<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 2,1998
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-7258
CHARMING SHOPPES, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1721355
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 WINKS LANE BENSALEM, PA 19020
(Address of principal executive offices) (Zip Code)
(215) 245-9100
(Registrant's telephone number, including Area Code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports re-
quired to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES (X) NO ( )
The number of shares outstanding of the issuer's Common Stock, as of May 2,
1998, was 100,361,063 shares.
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
May 2, 1998 and January 31, 1998................................... 1-2
Condensed Consolidated Statements of Operations (Unaudited)
Thirteen weeks ended May 2, 1998 and May 3, 1997................... 3
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Thirteen weeks ended May 2, 1998 and May 3, 1997................... 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Thirteen weeks ended May 2, 1998 and May 3, 1997................... 5
Notes to Condensed Consolidated Financial Statements (Unaudited)...... 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 8-12
PART II. OTHER INFORMATION
Item 2. Changes in Securities........................................ 13
Item 6. Exhibits and Reports on Form 8-K.............................13-14
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
May 2, January 31,
(In thousands) 1998 1998
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................$ 48,930 $ 12,349
Available-for-sale securities(including fair
value adjustments of $3 and $37, respectively)..... 68,744 84,909
Merchandise inventories.............................. 206,554 175,785
Deferred taxes....................................... 10,699 863
Prepayments and other................................ 32,910 31,975
-------- --------
Total current assets................................. 367,837 305,881
Property, equipment and leasehold improvements....... 426,195 443,017
Less: accumulated depreciation and amortization...... 250,541 257,013
-------- --------
Net property, equipment and leasehold improvements... 175,654 186,004
Available-for-sale securities (including fair
value adjustments of ($442) and $474, respectively) 178,915 207,191
Other assets......................................... 15,506 10,662
-------- --------
Total assets.........................................$737,912 $709,738
======== ========
<FN>
See Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
(1)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
May 2, January 31,
(In thousands except shares) 1998 1998
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.....................................$ 83,099 $ 53,623
Accrued expenses..................................... 85,730 82,911
Income taxes payable................................. 0 6,123
Accrued restructuring expenses....................... 24,000 0
Current portion -- long-term debt.................... 16 16
-------- --------
Total current liabilities............................ 192,845 142,673
Deferred taxes....................................... 12,139 12,139
Long-term debt....................................... 138,112 138,116
Stockholders' equity
Common Stock $.10 par value
Authorized -- 300,000,000 shares
Issued and outstanding -- 106,341,063 shares and
106,249,385 shares, respectively.................. 10,634 10,625
Additional paid-in capital........................... 64,728 64,019
Treasury stock at cost -- 5,980,000 shares and
5,580,000 shares, respectively.................... (27,182) (25,382)
Deferred employee compensation....................... (1,466) (1,073)
Unrealized (losses) gains on available-for-sale
securities (net of income tax (benefit)
expense of ($154) and $179, respectively)......... (285) 332
Retained earnings.................................... 348,387 368,289
-------- --------
Total stockholders' equity........................... 394,816 416,810
-------- --------
Total liabilities and stockholders' equity...........$737,912 $709,738
======== ========
<FN>
See Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
(2)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
May 2, May 3,
(In thousands except per-share amounts) 1998 1997
---- ----
<S> <C> <C>
Net sales...........................................$244,031 $235,688
Other income........................................ 4,529 3,393
-------- --------
Total revenue....................................... 248,560 239,081
-------- --------
Cost of goods sold, buying and occupancy expenses... 182,452 182,951
Selling, general and administrative expenses........ 60,105 56,855
Restructuring charge................................ 34,000 0
Interest expense.................................... 2,621 2,621
-------- --------
Total expenses...................................... 279,178 242,427
-------- --------
Loss before income taxes............................ (30,618) (3,346)
Income tax benefit.................................. (10,716) (1,004)
-------- --------
Net loss.......................................... $(19,902) $ (2,342)
======== ========
Net loss per share.................................. $ (.20) $ (.02)
====== ======
<FN>
See Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
(3)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
May 2, May 3,
(In thousands) 1998 1997
---- ----
<S> <C> <C>
Net loss........................................... $(19,902) $ (2,342)
-------- --------
Other comprehensive loss:
Unrealized losses on available-for-sale
securities, net of income tax benefit of $245
and $219, respectively.......................... (455) (468)
Reclassification of realized gains on
available-for-sale securities, net of income
tax expense of $88 and $11, respectively........ (162) (24)
-------- --------
Total other comprehensive loss, net of taxes.... (617) (492)
-------- --------
Comprehensive loss................................. $(20,519) $ (2,834)
======== ========
<FN>
See Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
(4)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
May 2, May 3,
(In thousands) 1998 1997
---- ----
<S> <C> <C>
Operating activities
Net loss.............................................$(19,902) $ (2,342)
Adjustments to reconcile net loss to net cash
Provided by (used in) operating activities:
Depreciation and amortization..................... 8,718 9,499
Deferred income taxes............................. (9,836) 0
Amortization of deferred compensation expense..... 196 144
Write-down of capital assets due to restructuring. 10,000 0
Loss (Gain) from disposition of capital assets.... 0 (250)
Gain on sale of available-for-sale securities..... (250) (35)
Changes in operating assets and liabilities:
Income tax refund receivable................... 0 (1,229)
Prepayments and other.......................... (989) 596
Merchandise inventories........................ (30,769) (21,431)
Accounts payable............................... 29,476 7,380
Accrued expenses............................... 2,819 (2,532)
Income taxes payable........................... (5,790) 0
Accrued restructuring expenses................. 24,000 0
-------- --------
Net cash provided by (used in) operating activities.. 7,673 (10,200)
-------- --------
Investing activities
Investment in capital assets......................... (7,479) (1,479)
Proceeds from sales of capital assets................ 5 607
Proceeds from sales of available-for-sale securities. 118,486 45,217
Gross purchases of available-for-sale securities..... (74,777) (54,935)
(Increase) decrease in other assets.................. (5,707) 445
-------- --------
Net cash provided by (used in) investing activities.. 30,528 (10,145)
-------- --------
Financing activities
Purchases of treasury stock.......................... (1,800) 0
Reduction of long-term borrowings.................... (4) (4)
Proceeds from exercise of stock options.............. 184 402
-------- --------
Net cash provided by (used in) financing activities.. (1,620) 398
-------- --------
Increase (Decrease) in cash and cash equivalents..... 36,581 (19,947)
Cash and cash equivalents, beginning of period....... 12,349 78,979
-------- --------
Cash and cash equivalents, end of period.............$ 48,930 $ 59,032
======== ========
<FN>
Certain prior-year amounts have been reclassified to conform to current-
year presentation
See Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
(5)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of May 2, 1998 and the
condensed consolidated statements of operations, comprehensive income
(loss) and cash flows for the thirteen weeks ended May 2, 1998 and May 3,
1997 have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position at May 2,
1998 and the results of operations and cash flows for the thirteen weeks
ended May 2, 1998 and May 3, 1997 have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted ac-
counting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's January
31, 1998 Annual Report on Form 10-K. The results of operations for the
thirteen weeks ended May 2, 1998 and May 3, 1997 are not necessarily
indicative of operating results for the full fiscal year.
2. Stockholders' Equity
During the thirteen weeks ended May 2, 1998, stockholders' equity
changed as a result of the following items: a net loss of $19,902,000; a
change in the net unrealized loss on available-for-sale securities of
$617,000 (net of an income tax benefit of $333,000); an increase in common
stock and additional paid-in capital of $145,000 from the exercise of
options for Common Stock; a decrease in paid-in capital of $16,000 from
shares of Common Stock tendered by employees in payment of payroll taxes
due from the exercise of stock options; purchases of treasury stock of
$1,800,000; and amortization of deferred compensation expense of $196,000.
3. Net Loss Per Share
<TABLE>
<CAPTION>
Thirteen Weeks Ended
May 2, May 3,
(In thousands except per-share amounts) 1998 1997
---- ----
<S> <C> <C>
Net loss........................................... $(19,902) $ (2,342)
Weighted average shares outstanding................ 100,606 105,625
-------- --------
Basic net loss per share............................ $(.20) $(.02)
======== ========
</TABLE>
(6)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Restructuring Charge
On March 5, 1998, the Company's Board of Directors approved a
Restructuring Plan (the "Plan") that resulted in a pre-tax charge of
$34,000,000 during the quarter ended May 2, 1998. The Plan includes the
downsizing of approximately 100 stores and the closing of approximately 65
under-performing stores. The Plan was approved in conjunction with the
decision to eliminate men's merchandise from the Company's stores.
The restructuring charge is estimated to include approximately
$10,000,000 for the write-down of store fixtures and improvements,
$11,400,000 for the early termination and amendment of store leases,
$8,300,000 for the cost of renovating vacated store space and $4,300,000
for other costs, including severance benefits. The Company anticipates a
workforce reduction of approximately 650 store employees. During the
quarter ended May 2, 1998, the Company closed 4 stores and reduced store
employees by 40.
5. Revolving Credit Facility
The Company has an agreement with a commercial finance company to
provide a revolving credit facility with a maximum availability of $150
million, subject to limitations based upon eligible inventory. During the
quarter ended May 2, 1998, the expiration date of this facility was
extended from June 1, 1998 to June 1, 1999.
6. Impact of Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This statement
is required to be adopted by the Company as of the end of the fiscal year
ended January 30, 1999. SFAS No. 131 requires disclosure of certain
information about operating segments, products and services, geographic
areas of operations and major customers and the factors used by management
to determine reportable segments. The adoption of this statement will not
affect the Company's financial position or results of operations.
Management has not completed its determination of the effect this statement
will have on financial statement disclosures.
(7)
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain forward-looking statements concern-
ing the Company's operations, performance and financial condition, includ-
ing, in particular, certain forward-looking statements regarding sales
performance, store openings and closings, capital requirements, conversion
of information systems to be Year 2000 compliant and other matters. Such
forward-looking statements are subject to various risks and uncertainties
that could cause actual results to differ materially from those indicated
in the forward-looking statements due to a number of factors. Such factors
may include, but are not limited to, risks and uncertainties detailed in
the Company's filings with the Securities and Exchange Commission,
including the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1998.
1998 STORE RESTRUCTURING AND ELIMINATION OF MEN'S MERCHANDISE FROM THE
COMPANY'S FASHION BUG STORES
On March 5, 1998, the Company's Board of Directors approved a
Restructuring Plan (the "Plan") that resulted in a pre-tax charge of
$34,000,000 during the quarter ended May 2, 1998 ("Fiscal 1999 First
Quarter"). The Plan includes the downsizing of approximately 100 stores
and the closing of approximately 65 under-performing stores during the
fiscal year ending January 30, 1999 ("Fiscal 1999"). The Plan was approved
in conjunction with the decision to eliminate men's merchandise from the
Company's stores. In the fall of 1997, the Company eliminated men's
merchandise from approximately 300 of its stores in order to refine its
product assortments.
The Company expects that the elimination of men's merchandise will
allow for further development of product categories that are more closely
related to its existing women's apparel businesses. The Company plans to
focus on the development and expansion of its junior apparel, junior
accessories and footwear categories. These businesses are expected to
yield improved sales and gross margin productivity as compared to the men's
merchandise. The Company expects to cease selling men's merchandise by the
Fall of 1998, at which time it will begin to reposition the merchandise
assortments in its stores.
Net sales of men's merchandise were approximately $48,000,000 in the
fiscal year ended January 31, 1998 ("Fiscal 1998") and are planned to be
approximately $15,000,000 in Fiscal 1999. Net sales of men's merchandise
for the Fiscal 1999 First Quarter were $6,590,000, a 38% decrease from
sales of $10,675,000 for the quarter ended May 3, 1997 ("Fiscal 1998 First
Quarter"). A decrease of 1.7% in the Company's overall comparable store
sales (sales generated by stores in operation during the same weeks of each
(8)
<PAGE>
period) during the Fiscal 1999 First Quarter as compared to the Fiscal 1998
First Quarter is attributable to this decline in sales of men's merchan-
dise. The Company expects that the elimination of men's merchandise alone
will account for an approximate decrease in the Company's overall compar-
able store sales of 2.0%, 4.0% and 5.5% for the second, third and fourth
quarters of Fiscal 1999, respectively.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net sales, certain
items appearing in the Condensed Consolidated Statements of Operations:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
May 2, May 3,
1998 1997
---- ----
<S> <C> <C>
Net sales........................................100.0% 100.0%
Cost of goods sold, buying and occupancy expenses 74.8 77.6
Selling, general and administrative expenses..... 24.6 24.1
Restructuring charge............................. 13.9 0.0
Interest expense................................. 1.1 1.1
Income tax benefit............................... (4.4) (0.4)
Net loss......................................... (8.1) (1.0)
</TABLE>
Thirteen Weeks Ended May 2, 1998 and May 3, 1997
Net sales for the Fiscal 1999 First Quarter were $244,031,000, a 3.5%
increase from net sales of $235,688,000 for the Fiscal 1998 First Quarter.
The Company experienced a 1.8% increase in comparable store sales in the
Fiscal 1999 First Quarter as compared to the Fiscal 1998 First Quarter. In
addition, sales from new stores (sales generated by stores in operation
during the Fiscal 1999 First Quarter that were not in operation during the
corresponding weeks of the Fiscal 1998 First Quarter) in the Fiscal 1999
First Quarter equaled 3.1% of Fiscal 1998 First Quarter sales. Sales for
the Fiscal 1998 First Quarter which were not comparable with sales for the
Fiscal 1999 First Quarter as a result of the closing of stores in Fiscal
1998 and Fiscal 1999 equaled 1.3% of Fiscal 1998 First Quarter sales. The
number of retail stores increased from 1,131 at May 3, 1997 to 1,161 at May
3,1998.
The increase in comparable store sales was achieved in the Company's
core merchandising departments, including sportswear, dresses, footwear,
intimate apparel and girl's. Comparable store sales decreases occurred in
the men's and outerwear departments (see "1998 STORE RESTRUCTURING AND
ELIMINATION OF MEN'S MERCHANDISE FROM THE COMPANY'S FASHION BUG STORES"
above).
(9)
<PAGE>
Cost of goods sold, buying and occupancy expenses expressed as a
percentage of sales decreased 2.8% in the Fiscal 1999 First Quarter as
compared to the Fiscal 1998 First Quarter. Cost of goods sold as a
percentage of sales decreased 2.1% in the Fiscal 1999 First Quarter as
compared to the Fiscal 1998 First Quarter. The decrease in cost of goods
sold as a percentage of sales was primarily due to a strong customer
response to the Spring merchandise offering, which resulted in lower
merchandise markdowns as compared to the prior year. Buying and occupancy
expenses expressed as a percentage of sales decreased 0.7% in the Fiscal
1999 First Quarter as compared to the Fiscal 1998 First Quarter. The
decrease in buying and occupancy expenses was due a reduction in store
occupancy expenses, primarily depreciation and utility costs.
Selling, general and administrative expenses expressed as a percentage
of sales increased 0.5% in the Fiscal 1999 First Quarter as compared to the
Fiscal 1998 First Quarter. This was primarily attributable to an increase
in selling expenses resulting from the impact of Federal minimum wage
legislation and an increase in advertising expenditures.
On March 5, 1998, the Company's Board of Directors approved the
Restructuring Plan that resulted in a pre-tax charge of $34,000,000 during
the Fiscal 1999 First Quarter. The Plan includes the downsizing of
approximately 100 stores and the closing of approximately 65 under-
performing stores. The Plan was approved in conjunction with the decision
to eliminate men's merchandise from the Company's stores. The restruc-
turing charge is estimated to include approximately $10,000,000 for the
write-down of store fixtures and improvements, $11,400,000 for the early
termination and amendment of store leases, $8,300,000 for the cost of
renovating vacated store space and $4,300,000 for other costs, including
severance benefits. The Company anticipates a workforce reduction of
approximately 650 store employees. During the Fiscal 1999 First Quar-
ter, the Company closed 4 stores and reduced store employees by 40 .
Interest expense expressed as a percentage of sales was unchanged in
the Fiscal 1999 First Quarter as compared to the Fiscal 1998 First Quarter.
Interest expense is primarily attributable to the Company's $138 million
aggregate principal amount of 7.5% Convertible Subordinated Notes due 2006,
which were issued in July 1996.
The income tax benefit for the Fiscal 1999 First Quarter was 35% of
the Company's pre-tax loss, as compared to a benefit of 30% of the pre-tax
loss for the Fiscal 1998 First Quarter. The increase in the effective tax
benefit rate is primarily attributable to an increase in the benefit
attributable to permanent differences as a percentage of the loss before
income taxes.
(10)
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of working capital are (i) cash flow
from operations, (ii) proprietary credit card receivables securitization
agreements, (iii) its long-term investment portfolio and (iv) its $150
million revolving credit facility. As of May 2, 1998, the Company had
working capital of $174,992,000 as compared to $163,208,000 at January 31,
1998. Working capital at May 2, 1998 included $48,930,000 of cash and cash
equivalents, compared to cash and cash equivalents of $12,349,000 at
January 31, 1998. The ratio of current assets to current liabilities was
1.9 to 1 at May 2, 1998 and 2.1 to 1 at January 31, 1998.
Net cash provided by operating activities was $7,673,000 for the
Fiscal 1999 First Quarter as compared to net cash used in operating
activities of $10,200,000 for the Fiscal 1998 First Quarter. The primary
reasons for the $17,873,000 change in cash provided by operations were (i)
an increase of $12,759,000 in the Company's investment in merchandise
inventories, net of accounts payable; (ii) an increase in the Company's net
loss of $17,560,000, the cash impact of which includes a $10,000,000 write-
down of capital assets due to restructuring, a $24,000,000 accrual for
restructuring expenses and $16,856,000 of changes in current and current
deferred income taxes receivable and payable and (iii) an increase of
$5,531,000 in accrued expenses.
The Company has an agreement with a commercial finance company to
provide a revolving credit facility with a maximum availability of
$150,000,000, subject to limitations based upon eligible inventory. The
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. During the Fiscal 1999 First Quarter, the expir-
ation date of this facility was extended from June 1, 1998 to June 1, 1999.
This facility is secured by merchandise inventory, furniture and fixtures
at the retail stores and certain other Company assets. As of May 2, 1998
the availability under this facility was approximately $122,904,000,
against which the Company had outstanding letters of credit of $34,405,000.
There were no cash borrowings outstanding under this agreement as of May 2,
1998. This agreement requires that, among other things, the Company main-
tain a minimum net worth of $350,000,000 and not pay dividends on its
Common Stock.
Capital expenditures of $7,479,000 during the Fiscal 1999 First
Quarter were primarily for the construction and fixturing of new and exist-
ing retail stores. During Fiscal 1999, the Company anticipates incurring
capital expenditures of approximately $25 million, which are intended prin-
cipally for (i) remodeling and fixturing of existing retail stores, (ii)
construction and fixturing of new stores and (iii) investment in management
information systems technology. The Company plans to open approximately 65
new stores during Fiscal 1999, including 28 which were acquired during
January 1998 from a competitor which had closed such locations. During the
Fiscal 1999 First Quarter the Company opened 30 new stores and closed 4
stores. It is anticipated that the funds required for capital expenditures
will be financed principally through internally generated funds.
(11)
<PAGE>
In connection with the Restructuring Plan (see "1998 STORE RESTRUC-
TURING AND ELIMINATION OF MEN'S MERCHANDISE FROM THE COMPANY'S FASHION BUG
STORES" above), as of May 2, 1998, the Company had approximately
$24,000,000 of accrued, unpaid restructuring costs. These costs, the
majority of which are expected to be paid by the end of Fiscal 1999, are
included in current liabilities.
On October 2, 1995 the Company's Board of Directors announced an
indefinite suspension of dividends on the Company's Common Stock. In
addition, the Company's revolving credit facility requires the Company to
refrain from paying dividends on its Common Stock during the term of such
agreement.
IMPACT OF YEAR 2000
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not
corrected ("Year 2000 compliant"), many computer applications could fail or
create erroneous results by or at the Year 2000. Since Fiscal 1997, the
Company has been in the process of modifying or replacing its existing
computer systems to make them Year 2000 compliant. It is anticipated that
this project will be completed during the fiscal year ending January 29,
2000 ("Fiscal 2000"). The Company currently estimates that the total cost
of achieving compliance will range between $1,500,000 and $2,500,000 over
the period from Fiscal 1997 through Fiscal 2000. The Company has also
initiated discussions with its significant vendors to ensure that these
parties have appropriate plans to remediate their own Year 2000 issues.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This statement
is required to be adopted by the Company as of the end of Fiscal 1999.
SFAS No. 131 requires disclosure of certain information about operating
segments, products and services, geographic areas of operations and major
customers and the factors used by management to determine reportable
segments. The adoption of this statement will not affect the Company's
financial position or results of operations. Management has not completed
its determination of the effect this statement will have on financial
statement disclosures.
(12)
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
(a) Not applicable
(b) Not applicable
(c) Recent Sales of Unregistered Securities
During the quarter ended May 2, 1998, the Company issued 9,005 shares
of its Common Stock, $.10 par value. The shares were issued on February 6,
1998 to employees of the Company under the terms of the Company's Restrict-
ed Stock Award Plan for Associates. No cash consideration was received for
the shares, which were issued as bonus awards to the employees. The aggre-
gate fair market value of the shares on the dates of issue was $38,552.66.
The issuance and delivery of the 9,005 shares of Common Stock under
the Restricted Stock Award Plan for Associates need not be registered under
the Securities Act of 1933, as amended (the "1933 Act") because they were
bonus grants of Restricted Stock under an employee benefit plan, and,
therefore, did not involve an "offer" or "sale" of securities under Section
2(3) of the 1933 Act.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following is a list of Exhibits filed as part of this Quarterly
Report on Form 10-Q. Where so indicated by footnote, Exhibits that were
previously filed are incorporated by reference. For Exhibits incorporated
by reference, the location of the Exhibit in the previous filing is indi-
cated in parenthesis.
3.1 Restated Articles of Incorporation, incorporated by reference to Form
10-K of the Registrant for the fiscal year ended January 29, 1994.
(Exhibit 3.1)
3.2 Bylaws, as Amended and Restated, incorporated by reference to Form
10-K of the Registrant for the fiscal year ended January 29, 1994.
(Exhibit 3.2)
10.1 Amendment of Second Amended and Restated Loan and Security Agreement,
dated February 28, 1997 among Charming Shoppes, Inc., certain subsid-
iaries of the Company which are parties thereto, Borrower's Agent and
Congress Financial Corporation, dated as of May 1, 1998.
27 Financial Data Schedule.
(13)
<PAGE>
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended May 2, 1998.
(14)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
<TABLE>
<S> <C>
CHARMING SHOPPES, INC.
-------------------------------------
(Registrant)
Date: June 15, 1998 DORRIT J. BERN
------------- -------------------------------------
Dorrit J. Bern
Chairman of the Board
President and Chief Executive Officer
Date: June 15, 1998 ERIC M. SPECTER
------------- -------------------------------------
Eric M. Specter
Executive Vice President
Chief Financial Officer
</TABLE>
(15)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> MAY-02-1998
<CASH> 48,930
<SECURITIES> 68,744
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 206,554
<CURRENT-ASSETS> 367,837
<PP&E> 426,195
<DEPRECIATION> 250,541
<TOTAL-ASSETS> 737,912
<CURRENT-LIABILITIES> 192,845
<BONDS> 138,112
0
0
<COMMON> 10,634
<OTHER-SE> 384,182
<TOTAL-LIABILITY-AND-EQUITY> 737,912
<SALES> 244,031
<TOTAL-REVENUES> 244,031
<CGS> 182,452
<TOTAL-COSTS> 182,452
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,621
<INCOME-PRETAX> (30,618)
<INCOME-TAX> (10,716)
<INCOME-CONTINUING> (19,902)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,902)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
<PAGE>
EXHIBIT 10.1
Dated as of May 1, 1998
Charming Shoppes, Inc.
450 Winks Lane
Bensalem, Pennsylvania 19020
Re: Amendment of Second Amended and Restated Loan and
Security Agreement, dated February 28, 1997 (as amended
and supplemented, the "Loan Agreement") among Charming
Shoppes, Inc. (the "Company"), certain subsidiaries of
the Company which are parties thereto (collectively,
with the Company, "Borrowers"), Borrowers' Agent and
Congress Financial Corporation ("Congress")
Gentlemen:
In consideration of the mutual agreements contained herein
and other good and valuable consideration, each of Borrowers,
Borrowers' Agent and Congress agree as follows:
1. Capitalized terms used herein shall have the meanings
ascribed thereto in the Loan Agreement, unless otherwise defined
herein.
2. The Loan Agreement shall be and is amended, effective
as of May 1, 1998, as follows:
a. Section 1.47 (definition of "Interest Rate") is
amended by :
(i) deleting the percentage of "three-quarters
of one (3/4%) percent" in the second line thereof and inserting
"one-half of one (1/2%) percent" in its stead;
(ii) deleting the percentage of "three and three
eighths (3-3/8%) percent" in the fourth line thereof and
inserting "one and one-quarter (1-1/4%) percent" in its stead;
<PAGE>
(iii) deleting the percentage of "two and three
quarters (2-3/4%) percent" following the proviso to Section 1.47
and inserting "two and one-half (2-1/2%) percent" in its stead;
(iv) deleting the percentage of "five and three
eighths (5-3/8%) percent" following the proviso to Section 1.47
and inserting "three and one-quarter (3-1/4%) percent" in its
stead;
b. Section 2.2(b) is amended by deleting the
percentage of "one and one quarter (1-1/4%) percent" set forth
therein and inserting "one (1%) percent" in its stead;
c. Section 3.4 is amended by deleting the percentage
of "three-eighths of one (3/8%) percent" set forth therein and
inserting "one quarter of one (1/4%) percent" in its stead;
d. The following provision shall be added to the Loan
Agreement as Section 3.7:
"3.7 Usage Fee. In addition to the
Interest Rate payable on Eurodollar Rate
Loans, Borrower shall pay to Lender monthly a
usage fee on any outstanding Eurodollar Rate
Loans equal to one and one-quarter (1-1/4%)
percent per annum on the outstanding
principal amount of such Eurodollar Rate
Loans. Such usage fee by Borrower to Lender
shall be payable monthly in arrears and shall
be calculated on the basis of a three hundred
sixty (360) day year and actual days
elapsed."
e. Section 12.1(a) is amended by deleting the date of
"June 1, 1998" set forth therein and inserting "June 1, 1999" in
its stead;
f. Section 12.1(c) is amended by:
(i) deleting clauses (i) and (ii) thereof and
inserting in its stead:
<TABLE>
<CAPTION>
"Amount Period
<S> <C>
one-half of one (1/2%) the date hereof to,
percent of Maximum but not including,
Credit June 1, 1999."
</TABLE>
g. Section 12.1(c) is also amended by, immediately
before the proviso therein, (i) deleting the date of "December 1,
1997" set forth therein and inserting "December 1, 1998" in its
stead and (ii) deleting the date "November 30, 1997" set forth
therein and inserting "November 30, 1998" in its stead;
- 2 -
<PAGE>
h. Section 1.40 is amended by deleting the reference
to "Section 1.36 above" and inserting "Section 1.35 above" in its
stead.
3. In addition to the representations, warranties and
covenants heretofore or hereafter made by the Company and the
other Borrowers to Congress pursuant to the Loan Agreement and
the other Financing Agreements, each of the Borrowers hereby
represents, warrants and covenants to and with Congress as
follows (which representations, warranties and covenants are
continuing and shall survive the execution and delivery of this
letter and shall be incorporated into and made a part of the
Financing Agreements);
(a) No Event of Default exists or has occurred and is
continuing on the date of this Amendment; and
(b) this Amendment has been duly executed and
delivered by the Company and each of the other Borrowers, has
been consented to by each of the other Obligors and is in full
force and effect on the date hereof.
4. This Amendment (a) shall be effective, as of May 1,
1998, upon execution of this letter by the Borrowers and
Congress, and (b) contains the entire agreement of the parties
with respect to the subject matter hereof and supersedes all
correspondence, memoranda, communications, discussions and
negotiations with respect thereto. Except as expressly set forth
above, no existing defaults or Events of Default and no rights or
remedies of Congress have been or are being waived hereby and no
changes or modifications to the Financing Agreements have been or
are being made or are intended hereby and in all other respects
the Financing Agreements shall continue in full force and effect.
5. This Amendment may be executed and delivered in
counterparts, all of which together shall constitute a complete
agreement.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By:___________________________
Title:________________________
[SIGNATURES CONTINUE ON NEXT PAGE]
- 3 -
<PAGE>
[SIGNATURES CONTINUED FROM PRECEDING PAGE]
AGREED AND ACCEPTED:
CHARMING SHOPPES, INC.
By:_________________________
Title:______________________
CHARMING SHOPPES OF DELAWARE, INC.
By:_________________________
Title:______________________
CSI INDUSTRIES, INC.
By:_________________________
Title:______________________
FB APPAREL, INC,
By:_________________________
Title:______________________
BORROWERS' AGENT
CHARMING SHOPPES OF DELAWARE, INC.,
BORROWERS' AGENT
By:_________________________
Title:______________________
CONSENTED TO:
By Each of the Obligors
on the List Annexed Hereto
____________________________
Its:________________________
- 4 -
