(PHOTO) Exhibit 13
ANNUAL REPORT FISCAL 2003
CHICO'S
A message from our CEO to our shareholders...
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1
I would like to begin this letter, my first as CEO, by expressing my heartfelt
gratitude to our founders, Marvin and Helene Gralnick, for their years of
dedication to this amazing company. Without their insight, energy, and passion,
Chico's would not be what it is today. I speak on behalf of the entire Chico's
organization when I say that this will always be their home. Even though Marvin
and Helene officially retired as officers this past March, they continue to
serve both as board members and dedicated founders to help ensure their vision
and values are maintained at the same levels. I look forward to partnering with
them to take advantage of the tremendous growth potential that we see both now
and in the future.
Fiscal year 2003 was a year of tremendous accomplishment for Chico's as we
improved results on virtually every financial metric. To start with, this was
our seventh consecutive year of double-digit comparable store sales increases.
Our net income rose 50.1% to a record $100 million, or $1.14 per diluted share,
and net sales for the fiscal year increased 44.7% to a record $768 million.
Comparable store sales for Company-owned stores increased 16.1% for the fiscal
year, and our gross and operating margins increased almost a full percentage
point over fiscal 2002.
Our balance sheet is extremely strong. In fiscal 2003, we funded over $87
million of cash on the White House | Black Market acquisition and over $52
million on capital expenditures, while at the same time managing to add $20
million to our cash and marketable securities balances. Our inventory balances
remain strong at $55 per square foot and we are virtually debt free. Lastly, our
net book value rose by over $134 million to end the year at over $374 million.
It is important to note that these impressive results were accomplished during a
year when we: (1) acquired the White House | Black Market company which closed
on September 5, 2003; (2) implemented new software in almost every division of
the Company; (3) launched and concluded the 10 store Pazo test; (4) opened 72
net new stores, and expanded, relocated, or remodeled another 37 stores; (5)
prepared for the test launch of our new intimate apparel line, Soma by Chico's;
(6) completed a CEO transition; and (7) expanded our Board of Directors from six
to eight members. Although I am certainly pleased to become a member of the
Board, I am particularly excited about the second new member of our Board, Betsy
S. Atkins. Ms. Atkins is a nationally recognized leader, speaker, and writer
concerning corporate governance matters and has significant experience with
mergers and acquisitions, integration, and investment banking. As you can see,
2003 was a year of tremendous accomplishment, not only financially, but on many
other fronts as well.
The White House | Black Market integration is almost complete, and I'm pleased
to report that their new headquarters is now located right next door to Chico's
headquarters on our 35 acre campus here in Fort Myers, Florida. We have already
integrated the majority of their operations into our infrastructure with the
exception of merchandising, which we plan to keep independent for the most part,
or their distribution center, which we plan to close once their business is up
and running on our software platform. We plan to convert their back office
systems and move their distribution center at the start of the second quarter of
2004, convert their cash registers to our systems in July 2004, and anticipate
getting their website operational for Internet purchasing in the fourth quarter
of this year or the first quarter of next year.
NET SALES IN MILLIONS NET INCOME IN MILLIONS
FY 99 $155 FY 99 $15
FY 00 $259 FY 00 $28
FY 01 $378 FY 01 $42
FY 02 $531 FY 02 $67
FY 03 $768 FY 03 $100
As I stated earlier, in fiscal 2003 we opened 72 net new stores, expanded or
relocated 21 stores, and remodeled 16 stores for a 26% increase in net sq.
footage. Including the 107 stores we acquired from White House, we expanded our
overall square footage by 45%. For fiscal 2004, we plan to open between 85 and
95 net new stores and expand or relocate another 20 to 30. Of the 85 to 95 new
stores, we anticipate 35-40 of these to be White House | Black Market stores, 10
to be Soma by Chico's test stores, and the remainder to be under the Chico's
brand. There is tremendous momentum behind the Chico's brand and our brand
awareness is increasing every day. We are eagerly anticipating the launch of our
new intimate apparel line, Soma by Chico's. Soma, which is the Greek word for
body, will open 10 new test stores in the second half of this year. These 10
stores will offer a unique and exciting intimate apparel shopping experience
with the same level of service to which our Chico's customers have become
accustomed. We are very excited about the test of this brand and its potential
to supplement our growth in future years.
Membership in our customer loyalty program, the Passport Club, continues to
steadily rise. We currently have over 900,000 permanent Passport members and
these members drove 74% of our business last fiscal year. In fact, during fiscal
year 2003, we enrolled 300,000 new permanent Passport members and an additional
800,000 new preliminary members. The Passport Club is the heartbeat of our
marketing effort and we will continue to seek ways to enhance the program with
special promotions and incentives to keep our customers coming back.
Chico's is the hottest specialty apparel brand in America today, but it's not
just our unique merchandise and trademarked "most amazing personal service" that
sets us apart from other retailers. It's also the culture of our company. We
have a firm belief that Chico's is a sum of its parts and every associate is
important to our success. Because of this belief, every associate is treated
with sincere respect, honesty, and courtesy, and in return, they treat our
customers in the same fashion. This fosters a deep sense of loyalty at both the
associate and customer level. I am aware that the Company's personality starts
at the top and permeates throughout the organization, and I intend to continue
this focus on our culture that has been a "secret weapon" over the years. The
entire management team is committed to ensuring that each individual brought
into the company supports these same beliefs. Only then can we ensure that the
arts, beliefs, customs, institutions, and all other products of human work and
thought created by Chico's since 1983 will continue into the future.
My most sincere thanks to every Chico's associate for their dedication and
commitment to making Chico's the best place in America to work and shop. I look
forward to their partnership in continuing to deliver new, unique, creative, and
exciting product to our customers. Finally, I would like to thank our customers,
suppliers, and shareholders for their continued support. Chico's is on track for
success in 2004 and beyond. I believe that the best is yet to come!
/s/ Scott A. Edmonds
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Scott A. Edmonds
President
Chief Executive Officer
DILUTED EARNINGS PER SHARE STORE GROWTH
FY 99 $0.19 FY 99 200
FY 00 $0.35 FY 00 250
FY 01 $0.50 FY 01 311
FY 02 $0.78 FY 02 378
FY 03 $1.14 FY 03 557
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CONTENTS
7 Management's Discussion & Analysis
19 Stock Information
22 Financial Statements
42 Executive Officers/Directors
48 Store Listing
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5
financial highlights
FISCAL YEAR ENDED
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JANUARY 31, FEBRUARY 1, FEBRUARY 2, FEBRUARY 3, JANUARY 29,
2004 2003 2002 2001 2000
(52 WEEKS) (52 WEEKS) (52 WEEKS) (53 WEEKS) (52 WEEKS)
-----------------------------------------------------------------------------------
(Dollars in thousands except per share data)
STATEMENT OF INCOME DATA:
Net Sales $768,499 $531,108 $378,085 $259,446 $155,002
Income from Operations 160,774 106,793 67,536 45,363 24,806
Net Income 100,230 66,759 42,187 28,379 15,489
Basic Earnings Per Share (1) 1.16 0.80 0.52 0.36 0.20
Diluted Earnings Per Share (1) 1.14 0.78 0.50 0.35 0.19
BALANCE SHEET AND OPERATING DATA:
Total Assets $470,854 $301,544 $186,385 $117,807 $ 70,316
Long-Term Debt -- -- 5,022 5,150 5,222
Other Noncurrent Liabilities 24,437 6,551 2,922 2,008 1,617
Stockholders' Equity 374,835 240,133 143,495 85,321 52,641
# of Stores (at end of period):
Company-owned 545 366 300 239 191
Franchised 12 12 11 11 9
-------- -------- -------- -------- --------
Total 557 378 311 250 200
======== ======== ======== ======== ========
(1) Restated to give retroactive effect for the 2 for 1 stock split payable in
July 2002, the 3 for 2 stock split payable in January 2002 and the 3 for 2
stock split payable in May 2001.
CASH FLOW FROM OPERATIONS IN MILLIONS BOOK VALUE PER SHARE
FY 99 $17 FY 99 $0.68
FY 00 $39 FY 00 $1.08
FY 01 $65 FY 01 $1.76
FY 02 $109 FY 02 $2.82
FY 03 $145 FY 03 $4.28
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MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and notes thereto.
EXECUTIVE OVERVIEW
Chico's FAS, Inc. (together with its subsidiaries, the "Company") is a specialty
retailer of exclusively designed, private label, sophisticated, casual-to-dressy
clothing, complementary accessories, and other non-clothing gift items under the
Chico's and White House | Black Market brand names.
The Chico's brand, which began operations in 1983, focuses on women who are 35
years old and up with moderate and higher income levels. The styling is relaxed,
figure-flattering and designed for easy care. The White House | Black Market
brand, which was acquired by the Company in September 2003 as a result of the
acquisition of The White House, Inc., targets middle-to-upper income, youthful
women between the ages of 25 and 45. The styling is contemporary, feminine and
unique, assorted primarily in the classic and timeless colors of white and black
and related shades.
The Company earns revenues and generates cash through the sale of merchandise in
its retail stores, to its franchisees, and through its call center, which
handles sales related to the Company's catalog and online operations.
Since the Company opened its first Chico's store in 1983 principally selling
folk art, its retail store system, now selling principally women's apparel, has
grown to 559 stores as of March 31, 2004, of which 426 are Company-owned Chico's
stores, 12 are Chico's franchised stores and 121 are White House | Black Market
stores. During the fiscal year ended January 31, 2004, the Company decided to
discontinue its 10-store Pazo test, converting one of these stores to the
Chico's concept, converting 5 of these stores in the first quarter of fiscal
2004 to the White House | Black Market concept, scheduling 3 of these stores to
be converted later in 2004 to the new intimate apparel brand concept that the
Company is testing, Soma by Chico's, and closing one of these stores in the
first quarter of fiscal 2004 as well.
Over the period from January 31, 1999 through January 31, 2004, the Company has
opened 295 new Company-owned stores (including 7 new White House | Black Market
stores in fiscal 2003 since acquiring the chain in September 2003), and acquired
two stores from franchisees, and one franchisee has opened five new franchised
stores. Of the new Company-owned stores, 74 were opened in fiscal 2003 (year
ended January 31, 2004), 66 were opened in fiscal 2002, 64 were opened in fiscal
2001, 51 were opened in fiscal 2000, and 40 were opened in fiscal 1999. During
this same time period, the Company closed 13 Company-owned stores and no
franchised stores were closed.
The Company expects to open between 85 and 95 net new stores during fiscal year
2004. Of this total, approximately 40-45 are expected to be Chico's stores,
approximately 35-40 are expected to be White House | Black Market stores, and
approximately 10 are expected to comprise the test for the new Soma by Chico's
concept store. 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 6 and 8 existing
Company-owned stores in fiscal 2004.
In September 2003, the Company acquired The White House, Inc., and its concept,
White House | Black Market, for approximately $93 million, of which
approximately $88 million consisted of cash consideration (net of cash acquired)
and the balance consisted of the Company's common stock. The White House, Inc.
was a privately held retailer, which owned 107 stores in 30 states, Puerto Rico,
and the US Virgin Islands, on the closing date of the acquisition. The Company
remains quite positive about the acquisition and believes that the acquisition
will strengthen its position in the specialty retail market and will contribute
to the Company's overall growth strategy.
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<Table>
<Caption>
AVERAGE NET SALES PER STORE NET SELLING SQUARE FEET (000'S) AVERAGE NET SALES PER NET SELLING SQUARE FOOT
FY 99 $904 FY 99 278 FY 99 $675
FY 00 $1,200 FY 00 388 FY 00 $809
FY 01 $1,385 FY 01 535 FY 01 $815
FY 02 $1,556 FY 02 692 FY 02 $849
FY 03 $1,783 FY 03 1,000 FY 03 $924
</Table>
In addition to the acquisition of The White House, the Company announced its
plan to open 10 test concept stores during fiscal 2004 under its new intimate
apparel concept, Soma by Chico's. The Company believes that the intimate apparel
market could offer the Company another vehicle to reach the Chico's customer and
to further leverage the Chico's brand.
Factors that will be critical to determining the Company's future success
include, among others, managing the overall growth strategy, including the
ability to open and operate stores effectively, maximizing efficiencies in the
merchandising, product development and sourcing processes, maintaining high
standards for customer service and assistance, maintaining the newness, fit and
comfort in its merchandise offerings, and generating cash to fund the Company's
expansion needs. In order to monitor the Company's success in regards to these
critical success factors, the Company's senior management monitors certain key
performance indicators, including:
- Comparable same store sales growth - In fiscal 2003, the Company's
comparable store sales growth (sales from stores open for at least
twelve full months, including stores that have been expanded or
relocated within the same general market) reached 16.1%. This increase
represents the seventh consecutive year in which the Company has
experienced double-digit comparable store sales growth. Management
believes that this is a positive indication of the Company's ability
to manage its expansion and its ability to open and operate stores
effectively. Maintaining comparable same store sales growth over an
extended period of time into the future can be impacted by saturation,
customer receptiveness to new product offerings and price elasticity,
among other factors. In late fiscal 2004, White House | Black Market
stores will enter into the comparable store base. The ability of the
Company to maintain strong comparable same store sales increases
within the White House | Black Market stores will be important to the
ability of the Company to continue its comparable same store sales
growth.
- Positive operating cash flow - In fiscal 2003, the Company generated
$145 million of cash flow from operations compared with $109 million
in fiscal 2002, which represents an increase of 33.6%. The Company
believes a key strength of its business is the historical ability to
consistently generate cash. In addition to supporting the general
operating needs of the Company, the Company uses cash generated from
operations to fund capital expenditures related to new store openings,
to fund the implementation of state of the art information systems
which will help support the future growth of the Company, and to fund
strategic acquisitions. Although the Company used approximately $88
million of cash to complete the acquisition of The White House, Inc.
in 2003 and approximately $52 million of cash to fund store growth and
to complete the implementation of new information systems, the
Company's cash and marketable securities balances as of the end of
fiscal 2003 still increased over the balances as of the end of fiscal
2002. Cash flow can be negatively impacted by a slow down in sales,
higher costs of goods sold as a percentage of sales and increased
selling, general and administrative expenses as a percentage of sales.
See further discussion of the Company's cash flows in the Liquidity
and Capital Resources section.
- Passport Club - Management believes that a significant indicator of
the Company's emphasis on personalized customer service is the growth
of its loyalty program, the "Passport Club." The Passport Club
features discounts and other special promotions for its members.
Preliminary members may join the Passport Club at no cost and upon
spending $500, customers automatically become permanent members and
are entitled to a lifetime 5% discount and other benefits. During
fiscal 2003, the Company added 300,000 permanent Passport Club members
and 800,000 preliminary Passport Club members. In fiscal
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2003, permanent Passport Club members accounted for approximately 74%
of overall sales, about the same as in fiscal 2002. Although the
Company has tended to experience a more significant drop off in sales
to Passport Club members as a group in the second year of their
membership, the sales to such members in the aggregate tend to level
out in subsequent years. The Company believes that the growth of its
Passport Club indicates that the Company is still generating strong
interest from new customers, many of whom tend to become long term
loyal customers due in large part to the Company's commitment to
personalized customer service.
- Quality of merchandise offerings - To monitor and maintain the
acceptance of its merchandise offerings, the Company monitors
sell-through levels, inventory turns, gross margins and markdown rates
on a classification and style level. Although the Company does not
disclose these statistics for competitive reasons, these reviews help
identify comfort, fit and newness issues at an early date and help the
Company plan future product development and buying.
In fiscal year 2003, the Company reported net sales, operating income and net
income of $768 million, $161 million and $100 million, respectively, up 44.7%,
50.5% and 50.1%, from the prior fiscal year. Net sales for fiscal year 2003
included approximately 5 months of sales from the newly acquired White House |
Black Market concept, as well as the results of the Company's now discontinued
Pazo store concept. The Company's gross margin increased to 61.3% in fiscal 2003
from 60.5% in fiscal 2002. The increases in operating income and net income
benefited significantly from the leverage associated with the Company's fiscal
2003 comparable store sales increase of 16.1%. Sales and profitability trends
are further discussed in the Results of Operations section.
RESULTS OF OPERATIONS
NET SALES
The following table shows net sales by Company-owned stores, net sales by
catalog and Internet and net sales to franchisees in absolute dollars and as a
percentage of total net sales for the fiscal years ended January 31, 2004
(fiscal 2003 or "current period"), February 1, 2003 (fiscal 2002 or "prior
period") and February 2, 2002 (fiscal 2001) (amounts in thousands):
FISCAL 2003 % FISCAL 2002 % FISCAL 2001 %
----------- ----- ----------- ----- ----------- -----
Net sales by Company stores $737,918 96.0% $508,492 95.8% $362,443 95.9%
Net sales by catalog and Internet 22,780 3.0 16,070 3.0 10,203 2.7
Net sales to franchisees 7,801 1.0 6,546 1.2 5,439 1.4
-------- ----- -------- ----- -------- -----
Net sales 768,499 100.0 531,108 100.0 378,085 100.0
Net sales by Company-owned stores have increased over the past three years
primarily due to new store openings, as well as the current trend of
double-digit increases in the Company's comparable store net sales (including
stores within the comparable store base that have been expanded). A summary of
the factors impacting year-over-year sales increases is provided in the table
below:
FISCAL 2003 FISCAL 2002 FISCAL 2001
----------- ----------- -----------
Comparable store sales increases $ 80,935 $ 48,286 $ 42,087
Comparable same store sales % 16.1% 13.5% 17.1%
New store sales $148,491 $ 97,763 $ 68,188
Number of new stores opened, net 72 66 61
9
All of the net sales from White House | Black Market stores since the date of
acquisition on September 5, 2003 and through the end of fiscal 2003, and all of
the net sales from the Company's now discontinued Pazo store concept during
fiscal 2003 are included in new store sales for fiscal 2003; no such sales are
included in fiscal 2003 comparable store sales.
Net sales by catalog and Internet for fiscal 2003 (which only included Chico's
merchandise) increased by $6.7 million, or 41.8%, compared to net sales by
catalog and Internet for fiscal 2002. It is believed that the increase was
principally attributable to the increased page count and number of catalog
mailings and additional television spots in the current period versus the prior
period.
Net sales to franchisees for the current period increased by $1.3 million, or
19.2%, 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
existing franchisees and, to a lesser degree, the opening of a new franchise
location by an existing franchisee.
COST OF GOODS SOLD/GROSS PROFIT
The following table shows cost of goods sold and gross profit in absolute
dollars and the related gross profit percentages for fiscal 2003, 2002 and 2001
(amounts in thousands):
FISCAL 2003 FISCAL 2002 FISCAL 2001
----------- ----------- -----------
Cost of goods sold $ 297,477 $ 209,770 $ 153,937
Gross profit $ 471,022 $ 321,338 $ 224,148
Gross profit percentage 61.3% 60.5% 59.3%
The increase in the gross profit percentage from fiscal 2002 to fiscal 2003
primarily resulted from operating efficiencies related to the Company's new
distribution center near Atlanta, Georgia (which costs are included in the
Company's cost of goods sold). To a lesser extent, the improvement in the gross
profit percentage was from improved margins at the Chico's frontline and outlet
stores (which improvement resulted from improved initial merchandise markups on
new products in the current period versus the prior period offset, in part, by
increased markdowns in the current period as a percent of net sales) and, to a
lesser degree, from decreased shrinkage and related costs. These improvements in
the gross profit percentage were also offset, in part, by White House | Black
Market and Pazo sales, which in fiscal 2003 carried a lower gross profit
percentage than the Company as a whole. In fiscal 2004, the gross profit
percentage should not be materially impacted by Pazo, with any sales being
limited to final close out sales in a few remaining stores in the first few
months of the year. The Company anticipates achieving some improvement in the
gross profit percentage in White House | Black Market sales in fiscal 2004, but
also expects that such gross profit percentage will remain lower than the gross
profit percentage at Chico's Company-owned stores. In addition, the Company
anticipates that during the test period for the Soma by Chico's brand, gross
profit percentages for this new brand will be significantly lower and may remain
somewhat lower even if, and when, the Company decides the test is a success and
begins a more extensive store roll out.
The increase in the gross profit percentage from fiscal 2001 to fiscal 2002
primarily resulted from improved initial merchandise markups on new products,
and a significant improvement in the gross profit percentage experienced in the
Company's outlet division. To a lesser degree, this increase in gross profit
percentage resulted from decreased freight and inventory shrinkage costs, as
well as from leveraging costs associated with the Company's product development
and merchandising operations (which costs are included in the Company's cost of
goods sold), and net of a slight increase in markdowns as a percent of sales and
an overall increase in outlet net sales as a percent of overall sales.
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Although the gross profit percentage in the outlet division has improved over
the past two years, outlet net sales still tend to have a substantially lower
gross profit margin than sales at the Company's front line stores. The increase
in outlet net sales as a percent of net sales in the prior year and the increase
in gross profit percentage in this division results primarily from the change in
outlet strategy implemented by the Company in fiscal 2001.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES
The following table shows general, administrative and store operating expenses
in absolute dollars and as a percentage of total net sales for fiscal 2003, 2002
and 2001 (amounts in thousands):
FISCAL 2003 FISCAL 2002 FISCAL 2001
----------- ----------- -----------
General, administrative and store operating expenses $ 289,118 $ 199,495 $ 146,611
Percentage of total net sales 37.6% 37.6% 38.8%
General, administrative and store operating expenses increased $89.6 million in
fiscal 2003 compared to fiscal 2002, but remained constant as a percent of total
net sales. The increase in absolute dollars was, for the most part, the result
of increases in Chico's store operating expenses, including associate
compensation, occupancy and other costs associated with additional store
openings, the acquisition of the White House | Black Market stores and, to a
lesser degree, an increase in marketing expenses and other general corporate
infrastructure costs to support the Company's rapid growth. However, general,
administrative and store operating expenses as a percentage of net sales
decreased compared to fiscal 2002 due to decreases in Chico's store associate
compensation and store occupancy costs as a percentage of net sales and by
leverage associated with the Company's fiscal 2003 comparable store sales
increase of 16.1%. These decreases were offset by the effect of the Pazo test
concept stores, including approximately $3.2 million of store closing costs
associated with the conclusion of the Pazo test concept (including a $2.9
million fixed asset impairment charge), and The White House acquisition, which
operates with considerably higher store operating expenses as a percent of net
sales compared to Chico's. The Company expects to improve store operating
expenses in the White House | Black Market division as a percent of net sales in
fiscal 2004 and thereafter, but remains uncertain as to the extent, if any, and,
if so, when, such improvements can be achieved.
General, administrative and store operating expenses increased $52.9 million in
fiscal 2002 compared to fiscal 2001, but decreased as a percent of total net
sales from 38.8% in fiscal 2001 to 37.6% in fiscal 2002. The absolute dollar
increase in general, administrative and store operating expenses was, for the
most part, the result of increases in store operating expenses, including
associate 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
decreases in store payroll and bonuses as a percentage of net sales, and to a
lesser degree, to leverage associated with the Company's fiscal 2002 comparable
store sales increase of 13.5%.
PROVISION FOR INCOME TAXES
The income tax provision represents an effective tax rate of 38% for all periods
presented and the Company anticipates this will remain consistent in fiscal
2004.
11
NET INCOME
The following table shows net income in absolute dollars and as a percentage of
total net sales for fiscal 2003, 2002 and 2001 (amounts in thousands):
FISCAL 2003 FISCAL 2002 FISCAL 2001
----------- ----------- -----------
Net income $ 100,230 $ 66,759 $ 42,187
Percentage of total net sales 13.0% 12.6% 11.2%
COMPARABLE COMPANY STORE NET SALES
Comparable Company store net sales increased by 16.1% in the 52 weeks ended
January 31, 2004 when compared to the comparable prior period. Comparable
Company 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 twelve full months, including stores that have been expanded or
relocated within the same general market area (approximately five miles).
The comparable store percentage reported above includes 42 stores that were
expanded or relocated within the last two fiscal years by an average of 947 net
selling square feet. If the stores that were expanded and relocated had been
excluded from the comparable Company-owned store base, the increase in
comparable Company-owned store net sales would have been 14.8% for fiscal 2003
(versus 16.1% as reported). The Company does not consider the effect to be
material to the overall comparable store sales results and believes the
inclusion of expanded stores in the comparable store net sales to be an
acceptable practice, consistent with the practice followed by the Company in
prior periods and by many other retailers. The comparable store percentages
reported above do not include any of the White House | Black Market stores.
These stores are treated by the Company as new stores acquired in fiscal 2003
and will not be included in the comparable store computation until they have
been under the ownership of the Company for at least twelve full months.
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
the Company's target customer. In addition, the Company believes that the
increase in comparable store sales was also fueled by a coordinated marketing
plan, which includes national and regional television advertising, national
magazine advertising, increased direct mailings of catalogs, a larger database
of existing customers for such mailings and the success of the Company's
frequent shopper club. To a lesser degree, the Company believes the increase was
due to continued store-level training efforts associated with ongoing training
programs.
The following table sets forth for each of the quarters of the previous five
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
----------------------------------------
1/31/04 2/1/03 2/2/02 2/3/01 1/29/00
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FULL YEAR 16.1% 13.5% 17.1% 34.3% 23.3%
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First Quarter 7.8% 13.2% 27.7% 30.9% 22.6%
Second Quarter 14.6% 11.6% 17.4% 34.3% 17.2%
Third Quarter 20.9% 18.2% 7.0% 39.1% 26.9%
Fourth Quarter 20.5% 11.0% 17.9% 32.2% 26.5%
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LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
The Company's primary ongoing capital requirements are for funding capital
expenditures for new, expanded, relocated and remodeled stores and increased
merchandise inventories. Also, during fiscal 2003, the Company experienced the
need for capital to address the conversion of the Company's former distribution
center into office space and the acquisition, installation and roll out of new
software packages. The Company funded its acquisition of The White House with
existing cash balances, the sale of certain marketable securities and the
issuance of approximately 151,000 shares of the Company's common stock. The
following table shows the Company's capital resources at the end of fiscal year
2003 and 2002 (amounts in thousands):
FISCAL 2003 FISCAL 2002
----------- -----------
Cash and cash equivalents $ 15,676 $ 8,753
Marketable securities 104,453 91,195
Working capital 125,991 105,570
Working capital increased from fiscal 2002 to fiscal 2003 primarily due to the
Company's ability to generate significant cash from operating activities to more
than satisfy the Company's investment in capital expenditures, as well as to
fund the Company's acquisition of The White House. The significant components of
the Company's working capital are cash and cash equivalents, marketable
securities and inventories, reduced by accounts payable and accrued liabilities.
Based on past performance and current expectations, the Company believes that
its cash and cash equivalents, marketable securities and cash generated from
operations will satisfy the Company's working capital needs, capital
expenditures (see "New Store Openings" discussed below), commitments and other
liquidity requirements associated with the Company's operations through at least
the next 12 months.
OPERATING ACTIVITIES
Net cash provided by operating activities was $145.4 million and $108.8 million
for fiscal 2003 and 2002, respectively. The cash provided by operating
activities for both periods was due to the Company's net income adjusted for
non-cash charges and changes in working capital such as:
- Depreciation and amortization expense;
- Normal fluctuations in accounts receivable, inventories, prepaid and
other current assets, accounts payable and accrued liabilities.
Significant adjustments to net income for fiscal 2003 included:
- A non-cash tax benefit of $15.1 million related to the exercise of
employee stock options; and
- A non-cash charge of $2.9 million associated with the impairment of
assets related to the Pazo store closings.
Significant adjustments to net income for fiscal 2002 included:
- A non-cash tax benefit of $22.6 million related to the exercise of
employee stock options; and
- An increase of $16.0 million and $9.0 million in inventories and
accounts payable, respectively, resulting from the Company's strong
sales and the Company's planned increase of inventory levels to
support the Company's growth.
13
INVESTING ACTIVITIES
Net cash used in investing activities was $153.3 million and $115.4 million for
fiscal 2003 and 2002, respectively. Net cash used in investing activities was
significantly impacted in fiscal 2003 by the acquisition of The White House. The
cash paid for the acquisition of The White House was approximately $87.6 million
(net of cash acquired of $1.3 million).
The Company's investment in capital expenditures during fiscal 2003 (excluding
The White House acquisition) primarily related to the planning and opening of
new, relocated, remodeled and expanded Chico's, Pazo and White House | Black
Market stores ($34.8 million), the continued acquisition and ongoing
installation costs associated with new software packages ($5.4 million), the
conversion of the former distribution center into office space ($5.2 million)
and other miscellaneous capital expenditures ($6.9 million). Capital
expenditures decreased by $12.4 million from fiscal 2002 to fiscal 2003,
primarily as a result of decreased investments in new software packages during
the current year of approximately $5.0 million and an $8.0 million reduction in
costs associated with the equipping of the Company's new distribution center in
Georgia, offset in part by amounts used to fund the conversion of the Company's
former distribution center in fiscal 2003 compared to fiscal 2002.
The Company invested $13.4 million, net, in marketable securities in the current
year. In the prior year, the Company invested $50.7 million in marketable
securities. The $37.3 million year-over-year decrease in net marketable
securities was, for the most part, the result of the sale of certain marketable
securities to fund the acquisition of The White House.
FINANCING ACTIVITIES
Net cash provided by financing activities was $14.9 million and $2.0 million in
fiscal 2003 and 2002, respectively. The Company received proceeds in both fiscal
2003 and 2002 from the issuance of common stock related to current and former
employee option exercises and employee participation in its employee stock
purchase plan. In fiscal 2002, the Company repaid the remaining balance of its
mortgage of $5.2 million.
During fiscal 2003, sixteen of the Company's twenty-five officers and three of
its four independent directors exercised an aggregate of 1,948,664 stock options
at prices ranging from $0.9307 to $18.505 and several employees and former
employees exercised an aggregate of 100,237 options at prices ranging from
$0.361 to $18.505. Also, during this period, the Company sold 30,340 and 25,153
shares of common stock during the March and September offering periods under its
employee stock purchase plan at prices of $15.36 and $27.62, respectively. The
proceeds from these issuances of stock, exclusive of the tax benefit realized by
the Company, amounted to approximately $15.2 million.
NEW STORE OPENINGS
The Company plans to open between 85 and 95 net new Company-owned stores (which
includes approximately 40-45 Chico's stores, approximately 35-40 White House |
Black Market stores and 10 Soma by Chico's stores) in fiscal 2004. The Company
has also closed its Pazo store locations and begun the process of converting
most of them to the Company's other formats. The Company believes that the
liquidity needed for its planned new store growth (including the launch of its
new concept, Soma by Chico's), continuing remodel/expansion program, continued
installation of new software packages, and maintenance of proper inventory
levels associated with this growth will be funded primarily from cash flow from
operations and its existing cash and marketable securities balances, which
remain strong even after taking into account the impact of using a substantial
portion of its cash and marketable securities balances to fund the acquisition
of The White House. The Company further believes that this liquidity will be
sufficient, based on the above, to fund anticipated capital needs over the
near-term. 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 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-owned stores planned to be opened in future periods.
[PICTURE]
CONTRACTUAL OBLIGATIONS
The following table summarizes the Company's contractual obligations at January
31, 2004 (amounts in thousands):
LESS THAN AFTER
TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS 5 YEARS
-------- --------- --------- --------- -------
Long-term debt $ -- $ -- $ -- $ -- $ --
Short-term
borrowings -- -- -- -- --
Capital lease
obligations 1,478 684 698 96 --
Operating leases 285,083 46,213 87,483 69,728 81,659
Non-cancelable
purchase
commitments 14,388 14,388 -- -- --
-------- --------- --------- --------- -------
Total $300,949 $ 61,285 $ 88,181 $ 69,824 $81,659
======== ========= ========= ========= =======
As of January 31, 2004, the Company's contractual obligations consisted of
amounts outstanding under operating and capital leases and non-cancelable
purchase commitments. Amounts due under non-cancelable purchase commitments
consist primarily of $11.8 million of letters of credit outstanding with the
remainder consisting of contractual obligations related to the Company's
telecommunications and distribution infrastructure.
In September 2002, the Company entered into a replacement unsecured revolving
credit facility with Bank of America, N.A., expanding the maximum available
commitment from $25 million to $45 million, extending the maturity to June 2005
and increasing the letter of credit sublimit of the facility from $22 million to
$35 million.
At January 31, 2004 and February 1, 2003, the Company did not have any
relationship with unconsolidated entities or financial partnerships, which other
companies have established for the purpose of facilitating off-balance sheet
arrangements or for other contractually narrow or limited purposes. Therefore,
the Company is not materially exposed to any financing, liquidity, market or
credit risk that could arise if the Company had engaged in such relationships.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of consolidated financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, the Company evaluates
its estimates, including those related to customer product returns, inventories,
income taxes, insurance reserves, contingencies and litigation. The Company
bases its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
15
The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements:
INVENTORY VALUATION
The Company identifies potentially excess and slow-moving inventories by
evaluating turn rates and inventory levels in conjunction with the Company's
overall growth rate. Excess quantities are identified through evaluation of
inventory ageings, review of inventory turns and historical sales experiences,
as well as specific identification based on fashion trends. Further, exposure to
inadequate realization of carrying value is identified through analysis of gross
margins and markdowns in combination with changes in the fashion industry. The
Company provides lower of cost or market reserves for such identified excess and
slow-moving inventories.
INVENTORY SHRINKAGE
The Company estimates its expected shrinkage of inventories between physical
inventory counts by applying historical chain-wide average shrinkage experience
rates to the related periods' sales volume. The historical rates are updated on
a regular basis to reflect the most recent physical inventory shrinkage
experience.
SALES RETURNS
The Company's policy is to honor customer returns at all times. Returns after 30
days of the original purchase, or returns without the original receipt, qualify
for store credit only. The Company will, in certain circumstances, offer full
customer refunds either after 30 days or without a receipt. The Company
estimates its reserve for likely customer returns based on the average refund
experience in relation to sales for the related period.
GOODWILL AND OTHER INTANGIBLE ASSETS
The Company evaluates the recoverability of goodwill at least annually based on
a two-step impairment test. The first step compares the fair value of the
Company's reporting unit with its carrying amount, including goodwill. If the
carrying amount exceeds fair value, then the second step of the impairment test
is performed to measure the amount of any impairment loss. Fair value is
determined based on estimated future cash flows, discounted at a rate that
approximates the Company's cost of capital. The Company evaluates its other
intangible assets, specifically trademarks, for impairment on an annual basis by
comparing the fair value of the asset with its carrying value. Such estimates
are subject to change and the Company may be required to recognize impairment
losses in the future.
SELF-INSURANCE
The Company is self-insured for certain losses relating to workers'
compensation, medical and general liability claims. Self-insurance claims filed
and claims incurred but not reported are accrued based upon management's
estimates of the aggregate liability for uninsured claims incurred using
insurance industry benchmarks and historical experience. Although management
believes it has the ability to adequately accrue for estimated losses related to
claims, it is possible that actual results could significantly differ from
recorded self-insurance liabilities.
[PICTURE]
[PICTURE]
RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board (FASB) issued
Financial Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest
Entities". A variable interest entity is a corporation, partnership, trust, or
any other legal structure used for business purposes that either (a) does not
have equity investors with voting rights, or (b) has equity investors that do
not provide sufficient financial resources for the entity to support its
activities. FIN 46 requires that if an entity has a controlling financial
interest in a variable interest entity, the assets, liabilities and results of
activities of the variable interest entity should be included in the
consolidated financial statements of the entity. The provisions of FIN 46 were
effective immediately for all arrangements entered into after January 31, 2003.
For those arrangements entered into prior to February 1, 2003, the provisions of
FIN 46 are effective for the first interim or annual period ending after
December 15, 2003. Since the Company does not currently have any variable
interest entities, the adoption of the provisions of FIN 46 did not have an
impact on the Company's financial position or results of operations.
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 certain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, 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, including but without
limitation, statements regarding the impact of the acquisition of The White
House, Inc., the conclusion of the Pazo test concept and the launch of the Soma
by Chico's concept. The statements may address items such as future sales, gross
profit expectations, planned store openings, closings and expansions, future
comparable store sales, future product sourcing plans, inventory levels, planned
capital expenditures and future cash needs. In addition, from time to time, the
Company may issue press releases and other written communications, and
representatives of the Company may make oral statements, which contain
forward-looking information.
These statements, including those in this annual report and those in press
releases or made orally, may include the words "expects," "believes," and
similar expressions. Except for historical information, matters discussed in
such oral and written statements, including this annual report, are
forward-looking statements. 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. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed below and beginning on page 21 of the Company's Form 10-K.
These potential risks and uncertainties include the financial strength of
retailing in particular and the economy in general, the extent of financial
difficulties that may be experienced by customers, the ability of the Company to
secure and maintain customer acceptance of Chico's styles (including without
limitation the styles of White House | Black Market), the propriety of inventory
mix and sizing, the quality of merchandise received from vendors, the extent and
nature of competition in the markets in which the Company operates, the extent
of the market demand and overall level of spending for women's private label
clothing and related accessories, the adequacy and perception of customer
service, the ability to coordinate product development with buying and planning,
the ability of the Company's suppliers to timely produce and deliver clothing
and accessories, the changes in the costs of manufacturing, labor and
advertising, the rate of new store openings (including without limitation White
House | Black Market and Soma by Chico's new store openings), the buying
public's acceptance of the Company's new store concept, the performance,
implementation and
17
integration of management information systems, the ability to hire, train,
energize and retain qualified sales associates and other employees, the
availability of quality store sites, the ability to hire and train qualified
managerial employees, the ability to effectively and efficiently establish and
operate catalog and Internet sales, the ability to secure and protect trademarks
and other intellectual property rights, the ability to effectively and
efficiently integrate and operate the newly acquired White House | Black Market
division, risks associated with terrorist activities and other risks. In
addition, there are 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 or
civil instability, imposition of and changes in tariffs and import and export
controls such as import quotas, changes in governmental policies in or towards
foreign countries and other similar factors.
The forward-looking statements included herein are only made as of the date of
this Annual Report. The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk of the Company's financial instruments as of January 31, 2004
has not significantly changed since February 1, 2003. The Company is exposed to
market risk from changes in interest rates on any future indebtedness and its
marketable securities. The Company's exposure to interest rate risk relates in
part to its revolving line of credit with its bank; however, as of January 31,
2004, the Company did not have any outstanding borrowings 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.
CONTROLS AND PROCEDURES
As of the end of the period covered by this report, an evaluation was carried
out under the supervision and with the participation of the Company's
management, including its Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities and Exchange Act of 1934, as amended). Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that, as of
the end of such period, the Company's disclosure controls and procedures were
effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included in the
Company's periodic SEC filings. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation.
LEGAL PROCEEDINGS
The Company was named in a putative class action suit filed in May 2003 in the
Superior Court for the State of California, County of San Francisco. The Company
filed an answer denying the material allegations of the Complaint. The Complaint
alleges that the Company, in violation of California law, has in place a
mandatory uniform policy that requires its employees to purchase and wear
Chico's clothing and accessories as a condition of employment. It is the
Company's position that no such mandatory uniform policy exists; the Company
encourages but does not require its associates to wear Chico's clothing;
although many Chico's associates choose to wear Chico's clothing, others do not.
The parties are engaged in discovery, and the Company is continuing its
investigation. No rulings on class certifications have been made. The Company
believes the case is without merit and intends to vigorously defend the
litigation.
The Company is not a party to any other legal proceedings, other than various
claims and lawsuits arising in the normal course of business, none of which the
Company believes should have a material adverse effect on its financial
condition or results of operations.
[PICTURE]
[PICTURE]
TRADING AND DIVIDEND INFORMATION
The following table sets forth, for the periods indicated, the range of high and
low sale prices for the Common Stock, as reported on the New York Stock
Exchange.
FOR THE FISCAL YEAR ENDED JANUARY 31, 2004 HIGH LOW
-------- -------
Fourth Quarter (November 2, 2003 - January 31, 2004) $ 39.43 $ 30.51
Third Quarter (August 3, 2003 - November 1, 2003) 38.39 26.53
Second Quarter (May 4, 2003 - August 2, 2003) 27.84 18.80
First Quarter (February 2, 2003 - May 3, 2003) 24.49 16.75
FOR THE FISCAL YEAR ENDED FEBRUARY 1, 2003 HIGH (1) LOW (1)
-------- -------
Fourth Quarter (November 3, 2002 - February 1, 2003) $ 23.73 $ 16.83
Third Quarter (August 4, 2002 - November 2, 2002) 21.09 13.02
Second Quarter (May 5, 2002 - August 3, 2002) 21.00 13.26
First Quarter (February 3, 2002 - May 4, 2002) 18.99 14.40
(1) Adjusted for the 2 for 1 stock split payable in July 2002.
Although the Company does not intend to pay any cash dividends over the near
term and intends to retain its earnings for the future operation and expansion
of the Company's business, the Company may reconsider this intention as the
Company monitors its build up of cash reserves. Any determination to pay
dividends in the future will be at the discretion of the Company's Board of
Directors and will be dependent, in addition, 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 March 31, 2004
- -------------------------------------- ------------------------
Common Stock, par value $.01 per share 1,224
19
[PICTURE]
[PICTURE]
21
[PICTURE] [PICTURE] [PICTURE] [PICTURE] [PICTURE]
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Chico's FAS, Inc.
We have audited the accompanying consolidated balance sheets of Chico's FAS,
Inc. and subsidiaries as of January 31, 2004 and February 1, 2003, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years then ended. 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. The financial statements of Chico's
FAS, Inc. and subsidiaries for the year ended February 2, 2002 were audited by
other auditors who have ceased operations and whose report dated March 4, 2002,
expressed an unqualified opinion on those statements before the common stock
split restatement adjustments described in Note 1.
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 consolidated financial position of Chico's FAS, Inc.
and subsidiaries at January 31, 2004 and February 1, 2003, and the consolidated
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States.
As described in Note 1 during fiscal year 2003, the Company changed its method
of accounting for inventories.
As discussed above, the financial statements of Chico's FAS, Inc. and
subsidiaries for the year ended February 2, 2002 were audited by other auditors
who have ceased operations. As described in Note 1, in the fiscal year ended
February 1, 2003, the Company's Board of Directors approved a two-for-one common
stock split, and all references to number of shares and per share information in
the financial statements have been adjusted to reflect the common stock split on
a retroactive basis. We audited the adjustments that were applied to restate the
number of shares and per share information reflected in the financial statements
for the year ended February 2, 2002. Our procedures included (a) agreeing the
authorization for the two-for-one common stock split to the Company's underlying
records obtained from management, and (b) testing the mathematical accuracy of
the restated number of shares, basic and diluted earnings per share and other
applicable disclosures such as stock options. In our opinion, such adjustments
are appropriate and have been properly applied. However, we were not engaged to
audit, review, or apply any procedures to the financial statements of the
Company for the year ended February 2, 2002 other than with respect to such
adjustments and, accordingly, we do not express an opinion or any other form of
assurance on the financial statements for the year ended February 2, 2002 taken
as a whole.
/s/ ERNST & YOUNG LLP
- ------------------------
Tampa, Florida,
February 27, 2004
[PICTURE] [PICTURE] [PICTURE] [PICTURE] [PICTURE]
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
THIS REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS IS A COPY OF A REPORT
PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSUED BY ARTHUR
ANDERSEN LLP. THE INCLUSION OF THIS PREVIOUSLY ISSUED ANDERSEN REPORT IS
PURSUANT TO THE "TEMPORARY FINAL RULE AND FINAL RULE REQUIREMENTS FOR ARTHUR
ANDERSEN LLP AUDITING CLIENTS," ISSUED BY THE U.S. SECURITIES AND EXCHANGE
COMMISSION IN MARCH 2002. NOTE THAT THIS PREVIOUSLY ISSUED ANDERSEN REPORT
INCLUDES REFERENCES TO CERTAIN FISCAL YEARS, WHICH ARE NOT REQUIRED TO BE
PRESENTED IN THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR
THE YEARS ENDED JANUARY 31, 2004.
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 2, 2002, and
February 3, 2001, and the related consolidated statements of income,
stockholders' equity and cash flows for the fiscal years ended February 2, 2002,
February 3, 2001, and January 29, 2000. 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 2, 2002, and February 3, 2001, and the results of
their operations and their cash flows for the fiscal years ended February 2,
2002, February 3, 2001, and January 29, 2000, in conformity with accounting
principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
- ------------------------
Tampa, Florida,
March 4, 2002
23
CHICO'S FAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
JANUARY 31, FEBRUARY 1,
2004 2003
----------- -----------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 15,676 $ 8,753
Marketable securities, at market 104,453 91,195
Receivables, less allowances for sales returns of $288
and $304, respectively 6,368 2,226
Inventories 54,896 44,908
Prepaid expenses 8,655 6,223
Deferred taxes 7,525 7,125
--------- ---------
Total current assets 197,573 160,430
PROPERTY AND EQUIPMENT:
Land and land improvements 5,976 5,166
Building and building improvements 25,014 19,668
Equipment, furniture and fixtures 100,589 71,769
Leasehold improvements 99,806 78,792
--------- ---------
Total property and equipment 231,385 175,395
Less accumulated depreciation and amortization (57,660) (36,686)
--------- ---------
Property and equipment, net 173,725 138,709
DEFERRED TAXES -- 92
GOODWILL 60,114 --
OTHER INTANGIBLE ASSETS 34,043 --
OTHER ASSETS, NET 5,399 2,313
--------- ---------
$ 470,854 $ 301,544
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 27,796 $ 24,991
Accrued liabilities 43,187 29,698
Current portion of deferred liabilities 599 171
--------- ---------
Total current liabilities 71,582 54,860
NONCURRENT LIABILITIES:
Deferred liabilities 12,713 6,551
Deferred taxes 11,724 --
--------- ---------
Total noncurrent liabilities 24,437 6,551
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 200,000 shares authorized and
87,537 and 85,282 shares issued and outstanding, respectively 875 853
Additional paid-in capital 98,586 63,986
Retained earnings 275,339 175,109
Accumulated other comprehensive income 35 185
--------- ---------
Total stockholders' equity 374,835 240,133
--------- ---------
$ 470,854 $ 301,544
========= =========
[PICTURE]
The accompanying notes are an integral part of these consolidated statements.
[PICTURE]
CHICO'S FAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
FISCAL YEAR ENDED
--------------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 2,
2004 2003 2002
----------- ----------- -----------
Net sales by Company stores $737,918 $508,492 $362,443
Net sales by catalog and Internet 22,780 16,070 10,203
Net sales to franchisees 7,801 6,546 5,439
-------- -------- --------
NET SALES 768,499 531,108 378,085
Cost of goods sold 297,477 209,770 153,937
-------- -------- --------
GROSS PROFIT 471,022 321,338 224,148
General, administrative and store
operating expenses 289,118 199,495 146,611
Depreciation and amortization 21,130 15,050 10,001
-------- -------- --------
INCOME FROM OPERATIONS 160,774 106,793 67,536
Interest income, net 888 883 507
-------- -------- --------
INCOME BEFORE INCOME TAXES 161,662 107,676 68,043
Income tax provision 61,432 40,917 25,856
-------- -------- --------
NET INCOME $100,230 $ 66,759 $ 42,187
======== ======== ========
PER SHARE DATA:
Net income per common share - basic $ 1.16 $ 0.80 $ 0.52
Net income per common and common
equivalent share - diluted $ 1.14 $ 0.78 $ 0.50
Weighted average common shares
outstanding - basic 86,403 83,309 80,365
Weighted average common and common
equivalent shares outstanding - diluted 88,142 86,032 83,778
The accompanying notes are an integral part of these consolidated statements.
25
CHICO'S FAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
COMMON STOCK ACCUMULATED
--------------------- ADDITIONAL OTHER
PAR PAID-IN RETAINED COMPREHENSIVE
SHARES VALUE CAPITAL EARNINGS INCOME TOTAL
--------- --------- --------- --------- ------------- ---------
BALANCE, FEBRUARY 3, 2001 78,747 $ 788 $ 18,323 $ 66,163 $ 47 $ 85,321
Net income -- -- -- 42,187 -- 42,187
Unrealized gain on marketable
securities, net -- -- -- -- 55 55
---------
Comprehensive income 42,242
Issuance of common stock 2,834 28 7,675 -- -- 7,703
Stock option compensation -- -- 45 -- -- 45
Tax benefit of stock options exercised -- -- 8,184 -- -- 8,184
--------- --------- --------- --------- --------- ---------
BALANCE, FEBRUARY 2, 2002 81,581 816 34,227 108,350 102 143,495
Net income -- -- -- 66,759 -- 66,759
Unrealized gain on marketable
securities, net -- -- -- -- 83 83
---------
Comprehensive income 66,842
Issuance of common stock 3,701 37 7,210 -- -- 7,247
Tax benefit of stock options exercised -- -- 22,549 -- -- 22,549
--------- --------- --------- --------- --------- ---------
BALANCE, FEBRUARY 1, 2003 85,282 853 63,986 175,109 185 240,133
Net income -- -- -- 100,230 -- 100,230
Unrealized loss on marketable
securities, net -- -- -- -- (150) (150)
---------
Comprehensive income 100,080
Issuance of common stock 2,255 22 19,474 -- -- 19,496
Tax benefit of stock options exercised -- -- 15,126 -- -- 15,126
--------- --------- --------- --------- --------- ---------
BALANCE, JANUARY 31, 2004 87,537 $ 875 $ 98,586 $ 275,339 $ 35 $ 374,835
========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated statements.
[PICTURE]
CHICO'S FAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
[In thousands]
FISCAL YEAR ENDED
-------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 2,
2004 2003 2002
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 100,230 $ 66,759 $ 42,187
--------- --------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization, cost of goods sold 1,970 1,093 406
Depreciation and amortization, other 21,130 15,050 10,001
Stock option compensation -- -- 45
Deferred tax expense (benefit) 1,336 (1,651) (1,816)
Tax benefit of options exercised 15,126 22,549 8,184
Deferred rent expense, net 1,874 1,482 883
Loss on impairment and disposal of property and equipment 3,746 1,315 1,445
(Increase) decrease in assets, net of effects of acquisition --
Receivables, net (1,953) (143) 915
Inventories (4,658) (16,002) (4,511)
Prepaid expenses and other, net (1,281) (1,691) (1,835)
(Decrease) increase in liabilities, net of effects of acquisition --
Accounts payable (3,175) 9,000 3,134
Accrued liabilities 11,035 11,046 6,454
--------- --------- ---------
Total adjustments 45,150 42,048 23,305
--------- --------- ---------
Net cash provided by operating activities 145,380 108,807 65,492
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (166,855) (134,918) (56,396)
Proceeds from sale of marketable securities 153,447 84,235 30,245
Acquisition, net of cash acquired (87,636) -- --
Purchases of property and equipment (52,300) (64,742) (37,437)
--------- --------- ---------
Net cash used in investing activities (153,344) (115,425) (63,588)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 15,231 7,247 7,703
Payments on capital leases (344) -- --
Principal payments on debt -- (5,155) (66)
Deferred finance costs -- (98) (78)
--------- --------- ---------
Net cash provided by financing activities 14,887 1,994 7,559
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 6,923 (4,624) 9,463
CASH AND CASH EQUIVALENTS, Beginning of period 8,753 13,377 3,914
--------- --------- ---------
CASH AND CASH EQUIVALENTS, End of period $ 15,676 $ 8,753 $ 13,377
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 142 $ 285 $ 610
Cash paid for income taxes $ 47,855 $ 19,200 $ 17,658
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued in acquisition $ 4,266 -- --
The accompanying notes are an integral part of these consolidated statements.
27
CHICO'S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2004
(In thousands, except share and per share amounts and where otherwise indicated)
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. The
Company operates as a specialty retailer of exclusively designed, private label
casual clothing and related accessories. The Company sells its products through
traditional retail stores, catalog, a small franchise network and via the
Internet at www.chicos.com. As of January 31, 2004, the Company's retail store
system consisted of 557 stores located throughout the United States, the Virgin
Islands and Puerto Rico, 545 of which are owned and operated by the Company, and
12 of which are 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 periods presented in these financial statements are the fiscal
years ended January 31, 2004 (fiscal 2003), February 1, 2003 (fiscal 2002) and
February 2, 2002 (fiscal 2001). Fiscal 2003, 2002 and 2001 each contained 52
weeks.
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 the end of fiscal 2003 and 2002 is
as follows:
FISCAL 2003 FISCAL 2002
----------- -----------
Franchise stores opened 0 1
Franchise stores in operation at fiscal year-end 12 12
Company-owned stores at fiscal year-end 545 366
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.
SEGMENT INFORMATION
The Company's brands, Chico's and White House | Black Market, have been
aggregated into one reportable segment due to the similarities of the economic
and operating characteristics of the operations represented by the Company's
brands.
[PICTURE]
[PICTURE]
MANAGEMENT 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. Significant
estimates and assumptions made by management primarily impact the following key
financial areas:
INVENTORY VALUATION
The Company identifies potentially excess and slow-moving inventories
by evaluating turn rates and inventory levels in conjunction with the
Company's overall growth rate. Excess quantities are identified through
evaluation of inventory ageings, review of inventory turns and
historical sales experiences, as well as specific identification based
on fashion trends. Further, exposure to inadequate realization of
carrying value is identified through analysis of gross margins and
markdowns in combination with changes in the fashion industry. The
Company provides lower of cost or market reserves for such identified
excess and slow-moving inventories.
INVENTORY SHRINKAGE
The Company estimates its expected shrinkage of inventories between
physical inventory counts by applying historical chain-wide average
shrinkage experience rates to the related periods' sales volume. The
historical rates are updated on a regular basis to reflect the most
recent physical inventory shrinkage experience.
SALES RETURNS
The Company's policy is to honor customer returns at all times. Returns
after 30 days of the original purchase, or returns without the original
receipt, qualify for store credit only. The Company will, in certain
circumstances, offer full customer refunds either after 30 days or
without a receipt. The Company estimates its reserve for likely
customer returns based on the average refund experience in relation to
sales for the related period.
SELF-INSURANCE
The Company is self-insured for certain losses relating to workers'
compensation, medical and general liability claims. Self-insurance
claims filed and claims incurred but not reported are accrued based
upon management's estimates of the aggregate liability for uninsured
claims incurred using insurance industry benchmarks and historical
experience. Although management believes it has the ability to
adequately accrue for estimated losses related to claims, it is
possible that actual results could significantly differ from recorded
self-insurance liabilities.
RECLASSIFICATIONS
Reclassifications of certain prior-year balances were made in order to conform
to the current-year presentation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand and in banks and short-term
highly liquid investments with original maturities of three months or less.
29
MARKETABLE SECURITIES
Marketable securities are classified as available-for-sale 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
determined on a specific identification basis.
INVENTORIES
In the fourth quarter of fiscal 2003, the Company changed its method of
determining the cost of certain merchandise inventories from the last-in,
first-out (LIFO) method to the weighted average cost method. Management believes
that the weighted average cost method is a preferable method that better
measures the cost of such inventories, results in a better matching of revenues
and expenses and more accurately reflects the Company's financial position. The
effect of this change was immaterial to the financial results of both the
current and prior reporting periods of the Company and, therefore, did not
require retroactive restatement of results for those prior periods.
Purchasing, merchandising, distribution and product development 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. Depreciation of property and equipment
is provided on a straight-line basis over the estimated useful lives of the
assets. Leasehold improvements are depreciated over the lease term plus one
anticipated renewal, not to exceed 10 years. The Company's property and
equipment is depreciated using the following estimated useful lives:
ESTIMATED USEFUL LIVES
----------------------
Land and land improvements 35 years
Building and building improvements 20-35 years
Equipment, furniture and fixtures 2-10 years
Leasehold improvements 3-10 years or term of lease, if shorter
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.
The Company is obligated under capital leases for certain property and equipment
that expire at various dates during the next five years.
GOODWILL AND OTHER INTANGIBLE ASSETS
The Company adopted the provisions of Statement of Financial Accounting Standard
(SFAS) No. 142, "Goodwill and Other Intangible Assets" (SFAS 142), as of
February 3, 2002. Goodwill and intangible assets acquired in a purchase business
combination and determined to have an indefinite useful life are not amortized,
but instead are tested for impairment at least annually in accordance with the
provisions of SFAS 142. During fiscal 2003, the Company acquired a trademark
intangible asset in connection with the Company's acquisition of The White
House, Inc. (see Note 2). The value of the trademark was determined using a
discounted cash flow method, based on the estimated future benefit to be
received from the trademark. The Company will not amortize the trademark asset,
as the trademark has an indefinite useful life.
[PICTURE]
[PICTURE]
The Company has allocated the excess of the cost of The White House, Inc.
acquisition over the estimated fair value of the identifiable net assets
acquired to goodwill. In accordance with the provisions of SFAS 142, the Company
is not amortizing the goodwill. The Company will perform its annual impairment
tests of the acquired trademark and goodwill during fiscal 2004 and future
years.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed periodically for impairment if events or changes
in circumstances indicate that the carrying amount may not be recoverable. If
future undiscounted cash flows expected to be generated by the asset are less
than its carrying amount, an asset is determined to be impaired, and a loss is
recorded for the amount by which the carrying value of the asset exceeds its
fair value.
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 be realized sometime in the future.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
marketable securities, short-term trade receivables and payables. The carrying
values of cash and cash equivalents, marketable securities, trade receivables
and trade payables equal fair value.
REVENUE RECOGNITION
Retail sales by Company stores are recorded at the point of sale and are net of
estimated customer returns, sales discounts under our "Passport Club" loyalty
program and Company issued coupons. Retail sales by catalog and Internet are
recorded when shipments are made to catalog and Internet customers and are net
of estimated customer returns. Net sales to franchisees are recorded when
merchandise is shipped to franchisees and are net of estimated returns.
VENDOR ALLOWANCES
From time to time, the Company receives allowances and/or credits from certain
of its vendors. The aggregate amount of such allowances and credits is
immaterial to the Company's results of operations.
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.
ADVERTISING COSTS
Costs associated with advertising are charged to expense as incurred except for
catalogs, which are amortized over the life of the catalog (typically less than
six weeks). For fiscal 2003, 2002 and 2001, advertising costs of approximately
$27.3 million, $18.8 million, and $12.8 million, respectively, are included in
general, administrative and store operating expenses.
31
STOCK-BASED COMPENSATION PLANS
In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 148, "Accounting for Stock-Based Compensation Transition and Disclosure"
(SFAS 148). SFAS 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), to provide alternative methods of transition to the
fair value method of accounting for stock-based employee compensation. In
addition, SFAS 148 amends the disclosure provisions of SFAS 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. SFAS 148 does not amend SFAS 123 to require
companies to account for their employee stock-based awards using the fair value
method. However, the disclosure provisions are required for all companies with
stock-based employee compensation, regardless of whether they utilize the fair
value method of accounting described in SFAS 123 or the intrinsic value method
described in Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25).
The Company uses the intrinsic value method for valuing its awards of stock
options and recording the related compensation expense, if any, in accordance
with APB 25. No stock-based employee compensation cost for stock options is
reflected in net income for fiscal 2003 or 2002 as all options granted during
the periods have exercise prices equal to the market value of the underlying
common stock on the date of grant. Approximately $45.0 of compensation expense
was recorded in fiscal 2001 related to options granted under the Company's
Executive Officers' Program and is included in net income, as reported for the
year then ended. The following table illustrates the effect on net income and
earnings per share as if the Company had applied the fair value recognition
provisions of SFAS 123 to all stock-based employee compensation.
FISCAL 2003 FISCAL 2002 FISCAL 2001
----------- ----------- -----------
Net income, as reported $ 100,230 $ 66,759 $ 42,187
Deduct: Total stock-based employee compensation expense
determined under fair value based methods for all awards, net of
taxes 9,359 8,696 4,814
----------- ----------- -----------
Net income, pro forma $ 90,871 $ 58,063 $ 37,373
=========== =========== ===========
Net income per common share:
Basic - as reported $ 1.16 $ 0.80 $ 0.52
Basic - pro forma $ 1.05 $ 0.70 $ 0.47
Diluted - as reported $ 1.14 $ 0.78 $ 0.50
Diluted - pro forma $ 1.03 $ 0.67 $ 0.45
For pro forma disclosure 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 3.6, 4.8, and 5.1 percent for fiscal 2003, 2002 and 2001, respectively,
expected life of seven years, no expected dividends, and expected volatility of
65, 68, and 73 percent for fiscal 2003, 2002 and 2001, respectively. The
weighted average fair value of options granted during fiscal 2003, 2002 and 2001
was $15.37, $11.63, and $8.84, respectively. Options granted under the 1992
Stock Option Plan, the 1993 Stock Option Plan and the 2002 Omnibus Stock and
Incentive Plan (excluding the non-employee director portion thereof) generally
vest ratably over three years. The non-employee director option grants under the
2002 Omnibus Stock and Incentive Plan generally vest after six months. The term
of all options granted is 10 years.
[PICTURE]
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COMMON STOCK SPLITS
During fiscal 2002 and 2001, the Board of Directors (the Board) declared three
common stock splits (collectively, the Stock Splits). On April 19, 2001, the
Board declared 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 shareholders of
record as of the close of business on May 2, 2001. On December 19, 2001, the
Board declared a three-for-two stock split of the Company's common stock,
payable in the form of a stock dividend on January 18, 2002, to shareholders of
record as of the close of business on December 31, 2001. On June 27, 2002, the
Board declared a two-for-one stock split of the Company's common stock, payable
in the form of a stock dividend on July 29, 2002, to shareholders of record as
of the close of business on July 15, 2002. Accordingly, 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
have been restated to reflect the Stock Splits. Par value remains unchanged at
$0.01.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
SFAS No. 128, "Earnings per Share" (SFAS 128), requires companies with complex
capital structures that have publicly held common stock or common stock
equivalents to present both basic and diluted earnings per share (EPS) on the
face of the income statement. As provided by SFAS 128, basic 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.
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 Stock Splits:
FISCAL 2003 FISCAL 2002 FISCAL 2001
----------- ----------- -----------
Weighted average common shares
outstanding - basic 86,402,532 83,308,829 80,365,350
Dilutive effect of stock options
outstanding 1,739,372 2,723,223 3,412,986
----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding - diluted 88,141,904 86,032,052 83,778,336
=========== =========== ===========
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 2003 FISCAL 2002 FISCAL 2001
----------- ----------- -----------
Number of options 312,000 523,800 373,000
Exercise price $30.55-$38.50 $18.30-$21.42 $10.66-$ 13.34
Expiration date September 5, 2013 - June 25, 2012- May 23, 2010-
January 26, 2014 December 16, 2012 January 2, 2012
33
NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued Financial Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities." A variable interest entity is a
corporation, partnership, trust, or any other legal structure used for business
purposes that either (a) does not have equity investors with voting rights, or
(b) has equity investors that do not provide sufficient financial resources for
the entity to support its activities. FIN 46 requires that if an entity has a
controlling financial interest in a variable interest entity, the assets,
liabilities and results of activities of the variable interest entity should be
included in the consolidated financial statements of the entity. The provisions
of FIN 46 were effective immediately for all arrangements entered into after
January 31, 2003. For those arrangements entered into prior to February 1, 2003,
the provisions of FIN 46 are effective for the first interim or annual period
ending after December 15, 2003. Since the Company does not currently have any
variable interest entities, the adoption of the provisions of FIN 46 did not
have an impact on the Company's financial position or results of operations.
2. THE WHITE HOUSE, INC. ACQUISITION:
On September 5, 2003, the Company acquired all of the outstanding common stock
of The White House, Inc. (The White House) for approximately $93.2 million,
consisting of approximately $88.9 million in cash (including acquisition costs
of $3.0 million) and approximately $4.3 million in the Company's common stock
represented by the issuance of approximately 151,000 shares of the Company's
common stock. The Company funded the cash portion of the purchase price from
current cash balances and from the sale of certain marketable securities. Of the
cash consideration, $12.5 million was placed in a one-year escrow to cover
certain indemnification obligations of the sellers. As a result of the
transaction, The White House became a wholly-owned subsidiary of the Company.
As of September 5, 2003, The White House operated 107 stores in 30 states, the
Virgin Islands, Puerto Rico and the District of Columbia that sell high-quality
fashion and basic merchandise assorted primarily in white and black and related
shades. As a result of the acquisition, the Company believes that it can
strengthen its position in the specialty retail market and continue its overall
growth strategy. The transaction was accounted for under the purchase method of
accounting and, accordingly, the results of operations of The White House have
been consolidated in the Company's financial statements since the date of
acquisition.
The total purchase consideration has been allocated to the assets and
liabilities acquired, including an identifiable intangible asset (trademark),
based on their respective estimated fair values as summarized below. The
allocation of the purchase price to the assets and liabilities acquired resulted
in excess purchase consideration over the net assets and identifiable intangible
asset acquired of $60.1 million and this excess has been assigned to goodwill.
Such goodwill and the amounts allocated to the intangible asset are not expected
to be deductible for tax purposes. The purchase price allocation is subject to
change and will be finalized upon review and refinement of certain estimates. A
summary of the allocation of the purchase price follows:
Cash $ 1,280
Accounts receivable 2,189
Inventories 5,330
Other current assets 2,552
Property, plant and equipment 9,335
Intangible asset not subject to amortization-Trademark 34,000
Goodwill 60,114
--------
Total assets acquired 114,800
--------
Current liabilities 9,103
Noncurrent liabilities 1,221
Net deferred tax liability 11,295
--------
Total liabilities assumed 21,619
--------
Net assets acquired $ 93,181
========
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The following table presents unaudited pro forma results of operations for the
fiscal years ended January 31, 2004 and February 1, 2003 as if the acquisition
of The White House had occurred on February 2, 2003 and February 3, 2002,
respectively. The unaudited pro forma information presented below is for
illustrative purposes only and is not indicative of results that would have been
achieved or results which may be achieved in the future:
FISCAL 2003 FISCAL 2002
----------- -----------
Net sales $ 817,474 $ 598,064
Net income 101,021(1) 70,060
Net income per common share:
Basic $ 1.17 $ 0.84
Diluted $ 1.14 $ 0.81
(1) Includes approximately $2.7 million (pre-tax) of nonrecurring charges
related to the acquisition recorded by The White House in its historical
results prior to September 5, 2003.
3. PROPERTY AND EQUIPMENT IMPAIRMENT:
During fiscal 2003, the Company decided to conclude the Pazo test concept and
initiated the closing/conversion process for the 10 Pazo stores. As of January
31, 2004, this process has essentially been completed. In connection with the
decision to conclude the Pazo test concept, the Company completed an impairment
review of Pazo's property and equipment. Upon completion of the review, the
Company determined that the carrying value of certain Pazo assets exceeded their
future undiscounted cash flows. As a result, the Company recorded an impairment
charge of $2.9 million during fiscal 2003. The provision for the asset
impairment is included in general, administrative and store operating expenses
in the accompanying consolidated statements of income.
4. MARKETABLE SECURITIES:
Marketable securities classified as available-for-sale consisted of the
following:
JANUARY 31, FEBRUARY 1,
2004 2003
----------- -----------
Municipal bonds, cost $ 104,418 $ 91,010
Municipal bonds, fair value 104,453 91,195
----------- -----------
Unrealized gain $ 35 $ 185
=========== ===========
During fiscal 2003, the Company recorded a net unrealized loss of approximately
$0.2 million. The Company believes that the unrealized loss is as a result of
short-term swings in interest rates and that the unrealized loss is temporary.
At January 31, 2004, approximately 44 percent of the Company's marketable
securities mature within one year, 4 percent between one and five years, 5
percent between five and ten years, and the remainder with maturities greater
than ten years will mature by 2032.
35
5. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following:
JANUARY 31, FEBRUARY 1,
2004 2003
----------- -----------
Allowance for estimated customer returns, gift certificates
and store credits outstanding $ 18,009 $ 10,136
Accrued payroll, bonuses and severance costs 11,003 8,004
Other 14,175 11,558
----------- -----------
$ 43,187 $ 29,698
=========== ===========
6. INCOME TAXES:
The Company's income tax provision consisted of the following:
FISCAL 2003 FISCAL 2002 FISCAL 2001
----------- ----------- -----------
Current:
Federal $ 52,798 $ 37,399 $ 24,394
State 7,298 5,169 3,278
Deferred:
Federal 407 (1,451) (1,603)
State 929 (200) (213)
----------- ----------- -----------
Total income tax provision $ 61,432 $ 40,917 $ 25,856
=========== =========== ===========
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 2003 FISCAL 2002 FISCAL 2001
----------- ----------- -----------
Tax expense at the statutory rate $ 56,582 $ 37,687 $ 23,815
State income tax expense, net of federal tax
benefit 4,850 3,230 2,041
----------- ----------- -----------
Total income tax provision $ 61,432 $ 40,917 $ 25,856
=========== =========== ===========
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 consist of the following as of January
31, 2004, and February 1, 2003:
JANUARY 31, 2004 FEBRUARY 1, 2004
---------------- ----------------
Current:
Accrued liabilities and allowances $ 6,264 $ 5,548
Inventories 1,261 1,577
---------------- ----------------
$ 7,525 $ 7,125
================ ================
Noncurrent:
Other intangible assets $ (13,153) $ -
Depreciation (3,139) (2,463)
Lease obligations 2,548 1,739
Deferred compensation 2,020 816
---------------- ----------------
$ (11,724) $ 92
================ ================
Deferred tax assets at January 31, 2004 and February 1, 2003 totalled $12.1
million and $9.7 million, respectively. Deferred tax liabilities at January 31,
2004 and February 1, 2003 totalled $16.3 million and $2.5 million, respectively.
[PICTURE]
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7. DEFERRED LIABILITIES:
Deferred liabilities consisted of the following:
JANUARY 31, FEBRUARY 1,
2004 2003
----------- -----------
Deferred rent $ 6,718 $ 4,575
Deferred compensation 5,316 2,147
Capital lease obligations 1,278 --
----------- -----------
Total deferred liabilities 13,312 6,722
Less current portion (599) (171)
----------- -----------
$ 12,713 $ 6,551
=========== ===========
The Company has an unsecured revolving credit facility (the Credit Facility)
with Bank of America, N.A., consisting of a total available commitment of $45
million, composed of a line of credit of $10 million (the Line) and a $35
million letter of credit sublimit. All borrowings under the Credit Facility bear
interest at the LIBOR rate, plus an additional amount ranging from 0.80 percent
to 2.90 percent adjusted quarterly based on the Company's performance per annum
(a combined 1.90 percent at January 31, 2004). 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. No borrowings are outstanding
as of January 31, 2004 and February 1, 2003.
The Credit Facility contains certain restrictions regarding additional
indebtedness, business operations, liens, guaranties, transfers and sales of
assets, and transactions with subsidiaries or affiliates. 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 January 31, 2004.
Deferred rent represents the difference between operating lease obligations
currently due and operating lease expense, which is recorded by the Company on a
straight-line basis over the terms of its leases.
Deferred compensation represents the deferred compensation liability payable to
participants of the Chico's FAS, Inc. Deferred Compensation Plan (the Deferred
Plan). See Note 10.
8. COMMITMENTS AND CONTINGENCIES:
The Company leases retail store space and various office equipment under
operating and capital leases expiring in various years through the fiscal year
ending 2015. 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,
and 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 and capital 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 January 31, 2004, are approximately as follows:
37
OPERATING LEASES CAPITAL LEASES
---------------- --------------
FISCAL YEAR ENDING:
January 29, 2005 $ 46,213 $ 684
January 28, 2006 44,865 568
February 3, 2007 42,618 130
February 2, 2008 37,862 70
January 31, 2009 31,866 26
Thereafter 81,659 --
---------------- --------------
Total minimum lease payments $ 285,083 1,478
================
Less amounts representing interest (200)
--------------
Present value of net minimum capital lease payment $ 1,278
==============
A majority of the Company's new 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 commitments for the full lease terms of
such leases in the above table. For fiscal 2003, 2002 and 2001, total rent
expense under the Company's operating leases was approximately $59.3 million,
$42.2 million, and $30.8 million, respectively, including common area
maintenance charges of approximately $6.6 million, $5.2 million, and $3.6
million, respectively, other rental charges of approximately $7.1 million, $5.0
million, and $3.4 million, respectively, and contingent rental expense of
approximately $5.7 million, $4.0 million, and $3.4 million, respectively, based
on sales.
At January 31, 2004, the Company has approximately $11.8 million in commercial
letters of credit outstanding (see Note 7), which had arisen in the normal
course of business due to foreign purchase commitments.
The Company was named as defendant in a putative class action suit filed in May
2003 in the Superior Court for the State of California, County of San Francisco.
The Company filed an answer denying the material allegations of the Complaint.
The Complaint alleges that the Company, in violation of California law, has in
place a mandatory uniform policy that requires its employees to purchase and
wear Chico's clothing and accessories as a condition of employment. It is the
Company's position that no such mandatory uniform policy exists; the Company
encourages but does not require its associates to wear Chico's clothing;
although many Chico's associates choose to wear Chico's clothing, others do not.
The parties are engaged in discovery, and the Company is continuing its
investigation. No rulings on class certification have been made. The Company
believes the case is without merit and intends to vigorously defend the
litigation.
The Company is not a party to any other legal proceedings, other than various
claims and lawsuits arising in the normal course of business, none of which the
Company believes should have a material adverse effect on its financial
condition or results of operations.
9. STOCK OPTION PLANS AND CAPITAL STOCK TRANSACTIONS:
1992 STOCK OPTION PLAN
During fiscal year 1992, the Board approved a stock option plan (the 1992 Plan),
which reserved approximately 1,210,000 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 $0.1 million. Options granted under the terms of the 1992 Plan generally
vest evenly over three years and have a 10-year term. As of January 31, 2004,
approximately 6,000 nonqualified options are outstanding under the 1992 Plan.
[PICTURE]
[PICTURE]
1993 STOCK OPTION PLAN
During fiscal year 1993, the Board approved a stock option plan, as amended in
fiscal 1999 (the 1993 Plan), which reserved approximately 7,010,000 shares of
common stock for future issuance under the 1993 Plan to eligible employees of
the Company. The terms of the 1993 Plan are essentially the same as the 1992
Plan. As of January 31, 2004, approximately 2,224,000 nonqualified options are
outstanding under the 1993 Plan.
INDEPENDENT DIRECTORS' PLAN
In October 1998, the Board approved a stock option plan (the Independent
Directors' Plan), which reserved 1,257,500 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. From the date of the adoption of the Independent Directors' Plan
and until the 2002 Omnibus Stock and Incentive Plan was adopted, 402,500 options
were 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 651,000 nonqualified options through
individual grants at exercise prices ranging from $0.93 to $1.42. Subsequent to
the adoption of the Independent Directors' Plan, three independent directors of
the Company were granted 135,000 nonqualified stock options through individual
grants at exercise prices of $4.29 per share. As of January 31, 2004,
approximately 330,000 of these individual grant nonqualified options and options
under the Independent Directors' Plan are outstanding.
2002 OMNIBUS STOCK AND INCENTIVE PLAN
In April 2002, the Board approved the Chico's FAS, Inc. 2002 Omnibus Stock and
Incentive Plan (the Omnibus Plan), which initially reserved 4,855,140 shares of
common stock for future issuance to eligible employees and directors of the
Company. In accordance with the terms of the Omnibus Plan, shares of common
stock that are represented by options granted under the Company's previously
existing plans which are forfeited, expire or are cancelled without delivery of
shares of common stock are added to the amounts reserved for issuance under the
Omnibus Plan. During fiscal 2003 and fiscal 2002, 8,936 shares and 7,500 shares,
respectively, of options on common stock were forfeited under previously
existing plans. Also, during fiscal 2003, 126,162 shares issued under the
Omnibus Plan were exercised resulting in a total of 4,745,414 shares remaining
available for future issuance under the Omnibus Plan as of January 31, 2004. The
Omnibus Plan provides for awards of nonqualified stock options, incentive stock
options, restricted stock awards and restricted stock units. No new grants will
be made under the Company's existing 1992 Plan, 1993 Plan or Independent
Directors' Plan, and such existing plans will remain in effect only for purposes
of administering options that were outstanding thereunder on the date the
Omnibus Plan was approved by the Company's stockholders. As of January 31, 2004,
approximately 1,442,000 nonqualified options are outstanding under the Omnibus
Plan.
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 375,000 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 after three years and have a 10-year term. As
of January 31, 2004, all 375,000 shares have been granted under the Executive
Officers' Program at exercise prices ranging from $3.40 to $5.10. Of the 375,000
shares granted, 45,000 shares were granted at exercise prices below fair market
value. The granting of these shares resulted in stock compensation expense of
approximately $45.0 in the accompanying consolidated statement of income in
fiscal 2001. No compensation expense was recorded in fiscal 2003 or 2002. At
January 31, 2004, there were no options outstanding under the Executive
Officers' Program.
39
AGGREGATE STOCK OPTION ACTIVITY
As of January 31, 2004, 4,002,128 nonqualified options are outstanding at a
weighted average exercise price of $13.53 per share, and 3,303,411 remain
available for future grants. Of the options outstanding, 1,710,190 options are
exercisable.
Stock option activity for fiscal 2003, 2002 and 2001, was as follows:
FISCAL 2003 FISCAL 2002 FISCAL 2001
----------------------- ----------------------- ---------------------
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 5,011,600 $ 8.75 7,251,226 $ 3.66 8,712,158 $2.40
Granted 1,069,450 23.09 1,435,266 16.66 1,927,000 8.84
Exercised (2,048,901) 6.87 (3,653,392) 1.78 (2,579,780) 2.21
Canceled or expired (30,021) 18.94 (21,500) 5.09 (808,152) 7.07
----------- ----------- ----------
Outstanding, end of period 4,002,128 13.53 5,011,600 8.75 7,251,226 3.66
=========== =========== ==========
Options exercisable, end of period 1,710,190 8.25 2,275,095 5.87 4,167,688 1.64
The following table summarizes information about stock options as of January 31,
2004:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- ----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- --------------- ----------- ------------ -------- ----------- --------
$ 0.36-$ 7.49 835,544 5.35 $ 2.35 835,544 $ 2.35
$ 7.50-$14.99 1,095,414 4.31 9.43 432,361 9.73
$15.00-$22.49 1,655,670 9.64 17.35 442,285 17.94
$22.50-$38.50 415,500 9.74 31.59 -- --
---------- ----------
4,002,128 8.49 13.53 1,710,190 8.25
========== ==========
EMPLOYEE STOCK PURCHASE PLAN
The Company has a noncompensatory employee stock purchase plan (ESPP) under
which substantially all full-time 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 purchase period. During fiscal 2003, 2002 and 2001, approximately
55,000, 48,000, and 260,000 shares, respectively, were purchased under the ESPP.
The Company recognized no compensation expense for the issuance of these shares.
[PICTURE]
[PICTURE]
10. RETIREMENT PLANS:
The Company has a 401(k) defined contribution employee benefit plan (the Plan)
covering substantially all employees. Employees' rights to Company-contributed
benefits vest fully upon completing five years of service, with incremental
vesting in service years two through five, as specified in the Plan. Under the
Plan, employees may contribute up to 20 percent of their annual compensation,
subject to certain statutory limitations. The Company has elected to match
employee contributions at 50 percent on the first 6 percent of the employees'
contributions and can elect to make additional contributions over and above the
mandatory match. For fiscal 2003, 2002 and 2001, the Company's costs under the
Plan were approximately $1.2 million, $0.9 million, and $0.4 million,
respectively.
In April 2002, the Company adopted the Chico's FAS, Inc. Deferred Compensation
Plan (the Deferred Plan) to provide supplemental retirement income benefits for
a select group of management employees. Eligible participants may elect to defer
up to 80 percent of their salary and 100 percent of their bonuses pursuant to
the terms and conditions of the Deferred Plan. The Deferred Plan generally
provides for payments upon retirement, death or termination of employment. In
addition, the Company may make employer contributions to participants under the
Deferred Plan. To date, no Company contributions have been made under the
Deferred Plan. The amount of the deferred compensation liability payable to the
participants is included in "deferred liabilities" in the accompanying
consolidated balance sheet. A portion of these obligations are funded through
the establishment of trust accounts held by the Company on behalf of the
management group participating in the plan. The trust accounts are reflected in
"other assets" in the accompanying consolidated balance sheet.
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
NET INCOME
PER COMMON
NET INCOME PER AND COMMON
NET GROSS NET COMMON SHARE- EQUIVALENT SHARE-
SALES PROFIT INCOME BASIC DILUTED
--------- ---------- -------- -------------- ------------------
FISCAL YEAR ENDED
JANUARY 31, 2004:
First quarter $ 168,985 $ 104,295 $ 23,367 $ 0.27 $ 0.27
Second quarter 173,436 107,603 24,466 0.28 0.28
Third quarter 210,569 129,367 26,759 0.31 0.30
Fourth quarter 215,509 129,757 25,637 0.29 0.29
FISCAL YEAR ENDED
FEBRUARY 1, 2003:
First quarter $ 130,454 $ 81,464 $ 19,777 $ 0.24 $ 0.23
Second quarter 125,068 75,479 16,388 0.20 0.19
Third quarter 137,261 82,376 15,544 0.19 0.18
Fourth quarter 138,325 82,020 15,050 0.18 0.17
FISCAL YEAR ENDED
FEBRUARY 2, 2002:
First quarter $ 93,233 $ 56,292 $ 12,379 $ 0.16 $ 0.15
Second quarter 89,492 53,685 11,091 0.14 0.13
Third quarter 93,978 55,542 8,900 0.11 0.11
Fourth quarter 101,382 58,629 9,818 0.12 0.12
41
[PICTURE]
EXECUTIVE OFFICERS
Scott A. Edmonds
President
Chief Executive Officer
Charles J. Kleman
Executive Vice President-
Chief Operating Officer,
Chief Financial Officer
Secretary/Treasurer
Patricia Murphy Kerstein
Executive Vice President-
Chief Merchandising Officer
Mori C. MacKenzie
Executive Vice President-
Chief Stores Officer
James P. Frain
Executive Vice President-
Chief Marketing Officer
Barry I. Shapiro
Senior Vice President-
Distribution & Logistics
Richard D. Sarmiento
Senior Vice President-White House
Patricia Darrow-Smith
Senior Vice President-
General Merchandise Manager-White House
Michael J. Kincaid
Vice President-Finance and
Chief Accounting Officer
Ajit Patel
Vice President-
Chief Information Officer
[PICTURE]
DIRECTORS
Marvin J. Gralnick
Chairman
Helene B. Gralnick
Formerly, Senior Vice
President-Design & Concept
Scott A. Edmonds
President
Chief Executive Officer
Charles J. Kleman
Executive Vice President-
Chief Operating Officer
Chief Financial Officer
Secretary/Treasurer
Verna K. Gibson
Retailing Consultant
Ross E. Roeder
Chairman and
Chief Executive Officer-
Smart & Final, Inc.
John W. Burden, III
Retailing Consultant
Betsy S. Atkins
President and
Chief Executive Officer-
Baja Accordiant Ventures
43
[PICTURE]
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 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
101 E. Kennedy Blvd.
Suite 2700
Tampa, Florida 33602
Independent Certified Public Accountants:
Ernst & Young LLP
100 N. Tampa St.
Suite 2200
Tampa, Florida 33602
Investor Relations:
Integrated Corporate Relations, Inc.
24 Post Road East
Westport, Connecticut 06880
(203) 222-9013
Annual Stockholders Meeting:
Tuesday, June 22, 2004 at 2:00 p.m.
Sanibel Harbour Resort
Fort Myers, Florida 33908
[PICTURE]
45
[PICTURE]
WHITE | BLACK
HOUSE | MARKET
The management team of White House | Black Market is very pleased and excited to
be part of the Chico's organization and to be working with such a dynamic team
of specialty retailers. There was much appeal to our joining forces with
Chico's. In making our decision to move forward, White House | Black Market saw
a great potential to secure important benefits. To begin with, the fit seemed
right, with both organizations having clearly identifiable niches and strong
customer followings. Additionally, the ability to take advantage of the
experience and success that Chico's has had in sales, operations, merchandising,
marketing, and development was very enticing as a means to position and grow
White House | Black Market. Since we became a part of Chico's in September, the
transition has gone very smoothly. Having completed the move of our
administrative offices to Ft. Myers and having established ourselves in our own
building on the Chico's headquarters campus, White House | Black Market believes
it is now well positioned to achieve unparalleled growth and expanded national
presence.
We believe we now have the potential to see a chain of White House | Black
Market stores numbering over 500 stores. We look to take greater advantage of
our distinct, memorable and powerful brand as we become an even stronger player
in the specialty apparel market. We want to continue to build upon a brand that
not only is instantly recognized for its unique, classic white and black niche,
but also is known for its current and stylish fashions and unwavering service
standards. The ability to tap into the expertise and experience that Chico's has
had over the past years presents tremendous opportunities for achieving the
targeted growth for the White House | Black Market business and the brand.
It has been a true pleasure to work with the entire team at Chico's during this
transition. We look forward to a very successful and mutually beneficial
relationship as we now move into this new era of growth for White House | Black
Market.
Most sincerely,
/s/ Rick Sarmiento /s/ Patricia Darrow-Smith
- --------------------- ---------------------------
Rick Sarmiento Patricia Darrow-Smith
President Executive Vice President-
The White House, Inc. Chief Merchandising Officer
The White House, Inc.
[PICTURE]
47
[PICTURE]
CHICO'S(R)
ALABAMA Birmingham Foley** Huntsville Montgomery ARIZONA Chandler Glendale Mesa
Phoenix Scottsdale Sedona Tempe** Tucson ARKANSAS Little Rock Rogers CALIFORNIA
Bakersfield Brea Burlingame Calabasas Camarillo** Carlsbad Carmel Corte Madera
Costa Mesa Danville Del Mar Emeryville Encino Fresno La Canada La Jolla
Lafayette Laguna Beach Long Beach Los Angeles Los Gatos Manhattan Beach Marina
del Rey Milpitas** Mission Viejo Monterey Newport Beach Ontario** Palm Desert
Palm Springs Palo Alto Pasadena Pleasanton Rolling Hills Estates Sacramento San
Diego San Francisco San Jose San Juan Capistrano San Mateo Santa Ana Santa
Barbara Santa Monica Santa Rosa Sonoma Studio City Thousand Oaks Vacaville**
Valencia Ventura Walnut Creek COLORADO Boulder Colorado Springs Denver Fort
Collins Lakewood* Littleton CONNECTICUT Avon Fairfield Glastonbury Greenwich
Mystic Ridgefield Southbury Stamford Uncasville Waterford West Hartford Westport
Wilton DELAWARE Greenville Rehoboth Beach** FLORIDA Amelia Island Aventura Boca
Raton Bonita Springs Brandon Captiva Clearwater Coral Gables Delray Beach Destin
Ellenton** Estero** Fort Lauderdale Fort Myers Gainesville Jacksonville Key West
Manalapan Marco Island Miami Miami Beach Naples Orlando Ormond Beach Palm Beach
Gardens Ponte Vedra Beach Sanibel Sarasota St. Augustine** St. Petersburg Stuart
Sunrise** Tampa Vero Beach Wellington West Palm Beach Winter Park GEORGIA
Alpharetta Athens Atlanta Augusta Columbus Lawrenceville** Marietta Norcross
Peachtree City Saint Simons Island IDAHO Boise ILLINOIS Chicago Deer Park Geneva
Gurnee** Highland Park Hinsdale Naperville Northbrook Oakbrook Peoria River
Forest Schaumburg Skokie Springfield Wheaton Wilmette INDIANA Fort Wayne
Indianapolis Michigan City IOWA Davenport KANSAS Leawood Overland Park Prairie
Village KENTUCKY Bowling Green* Lexington Louisville Paducah LOUISIANA Baton
Rouge Lafayette Mandeville Metairie Monroe New Orleans MAINE Portland MARYLAND
Annapolis Baltimore Bethesda Chevy Chase Columbia Frederick Gathersburg* Potomac
Rockville Towson MASSACHUSETTS Acton Boston Braintree Burlington Canton Chestnut
Hill Hyannis Longmeadow Marlborough Mashpee Natick Peabody Wellesley Wrentham**
MICHIGAN Ann Arbor Birmingham Grand Rapids Grandville Grosse Pointe Holland
Livonia Novi Okemos Petosky Rochester Hills Troy West Bloomfield MINNESOTA Edina
Mall of America Maple Grove Rochester St. Paul Wayzata White Bear Lake Woodbury
MISSISSIPPI Flowood Jackson Ridgeland MISSOURI Chesterfield Columbia Des Peres
Kansas City St. Louis Springfield MONTANA Billings NEBRASKA Henderson Lincoln
Omaha NEVADA Henderson Las Vegas NEW JERSEY Bridgewater Cherry Hill Denville
Edgewater Hackensack Marlton Mount Laurel Paramus Princeton Ridgewood Sea Girt
Short Hills Shrewsbury Westfield Westwood Woodcliff Lake NEW MEXICO Albuquerque
Santa Fe NEW YORK Albany Bayside Buffalo Central Valley** Garden City Great Neck
Manhattan Mount Kisco Riverhead** Rochester Southampton Stony Brook Syracuse
White Plains Williamsville Woodbury NORTH CAROLINA Asheville Chapel Hill
Charlotte Durham Greensboro Greenville Hickory Huntersville Raleigh Wilmington*
Winston-Salem* OHIO Beachwood Chagrin Falls Cincinnati Cleveland Columbus Dayton
Rocky River Upper Arlington West Chester Woodmere Worthington OKLAHOMA Edmond
Norman Oklahoma City Tulsa OREGON Bend Eugene Gresham Lake Oswego Portland
PENNSYLVANIA Allentown Ardmore Chestnut Hill Concordville Doylestown Glen Mills
King of Prussia Lahaska Lancaster Manayunk North Wales Paoli Pittsburgh RHODE
ISLAND Cranston Newport Smithfield SOUTH CAROLINA Charleston Columbia Greenville
Hilton Head Mount Pleasant Myrtle Beach SOUTH DAKOTA Sioux Falls* TENNESSEE
Franklin Germantown Johnson City Knoxville Memphis Nashville TEXAS Amarillo
Arlington Austin College Station* Corpus Christi Dallas Fort Worth Friendswood
Frisco Grapevine** Houston Hurst Kingwood Lubbock Midland Plano San Antonio
Southlake Sugar Land Waco* Woodlands UTAH Provo Salt Lake City VERMONT
Burlington VIRGINIA Alexandria Arlington Charlottesville Fairfax Fredericksburg
Leesburg** Lynchburg McLean Norfolk Reston Richmond Virginia Beach Williamsburg
Winchester Woodbridge** WASHINGTON Bellevue Issaquah* Redmond Seattle Spokane
WASHINGTON D.C. Georgetown Union Station WISCONSIN Appleton Brookfield Fox Point
Middleton Milwaukee Wauwatosa WYOMING Jackson Hole
[*Coming Soon / **Outlet Store]
(PHOTO)
White Black
House Market
ALABAMA Birmingham ARIZONA Chandler Scottsdale Tucson CALIFORNIA Burlingame*
Carlsbad Del Mar Glendale La Jolla Laguna Beach Manhattan Beach Mission Viejo
Newport Beach Palm Desert Palo Alto Palos Verdes Pasadena Santa Rosa Walnut
Creek Burlingame* Del Mar** Laguna Beach** Palm Desert** COLORADO Colorado
Springs Littleton CONNECTICUT Danbury Glastonbury DELAWARE Greenville Rehoboth
Beach FLORIDA Boca Raton Bonita Springs Coconut Grove Destin Ft. Lauderdale Ft.
Myers Key West Miami Beach Naples North Miami Orlando Palm Beach Gardens
Sarasota St. Petersburg Tampa West Palm Beach Coconut Grove** Marco Island*
Naples** GEORGIA Alpharetta* Atlanta Buford Marietta Norcross HAWAII Lahaina
Maui Oahu ILLINOIS Deerfield Deer Park Geneva Peoria KANSAS Leawood Overland
Park KENTUCKY Louisville LOUISIANA Metairie New Orleans MARYLAND Annapolis
Baltimore Towson Annapolis** MASSACHUSETTS Mashpee Commons* MICHIGAN East
Lansing Rochester Hills Troy MINNESOTA Mall of America Maple Grove MISSOURI
Chesterfield Kansas City St. Louis NEVADA Henderson* Las Vegas NEW JERSEY Edison
Marlton Princeton NEW MEXICO Santa Fe NEW YORK White Plains Woodbury NORTH
CAROLINA Charlotte Durham Huntersville Raleigh OHIO Cincinnati Upper Arlington
Worthington OKLAHOMA Edmond* Tulsa PENNSYLVANIA King of Prussia Monroeville
RHODE ISLAND Cranston SOUTH CAROLINA Charleston Greenville Hilton Head Mt.
Pleasant TENNESSEE Franklin* TEXAS Ft. Worth Frisco Houston Plano San Antonio
UTAH Salt Lake City VIRGINIA Norfolk Richmond WASHINGTON, D.C. Georgetown Union
Station PUERTO RICO San Juan U.S. VIRGIN ISLANDS St. Thomas *Coming Soon **On
Sale Location
CHICO'S FAS, INC. 11215 METRO
PARKWAY FORT MYERS, FLORIDA
33912 P. 239.277.6200 F.
239.277.5237 1.888.855.4986
WWW.CHICOS.COM