Edgar Filing: CHARMING SHOPPES INC

form10qmay22009.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 2, 2009

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _______________

Commission File No. 000-07258

CHARMING SHOPPES, INC.

(Exact name of registrant as specified in its charter)

	PENNSYLVANIA		23-1721355
	(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

	3750 STATE ROAD, BENSALEM, PA 19020		(215) 245-9100
	(Address of principal executive offices) (Zip Code)		(Registrant’s telephone number, including Area Code)

NOT APPLICABLE

(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files):

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act):

Large Accelerated Filer x	Accelerated Filer o
Non-accelerated Filer o	Smaller Reporting Company o

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes o No x

The number of shares outstanding of the issuer’s Common Stock (par value $.10 per share) as of May 29, 2009 was 115,411,047 shares.

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CHARMING SHOPPES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page

PART I.	FINANCIAL INFORMATION	2

Item 1.	Financial Statements (Unaudited)	2

	Condensed Consolidated Balance Sheets
	May 2, 2009 and January 31, 2009	2

	Condensed Consolidated Statements of Operations and Comprehensive Income
	Thirteen weeks ended May 2, 2009 and May 3, 2008	3

	Condensed Consolidated Statements of Cash Flows
	Thirteen weeks ended May 2, 2009 and May 3, 2008	4

	Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

	Forward-looking Statements	26

	Critical Accounting Policies	29

	Recent Developments	30

	Overview	31

	Results of Operations	33

	Liquidity and Capital Resources	39

	Financing	41

	Market Risk	45

	Impact of Recent Accounting Pronouncements	46

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46

Item 4.	Controls and Procedures	46

PART II.	OTHER INFORMATION	47

Item 1.	Legal Proceedings	47

Item 1A.	Risk Factors	47

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49

Item 6.	Exhibits	49

	SIGNATURES	51

	Exhibit Index	52

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CHARMING SHOPPES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	May 2,			January 31,
(In thousands, except share amounts)	2009			2009
				(As Adjusted)

ASSETS
Current assets
Cash and cash equivalents	$	123,885		$	93,759
Available-for-sale securities		400			6,398
Accounts receivable, net of allowances of $6,125 and $6,018		8,021			33,300
Investment in asset-backed securities		86,998			94,453
Merchandise inventories		300,214			268,142
Deferred taxes		3,439			3,439
Prepayments and other		173,485			155,430
Total current assets		696,442			654,921

Property, equipment, and leasehold improvements – at cost		1,072,087			1,076,972
Less accumulated depreciation and amortization		707,519			693,796
Net property, equipment, and leasehold improvements		364,568			383,176

Trademarks and other intangible assets		187,184			187,365
Goodwill		23,436			23,436
Other assets		26,348			28,243
Total assets	$	1,297,978		$	1,277,141

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	145,815		$	99,520
Accrued expenses		155,293			166,631
Current portion – long-term debt		6,463			6,746
Total current liabilities		307,571			272,897

Deferred taxes		47,440			46,197
Other non-current liabilities		186,943			188,470
Long-term debt, net of debt discount of $66,591 and $72,913		223,986			232,722

Stockholders’ equity
Common Stock $.10 par value:
Authorized – 300,000,000 shares
Issued – 153,890,388 shares and 153,482,368 shares		15,389			15,348
Additional paid-in capital		500,258			498,551
Treasury stock at cost – 38,482,213 shares		(347,730	)		(347,730	)
Accumulated other comprehensive income		0			5
Retained earnings		364,121			370,681
Total stockholders’ equity		532,038			536,855
Total liabilities and stockholders’ equity	$	1,297,978		$	1,277,141

See Notes to Condensed Consolidated Financial Statements

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CHARMING SHOPPES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(Unaudited)

	Thirteen Weeks Ended
	May 2,			May 3,
(In thousands, except per share amounts)	2009			2008
				(As Adjusted)

Net sales	$	538,136		$	641,346

Cost of goods sold, buying, catalog, and occupancy expenses		372,599			447,183
Selling, general, and administrative expenses		158,102			186,795
Restructuring and other charges		8,705			3,611
Total operating expenses		539,406			637,589

Income/(loss) from operations		(1,270	)		3,757

Other income		198			515
Gain on repurchase of 1.125% Senior Convertible Notes		4,251			0
Interest expense		(5,020	)		(4,961	)

Loss from continuing operations before income taxes		(1,841	)		(689	)
Income tax provision		4,720			260

Loss from continuing operations		(6,561	)		(949	)

Loss from discontinued operations, net of income tax benefit
of $10,074 in 2008		0			(45,894	)

Net loss		(6,561	)		(46,843	)

Other comprehensive loss, net of tax
Unrealized losses on available-for-sale securities, net of income tax
benefit of $15 in 2008		(5	)		(25	)

Comprehensive loss	$	(6,566	)	$	(46,868	)

Basic net loss per share:
Loss from continuing operations	$	(.06	)	$	(.01	)
Loss from discontinued operations		(.00	)		(.40	)
Net loss	$	(.06	)	$	(.41	)

Diluted net loss per share:
Loss from continuing operations	$	(.06	)	$	(.01	)
Loss from discontinued operations		(.00	)		(.40	)
Net loss	$	(.06	)	$	(.41	)

See Notes to Condensed Consolidated Financial Statements

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CHARMING SHOPPES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Thirteen Weeks Ended
	May 2,			May 3,
(In thousands)	2009			2008
				(As Adjusted)

Operating activities
Net loss	$	(6,561	)	$	(46,843	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization		20,524			27,096
Accretion of discount on 1.125% Senior Convertible Notes		2,884			2,684
Estimated loss on disposition of discontinued operations		0			45,251
Deferred income taxes		1,246			(2,022	)
Stock-based compensation		1,710			2,898
Gain on repurchase of 1.125% Senior Convertible Notes		(4,251	)		0
Write-down of deferred taxes related to stock-based compensation		0			(263	)
Write-down of capital assets		3,828			1,919
Net loss from disposition of capital assets		143			558
Net loss/(gain) from securitization activities		1,225			(367	)
Changes in operating assets and liabilities
Accounts receivable, net		25,279			25,345
Merchandise inventories		(32,072	)		(39,060	)
Accounts payable		46,295			30,864
Prepayments and other		(11,547	)		(3,314	)
Accrued expenses and other		(13,464	)		1,414
Net cash provided by operating activities		35,239			46,160

Investing activities
Investment in capital assets		(4,702	)		(22,014	)
Gross purchases of securities		0			(12,636	)
Proceeds from sales of securities		7,471			19,404
(Increase)/decrease in other assets		(449	)		(36	)
Net cash provided/(used) by investing activities		2,320			(15,282	)

Financing activities
Proceeds from long term borrowings		0			87
Repayments of long-term borrowings		(1,841	)		(2,271	)
Repurchase of 1.125% Senior Convertible Notes		(5,631	)		0
Payments of deferred financing costs		0			(45	)
Purchases of treasury stock		0			(10,969	)
Net proceeds from shares issued under employee stock plans		39			69
Net cash used by financing activities		(7,433	)		(13,129	)

Increase in cash and cash equivalents		30,126			17,749
Cash and cash equivalents, beginning of period		93,759			61,842
Cash and cash equivalents, end of period	$	123,885		$	79,591

Non-cash financing and investing activities
Assets acquired through capital leases	$	0		$	1,793

See Notes to Condensed Consolidated Financial Statements

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CHARMING SHOPPES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Condensed Consolidated Financial Statements

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). In our opinion, we have made all adjustments (which, except as otherwise disclosed in these notes, include only normal recurring adjustments) necessary to present fairly our financial position, results of operations and comprehensive income, and cash flows. Certain prior-year amounts in the condensed consolidated statements of cash flows have been reclassified to conform to the current-year presentation. We have condensed or omitted certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles. These financial statements and related notes should be read in conjunction with our financial statements and related notes included in our January 31, 2009 Annual Report on Form 10-K. The results of operations for the thirteen weeks ended May 2, 2009 and May 3, 2008 are not necessarily indicative of operating results for the full fiscal year.

As used in these notes, the term “Fiscal 2010” refers to our fiscal year ending January 30, 2010 and the term “Fiscal 2009” refers to our fiscal year ended January 31, 2009. The term “Fiscal 2010 First Quarter” refers to our fiscal quarter ended May 2, 2009 and the term “Fiscal 2009 First Quarter” refers to our fiscal quarter ended May 3, 2008. The term “Fiscal 2010 Second Quarter” refers to our fiscal quarter ending August 1, 2009, the term “Fiscal 2009 Third Quarter” refers to our fiscal quarter ended November 1, 2008, and the term “Fiscal 2009 Fourth Quarter” refers to our fiscal quarter ended January 31, 2009. The terms “the Company,” “we,” “us,” and “our” refer to Charming Shoppes, Inc. and, where applicable, our consolidated subsidiaries.

Change in Accounting Principle

The accompanying condensed consolidated balance sheet as of January 31, 2009 and the condensed consolidated statement of operations and comprehensive income for the thirteen weeks ended May 3, 2008 have been adjusted to reflect the retrospective adoption as of February 1, 2009 of FASB Staff Position (“FSP”) APB 14-1 “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlements).” Our 1.125% Senior Convertible Notes due May 2014 (the “1.125% Notes”) are within the scope of FSP APB 14-1. See “Note 4. Long-term Debt” below for further information related to our adoption of FSP APB 14-1.

In connection with the adoption of FSP APB 14-1 we identified an error related to the accounting for deferred taxes for a purchased call option which was entered into contemporaneously with the issuance of our 1.125% Notes in Fiscal 2008. Concurrent with the issuance of the Notes we also entered into a series of hedge transactions, which included the purchase of a call option with a cost of approximately $90,500,000. The cost of the call option was accounted for as an equity transaction in our financial statements. For income tax purposes the cost of the call option is treated as original issue discount (“OID”) and amortized over the life of the Notes. We were recording the resulting tax benefit in our financial statements as an increase to additional paid-in capital, as the tax benefit was reported in our annual income tax returns. However, the treatment of the call option as OID for income tax purposes created a book-tax basis difference on the issuance date of the debt for which a deferred tax asset of approximately $33,000,000 should have been recognized, with a corresponding increase to additional paid-in capital.

During Fiscal 2009, based on our evaluation of the realization of deferred tax assets and negative evidence provided by recent losses, we recognized a non-cash income tax provision to establish a full valuation allowance against our net deferred tax assets. Accordingly, the understatement of deferred tax assets resulted in an understatement of the valuation allowance for deferred tax assets and the income tax provision in Fiscal 2009 of approximately $30,000,000.

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CHARMING SHOPPES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 1. Condensed Consolidated Financial Statements (Continued)

In evaluating these errors we considered the requirements in FASB Statement of Financial Accounting Standards (“SFAS”) No. 154, “Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3,” SEC Staff Accounting Bulletin No. 99, “Materiality,” and Accounting Principles Board (“APB”) Opinion No. 28, “Interim Financial Reporting.” We considered both the quantitative and qualitative factors in evaluating the materiality of the errors and concluded that the errors are not material to the Fiscal 2008 and Fiscal 2009 financial statements. Accordingly, we have not restated our previously issued financial statements to correct these errors. However, as discussed below, the correction of these errors has been considered when adjusting the historical financial statements for the retrospective application of FSP APB 14-1.

In accordance with FSP APB 14-1, which requires retrospective application in all periods presented, the 1.125% Notes are separated into their debt and equity components. The carrying amount of the liability component is determined by measuring the fair value of a similar liability that does not have an associated equity component. The carrying amount of the equity component represented by the embedded conversion option is then determined by deducting the fair value of the liability component from the initial proceeds ascribed to the convertible debt instrument as a whole. Upon measuring the liability in accordance with FSP APB 14-1, we determined that the tax basis and book basis of the debt are substantially the same; therefore the effects of the aforementioned financial statement errors in Fiscal 2008 and 2009 related to deferred income taxes and income tax expense were substantially offset by the effects of adopting FSP APB 14-1.

Discontinued Operations

On April 25, 2008 we announced that our Board of Directors began exploring a broad range of operating and strategic alternatives for our non-core misses apparel catalog titles (collectively, “Crosstown Traders”) in order to provide a greater focus on our core brands and to enhance shareholder value. Crosstown Traders met the requirements of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” to be accounted for as held for sale. Accordingly, the results of operations of Crosstown Traders were reported as discontinued operations in our consolidated statements of operations as of the beginning of the Fiscal 2009 First Quarter. In August 2008 we entered into a definitive agreement to sell the Crosstown Traders non-core misses apparel catalogs and the sale was completed in September 2008. Crosstown Traders’ operations have been eliminated from our financial statements as of the date of sale.

We have also announced our plans to explore the sale of our FIGI’S® Gifts in Good Taste catalog business based in Wisconsin. The results of operations of FIGI’S are not reported as discontinued operations as they have not met the requirements of SFAS No. 144.

Results from discontinued operations for the thirteen weeks ended May 3, 2008 (as restated) were as follows:

(In thousands)

Net sales	$	64,679

Loss from discontinued operations	$	(55,968	)
Income tax benefit		10,074
Loss from discontinued operations, net of income tax benefit	$	(45,894	)

The loss from discontinued operations includes an estimated loss on disposition of $39,170,000 ($(.34) per diluted share), net of a tax benefit of $6,081,000.

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CHARMING SHOPPES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 1. Condensed Consolidated Financial Statements (Continued)

The financial information for the Fiscal 2009 First Quarter included in these Notes to Condensed Consolidated Financial Statements reflects only the results of our continuing operations.

Segment Reporting

We operate and report in two segments: Retail Stores and Direct-to-Consumer. We determine our operating segments based on the way our chief operating decision-makers review our results of operations.

We consider our retail stores and store-related e-commerce as operating segments that are similar in terms of economic characteristics, production processes, and operations. Accordingly, we have aggregated our retail stores and store-related e-commerce into a single reporting segment. The Retail Stores segment derives its revenues from sales through retail stores and store-related e-commerce sales under our LANE BRYANT® (including LANE BRYANT OUTLET®), FASHION BUG®, CATHERINES PLUS SIZES®, and PETITE SOPHISTICATE OUTLET® brands. We include sales and operating profit by brand in our Management’s Discussion and Analysis of Results of Operations in order to provide additional information for our Retail Stores segment.

Our catalog and catalog-related e-commerce operations, excluding discontinued operations, are separately reported under the Direct-to-Consumer segment. The Direct-to-Consumer segment derives its revenues from catalog sales and catalog-related e-commerce sales under our LANE BRYANT WOMAN® and FIGI’S titles and e-commerce sales under our SHOETRADER.COM® website. During Fiscal 2009 we decided to discontinue our LANE BRYANT WOMAN catalog and SHOETRADER.COM website, which we expect to complete by the end of the Fiscal 2010 Second Quarter. See “Discontinued Operations” above and “Note 10. Segment Reporting” below for further information regarding our discontinued operations and segment reporting.

Stock-based Compensation

We have various stock-based compensation plans under which we are currently granting awards, which are more fully described in “Item 8. Financial Statements and Supplementary Data; Note 11. Stock-Based Compensation Plans” in our January 31, 2009 Annual Report on Form 10-K.

Shares available for future grants under our stock-based compensation plans as of May 2, 2009:

2004 Stock Award and Incentive Plan			2,248,752
2003 Non-Employee Directors Compensation Plan			100,397
1994 Employee Stock Purchase Plan			712,512
1988 Key Employee Stock Option Plan			113,269

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CHARMING SHOPPES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 1. Condensed Consolidated Financial Statements (Continued)

Stock option and stock appreciation rights activity for the thirteen weeks ended May 2, 2009:

											Aggregate
				Average							Intrinsic
	Option			Option		Option Prices					Value(1)
	Shares			Price		Per Share						(000’s)

Outstanding at January 31, 2009		3,292,385		$	5.09	$	1.00	–	$	13.84	$	0
Granted – option price equal to market price		4,652,300			1.66		0.99	–		2.15
Canceled/forfeited		(301,544	)		4.53		1.00	–		6.81
Exercised		(434	)		1.00		1.00	–		1.00		0	(2)
Outstanding at May 2, 2009		7,642,707		$	3.03	$	0.99	–	$	13.84	$	3,397
Exercisable at May 2, 2009		1,493,339		$	6.40	$	1.00	–	$	13.84	$	0
____________________
(1) Aggregate market value less aggregate exercise price.
(2) As of date of exercise.

Stock-based compensation expense includes compensation cost for (i) all partially-vested stock-based awards granted prior to the beginning of Fiscal 2007, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” and (ii) all stock-based awards granted subsequent to the beginning of Fiscal 2007, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”), a revision of SFAS No. 123. Current grants of stock-based compensation consist primarily of restricted stock unit and stock appreciation right awards.

	Thirteen Weeks Ended
	May 2,		May 3,
(In thousands)	2009		2008

Total stock-based compensation expense	$	1,710	$	2,898

During the Fiscal 2009 Second Quarter we granted cash-settled restricted stock units (“RSUs”) under our 2003 Non-Employee Directors Compensation Plan. These cash-settled RSUs have been accounted for as liabilities in accordance with SFAS No. 123(R). Excluded from the above compensation expense for the thirteen weeks ended May 2, 2009 is $282,000 of compensation expense related to these cash-settled RSUs.

We use the Black-Scholes valuation model to estimate the fair value of stock options and stock appreciation rights. We amortize stock-based compensation on a straight-line basis over the requisite service period of an award except for awards that include a market condition, which are amortized on a graded vesting basis. Estimates or assumptions we use under the Black-Scholes model are more fully described in “Item 8. Financial Statements and Supplementary Data; Note 1. Summary of Significant Accounting Policies; Stock-based Compensation” in our January 31, 2009 Annual Report on Form 10-K.

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CHARMING SHOPPES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 1. Condensed Consolidated Financial Statements (Continued)

Total stock-based compensation expense not yet recognized, related to the non-vested portion of stock options, stock appreciation rights, and awards outstanding was $12,408,000 as of May 2, 2009. The weighted-average period over which we expect to recognize this compensation expense is approximately 3 years.

Note 2. Accounts Receivable

Accounts receivable consist of trade receivables from sales through our FIGI’S catalog. Details of our accounts receivable are as follows:

	May 2,			January 31,
(In thousands)	2009			2009

Due from customers	$	14,146		$	39,318
Allowance for doubtful accounts		(6,125	)		(6,018	)
Net accounts receivable	$	8,021		$	33,300

Note 3. Trademarks and Other Intangible Assets

	May 2,		January 31,
(In thousands)	2009		2009

Trademarks, tradenames, and internet domain names	$	187,132	$	187,132
Customer relationships		2,872		2,872
Total at cost		190,004		190,004
Less accumulated amortization of customer relationships		2,820		2,639
Net trademarks and other intangible assets	$	187,184	$	187,365

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CHARMING SHOPPES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 4. Long-term Debt

	May 2,			January 31,
(In thousands)	2009			2009
				(As Adjusted)

1.125% Senior Convertible Notes, due May 2014	$	261,500		$	275,000
Capital lease obligations		12,959			14,041
6.07% mortgage note, due October 2014		10,244			10,419
6.53% mortgage note, due November 2012		4,900			5,250
7.77% mortgage note, due December 2011		7,079			7,249
Other long-term debt		358			422
Total long-term debt principal		297,040			312,381
Less unamortized discount on 1.125% Senior Convertible Notes		(66,591	)		(72,913	)
Long-term debt – carrying value		230,449			239,468
Current portion		(6,463	)		(6,746	)
Net long-term debt	$	223,986		$	232,722

In May 2008 the FASB issued FSP APB 14-1 “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlements)” (previously FSP APB 14-a), which changes the accounting treatment for convertible securities that the issuer may settle fully or partially in cash. We adopted the provisions of FSP APB 14-1 for our 1.125% Senior Convertible Notes due May 2014 (the “1.125% Notes”), which were issued in Fiscal 2008, and applied the provisions retrospectively to all past periods presented. Additional details regarding the 1.125% Notes are included in “Item 8. Financial Statements and Supplementary Data; Note 8. Long-term Debt” in our January 31, 2009 Annual Report on Form 10-K.

Prior to the adoption of FSP APB 14-1, we recorded the liability for our 1.125% Notes at their principal value and recognized the contractual interest on the notes as interest expense. Under FSP APB 14-1, cash-settled convertible securities are separated into their debt and equity components. The value assigned to the debt component is the estimated fair value, as of the issuance date, of a similar debt instrument without the conversion feature. As a result, the debt is recorded at a discount to adjust its below-market coupon interest rate to the market coupon interest rate for the similar debt instrument without the conversion feature. The difference between the proceeds for the convertible debt and the amount reflected as the debt component represents the fair value of the conversion feature and has been recognized as additional paid-in capital. We will accrete the debt to its principal value over its expected life using the effective interest method, with an offsetting increase in interest expense on our statements of operations to reflect the market rate for the debt component at the date of issuance. Upon maturity of the 1.125% Notes we will be obligated to repay to holders of the notes the $275,000,000 principal value of the notes less the principal value of any notes that we repurchase prior to maturity.

Our adoption of the proposal resulted in an initial reduction in long-term debt and increase in stockholders’ equity of $91,715,000 as of the date of issuance of the debt (May 2007). The non-cash amortization of this discount component increases interest expense and long-term debt over the life of the 1.125% Notes (60 months as of May 2, 2009). The pre-tax amortization to interest expense and increase to long-term debt recognized retrospectively was $7,770,000 for Fiscal 2008 (from the date of original issuance) and $11,032,000 for Fiscal 2009. Adoption of the FSP does not affect our cash flows.

Our adoption of FSP APB 14-1 also resulted in the reclassification of $2,564,000 of debt issuance costs from other assets to equity to allocate a proportionate share of the issuance costs related to the 1.125% Notes to the equity component recognized.

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CHARMING SHOPPES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 4. Long-term Debt (Continued)

The carrying amount of the equity component of the 1.125% Notes and the principal value, unamortized discount, and net carrying amount of the liability component of the 1.125% Notes were as follows:

	May 2,			January 31,
(In thousands)	2009			2009

Equity component of 1.125% Senior Convertible Notes	$	91,715		$	91,715

Principal amount of 1.125% Senior Convertible Notes	$	261,500		$	275,000
Unamortized discount		(66,591	)		(72,913	)
Liability component of 1.125% Senior Convertible Notes	$	194,909		$	202,087

Our retrospective adoption of FSP APB 14-1 resulted in the following adjustments to our condensed consolidated balance sheet as of January 31, 2009:

	As Previously		Other			FSP APB 14-1			As
(In thousands)	Reported		Adjustments(1)			Adjustments			Adjusted

Other assets	$	30,167				$	(1,924	)(2)	$	28,243
Deferred taxes		4,066					(627	)(3)		3,439
Total assets		1,279,692					(2,551	)		1,277,141

Deferred taxes		46,824					(627	)(3)		46,197
Long-term debt		305,635					(72,913	)(4)		232,722
Additional paid-in capital		411,623	$	30,208			56,720	(5)		498,551
Retained earnings		386,620		(30,208	)		14,269	(6)		370,681
Total stockholders’ equity		465,866					70,989			536,855
Total liabilities and stockholders’ equity		1,279,692					(2,551	)		1,277,141
____________________
(1) Correction of accounting for deferred taxes related to purchased call option (see “Note 1. Condensed Consolidated Financial Statements; Adjustment of Prior-Year Amounts for Change in Accounting Principle” above).
(2) Cumulative adjustment to debt issuance costs related to 1.125% Notes.
(3) Reallocation of deferred taxes.
(4) Unamortized discount as of January 31, 2009.
(5) Equity component of 1.125% Notes and debt issuance costs.
(6) Cumulative impact of amortization of debt discount and amortization of equity component of debt issuance costs, net of tax benefit.

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CHARMING SHOPPES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 4. Long-term Debt (Continued)

The contractual interest expense, amortization of debt discount, and effective interest rate for the 1.125% Notes were as follows:

	Thirteen Weeks Ended
	May 2,		May 3,
(Dollars in thousands)	2009		2008

Contractual interest expense	$	774	$	774
Amortization of debt discount		2,884		2,684
Total interest expense	$	3,658	$	3,458

Effective interest rate		7.4%		7.4%

Our adoption of FSP APB 14-1 resulted in the following adjustments to our condensed consolidated statements of operations for the thirteen weeks ended May 2, 2009 and May 3, 2008:

	Before			Adoption of			After
(In thousands, except per share amounts)	Adoption			FSP APB 14-1			Adoption

Thirteen weeks ended May 2, 2009
Interest expense	$	2,228		$	2,792	(1)	$	5,020
Income tax provision		4,720			0			4,720
Loss from continuing operations		(3,769	)		(2,792	)		(6,561	)
Net loss		(3,769	)		(2,792	)		(6,561	)
Basic net loss per share(3)		(0.03	)		(0.02	)		(0.06	)
Diluted net loss per share(3)		(0.03	)		(0.02	)		(0.06	)

	As Previously			Adoption of			As
	Reported			FSP APB 14-1			Adjusted

Thirteen weeks ended May 3, 2008
Interest expense	$	2,369		$	2,592	(1)	$	4,961
Income tax provision		1,246			(986	)(2)		260
Income/(loss) from continuing operations		657			(1,606	)		(949	)
Net loss		(45,237	)		(1,606	)		(46,843	)
Basic net income/(loss) per share(3):
Continuing operations		0.01			(0.01	)		(0.01	)
Net loss		(0.39	)		(0.01	)		(0.41	)
Diluted net income/(loss) per share(3):
Continuing operations		0.01			(0.01	)		(0.01	)
Net loss		(0.39	)		(0.01	)		(0.41	)
____________________
(1) Amortization of the debt discount related to the 1.125% Notes less amortization of debt issue costs related to the equity component.
(2) Tax effect of adoption of FSP APB 14-1.
(3) Results do not add across due to rounding.

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CHARMING SHOPPES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 4. Long-term Debt (Continued)

During the Fiscal 2010 First Quarter we repurchased 1.125% Notes with an aggregate principal amount of $13,500,000 and an aggregate unamortized discount of $3,438,000 for an aggregate purchase price of $5,631,000, and recognized a gain on the repurchase of $4,251,000 net of unamortized issue costs of $180,000. See “Note 14. Subsequent Event” below for information regarding additional repurchases of our 1.125% Notes subsequent to the end of the Fiscal 2010 First Quarter.

The 6.07% mortgage note is secured by a mortgage on real property at our distribution center in Greencastle, Indiana and an Assignment of Lease and Rents and Security Agreement related to the Greencastle facility. The 6.53% mortgage note is secured by a mortgage on land, a building, and certain fixtures we own at our distribution center in White Marsh, Maryland. The 7.77% mortgage note is secured by a mortgage on land, buildings, and fixtures we own at our offices in Bensalem, Pennsylvania and by leases we own or rents we receive, if any, from tenants of the Bensalem facility.

Note 5. Stockholders’ Equity

	Thirteen
	Weeks Ended
	May 2,
(Dollars in thousands)	2009

Total stockholders’ equity, beginning of period (as adjusted)	$	536,855	(1)
Net loss		(6,561	)
Issuance of common stock (408,020 shares), net of shares withheld for payroll taxes		39
Stock-based compensation		1,710
Unrealized losses on available-for-sale securities		(5	)
Total stockholders’ equity, end of period	$	532,038
____________________
(1) We adopted the provisions of FSP APB 14-1 retrospectively as of the beginning of Fiscal 2010 and recognized a net increase in stockholders’ equity of $70,989,000 as of January 31, 2009 (see “Note 4. Long-term Debt” above).

Note 6. Customer Loyalty Card Programs

We offer our customers various loyalty card programs. Customers that join these programs are entitled to various benefits, including discounts and rebates on purchases during the membership period. Customers join some of these programs by paying an annual membership fee. For these programs, we recognize revenue as a component of net sales over the life of the membership period based on when the customer earns the benefits and when the fee is no longer refundable. We recognize costs in connection with administering these programs as cost of goods sold when incurred.

During the thirteen weeks ended May 2, 2009 we recognized revenues of $5,019,000 and during the thirteen weeks ended May 3, 2008 we recognized revenues of $5,098,000 in connection with our loyalty card programs. We accrued $2,898,000 as of May 2, 2009 and $3,597,000 as of January 31, 2009 for the estimated costs of discounts earned and coupons issued and not redeemed under these programs.

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CHARMING SHOPPES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 7. Net Loss Per Share

	Thirteen Weeks Ended
	May 2,			May 3,
(In thousands, except per share amounts)	2009			2008
				(As Adjusted)

Basic weighted average common shares outstanding		115,180			114,588
Dilutive effect of stock options, stock appreciation rights, and awards(1)		0			0
Diluted weighted average common shares and equivalents outstanding		115,180			114,588

Loss from continuing operations	$	(6,561	)	$	(949	)
Loss from discontinued operations, net of income tax benefit		0			(45,894	)
Net loss used to determine diluted net loss per share	$	(6,561	)	$	(46,843	)


Options with weighted average exercise price greater than market price,
excluded from computation of net loss per share:
Number of shares		–	(1)		–	(1)
Weighted average exercise price per share		–	(1)		–	(1)
____________________
(1) Stock options, stock appreciation rights, and awards are excluded from the computation of diluted net loss per share as their effect would have been anti-dilutive.

Our 1.125% Notes will not impact our diluted net income per share until the price of our common stock exceeds the conversion price of $15.379 per share because we expect to settle the principal amount of the 1.125% Notes in cash upon conversion. Our call options are not considered for purposes of the diluted net income per share calculation as their effect would be anti-dilutive. Should the price of our common stock exceed $21.607 per share, we would include the dilutive effect of the additional potential shares that may be issued related to our warrants, using the treasury stock method. See “Note 4. Long-term Debt” above and “Item 8. Financial Statements and Supplementary Data; Note 8. Long-term Debt” in our January 31, 2009 Annual Report on Form 10-K for further information regarding our 1.125% Notes, call options and warrants.

Note 8. Income Taxes

We calculate our interim tax provision in accordance with the provisions of APB Opinion No. 28, “Interim Financial Reporting,” and FASB Interpretation No. 18, “Accounting for Income Taxes in Interim Periods.” For each interim period we estimate our annual effective income tax rate and apply the estimated rate to our year-to-date income or loss before income taxes. We also compute the tax provision or benefit related to items separately reported, such as discontinued operations, and recognize the items net of their related tax effect in the interim periods in which they occur. We also recognize the effect of changes in enacted tax laws or rates in the interim periods in which the changes occur.

In computing the annual estimated effective tax rate we make certain estimates and management judgments, such as estimated annual taxable income or loss, the nature and timing of permanent and temporary differences between taxable income for financial reporting and tax reporting, and the recoverability of deferred tax assets. Our estimates and assumptions may change as new events occur, additional information is obtained, or as the tax environment changes.

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CHARMING SHOPPES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 8. Income Taxes (Continued)

In accordance with SFAS No. 109, “Accounting for Income Taxes,” we recognize deferred tax assets for temporary differences that will result in deductible amounts in future years and for net operating loss and credit carryforwards. SFAS No. 109 requires recognition of a valuation allowance to reduce deferred tax assets if, based on existing facts and circumstances, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. During the Fiscal 2009 Third Quarter we evaluated our assumptions regarding the recoverability of our deferred tax assets. Based on all available evidence we determined that the recoverability of our deferred tax assets is more-likely-than-not limited to our available tax loss carrybacks. Accordingly, we established a valuation allowance against our net deferred tax assets. We continue to provide a valuation allowance against our net deferred tax assets. During the thirteen weeks ended May 2, 2009 the valuation allowance increased by $3,647,000 to reflect the generation of additional net operating losses and other tax benefits. In future periods we will continue to record a valuation allowance until such time as the certainty of future tax benefits can be reasonably assured. Pursuant to SFAS No. 109, when our results of operations demonstrate a pattern of future profitability the valuation allowance may be adjusted, which would result in the reinstatement of all or a part of the net deferred tax assets.

Income tax receivables, including net operating loss carrybacks for Fiscal 2009, amended return receivables, and prepaid income taxes, of $45,981,000 as of May 2, 2009 and $47,303,000 as of January 31, 2009 are included in “prepayments and other” on our condensed consolidated balance sheets.

As of May 2, 2009 our gross unrecognized tax benefits were $30,954,000. If recognized, the portion of the liabilities for gross unrecognized tax benefits that would decrease our provision for income taxes and increase our net income was $19,673,000. The accrued interest and penalties as of May 2, 2009 were $13,647,000. During the thirteen weeks ended May 2, 2009 the gross unrecognized tax benefits increased by $1,775,000 and the portion of the liabilities for gross unrecognized tax benefits that, if recognized, would decrease our provision for income taxes and increase our net income increased by $826,000. Accrued interest and penalties increased by $916,000 during the thirteen weeks ended May 2, 2009.

As of May 2, 2009 it is reasonably possible that the total amount of unrecognized tax benefits will decrease within the next twelve months by as much as $3,704,000 as a result of resolutions of audits related to U.S. Federal and state tax positions.

Our U.S. Federal income tax returns for Fiscal 2006 and beyond remain subject to examination by the U.S. Internal Revenue Service (“IRS”) and the IRS is currently examining our amended return for Fiscal 2005. We file returns in numerous state jurisdictions, with varying statutes of limitations. Our state tax returns for Fiscal 2004 and beyond, depending upon the jurisdiction, generally remain subject to examination. The statute of limitations on a limited number of returns for years prior to Fiscal 2005 has been extended by agreement between us and the particular state jurisdiction. The earliest year still subject to examination by state tax authorities is Fiscal 1999.

Note 9. Asset Securitization

Our FASHION BUG, LANE BRYANT, CATHERINES, and PETITE SOPHISTICATE proprietary credit card receivables are originated by Spirit of America National Bank (the “Bank”), our wholly-owned credit card bank. The Bank transfers its interest in all the receivables associated with these programs to the Charming Shoppes Master Trust (the “Trust”) through Charming Shoppes Receivables Corp. (“CSRC”), a separate and distinct special-purpose entity. The Trust is an unconsolidated qualified special-purpose entity (“QSPE”).

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CHARMING SHOPPES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 9. Asset Securitization (Continued)

Prior to our November 14, 2008 sale of our misses apparel catalog credit card receivables in connection with the sale of the related Crosstown Traders catalog titles (see “Note 1. Condensed Consolidated Financial Statements; Discontinued Operations” above), our Crosstown Traders apparel-related catalog credit card receivables were also originated by the Bank. On December 31, 2008 we finalized the sale price of the receivables. In connection with the sale we paid off and terminated the related Series 2005-RPA conduit securitization facility that was dedicated to these receivables.

The QSPEs can sell interests in these receivables on a revolving basis for a specified term. At the end of the revolving period an amortization period begins during which the QSPEs make principal payments to the parties that have entered into the securitization agreement with the QSPEs. All assets of the QSPEs (including the receivables) are isolated and support the securities issued by those entities. Our asset securitization program is more fully described in “Item 8. Financial Statements and Supplementary Data; Note 17. Asset Securitization” in our January 31, 2009 Annual Report on Form 10-K.

We securitized $175,720,000 of private label credit card receivables during the thirteen weeks ended May 2, 2009 and had $499,220,000 of securitized credit card receivables outstanding as of May 2, 2009. We held certificates and retained interests in our securitizations of $86,998,000 as of May 2, 2009, which are generally subordinated in right of payment to certificates issued by the QSPEs to third-party investors. Our obligation to repurchase receivables sold to the QSPEs is limited to those receivables that, at the time of their transfer, fail to meet the QSPE’s eligibility standards under normal representations and warranties. To date, our repurchases of receivables pursuant to this obligation have been insignificant.

We record gains or losses on the securitization of our proprietary credit card receivables based on the estimated fair value of the assets retained and liabilities incurred in the sale. Gains represent the present value of the estimated cash flows that we have retained over the estimated outstanding period of the receivables. This excess cash flow essentially represents an I/O strip, consisting of the present value of the finance charges and late fees in excess of the amounts paid to certificate holders, credit losses, and servicing fees.

Our management uses various valuation assumptions in determining the fair value of our I/O strip. We estimate the values for these assumptions using historical data, the impact of the current economic environment on the performance of the receivables sold, and the impact of the potential volatility of the current market for similar instruments in assessing the fair value of the retained interests.

In addition, we recognize a servicing liability because the servicing fees we expect to receive from the securitizations do not provide adequate compensation for servicing the receivables. The servicing liability represents the present value of the excess of our cost of servicing over the servicing fees received and is recorded at its estimated fair value. Because quoted market prices are generally not available for the servicing of proprietary credit card portfolios of comparable credit quality, we determine the fair value of the cost of servicing by calculating all costs associated with billing, collecting, maintaining, and providing customer service during the expected life of the securitized credit card receivable balances. We discount the amount of these costs in excess of the servicing fees over the estimated life of the receivables sold. The discount rate and estimated life assumptions used for the present value calculation of the servicing liability are consistent with those used for the I/O strip.

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CHARMING SHOPPES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 9. Asset Securitization (Continued)

The key assumptions used to value our retained interest were as follows:

	May 2,	January 31,
	2009	2009

Payment rate	11.8 – 14.3%	12.1 – 14.6%
Residual cash flows discount rate	15.5 – 16.5%	15.5 – 16.5%
Net credit loss percentage	7.25 – 12.06%	6.75 – 11.75%
Average life of receivables sold	0.6 – 0.7 years	0.6 – 0.7 years

CSRC, Charming Shoppes Seller, Inc., and Catalog Seller, LLC, our consolidated wholly-owned indirect subsidiaries, are separate special-purpose entities (“SPEs”) created for the securitization program. Our investment in asset-backed securities, which are first and foremost available to satisfy the claims of the respective creditors of these separate corporate entities, including certain claims of investors in the QSPEs, consisted of the following:

	May 2,		January 31,
(In thousands)	2009		2009

Trading securities
I/O Strip	$	17,971	$	19,298
Retained interest (primarily collateralized cash)		19,107		23,755

Available-for-sale securities
Ownership interest		49,920		51,400

Investment in asset-backed securities	$	86,998	$	94,453

See “Note 12. Fair Value Measurements” below for further information related to our certificates and retained interests in our securitized receivables, including activity related to our I/O strip and servicing liability.

Additionally, with respect to certain Trust Certificates, if either the Trust or Charming Shoppes, Inc. does not meet certain financial performance standards, the Trust is obligated to reallocate to third-party investors holding certain certificates issued by the Trust, collections in an amount up to $9,450,000 that otherwise would be available to CSRC. The result of this reallocation is to increase CSRC’s retained interest in the Trust by the same amount, with the third-party investor retaining an economic interest in the certificates. Subsequent to such a transfer occurring, and upon certain conditions being met, these same investors are required to repurchase these interests when the financial performance standards are again satisfied. Our net loss for the third quarter of Fiscal 2008 resulted in the requirement to reallocate collections as discussed above. Accordingly, $9,450,000 of collections was fully transferred as of February 2, 2008. The requirement for the reallocation of these collections will cease and such investors would be required to repurchase such interests upon our announcement of a quarter with net income and the fulfillment of such conditions. With the exception of the requirement to reallocate collections of $9,450,000 that were fully transferred as of February 2, 2008, the Trust was in compliance with its financial performance standards as of May 2, 2009, including all financial performance standards related to the performance of the underlying receivables.

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CHARMING SHOPPES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 9. Asset Securitization (Continued)

In addition to the above, we could be affected by certain other events that would cause the QSPEs to hold proceeds of receivables, which would otherwise be available to be paid to us with respect to our subordinated interests, within the QSPEs as additional enhancement. For example, if we or the QSPEs do not meet certain financial performance standards, a credit enhancement condition would occur, and the QSPEs would be required to retain amounts otherwise payable to us. In addition, the failure to satisfy certain financial performance standards could further cause the QSPEs to stop using collections on QSPE assets to purchase new receivables, and would require such collections to be used to repay investors on a prescribed basis, as provided in the securitization agreements. As of May 2, 2009 we and the QSPEs were in compliance with the applicable financial performance standards referred to in this paragraph.

Amounts placed into enhancement accounts, if any, that are not required for payment to other certificate holders will be available to us at the termination of the securitization series. We have no obligation to directly fund the enhancement account of the QSPEs other than for breaches of customary representations, warranties, and covenants and for customary indemnities. These representations, warranties, covenants, and indemnities do not protect the QSPEs or investors in the QSPEs against credit-related losses on the receivables. The providers of the credit enhancements and QSPE investors have no other recourse to us.

Note 10. Segment Reporting

We operate and report in two segments: Retail Stores and Direct-to-Consumer. We determine our operating segments based on the way our chief operating decision-makers review our results of operations. We consider our retail stores and store-related e-commerce as operating segments that are similar in terms of economic characteristics, production processes, and operations. Accordingly, we have aggregated our retail stores and store-related e-commerce into a single reporting segment (the “Retail Stores” segment). Our catalog and catalog-related e-commerce operations, excluding discontinued operations, are separately reported under the Direct-to-Consumer segment.

The accounting policies of the segments are generally the same as those described in “Item 8. Financial Statements and Supplementary Data; Note 1. Summary of Significant Accounting Policies” in our January 31, 2009 Annual Report on Form 10-K. Our chief operating decision-makers evaluate the performance of our operating segments based on a measure of their contribution to operations, which consists of net sales less the cost of merchandise sold and certain directly identifiable and allocable operating costs. We do not allocate certain corporate costs, such as shared services, information systems support, and insurance to our Retail Stores or Direct-to-Consumer segments. Operating costs for our Retail Stores segment consist primarily of store selling, buying, occupancy, and warehousing. Operating costs for our Direct-to-Consumer segment consist primarily of catalog development, production, and circulation; e-commerce advertising; warehousing; and order processing.

“Corporate and Other” net sales consist primarily of revenue related to loyalty card fees. Corporate and Other operating costs include unallocated general and administrative expenses; shared services; insurance; information systems support; corporate depreciation and amortization; corporate occupancy; the results of our proprietary credit card operations; and other non-routine charges. Operating contribution for the Retail Stores and Direct-to-Consumer segments less Corporate and Other net expenses equals income before interest and income taxes.

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CHARMING SHOPPES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 10. Segment Reporting (Continued)

Operating segment assets are those directly used in, or allocable to, that segment’s operations. Operating assets for the Retail Stores segment consist primarily of inventories; the net book value of store facilities; goodwill; and intangible assets. Operating assets for the Direct-to-Consumer segment consist primarily of trade receivables; inventories; deferred advertising costs; the net book value of catalog operating facilities; and intangible assets. Corporate and Other assets include corporate cash and cash equivalents; the net book value of corporate facilities; deferred income taxes; and other corporate long-lived assets.

Selected financial information for our operations by reportable segments and a reconciliation of the information by segment to our consolidated totals is as follows:

	Retail		Direct-to-			Corporate
(In thousands)	Stores		Consumer			and Other			Consolidated

Thirteen weeks ended May 2, 2009
Net sales	$	515,630	$	19,455		$	3,051		$	538,136
Depreciation and amortization		12,690		41			7,793			20,524
Income before interest and taxes		38,551		(3,437	)		(31,935	)(1)		3,179
Interest expense							(5,020	)		(5,020	)
Income tax provision							(4,720	)		(4,720	)
Net loss		38,551		(3,437	)		(41,675	)		(6,561	)
Capital expenditures		3,607		0			1,095			4,702

Thirteen weeks ended May 3, 2008 (As adjusted)
Net sales	$	611,291	$	26,946		$	3,109		$	641,346
Depreciation and amortization		13,846		38			12,471			26,355	(3)
Income before interest and taxes		43,404		(4,199	)		(34,933	)(2)		4,272
Interest expense							(4,961	)		(4,961	)
Income tax provision							(260	)		(260	)
Loss from continuing operations		43,404		(4,199	)		(40,154	)		(949	)
Capital expenditures		18,721		0			2,972			21,693	(3)
____________________
(1) Includes restructuring and other charges of $8,705 (see “Note 11. Restructuring and Other Charges” below) and a gain on repurchase of 1.125% Senior Convertible Notes of $4,251 (see “Note 4. Long-term Debt” above).
(2) Includes restructuring and other charges of $3,611 (see “Note 11. Restructuring and Other Charges” below).
(3) Excludes $741 of depreciation and amortization and $321 of capital expenditures related to our discontinued operations.

Note 11. Restructuring and Other Charges

During the Fiscal 2010 First Quarter we continued to close the remaining under-performing stores identified in Fiscal 2008 and continued to execute our cost-saving and streamlining initiatives announced during Fiscal 2009. These initiatives include the closing of under-performing stores, discontinuation of the LANE BRYANT WOMAN catalog, and the transformation of our operations into a vertical specialty store model. See “Item 8. Financial Statements and Supplementary Data; Note 14. Restructuring and Other Charges” in our January 31, 2009 Annual Report on Form 10-K for further discussion on these initiatives.

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CHARMING SHOPPES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 11. Restructuring and Other Charges (Continued)

The following two tables summarize our restructuring and other costs:

							Total
	Costs		Costs Incurred		Estimated		Estimated/
	Incurred		for Thirteen		Remaining		Actual
	as of		Weeks Ended		Costs		Costs as of
	January 31,		May 2,		to be		May 2,
(In thousands)	2009		2009		Incurred		2009

Fiscal 2008 Announcements
Relocation of CATHERINES operations:
Severance and retention costs	$	2,079	$	0	$	0	$	2,079
Non-cash write down and accelerated
Depreciation		3,808		0		0		3,808
Relocation and other charges		1,166		37		0		1,203

Closing of under-performing and PETITE
SOPHISTICATE full line stores:
Non-cash accelerated depreciation		691		0		0		691
Store lease termination charges		6,909		486		672		8,067

Severance and retention costs related to
the elimination of positions		1,244		0		0		1,244

Fiscal 2009 Announcements
Severance for departure of former CEO		9,446		42		100		9,588

Shutdown of LANE BRYANT WOMAN
Catalog:
Severance and retention costs		1,557		251		369		2,177
Non-cash accelerated depreciation		934		936		0		1,870

Severance and retention costs related to
the elimination of positions		3,873		148		0		4,021

Non-core misses apparel assets:
Non-cash accelerated depreciation		2,968		2,892		1,882		7,742
Other costs		420		0		7,000		7,420

Transformational initiatives		2,563		3,913		2,925		9,401

figure magazine shutdown costs		819		0		0		819
Total	$	38,477	$	8,705	$	12,948	$	60,130

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CHARMING SHOPPES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 11. Restructuring and Other Charges (Continued)

			Costs Incurred
	Accrued		for Thirteen				Accrued
	as of		Weeks Ended				as of
	January 31		May 2,		Payments/		May 2,
(In thousands)	2009(1)		2009		Settlements		2009(1)

Fiscal 2008 Announcements
Relocation of CATHERINES operations:
Relocation and other charges	$	0	$	37	$	37	$	0

Closing of under-performing and PETITE
SOPHISTICATE full line stores:
Store lease termination charges		1,687		486		187		1,986

Fiscal 2009 Announcements
Severance for departure of former CEO		5,453		42		0		5,495

Shutdown of LANE BRYANT WOMAN
Catalog:
Severance and retention costs		1,490		251		175		1,566

Severance and retention costs related to
the elimination of positions		2,948		148		1,573		1,523

Non-core misses apparel assets:
Other costs		420		0		0		420

Transformational initiatives		1,379		3,913		1,917		3,375

figure magazine shutdown costs		819		0		613		206
Total	$	14,196	$	4,877	$	4,502	$	14,571
____________________
(1) Included in “Accrued expenses” in the accompanying consolidated balance sheets.

Note 12. Fair Value Measurements

SFAS No. 157, “Fair Value Measurements,” defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We use various methods to determine fair value, including discounted cash flow projections based on available market interest rates and management estimates of future cash payments.