PENNSYLVANIA
|
23-1721355
|
|||
(State
or other jurisdiction of incorporation
or organization)
|
(I.R.S.
Employer Identification
No.)
|
450
WINKS LANE, BENSALEM, PA 19020
|
(215)
245-9100
|
|||
(Address
of principal executive offices) (Zip Code)
|
(Registrant’s
telephone number, including Area Code)
|
Page
|
||
PART
I.
|
||
Item
1.
|
2
|
|
2
|
||
3
|
||
4
|
||
5
|
||
6
|
||
Item
2.
|
20
|
|
20
|
||
22
|
||
23
|
||
24
|
||
25
|
||
32
|
||
35
|
||
36
|
||
37
|
||
Item
3.
|
37
|
|
Item
4.
|
37
|
|
PART
II.
|
||
Item
1.
|
38
|
|
Item
2.
|
38
|
|
Item
6.
|
39
|
|
41
|
October
29,
|
January
29,
|
||||||
(Dollars
in thousands, except share amounts)
|
2005
|
2005
|
|||||
(Unaudited)
|
|||||||
ASSETS
|
|||||||
Current
assets
|
|||||||
Cash
and cash equivalents
|
$
|
151,676
|
$
|
273,049
|
|||
Available-for-sale
securities
|
86,465
|
52,857
|
|||||
Merchandise
inventories
|
474,484
|
285,120
|
|||||
Deferred
advertising
|
29,128
|
0
|
|||||
Deferred
taxes
|
32,489
|
15,500
|
|||||
Prepayments
and other
|
93,934
|
86,382
|
|||||
Total
current assets
|
868,176
|
712,908
|
|||||
Property,
equipment, and leasehold improvements - at cost
|
863,287
|
786,028
|
|||||
Less
accumulated depreciation and amortization
|
511,885
|
465,365
|
|||||
Net
property, equipment, and leasehold improvements
|
351,402
|
320,663
|
|||||
Trademarks
and other intangible assets
|
248,908
|
169,818
|
|||||
Goodwill
|
153,651
|
66,666
|
|||||
Available-for-sale
securities
|
240
|
240
|
|||||
Other
assets
|
40,928
|
33,476
|
|||||
Total
assets
|
$
|
1,663,305
|
$
|
1,303,771
|
|||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
Current
liabilities
|
|||||||
Short-term
borrowings
|
$
|
50,000
|
$
|
0
|
|||
Accounts
payable
|
188,879
|
127,819
|
|||||
Accrued
expenses
|
210,823
|
154,681
|
|||||
Income
taxes payable
|
13,000
|
0
|
|||||
Current
portion - long-term debt
|
15,249
|
16,419
|
|||||
Total
current liabilities
|
477,951
|
298,919
|
|||||
Deferred
taxes and other non-current liabilities
|
152,443
|
101,743
|
|||||
Long-term
debt
|
245,227
|
208,645
|
|||||
Stockholders’
equity
|
|||||||
Common
Stock $.10 par value:
|
|||||||
Authorized
- 300,000,000 shares
|
|||||||
Issued
- 133,177,902 shares and 132,063,290 shares, respectively
|
13,318
|
13,206
|
|||||
Additional
paid-in capital
|
269,059
|
249,485
|
|||||
Treasury
stock at cost - 12,265,993 shares
|
(84,136
|
)
|
(84,136
|
)
|
|||
Deferred
employee compensation
|
(15,382
|
)
|
(8,715
|
)
|
|||
Accumulated
other comprehensive loss
|
(2
|
)
|
0
|
||||
Retained
earnings
|
604,827
|
524,624
|
|||||
Total
stockholders’ equity
|
787,684
|
694,464
|
|||||
Total
liabilities and stockholders’ equity
|
$
|
1,663,305
|
$
|
1,303,771
|
|||
See
Notes to Condensed Consolidated Financial
Statements
|
Thirteen
Weeks Ended
|
|||||||
October
29,
|
October
30,
|
||||||
(In
thousands, except per share amounts)
|
2005
|
2004
|
|||||
(Restated)
|
|||||||
Net
sales
|
$
|
663,322
|
$
|
541,759
|
|||
Cost
of goods sold, buying, catalog, and occupancy expenses
|
461,451
|
378,533
|
|||||
Selling,
general, and administrative expenses
|
181,275
|
149,769
|
|||||
Expenses
related to cost reduction plan
|
0
|
605
|
|||||
Total
operating expenses
|
642,726
|
528,907
|
|||||
Income
from operations
|
20,596
|
12,852
|
|||||
Other
income
|
1,754
|
783
|
|||||
Interest
expense
|
(4,797
|
)
|
(3,876
|
)
|
|||
Income
before income taxes
|
17,553
|
9,759
|
|||||
Income
tax provision
|
6,791
|
3,406
|
|||||
Net
income
|
10,762
|
6,353
|
|||||
Other
comprehensive (loss)/income, net of tax
|
|||||||
Unrealized
(losses)/gains on available-for-sale securities, net of income tax
benefit/(provision) of $1 in 2005 and ($49) in 2004
|
(2
|
)
|
77
|
||||
Reclassification
of amortization of deferred loss on termination of derivative,
net of income tax benefit of $6 in 2004
|
0
|
11
|
|||||
Total
other comprehensive (loss)/income, net of tax
|
(2
|
)
|
88
|
||||
Comprehensive
income
|
$
|
10,760
|
$
|
6,441
|
|||
Basic
net income per share
|
$
|
.09
|
$
|
.05
|
|||
Diluted
net income per share
|
$
|
.09
|
$
|
.05
|
|||
See
Notes to Condensed Consolidated Financial
Statements
|
Thirty-nine
Weeks Ended
|
|||||||
October
29,
|
October
30,
|
||||||
(In
thousands, except per share amounts)
|
2005
|
2004
|
|||||
(Restated)
|
|||||||
Net
sales
|
$
|
1,954,937
|
$
|
1,746,234
|
|||
Cost
of goods sold, buying, catalog, and occupancy expenses
|
1,331,761
|
1,211,820
|
|||||
Selling,
general, and administrative expenses
|
489,280
|
431,260
|
|||||
Expenses
related to cost reduction plan
|
0
|
605
|
|||||
Total
operating expenses
|
1,821,041
|
1,643,685
|
|||||
Income
from operations
|
133,896
|
102,549
|
|||||
Other
income
|
6,741
|
1,592
|
|||||
Interest
expense
|
(13,434
|
)
|
(11,639
|
)
|
|||
Income
before income taxes
|
127,203
|
92,502
|
|||||
Income
tax provision
|
47,000
|
32,841
|
|||||
Net
income
|
80,203
|
59,661
|
|||||
Other
comprehensive (loss)/income, net of tax
|
|||||||
Unrealized
(losses)/gains on available-for-sale securities, net of income tax
benefit/(provision) of $1 in 2005 and ($147) in 2004
|
(2
|
)
|
230
|
||||
Reclassification
of amortization of deferred loss on termination of derivative, net
of
income tax benefit of $69 in 2004
|
0
|
128
|
|||||
Total
other comprehensive (loss)/income, net of tax
|
(2
|
)
|
358
|
||||
Comprehensive
income
|
$
|
80,201
|
$
|
60,019
|
|||
Basic
net income per share
|
$
|
.67
|
$
|
.52
|
|||
Diluted
net income per share
|
$
|
.61
|
$
|
.48
|
|||
See
Notes to Condensed Consolidated Financial
Statements
|
Thirty-nine
Weeks Ended
|
|||||||
October
29,
|
October
30,
|
||||||
(In
thousands)
|
2005
|
2004
|
|||||
(Restated)
|
|||||||
Operating
activities
|
|||||||
Net
income
|
$
|
80,203
|
$
|
59,661
|
|||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|||||||
Depreciation
and amortization
|
65,036
|
57,681
|
|||||
Deferred
income taxes
|
(4,420
|
)
|
3,536
|
||||
Tax
benefit related to stock plans
|
2,365
|
4,187
|
|||||
Net
(gain)/loss from disposition of capital assets
|
(785
|
)
|
646
|
||||
Gain
from securitization of Catherines portfolio
|
(759
|
)
|
0
|
||||
Loss
on sales of available-for-sale securities
|
0
|
185
|
|||||
Changes
in operating assets and liabilities:
|
|||||||
Merchandise
inventories
|
(118,126
|
)
|
(68,960
|
)
|
|||
Accounts
payable
|
48,691
|
31,467
|
|||||
Deferred
advertising
|
(17,249
|
)
|
0
|
||||
Prepayments
and other
|
8,902
|
(19,649
|
)
|
||||
Accrued
expenses and other
|
28,183
|
18,862
|
|||||
Income
taxes payable
|
8,963
|
828
|
|||||
Net
cash provided by operating activities
|
101,004
|
88,444
|
|||||
Investing
activities
|
|||||||
Investment
in capital assets
|
(68,177
|
)
|
(42,078
|
)
|
|||
Proceeds
from sales of capital assets
|
2,432
|
0
|
|||||
Proceeds
from sales of available-for-sale securities
|
17,714
|
45,571
|
|||||
Gross
purchases of available-for-sale securities
|
(51,325
|
)
|
(30,887
|
)
|
|||
Acquisition
of Crosstown Traders, Inc., net of cash acquired
|
(256,702
|
)
|
0
|
||||
Purchase
of Catherines
receivables portfolio
|
(56,582
|
)
|
0
|
||||
Securitization
of Catherines
receivables portfolio
|
56,582
|
0
|
|||||
Securitization
of Crosstown apparel-related receivables
|
50,000
|
0
|
|||||
Increase
in other assets
|
(2,455
|
)
|
(5,610
|
)
|
|||
Net
cash used by investing activities
|
(308,513
|
)
|
(33,004
|
)
|
|||
Financing
activities
|
|||||||
Proceeds
from short-term borrowings
|
261,311
|
150,298
|
|||||
Repayments
of short-term borrowings
|
(211,311
|
)
|
(150,298
|
)
|
|||
Proceeds
from long-term borrowings
|
50,000
|
13,098
|
|||||
Repayments
of long-term borrowings
|
(18,480
|
)
|
(12,813
|
)
|
|||
Payments
of deferred financing costs
|
(1,371
|
)
|
(350
|
)
|
|||
Proceeds
from issuance of common stock
|
5,987
|
23,722
|
|||||
Net
cash provided by financing activities
|
86,136
|
23,657
|
|||||
Increase
(decrease) in cash and cash equivalents
|
(121,373
|
)
|
79,097
|
||||
Cash
and cash equivalents, beginning of period
|
273,049
|
123,781
|
|||||
Cash
and cash equivalents, end of period
|
$
|
151,676
|
$
|
202,878
|
|||
Non-cash
financing and investing activities
|
|||||||
Equipment
acquired through capital leases
|
$
|
3,892
|
$
|
5,399
|
|||
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
|||||||
See
Notes to Condensed Consolidated Financial
Statements
|
Thirteen
Weeks Ended
|
Thirty-nine
Weeks Ended
|
||||||||||||
(In
thousands, except per share amounts)
|
October
29,
2005
|
October
30,
2004
|
October
29,
2005
|
October
30,
2004
|
|||||||||
(Restated)
|
(Restated)
|
||||||||||||
Net
income as reported
|
$
|
10,762
|
$
|
6,353
|
$
|
80,203
|
$
|
59,661
|
|||||
Add
stock-based employee compensation using intrinsic value method,
net of
income taxes
|
1,140
|
317
|
3,033
|
1,081
|
|||||||||
Less
stock-based employee compensation using fair value method, net
of income
taxes
|
(1,159
|
)
|
(982
|
)
|
(3,323
|
)
|
(2,780
|
)
|
|||||
Pro
forma net income
|
$
|
10,743
|
$
|
5,688
|
$
|
79,913
|
$
|
57,962
|
|||||
Basic
net income per share:
|
|||||||||||||
As
reported
|
$
|
.09
|
$
|
.05
|
$
|
.67
|
$
|
.52
|
|||||
Pro
forma
|
.09
|
.05
|
.67
|
.50
|
|||||||||
Diluted
net income per share:
|
|||||||||||||
As
reported
|
.09
|
.05
|
.61
|
.48
|
|||||||||
Pro
forma
|
.09
|
.05
|
.61
|
.46
|
Thirteen
Weeks Ended October 30, 2004
|
||||||||||
As
Previously
|
As
|
|||||||||
(In
thousands, except per share amounts)
|
Reported
|
Adjustments
|
Restated
|
|||||||
Condensed
Consolidated Statement of Operations:
|
||||||||||
Cost
of goods sold, buying, catalog, and occupancy expenses
|
$
|
377,457
|
$
|
1,076
|
$
|
378,533
|
||||
Income
tax provision
|
3,803
|
(397
|
)
|
3,406
|
||||||
Net
income
|
7,032
|
(679
|
)
|
6,353
|
||||||
Basic
net income per share
|
$
|
.06
|
$
|
(.01
|
)
|
$
|
.05
|
|||
Diluted
net income per share
|
|
.06
|
|
(.01
|
)
|
|
.05
|
Thirty-nine
Weeks Ended October 30, 2004
|
||||||||||
As
Previously
|
As
|
|||||||||
(In
thousands, except per share amounts)
|
Reported
|
Adjustments
|
Restated
|
|||||||
Condensed
Consolidated Statement of Operations:
|
||||||||||
Cost
of goods sold, buying, catalog, and occupancy expenses
|
$
|
1,208,592
|
$
|
3,228
|
$
|
1,211,820
|
||||
Income
tax provision
|
34,032
|
(1,191
|
)
|
32,841
|
||||||
Net
income
|
61,698
|
(2,037
|
)
|
59,661
|
||||||
Basic
net income per share
|
$
|
.53
|
$
|
(.01
|
)
|
$
|
.52
|
|||
Diluted
net income per share
|
|
.49
|
|
(.01
|
)
|
|
.48
|
|||
Thirty-nine
Weeks Ended October 30, 2004
|
||||||||||
As
Previously
|
As
|
|||||||||
(In
thousands)
|
Reported(1)
|
Adjustments
|
Restated
|
|||||||
Condensed
Consolidated Statement of Cash Flows:
|
||||||||||
Operating
activities:
|
||||||||||
Net
income
|
$
|
61,698
|
$
|
(2,037
|
)
|
$
|
59,661
|
|||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||
Depreciation
and amortization
|
51,426
|
6,255
|
57,681
|
|||||||
Deferred
income taxes
|
4,727
|
(1,191
|
)
|
3,536
|
||||||
Changes
in operating assets and liabilities:
|
||||||||||
Accrued
expenses and other
|
14,987
|
3,875
|
18,862
|
|||||||
Net
cash provided by operating activities
|
81,542
|
6,902
|
88,444
|
|||||||
Investing
activities:
|
||||||||||
Investment
in capital assets
|
(35,176
|
)
|
(6,902
|
)
|
(42,078
|
)
|
||||
Net
cash used by investing activities
|
(26,102
|
)
|
(6,902
|
)
|
(33,004
|
)
|
||||
___________________
|
||||||||||
(1) Certain
amounts have been reclassified to conform to the current-year
presentation.
|
Purchase
|
||||
Price
|
||||
(In
thousands)
|
Allocation
|
|||
Fair
value of assets acquired
|
$
|
177,256
|
||
Fair
value of liabilities acquired
|
(56,598
|
)
|
||
Intangible
assets subject to amortization
|
10,700
|
|||
Intangible
assets not subject to amortization
|
70,000
|
|||
Deferred
tax effect of acquisition
|
(25,826
|
)
|
||
Goodwill
|
86,985
|
|||
Total
purchase price
|
$
|
262,517
|
Thirteen
|
||||||||||
Weeks
Ended
|
Thirty-nine
Weeks Ended
|
|||||||||
October
30,
|
October
29,
|
October
30,
|
||||||||
(In
thousands, except per share amounts)
|
2004
|
2005
|
2004
|
|||||||
(Restated)
|
(Restated)
|
|||||||||
Net
sales
|
$
|
628,702
|
$
|
2,103,952
|
$
|
2,032,800
|
||||
Net
income
|
6,048
|
77,150
|
57,948
|
|||||||
Net
income per share:
|
||||||||||
Basic
|
$
|
.05
|
$
|
.65
|
$
|
.50
|
||||
Diluted
|
.05
|
.59
|
.46
|
October
29,
|
January
29,
|
||||||
(In
thousands)
|
2005
|
2005
|
|||||
Trademarks,
tradenames, and internet domain names
|
$
|
238,800
|
$
|
168,800
|
|||
Customer
lists, customer relationships, and covenant not to compete
|
14,000
|
3,300
|
|||||
Total
at cost
|
252,800
|
172,100
|
|||||
Less
accumulated amortization of customer lists, customer relationships,
and
covenant not to compete
|
3,892
|
2,282
|
|||||
Net
trademarks and other intangible assets
|
$
|
248,908
|
$
|
169,818
|
October
29,
|
January
29,
|
||||||
(In
thousands)
|
2005
|
2005
|
|||||
Short-term
borrowings
|
|||||||
Revolving
credit facility
|
$
|
50,000
|
$
|
0
|
|||
Long-term
debt
|
|||||||
4.75%
Senior Convertible Notes, due June 2012
|
$
|
150,000
|
$
|
150,000
|
|||
Revolving
credit facility
|
50,000
|
0
|
|||||
Capital
lease obligations
|
27,871
|
34,825
|
|||||
6.07%
mortgage note, due October 2014
|
12,404
|
12,821
|
|||||
6.53%
mortgage note, due November 2012
|
9,800
|
10,850
|
|||||
7.77%
mortgage note, due December 2011
|
9,183
|
9,564
|
|||||
Variable
rate mortgage note, due March 2006
|
0
|
5,605
|
|||||
Other
long-term debt
|
1,218
|
1,399
|
|||||
Total
long-term debt
|
260,476
|
225,064
|
|||||
Less
current portion
|
15,249
|
16,419
|
|||||
Long-term
debt
|
$
|
245,227
|
$
|
208,645
|
Thirty-nine
|
||||
Weeks
Ended
|
||||
October
29,
|
||||
(Dollars
in thousands)
|
2005
|
|||
Total
stockholders’ equity, beginning of period
|
$
|
694,464
|
||
Net
income
|
80,203
|
|||
Issuance
of common stock (1,114,612 shares)
|
5,987
|
|||
Tax
benefit related to stock plans
|
2,365
|
|||
Unrealized
losses on available-for-sale securities, net of tax
|
(2
|
)
|
||
Amortization
of deferred compensation expense
|
4,667
|
|||
Total
stockholders’ equity, end of period
|
$
|
787,684
|
Thirteen
Weeks Ended
|
Thirty-nine
Weeks Ended
|
||||||||||||
October
29,
|
October
30,
|
October
29,
|
October
30,
|
||||||||||
(In
thousands)
|
2005
|
2004
|
2005
|
2004
|
|||||||||
(Restated)
|
(Restated)
|
||||||||||||
Basic
weighted average common shares outstanding
|
120,102
|
117,217
|
119,513
|
115,474
|
|||||||||
Dilutive
effect of assumed conversion of convertible notes
|
15,182
|
0
|
15,182
|
15,182
|
|||||||||
Dilutive
effect of stock options and awards
|
2,268
|
1,416
|
1,939
|
1,744
|
|||||||||
Diluted
weighted average common shares and equivalents outstanding
|
137,552
|
118,633
|
136,634
|
132,400
|
|||||||||
Net
income
|
$
|
10,762
|
$
|
6,353
|
$
|
80,203
|
$
|
59,661
|
|||||
Decrease
in interest expense from assumed conversion of notes, net of income
taxes
|
1,128
|
0
|
3,385
|
3,404
|
|||||||||
Net
income used to determine diluted net income per share
|
$
|
11,890
|
$
|
6,353
|
$
|
83,588
|
$
|
63,065
|
Thirteen
Weeks Ended
|
Thirty-nine
Weeks Ended
|
||||||||||||
October
29,
|
October
30,
|
October
29,
|
October
30,
|
||||||||||
(In
thousands, except per share amounts)
|
2005
|
2004
|
2005
|
2004
|
|||||||||
Options
with weighted average exercise price greater than market price, excluded
from computation of net income per share:
|
|||||||||||||
Number
of shares
|
0
|
446
|
0
|
432
|
|||||||||
Weighted
average exercise price per share
|
$
|
0.00
|
$
|
8.23
|
$
|
0.00
|
$
|
8.28
|
Retail
|
Direct-to-
|
Corporate
|
|||||||||||
(in
thousands)
|
Stores
|
Consumer(1)
|
and
Other
|
Consolidated
|
|||||||||
Thirteen
weeks ended October 29, 2005
|
|||||||||||||
Net
sales
|
$
|
568,922
|
$
|
93,613
|
$
|
787
|
$
|
663,322
|
|||||
Depreciation
and amortization
|
10,877
|
440
|
11,824
|
23,141
|
|||||||||
Income
before interest and taxes
|
30,213
|
2,444
|
(10,307
|
)
|
22,350
|
||||||||
Interest
expense
|
(4,797
|
)
|
(4,797
|
)
|
|||||||||
Income
tax provision
|
(6,791
|
)
|
(6,791
|
)
|
|||||||||
Net
income
|
30,213
|
2,444
|
(21,895
|
)
|
10,762
|
||||||||
Capital
expenditures
|
23,398
|
1,048
|
6,338
|
30,784
|
|||||||||
Thirty-nine
weeks ended October 29, 2005
|
|||||||||||||
Net
sales
|
$
|
1,810,907
|
$
|
143,052
|
$
|
978
|
$
|
1,954,937
|
|||||
Depreciation
and amortization
|
31,159
|
717
|
33,160
|
65,036
|
|||||||||
Income
before interest and taxes
|
162,455
|
2,510
|
(24,328
|
)
|
140,637
|
||||||||
Interest
expense
|
(13,434
|
)
|
(13,434
|
)
|
|||||||||
Income
tax provision
|
(47,000
|
)
|
(47,000
|
)
|
|||||||||
Net
income
|
162,455
|
2,510
|
(84,762
|
)
|
80,203
|
||||||||
Capital
expenditures
|
51,249
|
1,345
|
15,583
|
68,177
|
|||||||||
As
of October 29, 2005
|
|||||||||||||
Total
assets
|
$
|
852,798
|
$
|
316,061
|
$
|
494,446
|
$
|
1,663,305
|
|||||
Thirteen
weeks ended October 30, 2004(2)
|
|||||||||||||
Net
sales
|
$
|
540,825
|
$
|
934
|
$
|
541,759
|
|||||||
Depreciation
and amortization
|
10,295
|
8,833
|
19,128
|
||||||||||
Income
before interest and taxes
|
25,181
|
(11,546
|
)
|
13,635
|
|||||||||
Interest
expense
|
(3,876
|
)
|
(3,876
|
)
|
|||||||||
Income
tax provision
|
(3,406
|
)
|
(3,406
|
)
|
|||||||||
Net
income
|
25,181
|
(18,828
|
)
|
6,353
|
|||||||||
Capital
expenditures
|
12,269
|
5,924
|
18,193
|
||||||||||
Thirty-nine
weeks ended October 30, 2004(2)
|
|||||||||||||
Net
sales
|
$
|
1,744,948
|
$
|
1,286
|
$
|
1,746,234
|
|||||||
Depreciation
and amortization
|
32,384
|
25,297
|
57,681
|
||||||||||
Income
before interest and taxes
|
132,439
|
(28,298
|
)
|
104,141
|
|||||||||
Interest
expense
|
(11,639
|
)
|
(11,639
|
)
|
|||||||||
Income
tax provision
|
(32,841
|
)
|
(32,841
|
)
|
|||||||||
Net
income
|
132,439
|
(72,778
|
)
|
59,661
|
|||||||||
Capital
expenditures
|
23,537
|
18,541
|
42,078
|
||||||||||
____________________
|
|||||||||||||
(1) From
date of acquisition of Crosstown Traders, Inc. on June 2,
2005.
|
|||||||||||||
(2) Results
have been restated - see“Note
2. Restatement of Financial Statements”
above.
|
· |
Our
business is dependent upon our being able to accurately predict rapidly
changing fashion trends, customer preferences, and other fashion-related
factors, which we may not be able to successfully accomplish in the
future.
|
· |
A
slowdown in the United States economy, an uncertain economic outlook,
and
escalating energy costs could lead to reduced consumer demand for
our
products in the future.
|
· |
The
women’s specialty retail apparel industry is highly competitive and we
may
be unable to compete successfully against existing or future
competitors.
|
· |
We
may be unable to successfully integrate the operations of Crosstown
Traders, Inc. with the operations of Charming Shoppes, Inc. In addition,
we cannot assure the successful implementation of our business plan
for
Crosstown Traders, Inc.
|
· |
We
cannot assure the successful implementation of our business plan
for
increased profitability and growth in our Retail Stores or
Direct-to-Consumer segments.
|
· |
Our
business plan is largely dependent upon continued growth in the plus-size
women’s apparel market, which may not
occur.
|
· |
We
depend on key personnel, particularly our Chief Executive Officer,
Dorrit
J. Bern, and we may not be able to retain or replace these employees
or
recruit additional qualified
personnel.
|
· |
We
depend on our distribution and fulfillment centers, and could incur
significantly higher costs and longer lead times associated with
distributing our products to our stores and shipping our products
to our
E-commerce and catalog customers if operations at any of these
distribution and fulfillment centers were to be disrupted for any
reason.
|
· |
We
depend on the availability of credit for our working capital needs,
including credit we receive from our suppliers and their agents,
and on
our credit card securitization facilities. If we were unable to obtain
sufficient financing at an affordable cost, our ability to merchandise
our
stores and catalogs would be adversely
affected.
|
· |
We
rely significantly on foreign sources of production and face a variety
of
risks generally associated with doing business in foreign markets
and
importing merchandise from abroad. Such risks include (but are not
necessarily limited to) political instability; imposition of, or
changes
in, duties or quotas; trade restrictions; increased security requirements
applicable to imports; delays in shipping; increased costs of
transportation; and issues relating to compliance with domestic or
international labor standards.
|
· |
Our
Retail Stores and Direct-to-Consumer segments experience seasonal
fluctuations in net sales and operating income. Any decrease in sales
or
margins during our peak sales periods, or in the availability of
working
capital during the months preceding such periods, could have a material
adverse effect on our business. In addition, extreme or unseasonable
weather conditions may have a negative impact on our
sales.
|
· |
Natural
disasters, as well as war, acts of terrorism, or the threat of either
may
negatively impact availability of merchandise and customer traffic
to our
stores, or otherwise adversely affect our
business.
|
· |
We
may be unable to obtain adequate insurance for our operations at
a
reasonable cost.
|
· |
We
may be unable to protect our trademarks and other intellectual property
rights, which are important to our success and our competitive position.
|
· |
We
may be unable to hire and retain a sufficient number of suitable
sales
associates at our stores.
|
· |
Our
manufacturers may be unable to manufacture and deliver merchandise
to us
in a timely manner or to meet our quality
standards.
|
· |
Our
Retail Stores segment sales are dependent upon a high volume of traffic
in
the strip centers and malls in which our stores are located, and
our
future retail store growth is dependent upon the availability of
suitable
locations for new stores.
|
· |
We
may be unable to successfully implement our plan to improve merchandise
assortments in our Retail Stores or Direct-to-Consumer
segments.
|
· |
The
carrying amount and/or useful life of intangible assets related to
acquisitions are subject to periodic valuation tests. An adverse
change in
interest rates or other factors could have a significant impact on
the
results of the valuation tests, resulting in a write-down of the
carrying
value or acceleration of amortization of acquired intangible assets.
|
· |
We
may be unable to manage significant increases in certain costs, including
postage and paper, which could adversely affect our results of
operations.
|
· |
Response
rates to our catalogs and access to new customers could decline,
which
would adversely affect our net sales and results of
operations.
|
· |
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, we are required
to
include our assessment of the effectiveness of our internal control
over
financial reporting in our annual reports. Our independent registered
public accounting firm is also required to attest to whether or not
our
assessment is fairly stated in all material respects and to separately
report on whether or not they believe that we maintained, in all
material
respects, effective internal control over financial reporting. If
we are
unable to maintain effective internal control over financial reporting,
or
if our independent registered public accounting firm is unable to
timely
attest to our assessment, we could be subject to regulatory sanctions
and
a possible loss of public confidence in the reliability of our financial
reporting. Such a failure could result in our inability to provide
timely
and/or reliable financial information and could adversely affect
our
business.
|
Percentage
|
Percentage
|
||||||||||||||||||
Thirteen
Weeks Ended(1)
|
Change
|
Thirty-nine
Weeks Ended(1)
|
Change
|
||||||||||||||||
October
29,
|
October
30,
|
From
Prior
|
October
29,
|
October
30,
|
From
Prior
|
||||||||||||||
2005(2)
|
2004
|
Period
|
2005(2)
|
2004
|
Period
|
||||||||||||||
(Restated)
|
(Restated)
|
||||||||||||||||||
Net
sales
|
100.0
|
%
|
100.0
|
%
|
22.4
|
%
|
100.0
|
%
|
100.0
|
%
|
12.0
|
%
|
|||||||
Cost
of goods sold, buying, catalog, and occupancy expenses
|
69.6
|
69.9
|
21.9
|
68.1
|
69.4
|
9.9
|
|||||||||||||
Selling,
general, and administrative expenses
|
27.3
|
27.6
|
21.0
|
25.0
|
24.7
|
13.5
|
|||||||||||||
Income
from operations
|
3.1
|
2.4
|
60.3
|
6.8
|
5.9
|
30.6
|
|||||||||||||
Other
income
|
0.3
|
0.1
|
124.0
|
0.3
|
0.1
|
323.4
|
|||||||||||||
Interest
expense
|
0.7
|
0.7
|
23.8
|
0.7
|
0.7
|
15.4
|
|||||||||||||
Income
tax provision
|
1.0
|
0.6
|
99.4
|
2.4
|
1.9
|
43.1
|
|||||||||||||
Net
income
|
1.6
|
1.2
|
69.4
|
4.1
|
3.4
|
34.4
|
|||||||||||||
____________________
|
|||||||||||||||||||
(1) Results
may not add due to rounding.
|
|||||||||||||||||||
(2) Includes
the results of operations of Crosstown Traders, Inc. from the date
of
acquisition on June 2, 2005.
|
Thirteen
Weeks Ended
|
Thirty-nine
Weeks Ended
|
||||||||||||
October
29,
|
October
30,
|
October
29,
|
October
30,
|
||||||||||
(In
millions)
|
2005
|
2004
|
2005
|
2004
|
|||||||||
FASHION
BUG®
|
$
|
240.9
|
$
|
236.7
|
$
|
790.6
|
$
|
787.9
|
|||||
LANE
BRYANT®
|
247.1
|
229.9
|
757.2
|
715.6
|
|||||||||
CATHERINES®
|
80.9
|
74.3
|
263.1
|
241.4
|
|||||||||
Total
Retail Stores segment sales
|
568.9
|
540.9
|
1,810.9
|
1,744.9
|
|||||||||
Total
direct-to-consumer segment sales(1)
|
93.6
|
0.0
|
143.0
|
0.0
|
|||||||||
Corporate
and other(2)
|
0.8
|
0.9
|
1.0
|
1.3
|
|||||||||
Total
net sales
|
$
|
663.3
|
$
|
541.8
|
$
|
1,954.9
|
$
|
1,746.2
|
|||||
____________________
|
|||||||||||||
(1) Includes
the results of operations of Crosstown Traders, Inc. from the date
of
acquisition on June 2, 2005.
|
|||||||||||||
(2) Revenue
related to loyalty card
fees.
|
Thirteen
Weeks Ended
|
Thirty-nine
Weeks Ended
|
||||||||||||
October
29,
|
October
30,
|
October
29,
|
October
30,
|
||||||||||
2005
|
2004
|
2005
|
2004
|
||||||||||
Retail
Stores segment
|
|||||||||||||
Increase
(decrease) in comparable store sales(1)
:
|
|||||||||||||
Consolidated
retail stores
|
3
|
%
|
1
|
%
|
2
|
%
|
2
|
%
|
|||||
FASHION
BUG
|
1
|
(3
|
)
|
0
|
2
|
||||||||
CATHERINES
|
9
|
(5
|
)
|
8
|
(5
|
)
|
|||||||
LANE
BRYANT
|
4
|
7
|
2
|
5
|
|||||||||
Sales
from new stores and E-commerce as a percentage of total consolidated
prior-period sales:
|
|||||||||||||
FASHION
BUG
|
2
|
1
|
1
|
1
|
|||||||||
CATHERINES
|
1
|
1
|
1
|
1
|
|||||||||
LANE
BRYANT
|
4
|
3
|
4
|
3
|
|||||||||
Prior-period
sales from closed stores as a percentage of total consolidated
prior-period sales:
|
|||||||||||||
FASHION
BUG
|
(1
|
)
|
(2
|
)
|
(1
|
)
|
(2
|
)
|
|||||
CATHERINES
|
(1
|
)
|
(0
|
)
|
(1
|
)
|
(0
|
)
|
|||||
LANE
BRYANT
|
(1
|
)
|
(1
|
)
|
(1
|
)
|
(1
|
)
|
|||||
Increase
in Retail Stores segment sales
|
5
|
2
|
4
|
3
|
|||||||||
Direct-to-Consumer
segment
|
|||||||||||||
Sales
as a percentage of total consolidated prior-period sales(2)
|
17
|
-
|
8
|
-
|
|||||||||
Increase
in total net sales
|
22
|
2
|
12
|
3
|
|||||||||
____________________
|
|||||||||||||
(1) “Comparable
store sales” is not a measure that has been defined under generally
accepted accounting principles. The method of calculating comparable
store
sales varies across the retail industry and, therefore, our calculation
of
comparable store sales is not necessarily comparable to similarly-titled
measures reported by other companies. We define comparable store
sales as
sales from stores operating in both the current and prior-year periods.
New stores are added to the comparable store sales base 13 months
after
their open date. Sales from stores that are relocated within the
same mall
or strip-center, remodeled, or have a legal square footage change
of less
than 20% are included in the calculation of comparable store sales.
Sales
from stores that are relocated outside the existing mall or strip-center,
or have a legal square footage change of 20% or more, are excluded
from
the calculation of comparable store sales until 13 months after the
relocated store is opened. Stores that are temporarily closed for
a period
of 4 weeks or more are excluded from the calculation of comparable
store
sales for the applicable periods in the year of closure and the subsequent
year. Non-store sales, such as catalog and internet sales, are excluded
from the calculation of comparable store sales.
|
|||||||||||||
(2) Includes
catalog sales and catalog-related E-commerce sales from Crosstown
Traders,
Inc. from the date of acquisition on June 2,
2005.
|
FASHION
|
LANE
|
||||||||||||
BUG
|
BRYANT
|
CATHERINES
|
Total
|
||||||||||
Fiscal
2006 Year-to-Date(1):
|
|||||||||||||
Stores
at January 29, 2005
|
1,028
|
722
|
471
|
2,221
|
|||||||||
Stores
opened
|