in the consolidated statement of
income for the year ended January 29, 1994.
The components of income (loss) before income taxes and the cumulative effect
of an accounting change consist of the following:
(in thousands) 1996 1995 1994
- ------------------------------------------------------
Domestic $(212,698) $58,279 $106,755
Foreign (2,290) 4,240 4,977
- ------------------------------------------------------
$(214,988) $62,519 $111,732
- ------------------------------------------------------
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED FEBRUARY 3, 1996
Income tax (benefit) expense consists of:
(in thousands) 1996 1995 1994
- ------------------------------------------------------
CURRENT:
Federal $(56,953) $ 8,771 $29,971
State 591 2,046 2,393
Foreign 1,680 2,331 1,596
- ------------------------------------------------------
(54,682) 13,148 33,960
DEFERRED:
Federal (19,026) 5,653 2,250
State (2,039) (971) (243)
- -------------------------------------------------------
(21,065) 4,682 2,007
- -------------------------------------------------------
$(75,747) $17,830 $35,967
- -------------------------------------------------------
The Company made income tax payments of $3,531,000, $30,081,000 and
$33,674,000 during the years ended February 3, 1996, January 28, 1995 and
January 29, 1994, respectively.
The components of deferred tax assets and liabilities for the year ended
February 3, 1996 are as follows:
<TABLE>
<CAPTION>
NET CURRENT NET LONG-TERM
ASSETS ASSETS
(in thousands) (LIABILITIES) (LIABILITIES)
- -------------------------------------------------------------------------------
<S> <C> <C>
Property, Equipment and Leasehold
Improvements $(21,472)
Alternative Minimum Tax Credits 8,194
Accrued Restructuring Expense $ 6,525
Inventory (5,033)
Deferred Employee Compensation 4,388
Prepaid Employee Benefits 1,984
Accounts Receivable 4,472
Deferred Rent 3,197
Other 2,264 (9,621)
- --------------------------------------------------------------------------------
$13,409 $(18,511)
- --------------------------------------------------------------------------------
</TABLE>
The components of deferred tax assets and liabilities for the year ended
January 28, 1995 are as follows:
<TABLE>
<CAPTION>
NET CURRENT NET LONG-TERM
ASSETS ASSETS
(in thousands) (LIABILITIES) (LIABILITIES)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Property, Equipment and Leasehold
Improvements $(23,886)
Inventory $(8,250) 4,278
Deferred Employee Compensation
Prepaid Employee Benefits (1,815)
Accounts Receivable 4,510
Deferred Rent 3,802
Other 4,129 (5,181)
- -----------------------------------------------------------------------------------------------
$2,376 $(24,789)
- -----------------------------------------------------------------------------------------------
</TABLE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED FEBRUARY 3, 1996
A reconciliation of the effective tax rate with the statutory federal income
tax rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory Federal Income Tax Rate 35.0% 35.0% 35.0%
State Income Tax, Net of Federal Income Tax Benefit 0.4 1.1 1.3
Foreign Income (1.1) 1.4 (0.1)
Investment Income 0.3 (1.7) (1.1)
Employee Benefits 1.6 (3.9) (1.6)
Other, Net (1.0) (3.4) (1.3)
- --------------------------------------------------------------------------------------
35.2% 28.5% 32.2%
- --------------------------------------------------------------------------------------
</TABLE>
DEBT
Long-term debt at year end consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
Variable Rate Term Loan, Interest Rate
3.5% Above Prime, Due 1998
(11.75% at 2/3/96) $60,862 $ 0
Variable Rate Term Loan, Interest Rate
2% Above Prime, Due 1998
(10.25% at 2/3/96) 22,000 0
11.8% Note Payable, Due 1998 9,488 17,143
Variable Rate Mortgage Note, Interest Rate
1.25% Above Hong Kong Prime Rate,
Payable Monthly Through 2001
(10.25% at 2/3/96) 357 425
Variable Rate Mortgage Note, Interest Rate
1% Above HIBOR, Payable Monthly
Through 2000 (6.875% at 2/3/96) 2,217 2,692
Variable Rate Mortgage Note, Interest Rate
1% Above SIBOR, Payable Monthly Through
2000 (6.94% at 2/3/96) 714 885
Other 155 155
Variable Rate Mortgage Due 1996 0 1,000
- --------------------------------------------------------------------------------
Total Long-Term Debt 95,793 22,300
Less Current Portion 57,691 5,002
- --------------------------------------------------------------------------------
$38,102 $17,298
- --------------------------------------------------------------------------------
</TABLE>
In November 1995, the Company renegotiated portions of existing trade and
working capital facilities. As a result, $82,862,000 of trade acceptances
which had been recorded as accounts payable were converted into a term loan.
The loan is scheduled to mature on June 1, 1998. The loan is secured by
mortgages on the Company's Bensalem, Pennsylvania and Greencastle, Indiana
corporate and distribution facilities, mortgages on certain retail store
properties, liens on the cash surrender value of Company-owned life insurance
policies and liens on all income tax refunds. The loan is also secured by
liens on merchandise inventory, equipment and certain other Company assets.
The Company is required to make payments on the loan equal to the proceeds of
all income tax refunds and, among other things, certain asset sales and a
portion of the proceeds of any debt or equity offerings. The Company expects
to receive a refund of income taxes of approximately $56,953,000 as a result of
net operating loss carrybacks against taxes paid in prior years. If such
refunds received by January 31, 1997
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED FEBRUARY 3, 1996
are less than $30,000,000, any
shortfall will be paid from a letter of credit up to an amount of
$22,000,000 issued under the Company's revolving credit facility discussed
below. The Company has a $7,000,000 cash deposit which serves as
collateral against this letter of credit. To the extent that such refunds
are less than $30,000,000 and the long-term lenders draw against such
letter of credit, the restricted cash will be paid to the provider of the
revolving credit facility. In addition, upon payment of at least
$30,000,000 toward this loan, the remaining balance would then carry an
interest rate of 2% above the prime rate. The unpaid portion of the loan
is due at maturity.
Additionally, the Company renegotiated an outstanding term loan in the amount
of $9,488,000. This note originally had scheduled annual amortizations through
1998 and carried an interest rate of 9.3%. The loan presently carries an
interest rate of 11.8%, is due June 1, 1998 and is secured by the same
collateral as the aforementioned term loan, although priority with respect to
the collateral varies. The Company is required to make payments on the loan
equal to the proceeds of, among other things, certain asset sales and a portion
of the proceeds of any debt or equity offerings.
In November 1995, the Company entered into an agreement with a commercial
finance company to provide a revolving credit facility with a maximum
availability of $157,000,000, subject to limitations based upon eligible
inventory. The primary purpose of this facility, which expires on June 1,
1998, is to enable the Company to issue letters of credit for overseas
purchases of merchandise as well as to provide for seasonal cash borrowings.
This facility is secured by merchandise inventory, cash, mortgages on the
Company's Bensalem, Pennsylvania and Greencastle, Indiana corporate and
distribution facilities, rights to mortgages on certain retail store
properties, liens on the cash surrender value of Company-owned life insurance
policies and certain other Company assets. There is a fee of 3/8 of 1% 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, 1996, the availability under this
facility was approximately $132,000,000, against which the Company had
outstanding letters of credit of $65,400,000. There were no cash borrowings
outstanding under this agreement as of February 3, 1996. This agreement, as
well as the aforementioned term loans, requires that, among other things, the
Company maintain a minimum net worth of $350,000,000 and not pay dividends on
its Common Stock.
Term loans and the revolving credit facility are collateralized by mortgages on
buildings with a net book value of $50,675,000, as well as the cash surrender
value of Company-owned life insurance policies with a carrying value of
$5,697,000. The variable rate mortgages are collateralized by buildings with a
net book value of $8,827,000.
During the fiscal years ended February 3, 1996, January 28, 1995 and January
29, 1994, the Company made interest payments of $4,267,000, $2,436,000 and
$2,688,000, respectively.
The carrying amount of the Company's variable rate debt approximates its fair
value. The carrying amount of the Company's $9,488,000 11.8% note payable
approximates its fair value, as the interest rate on the note approximates the
Company's current rate for similar borrowing arrangements.
Aggregate maturities of long-term debt during the next five fiscal years are:
(in thousands) 1997 $57,691
1998 747
1999 36,154
2000 760
2001 364
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED FEBRUARY 3, 1996
STOCKHOLDERS' EQUITY
The Company's capital consists of 1,000,000 shares of Series Participating
Preferred Stock, $1.00 par value, of which 300,000 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.
STOCK OPTION AND STOCK INCENTIVE PLANS
The Company's 1993 Employee 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 Stock
Option Committee of the Board of Directors. As of February 3, 1996, 799,560
options were exercisable.
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 the grant. As a result of the adoption of the 1993
Employees' Stock Incentive Plan, the Company no longer intends to issue
shares under this Plan. As of February 3, 1996, 5,475,669 options were
exercisable.
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 a non-employee of the Company. The
exercise price of such options shall be equal to the fair market value of
the stock on the date that the option is granted. As of February 3, 1996,
114,000 options were exercisable.
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, 1996, 1,263,105 options were
exercisable.
The table below summarizes the activity in all Stock Option Plans:
<TABLE>
<CAPTION>
AVERAGE OPTION
OPTION OPTION PRICES
SHARES PRICE PER SHARE
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at January 30, 1993 9,098,206 $ 4.927 $ .222 - 18.563
Granted 1,270,000 14.253 1.000 - 18.875
Canceled (327,224) 4.376 .500 - 18.875
Exercised (356,472) 8.621 .222 - 13.500
- -------------------------------------------------------------------------
Outstanding at January 29, 1994 9,684,510 6.045 .222 - 18.563
Granted 2,206,050 10.047 1.000 - 13.250
Canceled (188,518) 2.582 .500 - 18.563
Exercised (203,741) 9.160 .222 - 10.938
- -------------------------------------------------------------------------
Outstanding at January 28, 1995 11,498,301 6.818 .222 - 17.000
Granted 3,976,800 5.089 1.000 - 6.125
Canceled (2,099,554) 9.403 .500 - 17.000
Exercised (270,005) 1.134 .222 - 4.500
- -------------------------------------------------------------------------
Outstanding at February 3, 1996 13,105,542 $ 5.996 $ .222 - 17.000
- -------------------------------------------------------------------------
</TABLE>
At February 3, 1996, 3,932,629 shares were available for future grant under the
1988 Key Employee Stock Option and the 1993 Employees' Stock Incentive plans.
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED FEBRUARY 3, 1996
The Company's Non-Employee Directors Restricted Stock Plan provides for a
one-time grant of 5,000 shares of restricted Common Stock to each member of
the Board of Directors who is a non-employee of the Company at the time of
the inception of this plan and a pro-rata grant to each non-employee
Director who is elected thereafter. Directors will pay no cash
consideration for the restricted stock granted to them. Under this plan,
40,000 shares of the Company's Common Stock have been reserved for
issuance, of which 0, 0 and 3,250 shares were issued during the fiscal
years ended February 3, 1996, January 28, 1995 and January 29, 1994,
respectively.
The Company's Restricted Stock Award Plan for Associates was adopted by the
Company's Board of Directors 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. As of February 3, 1996, rights to receive 88,615
shares have been granted and 1,202 shares have been issued.
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, or, in the case of the 1989 Non-Employee Director
Stock Option Plan, if the individual ceased to remain a Director of the
Company.
EMPLOYEE STOCK PURCHASE PLAN
The 1994 Employee Stock Purchase Plan was approved by shareholders at the 1994
annual meeting. The 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 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
1996, 88,626 shares were purchased under the plan.
SHAREHOLDER RIGHTS PLAN
In April 1989, the Board of Directors adopted a Shareholder Rights Plan and
declared a dividend of one Right for each outstanding share of Common Stock.
In connection with the Company's two-for-one stock split which was effected on
December 7, 1992, the number of Rights associated with each outstanding share
of Common Stock was adjusted from one Right per share of Common Stock to
one-half of a Right per share of Common Stock. Such Rights only become
exercisable or transferable apart from the Common Stock, ten days after a
person or group (Acquiring Person) acquires beneficial ownership of, or
commences a tender or exchange offer for, 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 price of $70, 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, or, 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), 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. The Rights will expire on April 26, 1999.
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED FEBRUARY 3, 1996
RESTRUCTURING CHARGE
During the fourth quarter of the year ended February 3, 1996, the Company's
Board of Directors approved a restructuring plan that resulted in a fourth
quarter pre-tax charge of $103,000,000. The restructuring plan includes the
planned closing of 290 under-performing "Fashion Bug" and "Fashion Bug Plus"
stores, the reorganization and reduction of foreign merchandise sourcing
operations and reductions in corporate support operations.
The restructuring charge includes an amount of $58,878,000 related to the
closing of the 290 stores, including (i) $39,260,000 for the write-off of
store fixtures, equipment and inventories, (ii) $17,270,000 for the early
termination of store leases and (iii) $2,348,000 for severance benefits and
other expenses. Charges of $34,487,000 relate to the reorganization of
foreign merchandise sourcing operations. These charges include the write-
off of joint-venture investments and advances, settlements related to non-
fulfillment of production commitments, employee severance benefits and the
write-down of other Company-owned investments. Other charges include
$5,445,000 for severance benefits and a $4,190,000 write-off of surplus
store construction fixtures and equipment. The restructuring charge
includes severance with respect to a workforce reduction of approximately
2,300 store employees and 600 non-store employees.
As of February 3, 1996, the Company had approximately $19,983,000 of
accrued, unpaid restructuring costs, of which approximately $7,390,000
relate to severance benefits. These costs, which are included in current
liabilities, are expected to be paid by the end of fiscal 1997. As of
February 3, 1996, approximately 960 store employees and 250 non-store
employees have been terminated.
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 Company contributes an amount
equal to 30% of the participant's elective contribution, up to 6% of the
participant's compensation.
The total expense for the above plans amounted to $741,442, $3,394,241 and
$3,323,000 for the years ended February 3, 1996, January 28, 1995 and January
29, 1994, respectively.
ASSET SECURITIZATION
The Company securitizes and sells substantially all of its private label
credit card receivables in the public and private markets. These asset-
backed securities are generally credit-enhanced by a third party to provide
an AAA credit rating at the time of issuance. In each securitization,
credit card receivables are transferred to a trust which issues
certificates representing ownership interests in the trust to institutional
investors. The Company retains a participation interest in the trust,
reflecting the excess of the total amount of receivables transferred to the
trust over the portion represented by certificates sold to investors. The
retained participation interests in the credit card trust were $28,502,000
and $30,680,000 at February 3, 1996 and January 28, 1995, respectively, and
are included as available-for-sale securities in the accompanying
consolidated balance sheets. Although the Company continues to service the
underlying credit card accounts and maintain the customer relationships,
these transactions are treated as sales for financial reporting purposes to
the extent of the investors' interests in the trusts. Accordingly, the
associated credit card receivables are not reflected on the balance sheets.
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED FEBRUARY 3, 1996
Due to the relatively short average life of credit card loans, no gain or loss
is recorded at the time of sale. Rather, loan servicing fees (credit card
interest income and fees in excess of interest paid to certificate holders,
credit losses and other expenses) are recognized monthly over the life of the
transaction when earned as a reduction of selling, general and administrative
expenses. Transaction expenses are deferred and amortized over the
reinvestment period of the transaction as a component of selling, general and
administrative expenses. The monthly pattern of recording loan servicing fees
is similar to the revenue recognition that the Company would have experienced
if the loans had not been securitized.
The Company is subject to certain recourse provisions in connection with
these securitizations. At February 3, 1996 and January 28, 1995, the
Company had reserves of $25,599,000 and $26,649,000, respectively, related
to these recourse provisions. At February 3, 1996, the Company had
$5,500,000 of receivables from the credit card securitizations which were
subject to liens in favor of the providers of the credit enhancement
facilities for the individual securitizations. Fashion SPC, Inc., a
wholly-owned subsidiary of the Company, is a special-purpose corporation.
Its assets of $21,800,000 of Charming Shoppes Master Trust Certificates
will be available first and foremost to satisfy the claims of its
creditors, including certain claims of investors in 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.
As of February 3, 1996, the Company had securitized approximately $371.8
million of receivables. The facilities under which the securitizations were
originated mature as follows, provided an early amortization event does not
occur: $153.5 million - 1996 and $218.3 million - 1999.
The Company is active in originating private label credit card lines to the
customers of the Company's retail stores. Holders of credit cards issued
by the Company are located throughout the United States and have various
available lines of credit which are made on an unsecured basis after
reviewing each potential cardholder's credit application and evaluating
their financial history and ability to repay.
DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
The Company has historically entered into interest-rate swap and interest-
rate cap agreements to reduce the impact of increases in interest rates on
the Company's floating-rate credit card securitizations. During 1996, the
Company terminated all of its interest-rate swap agreements and no such
agreements were outstanding as of February 3, 1996. In addition, the
Company had no material deferred gains or losses related to terminated
contracts as of February 3, 1996. As of January 28, 1995, $100 million
notional amount of such "pay-fixed" swaps were in effect.
The Company has entered into interest-rate cap agreements with an aggregate
notional amount of $538.9 million as of February 3, 1996, which mature as
follows: $435.0 million - 1996, $93.9 million - 1997, $10.0 million - 1999.
The agreements effectively entitle the Company to receive from a bank the
amount, if any, by which the interest rates on the Company's floating-rate
credit card securitizations exceed 9% for $300.0 million notional amount, 10%
for $128.9 million notional amount and 12% for $110.0 million notional amount.
The premiums paid for these interest-rate cap agreements are included in other
assets and are being amortized to selling, general and administrative expense
over the respective lives of the individual interest-rate cap agreements. Any
payments that may be received as a result of the cap will be accrued as a
reduction of selling, general and administrative expense.
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED FEBRUARY 3, 1996
The Company's credit exposure on interest-rate caps is limited to the value
of interest-rate caps that have become favorable to the Company, but the
Company does not anticipate non-performance by any of these counterparties.
The amount of such exposure is generally the unrealized gains in the
contracts. The market value of interest-rate caps as of February 3, 1996
and January 28, 1995 was $11,000 and $175,000, respectively. The market
value of interest-rate caps was 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.
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) 1996 1995 1994
- -----------------------------------------------
Minimum Rental $103,440 $ 97,976 $82,425
Contingent Rental 14,841 14,302 12,413
- -----------------------------------------------
$118,281 $112,278 $94,838
- -----------------------------------------------
Minimum annual rental commitments for all non-cancelable leases for the next
five fiscal years and thereafter are:
(in thousands) 1997 $98,782
1998 89,661
1999 79,377
2000 69,703
2001 60,929
Thereafter 206,323
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED FEBRUARY 3, 1996
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
(in thousands except per share amounts) FIRST SECOND THIRD FOURTH
FISCAL 1996 QUARTER QUARTER QUARTER QUARTER(1)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $244,342 $268,448 $267,772 $321,822
Gross Profit 57,565 60,717 40,291 26,747
Net Loss (4,370) (3,133) (24,706) (107,032)(2)
Net Loss per Share (.04) (.03) (.24) (1.04)
</TABLE>
(1) Consists of 14 weeks
(2) Includes a pre-tax restructuring charge of $103,000
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
FISCAL 1995 QUARTER QUARTER QUARTER QUARTER
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $297,611 $323,417 $306,283 $345,382
Gross Profit 86,896 93,682 77,261 82,716
Net Income 13,955 18,064 7,507 5,163
Net Income per Share .13 .17 .07 .05
</TABLE>
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
There are no matters which are required to be reported under this Item 9.
==========================================================
No dealer, salesperson or other person has been
authorized in connection with the offering made hereby
to give any information or to make any representation
not contained or incorporated by reference in this
Prospectus and, if given or made, such information or
representation must not be relied upon as having been
authorized by the Company or any Underwriter. This
Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities
offered hereby to any person or by anyone in any
jurisdiction in which it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any
circumstances create any implication that the
information herein is correct as of any time subsequent
to the date hereof or that there has been no change in
the affairs of the Company since such date.
------------
TABLE OF CONTENTS
Page
----
Available Information............ 2
Incorporation of Certain Documents
by Reference................... 2
Prospectus Summary............... 3
Summary Financial and
Operating Information 8
Risk Factors..................... 10
Use of Proceeds.................. 15
Ratio of Earnings to Fixed Charges 15
Capitalization................... 16
Market Prices and Dividend Policy 17
Selected Financial
and Operating Information..... 19
Management's Discussion and
Analysis of Financial Condition
and Results of Operations.... 21
Description of Business.......... 28
Management....................... 36
Description of the Notes......... 38
Description of Capital Stock..... 50
Underwriting..................... 56
Legal Matters.................... 57
Experts.......................... 57
Index to Consolidated
Financial Statements.......... F-1
==========================================================
==========================================================
$100,000,000
Charming Shoppes, Inc.
% Convertible Subordinated
Notes Due 2006
--------------------------
PROSPECTUS
--------------------------
LAZARD FRERES & CO. LLC
BEAR, STEARNS & CO. INC.
, 1996
==========================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the expenses payable by the
Registrant in connection with this Registration Statement. All of such
expenses are estimates, other than the filing fees payable to the
Securities and Exchange Commission and the National Association of
Securities Dealers, Inc.
SEC Registration Fee.................................. $39,656
NASD Fee ............................................. 12,000
Printing and Engraving Expenses ...................... *
Legal Fees and Expenses .............................. *
Accounting Fees and Expenses ......................... *
Blue Sky Fees and Expenses............................ *
Trustee's Fees and Expenses........................... *
Rating Agency Fees.................................... *
Miscellaneous ........................................ ------
Total $ *
======
* To be completed by amendment
Item 15. Indemnification of Directors and Officers
Section 1741 of the Pennsylvania Business Corporation Law of
1988 provides the Company the power to indemnify any officer or director
acting in his capacity as a representative of the Company who was or is a
party or is threatened to be made a party to any action or proceeding
against expenses, judgments, penalties, fines and amounts paid in
settlement in connection with such action or proceeding whether the action
was instituted by a third party or arose by or in the right of the Company.
Generally, the only limitation on the ability of the Company to indemnify
its officers and directors is if the act or failure to act is finally
determined by a court to have constituted willful misconduct or
recklessness.
The Company's Bylaws provide that the Company is required to
indemnify its officers, directors and employees to the fullest extent
permitted under Pennsylvania law as from time to time in effect. As a
result, indemnification will be a contract right of directors, officers and
employees of the Company, as opposed to a matter within the discretion of
the Board, as will the payment of expenses by the Company in advance of a
proceeding's final disposition.
The Bylaws provide a clear and unconditional right to
indemnification to the full extent permitted by law, for expenses
(including attorneys' fees), damages, punitive damages, judgments,
penalties, fines and amounts paid in settlement actually and reasonably
incurred by any person whether or not the indemnified liability arises or
arose from any threatened, pending or completed proceeding by or in the
right of the Company (a derivative action) by reason of the fact that such
person is or was serving as a director, officer or employee of the Company,
or, at the request of the Company, as a director, officer, partner,
fiduciary or trustee of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, even if the act or
failure to act giving rise to the claim for indemnification entails the
negligence or gross negligence of the indemnified party unless such act or
failure to act is finally determined by a court to have constituted willful
misconduct or recklessness. The Bylaws provide for the advancement of
expenses to an indemnified party upon receipt of an undertaking by the
party to repay those amounts if it is finally determined that the
indemnified party is not entitled to indemnification.
The Bylaws authorize the Company to take steps to ensure that
all persons entitled to the indemnification are properly indemnified,
including, if the Board so determines, purchasing and maintaining
insurance, entering into indemnification agreements, creating a reserve,
trust, escrow or other fund or account, granting security interests,
obtaining a letter of credit or using other means that may be available
from time to time.
The Company maintains insurance covering its directors and
officers against certain liabilities incurred by them in their capacities
as such, including among other things, certain liabilities under the
Securities Act of 1933.
Item 16. Exhibits
Exhibits
1.1 Form of Underwriting Agreement.*
4.1 Indenture dated as of , 1996 between
Charming Shoppes, Inc., as issuer, and , as Trustee
relating to the Notes, including the form of Note.*
4.2 Specimen certificate for Common Stock.*
5.1 Opinion of Morgan, Lewis & Bockius.*
5.2 Opinion of Davis Polk & Wardwell.*
12.1 Statement re: Computation of Ratio of Earnings
to Fixed Charges.*
23.1 Consent of Morgan, Lewis & Bockius. See Exhibit 5.1.
23.2 Consent of Davis Polk & Wardwell. See Exhibit 5.2.
23.3 Consent of Ernst & Young LLP.
24.1 Power of Attorney (see page II-4).
25.1 Statement of Eligibility of Trustee on
Form T-1 (to be filed separately).*
* To be filed by amendment.
Item 17. Undertakings
(1) The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing
of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(2) The undersigned Registrant hereby undertake that, insofar as
indemnification for liabilities arising under the Securities Act of 1933
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in such Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, such
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in such Act and will be governed by the final
adjudication of such issue.
(3) The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(4) The undersigned Registrant hereby undertakes that, for the
purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
undersigned Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Bensalem, State of
Pennsylvania, on this 21st day of May, 1996.
CHARMING SHOPPES, INC.
By: /s/ Dorrit J. Bern
-----------------------------
Dorrit J. Bern
Vice Chairman of the Board,
President and Chief
Executive Officer
The registrant and each person whose signature appears below
constitutes and appoints Dorrit J. Bern, Eric M. Specter and Colin Stern,
and any agent for service named in this registration statement and each of
them, his, her or its true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him, her or it and in
his, her, or its name, place and stead, in any and all capacities, to sign
and file (i) any and all amendments (including post-effective amendments)
to this registration statement, with all exhibits thereto, and other
documents in connection therewith, and (ii) a registration statement, and
any and all amendments thereto, relating to the offering covered hereby
filed pursuant to Rule 462(b) under the Securities Act of 1933, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about
the premises, as fully to all intents and purposes as he, she, or it might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Joseph L. Castle II Chairman of the Board May 21, 1996
- -----------------------
Joseph L. Castle II
/s/ Dorrit J Bern Vice Chairman of the Board, May 21, 1996
- ----------------------- President and Chief Executive
Dorrit J. Bern Officer
/s/ Eric M. Specter Vice President and Chief Financial May 21, 1996
- ----------------------- Officer
Eric M. Specter
/s/ Jon A. Goldberg Chief Accounting Officer May 21, 1996
- -----------------------
Jon A. Goldberg
/s/ Geoffrey W. Levy Director May 21, 1996
- -----------------------
Geoffrey W. Levy
/s/ Alan Rosskamm Director May 21, 1996
- -----------------------
Alan Rosskamm
- -----------------------
Marvin L. Slomowitz Director May 21, 1996
/s/ Michael Solomon Director May 21, 1996
- -----------------------
Michael Solomon
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts"
and "Selected Financial and Operating Information" and to the use of our
report dated March 20, 1996, in the Registration Statement (Form S-3 No.
333-) and related Prospectus of Charming Shoppes, Inc. for the registration
of $115,000,000 of Convertible Subordinated Notes Due 2006. We also
consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 333- ) and related Prospectus of Charming Shoppes, Inc. for
the registration of $115,000,000 of Convertible Subordinated Notes Due 2006
of our report dated March 20, 1996 with respect to the consolidated
financial statements of Charming Shoppes, Inc. and subsidiaries (the
"Company") included in the Company's Annual Report on Form 10-K for the
fiscal year ended February 3, 1996.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
May 17, 1996
