SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended September 27, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from......to........
Commission File Number: 0-10345
CACHE, INC.
(Exact name of registrant as specified in is Charter)
Florida 59-1588181
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1460 Broadway, New York, New York 10036
---------------------------------------- ----------
(Address of principal executive offices) (zip code)
212-575-3200
----------------------------------------------------
(Registrant's telephone number, including area code)
---------------------------------------------------------
(Former name, 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 than 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 [ ]
As of December 31, 2002, the aggregate market value of the voting stock held by
non-affiliated of the registrant (based on the closing price in NASDAQ National
Market) was approximately $41.2 million.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act 12b-2).
YES [ ] NO [X]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each issuer's classes of common
stock, as of the latest practicable date.
Common Stock, $.01 9,981,150
-------------------------- -------------------------------
Class of Stock Outstanding Outstanding at November 4, 2003
<page>
CACHE, INC. AND SUBSIDIARIES
INDEX
PAGE
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEETS,
SEPTEMBER 27, 2003, DECEMBER 28, 2002
AND SEPTEMBER 28, 2002 3
INCOME STATEMENTS
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 2003
AND SEPTEMBER 28, 2002 4
THIRTEEN WEEKS ENDED SEPTEMBER 27, 2003
AND SEPTEMBER 28, 2002 5
STATEMENTS OF CASH FLOWS
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 2003
AND SEPTEMBER 28, 2002 6
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7-10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10-13
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 14
CONTROLS AND PROCEDURES 14
OTHER INFORMATION:
EXHIBIT INDEX AND REPORTS ON FORM 8-K 15-17
CERTIFICATIONS 18-20
2
<page>
<table>
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<caption>
<s> September 27, December 28, September 28,
ASSETS 2003 2002 2002
------------- ------------- -------------
Current Assets: <c> <c> <c>
Cash and equivalents $ 28,130,000 $ 10,287,000 $ 17,184,000
Marketable securities --- 14,392,000 ---
Receivables, net 3,716,000 2,677,000 2,857,000
Notes receivable from related parties --- 321,000 321,000
Inventories, net 27,250,000 22,065,000 24,653,000
Prepaid income taxes and other tax assets 3,974,000 271,000 593,000
Prepaid expenses 182,000 1,020,000 510,000
------------- ------------- -------------
Total current assets 63,252,000 51,033,000 46,118,000
Equipment and leasehold improvements, net 23,099,000 18,553,000 18,630,000
Other assets 872,000 817,000 819,000
Deferred income taxes, net --- 349,000 525,000
------------- ------------- -------------
Total assets $ 87,223,000 $ 70,752,000 $ 66,092,000
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,234,000 $ 11,988,000 $ 12,989,000
Accrued compensation 2,250,000 3,629,000 1,707,000
Accrued liabilities 7,908,000 8,762,000 9,050,000
------------- ------------- -------------
Total current liabilities 26,392,000 24,379,000 23,746,000
------------- ------------- -------------
Other liabilities 1,077,000 1,081,000 1,076,000
Deferred income taxes, net 85,000 --- ---
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, par value $.01; authorized, 20,000,000 shares;
issued and outstanding 9,100,150 shares at December 28, 2002
and September 28, 2002 and 9,949,650 shares
at September 27, 2003 99,000 91,000 91,000
Additional paid-in capital 28,182,000 19,609,000 19,609,000
Retained earnings 31,388,000 25,592,000 21,570,000
------------- ------------- -------------
Total stockholders' equity 59,669,000 45,292,000 41,270,000
------------- ------------- -------------
Total liabilities and stockholders' equity $ 87,223,000 $ 70,752,000 $ 66,092,000
============= ============= =============
<fn>
The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets.
</fn>
</table>
3
<page>
<table>
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE THIRTY-NINE WEEKS ENDED
(Unaudited)
<caption>
September 27, September 28,
2003 2002
<s> ------------- -------------
<c> <c>
Net sales $ 151,006,000 $ 140,926,000
Cost of sales, including occupancy and buying costs 86,092,000 82,660,000
------------- -------------
Gross profit 64,914,000 58,266,000
------------- -------------
Expenses:
Store operating expenses 45,817,000 41,469,000
General and administrative expenses 9,913,000 9,245,000
------------- -------------
Total expenses 55,730,000 50,714,000
------------- -------------
Operating income 9,184,000 7,552,000
Other income :
Interest income, net 192,000 195,000
Other income, net 14,000 ---
------------- -------------
Income before income taxes 9,390,000 7,747,000
Income tax provision 3,594,000 2,828,000
------------- -------------
Net income $ 5,796,000 $ 4,919,000
============= =============
Basic earnings per share $0.62 $0.54
============= =============
Diluted earnings per share $0.60 $0.51
============= =============
Basic weighted average shares outstanding 9,348,000 9,100,000
============= =============
Diluted weighted average shares outstanding 9,633,000 9,623,000
============= =============
<fn>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</fn>
</table>
4
<page>
<table>
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE THIRTEEN WEEKS ENDED
(Unaudited)
<caption>
September 27, September 28,
2003 2002
<s> ------------- -------------
<c> <c>
Net sales $ 47,164,000 $ 41,989,000
Cost of sales, including occupancy and buying costs 27,065,000 25,202,000
------------- -------------
Gross profit 20,099,000 16,787,000
------------- -------------
Expenses:
Store operating expenses 15,452,000 14,043,000
General and administrative expenses 3,711,000 2,650,000
------------- -------------
Total expenses 19,163,000 16,693,000
------------- -------------
Operating income 936,000 94,000
Other income:
Interest income, net 48,000 68,000
Other income, net 14,000 ---
------------- -------------
Income before income taxes 998,000 162,000
Income tax provision 384,000 59,000
------------- -------------
Net income $ 614,000 $ 103,000
============= =============
Basic earnings per share $0.06 $0.01
============= =============
Diluted earnings per share $0.06 $0.01
============= =============
Basic weighted average shares outstanding 9,794,000 9,100,000
============= =============
Diluted weighted average shares outstanding 10,080,000 9,623,000
============= =============
<fn>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</fn>
</table>
5
<page>
<table>
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED
(Unaudited)
<caption>
September 27, September 28,
2003 2002
<s> ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES: <c> <c>
-------------------------------------
Net income $ 5,796,000 $ 4,919,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,046,000 3,556,000
Tax benefit from stock options exercised 2,713,000 ---
Reversal of future rent escalations (22,000) (95,000)
Change in assets and liabilities:
---------------------------------
(Increase) decrease in receivables (1,039,000) 1,461,000
Decrease in notes receivable from related parties 321,000 50,000
Increase in inventories (5,185,000) (2,892,000)
(Increase) decrease in prepaid income taxes and other tax assets (3,269,000) 23,000
Decrease in prepaid expenses 838,000 202,000
Increase in accounts payable 4,246,000 1,900,000
(Decrease) increase in accrued liabilities and accrued compensation (2,348,000) 788,000
------------- -------------
Net cash provided by operating activities 6,097,000 9,912,000
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
-------------------------------------
Maturities of marketable securities 14,392,000 ---
Additions to equipment and leasehold improvements (8,459,000) (4,880,000)
------------- -------------
Net cash provided by (used in) investing activities 5,933,000 (4,880,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
-------------------------------------
Proceeds from the issuance of common stock 5,868,000 45,000
Other, net (55,000) 6,000
------------- -------------
Net cash provided by financing activities 5,813,000 51,000
------------- -------------
Net increase in cash and cash equivalents 17,843,000 5,083,000
Cash and equivalents, at beginning of period 10,287,000 12,101,000
------------- -------------
Cash and equivalents, at end of period $ 28,130,000 $ 17,184,000
============= =============
<fn>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</fn>
</table>
6
<page>
CACHE, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying consolidated financial
statements include all adjustments necessary, which are considered normal
and recurring, to present fairly the financial position of the Company at
September 27, 2003 (Fiscal 2003), September 28, 2002 (Fiscal 2002) and
December 28, 2002 (Fiscal 2002), and the results of operations for the 39
and 13 week periods ended September 27, 2003 and September 28, 2002 and
consolidated statements of cash flows for the 39 weeks then ended.
Certain financial information, which is normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America, but which is not required for
interim reporting purposes, has been condensed or omitted. The accompanying
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's latest
annual report on Form 10-K for the fiscal year ended December 28, 2002.
Net income includes all sources of comprehensive income. There were no
adjustments for foreign currency translation, unrealized gains (losses)
on investments or deferred compensation expense incurred in fiscal 2002 or
fiscal 2003 results.
2. BASIC AND DILUTED EARNINGS
Basic and diluted earnings per share has been computed based on the weighted
average number of shares of common stock outstanding for the 39 and 13 week
periods ended September 27, 2003 and September 28, 2002.
The approximate number of shares used in the computations of diluted
earnings per share were 9,633,000 and 9,623,000, respectively for the 39
week period and 10,080,000 and 9,623,000 respectively, for the 13 week
comparable period ended September 27, 2003 and September 28, 2002.
The approximate number of shares used in the computations of basic earnings
per share were 9,348,000 and 9,100,000, respectively for the 39 week
comparable periods, and 9,794,000 and 9,100,000, respectively for the 13
week comparable periods ended September 27, 2003 and September 28, 2002.
The Company accounts for options granted under the 2000 Stock Option Plan
and 1994 Stock Option Plan in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees" under which no compensation cost
has been recognized for stock option awards granted at fair market value.
Had compensation expense for the Plan been determined based on the fair
value at the grant dates for awards under the Plan, consistent with the
method of SFAS No. 123, "Accounting for Stock-Based Compensation", as
amended by SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure", the Company's net earnings, basic EPS and
diluted EPS would have been reduced to the pro forma amounts listed below:
7
<page>
39 Weeks Ended 13 Weeks Ended
------------------------ ---------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
2003 2002 2003 2002
----------- ----------- ---------- ----------
Net income - as reported $ 5,796,000 $ 4,919,000 $ 614,000 $ 103,000
- pro-forma $ 5,497,000 $ 4,437,000 $ 514,000 $ ( 58,000)
Basic EPS - as reported $ 0.62 $ 0.54 $ 0.06 $ 0.01
- pro-forma $ 0.59 $ 0.49 $ 0.05 $ ( 0.01)
Diluted EPS - as reported $ 0.60 $ 0.51 $ 0.06 $ 0.01
- pro-forma $ 0.57 $ 0.46 $ 0.05 $ ( 0.01)
3. RECENT ACCOUNTING PRONOUNCEMENTS
In April 2003, the FASB issued SFAS No. 149 , "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under
FASB Statement No. 133, " Accounting for Derivative Instruments and Hedging
Activities." The provisions of this statement are effective for contracts
entered into or modified after June 30, 2003 and hedging relationships
designated after June 30, 2003. The provisions of the Statement related to
Statement 133 implementation issues that have been effective for fiscal quarters
that begin prior to June 15, 2003 should continue to be applied in accordance
with their respective effective dates. The adoption of SFAS No. 149 did not
have a significant effect on the Company's financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. The Statement requires that an issuer classify a financial instrument
that is within its scope as a liability (or an asset in some circumstances).
Many of those instruments were previously classified as equity. The provisions
of this Statement are effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of SFAS No. 150 had no impact on
the Company's financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities." The FASB believes that if a business enterprise
has a controlling interest in a variable interest entity, the assets,
liabilities and results of the variable interest entity should be included in
the consolidated financial statements with those of the business enterprise.
The Interpretation applies immediately to enterprises that hold a variable
interest in variable interest entities created after January 31, 2003. It
applies in the first fiscal year or interim period beginning after June 15,
2003 to enterprises that hold a variable interest in variable interest entities
created before February 1, 2003. The adoption of FASB Interpretation No. 46
had no impact on the Company's financial statements.
EITF Issue No. 02-16 "Accounting by Customer (including a Reseller) for Certain
Consideration Received from a Vendor" is effective for fiscal periods beginning
after December 15, 2002. This release addresses how a reseller of a vendor's
products should account for cash consideration received from a vendor, and
provides that cash consideration received by a customer from a vendor is
presumed to be a reduction of the prices of the vendor's products or services,
and should, therefore be characterized as a reduction of cost of goods sold
when recognized in the customer's income statement. However, the presumption
is overcome when the consideration is either a payment for assets or services
delivered to the vendor, or a reimbursement of costs incurred by the customer
to sell the vendor's products. The adoption of EITF 02-16 did not have a
significant effect on the Company's financial statements.
8
<page>
4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Sept. 27, Dec. 28, Sept. 28,
2003 2002 2002
----------- ----------- -----------
Leasehold improvements $25,210,000 $21,803,000 $22,939,000
Furniture, fixtures and equipment 34,365,000 29,463,000 28,816,000
----------- ----------- -----------
59,575,000 51,266,000 51,755,000
Less: accumulated depreciation
and amortization 36,476,000 32,713,000 33,125,000
----------- ----------- -----------
$23,099,000 $18,553,000 $18,630,000
=========== =========== ===========
5. ACCRUED LIABILITIES
Sept. 27, Dec. 28, Sept. 28,
2003 2002 2002
----------- ----------- -----------
Operating Expenses $ 2,273,000 $ 2,092,000 $ 2,368,000
Taxes, other than income taxes 1,566,000 $ 2,074,000 1,333,000
Group insurance 646,000 841,000 836,000
Sales return reserve 542,000 746,000 965,000
Leasehold additions 432,000 299,000 1,431,000
Other customer deposits 2,449,000 2,710,000 2,117,000
----------- ----------- -----------
$ 7,908,000 $ 8,762,000 $ 9,050,000
=========== =========== ===========
6. BANK DEBT
During November 2002, the Company reached an agreement with its bank to extend
the maturity of the Amended Revolving Credit Facility until November 30, 2005.
Pursuant to the newly Amended Revolving Credit Facility, $15,000,000 is
available until expiration at November 30, 2005. The amounts outstanding
thereunder bear interest at a maximum per annum rate up to the bank's prime
rate. The agreement contains selected financial and other covenants. Effective
upon the occurrence of an Event of Default under the Revolving Credit Facility,
the Company grants to the bank a security interest in the Company's inventory
and certain receivables. The Company has, at all times, been in compliance with
all loan covenants.
There have been no borrowings against the line of credit during fiscal 2002 and
2003. There were outstanding letters of credit of $1,984,000, $487,000 and
$1,214,000, pursuant to the Revolving Credit Facility at September 27, 2003,
December 28, 2002 and September 28, 2002, respectively.
9
<page>
6. INCOME TAXES
The estimated annual effective tax rates for fiscal 2003 and fiscal 2002 were
38.3% and 36.5%, respectively, including state and local income taxes.
7. CONTINGENCIES
The Company is exposed to a number of asserted and unasserted potential claims.
In the opinion of management, the resolution of these matters is not expected
to have a material adverse effect upon our financial position and results of
operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information and current statements contained in this
Form 10-Q, certain matters discussed herein, including, without limitation,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" are forward looking statements that involve risks and uncertainties,
including, without limitation, the effect of economic and market conditions and
competition, the ability to open new stores and expand into new markets, and
risks relating to foreign importing operations, which would cause actual results
to differ materially.
10
<page>
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth our results of operations for the 39 and 13 week
periods ended September 27, 2003 and September 28, 2002, expressed as a
percentage of net sales.
39 Weeks Ended 13 Weeks Ended
-------------------- --------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
2003 2002 2003 2002
--------- --------- --------- ---------
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 57.0% 58.7% 57.4% 60.0%
Gross profit 43.0% 41.3% 42.6% 40.0%
Store operating expenses 30.3% 29.4% 32.8% 33.4%
General and administrative expenses 6.6% 6.6% 7.9% 6.3%
Operating income 6.1% 5.4% 2.0% 0.2%
Other income 0.1% 0.1% 0.1% 0.2%
Income before income taxes 6.2% 5.5% 2.1% 0.4%
Income tax provision 2.4% 2.0% 0.8% 0.1%
Net income 3.8% 3.5% 1.3% 0.2%
Net sales
- ---------
Net sales increased to $151.0 million from $140.9 million, an increase of $10.1
million, or 7.2%, over the same 39 week period last year. This reflects $3.6
million additional net sales as a result of a 3% increase in comparable store
sales. Net sales increased $6.5 million as a result of additional net sales
from non-comparable stores.
Net sales increased to $47.2 million from $42.0 million, an increase of $5.2
million, or 12.3%, over the same 13 week period last year. This increase
reflects $3.0 million of additional net sales as a result of a 7% increase in
comparable store sales. Net sales increased $2.1 million as a result of
additional net sales from non-comparable stores.
Gross profit
- ------------
Gross profit increased to $64.9 million from $58.3 million, an increase of $6.6
million, or 11.4%, over the same 39 week period last year. This increase was the
combined result of higher net sales and increased gross profit margins. As a
percentage of net sales, gross profit increased to 43.0% from 41.3%. This
increase as a percentage of net sales was primarily due to higher initial
markups on inventory purchases. We expect the improvement created by higher
initial markups to continue to benefit results in the remainder of fiscal 2003.
Gross profit increased to $20.1 million from $16.8 million, an increase of $3.3
million, or 19.7%, over the same 13 week period last year. This increase was
the combined result of higher net sales and increased gross margins. As a
percentage of net sales, gross profit, increased to 42.6% from 40.0%. The
improvement in gross profit for the 13 week period reflects the same positive
conditions as stated above for the 39 week period.
11
<page>
Store operating expenses
- ------------------------
Store operating expenses increased to $45.8 million from $41.5 million, an
increase of $4.3 million or 10.5%, over the same 39 week period last year. This
increase was primarily attributable to the increase in the total number of
stores open, as well as an increase in marketing and advertising expenses, as
compared to last year. As a percentage of net sales, store operating expenses
increased to 30.3% from 29.4%, primarily due to higher marketing and advertising
expenses and the increase in the number of new stores opened in the last year.
Store operating expenses increased to $15.4 million from $14.0 million, an
increase of $1.4 million, or 10.0%, over the same 13 week period last year. This
increase was attributable to the increase in total stores open, and was
partially offset by lower marketing and advertising expenses during the current
quarter. As a percentage of net sales, store operating expenses decreased to
32.8% from 33.4%, partially due to the reduction in advertising expense during
the current quarter.
General and administrative expenses
- -----------------------------------
General and administrative expenses increased to $9.9 million from $9.2 million,
an increase of $668,000, or 7.2% over the same 39 week period last year,
primarily due to higher corporate-level payroll and employee-related costs. As
a percentage of net sales, general and administrative expenses remained
unchanged at 6.6%.
General and administrative expenses increased to $3.7 million from $2.7 million,
an increase of $1.1 million or 40.0%, as compared to the same 13 week period
last year. As a percentage of net sales, general and administrative expenses
increased to 7.9% from 6.3%, primarily due to higher corporate-level payroll
and employee-related costs.
Other income
- ------------
Other income increased to $206,000 from $195,000 in the same 39 week period
last year, primarily attributable to higher average cash balances, partially
offset by lower interest rates.
Other income decreased to $62,000 from $68,000 in the same 13 week period last
year, due to a reduction in interest rates in 2003.
Income taxes
- ------------
Income taxes increased to $3.6 million from $2.8 million, an increase of
$766,000 or 27.1% over the same 39 week period last year. This increase was
primarily attributable to higher taxable income, as well as an increase in our
effective tax rate from 36.5% in fiscal 2002 to 38.3% in fiscal 2003. The
increase in our effective tax rate is primarily due to a change in the mix of
income subject to tax in the various states in which we do business.
Income taxes increased to $384,000 from $59,000, an increase of $325,000 over
the same 13 week period last year.
Net income
- ----------
As a result of the foregoing, net income increased to $5.8 million from $4.9
million, an increase of $877,000 or 17.8% over the same 39 week period last
year. Net income increased to $614,000 from $103,000, an increase of $511,000
over the same 13 week period last year.
12
<page>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Our cash requirements are primarily for the construction of new stores and
inventory purchases for these stores, as well as the remodeling of existing
stores. We have historically satisfied our cash requirements principally through
cash flow from operations. As of September 27, 2003, the Company had working
capital of $36.9 million, which included cash and marketable securities of
$28.1 million.
During the 39 weeks ended September 27, 2003, net cash provided by operations
was $6.1 million, generated by net income, depreciation of $4.0 million, the
income tax benefit from stock option exercises of $2.7 million and an increase
in accounts payable of $4.2 million offset in part by a decrease in accrued
expenses of $2.3 million, an increase in inventories of $5.2 million, an
increase in prepaid income taxes of $3.4 million and an increase in accounts
receivable of $1.0 million.
Cash provided by investing activities was $5.9 million for the 39 week period
ended September 27, 2003. Matured investments generated $14.4 million of cash
flow. Funds used for equipment and leasehold improvements in new and remodeled
stores totaled $8.5 million. Our capital requirements depend primarily on the
number of new stores we open, the number of stores we remodel and the timing
of these expenditures. Projected capital expenditures for fiscal 2003 to fund
new store openings and remodeling will be approximately $11 million.
Based on our experience with new store openings, we estimate that the average
net investment to open new stores is approximately $175,000 to $225,000, which
includes new store opening expenses and initial inventory, net of landlord
contributions and payables.
We plan to open approximately 24 new stores during fiscal 2003. As of September
27, 2003, we have opened 13 new stores. We anticipate opening approximately 11
new stores during the fourth quarter of 2003. We have renovated 16 existing
stores through the end of the third quarter. After deducting construction
allowances paid to the Company by its landlords, we spent $8.5 million through
September 27, 2003 and expect to spend an additional two to three million
dollars in 2003, for both new store and existing store construction and
remodeling.
We believe that cash flows from operations, our current available cash and funds
available under our $15.0 million revolving credit facility, will be sufficient
to meet our working capital needs and contemplated new store expansion for at
least the next 12 months. If our cash flow from operations should decline
significantly or if we should accelerate our store expansion or remodeling
program, it may be necessary for us to seek additional sources of capital.
13
<page>
Seasonality
- -----------
The Company experiences seasonal and quarterly fluctuations in net sales and
operating income. Quarterly results of operations may fluctuate significantly
as a result of a variety of factors, including the timing of new store openings,
fashion trends and shifts in timing of certain holidays. The Company's business
is subject to seasonal influences, characterized by highest sales during the
fourth quarter (October, November and December) and lowest sales during the
third quarter (July, August and September).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the following types of market risk-fluctuations in
the purchase price of merchandise, as well as other goods and services; the
value of foreign currencies in relation to the U.S. dollar; and changes in
interest rates. Due to the Company's inventory turn rate and its historical
ability to pass through the impact of any generalized changes in its cost of
goods sold to its customers through pricing adjustments, commodity and other
product risks are not expected to be material. The Company purchases
substantially all its merchandise in U.S. dollars.
The Company's exposure to market risk for changes in interest rates relates to
its cash, cash equivalents and marketable securities. As of September 27, 2003,
the Company's cash, cash equivalents and marketable securities consisted
primarily of funds invested in money market accounts, which bear interest at a
variable rate, U.S. treasury instruments and tax exempt municipal bonds rated
AA or better, which bear interest at a fixed rate. Due to the average maturity
and the conservative nature of the Company's investment portfolio, we believe
a sudden change in interest rates would not have a material effect on the value
of our investment portfolio. As the interest rates on a material portion of
our cash, cash equivalents and marketable securities are variable, a change in
interest rates earned on our investment portfolio would impact interest income
along with cash flows, but would not materially impact the fair market value of
the related underlying instruments.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures designed to ensure that
information required to be disclosed by the Company in its Exchange Act reports
is recorded, processed, summarized and reported on a timely basis and that
such information is accumulated and communicated to the Company's management,
including the Chief Executive Officer and the Acting Chief Financial Officer,
as appropriate, to allow timely decisions regarding the required disclosure. As
of the end of the period covered by this Form 10-Q, an evaluation was performed
under the supervision and with the participation of the Company's management,
including the Chief Executive Officer and the Acting Chief Financial Officer,
of the effectiveness of the design and operation of these disclosure controls
and procedures. Based on that evaluation, the Chief Executive Officer and the
Acting Chief Financial Officer, concluded that the Company's disclosure controls
and procedures were effective. There have been no changes in the internal
controls over financial reporting during the period ended September 27, 2003
that have been materially affected, or are reasonably likely to materially
affect, the Company's internal controls over financial reporting.
14
<page>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(c) Exhibits.
11.1 Calculation of Basic and Diluted Earnings per Common Share.
99.1 Certification Pursuant to 18 U.S.C. Section 1350
(d) Reports on Form 8-K
1.3 Form 8-K, filed October 21, 2003 - reporting pursuant to Item 5 of such
Form, the operating results for the thirty-nine and thirteen week periods ended
September 27, 2003.
15
<page>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
CACHE, INC.
(Registrant)
November 7, 2003 BY: /s/ Brian Woolf
-------------------------------
Brian Woolf
Chairman and Chief
Executive Officer
(Principal Executive
Officer)
November 7, 2003 BY: /s/ Thomas E. Reinckens
-------------------------------
Thomas E. Reinckens
President and Chief
Operating Officer
(Principal Financial
and Accounting Officer)
16
<page>
<page>
<table>
EXHIBIT 11.1
CALCULATION OF BASIC AND DILUTED EARNINGS PER COMMON SHARE
<caption>
39 WEEKS ENDED 13 WEEKS ENDED
---------------------------- ------------------------------
Sept.27, Sept. 28, Sept. 27, Sept. 28,
2003 2002 2003 2002
----------- ----------- ----------- -----------
<s> <c> <c> <c> <c>
EARNINGS PER SHARE
Net Income Applicable to
Common Stockholders $ 5,796,000 $ 4,919,000 $ 614,000 $ 103,000
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE
Weighted Average Number of Common
Shares Outstanding 9,348,000 9,100,000 9,794,000 9,100,000
=========== =========== =========== ===========
Basic Earnings Per Share $0.62 $0.54 $0.06 $0.01
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE
Weighted Average Number of
Common Shares Outstanding 9,348,000 9,100,000 9,794,000 9,100,000
Assuming Conversion of
Outstanding Stock Options 590,000 1,140,000 590,000 1,140,000
Less Assumed Repurchase
of Common Stock Pursuant
to the Treasury Stock Method (305,000) (617,000) (304,000) (617,000)
----------- ----------- ----------- -----------
Weighted Average Number of
Common Shares Outstanding 9,633,000 9,623,000 10,080,000 9,623,000
=========== =========== =========== ===========
Diluted Earnings Per Share $0.60 $0.51 $0.06 $0.01
=========== =========== =========== ===========
</table>
17
<page>
EXHIBIT 99.1
CERTIFICATION
I, Brian Woolf, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Cache, Inc. (Cache)
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of Cache as of, and for, the periods presented in this report;
4. Cache's other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for Cache and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to Cache, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly
during the period which this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of Cache's disclosure controls and
procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in Cache's internal control
over financial reporting that occurred during Cache's most
recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect Cache's internal control
over financial reporting; and
5. Cache's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting
to Cache's auditors and the audit committee of Cache's Board of
Directors;
a) All significant deficiencies in the design or operation of
internal control over financial reporting which are reasonably
likely to adversely affect Cache's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in Cache's
internal control over financial reporting.
November 7, 2003 By: /s/ Brian Woolf
----------------------------------
Brian Woolf
Chairman and Chief
Executive Officer
(Principal Executive
Officer)
18
<page>
EXHIBIT 99.2
CERTIFICATION
I, Thomas E. Reinckens, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Cache, Inc. (Cache)
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of Cache as of, and for, the periods presented in this report;
4. Cache's other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for Cache and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to Cache, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly
during the period which this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of Cache's disclosure controls and
procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in Cache's internal control
over financial reporting that occurred during Cache's most
recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect Cache's internal control
over financial reporting; and
5. Cache's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting
to Cache's auditors and the audit committee of Cache's Board of
Directors;
a) All significant deficiencies in the design or operation of
internal control over financial reporting which are reasonably
likely to adversely affect Cache's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in Cache's
internal control over financial reporting.
November 7, 2003 By: /s/ Thomas E. Reinckens
----------------------------------
Thomas E. Reinckens
President and Chief
Operating Officer
(Principal Financial and
Accounting Officer)
19
<page>
EXHIBIT 99.3
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to and solely for the purposes of, 18 U.S.C. Section 1350 (Section
906 of the Sarbanes-Oxley Act of 2002, each of the undersigned hereby certifies
in the capacity and on the date indicated below that:
1. The Quarterly Report of Cache, Inc. on Form 10-Q for the period
ending September 27, 2003 as filed with the Securities and Exchange
Commission on the date hereof (the "Report") fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of Cache, Inc.
November 7, 2003 BY: /s/ Brian Woolf
--------------------------------
Brian Woolf
Chairman and Chief
Executive Officer
(Principal Executive
Officer)
November 7, 2003 BY: /s/ Thomas E. Reinckens
---------------------------------
Thomas E. Reinckens
President and Chief
Operating Officer
(Principal Financial
and Accounting
Officer)
20
<page>