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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended January 29, 1994
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the transition period from to
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Commission file number 0-7258
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CHARMING SHOPPES, INC.
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(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1721355
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
450 Winks Lane, Bensalem, Pennsylvania 19020
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 245-9100
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock (par value $.10 per share)
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. (X) YES ( ) NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. (X)
As of February 28, 1994, 102,713,582 common shares were outstanding. The
aggregate market value of the common shares (based upon the closing price on
February 28, 1994) held by non-affiliates was approximately $1.237
billion.
DOCUMENTS INCORPORATED BY REFERENCE: As stated in Part III of this annual
report, portions of the following document are incorporated herein by
reference:
Definitive proxy statement for annual shareholders meeting to be filed within
120 days after the end of the fiscal year covered by this annual report.
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CHARMING SHOPPES, INC.
1993 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
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Item 1 Business
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Merchandising and Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Purchasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Store Management and Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Trademarks and Servicemarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 4 Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . 8
Item 4a Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II
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Item 5 Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . 9
Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 8 Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . 15
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 31
PART III
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Item 10 Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . 31
Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Item 12 Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . 31
Item 13 Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . 31
PART IV
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Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . 32
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PART I
ITEM 1 BUSINESS
GENERAL
Charming Shoppes, Inc., a Pennsylvania corporation formed in 1969, operates,
through its subsidiary corporations, 1,333 women's specialty apparel stores in
45 states. Unless the context indicates otherwise, the term "Company" refers
to Charming Shoppes, Inc. and, where appropriate, one or more of its wholly
owned subsidiaries. The Company's "Fashion Bug" stores specialize in selling,
at moderate and popular prices, a wide variety of junior, misses, womens, girls
and large size sportswear, dresses, coats, suits, lingerie, accessories, and
casual footwear to women principally in the 15 to 45 year old age group. The
Company's "Fashion Bug Plus" stores sell similar merchandise primarily for the
large size woman. The Company also sells men's sportswear, accessories and
coats in the majority of its Fashion Bug stores.
The Company's stores sell both brand name merchandise and specially
manufactured garments under one of the Company's private labels. The Company's
policies of advertising, promotion and the offering of its chain-wide charge
card permit the Company to operate successfully in smaller malls and strip
shopping centers, as well as in regional malls.
MERCHANDISING AND MARKETING
The Company's policy is to stock each store with a broad selection and full
range of sizes of current fashions at moderate and popular prices. Rather than
a narrow assortment of high-fashion merchandise targeted at a single age group,
the stores offer a broad selection of contemporary and classic clothing which
appeals to a wide range of lower middle to middle income customers. Through
its merchandise information system, the Company constantly monitors the demands
of its customers for style and price in order to restock inventories with a
selection desirable to each particular stores' customers. The Company has also
responded to demographic changes and consumer preferences by providing greater
fashion selection in misses and large sizes and better quality at attractive
prices.
Merchandise sold by the Company is produced by a large number of manufacturers
in the United States and abroad, and the Company constantly evaluates
merchandise that is offered in the world markets. Approximately 77% of the
merchandise sold is private label, primarily under the "Stefano" and "Maggie
Lawrence" labels. The Company anticipates that the percent of private label
merchandise will continue to increase. The private label program was developed
as a result of customer demand for better quality merchandise, comparable to
certain national brands, at lower prices. Our product developers use a
state-of-the-art computer system to design and continually update a wide
variety of merchandise. The Company then contracts directly with domestic and
foreign manufacturers to have goods manufactured to our specifications
(construction, fabric, fit and style), which are sold at attractive prices
while providing higher than average mark-up for the Company. Use of the
private label program requires the Company to contract for merchandise in
advance of its intended selling season, thus exposing the Company to markdowns
of merchandise caused by changes in customer preferences. (See "Purchasing")
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The Company is promotionally oriented, utilizing an advertising program on
radio and in newspapers in the locale of the stores, and making extensive use
of direct mail. Additionally the Company advertises at the conclusion of a
number of nationally syndicated television programs in an effort to gain
exposure to a larger base of potential customers. Pricing policies, displays,
store promotions, convenient locations and store hours are also used to attract
customers. With the assistance and planning of specialized home office
personnel, each store provides such displays and advertising as may be
necessary to feature certain merchandise or certain promotional selling prices
from time to time.
The retail sale of women's apparel is a highly competitive business with
numerous competitors, including individual and chain fashion specialty stores
and department 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 believes that its strategy in specializing in fashionable
merchandise, both for the large size women and for the junior and girls'
customers, and its ability to effect volume purchases to pass cost savings to
its customers are important elements in its operations.
The Company encourages credit sales on its private label charge card. The
private label charge program has approximately 3,400,000 active accounts which
account for 37% of retail sales. The Company believes that the charge card is
a promotional vehicle in itself, engendering customer loyalty, creating a
substantial base for direct mail promotion and encouraging incremental sales.
Since 1989 the Company has been repurchasing portions of its credit card
receivables from various financial institutions. During October, 1993, the
Company completed this repurchase and now controls its entire private label
credit card file. The Company has entered into agreements whereby it can
sell, on a revolving basis, its accounts receivable and currently all
receivables have been sold under these programs. These agreements provide for
the Company to continue to service the receivables and control credit policies.
This will allow 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 charge card portfolio is administered by Spirit of
America National Bank, a national 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. An increase
in short-term interest rates could have an adverse effect on credit costs.
The Company uses interest rate caps and swaps in an attempt to mitigate the
effect of rising interest rates.
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 constantly present a fresh, contemporary shopping environment,
are redecorated or fully remodeled as necessary to augment sales. 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 sales people
in the stores, rather than self-service; lay-away plans; and acceptance of
merchandise returns for cash or credit within a reasonable time period.
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PURCHASING
Purchasing is conducted on a departmental basis for each of the "Fashion Bug"
and "Fashion Bug Plus" 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 mark-up 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 the fiscal year ended January 29, 1994, the Company purchased
merchandise from approximately 700 suppliers, none of which accounted for more
than 3% of its purchases. The Company's wholly-owned contracting and buying
subsidiaries are headquartered in Hong Kong. Through this office the Company
conducts its sourcing operations in 24 countries with offices in 15 of these
countries. Any event that causes a sudden disruption in the flow of or
significantly increases the cost of imported merchandise could have a
materially adverse effect on the Company's operations.
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 350,000 square feet. During fiscal 1995 the Company
will expand this facility by 175,000 square feet. Upon completion of this
expansion, the Company estimates that it will have the ability to service over
2,000 stores from these two distribution centers.
The great 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,
ticketing, packing and shipping. During 1993, the Company implemented an
automated sortation system in its Bensalem, Pennsylvania distribution center
which will continue to enhance the flow of merchandise from receipt to shipment.
This system will be implemented in the Greencastle, Indiana facility during
Fiscal 1995. Shipments to each store are made by trucks operated principally
by common carriers. The Company utilizes a computerized automated distribution
model which has enhanced the efficiency of the distribution department and
enables that department to build various attributes into each store's plan to
determine not only the number of units, but the type of unit to be distributed
to each store.
The Company operates a program of shipping direct from the supplier certain
merchandise as a complement to its centralized distribution capability. Direct
shipping of certain merchandise increases the Company's flexibility and saves
time in the distribution of goods.
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STORES
Substantially all of the Company's 1,333 stores are located in enclosed
shopping malls and strip shopping centers which are situated primarily in
suburban metropolitan areas and smaller towns. The Company's extensive
promotional policies enable it to operate stores successfully in a variety of
shopping environments, whereas many of its competitors rely principally on
regional mall traffic (See "Merchandising and Marketing" above). Typically,
stores are open seven days per week, eleven hours per day Monday through
Saturday and seven hours on Sunday.
The Company experiences a normal seasonal sales pattern for the retail apparel
industry, with its peak sales occurring during the Christmas, Easter and
back-to-school seasons and the period preceding Mother's 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 the fiscal year ended
January 29, 1994, as a percent of total sales, were 21.9, 24.6 , 25.0 and 28.5,
respectively.
The "Fashion Bug" stores range in size, generally, from 6,000 square feet to
16,000 square feet, averaging approximately 8,900 square feet. The "Fashion
Bug Plus" stores range in size, generally, from 3,000 square feet to 5,000
square feet, averaging approximately 3,900 square feet. Total square feet of
leased space as of the fiscal year ended January 29, 1994, increased to
11,468,000 from 9,695,000 as of the fiscal year ended January 30, 1993, a 18.3%
increase.
The Company has pursued an aggressive store expansion policy over the past five
fiscal years, as set forth in the following tables:
FISCAL YEAR ENDED
--------------------------------------------------------------------
NUMBER OF FEB 3 FEB 2 FEB 1 JAN 30 JAN 29
STORES 1990 1991 1992 1993 1994
- ------ ---- ---- ---- ---- ----
Open at beginning of period 926 1013 1058 1137 1220
Opened during period 109 116 111 129 157
Closed or combined during period (22) (71) (32) (46) (44)
---- ---- ---- ---- ----
1013 1058 1137 1220 1333
---- ---- ---- ---- ----
FISCAL YEAR ENDED
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FEB 3 FEB 2 FEB 1 JAN 30 JAN 29
STORE TYPE 1990 1991 1992 1993 1994
- ----------- ---- ---- ---- ---- ----
Fashion Bug 864 909 1011 1116 1248
Fashion Bug Plus 149 149 126 104 85
--- --- --- --- --
1013 1058 1137 1220 1333
---- ---- ---- ---- ----
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The Company anticipates a net increase of approximately 125 stores during the
1995 fiscal year. The Company also plans to expand or remodel 80 existing
stores. The new and expanded stores will average approximately 12,000 square
feet in size and will result in a 17% increase in square feet of leased space
during fiscal 1995. The factors considered in locating new stores and closing
existing stores include the demographics of the surrounding area, the
availability of suitable locations, competition in the immediate area,
negotiation of satisfactory lease terms, the principal specialty and "anchor"
stores, expected customer traffic and the location of the Company's store
within the shopping center.
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's 184 supervisors travel to all stores on a frequent basis, to
supervise store operations. Generally, store managers are appointed from the
group of assistant managers, and supervisors are appointed from the group of
existing store managers. It is a policy of the Company 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 January 29, 1994, the Company employed approximately 15,900
people, approximately 7,800 of whom were employed on a part-time basis. In
addition, a number of temporary employees are hired during the Christmas
season.
TRADEMARK AND SERVICEMARKS
"Fashion Bug" (R), "Fashion Bug Plus" (R), "Glitter" (R), "Intimate Moments"
(R), "Sopre" (R),"Maggie Lawrence Collection" (R), "Stefano" (R), "Stefano Man"
(R), "Styles to Fit Every You" (R), "L.A. Blues" (R), "Fashion Bug Fits Your
Life" (R), "Details" (R) 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.
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ITEM 2 PROPERTIES
The Company primarily leases all store premises. During Fiscal 1994, four
stores opened on premises which are owned by the Company. Typically, store
leases have initial terms of 5 to 20 years and contain provisions for renewal
options, additional rentals based on a percentage of sales and payment of real
estate taxes and common area charges. With respect to stores open as of
January 29, 1994, 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
------ --------
1994 7
1995 - 1999 38
2000 - 2004 121
2005 - 2009 261
2010 - 2014 281
2015 - 2041 621
The Company owns a 515,000 square foot distribution center in Bensalem,
Pennsylvania and a 350,000 square foot distribution center in Greencastle,
Indiana (see Item 1 "Business - Distribution").
The Company owns approximately 22 acres in two parcels across the street from
the Company's existing 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, the Company's
private label credit card operation, occupies 13,000 square feet of leased
office space in Milford, Ohio. The Company owns a total of 60,000 square feet
of office and warehouse space in Hong Kong.
ITEM 3 LEGAL PROCEEDINGS
On December 10, 1993, the Company and a wholly owned subsidiary received
federal grand jury subpoenas seeking the production of certain leases to which
store operating subsidiaries of the Company ("Store Subsidiaries") are parties
and other related documents. The subpoenas were issued in conjunction with an
investigation by the United States Attorney in Philadelphia, Pennsylvania
concerning the Store Subsidiaries' claims for payment of "construction
allowances" from certain of their landlords. The allowances, which were
negotiated between the Store Subsidiaries and the landlords of certain of their
retail stores, relate to expenses incurred in altering and furnishing the
landlords' premises to make such space suitable for conducting the Store
Subsidiaries' retail operations. The Company has been providing information in
response to the subpoenas and continues to cooperate with the office of the
United States Attorney. In view of the fact that the investigation is in a
preliminary stage, the Company lacks sufficient information to determine the
outcome of the investigation at this time.
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ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year.
ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT
The following list contains certain information relative to Executive Officers
of the Company. There are no family relationships among any Executive
Officers, except that David V. Wachs is the father of Philip and Michael Wachs.
The term of each Executive Officer expires at the next annual meeting of the
Board of Directors following the Annual Meeting of Shareholders scheduled to be
held during June, 1994, or until their successors are duly elected and
qualified.
David V. Wachs, 68, has been Chairman of the Board since 1971 and Chief
Executive Officer since February, 1988. He also served as President of the
Company from January, 1989 until March, 1990 when he was succeeded as President
by Philip Wachs. Mr. Wachs' term as a Director expires in 1996.
Philip Wachs, 38, has been President and Chief Operating Officer since March,
1990 and Vice Chairman of the Board since June, 1989. Prior to his appointment
as President, he served as Executive Vice President - Real Estate for over five
years. Mr. Wachs' term as a Director expires in 1995.
Samuel Sidewater, 56, has served as a Director since September, 1988. He has
served as Executive Vice President - New Business Development since August,
1990, and prior to that time he served as Executive Vice President -
Merchandising for more than five years. Mr. Sidewater's term as a Director
expires in 1996.
Mordechay Kafry, 41, has served as a Director since January, 1990, and as
Executive Vice President - Merchandise Procurement for more than five years.
Mr. Kafry's term as a Director expires in 1994.
Ivan M. Szeftel, 40, has served as Executive Vice President - Finance for more
than five years.
Anthony A. DeSabato, 45, has served as Executive Vice President and Corporate
Director of Human Resources since March, 1990. He served as Vice President -
Human Resources from January, 1988 through March, 1990.
Colin D. Stern, 45, has served as Executive Vice President and General Counsel
since March, 1990. Prior to that time, he served as Vice President and General
Counsel from November, 1989. Prior to November, 1989, Mr. Stern was a partner
in the law firm of Cohen, Shapiro, Polisher, Shiekman and Cohen, Philadelphia,
Pennsylvania, during the period from January, 1984 through October, 1989. Mr.
Stern was a member of the corporate law department of that firm.
Michael Wachs, 34, has served as Executive Vice President - Real Estate since
April 1, 1993. Prior to that time, he served as Vice President - Real Estate.
Bernard Brodsky, 54, has served as Vice President, Treasurer and Secretary for
more than five years.
Ben Mento, 44, has served as Vice President - Director of Store Operations for
more than five years.
Eric Specter, 36, has served as Vice President - Corporate Controller for more
than five years.
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PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDERS' MATTERS
(a) PRINCIPAL MARKET: The Company's Common Stock is traded on the
over-the-counter market and quoted on the NASDAQ National Market System
under the symbol CHRS.
(b) The following table sets forth the high and low closing sale prices for
the Company's Common Stock during the indicated periods, as reported by
NASDAQ, and the amount of cash dividend declared by the Company on its
Common Stock during the indicated periods.
FISCAL 1994 FISCAL 1993 DIVIDENDS PER SHARE
HIGH LOW HIGH LOW 1993 1992
---- --- ---- --- ---- ----
1st Quarter $ 19 1/8 $ 13 3/4 $ 16 7/16 $ 12 11/16 $ .0225 $ .02
2nd Quarter 18 1/4 12 1/4 16 3/8 13 5/16 .0225 .02
3rd Quarter 14 7/8 11 1/2 18 1/2 14 1/16 .0225 .02
4th Quarter 14 1/4 10 3/4 19 16 5/8 .0225 .02
On March 9, 1994, (first quarter of fiscal 1995), the Company declared a
quarterly dividend of $.0225 per share to shareholders of record on March 25,
1994.
(c) Approximate Number of Holders of Common Stock:
The approximate number of holders of record of the Company's Common Stock
as of February 28, 1994, was 4,499.
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ITEM 6 SELECTED FINANCIAL DATA
The following table presents selected financial data for the Company for each
of the five fiscal years ended, as of February 3, 1990 through January 29,
1994. All of the selected financial data are extracted from the Company's
audited financial statements and should be read in conjunction with the
financial statements and the notes thereto included under Item 8 of this Form
10-K.
CHARMING SHOPPES, INC. AND SUBSIDIARIES
(in thousands except per share amounts)
FIVE YEAR COMPARATIVE SUMMARY
Year Ended
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January 29 January 30 February 1 February 2 February 3
1994 1993 1992 1991 1990*
---- ---- ---- ---- -----
Net sales $1,254,122 $1,178,714 $1,020,656 $886,265 $808,637
Income from continuing
operations 75,765 81,127 58,302 40,346 36,410
Income per share from
continuing operations .70 .75 .55 .40 .36
Cash dividends per
common share .09 .08 .06 .06 .06
AT YEAR END:
Total assets 829,233 737,251 637,015 525,334 466,379
Long-term obligations 22,298 26,246 31,199 35,876 32,112
Working capital 181,906 200,083 182,289 137,058 134,005
Stockholders' equity 522,100 445,309 362,208 299,199 262,455
* Consists of 53 weeks
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ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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:
PERCENTAGE OF NET SALES PERCENTAGE INCREASE (DECREASE)
FROM PRIOR YEAR
1994 1993 1992 1993-1994 1992-1993
---- ---- ---- --------- ---------
Net Sales 100.0% 100.0% 100.0% 6.4% 15.5%
Cost of goods sold,
buying and occupancy 68.9% 68.3% 69.1% 7.3% 14.2%
Selling, general and
administrative 22.8% 22.1% 22.9% 9.6% 11.8%
Interest .2% .3% .3% (13.6%) (14.8%)
Income Taxes 2.9% 3.2% 2.7% ( 5.4%) 39.9%
Net Income* 6.1% 6.9% 5.7% ( 6.6%) 39.1%
*Net Income for Fiscal 1994 is before the cumulative effect of an accounting
change of $3,991,000 or $.04 per share.
NET SALES
Net sales for the fiscal year ended January 29, 1994 ("Fiscal 1994"), totaled
$1,254,122,000 as compared to $1,178,714,000 for the fiscal year ended January
30, 1993 ("Fiscal 1993"), a 6.4% increase. The Company had a 1.8% decrease in
sales of existing stores compared to Fiscal 1993. 11.7% of Fiscal 1994 sales
relate to stores opened in that year. Sales of stores closed during Fiscal
1994 accounted for 3.5% of Fiscal 1993 sales. The net sales increase of 15.5%
in Fiscal 1993 was primarily attributable to the net addition of new stores and
a 6.5% increase in comparable stores sales. The number of retail stores
increased from 1,220 on January 30, 1993 to 1,333 on January 29, 1994.
Sales for the fourth quarter of Fiscal 1994 totaled $357,186,000 as compared to
$337,167,000 for the corresponding period of Fiscal 1993, a 5.9% increase. The
Company had a 2.9% decrease in quarterly sales for existing stores as compared
to the prior year. 12.1% of the quarterly sales are attributable to new stores
opened during Fiscal 1994. Sales for stores closed during Fiscal 1994
accounted for 3.3% of Fiscal 1993 fourth quarter sales.
Net sales increased 14.1% for the fourth quarter of Fiscal 1993 as compared to
the corresponding period during the fiscal year ended February 1, 1992 ("Fiscal
1992"). This increase in sales was primarily due to newly opened stores and a
6.0% increase in comparable store sales.
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COST OF GOODS SOLD, BUYING AND OCCUPANCY
Cost of goods sold, buying and occupancy expenses expressed as a percentage of
sales increased 0.6% in Fiscal 1994 over the prior year and decreased 0.8% in
Fiscal 1993 over Fiscal 1992. The Company's cost of goods sold percentage
decreased during Fiscal 1994 and Fiscal 1993. During Fiscal 1994 the Company's
cost of goods sold percentage decreased as a result of cost reductions achieved
through the direct sourcing of private label merchandise. During Fiscal 1993
the Company was able to increase merchandise margins through improvements in
its overall merchandise assortments which were refined through the use of
enhanced analysis and distribution systems to meet local consumer preferences.
As a percentage of sales, buying and occupancy expenses increased in Fiscal
1994 as a result of the spreading of these relatively fixed costs over
decreased comparable store sales. In Fiscal 1993 buying and occupancy expenses
decreased as a percentage of sales due to the implementation of cost control
measures in the areas of stores rents and utilities and the effect of higher
comparative store sales relative to fixed expenses.
Cost of goods sold, buying and occupancy expenses comprised the same percentage
of sales in the fourth quarter of Fiscal 1994 as compared to the corresponding
period of Fiscal 1993 and increased 0.1% in the fourth quarter of Fiscal 1993
as compared to the corresponding period of Fiscal 1992. During the fourth
quarters of Fiscal 1993 and 1994, the Company's cost of goods sold percentage
decreased. For Fiscal 1994 this improvement was the result of cost savings
achieved through direct sourcing of private label merchandise. In Fiscal 1993
the Company experienced a less promotional selling environment and an improved
merchandise mix. In Fiscal 1994 these improved margins were offset by the
effect of fixed buying and occupancy expenses on lower comparable store sales.
In Fiscal 1993 costs associated with store closings offset the effect of
improved margins.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses, expressed as a percentage of
sales increased 0.7% in Fiscal 1994 over Fiscal 1993 and decreased 0.8% in
Fiscal 1993 over Fiscal 1992. The primary reason for the increase in Fiscal
1994 was the effect of lower comparative store sales to these relatively fixed
expenses. The primary reasons for the decrease in Fiscal 1993 were the
favorable effect of the interest rates on the costs of the Company's private
label credit card program and the effect of higher comparative store sales to
relatively fixed expenses.
INTEREST EXPENSE
Interest expense decreased in Fiscal 1994 and Fiscal 1993 primarily due to
lower interest rates and a reduction in long-term debt.
PROVISION FOR INCOME TAXES
The effective tax rates were 32.2%, 31.9%, and 31.8% for Fiscal 1994, 1993 and
1992, respectively. The increase in the effective tax rate for Fiscal 1994 was
primarily the result of an increase in the federal statutory rate from 34% to
35%. The effective tax rate for Fiscal 1993 was comparable to the rate in
Fiscal 1992.
12
14
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.
1994 1993 1992
---- ---- ----
Net return on average
stockholders' equity 16.5% 20.1% 17.6%
Net return on average
total assets 10.2% 11.8% 10.0%
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations and the Company's capital structure provide the
resources needed to support both current operations and future growth. The
following ratios measure the Company's ability to meet its short-term
obligations:
(in thousands) 1994 1993 1992
---- ---- ----
Working Capital $ 181,906 $ 200,083 $ 182,289
Current ratio 1.7 1.9 1.9
The Company considers, and currently uses for internal management purposes, the
following measures of liquidity and capital resources:
(in thousands) 1994 1993 1992
---- ---- ----
Cash provided by
operating activities $ 90,236 $98,807 $86,156
Capital Resources and
Leverage Ratios:
Debt to equity 5.2% 7.0% 9.9%
Cash provided by operating
activities to capital
investment 114% 152% 185%
Cash provided by operating activities represents the Company's primary source
of liquidity and capital. Cash provided by operating activities amounted to
$90.2 million in Fiscal 1994 as compared to $98.8 million in Fiscal 1993.
The primary reason for the decrease in operating cash flow was an
increase in the net investment in inventory (increase in inventory less
increase in accounts payable) which was partially offset by an increase in
accrued expenses. This additional inventory was the result of a 7% increase in
average inventory per store and additional inventory in transit due to the
higher level of imported private label merchandise. The increase in accrued
expenses resulted from the acquisition and simultaneous sale of the Company's
private label credit card receivables which resulted in an increase in the
limited recourse liability established for sold receivables.
13
15
The Company operates a proprietary credit card program for customers of its
stores. The Company had previously sold the receivables generated from these
credit sales ("Receivables") to various financial institutions. To increase
its control over this credit card program, the Company has been repurchasing
these Receivables. During Fiscal 1994, the Company repurchased $186.9 million
of Receivables which completed the acquisition of its entire private label
credit card file.
In conjunction with these repurchases the Company has entered into various
securitization agreements whereby it can sell, on a revolving basis, for a
specified term, up to $400 million of Receivables. When the revolving period
terminates, an amortization period begins whereby the principal payments are
paid to the party with whom the Company has entered into the securitization
agreement. Through the end of Fiscal 1994 the Company had sold $380.7 million
of Receivables of which $186.9 million were sold during Fiscal 1994.
Receivables are sold under these agreements at face value.
These securitization agreements improve overall liquidity and lessen the effect
of interest rate volatility by replacing short term sources of funding. Under
certain agreements the Company is subject to limited recourse if credit losses
exceed designated limits. The Company has established an accrual of $29.2
million which management believes is an adequate reserve against any such
uncollected receivables.
These agreements provide for the Company to continue to service the receivables
and control credit policies. This will allow 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 increased investment in other assets is primarily related to investments in
joint ventures relating to the Company's direct sourcing operation and an
increase in fixed assets not placed in service.
The Company believes that its liquidity and capital resources are sufficient to
sustain current operations and provide for accelerated future growth.
CAPITAL REQUIREMENTS
Capital expenditures amounted to $79.0 million, $65.0 million, and $46.7
million in Fiscal 1994, 1993 and 1992, 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 1995, the Company anticipates capital expenditures of
approximately $88 million which are principally for the construction of
approximately 170 new stores and the remodeling and expansion of existing
stores. This budget also includes $15 million to complete the expansion of its
distribution center in Greencastle, Indiana. In both fiscal 1995 and 1996, the
Company has scheduled debt maturity payments of $5.0 million. It is
anticipated that the capital required for these expenditures and debt payments
will be financed principally through internally generated funds.
Cash dividends were $9,236,000 during Fiscal 1994 as compared to $8,176,200
during Fiscal 1993.
INFLATION
The Company's financial statements are presented on a historical cost basis.
The Company believes that the impact of inflation during Fiscal 1994 has not
been material to its financial condition and results of operations.
14
16
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Charming Shoppes, Inc.
Bensalem, Pennsylvania
We have audited the accompanying consolidated balance sheets of Charming
Shoppes, Inc. and subsidiaries as of January 29, 1994 and January 30, 1993 and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three fiscal years in the period ended January 29, 1994.
Our audits also included the financial statement schedules listed in the Index
as Item 14(a). These financial statements and schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules 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 and
schedules are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and schedules. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement and schedule 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 January 29, 1994 and January 30, 1993 and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended January 29, 1994, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
As discussed in the Notes to Consolidated Financial Statements, the Company
changed its method of accounting for income taxes in Fiscal 1994.
ERNST & YOUNG
Philadelphia, Pennsylvania
March 8, 1994
15
17
CONSOLIDATED BALANCE SHEETS
CHARMING SHOPPES, INC. AND SUBSIDIARIES
(in thousands except share and per share amounts)
JANUARY 29 JANUARY 30
ASSETS 1994 1993
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 52,390 $ 98,786
Short-term investments-at cost 45,290 50,762
Merchandise inventories 259,527 208,445
Prepayments and other 83,097 75,592
- -----------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 440,304 433,585
Property, equipment and leasehold improvements - at cost 416,029 343,166
Less: accumulated depreciation and amortization 161,695 129,106
- -----------------------------------------------------------------------------------------------------------
Net property, equipment and leasehold improvements 254,334 214,060
Long-term investments - at cost 83,695 57,658
Other assets 50,900 31,948
- -----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 829,233 $ 737,251
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 147,638 $147,225
Accrued expenses 97,234 75,877
Income taxes 8,521 5,572
Current portion - long-term debt 5,005 4,828
- -----------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 258,398 233,502
Deferred taxes 26,437 32,194
Long-term debt 22,298 26,246
STOCKHOLDERS' EQUITY
Common Stock $.10 par value
Authorized 300,000,000 shares. Issued and
outstanding 102,735,437 and 102,448,158 shares 10,274 10,245
Additional Paid-in Capital 54,208 51,708
Deferred Employee Compensation (7,015) (10,757)
Retained Earnings 464,633 394,113
- -----------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 522,100 445,309
- -----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 829,233 $ 737,251
- -----------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
16
18
CONSOLIDATED STATEMENTS OF INCOME
CHARMING SHOPPES, INC. AND SUBSIDIARIES
(in thousands except shares and per share amounts)
YEAR ENDED
JANUARY 29 JANUARY 30 FEBRUARY 1
1994 1993 1992
---- ---- ----
NET SALES $ 1,254,122 $ 1,178,714 $ 1,020,656
Other Income 9,352 9,146 6,601
- ------------------------------------------------------------------------------------------------------------
TOTAL REVENUE 1,263,474 1,187,860 1,027,257
- ------------------------------------------------------------------------------------------------------------
Cost of goods sold, buying and occupancy expenses 863,381 804,963 705,047
Selling, general and administrative expenses 285,804 260,806 233,265
Interest expense 2,557 2,958 3,473
- ------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 1,151,742 1,068,727 941,785
- ------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF AN ACCOUNTING CHANGE 111,732 119,133 85,472
- ------------------------------------------------------------------------------------------------------------
Income Taxes 35,967 38,006 27,170
- ------------------------------------------------------------------------------------------------------------
Income before cumulative effect
of accounting change 75,765 81,127 58,302
- ------------------------------------------------------------------------------------------------------------
Cumulative effect of adoption of SFAS 109 3,991 0 0
- ------------------------------------------------------------------------------------------------------------
NET INCOME $ 79,756 $ 81,127 $ 58,302
- ------------------------------------------------------------------------------------------------------------
PER SHARE DATA
- -----------------
Net Income before cumulative effect of
accounting change $.70 $.75 $.55
Cumulative effect of accounting change .04 .00 .00
-- -- --
Net Income .74 .75 .55
Cash Dividends .09 .08 .06
Weighted average number of common shares
and share equivalents outstanding during
this year 108,390,583 108,681,305 106,267,242
See Notes to Consolidated Financial Statements
17
19
CONSOLIDATED STATEMENTS OF CASH FLOWS
CHARMING SHOPPES, INC. AND SUBSIDIARIES
(in thousands)
YEAR ENDED
JANUARY 29 JANUARY 30 FEBRUARY 1
1994 1993 1992
---- ---- ----
OPERATING ACTIVITIES
NET INCOME $79,756 $ 81,127 $ 58,302
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Provision for losses on accounts receivable 0 0 2,806
Deferred income taxes 2,007 1,344 (71)
Depreciation and amortization 42,487 35,065 31,524
Amortization of deferred compensation expense 3,597 3,512 3,160
Tax benefit from Employee Stock Plans 1,798 3,200 3,065
Cumulative effect of an accounting change (3,991) 0 0
Gain on sale of investments (115) (109) (155)
Loss from abandonment of capital assets 2,333 3,106 2,523
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable 0 (10,830) (12,483)
Merchandise inventories (51,082) (21,695) (31,690)
Accounts payable 413 12,077 25,416
Prepayments & other (11,273) (15,488) (17,825)
Income taxes payable 2,949 ( 1,692) 2,774
Accrued expenses 21,357 9,190 18,810
------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 90,236 98,807 86,156
- -----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investment in capital assets 79,023 64,988 46,678
Gross purchases of short-term investments 35,605 103,710 0
Proceeds from sales of short-term investments (41,078) (52,948) 0
Gross purchases of long-term investments 71,952 31,865 24,788
Proceeds from sales of long-term investments (46,029) (6,996) (1,126)
Increase (decrease) in other assets 25,022 11,063 (3,949)
Purchase of accounts receivable 186,857 0 79,201
Sale of accounts receivable (186,857) (54,826) (73,035)
- -----------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES 124,495 96,856 72,557
- -----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from long-term borrowings 1,200 0 155
Reduction of long-term borrowings (4,971) (4,945) (530)
Proceeds from exercise of stock options 870 2,976 4,519
Payments on notes receivable 0 69 0
Sale and leaseback of equipment 0 0 20,958
Dividends paid (9,236) (8,176) (6,037)
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (12,137) (10,076) 19,065
- -----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (46,396) (8,125) 32,664
Cash and Cash Equivalents, Beginning of Year 98,786 106,911 74,247
- -----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 52,390 $ 98,786 $ 106,911
- -----------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
18
20
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CHARMING SHOPPES, INC. AND SUBSIDIARIES
(in thousands except shares)
ADDITIONAL DEFERRED
COMMON STOCK PAID-IN EMPLOYEE
SHARES AMOUNT CAPITAL COMPENSATION
------ ------ ------- ------------
BALANCE, FEBRUARY 2, 1991 50,069,679 $5,007 $26,485 $(5,843)
Issued to employees, net 54,088 6 8,948 (9,291)
Exercise of stock options 681,659 68 4,788
Amortization 3,160
Tax benefit - Employee
Stock Programs 3,065
- ---------------------------------------------------------------------------------------------------------------
BALANCE, FEBRUARY 1, 1992 50,805,426 5,081 43,286 (11,974)
Issued to employees, net (440,163) (44) 2,190 (2,295)
Exercise of stock options 941,118 94 3,032
Amortization 3,512
Tax benefit - Employee
Stock Programs 3,200
Two-for-one stock split 51,141,777 5,114
- ---------------------------------------------------------------------------------------------------------------
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)
NOTES RETAINED
RECEIVABLE EARNINGS
---------- --------
BALANCE, FEBRUARY 2, 1991 $ (461) $ 274,011
Cash dividends (6,037)
Net income 58,302
- ---------------------------------------------------------------------------------------------------------------
BALANCE, FEBRUARY 1, 1992 (461) 326,276
Two-for-one stock split (5,114)
Payment 69
Transfer 392
Cash dividends (8,176)
Net income 81,127
- ---------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 30, 1993 0 394,113
Cash Dividends (9,236)
Net income 79,756
- ---------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 29, 1994 $ 0 $464,633
See Notes to Consolidated Financial Statements
19
21
CHARMING SHOPPES, INC. AND SUBSIDIARIES
Year Ended January 29, 1994
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The Company operates a chain of specialty stores merchandising moderately
priced junior, misses, plus and children's size sportswear, dresses, coats,
lingerie accessories and casual footwear. A limited assortment of men's
sportswear 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.
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.
SHORT-TERM INVESTMENTS
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).
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 $36,417,000, $29,575,000, and
$26,617,000 in fiscal 1994, 1993, and 1992, respectively.
COMMON STOCK PLANS
Deferred compensation expense relating to Employee Stock Option and Stock
Incentive Plans is amortized over the required employment period.
20
22
CHARMING SHOPPES, INC. AND SUBSIDIARIES
Year Ended January 29, 1994
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 pretax 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 $0.04 per share.
U.S. Income Taxes have not been provided on undistributed earnings of foreign
subsidiaries accumulated prior to January 29, 1994, 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.
21
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CHARMING SHOPPES, INC. AND SUBSIDIARIES
Year Ended January 29, 1994
FINANCIAL INSTRUMENTS
The Company has entered into various agreements whereby it can sell, on a
revolving basis, up to $400,000,000 of the Company's private label credit card
accounts receivable. Through the end of fiscal 1994, the Company has sold a
total of $380,678,000 of which $186,857,000, $54,826,000 and $92,754,000 were
sold during the fiscal years ended January 29, 1994, January 30, 1993 and
February 1, 1992, respectively. As of January 29, 1994 and January 30, 1993,
$380,678,000 and $197,373,000 remained to be collected, respectively. The
Company remained contingently liable for approximately $29,316,000 of the sold
receivables. The Company has established an accrual of $29,225,000 which
management believes is an adequate reserve against any such uncollected
receivables. Net accounts receivable finance income is included in selling,
general and administrative expenses.
The Company uses interest rate swaps and caps to manage its exposure to
interest rate fluctuations. The Company has entered into three interest rate
swap agreements with notional principal amounts totaling $100 million. These
agreements, which expire in July, 1996, effectively converted the variable
interest rate utilized in a portion of the sale settlement transactions
described above to a fixed rate. The Company has also entered into three
interest rate cap agreements with notional principal amounts totaling $300
million. These agreements expire between October 1994 and February 1996. Net
receipts or payments under these agreements are recognized as an adjustment to
selling, general and administrative expenses.
At January 29, 1994 these swap agreements had a fair value of ($657,500) and
the caps had a fair value of $0. The fair value is an estimated amount that
the Company would receive or pay to terminate the agreement at the reporting
date, taking into account current interest rates and the credit worthiness of
the counterparties.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Lives
(in thousands) (Years) 1994 1993
------- ---- ----
Land $ 3,385 $ 2,810
Building and improvements 10 to 33 61,759 49,300
Store fixtures 5 to 10 92,794 80,324
Equipment 3 to 10 96,622 74,706
Leasehold improvements 10 to 20 161,469 136,026
- -------------------------------------------------------------------------
Total at cost 416,029 343,166
Less accumulated depreciation
and amortization 161,695 129,106
- -------------------------------------------------------------------------
$254,334 $214,060
- -------------------------------------------------------------------------
LONG-TERM INVESTMENTS
The carrying amounts and fair values of long-term investments based on quoted
market prices are as follows:
FISCAL 1994 FISCAL 1993
(IN THOUSANDS) FAIR VALUE BOOK VALUE FAIR VALUE BOOK VALUE
---------- ---------- ---------- ----------
Equity Securities $ 6,686 $ 6,362 $ 8,039 $ 7,668
Debt Securities 79,101 77,333 51,204 49,990
- ----------------------------------------------------------------------------------------------
Total $85,787 $83,695 $ 59,243 $ 57,658
- -----------------------------------------------------------------------------------------------
22
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CHARMING SHOPPES, INC. AND SUBSIDIARIES
Year Ended January 29, 1994
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 is determined as of
January 31, 1993 and is reported separately in the consolidated statement of
income for the year ended January 29, 1994.
Income tax expense attributable to income from continuing operations consists
of:
(in thousands) 1994 1993 1992
---- ---- ----
CURRENT:
Federal $29,971 $33,479 $24,189
State 2,393 1,735 1,605
Foreign 1,596 1,448 1,447
- ----------------------------------------------------------------------------------
$33,960 $36,662 $27,241
- ----------------------------------------------------------------------------------
DEFERRED:
Federal 2,250 1,236 (26)
State (243) 108 (45)
- ----------------------------------------------------------------------------------
2,007 1,344 (71)
- ----------------------------------------------------------------------------------
Income Tax Expense $35,967 $38,006 $27,170
- ----------------------------------------------------------------------------------
The components of deferred income tax expense of $2,007, for the year ended
January 29, 1994 are all attributable to income from continuing operations.
The components of deferred income tax expense for the years ended January 30,
1993 and February 1, 1992 are as follows:
(in thousands) 1993 1992
---- ----
Depreciation $2,522 $2,169
Employee benefits 1,222 (302)
Inventory (352) (221)
Accounts Receivable (1,090) (675)
Other (958) (1,042)
- -----------------------------------------------------------------
Deferred Income Tax Expense $1,344 $ (71)
- -----------------------------------------------------------------
23
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CHARMING SHOPPES, INC. AND SUBSIDIARIES
Year Ended January 29, 1994
Prepayments and other assets include deferred income taxes of $9,418,000 at
January 30, 1993. The Company made income tax payments of $33,674,000,
$30,778,000 and $19,604,000 for the years ended January 29, 1994, January 30,
1993 and February 1, 1992, respectively.
The components of deferred tax assets and liabilities at January 29, 1994 are
as follows:
NET CURRENT NET LONG-TERM
ASSETS ASSETS
(LIABILITIES) (LIABILITIES)
------------- -------------
Property, equipment and leasehold
improvements $(22,774)
Inventory $ 2,600
Deferred employee compensation 4,113
Prepaid employee benefits (1,880)
Accounts Receivable 4,768
Deferred Rent 3,668
Other (7,776)
- -------------------------------------------------------------------------
$ 9,156 $ (26,437)
- -------------------------------------------------------------------------
Net current deferred taxes are included in prepayments and other current
assets.
24
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CHARMING SHOPPES INC. AND SUBSIDIARIES
Year Ended January 29, 1994
A reconciliation of the effective tax rate with the statutory federal income
tax rate follows:
1994 1993 1992
---- ---- ----
Statutory federal income tax rate 35.0% 34.0% 34.0%
State income tax, net of federal income tax benefit 1.3 1.0 1.2
Foreign income (0.1) 0.4 (0.4)
Investment income (1.1) (1.0) (1.2)
Employee benefits (1.6) (1.3) (1.4)
Other, net (1.3) (1.2) (0.4)
- ---------------------------------------------------------------------------------------------
32.2% 31.9% 31.8%
- ---------------------------------------------------------------------------------------------
The components of income before income taxes and the cumulative effect of an
accounting change consist of the following:
(in thousands) 1994 1993 1992
---- ---- ----
Domestic $106,755 $116,338 $80,133
Foreign 4,977 2,795 5,339
- ----------------------------------------------------------------------------------------------
$111,732 $119,133 $85,472
- ----------------------------------------------------------------------------------------------
DEBT
Long-term debt at year end consisted of the following:
(in thousands) 1994 1993
---- ----
9.3% note payable, annually through 1998 $21,428 $25,714
Variable rate mortgage due 1996
(2.4% at 1/29/94) 1,000 1,000
Variable rate mortgage note, interest rate
1.25% above Hong Kong Prime Rate,
payable monthly through 2001
(7.75% at 1/29/94) 496 563
Variable rate mortgage note, interest rate
1% above HIBOR, payable monthly
through 2000 (4.625% at 1/29/94) 3,167 3,642
Variable rate mortgage note, interest rate
1% above SIBOR, payable monthly through
2000 (4.19% at 1/29/94) 1,057 0
Other 155 155
- -----------------------------------------------------------------------------
Total long-term debt 27,303 31,074
Less current portion 5,005 4,828
- -----------------------------------------------------------------------------
$22,298 $26,246
- -----------------------------------------------------------------------------
25
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CHARMING SHOPPES INC. AND SUBSIDIARIES
Year Ended January 29, 1994
The mortgages are collateralized by buildings with a net book value of
$8,893,000.
During the fiscal years ended January 29, 1994, January 30, 1993, and February
1, 1992 the Company made interest payments of $2,687,500, $3,094,900, and
$3,319,300, respectively.
The carrying amount of the Company's variable rate debt approximates their fair
value.
The fair value of the Company's $21,428,000 9.3% Note payable is estimated to
be $23,285,000 using discounted cash flow analysis based on an estimate of the
Company's current rate for similar borrowing arrangements.
Aggregate maturities of long-term debt during the next five fiscal years are:
(in thousands)
1995 $5,005
1996 5,015
1997 6,033
1998 5,039
1999 5,047
STOCKHOLDERS' EQUITY
The Company's authorized 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
Effective April 1, 1993, and approved by shareholders at the 1993 annual
meeting, the 1993 Employee's Stock Incentive Plan was adopted. The number of
shares of common stock available for issuance under the Plan are 9,000,000 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.
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 January 29, 1994, 3,468,682 options were exercisable.
26
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CHARMING SHOPPES, INC. AND SUBSIDIARIES
Year Ended January 29, 1994
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 are non-employees 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 January 29, 1994, 60,000 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 January 29, 1994, 534,102 options were exercisable.
The table below summarizes the activity in all Stock Option Plans:
Average Option
Option Option Prices
Shares Price Per Share
- ------------------------------------------------------------------------------------------------
Outstanding at February 2, 1991 9,152,910 $ 3.928 $.222 - 5.813
Granted 1,672,400 3.164 .500 - 12.250
Cancelled (478,486) 3.562 .500 - 8.250
Exercised (1,363,318) 4.246 .222 - 5.813
- ------------------------------------------------------------------------------------------------
Outstanding at February 1, 1992 8,983,506 3.824 .500 - 12.250
Granted 1,214,250 11.760 .500 - 18.563
Cancelled (158,432) 3.321 .500 - 13.500
Exercised (941,118) 4.317 .222 - 12.250
- -------------------------------------------------------------------------------------------------
Outstanding at January 30, 1993 9,098,206 4.927 .222 - 18.563
Granted 1,270,000 14.253 1.000 - 18.875
Cancelled (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
- ------------------------------------------------------------------------------------------------
At January 29, 1994, 8,072,457 shares were available for future grant under the
1988 Key Employee Stock Option, and the 1993 Employees' Stock Incentive plans.
The Company's Non-Employee Directors Restricted Stock Plan provides for a one
time grant of 5,000 shares of restricted stock to each member of the Board of
Directors who are non-employees 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. 40,000 shares of the Company's common stock have been
reserved for issuance under this plan of which 3,250, 4,084 and 15,000 shares
were issued during the fiscal years ended January 29, 1994, January 30, 1993
and February 1, 1992 respectively.
The Company's Managers' Stock Incentive Program provides for the grant to
purchase Common Stock for $.10 per share to store managers. During the fiscal
years ended February 1, 1992, the Company issued 122,358 to store managers
under the program. The Company no longer intends to issue shares under this
program.
The shares issued and options granted under the above plans are subject to
forfeiture if the employees do not remain in the employ of 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.
27
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CHARMING SHOPPES, INC. AND SUBSIDIARIES
Year Ended January 29, 1994
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 exercised 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.
EMPLOYEE RETIREMENT BENEFIT PLAN
The Company provides a comprehensive retirement benefit program for its
employees.
The 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 Plan also provides an employee savings provision (401(k) 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 plan amounted to $3,323,000, $3,039,000, and
$2,739,000 for the years ended January 29, 1994, January 30, 1993, and February
1, 1992, respectively.
LEASES
The Company leases all of its stores under noncancelable 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.
In November 1991, the Company completed a sale and leaseback agreement for
$21.0 million of point-of-sale equipment. Under the terms of this agreement,
the Company has agreed to leaseback this equipment under a three-year lease
with a two-year option for $4.0 million per year.
The Company also leases certain other buildings and equipment.
Rental expense (in thousands) 1994 1993 1992
---- ---- ----
Minimum rental $82,425 $70,321 $57,521
Contingent rental 12,413 11,331 9,858
- -------------------------------------------------------------------------
Total rent expense $94,838 $81,652 $67,379
- -------------------------------------------------------------------------
28
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CHARMING SHOPPES, INC. AND SUBSIDIARIES
Year Ended January 29, 1994
LEASES
Minimum annual rental commitments for all noncancelable leases for the next
five fiscal years and thereafter are:
(in thousands)
1995 $ 99,397
1996 95,278
1997 89,766
1998 82,244
1999 70,928
Thereafter 290,787
29
31
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
IN THOUSANDS EXCEPT PER SHARE AMOUNTS
---------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------------------------------------------------
Net sales
1994 $275,299 $308,637 $313,000 $357,186
1993 $262,462 $289,606 $289,479 $337,167
- ---------------------------------------------------------------------------
Cost of goods sold,
buying and occupancy
1994 190,083 212,017 218,630 242,651
1993 178,543 198,827 198,588 229,005
- ---------------------------------------------------------------------------
Gross profit
1994 85,216 96,620 94,370 114,535
1993 83,919 90,779 90,891 108,162
- ---------------------------------------------------------------------------
Selling, general and
administrative
1994 62,961 68,561 73,694 80,588
1993 61,593 60,625 66,675 71,913
- ---------------------------------------------------------------------------
Net income before
cumulative effect
of accounting change
1994 16,219 20,602 15,163 23,781
1993 16,125 21,726 17,385 25,891
- ---------------------------------------------------------------------------
Net income per share
before cumulative
effect of accounting
change
1994 .15 .19 .14 .22
1993 .15 .20 .16 .24
- ---------------------------------------------------------------------------
Net income
1994 $20,210 $20,602 $15,163 $23,781
1993 $16,125 $21,726 $17,385 $25,891
- ---------------------------------------------------------------------------
Net income per share
1994 .19 .19 .14 .22
1993 .15 .20 .16 .24
- ---------------------------------------------------------------------------
30
32
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.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding Directors of the Company is set forth under the caption
"Election of Directors" of the Company's definitive proxy statement which is
incorporated herein by reference. Information regarding Executive Officers is
set forth herein under Item 4A. "Executive Officers of the Registrant", in
Part I hereof.
ITEM 11 EXECUTIVE COMPENSATION
Information regarding executive compensation is set forth under the captions
"Management Compensation" and "Report of the Compensation and Stock Option
Committees of the Board of Directors on Executive Compensation" of the
Company's definitive proxy statement which is incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding the security ownership of certain beneficial owners and
management is set forth under the caption "Principal Shareholders and
Management Ownership" of the Company's definitive proxy statement which is
incorporated herein by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is set
forth under the caption "Certain Relationships and Related Transactions" of the
Company's definitive proxy statement which is incorporated herein by reference.
31
33
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) (1) FINANCIAL STATEMENTS
The following Consolidated Financial Statements of Charming Shoppes, Inc. and
its subsidiaries are included in Part II, Item 8:
Report of independent auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Consolidated Balance Sheets - January 29, 1994 and January 30, 1993 . . . . . . . . . . . . . . . . . 16
Consolidated Statements of Income - years ended
January 29, 1994, January 30, 1993 and February 1, 1992 . . . . . . . . . . . . . . . . 17
Consolidated Statements of Cash Flows - years ended
January 29, 1994, January 30, 1993 and February 1, 1992 . . . . . . . . . . . . . . . . 18
Consolidated Statements of Stockholders' Equity - years ended
January 29, 1994, January 30, 1993 and February 1, 1992 . . . . . . . . . . . . . . . . . . . 19
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(a) (2) FINANCIAL STATEMENT SCHEDULES
Schedule I - Marketable Securities - Other Investments . . . . . . . . . . . . . . . . . . . . . . 35
Schedule II - Amounts Receivable From Related Parties and Underwriters,
Promoters, and Employees Other Than Related Parties - years ended
January 29, 1994, January 30, 1993 and February 1, 1992 . . . . . . . . . . . . . . . . 36
Schedule V - Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Schedule VI - Accumulated depreciation, depletion and amortization of
property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Schedule VIII - Valuation and Qualifying Accounts. . . . . . . . . . . . . . . . . . . . . . . . . 39
Schedule X - Supplementary Income Statement Information . . . . . . . . . . . . . . . . . . . . . . 40
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
REPORTS ON FORM 8-K: No reports required to be filed
EXHIBITS, INCLUDING THOSE INCORPORATED BY REFERENCE
The following is a list of Exhibits filed as part of this annual report on Form
10-K. Where so indicated by footnote, Exhibits which were previously filed are
incorporated by reference. For Exhibits incorporated by reference, the
location of the Exhibit in the previous filing is indicated in parenthesis.
The page numbers listed refer to the page numbers where such Exhibits are
located using the sequential numbering system specified by Rules 0-3 and
403:
32
34
ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Restated Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.2 By-Laws, as Amended and Restated . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
4.1 Shareholders' Rights Plan, incorporated by reference to Form 8-K,
filed on May 23, 1989.
MATERIAL CONTRACTS
10.1.1 Note Agreement between the Registrant and Various Insurance Companies
for $30,000,000 dated June 1, 1988 and incorporated by reference to
Form 10-K of the Registrant for the year ended January 28, 1989.
(Exhibit 10-1, Pg. 63).
10.1.2 Sale and Purchase Agreement between Fashion Service Corp. and BancOhio
National Bank dated July 27, 1988 and incorporated by reference to
Form 10-K of the Registrant for the year ended January 28, 1989.
(Exhibit 10-1, Pg. 96).
10.1.3 Receivables Purchase Agreement between Fashion Service Corp. and
Mellon Bank, N.A. dated April 4, 1989 and incorporated by reference to
Form 10-K of the Registrant for the year ended January 28, 1989
(Exhibit 10-1, Pg. 114).
10.1.4 Amended and restated Receivables Purchase Agreement among Spirit of
America National Bank as Seller, Fashion Service Corp. and Charming
Shoppes, Inc. as Guarantors and Mellon Bank, N.A., as Buyer dated
November 14, 1991, and incorporated by reference to Form 10-K of the
Registrant for the year ended February 1, 1992 (Exhibit 10-1, Pg. 38).
10.1.5 Participation Agreement between the Registrant, Charming Shoppes of
Delaware, Inc., and various financial services companies for Lease
Financing of Point-of-Sale Equipment dated October 31, 1991, and
incorporated by reference to Form 10-K of the Registrant for the year
ended February 1, 1992 (Exhibit 10-1, Pg. 161).
10.1.6 Agreement and Lease between Charming Shoppes of Delaware, Inc., as
Lessee and Mellon Financial Services Corporation as Lessor dated
October 31, 1991 and incorporated by reference to Form 10-K of the
Registrant for the year ended February 1, 1992 (Exhibit 10-1, Pg.
214).
10.1.7 Pooling and Servicing Agreement between Spirit of America National
Bank as Seller and Servicer and Fidelity Bank, N.A., as Trustee for
Spirit of America Master Trust, dated December 24, 1992 and
incorporated by reference to Form 10-K of the Registrant for the year
ended January 30, 1993 (Exhibit 10-1, Pg. 62).
10.1.8 Receivables Purchase Agreement among Fidelity Bank, N.A., as Trustee
for Spirit of America Master Trust, as Seller, Fashion SPC, Inc., as
Subordinated Purchaser, Spirit of America National Bank, as Owner and
Servicer, Ciesco L.P., Corporate Asset Funding Company, Inc., and
Corporate Receivables Corporation, as Purchasers and Citicorp North
America, Inc., as Agent, dated December 24, 1992 and incorporated by
reference to Form 10-K of the registrant for the year ended January
30, 1993 (Exhibit 10-1, Pg. 184).
10.1.9 Parallel Purchase Commitment among Fidelity Bank, N.A., as Trustee,
Spirit of America Master Trust, as Seller, Fashion SPC, Inc., as
Subordinated Purchaser, Spirit of America National Bank, as Owner and
Servicer, Citibank, N.A., and Citicorp North America, Inc., as Agent,
dated December 24, 1992 and incorporated by reference to Form 10-K of
the registrant for the year ended January 30, 1993 (Exhibit 10-1,
Pg. 404).
33
35
*10.1.10 Amendment Agreement, dated September 20, 1993 to Receivables Purchase
Agreement dated December 24, 1992 (Referenced in Exhibit 10.1.8)
10.1.11 Amendment Agreement, dated September 20, 1993 to Parallel Purchase
Agreement dated December 24, 1992 (Referenced in Exhibit 10.1.9)
*10.1.12 Sale and Purchase Agreement between National City Bank, Columbus, N.A.
and Fashion Service Corp., dated September 30, 1993
EMPLOYEE BENEFIT PLANS AND AGREEMENTS
10.2.1 Key Employee Stock Incentive Program, filed September 13, 1984 under
Amendment No. 1 to Registration Statement #2-92795 and incorporated
herein by reference.
10.2.2 The 1986 Employees' Stock Option Plan of Charming Shoppes, Inc., and
incorporated by reference to Form 10-K of the Registrant for the year
ended February 1, 1992 (Exhibit 10.2.2, pg. 240)
10.2.3 The 1988 Key Employee Stock Option Plan of Charming Shoppes, Inc., as
amended incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended January 30, 1993 (Exhibit 10.2.3, pg. 486)
10.2.4 The 1990 Employees' Stock Incentive Plan of Charming Shoppes, Inc., as
amended incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended January 30, 1993 (Exhibit 10.2.4, pg. 492)
10.2.5 The 1989 Non-Employee Director Stock Option Plan of Charming Shoppes,
Inc., as amended incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 30, 1993 (Exhibit
10.2.5, pg. 499)
10.2.6 Non Employee Director Restricted Stock Plan as amended incorporated by
reference to Form 10-K of the Registrant for the fiscal year ended
January 30, 1993 (Exhibit 10.2.6, pg. 503)
10.2.7 Consulting Agreement with Ellis Wachs, dated as of March 2, 1990,
effective April 27, 1991, incorporated by reference to From 10-K of
the Registrant for the fiscal year ended February 3, 1990 (Exhibit
10.2.8)
10.2.8 Employment Agreement with Colin D. Stern dated as of October 3, 1989,
incorporated by reference to Form 10-K of the Registrant for the
fiscal year ended February 1, 1992 (Exhibit 10.2.12, Pg. 245)
10.2.9 Subplan and Summary Description of the Annual Incentive Plan of
Charming Shoppes, Inc., incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended February 1, 1992 (Exhibit
10.2.13, Pg. 251)
10.2.10 The 1993 Employees' Stock Incentive Plan of Charming Shoppes, Inc.
10.2.11 The 1993 Employees' Stock Incentive Plan Stock Option Agreement
(regular vesting schedule) of Charming Shoppes, Inc.
10.2.12 The 1993 Employees' Stock Incentive Plan Stock Option Agreement
(accelerated vesting schedule) of Charming Shoppes, Inc.
Exhibit 22 - Subsidiaries of Registrant . . . . . . . . . . . . . . . . . . .
Exhibit 23 - Consent of independent auditors . . . . . . . . . . . . . . . .
*Portions of this exhibit have been omitted and filed separately with Secretary
of the Commission pursuant to the Registrants' Application Requesting
Confidential Treatment.
All other schedules are omitted because they are not applicable or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
34
36
CHARMING SHOPPES, INC. AND SUBSIDIARIES
SCHEDULE I - MARKETABLE SECURITIES - OTHER INVESTMENTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- -------- --------
AMOUNT OF WHICH
EACH PORTFOLIO OF
NUMBER OF SHARES OR MARKET VALUE EQUITY SECURITY ISSUES
UNITS-PRINCIPAL OF EACH ISSUE AND EACH OTHER SECURITY
NAME OF ISSUER AND AMOUNTS OF BONDS COST OF AT BALANCE ISSUE CARRIED IN
TITLE OF EACH ISSUE AND NOTES EACH ISSUE SHEET DATE THE BALANCE SHEET
- ------------------- --------- ---------- ---------- -----------------
Corporate Asset Funding Company, Inc.
Investor Certificates $ 27,835,000 $ 27,835,000 $ 27,835,000
Municipal Bonds 13,502,000 13,502,000 13,502,000
Other 3,953,000 3,953,000 3,953,000
--------- --------- ----------
Total Short Term Investments 45,290,000 45,290,000 45,290,000
---------- ---------- ----------
Government Agency Mortgage
Backed Securities 30,979,000 32,063,000 30,979,000
Municipal Bonds and Municipal
Bond Mutual Funds 43,363,000 43,893,000 43,363,000
Preferred Stocks 3,875,000 4,199,000 3,875,000
Low Income Housing Partnerships 2,487,000 2,487,000 2,487,000
Treasury Bonds 2,211,000 2,385,000 2,211,000
Other 780,000 760,000 780,000
------------ ----------- ------------
Total Long Term Investments $ 83,695,000 $ 85,787,000 $ 83,695,000
------------ ----------- ------------
35
37
CHARMING SHOPPES, INC. AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- ----------------------- ------------------
BALANCE AT
BEGINNING BALANCE AT
NAME OF DEBTOR OF PERIOD ADDITIONS DEDUCTIONS END OF PERIOD
- -------------- --------- --------- ------------------------ ------------------
Amounts Amounts Not
Collected Written Off Current Current
--------- ----------- ------- -------
YEAR ENDED JANUARY 29, 1994
NONE
YEAR ENDED JANUARY 30, 1993
Mordechay Kafry, interest bearing note
at Prime plus 1% due 6/30/93 427,671 15,331 443,002 0 0 0
Ivan Szeftel, interest bearing note at
9% due 10/31/95, collateralized by common
stock 68,675 1,507 70,182 0 0 0
YEAR ENDED FEBRUARY 1, 1992
Lionel Savadove, interest bearing note at
6% due 6/30/93, collateralized by common
stock 402,688 0 402,688 (1) 0 0 0
Mordechay Kafry, interest bearing
note at Prime plus 1% due 1/30/95 0 427,671 0 0 0 427,671
Ivan Szeftel, interest bearing note at
9% due 10/31/95, collateralized by common
stock 68,675 6,180 6,180 0 0 68,675
(1) During the fiscal year ended February 1, 1992, Mr. Savadove resigned his
position with the Company and as such is no longer a related party. The note
was paid when due on 06/30/93.
36
38
CHARMING SHOPPES, INC. AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------- -------- -------- -------- --------- --------
BALANCE AT
BEGINNING ADDITIONS RETIREMENTS/ BALANCE AT
CLASSIFICATION OF PERIOD AT COST EXCHANGES OTHER END OF PERIOD
- -------------- --------- ------- --------- ----- -------------
YEAR ENDED FEBRUARY 1, 1992:
Land $ 2,810,000 $ 0 $ 0 $ 0 $ 2,810,000
Building and Improvements 42,204,000 1,017,000 0 0 43,221,000
Leasehold Improvements 104,962,000 14,125,000 4,933,000 0 114,154,000
Store Fixtures 59,641,000 9,265,000 1,570,000 0 67,336,000
Equipment 63,815,000 22,271,000 12,587,000 (1) (15,021,000) (2) 58,478,000
----------- ---------- ---------- ------------ ----------
$ 273,432,000 $ 46,678,000 $ 19,090,000 $ (15,021,000) $ 285,999,000
------------- ------------ ------------ ------------- -------------
YEAR ENDED JANUARY 30, 1993:
Land $ 2,810,000 $ 0 $ 0 $ 0 $ 2,810,000
Building and Improvements 43,221,000 6,412,000 333,000 0 49,300,000
Leasehold Improvements 114,154,000 27,759,000 5,887,000 0 136,026,000
Store Fixtures 67,336,000 14,395,000 1,407,000 0 80,324,000
Equipment 58,478,000 16,422,000 194,000 0 74,706,000
---------- ---------- ------- - ----------
$ 285,999,000 $ 64,988,000 $ 7,821,000 $ 0 $ 343,166,000
------------- ------------ ----------- --------------- ---------------
YEAR ENDED JANUARY 29, 1994:
Land $ 2,810,000 $ 575,000 $ 0 $ 0 $ 3,385,000
Building and Improvements 49,300,000 13,209,000 750,000 0 61,759,000
Leasehold Improvements 136,026,000 30,024,000 4,581,000 0 161,469,000
Store Fixtures 80,324,000 13,299,000 829,000 0 92,794,000
Equipment 74,706,000 21,916,000 0 0 96,622,000
---------- ---------- ------- --------------- ----------
$ 343,166,000 $79,023,000 $ 6,160,000 $ 0 $ 416,029,000
------------- ----------- ------------ --------------- -------------
(1) $12,495,000 of this amount represents the cost of point-of-sale
equipment exchanged for new equipment during fiscal 1992. The Company received
a $3,998,000 reduction in the purchase price of the new equipment in exchange
for equipment with a book value of $2,195,000. The resulting gain of
$1,803,000 will be amortized over the life of the equipment.
(2) During fiscal 1992, the Company entered into a sale and leaseback
transaction for point-of-sale equipment with a cost of $15,021,000.
37
39
CHARMING SHOPPES, INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
Column A Column B Column C Column D Column F
- -------- -------- -------- -------- --------
Balance at
Beginning Additions Retirements/ Balance at
Classification of Period at Cost Exchanges End of Period
- -------------- --------- ------- --------- -------------
YEAR ENDED FEBRUARY 1, 1992:
Building and Improvements $ 5,271,000 $ 1,502,000 $ 0 $ 6,773,000
Leasehold Improvements 34,350,000 9,887,000 2,478,000 41,759,000
Store Fixtures 21,122,000 6,600,000 1,568,000 26,154,000
Equipment 31,249,000 8,628,000 10,317,000 (1) 29,560,000
---------- --------- ---------- ----------
$ 91,992,000 $ 26,617,000 $ 14,363,000 $ 104,246,000
------------ ------------ ------------ -------------
YEAR ENDED JANUARY 30, 1993:
Building and Improvements $ 6,773,000 $ 702,000 $ 0 $ 7,475,000
Leasehold Improvements 41,759,000 11,653,000 3,173,000 50,239,000
Store Fixtures 26,154,000 8,660,000 1,390,000 33,424,000
Equipment 29,560,000 8,560,000 152,000 37,968,000
---------- --------- ----------- ----------
$ 104,246,000 $ 29,575,000 $ 4,715,000 $ 129,106,000
------------- ------------ ----------- -------------
YEAR ENDED JANUARY 29, 1994:
Building and Improvements $ 7,475,000 $ 1,920,000 $ 184,000 $ 9,211,000
Leasehold Improvements 50,239,000 13,784,000 2,815,000 61,208,000
Store Fixtures 33,424,000 10,201,000 829,000 42,796,000
Equipment 37,968,000 10,512,000 0 48,480,000
----------- ---------- --- ----------
$129,106,000 $ 36,417,000 $ 3,828,000 $ 161,695,000
------------ ------------ ----------- -------------
(1). $10,300,000 of this amount represents the accumulated depreciation on
point-of-sale equipment exchanged for new equipment during Fiscal 1992.
38
40
CHARMING SHOPPES, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- --------------------------------- -------- --------
(1)
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS BALANCE AT
DESCRIPTION OF PERIOD EXPENSES (DESCRIBE) (DESCRIBE) END OF PERIOD
- ----------- --------- -------- ---------- ---------- -------------
YEAR ENDED JANUARY 29, 1994 NONE
YEAR ENDED JANUARY 30, 1993
ALLOWANCE FOR DOUBTFUL ACCOUNTS $3,381,000 $ 0 $(3,381,000) (3) $ 0 $ 0
YEAR ENDED FEBRUARY 1, 1992:
ALLOWANCE FOR DOUBTFUL ACCOUNTS $2,109,000 $2,806,000 $ 1,416,000 (2) $2,950,000 $3,381,000
(1) Represents uncollected accounts written off, net of recoveries.
(2) Represents reserve established at the date of purchase of the related
accounts receivable (February and October, 1991).
(3) Accounts receivable net of reserve sold December 24, 1992.
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CHARMING SHOPPES, INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
COLUMN A COLUMN B
- --------- ---------
CHARGED TO COSTS & EXPENSES
---------------------------
JANUARY 29 JANUARY 30 FEBRUARY 1
ITEM 1994 1993 1992
- ---- ---- ---- ----
Advertising costs $ 13,242,000 $ 13,058,000 $ 10,709,000
Other costs are not presented as such amounts are less than one percent of
total sales and revenues.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Charming Shoppes, Inc., has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CHARMING SHOPPES, INC.
S / David V. Wachs
-------------------------------------------
By: David V. Wachs
Chairman of the Board
(Chief Executive Officer)
Date: March 30, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
S / David V. Wachs S / Ivan Szeftel
------------------------------------------- ---------------------------------------------------
David V. Wachs, March 30, 1994 Ivan Szeftel, March 30, 1994
Chairman of the Board (Chief Financial Officer)
(Chief Executive Officer)
S / Philip Wachs S / Samuel Sidewater
------------------------------------------- -------------------------------------------
Philip Wachs, March 30, 1994 Samuel Sidewater, March 30, 1994
President and Director
Vice Chairman of the Board
(Chief Operating Officer)
S / Joseph L. Castle II S / Mordechay Kafry
------------------------------------------- -------------------------------------------
Joseph L. Castle II, March 30, 1994 Mordechay Kafry, March 30, 1994
Director Director
S / Eric Specter
-------------------------------------------
Eric Specter, March 30, 1994
(Chief Accounting Officer)