CHICO'S-REGISTERED TRADEMARK-
FINANCIAL HIGHLIGHTS
FISCAL YEAR ENDED
---------------------------------------------------------------------
FEBRUARY 3, JANUARY 29, JANUARY 30, JANUARY 31, FEBRUARY 1,
2001 2000 1999 1998 1997
(53 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) (53 WEEKS)
---------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Statement of Income Data:
Net Sales $259,446 $155,002 $106,742 $ 75,339 $ 64,063
Income from Operations 45,363 24,806 15,134 4,914 3,622
Net Income 28,379 15,489 9,139 2,770 1,931
Basic Earnings Per Share (1) 1.64 0.91 0.56 0.18 0.12
Diluted Earnings Per Share (1) 1.56 0.88 0.54 0.17 0.12
Operating Data:
Total Assets $117,807 $ 70,316 $ 49,000 $ 34,472 $ 31,248
Long-Term Debt 7,158 6,839 6,713 6,703 7,008
Stockholders' Equity 85,321 52,641 34,303 21,456 18,021
# of Stores (at end of period):
Company-owned 239 191 154 132 123
Franchised 11 9 8 9 10
--------- --------- --------- --------- ---------
Total 250 200 162 141 133
========= ========= ========= ========= =========
(1) Restated to give retroactive effect for the 2 for 1 stock split payable in
January 2000 but does not reflect the effect of the 3 for 2 stock split
announced in April 2001 and to be paid in May 2001.
INDEX
9 Management's Discussion & Analysis
14 Stock Information
16 Financial Statements
30 Executive Officers/Directors
32 Store Listing
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Since the Company opened its first store in 1983 principally selling
folk art, its retail store system, now selling principally women's apparel,
has grown to 250 stores as of February 3, 2001, of which 239 are
Company-owned stores and 11 are franchised stores. Since 1989, the Company
has de-emphasized the granting of new franchises as a strategy for growth
and, at the same time, has been expanding its store base by opening
Company-owned stores. Where possible and practical, the Company has also
acquired stores from its franchisees. Since 1997, the Company has acquired
three stores from franchisees, opened 127 new Company-owned stores, and one
franchisee has opened four new franchised stores. Of these new Company-owned
stores, 51 were opened in the fiscal year ended February 3, 2001 (fiscal
2000/2001), 40 were opened in fiscal 1999/2000, 22 were opened in fiscal
1998/1999 and 14 were opened in fiscal 1997/1998. During this same time
period, the Company closed 14 Company-owned stores and no franchised stores
closed. The Company plans to open a minimum of 55 new Company-owned stores in
the fiscal year ending February 2, 2002 and 55 to 60 new Company-owned stores
in the next fiscal year. In addition, the Company is evaluating certain
existing Company-owned store locations, including stores with leases coming
up for renewal, and is considering the possibility of closing between two and
four existing Company-owned stores in fiscal 2001/2002.
RESULTS OF OPERATIONS
The following table sets forth, for each of the respective periods
indicated, certain operating statement data and the percentage of the Company's
net sales represented by each line item presented.
FISCAL YEAR ENDED (000'S)
------------------------------------------------------------------------
FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999
(53 WEEKS) % (52 WEEKS) % (52 WEEKS) %
------------------------------------------------------------------------
Net sales by company stores $254,824 98.2% $152,474 98.4% $104,981 98.4%
Net sales to franchisees 4,622 1.8 2,528 1.6 1,761 1.6
--------- --------- --------- --------- --------- ---------
Net sales 259,446 100.0 155,002 100.0 106,742 100.0
Cost of goods sold 108,671 41.9 64,950 41.9 44,197 41.4
--------- --------- --------- --------- --------- ---------
Gross profit 150,775 58.1 90,052 58.1 62,545 58.6
General, administrative and store operating
expenses 105,412 40.6 65,246 42.1 47,411 44.4
--------- --------- --------- --------- --------- ---------
Income from operations 45,363 17.5 24,806 16.0 15,134 14.2
Income (expense), net 409 .1 177 .1 (151) (.2)
--------- --------- --------- --------- --------- ---------
Income before taxes 45,772 17.6 24,983 16.1 14,983 14.0
Provision for income taxes 17,393 6.7 9,494 6.1 5,844 5.4
--------- --------- --------- --------- --------- ---------
Net income $ 28,379 10.9% $ 15,489 10.0% $ 9,139 8.6%
========= ========= ========= ========= ========= =========
Fifty-Three Weeks Ended February 3, 2001 Compared to the Fifty-Two Weeks Ended
January 29, 2000
NET SALES. Net sales by Company-owned stores for the fifty-three
weeks ended February 3, 2001 (fiscal 2000/2001 or the current period)
increased by $102.4 million, or 67.1%, over net sales by Company-owned stores
for the fifty-two weeks ended January 29, 2000 (fiscal 1999/2000 or the prior
period). The increase was the result of a comparable Company store net sales
increase of $52.0 million, $39.7 million additional sales from the new stores
not yet included in the Company's comparable store base (net of sales of $1.1
million from six stores closed in fiscal 1999/2000 and fiscal 2000/2001),
$5.3 million from the additional week in the current year versus the prior
year and $2.7 million additional net sales from the Company's call center
(website and catalog sales) which began operations in late May 2000.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Net sales to franchisees for the current period increased by $2.1
million or 82.8% compared to net sales to franchisees for the prior period.
The increase in net sales to franchisees was primarily due to a net increase
in purchases by the franchisees as a whole, the opening by an existing
franchisee of two additional franchised stores in fiscal 2000/2001 and one
additional franchised store in fiscal 1999/2000, and the additional week in
the current period versus the prior period.
GROSS PROFIT. Gross profit for the current period was $150.8
million, or 58.1% of net sales, compared with $90.1 million, or 58.1% of net
sales, for the prior period. Although the gross profit percentage showed no
appreciable change in the current period versus the prior period, the Company
experienced a decline in the gross margins at its seven outlet locations
which was offset by a slight leverage in the Company's distribution center,
product development and merchandising costs due to the Company's 34.3%
comparable Company store sales increase for the current period.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES. General,
administrative and store operating expenses increased to $105.4 million, or
40.6% of net sales, in the current period from $65.2 million, or 42.1% of net
sales, in the prior period. The increase in general, administrative and store
operating expenses was, for the most part, the result of increases in store
operating expenses, including store compensation, occupancy and other costs
associated with additional store openings and, to a lesser degree, an
increase in marketing expenses. The decrease in these expenses as a
percentage of net sales was principally due to leverage associated with the
Company's 34.3% comparable Company store sales increase for the current
period, net of an increase in marketing expenses as a percentage of sales.
INTEREST INCOME, NET. The Company had net interest income during the
current period of approximately $408,000 versus approximately $178,000 in the
prior period. The increase in net interest income was primarily a result of
the Company's increased cash and marketable securities position throughout
most of the year, as well as improved interest rates earned on cash and
marketable securities.
NET INCOME. As a result of the factors discussed above, net income
reflects an increase of 83.2% to $28.4 million in the current period from net
income of $15.5 million in the prior period. The income tax provision
represented an effective rate of 38.0% for the current and prior period.
FIFTY-TWO WEEKS ENDED JANUARY 29, 2000 COMPARED TO THE FIFTY-TWO WEEKS ENDED
JANUARY 30, 1999
NET SALES. Net sales by Company-owned stores for the fifty-two weeks
ended January 29, 2000 (fiscal 1999/2000) increased by $47.5 million, or
45.2%, over net sales by Company-owned stores for the comparable fifty-two
weeks ended January 30, 1999 (fiscal 1998/1999). The increase was the result
of a comparable Company store net sales increase of $23.7 million and $23.8
million additional sales from the new (or reacquired) stores not yet included
in the Company's comparable store base, net of sales of $2.3 million from
five stores closed in fiscal 1998/1999 and fiscal 1999/2000 and exclusive of
special liquidation sales.
Net sales to franchisees for fiscal 1999/2000 increased by
approximately $768,000 or 43.6% compared to net sales to franchisees for
fiscal 1998/1999. The increase in net sales to franchisees primarily reflects
increased sales to franchisees due to the opening of two additional
franchised locations (one each in fiscal 1998/1999 and fiscal 1999/2000) by
an existing franchisee and by a net increase in purchases by the other
franchised stores.
GROSS PROFIT. Gross profit for fiscal 1999/2000 was $90.1 million,
or 58.1% of net sales, compared with $62.5 million, or 58.6% of net sales,
for fiscal 1998/1999. The decrease in the gross profit percentage primarily
resulted from additional promotional activities and entitlement to discounts
including those associated with expanding the Company's preferred customer
club (the "Passport Club") which was relaunched in the first quarter of this
year.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
To a lesser degree, the decrease was the result of the mix of product which
generally included a lower average initial mark-up.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES. General,
administrative and store operating expenses increased to $65.2 million, or
42.1% of net sales, in fiscal 1999/2000 from $47.4 million, or 44.4% of net
sales, in fiscal 1998/1999. The increase in general, administrative and store
operating expenses was, for the most part, the result of increases in store
operating expenses, including store compensation, occupancy and other costs
associated with additional store openings. The decrease in these expenses as
a percentage of net sales was principally due to direct store and non-store
general and administrative costs, which decreased as a percentage of net
sales due to leverage associated with the 23.3% comparable Company store net
sales increase. This decrease was partially offset by a .7% increase in
marketing and promotion costs.
INTEREST INCOME, NET. The Company had net interest income during
fiscal 1999/2000 of approximately $177,000 versus net interest expense of
approximately $151,000 in the prior period. The improvement to net interest
income from net interest expense was primarily a result of increased interest
earnings during fiscal 1999/2000 resulting from the Company's increased
overall cash position, as well as improved yields related to its investments
in marketable securities.
NET INCOME. As a result of the factors discussed above, net income
reflects an increase of 69.5% to $15.5 million in fiscal 1999/2000 from net
income of $9.1 million in fiscal 1998/1999. The income tax provision
represented an effective rate of 38.0% for fiscal 1999/2000 and 39.0% in
fiscal 1998/1999. The decrease in the income tax rate is attributable to a
decrease in the effective state income tax rate associated with certain
restructurings of the Company's operations, net of a Federal income tax rate
increase due to higher earnings.
COMPARABLE COMPANY-OWNED STORE NET SALES
Comparable Company-owned store net sales increased by 34.3% for the
fifty-three weeks ended February 3, 2001 when compared to the previous
comparable fifty-three weeks. Comparable Company-owned store net sales data
is calculated based on the change in net sales of currently open
Company-owned stores that have been operated as a Company store for at least
thirteen months including stores that have been expanded or relocated within
the same general market area (approximately five miles).
The comparable store percentages reported above include 30 stores
that were expanded within the last 2 fiscal years by an average of 771 net
selling square feet. If the stores that were expanded had been excluded from
the comparable Company-owned store base, the increase in comparable
Company-owned store net sales would have been 32.4% for fiscal 2000/2001. In
fiscal 1999/2000, 1998/1999 and 1997/1998, the exclusion of similar
expansions/relocations from the comparable Company-owned store base would
have resulted in full year same store sales increases of 22.7%, 29.8% and
10.2%, respectively (versus 23.3%, 30.3% and 10.7% respectively, as
reported). The Company does not consider this material to overall comparable
store net sales and believes the inclusion of expanded stores in the
comparable store net sales to be appropriate, consistent with the practice
followed by the Company in prior periods and by other retailers.
The Company believes that the increase in comparable Company store
net sales in the current fiscal year resulted from the continuing effort to
focus the Company's product development, merchandise planning, buying and
marketing departments on Chico's target customer. The Company also believes
that the look, fit and pricing policy of the Company's product was in line
with the needs of its target customer and that the increase in comparable
store sales was also fueled by increased direct mailings, a larger database
of existing customers for such mailings, national magazine advertising which
began in November 1999 and the success of the Company's preferred customer
club (the "Passport Club"). To a lesser degree, the Company believes the
increase was due to increased store-level training efforts associated with
ongoing training programs and
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
strong sales associated with several styles of clothing produced from a
related group of fabrics introduced by the Company in the fourth quarter of
fiscal 1997/1998.
The following table sets forth for each of the four quarters of the
previous four fiscal years, the percentage change in comparable store net
sales at Company-owned stores from the comparable period in the prior fiscal
year:
FISCAL YEAR ENDED
-----------------
2/3/01 1/29/00 1/30/99 1/31/98
------ ------- ------- -------
Full Year 34.3% 23.3% 30.3% 10.7%
First Quarter 30.9% 22.6% 31.7% (1.1)%
Second Quarter 34.3% 17.2% 23.0% 13.3%
Third Quarter 39.1% 26.9% 28.5% 12.0%
Fourth Quarter 32.2% 26.5% 38.5% 20.1%
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary ongoing capital requirements are for funding
capital expenditures to new, expanded, relocated and remodeled stores and
merchandise inventory purchases. In addition, over the past twelve months,
the Company experienced the need for capital to address expansions of its
office and design facility at its headquarters, the acquisition of new
point-of-sale devices for a chain-wide rollout beginning in the first quarter
of 2001 and the development of infrastructure, including an internal call and
fulfillment center, to support the Company's expansion into catalog and
Internet sales which began operations in late May of 2000.
During the current fiscal year (current year) and the prior fiscal
year (prior year), the Company's primary source of working capital was cash
flow from operations of $39.2 million and $17.1 million, respectively. The
increase in cash flow from operations of $22.1 million was primarily due to
an increase of $12.9 million in net income, an increase of $14.5 million in
accounts payable and accrued liabilities (versus an increase of $2.9 million
in the prior year), an increase of $2.7 million in depreciation and
amortization, net of an increase in inventories of $9.6 million (versus an
increase of $4.7 million in the prior year), and an increase in receivables
and prepaid expenses of $2.9 million (versus an increase of $.7 million in
the prior year). The increase in accounts payable and inventories is
associated with increased inventory purchase activities to support the
Company's significant overall sales increases. The increase in accrued
expenses is related to increases in reserves and expense accruals related to
the significant increase in earnings, sales and payroll. The increase in
prepaid expenses was caused by timing of the Company's year end which
required February rent checks to be paid in fiscal January and the increase
in receivables was caused by a Federal tax refund receivable, an increase in
tenant improvement monies receivable and a general increase in franchise
receivables related to increased sales.
The Company invested $40.5 million in the current fiscal year for
capital expenditures. The capital expenditures for the current fiscal year
included $28.2 million primarily associated with the planning and opening of
new Company stores, and the remodeling/relocating/expansion of numerous
existing stores, $4.4 million for new point-of-sale devices, $5.6 million for
the expansion of its office and design facilities and $2.3 million for the
development of infrastructure associated with catalog and Internet sales.
During the same period in the prior fiscal year, the Company invested $15.2
million primarily for capital expenditures associated with the opening of new
Company stores, and the remodeling of several existing stores.
During the current year, two of the Company's officers and its three
independent directors exercised 248,735 stock options at prices ranging from
$1.625 to $11.344 and several employees and
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
former employees exercised 103,719 options at prices ranging from $1.625 to
$13.125. Also during this period, the Company sold 18,381 shares of common
stock under its employee stock purchase plan at prices of $15.25 and $27.52.
The proceeds from these issuances of stock, together with the tax benefit
recognized by the Company, amounted to approximately $4.2 million.
As more fully described in "Item 1" beginning on page 15 of the
Company's Annual Report on Form 10-K for the fiscal year ended February 3,
2001, the Company is subject to ongoing risks associated with imports. The
Company's reliance on sourcing from foreign countries causes the Company to
be exposed to certain unique business and political risks. Import
restrictions, including tariffs and quotas, and changes in such tariffs or
quotas could affect the importation of apparel generally and, in that event,
could increase the cost or reduce the supply of apparel available to the
Company and have an adverse effect on the Company's business, financial
condition and/or results of operations. The Company's merchandise flow could
also be adversely affected by political instability in any of the countries
in which its goods are manufactured, by significant fluctuations in the value
of the U.S. dollar against applicable foreign currencies and by restrictions
on the transfer of funds.
The Company plans to open a minimum of approximately 55
Company-owned new stores in fiscal 2001/2002, 5 of which were open as of
April 20, 2001. Further, the Company plans to open between 55 and 60
Company-owned new stores in fiscal 2002/2003. The Company believes that the
liquidity needed for its planned new store growth, continuing
remodel/expansion program, and maintenance of proper inventory levels
associated with this growth will be funded primarily from cash flow from
operations and its strong existing cash balances. The Company further
believes that this liquidity will be sufficient, based on currently planned
new store openings, to fund anticipated capital needs over the near-term,
including scheduled debt repayments. Given the Company's existing cash and
marketable securities balances and the capacity included in its bank credit
facilities, the Company does not believe that it would need to seek other
sources of financing to conduct its operations or pursue its expansion plans
even if cash flow from operations should prove to be less than anticipated or
even if there should arise a need for additional letter of credit capacity
due to establishing new and expanded sources of supply, or if the Company
were to increase the number of new Company stores planned to be opened in
future periods.
SEASONALITY AND INFLATION
Although the operations of the Company are influenced by general
economic conditions, the Company does not believe that inflation has had a
material effect on the results of operations during the current or prior
periods. The Company does not consider its business to be seasonal.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This annual report may contain forward-looking statements which
reflect the current views of the Company with respect to certain events that
could have an effect on the Company's future financial performance. These
statements include the words "expects", "believes", and similar expressions.
These forward-looking statements are subject to various risks and
uncertainties that could cause actual results to differ materially from
historical results or those currently anticipated. These potential risks and
uncertainties include ability to secure customer acceptance of Chico's
styles, propriety of inventory mix and sizing, quality of merchandise
received from vendors, timeliness of vendor production and deliveries,
increased competition, extent of the market demand by women for private label
clothing and related accessories, adequacy and perception of customer
service, ability to coordinate product development along with buying and
planning, rate of new store openings, performance of management information
systems, ability to hire, train, energize and retain qualified sales
associates and other employees, availability of quality store sites, ability
to hire and retain qualified managerial employees, ability to effectively and
efficiently establish and operate catalog and Internet sales activities and
other risks. In addition, there are
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
potential risks and uncertainties that are peculiar to the Company's reliance
on sourcing from foreign vendors including the impact of work stoppages,
transportation delays and other interruptions, political instability, foreign
currency fluctuations, imposition of and changes in tariffs and import and
export controls such as import quotas, changes in governmental policies in or
towards such foreign countries and other similar factors.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk of the Company's financial instruments as of
February 3, 2001 has not significantly changed since January 29, 2000. The
Company is exposed to market risk from changes in interest rates on its
indebtedness. The Company's exposure to interest rate risk relates in part to
its revolving line of credit with its bank; however, as of February 3, 2001,
the Company did not have any outstanding balance on its line of credit and,
given its strong liquidity position, does not expect to utilize its line of
credit in the foreseeable future except for its continuing use of the letter
of credit facility portion thereof. The Company's exposure to interest rate
risk also relates to its $5.2 million mortgage loan indebtedness which bears
a variable interest rate based upon changes in the LIBOR rate.
TRADING AND DIVIDEND INFORMATION
The following table sets forth, for the periods indicated, the range
of high and low closing sale prices for the Common Stock, as reported on the
Nasdaq National Market System. (1) (2)
FOR THE FISCAL YEAR ENDED FEBRUARY 3, 2001 HIGH LOW
---- ---
Fourth Quarter (October 29, 2000 - February 3, 2001) $43.50 $17.38
Third Quarter (July 30, 2000 - October 28, 2000) 40.00 27.75
Second Quarter (April 30, 2000 - July 29, 2000) 29.25 16.31
First Quarter (January 30, 2000 - April 29, 2000) 21.75 8.81
FOR THE FISCAL YEAR ENDED JANUARY 29, 2000 HIGH(3) LOW(3)
---- ---
Fourth Quarter (October 31, 1999 - January 29, 2000) $22.38 $13.69
Third Quarter (August 1, 1999 - October 30, 1999) 17.50 9.34
Second Quarter (May 2, 1999 - July 31, 1999) 14.88 10.56
First Quarter (January 31, 1999 - May 1, 1999) 16.31 8.81
(1) On April 11, 2001, the Company commenced its trading on the New York
Stock Exchange.
(2) Closing sale prices are not adjusted to reflect the 3 for 2 stock
split announced by the Company in April 2001 and to be distributed in
May 2001.
(3) Adjusted for the 2 for 1 stock split distributed on January 14, 2000
to stockholders of record on December 27, 1999.
The Company does not intend to pay any cash dividends for the
foreseeable future and intends to retain earnings, if any, for the future
operation and expansion of the Company's business. Any determination to pay
dividends in the future will be at the discretion of the Company's Board of
Directors and will be dependent upon the Company's results of operations,
financial condition, contractual restrictions and other factors deemed
relevant by the Board of Directors.
The approximate number of equity security holders of the Company is
as follows:
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF APRIL 16, 2001
---------------------------- ------------------------
Common Stock, par value $.01 per share 407
14
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO CHICO'S FAS, INC. AND SUBSIDIARIES:
We have audited the accompanying consolidated balance sheets of Chico's FAS,
Inc. (a Florida corporation) and subsidiaries as of February 3, 2001, and
January 29, 2000, and the related consolidated statements of income,
stockholders' equity and cash flows for the fiscal years ended February 3,
2001, January 29, 2000, and January 30, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Chico's FAS, Inc. and
subsidiaries as of February 3, 2001, and January 29, 2000, and the results of
their operations and their cash flows for the fiscal years ended February 3,
2001, January 29, 2000, and January 30, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Arthur Anderson LLP
Tampa, Florida,
March 5, 2001
15
CHICO'S FAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 3, JANUARY 29,
ASSETS 2001 2000
------ ----------- ------------
CURRENT ASSETS:
Cash and cash equivalents ............................................... $ 3,914,118 $ 3,980,930
Marketable securities ................................................... 14,221,520 13,995,527
Receivables, less allowances of $155,000 and $93,000 for sales returns,
respectively ........................................................ 2,998,910 1,706,661
Inventories ............................................................. 24,394,162 14,834,800
Prepaid expenses ........................................................ 2,254,349 668,695
Deferred taxes .......................................................... 3,003,000 2,038,000
------------ ------------
Total current assets ................................................ 50,786,059 37,224,613
PROPERTY AND EQUIPMENT, net ............................................. 65,585,011 31,344,997
DEFERRED TAXES .......................................................... 747,000 1,106,000
OTHER ASSETS, net ....................................................... 688,547 640,211
------------ ------------
$117,806,617 $ 70,315,821
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................................ $ 13,751,762 $ 5,982,684
Accrued liabilities ..................................................... 11,299,352 4,593,104
Current portion of debt and lease obligations ........................... 276,410 260,111
------------ ------------
Total current liabilities ........................................... 25,327,524 10,835,899
DEBT AND LEASE OBLIGATIONS, excluding current portion ................... 7,157,852 6,839,180
------------ ------------
Total liabilities ................................................... 32,485,376 17,675,079
============ ============
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 50,000,000 shares authorized and
17,499,371 and 17,128,536 shares issued and outstanding,
respectively......................................................... 174,994 171,285
Additional paid-in capital .............................................. 18,935,829 14,709,238
Retained earnings ....................................................... 66,163,172 37,784,553
Accumulated other comprehensive gain (loss) ............................. 47,246 (24,334)
------------ ------------
Total stockholders' equity .............................................. 85,321,241 52,640,742
============ ============
$117,806,617 $ 70,315,821
============ ============
The accompanying notes are an integral part of these consolidated balance
sheets.
16
CHICO'S FAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999
------------- ------------- -------------
NET SALES BY COMPANY STORES ............... $ 254,824,364 $ 152,473,637 $ 104,981,219
NET SALES TO FRANCHISEES .................. 4,621,532 2,528,644 1,760,374
------------- ------------- -------------
Net sales ............................. 259,445,896 155,002,281 106,741,593
COST OF GOODS SOLD ........................ 108,670,577 64,949,930 44,196,426
------------- ------------- -------------
Gross profit .......................... 150,775,319 90,052,351 62,545,167
GENERAL, ADMINISTRATIVE AND STORE
OPERATING EXPENSES ...................... 105,411,846 65,246,577 47,411,057
------------- ------------- -------------
Income from operations ................ 45,363,473 24,805,774 15,134,110
INTEREST INCOME (EXPENSE), net ............ 408,146 177,606 (151,002)
------------- ------------- -------------
Income before income taxes ............ 45,771,619 24,983,380 14,983,108
INCOME TAX PROVISION ...................... 17,393,000 9,494,000 5,844,000
------------- ------------- -------------
Net income ............................ $ 28,378,619 $ 15,489,380 $ 9,139,108
============= ============= =============
PER SHARE DATA:
Net income per common share - basic ..... $ 1.64 $ .91 $ .56
Net income per common and common
equivalent share - diluted ............ $ 1.56 $ .88 $ .54
Weighted average common shares
outstanding - basic ................... 17,351,953 16,942,233 16,335,518
Weighted average common and common
equivalent shares outstanding -
diluted................................ 18,147,865 17,681,038 17,059,792
The accompanying notes are an integral part of these consolidated
statements.
17
CHICO'S FAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
PAR PAID-IN RETAINED COMPREHENSIVE
SHARES VALUE CAPITAL EARNINGS (LOSS) GAIN TOTAL
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, JANUARY 31, 1998 .............. 8,011,317 $ 80,113 $ 8,219,707 $ 13,156,065 $ -- $ 21,455,885
Net income for the fiscal year ended
January 30, 1999 .................. -- -- -- 9,139,108 -- 9,139,108
Issuance of common stock ............. 381,699 3,817 2,209,223 -- -- 2,213,040
Tax benefit of stock options
exercised.......................... -- -- 1,495,000 -- -- 1,495,000
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, JANUARY 30, 1999 .............. 8,393,016 83,930 11,923,930 22,295,173 -- 34,303,033
Net income for the fiscal year ended
January 29, 2000 .................. -- -- -- 15,489,380 -- 15,489,380
Unrealized loss on marketable
securities, net ................... -- -- -- -- (24,334) (24,334)
------------
Comprehensive income ........... 15,465,046
Issuance of common stock ............. 171,252 1,713 1,746,950 -- -- 1,748,663
Tax benefit of stock options
exercised.......................... -- -- 1,124,000 -- -- 1,124,000
Two-for-one stock split .............. 8,564,268 85,642 (85,642) -- -- --
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, JANUARY 29, 2000 .............. 17,128,536 171,285 14,709,238 37,784,553 (24,334) 52,640,742
Net income for the fiscal year ended
February 3, 2001 .................. -- -- -- 28,378,619 -- 28,378,619
Unrealized gain on marketable
securities, net ................... -- -- -- -- 71,580 71,580
------------
Comprehensive income ........... 28,450,199
Issuance of common stock ............. 370,835 3,709 1,539,435 -- -- 1,543,144
Stock option compensation ............ -- -- 70,156 -- -- 70,156
Tax benefit of stock options
exercised.......................... -- -- 2,617,000 -- -- 2,617,000
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, FEBRUARY 3, 2001 ............ 17,499,371 $ 174,994 $ 18,935,829 $ 66,163,172 $ 47,246 $ 85,321,241
============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated
statements.
18
CHICO'S FAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999
----------------- ----------------- -----------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income ............................................ $ 28,378,619 $ 15,489,380 $ 9,139,108
------------ ------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and amortization ...................... 5,977,744 3,307,539 2,407,799
Stock option compensation .......................... 70,156 -- --
Deferred tax benefit ............................... (606,000) (746,000) (588,000)
Tax benefit of options exercised ................... 2,617,000 1,124,000 1,495,000
Deferred rent expense, net ......................... 406,971 238,498 216,978
Loss from disposal of property and equipment ....... 393,970 354,498 195,027
(Increase) decrease in assets--
Receivables ........................................ (1,292,249) (557,583) (254,183)
Inventories ........................................ (9,559,362) (4,729,647) (579,681)
Prepaid expenses ................................... (1,585,654) (157,810) 156,260
Other assets ....................................... (109,821) (125,270) (46,418)
Increase in liabilities--
Accounts payable ................................... 7,769,078 1,987,561 474,858
Accrued liabilities ................................ 6,706,248 913,749 1,138,980
------------ ------------ ------------
Total adjustments ................................ 10,788,081 1,609,535 4,616,620
------------ ------------ ------------
Net cash provided by operating activities ........ 39,166,700 17,098,915 13,755,728
------------ ------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Redemption of certificate of deposit .................. -- -- 1,000,000
Purchases of marketable securities .................... (30,131,458) (14,019,861) --
Proceeds from sale of marketable securities, net ...... 29,977,045 -- --
Purchases of property and equipment ................... (40,468,993) (15,169,791) (5,045,809)
------------ ------------ ------------
Net cash used in investing activities ............ (40,623,406) (29,189,652) (4,045,809)
------------ ------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Proceeds from issuance of common stock ................ 1,543,144 1,748,663 2,213,040
Principal payments on debt ............................ (72,000) (72,000) (72,000)
Principal payments on capital lease obligations ....... -- (89,772) (77,404)
Deferred finance costs ................................ (81,250) -- (232,695)
------------ ------------ ------------
Net cash provided by financing activities .......... 1,389,894 1,586,891 1,830,941
------------ ------------ ------------
Net (decrease) increase in cash and
cash equivalents ................................. (66,812) (10,503,846) 11,540,860
CASH AND CASH EQUIVALENTS,
Beginning of period ................................... 3,980,930 14,484,776 2,943,916
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
End of period ......................................... $ 3,914,118 $ 3,980,930 $ 14,484,776
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITIES:
Unrealized gain (loss) on marketable
securities, net................................... $ 71,580 $ (24,334) $ --
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid for interest ............................. $ 893,811 $ 566,205 $ 611,238
Cash paid for income taxes ......................... $ 15,839,172 $ 9,409,705 $ 4,873,065
The accompanying notes are an integral part of these consolidated
statements.
19
CHICO'S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 3, 2001
1. BUSINESS ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS ORGANIZATION
The accompanying consolidated financial statements include the accounts of
Chico's FAS, Inc., a Florida corporation, and its wholly-owned subsidiaries,
Chico's Distribution, Inc., Chico's Concept, Inc. and Chico's Media, Inc.
(collectively, the Company). The subsidiaries were formed in February 1999.
The Company operates in one business segment as a specialty retailer of
exclusively designed, private label casual clothing and related accessories.
As of February 3, 2001, the Company's retail store system consisted of 250
stores located throughout the United States, 239 of which were owned and
operated by the Company, and 11 of which were owned and operated by
franchisees.
FISCAL YEAR
The Company has a 52-53 week fiscal year ending on the Saturday closest to
January 31. The fiscal years ended February 3, 2001, January 29, 2000, and
January 30, 1999, contained 53, 52 and 52 weeks, respectively.
FRANCHISE OPERATIONS
A summary of the changes in the number of the Company's franchise stores as
compared to total company-owned stores as of February 3, 2001, and January
29, 2000, and for the fiscal years then ended is as follows:
FISCAL YEAR ENDED FISCAL YEAR ENDED
FEBRUARY 3, JANUARY 29,
2001 2000
----------------- -----------------
Franchise stores opened 2 1
Franchise stores purchased from franchisees - -
Franchise stores in operation at fiscal year-end 11 9
Company-owned stores at fiscal year-end 239 191
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Reclassifications of certain prior-year balances were made in order to
conform with current-year presentation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand and in banks with original
maturities of three months or less.
20
MARKETABLE SECURITIES
Marketable securities are classified as available-for-sale securities and are
carried at fair value, with the unrealized holding gains and losses, net of
income taxes, reflected as a separate component of stockholders' equity until
realized. For the purposes of computing realized and unrealized gains and
losses, cost is identified on a specific identification basis.
INVENTORIES
Raw material inventories of approximately $3,644,000 and $2,117,000 as of
February 3, 2001, and January 29, 2000, respectively, are recorded at the
lower of cost, using the first-in, first-out (FIFO) method, or market. All
other inventories consist of finished clothing and accessories and are
recorded at the lower of cost, using the last-in, first-out (LIFO) method, or
market. If the lower of FIFO or market method had been used, inventories
would have been approximately $1,153,000 and $586,000 higher at February 3,
2001, and January 29, 2000, respectively, than those reported in the
accompanying consolidated balance sheets. Purchasing, distribution and design
costs are expensed as incurred, and are included in the accompanying
consolidated statements of income as a component of cost of goods sold.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Fixtures manufactured and leasehold
improvements constructed by the Company are recorded at cost, which includes
elements of raw materials, labor and overhead. Depreciation of property and
equipment is provided on a straight-line basis over the estimated useful
lives of the assets. Assets acquired under capital lease obligations and
leasehold improvements are depreciated over the lesser of the useful lives of
the assets or the lease terms. Maintenance and repairs of property and
equipment are expensed as incurred, and major improvements are capitalized.
Upon retirement, sale or other disposition of property and equipment, the
cost and accumulated depreciation or amortization are eliminated from the
accounts, and any gain or loss is charged to operations.
OTHER ASSETS
Included in other assets are intangible assets which include legal and other
costs of obtaining the Company's trademark and debt financing agreements,
territory rights agreements related to franchise repurchases and franchise
cancellation fees for stores that were acquired by the Company, and are
currently in operation as company-owned stores. Trademark costs and
non-compete agreements are being amortized on a straight-line basis over ten
and five years, respectively; debt-financing costs are being amortized over
the term of the respective debt agreement; and franchise cancellation fees
are being amortized over the remaining terms of the related facilities'
leases. Intangible assets, net of accumulated amortization, are approximately
$187,000 and $249,000 as of February 3, 2001, and January 29, 2000,
respectively.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets, including identifiable intangibles, are reviewed
periodically for impairment if events or changes in circumstances indicate
that the carrying amount should be addressed. The Company has determined that
there has been no impairment in the carrying value of long-lived assets, as
of February 3, 2001.
INCOME TAXES
The Company follows the liability method, which establishes deferred tax
assets and liabilities for the temporary differences between the financial
reporting bases and the tax bases of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled. Net deferred tax assets, whose realization is dependent on taxable
earnings of future years, are recognized when a greater than 50 percent
probability exists that the tax benefits will actually be realized sometime
in the future.
21
FAIR VALUE OF FINANCIAL INSTRUMENTS
The book value of all financial instruments approximates their fair market
value as of February 3, 2001, and January 29, 2000.
Revenue Recognition Net sales by Company stores include sales made to retail
customers and shipments to catalog and Internet customers during the period,
net of estimated customer returns. Net sales to franchisees include
merchandise shipped to franchisees, net of estimated returns.
STORE PRE-OPENING COSTS
Operating costs (including store set-up, rent and training expenses) incurred
prior to the opening of new stores are expensed as incurred and are included
in general, administrative and store operating expenses in the accompanying
consolidated statements of income.
COMMON STOCK SPLIT
On December 14, 1999, the Board declared a two-for-one stock split of the
Company's common stock, payable in the form of a stock dividend on January
14, 2000, to shareholders of record as of the close of business on December
27, 1999. Accordingly, during the fiscal year ended January 29, 2000, all
historical weighted average share and per share amounts and all references to
the number of common shares elsewhere in the consolidated financial
statements and notes thereto were restated to reflect the stock split. Share
amounts presented in the consolidated balance sheets and consolidated
statements of stockholders' equity reflect the actual share amounts
outstanding for each period presented. Par value remains unchanged at $0.01.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Basic earnings per share (EPS) is based on the weighted average number of
common shares outstanding and diluted EPS is based on the weighted average
number of common shares outstanding plus the dilutive common equivalent
shares outstanding during the period. EPS has not been retroactively restated
for the three-for-two common stock split announced subsequent to the date of
the audit report (see Note 11).
The following is a reconciliation of the denominators of the basic and
diluted EPS computations shown on the face of the accompanying consolidated
statements of income as restated for the two-for-one stock split:
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999
----------------- ----------------- -----------------
Weighted average common shares outstanding -
basic.......................................... 17,351,953 16,942,233 16,335,518
Dilutive effect of options outstanding ........... 795,912 738,805 724,274
---------- ---------- ----------
Weighted average common and common equivalent
shares outstanding - diluted .................. 18,147,865 17,681,038 17,059,792
========== ========== ==========
The following options were outstanding as of the end of the fiscal years but
were not included in the computation of diluted EPS because the options'
exercise prices were greater than the average market price of the common
shares:
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999
----------------- ----------------- -----------------
Number of options 228,000 11,459 4,000
Exercise price $32.88-$34.75 $16.63 $11.53-$13.13
Expiration date August 7, 2010 - October 25, 2009 December 21, 2008 -
October 30, 2010 January 6, 2009
22
2. MARKETABLE SECURITIES:
Marketable securities classified as available-for-sale consisted of the
following:
FEBRUARY 3, JANUARY 29,
2001 2000
------------ -------------
Municipal bonds, cost ....... $ 14,174,274 $ 14,019,861
Municipal bonds, fair value.. 14,221,520 13,995,527
------------ -------------
Unrealized gain (loss) ...... $ 47,246 $ (24,334)
============ =============
During the fiscal year ended February 3, 2001, realized gains of
approximately $5,000 were recognized on sales of the Company's marketable
securities and are included in interest income in the accompanying
consolidated statements of income. No realized gains or losses were
recognized on sales of the Company's marketable securities during the fiscal
year ended January 29, 2000. At February 3, 2001, approximately 60 percent of
the Company's marketable securities mature within one year, 13 percent within
three years and the remainder by 2029.
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
ESTIMATED FEBRUARY 3, JANUARY 29,
USEFUL LIVES 2001 2000
------------ ------------ -------------
Land .......................................... $ 1,039,904 $ 1,039,904
Land improvements ............................. 35 years 1,821,678 1,790,761
Building ...................................... 20 - 35 years 11,693,884 6,321,714
Equipment ..................................... 2 - 10 years 14,112,885 5,633,770
Furniture and fixtures ........................ 3 - 10 years 13,970,657 7,057,023
Leasehold improvements ........................ 1 - 10 years 37,559,359 19,373,988
------------ -------------
80,198,367 41,217,160
Less--Accumulated depreciation and amortization (14,613,356) (9,872,163)
------------ -------------
$ 65,585,011 $ 31,344,997
============ =============
4. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following:
FEBRUARY 3, JANUARY 29,
2001 2000
----------- ------------
Accrued payroll, bonuses and severance
costs..................................... $ 5,568,668 $ 2,002,931
Allowance for estimated merchandise returns. 3,469,700 1,698,000
Other ...................................... 2,260,984 892,173
----------- ------------
$11,299,352 $ 4,593,104
=========== ============
5. INCOME TAXES:
The Company's total income tax provision consisted of the following:
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999
----------------- ----------------- -----------------
Current:
Federal .................... $ 15,820,000 $ 9,176,000 $ 5,080,000
State ...................... 2,179,000 1,064,000 1,352,000
Deferred:
Federal .................... (492,000) (635,000) (462,000)
State ...................... (114,000) (111,000) (126,000)
----------------- ----------------- -----------------
Total income tax provision $ 17,393,000 $ 9,494,000 $ 5,844,000
================= ================= =================
23
The reconciliation of the income tax provision based on the U.S. statutory
federal income tax rate (35 percent) to the Company's income tax provision is
as follows:
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999
----------------- ----------------- ---------------------
Tax expense at the statutory rate ...... $16,020,000 $ 8,744,000 $ 5,094,000
State income tax expense, net of federal
tax benefit .......................... 1,369,000 633,000 769,000
Other .................................. 4,000 117,000 (19,000)
----------------- ----------------- ---------------------
Total income tax provision ........... $17,393,000 $ 9,494,000 $ 5,844,000
================= ================= =====================
Deferred tax assets and liabilities are recorded due to different carrying
amounts for financial and income tax reporting purposes arising from
cumulative temporary differences. These differences consisted of the
following as of February 3, 2001, and January 29, 2000:
FEBRUARY 3, JANUARY 29,
2001 2000
------------- -------------
Assets:
Accrued liabilities and
allowances ............. $ 1,810,000 $ 1,180,000
Inventories .............. 1,196,000 940,000
Lease obligations ........ 841,000 686,000
Property and equipment ... -- 423,000
Other .................... 84,000 85,000
------------- -------------
3,931,000 3,314,000
Liabilities:
Property and equipment ... (108,000) --
------------- -------------
3,823,000 3,314,000
Less-- Valuation allowance (73,000) (170,000)
------------- -------------
$ 3,750,000 $ 3,144,000
============= =============
A valuation allowance of $97,000 was reversed during the fiscal year ended
February 3, 2001, partly due to the utilization of a portion of net operating
loss carryforwards.
6. DEBT AND LEASE OBLIGATIONS:
Debt and lease obligations consisted of the following:
FEBRUARY 3, JANUARY 29,
2001 2000
------------ -----------
Line of credit ..................................................................... $ -- $ --
Mortgage note (the Mortgage Note) secured by a first priority mortgage on land, land
improvements, and certain building and equipment ................................ 5,221,500 5,293,500
Deferred rent ...................................................................... 2,212,762 1,805,791
------------ -----------
Total debt and lease obligations ................................................ 7,434,262 7,099,291
Less-- Current portion .......................................................... (276,410) (260,111)
------------ -----------
$ 7,157,852 $ 6,839,180
============ ===========
During the fiscal year ended February 3, 2001, the Company entered into a
two-year unsecured revolving credit facility (the Credit Facility) whereby
the Company may borrow up to $25 million. The Credit Facility consists of a
$10 million line of credit (the Line) and $15 million in reserves for letters
of credit (see Note 8). All borrowings under the Credit Facility bear
interest, at the LIBOR rate (5.89 percent at February 3, 2001) plus an
additional amount ranging from 0.80 percent to 2.90 percent, adjusted
quarterly based on the Company's performance per annum (0.80 percent at
February 3, 2001). The Company is also required to pay, quarterly in arrears,
a commitment fee of 0.10 percent per annum on the average daily unused
portion of the Line. There are no compensating balance requirements
associated with the Credit Facility.
24
The Credit Facility contains certain restrictions regarding additional
indebtedness, business operations, guaranties, transfers and sales of assets,
transactions with subsidiaries or affiliates and liens. In addition, the
Company must comply with certain quarterly restrictions (based on a rolling
four-quarters basis) regarding net worth, leverage ratio, fixed charge
coverage and current ratio requirements. The Company was in compliance with
all covenants at February 3, 2001.
The Mortgage Note was financed with a bank, initially bearing interest at the
bank's prime rate plus .5 percent. The Mortgage Note is payable in 84 monthly
installments of $6,000, plus accrued interest, through December 2002, at
which time the remaining principal balance is due. On October 14, 1997, an
interest rate swap (the Swap) with a notional principal amount of
approximately $5,462,000 was effectuated, whereby the interest at the bank's
prime rate plus .5 percent was exchanged for a fixed rate of 9 percent of the
outstanding principal of the Mortgage Note. The Company incurred no
additional costs associated with the Swap during the fiscal year ended
January 30, 1999. The Company bought out the Swap during the fiscal year
ended January 29, 2000, for approximately $8,000, which is included in
general, administrative and store operating expenses in the accompanying
consolidated statements of income.
During the fiscal year ended February 3, 2001, in connection with the closing
of the Credit Facility, the Company amended the Mortgage Note to provide that
the existing indebtedness would bear interest under the same provision as
that in the Credit Facility and the restrictive covenants would be modified
to be the same as those in the Credit Facility.
Deferred rent represents the difference between actual operating lease
obligations due and operating lease expense, which is recorded by the Company
on a straight-line basis over the terms of its leases.
Maturities of the Mortgage Note are as follows as of February 3, 2001:
FISCAL YEAR ENDING AMOUNT
---------------
2002........................... $ 72,000
2003........................... 5,149,500
---------------
$ 5,221,500
===============
7. RELATED PARTY TRANSACTIONS:
Certain officers have entered into agreements with the Company which provide
for base salaries, annual bonuses and certain severance benefits in the event
that their employment is terminated by the Company "without cause" or
following a "change of control" of the Company.
8. COMMITMENTS AND CONTINGENCIES:
The Company leases retail store space and various office equipment under
operating leases expiring in various years through the fiscal year ending
2012. Certain of the leases provide that the Company may cancel the lease if
the Company's retail sales at that location fall below an established level,
while certain leases provide for additional rent payments to be made when
sales exceed a base amount. Certain operating leases provide for renewal
options for periods from three to five years at their fair rental value at
the time of renewal. In the normal course of business, operating leases are
generally renewed or replaced by other leases.
Minimum future rental payments under noncancellable operating leases
(including leases with certain minimum sales cancellation clauses described
below and exclusive of common area maintenance charges and/or contingent
rental payments based on sales) as of February 3, 2001, were as follows:
FISCAL YEAR ENDING AMOUNT
------------------ ---------------
2002........................... $ 11,539,777
2003........................... 10,672,290
2004........................... 9,569,007
2005........................... 8,417,435
2006........................... 6,701,853
Thereafter..................... 17,967,591
---------------
$ 64,867,953
===============
25
As mentioned earlier, a majority of the Company's store operating leases
contain cancellation clauses that allow the leases to be terminated at the
Company's discretion, if certain minimum sales levels are not met within the
first few years of the lease term. The Company has not historically exercised
many of these cancellation clauses and, therefore, has included the full
lease terms of such leases in the above table. For the fiscal years ended
February 3, 2001, January 29, 2000, and January 30, 1999, total rent expense
under the Company's operating leases was approximately $21,185,000,
$14,843,000 and $11,332,000, respectively, including common area maintenance
charges of approximately $2,511,000, $1,827,000 and $1,480,000, other rental
charges of approximately $2,473,000, $1,928,000 and $1,637,000, and
contingent rental expense of approximately $2,437,000, $1,084,000 and
$426,000, based on sales, respectively.
At February 3, 2001, the Company had approximately $8,097,000 in commercial
letters of credit outstanding (see Note 6), which have arisen in the normal
course of business due to foreign purchase commitments.
The Company is involved in claims and actions arising in the ordinary course
of business. In the opinion of management, after consultation with legal
counsel, the ultimate disposition of these matters is not expected to have a
material adverse effect on the financial position of the Company.
9. STOCK OPTION PLANS AND CAPITAL STOCK TRANSACTIONS:
1992 STOCK OPTION PLAN
During fiscal year 1992, the Board of Directors (the Board) approved a stock
option plan (the 1992 Plan), which reserved approximately 749,000 shares of
common stock for future issuance under the 1992 Plan to eligible employees of
the Company. The per share exercise price of each stock option is not less
than the fair market value of the stock on the date of grant or, in the case
of an employee owning more than 10 percent of the outstanding stock of the
Company and to the extent incentive stock options, as opposed to nonqualified
stock options, are issued, the price is not less than 110 percent of such
fair market value. Also, the aggregate fair market value of the stock with
respect to which incentive stock options are exercisable for the first time
by an employee in any calendar year may not exceed $100,000. Options granted
under the terms of the 1992 Plan generally vest evenly over three years and
have a 10-year term. As of February 3, 2001, approximately 280,000
nonqualified options were outstanding and approximately 468,000 had been
exercised under the 1992 Plan.
1993 STOCK OPTION PLAN
During fiscal year 1993, the Board approved a stock option plan (the 1993
Plan), which reserved approximately 1,161,000 shares of common stock for
future issuance under the 1993 Plan to eligible employees of the Company.
During the fiscal year ended January 29, 2000, the Board amended the 1993
Plan to increase the aggregate number of shares available for purchase by
1,000,000 shares. The terms of the 1993 Plan are essentially the same as the
1992 Plan. As of February 3, 2001, approximately 1,244,000 nonqualified
options were outstanding and approximately 322,000 had been exercised under
the 1993 Plan.
INDEPENDENT DIRECTORS' PLAN
In October 1998, the Board approved a stock option plan (the Independent
Directors' Plan) which reserved 300,000 shares of common stock for future
issuance to eligible independent directors of the Company. Options granted
under the terms of the Independent Directors' Plan vest after six months and
have a 10-year term. As of February 3, 2001, 90,000 shares had been granted
under the Independent Directors' Plan. Since 1993 and prior to adoption of
the Independent Directors' Plan, four independent directors of the Company
had been granted a total of 393,000 nonqualified options through individual
grants at exercise prices ranging from $1.63 to $13.56. Subsequent to the
adoption of the Independent Directors' Plan, three independent directors of
the Company were granted 30,000 nonqualified stock options through individual
grants at an exercise price of $19.31 per share. As of February 3, 2001,
approximately 162,000 of these individual grant nonqualified options and
options under the Independent Directors' Plan were outstanding and
approximately 231,000 had been exercised.
26
EXECUTIVE OFFICERS' SUPPLEMENTARY STOCK OPTION PROGRAM
During the fiscal year ended February 3, 2001, the Board approved an
executive officers' supplementary stock option program (the Executive
Officers' Program), which reserved 250,000 shares of common stock for future
issuance to eligible executive officers of the Company. Options granted under
the terms of the Executive Officers' Program vest evenly over three years and
have a 10-year term. As of February 3, 2001, all 250,000 shares had been
granted under the Executive Officers' Program at exercise prices ranging from
$22.96 to $34.44. Of the 250,000 shares granted during the fiscal year ended
February 3, 2001, 30,000 shares were granted at exercise prices below fair
market value. The granting of these shares resulted in stock compensation
expense of approximately $70,000 being recorded in the accompanying
consolidated financial statements. As of February 3, 2001, all of these
nonqualified options were outstanding.
AGGREGATE STOCK OPTION ACTIVITY
As of February 3, 2001, 1,936,035 nonqualified options were outstanding at a
weighted average exercise price of $10.80 per share, and 805,651 remained
available for future grants. Of the options outstanding, 1,112,066 options
were exercisable.
Stock option activity for the fiscal years ended February 3, 2001, January
29, 2000, and January 30, 1999, was as follows:
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
FEBRUARY 3, 2001 JANUARY 29, 2000 JANUARY 30, 1999
----------------------- -------------------------- -------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- --------- ---------- ----------- --------- ------------
Outstanding, beginning of period. 1,715,958 $ 5.14 1,605,306 $ 3.02 1,955,554 $ 2.57
Granted ........................ 600,000 22.58 397,000 12.27 391,500 4.50
Exercised ...................... (352,454) 3.40 (273,346) 3.21 (693,848) 2.64
Canceled or expired ............ (27,469) 9.39 (13,002) 2.37 (47,900) 2.46
--------- ---------- ---------
Outstanding, end of period ....... 1,936,035 10.80 1,715,958 5.14 1,605,306 3.02
========= ========== =========
Options exercisable, end of
period.......................... 1,112,066 5.16 1,023,677 3.54 865,386 3.05
The following table summarizes information about stock options as of
February 3, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGES OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
----------------- ----------- ----------------- -------- ------------- ---------
$1.63 - $4.99 911,432 5.71 $2.79 826,959 $2.61
$5.00 - $9.99 67,000 3.94 6.12 77,000 6.16
$10.00 - $19.99 669,603 8.73 13.12 178,107 13.89
$20.00 - $34.75 288,000 9.60 31.82 30,000 21.12
----------- ----------------- -------- ------------- ---------
1,936,035 7.27 $10.80 1,112,066 $5.16
=========== ================= ======== ============= =========
EMPLOYEE STOCK PURCHASE PLAN
The Board adopted a noncompensatory employee stock purchase plan (ESPP),
which became effective upon the consummation of the Company's initial public
offering on April 1, 1993, and as amended, that covers an aggregate of
approximately 228,000 shares of common stock. Under the ESPP, all employees
are given the right to purchase up to 800 shares of the common stock of the
Company two times a year at a price equal to 85 percent of the value of the
stock immediately prior to the beginning of each exercise period. During the
fiscal years ended February 3, 2001, January 29, 2000, and January 30, 1999,
approximately 18,000, 69,000 and 70,000 shares, respectively, were purchased
under the ESPP. The Company recognized no compensation expense for the
issuance of these shares.
27
SFAS NO. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION"
The Company accounts for its stock-based compensation plans under Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). The FASB later issued Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation" (SFAS
123). SFAS 123 allows companies to continue following the accounting guidance
of APB 25, but requires pro forma disclosure of net income and EPS for the
effects on compensation expense had the accounting guidance of SFAS 123 been
adopted. The pro forma disclosures are required only for options granted in
fiscal years that begin after December 15, 1994.
For SFAS 123 purposes, the fair value of each option granted has been
estimated as of the grant date using the Black-Scholes option pricing model
with the following weighted average assumptions: risk-free interest rate of
6.3, 6.2 and 6.3 percent for the fiscal years ended February 3, 2001, January
29, 2000, and January 30, 1999, respectively, expected life of seven years,
no expected dividends, and expected volatility of 74, 67 and 75 percent for
the fiscal years ended February 3, 2001, January 29, 2000, and January 30,
1999, respectively. The weighted average fair value of options granted during
the fiscal years ended February 3, 2001, January 29, 2000, and January 30,
1999, was $18.38, $12.27 and $9.05, respectively. Options granted under the
1992 Plan and 1993 Plan vest ratably over three years. All other options were
either exercisable after six months or vested ratably over three years. The
term of all options granted is 10 years. Had compensation expense been
determined consistent with SFAS 123, utilizing the assumptions detailed
above, the Company's net income and net income per common and common
equivalent shares outstanding would have been changed to the following pro
forma amounts for the fiscal years ended February 3, 2001, January 29, 2000,
and January 30, 1999:
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999
----------- ------------ -----------
Net income:
As reported................................................ $28,378,619 $15,489,380 $9,139,108
Pro forma.................................................. 26,382,313 14,451,495 8,443,686
Net income per common share - Basic:
As reported................................................ $ 1.64 $ .91 $ .56
Pro forma.................................................. 1.52 .85 .52
Net income per common and common equivalent share - Diluted:
As reported................................................ $ 1.56 $ .88 $ .54
Pro forma.................................................. 1.37 .77 .49
10. EMPLOYEE BENEFIT PLAN:
The Company has a defined contribution employee benefit plan (the Plan)
covering substantially all employees. Employees' rights to
Company-contributed benefits vest over two to six years of service, as
specified in the Plan. Effective January 1, 1999, the Company amended the
Plan to incorporate a 401(k) savings plan feature (the 401(k)) into the Plan.
Under the 401(k), employees may contribute up to 20 percent of their annual
compensation, subject to certain statutory limitations. The Company matches
employee contributions at 33 1/3 percent up to 6 percent of the employees'
contributions. The Company contributions to the 401(k) vest ratably over two
to six years of service, as specified in the Plan. For the fiscal years ended
February 3, 2001, January 29, 2000, and January 30, 1999, the Company's costs
under the Plan were approximately $283,000, $276,000 and $487,000,
respectively.
29
11. SUBSEQUENT EVENT (UNAUDITED):
On April 19, 2001, the Company announced that the Board had approved a
three-for-two stock split of the Company's common stock, payable in the form
of a stock dividend on May 16, 2001, to stockholders of record as of the
close of business on May 2, 2001. The historical earnings per share amounts
included in these consolidated financial statements have not been restated
for the effect of this stock split. Pro forma information reflecting the
effect of this stock split is as follows:
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999
----------------- ----------------- -----------------
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE DATA:
Basic.................................................... $ 1.09 $ 0.61 $ 0.37
Diluted.................................................. $ 1.04 $ 0.58 $ 0.36
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Basic.................................................... 26,027,930 25,413,350 24,503,277
Diluted.................................................. 27,221,798 26,521,557 25,589,688
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
NET INCOME PER
NET GROSS NET NET INCOME PER COMMON AND COMMON
SALES PROFIT INCOME COMMON SHARE - BASIC EQUIVALENT SHARE - DILUTED
----------- ----------- ---------- -------------------- --------------------------
Fiscal year ended January 30, 1999:
First quarter.................. $25,895,908 $15,126,755 $2,328,505 $ .15 $ .14
Second quarter................. 27,358,542 16,346,471 2,713,082 .17 .16
Third quarter.................. 26,754,149 15,713,456 2,371,442 .15 .14
Fourth quarter................. 26,732,994 15,358,485 1,726,079 .10 .10
Fiscal year ended January 29, 2000:
First quarter.................. $36,424,981 $21,524,358 $4,216,453 $ .25 $ .24
Second quarter................. 36,771,293 21,276,944 3,946,666 .23 .22
Third quarter.................. 40,008,995 23,408,317 4,078,309 .24 .23
Fourth quarter................. 41,797,012 23,842,732 3,247,952 .19 .18
Fiscal year ended February 3, 2001:
First quarter.................. $56,692,814 $33,928,820 $7,475,922 $ .44 $ .42
Second quarter................. 60,638,316 34,994,364 7,377,426 .43 .41
Third quarter.................. 68,990,473 40,669,142 7,820,096 .45 .43
Fourth quarter................. 73,124,293 41,182,993 5,705,175 .33 .31
REPORTS ON FORM 10-K
A copy of the Company's annual report to the Securities and Exchange Commission
on Form 10-K will be sent to any shareholder without charge upon written request
to Investor Relations at the current mailing address or website address below:
Chico's FAS, Inc.
11215 Metro Parkway
Fort Myers, Florida 33912
Website: www.chicos.com
------
Transfer Agent and Registrar:
The Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
Legal Counsel:
Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis
Tampa, Florida 33602
Independent Certified Public Accountants:
Arthur Andersen LLP
Tampa, Florida 33602
Investor Relations:
The Investor Relations Company
2340 S. River Road
Des Plaines, IL 60018
------
Annual Shareholders' Meeting:
Tuesday, June 19, 2001 at 2:00 p.m.
Sanibel Harbour Resort
Ft. Myers, Florida 33908
- --------------------------------------------------------------------------------
CHICO'S-REGISTERED TRADEMARK- FAS, Inc.
EXECUTIVE OFFICERS
------------------
Marvin J. Gralnick
Chief Executive Officer
President
Helene B. Gralnick
Senior Vice President - Design & Concept
Charles J. Kleman
Chief Financial Officer
Executive Vice President - Finance
Secretary/Treasurer
Scott A. Edmonds
Chief Operating Officer
Assistant Secretary
Patricia A. Murphy
Senior Vice President - General Merchandise Manager
Mori C. MacKenzie
Vice President - Director of Stores
Tedford G. Marlow
Executive Vice President
DIRECTORS
---------
Marvin J. Gralnick
Chairman of the Board
Helene B. Gralnick
Senior Vice President - Design & Concept
Charles J. Kleman
Chief Financial Officer
Executive Vice President - Finance
Secretary/Treasurer
Verna K. Gibson
Retailing Consultant
Ross E. Roeder
Chairman and Chief Executive Officer - Smart & Final, Inc.
John W. Burden
Retailing Consultant
30