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[GRAPHIC - PICTURE OF FEMALE MODEL WITH FLOWERS]
CHICO'S(R)
REAL CLOTHES FOR REAL PEOPLE
1997 ANNUAL REPORT
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[GRAPHIC - FOUR PICTURES INCLUDING UNITED STATES FLAG
AND THREE SEPARATE FEMALE MODELS]
CHICO'S(R)
REAL CLOTHES
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To our shareholders,
Fiscal 1997 was another challenging year for Chico's. We saw some
success in our profit with net income of 24 cent(s) per share as compared to
21 cent(s) per share in the prior year. However, although we were profitable for
the year, we experienced a fourth quarter of negative earnings. We are now
taking steps to make improvements in the Company's performance.
As I reported last year, in 1995 we had implemented a transition plan
which included the hiring of a new executive Vice President/General Merchandise
Manager. Melissa Payner, hired to fill this position, was promoted to President
of the Company in August, 1996. However, in the latter portion of the fiscal
year, our senior management group had a significant difference of views as to
the strategic direction for the Company's future. Our inability to agree lead to
a separation arrangement with Melissa, which was effective at the end of March,
1997.
My goal and the goal of our management team is to make Chico's the
force it once was in the marketplace. We realize Chico's has lost the image that
made is distinct and special.
Helene and I are heading up the product development group which is
already making great strides. We are committed to giving our customers what they
are asking for: casual, loose fitting, cotton, easy-to-care-for clothing at a
great value. Charlie Kleman, our Chief Financial Officer, is directing our
planning, distribution, and merchandising team until we complete our search for
a senior merchandise manager. Once new merchandise is in our stores and the
customer is responding favorably, we intend to commence the search for a senior
merchandise manager to maintain this direction and lead the planning,
distribution, and merchandising team.
We are working toward reviving not only our product line, but also the
Chico's spirit within our stores. We are planning to implement a training
program to correspond with the image that the Company wants to project. I am
committed to working with our field to see to it that this training program is
up and running as soon as possible.
In order to be consistent with the Chico's spirit and our product
development, we are enhancing our store concept. We intend to put "character"
back into our stores. We have already implemented some of these concepts in our
Fifth Avenue, Naples store and our Bell Tower, Fort Myers store, both in
Florida, and the look is being very well received.
Back in 1992 and 1993, we had a concept that was exciting and unique.
We have been through several changes in direction since that time, believing
that the fashion world and the retail environment had changed and that we had to
change to meet it. I look back at some of the special characteristics that have
made us strong, such as our exclusively designed clothing, the continual
introduction of new merchandise, our boutique store atmosphere and our
personalized customer service. These qualities which distinguished Chico's from
its competition and made it exciting can still work today.
We will have some tremendous talent to assist us in our efforts through
our Board of Directors. Verna Gibson, previously with The Limited and a board
member since we became a public company, has always been a great source of
guidance. Keith Schilit will not be continuing as a Board member, but I want to
thank him for the guidance in financial and compensation matters he has
provided. The Board has nominated two new independent directors for election at
this, the 1997 annual meeting: Ross Roeder, with twenty years of extensive
multi-unit retail experience with Fotomat Corp., Denny's Restaurants and Baskin
Robbins and John Burden, former Chairman of Federated Stores, with 30 years of
department store experience. I am excited about this new team and confident that
it can only mean good things for Chico's in the future.
On the other hand, because of all the restructuring that will be
necessary in fiscal 1998, we believe it will be a difficult year. We expect the
first half of the year to continue to be challenging, but are hopeful that the
changes we are putting into place will yield more positive results in the second
half of the year and into future years.
We have started on the path I refer to as "Back to the Future." We
intend to listen to our customers and respond to their needs. I have faith in
our management team who are very capable, positive and unified in their vision
for the future.
Sincerely,
/s/Marvin Gralnick
----------------------
Marvin Gralnick
Chairman of the Board
[GRAPHIC OF FEMALE MODEL WITH FLOWERS BEHIND SHAREHOLDER LETTER]
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CHICO'S LOGO
INDEX
5 Management's Discussion & Analysis
11 Stock Information
12 Financial Statements
29 Executive Officers/Directors
31 Store Listing
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FINANCIAL HIGHLIGHTS
PRO FORMA
ONE FISCAL YEAR FISCAL
FISCAL YEAR ENDED MONTH ENDED YEAR
---------------------------------------- ENDED (UNAUDITED) ENDED
1992 1993 1994 1995 1/28/96(1) 1996(1) 1997(1)
---- ---- ---- ---- ---------- ----------- --------
(Dollars in thousands except per share data)
STATEMENT OF INCOME:
Net Sales $32,525 $46,835 $59,271 $60,343 $3,747 $60,763 $64,073
Income (loss) from
Operations 4,474 7,985 5,685 3,485 (524) 3,437 3,622
Net Income (loss) 4,293 6,090 3,291 1,704 (338) 1,676 1,931
Pro Forma Net
Income
Earnings (loss) Per
Share(2) $ .34 $ .61 $ .41 $ .22 $ (.04) $ .21 $ .24
OPERATING DATA:
Total Assets $ 8,788 $16,589 $27,352 $27,009 N/A $27,681 $31,248
Long-Term Debt 691 593 4,663 5,896 N/A 7,131 7,008
Stockholders'
Equity $ 4,785 $10,713 $14,226 $15,959 N/A $15,621 $18,021
Number of Stores
(at end of
period):
Company-owned 57 78 104 111 N/A 111 123
Franchised 18 16 17 12 N/A 12 10
--- --- ---- ---- ------ -----
Total 75 94 121 123 N/A 123 133
--- --- ---- ---- ------ -----
(1) In December 1996, the Company elected to change its fiscal year end,
effective January 29, 1996, from a 52/53 week fiscal year, ending on the
Sunday closest to December 31st to a 52/53 week fiscal year ending on the
Saturday closest to January 31st. The selected financial data presents
financial results for the short one month transition period in January 1996,
for a pro forma fiscal year ended January 28, 1996 and the first new full
fiscal year ended February 1, 1997.
(2) Represents supplemental pro forma net income per common equivalent share for
fiscal periods 1992 -- 1993.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Since the Company opened its first store in 1983 principally selling folk
art, its retail store system, now selling principally women's apparel, has grown
to 133 stores as of February 1, 1997, of which 123 are Company-owned and 10 are
franchised stores. Since fiscal 1989, the Company has de-emphasized the granting
of new franchises as a strategy for growth and, at the same time, has been
expanding its store base by opening Company-owned stores. Where possible and
practical, the Company has also acquired stores from its franchisees. Since the
beginning of fiscal 1993, the Company has acquired 6 stores from franchisees and
opened 68 new Company-owned stores, 13 of which were opened in the fiscal year
ended February 1, 1997, 8 of which were opened in the pro forma fiscal year
ended January 28, 1996, 26 of which were opened in the fiscal year ended January
1, 1995 and 21 of which were opened in the fiscal year ended January 2, 1994.
During this same time period, the Company closed 8 Company-owned stores and 3
franchised stores were closed. The Company plans to open eight to twelve new
Company-owned stores in the fiscal year ending January 31, 1998. 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 5 to 8 Company-owned stores in the fiscal year ending
January 31, 1998.
RESULTS OF OPERATIONS
The following table sets forth, for each of the respective periods
indicated, certain operating statement data and the percentage of the Company's
net sales represented by each line item presented. The Company elected,
effective January 29, 1996, to change its fiscal year from a 52/53 week fiscal
year, ending on the Sunday closest to December 31st, to a 52/53 week fiscal year
ending on the Saturday closest to January 31st. To assist in a review of the
Company's results of operations, the following table includes operating
statement data for the short one month transition period in January 1996, for a
pro forma fiscal year ended January 28, 1996 and for the first new full fiscal
year ended February 1, 1997.
ONE MONTH PERIOD PRO FORMA FISCAL YEAR
FISCAL YEAR ENDED ENDED ENDED (UNAUDITED)
----------------------------------------- ------------------- ---------------------
JANUARY 1, DECEMBER 31, JANUARY 28, JANUARY 28,
1995 1995 1996 1996
(52 WEEKS) % (52 WEEKS) % (4 WEEKS) % (52 WEEKS) %
---------- ----- ------------ ----- ----------- ----- ------------ ------
Net sales by company stores....... $55,282 93.3% $57,636 95.5% $3,619 96.6% $58,091 95.6%
Net sales to franchisees.......... 3,989 6.7 2,707 4.5 128 3.4 2,672 4.4
------- ----- ------- ----- ------ ----- ------- -----
Net sales....................... 59,271 100.0 60,343 100.0 3,747 100.0 60,763 100.0
Cost of goods sold................ 22,418 37.8 26,115 43.3 1,913 51.0 26,484 43.6
------- ----- ------- ----- ------ ----- ------- -----
Gross profit.................... 36,853 62.2 34,228 56.7 1,834 49.0 34,279 56.4
General, administrative and store
operating expenses.............. 31,168 52.6 30,743 50.9 2,358 63.0 30,842 50.7
------- ----- ------- ----- ------ ----- ------- -----
Income (loss) from operations..... 5,685 9.6 3,485 5.8 (524) (14.0) 3,437 5.7
Interest expense, net............. 119 .2 621 1.1 39 1.0 620 1.0
------- ----- ------- ----- ------ ----- ------- -----
Income (loss) before taxes........ 5,566 9.4 2,864 4.7 (563) (15.0) 2,817 4.7
Provision for (benefit from)
income taxes.................... 2,275 3.8 1,160 1.9 (225) (6.0) 1,141 1.9
------- ----- ------- ----- ------ ----- ------- -----
Net income (loss)................. $ 3,291 5.6% $ 1,704 2.8% $ (338) (9.0)% $ 1,676 2.8%
======= ===== ======= ===== ====== ===== ======= =====
FISCAL YEAR ENDED
-------------------
FEBRUARY 1,
1997
(53 WEEKS) %
----------- -----
Net sales by company stores....... $62,318 97.3%
Net sales to franchisees.......... 1,755 2.7
------- -----
Net sales....................... 64,073 100.0
Cost of goods sold................ 26,713 41.7
------- -----
Gross profit.................... 37,360 58.3
General, administrative and store
operating expenses.............. 33,738 52.6
------- -----
Income (loss) from operations..... 3,622 5.7
Interest expense, net............. 404 .7
------- -----
Income (loss) before taxes........ 3,218 5.0
Provision for (benefit from)
income taxes.................... 1,287 2.0
------- -----
Net income (loss)................. $ 1,931 3.0%
======= =====
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FIFTY-THREE WEEKS ENDED FEBRUARY 1, 1997 COMPARED TO PRO FORMA FIFTY-TWO WEEKS
ENDED JANUARY 28, 1996
NET SALES. Net sales by Company owned stores for the fifty-three weeks
ended February 1, 1997 increased by $4.2 million over net sales by Company-owned
stores for the pro forma fifty-two weeks ended January 28, 1996.
The increase was primarily the result of $3.9 million in additional sales
provided (1) by the fourteen stores opened or acquired in the fiscal year ended
February 1, 1997 (net of two stores closed during the fiscal year) prior to such
stores being included in the Company's comparable store base and (2) by several
extended clearance sales conducted at, or near, the Company's warehouse
(approximately $992,000 of additional net sales). Approximately $1.0 million of
the additional sales were attributable to the thirteen stores opened or acquired
in the pro forma fiscal year ended January 28, 1996 (net of six stores closed
during such period). These increases in net sales were offset in part by a
comparable Company-owned store net sales decrease of $704,000.
Net sales to franchisees for the fifty-three weeks ended February 1, 1997
decreased by approximately $917,000, or 34.4%, compared to net sales to
franchisees for the pro forma fifty-two weeks ended January 28, 1996. This
decrease in net sales to franchisees resulted in part from the acquisition by
the Company of six franchised stores during the two fiscal years ended February
1, 1997, and the closing of one franchise in March 1996. Management believes the
balance of this decrease in net sales to franchisees resulted in part from
conservative buying positions established by the franchisees as the Company
began delivering its new designs and styles in late March 1996, combined with
increased returns of older merchandise in anticipation of a new, more
restrictive return policy which became effective in July 1996.
GROSS PROFIT. Gross profit for the fifty-three weeks ended February 1,
1997 was $37.4 million, or 58.3% of net sales, compared with $34.3 million, or
56.4% of net sales for the pro forma fifty-two weeks ended January 28, 1996. The
increase in the gross profit percentage primarily resulted from improved gross
margins related to the Company's new spring and holiday goods, and an increase
in the Company's outlet gross margins due to a change in its merchandising
strategies together with the effect of the decreased percentage of total sales
attributable to franchisees which carry lower margins. The Company does not
believe that the increased gross margins at the Company's outlets are likely to
continue in fiscal 1998 at the same level as in fiscal 1997 because the Company
intends to pursue a more aggressive strategy to maintain lower levels of
inventories in the distribution center.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES. General,
administrative and store operating expenses increased to $33.7 million, or 52.6%
of net sales, in the fifty-three weeks ended February 1, 1997 from $30.8
million, or 50.7% of net sales, in the pro forma fifty-two weeks ended January
28, 1996. The increase in general, administrative and store operating expenses,
for the most part, was the result of increases in store operating expenses,
including store compensation and occupancy costs associated with additional
store openings. To a lesser degree, the increase in general, administrative and
store operating expense was a result of increased marketing and promotion costs
associated with mailings to existing and potential customers, combined with the
Company's increased outreach efforts. In addition, the increase was also due to
a nonrecurring cost of approximately $325,000 related to separation expenses
associated with the former President of the Company. During the pro forma fiscal
year ended January 28, 1996, general, administrative and store operating costs
were negatively impacted by an approximate $235,000 nonrecurring cost related to
the Company's refinancing of its outstanding indebtedness. The increase in these
expenses as a percentage of net sales was principally a result of the increased
marketing and promotion costs, combined with the decline in comparable
Company-owned store net sales.
INTEREST EXPENSE, NET. Interest expense, net, decreased to approximately
$404,000 in the fifty-three weeks ended February 1, 1997 from approximately
$620,000 in the pro forma fifty-two weeks ended January 28, 1996. This decrease
was primarily a result of decreased interest rates due to the refinancing
accomplished in January 1996.
NET INCOME. As a result of the factors discussed above, net income
reflects an increase of 15.1% to $1.9 million for the fifty-three weeks ended
February 1, 1997 from net income of $1.7 million for the pro forma fifty-two
weeks ended January 28, 1996. The income tax provision represented an effective
rate of 40.0% for the fifty-three weeks ended February 1, 1997 while the
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income tax provision for the pro forma fifty-two weeks ended January 28, 1996
represented an effective rate of 40.5%. The decrease in the effective rate is
largely attributable to lower permanent book-to-tax differences in the current
fiscal year.
COMPARISON OF FIFTY-THREE WEEKS ENDED FEBRUARY 1, 1997 TO FISCAL 1995
As is evident from the table above, the results of operations for the pro
forma fiscal year ended February 1, 1997 and the fiscal year ended December 31,
1995 are substantially the same, particularly as to the relative percentages of
net sales for each line item. Accordingly, a discussion of a comparison of the
fifty-three weeks ended February 1, 1997 to the fiscal year ended December 31,
1995 would be largely the same as the above discussion which compares the
fifty-three weeks ended February 1, 1997 to the pro forma fifty-two weeks ended
January 28, 1996.
FOUR WEEKS ENDED JANUARY 28, 1996
The Company has historically cleared merchandise at marked down prices
during the month of January. This practice, which the Company believes to be
consistent with other apparel retailers, results in a four week period that is
not representative of the full year results. Weekly sales during this four week
period are generally lower due to substantially increased returns resulting from
the Christmas selling season, combined with the deep markdowns required to clear
merchandise and meet competition.
For the one month period ended January 28, 1996, the gross profit
percentage of 49.0% is substantially less than the Company experiences on a full
quarter basis due to the focus on clearance of goods. Further, the general,
administrative and store operating expense percentage of 62.9% for the one month
period was also substantially higher than the Company experiences on a full
quarter basis due to the reduced sales described above, combined with certain
relatively fixed levels of expenses. As a result of the above, the losses shown
for this month are generally consistent with past January results.
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES. Net sales by Company-owned stores for the 52 weeks ended
December 31, 1995 increased by $2.4 million, or 4.3%, over net sales by
Company-owned stores for the comparable 52 weeks ended January 1, 1995. The
increase was principally the result of $5.3 million in additional sales prior to
being included in the Company's comparable store base from the 26 stores opened
in 1994 (net of 6 stores closed in 1995), and $2.5 million in additional sales
from the stores opened or acquired in 1995, which increases were offset in
substantial part by a comparable Company-owned store net sales decrease of $5.4
million.
Net sales to franchisees for the 52 weeks ended December 31, 1995 decreased
by $1.3 million, or 32.1%, compared to net sales to franchisees for the 52 weeks
ended January 1, 1995. Management believes this decrease in net sales to
franchisees resulted in part from a less than desirable assortment, depth and
inventory level of available merchandise and a general slump in the women's
apparel industry and is in part attributable to the acquisition by the Company
of 5 franchised stores during 1995.
GROSS PROFIT. Gross profit for the 52 weeks ended December 31, 1995 was
$34.2 million, or 56.7% of net sales, compared with $36.9 million, or 62.2% of
net sales for the 52 weeks ended January 1, 1995. The decrease in the gross
profit percentage primarily resulted from the Company's strategy implemented
principally in the first quarter of 1995 to heavily discount, through sidewalk
sales and other markdowns in its stores, the existing merchandise. The decrease
in the gross profit margin is also attributable to the Company's strategy to
reduce price points to be more competitive in the current women's apparel
market, to increase promotions in response to market conditions and, to a lesser
degree, to the inclusion in cost of goods sold of the increased costs of the
Company's new corporate headquarters which opened in September 1994. Although
the Company reduced its markdown strategy for the second and third quarters of
1995, it determined that market conditions warranted increased markdowns in the
fourth quarter of 1995 and into the first quarter of 1996.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES. General,
administrative and store operating expenses decreased to $30.7 million, or 50.9%
of net sales, in the 52 weeks ended December 31, 1995 from $31.2 million, or
52.6% of net sales, in the 52 weeks ended January 1, 1995. The decrease in
general, administrative and store operating expenses, for the most part, was the
result of staff and expense reductions in field management and at the Company's
corporate headquarters. These staff and expense reductions were initiated by the
Company in January 1995 as a response to the declining
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Company-owned and franchise store sales trends. These reductions in expense
levels were substantially offset by increases in store operating expenses,
including store compensation and occupancy costs associated with additional
store openings. To a lesser degree, the decrease in general, administrative and
store operating expense was a result of an approximate $235,000 nonrecurring
cost related to the Company's refinancing of its outstanding indebtedness.
During 1994, general administrative and store operating costs were negatively
impacted by an approximate $945,000 nonrecurring cost related to employee
severance costs and a write-off of lease obligations. The decrease in these
expenses as a percentage of net sales was principally a result of the cost
reductions described above, offset by the decline in comparable Company-owned
store net sales.
INTEREST EXPENSE, NET. Interest expense, net, increased to approximately
$621,000 in the 52 weeks ended December 31, 1995 from approximately $119,000 in
the 52 weeks ended January 1, 1995. This increase was primarily a result of
increased borrowing on the Company's credit line to fund current operations as
the decline in comparable Company-owned store net sales negatively impacted cash
flow from operations, and a result of borrowing under new credit facilities
aggregating $4.5 million and funded during the second and third quarters of
1994. The $4.5 million of new credit facilities were put in place primarily to
support the construction and equipping of the Company's combined corporate
headquarters, distribution center and woodshop facility.
NET INCOME. As a result of the factors discussed above, net income
reflects a decrease of 48.2% to $1.7 million for the 52 weeks ended December 31,
1995 from net income of $3.3 million for the 52 weeks ended January 1, 1995. The
income tax provision represented an effective rate of 40% for the 52 weeks ended
December 31, 1995, while the income tax provision for the 52 weeks ended January
1, 1995 represented an effective rate of 40.9%. The decrease in the effective
rate is largely attributable to lower permanent book-to-tax differences in 1995
versus 1994, offset by an increase in the overall state income tax rate.
COMPARABLE COMPANY-OWNED STORE NET SALES
Comparable company store net sales decreased by 1.3% for the fifty-three
weeks ended February 1, 1997 (fiscal 1997) when compared to the comparable
fifty-three weeks of the previous 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
thirteen months.
The Company believes that the overall decrease in comparable company store
net sales, which resulted from negative comparable store sales in the third and
fourth quarter of the fiscal year ended February 1, 1997, were attributable to a
less than desirable assortment, depth and inventory level of available
merchandise. During fiscal 1997, the Company attempted to increase its usage of
specialty fabrics, with less cotton as its core fabric and the Company sought to
increase its customer base to include a younger customer. In the Company's
opinion, this resulted in higher price points and merchandise outside the
traditional Chico's look. The Company intends to return to a more traditional
look including the increased use of cotton.
In addition, in an effort to reduce inventory levels as of the end of the
third quarter, the Company reduced fourth quarter receipts of merchandise
through reduced levels of purchases. The reduced levels of merchandise received
were aggravated by certain product cancellations during such periods. As a
result, the Company believes it did not have a sufficient assortment of
merchandise in its stores for the Christmas selling season.
The following table sets forth for each of the four quarters of fiscal
1997, 1996 and 1995 (restated to reflect the change in year end), the percentage
changes in comparable store net sales at Company-owned stores:
FISCAL QUARTERS
-------------------------------------
1ST 2ND 3RD 4TH FULL
QTR QTR QTR QTR YEAR
----- ----- ----- ----- -----
Fiscal year ended
2/1/97: 2.9% 2.2% (0.3%) (10.6%) (1.3%)
Fiscal year ended
1/28/96: (17.2%) (13.5%) (8.1%) 0.2% (10.1%)
Fiscal year ended
1/29/95: 3.9% (1.8%) (14.0%) (15.9%) (7.4%)
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary ongoing capital requirements are for funding capital
expenditures related to new store openings and merchandise inventory purchases.
During the fifty-three weeks ended February 1, 1997 (fiscal 1997) and the
fifty-two weeks ended December 31, 1995 (1995), the Company's primary source of
working capital was
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cash flow from operations of $3.2 million and $2.1 million, respectively. The
increase in cash flow from operations was primarily due to an increase in
accounts payable and accrued expenses in fiscal 1997 of $1.5 million principally
related to large receipts of merchandise near the end of fiscal 1997 for which
payment had not yet been made. This compares to a decrease in accounts payable
and accrued expenses of approximately $1.5 million in 1995 due to payments of
the final liabilities related to the Company's new combined corporate
headquarters, distribution center and woodshop. This increase in cash flow from
operations was offset by an increase in inventories of $1.7 million in fiscal
1997, as compared to an increase of approximately $140,000 in 1995. This
increase in cash flow from operations was also due to an increase in cash flow
of approximately $227,000 due to improved overall profitability of the Company.
The Company had pursued a strategy over the past two years to expand and
shift its vendor base to new vendors in Hong Kong, Turkey, Guatemala, Peru,
India and the U.S. The shift in the vendor base was implemented by the Company
for several reasons. First, management was concerned that the quality and
timeliness of deliveries from its pre 1995 vendor base were not measuring up to
the standards required for some of its new lines of merchandise. Second,
management determined that it was important to make further efforts to reduce
its reliance on a limited number of suppliers. However, because of certain
perceived higher sourcing costs that can be associated with the Company's
vendors in the far east and certain other long term uncertainties presented by
such vendor relationships, the Company intends to begin to redirect a portion of
its sourcing activities towards new vendors in Mexico, Guatemala and other
countries in the western hemisphere. Although the Company has identified a
number of new vendors in these countries, there can be no assurance that the
Company will achieve its goal of reducing sourcing costs while at the same time
maintaining quality and achieving timeliness of delivery. In addition, this plan
to begin a shift to new vendors is expected to continue the increase in the
Company's needs for documentary letters of credit. As of February 1, 1997, the
Company had letter of credit facilities totaling $4 million ($1.3 million
remaining available as of February 1, 1997).
The Company's reliance on sourcing from foreign countries causes the
Company to be exposed to certain unique business and political risks. Import
restrictions, including tariffs and quotas and changes in such tariffs or quotas
could affect the importation of apparel generally and, in that event, could
increase the cost or reduce the supply of apparel available to the Company and
have an adverse effect on the Company's business, financial condition and/or
results of operations. The Company's merchandise flow could also be adversely
affected by political instability in any of the countries in which its goods are
manufactured, by significant fluctuations in the value of the U.S. dollar
against applicable foreign currencies and by restrictions on the transfer of
funds.
The Company invested $2.9 million during fiscal 1997 for capital
expenditures principally associated with the opening of thirteen new Company
stores, the remodeling of 10 existing Company stores and with the costs of new
fixtures for a Company-wide refixturing program to convert all Company stores
from principally folded displays to principally hanging displays. This
refixturing effort is essentially completed with capital expenditures of
approximately $675,000. The Company initially intended to expand its store
remodeling program in 1997 to include up to 30 additional stores for the first
six months of fiscal 1997. This program has been put on hold until the Company
can more appropriately evaluate the potential impact on sales at the stores that
have already been remodeled. The Company also closed, during this period, the
temporary store located in Florida that was used as a outlet and one store whose
lease had expired which the Company elected not to renew.
During the first quarter of fiscal 1997, one of the Company's former
officers exercised 71,450 stock options at the price of $4.08. In addition,
during fiscal 1997, several other employees exercised 7,212 options at various
prices ranging from $5.50 to $8.75 and the Company sold 22,868 shares at prices
of $3.83 and $5.42 under its Employee Stock Purchase Plan. The proceeds from
these issuances of stock in fiscal 1997 amounted to approximately $469,000. In
1995 the proceeds from issuance of stock under its Employee Stock Purchase Plan
amounted to approximately $29,000.
During fiscal 1997 the Company borrowed approximately $29,000 under its
available working capital credit lines, while in 1995, the Company repaid
approximately $104,000. In addition, in fiscal 1997 the Company repaid
approximately $403,000 of other indebtedness, while it repaid approximately
$661,000 of other indebtedness in 1995.
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During 1995, the Company invested $1.0 million for capital expenditures
associated with the opening of eight new Company stores and remodeling of five
stores. During this time frame, the Company also acquired the assets and
franchise rights for five franchise locations in exchange for two year notes of
approximately $324,000, net of receivables due to the Company. These
transactions are not included in the statement of cash flows since they were
noncash transactions.
In January 1996, the Company obtained a seven year $5.6 million mortgage
facility from a lender which mortgage was in addition to the Company's $6
million working capital line and letter of credit facility. The proceeds of the
mortgage facility were used in part to repay the $3.9 million balance of certain
term and note facilities that had been put in place in 1994 and were used in
part to provide $1.6 million of cash to serve as collateral (along with
inventories and accounts receivable) for both its line and letter of credit
facilities. As part of this refinancing, the collateral deposits previously
provided by certain shareholders to secure the letter of credit facility were no
longer required.
In the first quarter of 1995, the Company also received from a franchisee a
thirty month note of approximately $274,000 in exchange for past due receivables
to assist the franchisee through a transition period and in an effort to help
support the operations of the franchisee's most recently opened franchised
store. The note is current, with approximately $87,000 of principal remaining to
be paid.
The Company plans to open approximately 8-12 new stores in fiscal 1998.
Previously the Company had indicated that it was considering testing the sale of
folk art and other lifestyle accessories in one or more of its Company stores in
fiscal 1997. The Company has decided that it will postpone this test until at
least 1998 to allow it to concentrate on its new store opening programs and
reorganizing and strengthening its management team. The Company believes that
the liquidity needed for its planned new store growth and maintenance of proper
inventory levels associated with this growth will be funded primarily from cash
flow from operations and borrowings under its line of credit. The Company
further believes that this liquidity will be sufficient, based on currently
planned new store openings, to fund anticipated capital needs over the
near-term, including scheduled debt repayments. 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
stores planned to be opened in future periods, the Company might need to seek
other sources of financing to conduct its operations or to pursue its expansion
plans and there can be no assurance that such other sources of financing would
be available.
SEASONALITY AND INFLATION
The Company has historically experienced, and expects to continue to
experience, seasonal fluctuations in its sales and net income. Historically, a
greater portion of the Company's sales have been realized during the period from
approximately November 1st through March 31st, thus impacting the first and
fourth quarters. Historically, sales generated during this period have had a
significant impact on the Company's results of operations. Fewer of the
Company's new stores have been opened in warm-weather tourist locations and, as
a result, the difference in sales and net income during these quarters of the
fiscal year has been reduced. Moreover, performance during the first quarter of
fiscal 1997 and during the first quarter of fiscal 1998 has been negatively
impacted by separate merchandise transitions needed to clear out the old
merchandise and prepare for the arrival of new designs and styles.
Even though the Company is not as dependent on the Christmas selling season
as many other retailers are, sales in the months of November and December are
still expected to continue to represent, in the future, a greater portion of the
Company's sales. If for any reason the Company's sales during November and
December do not represent increased sales activity as compared with the
remainder of the year (as was the case in fiscal 1997), or if there is a
decrease in availability of working capital in the months prior to November and
December, the Company's profitability could be materially and adversely
affected. The Company's quarterly results of operations may also fluctuate
significantly as a result of a variety of factors, including the timing of new
store openings, the net sales contributed by new stores and store closings.
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 fiscal 1997 and 1995.
10
12
TRADING AND DIVIDEND INFORMATION
The following table sets forth, for the periods indicated, the range of
high and low closing sale prices for the Common Stock, as reported on the NASDAQ
National Market System.
FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1997 HIGH LOW
- ------------------------------------------ ---- ---
First Quarter (January 29, 1996 - April 28, 1996)........... $ 7.00 $ 4.13
Second Quarter (April 29, 1996 - July 28, 1996)............. 11.75 6.50
Third Quarter ( July 29, 1996 - October 27, 1996)........... 9.00 6.00
Fourth Quarter (October 28, 1996 - February 1, 1997)........ 6.69 3.63
FOR THE PRO FORMA FISCAL YEAR ENDED JANUARY 28, 1996
- ----------------------------------------------------
First Quarter (January 30, 1995 - April 30, 1995)........... $ 8.13 $ 5.63
Second Quarter (May 1, 1995 - July 30, 1995)................ 5.75 4.15
Third Quarter ( July 31, 1995 - October 29, 1995)........... 6.38 4.25
Fourth Quarter (October 30, 1995 - January 28, 1996)........ 5.13 4.25
Since its initial public offering, the Company has not paid any cash
dividends except for $5,853,000 of dividends representing previously taxed
undistributed S corporation earnings which dividends were declared prior to the
Company's initial public offering and paid to persons who were stockholders
prior to the offering. The Company does not intend to pay any cash dividends for
the foreseeable future and intends to retain earnings, if any, for the future
operation and expansion of the Company's business. Any determination to pay
dividends in the future will be at the discretion of the Company's Board of
Directors and will be dependent upon the Company's results of operations,
financial condition, contractual restrictions and other factors deemed relevant
by the Board of Directors.
The approximate number of equity security holders of the Company is as
follows:
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF APRIL 20, 1997
------------------------ --------------------
Common Stock, par value $.01 per share...................... 605
11
13
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
CHICO'S FAS, INC.:
We have audited the accompanying balance sheets of Chico's FAS, Inc. (a Florida
corporation) as of February 1, 1997, and December 31, 1995, and the related
statements of income, stockholders' equity and cash flows for the fiscal year
ended February 1, 1997, for the period from January 1, 1996, through January 28,
1996, and for the fiscal years ended December 31, 1995, and January 1, 1995.
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 generally accepted auditing
standards. 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. as of
February 1, 1997, and December 31, 1995, and the results of its operations and
its cash flows for the fiscal year ended February 1, 1997, for the period from
January 1, 1996, through January 28, 1996, and for the fiscal years ended
December 31, 1995, and January 1, 1995, in conformity with generally accepted
accounting principles.
/s/ Arthur Anderson LLP
Arthur Andersen LLP
Tampa, Florida,
March 6, 1997
12
14
CHICO'S FAS, INC.
BALANCE SHEETS
ASSETS FEBRUARY 1, DECEMBER 31,
------ 1997 1995
----------- ------------
CURRENT ASSETS:
Cash and cash equivalents................................. $ 832,176 $ 1,099,929
Receivables, less allowances of $105,000 and $115,000 for
sales returns, respectively............................ 763,451 571,482
Inventories............................................... 7,845,362 6,775,374
Prepaid expenses.......................................... 473,444 376,987
Deferred taxes............................................ 1,290,000 867,000
----------- -----------
Total current assets.............................. 11,204,433 9,690,772
CERTIFICATE OF DEPOSIT...................................... 1,600,000 --
PROPERTY AND EQUIPMENT, net................................. 17,236,952 16,219,968
DEFERRED TAXES.............................................. 552,000 540,000
OTHER ASSETS, net........................................... 654,673 558,540
----------- -----------
$31,248,058 $27,009,280
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable.......................................... $ 3,301,990 $ 2,035,074
Accrued liabilities....................................... 2,461,026 2,467,231
Current portion of debt and lease obligations............. 456,602 652,264
----------- -----------
Total current liabilities......................... 6,219,618 5,154,569
DEBT AND LEASE OBLIGATIONS, excluding current portion....... 7,007,842 5,895,761
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 25,000,000 shares authorized
and 7,884,118 and 7,782,498 shares issued and
outstanding, respectively.............................. 78,841 77,825
Additional paid-in capital................................ 7,555,708 7,087,636
Retained earnings......................................... 10,386,049 8,793,489
----------- -----------
Total stockholders' equity........................ 18,020,598 15,958,950
----------- -----------
$31,248,058 $27,009,280
=========== ===========
The accompanying notes are an integral part of these balance sheets.
13
15
CHICO'S FAS, INC.
STATEMENTS OF INCOME
PERIOD FROM
FISCAL YEAR JANUARY 1, 1996, FISCAL YEAR FISCAL YEAR
ENDED THROUGH ENDED ENDED
FEBRUARY 1, JANUARY 28, DECEMBER 31, JANUARY 1,
1997 1996 1995 1995
----------- ---------------- ------------ -----------
NET SALES BY COMPANY STORES.......... $62,317,817 $3,619,519 $57,635,904 $55,282,084
NET SALES TO FRANCHISEES............. 1,754,788 127,614 2,707,284 3,989,364
----------- --------------- ------------ -----------
Net sales.......................... 64,072,605 3,747,133 60,343,188 59,271,448
COST OF GOODS SOLD................... 26,712,475 1,912,512 26,115,326 22,418,443
----------- --------------- ------------ -----------
Gross profit....................... 37,360,130 1,834,621 34,227,862 36,853,005
GENERAL, ADMINISTRATIVE AND STORE
OPERATING EXPENSES................. 33,738,523 2,358,122 30,742,863 31,168,367
----------- --------------- ------------ -----------
Income (loss) from operations...... 3,621,607 (523,501) 3,484,999 5,684,638
INTEREST EXPENSE, net................ 404,054 39,492 621,403 119,007
----------- --------------- ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES.... 3,217,553 (562,993) 2,863,596 5,565,631
INCOME TAX PROVISION (BENEFIT)....... 1,287,000 (225,000) 1,160,000 2,275,000
----------- --------------- ------------ -----------
Net income (loss).................. $ 1,930,553 $ (337,993) $ 1,703,596 $ 3,290,631
=========== =============== ============ ===========
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE............ $.24 ($.04) $.22 $.41
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING...... 8,048,063 7,827,269 7,877,800 8,019,804
The accompanying notes are an integral part of these statements.
14
16
CHICO'S FAS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK
------------------- ADDITIONAL
PAR PAID-IN RETAINED
SHARES VALUE CAPITAL EARNINGS TOTAL
--------- ------- ---------- ----------- -----------
BALANCE, JANUARY 2, 1994................ 7,764,098 $77,641 $6,836,018 $ 3,799,262 $10,712,921
Issuance of common stock.............. 11,207 112 108,724 -- 108,836
Compensation contributed by
stockholder........................ -- -- 113,647 -- 113,647
Net income for the fiscal year ended
January 1, 1995.................... -- -- -- 3,290,631 3,290,631
--------- ------- ---------- ----------- -----------
BALANCE, JANUARY 1, 1995................ 7,775,305 77,753 7,058,389 7,089,893 14,226,035
Issuance of common stock.............. 7,193 72 29,247 -- 29,319
Net income for the fiscal year ended
December 31, 1995.................. -- -- -- 1,703,596 1,703,596
--------- ------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1995.............. 7,782,498 77,825 7,087,636 8,793,489 15,958,950
Net loss for the period from January
1, 1996, through January 28,
1996............................... -- -- -- (337,993) (337,993)
--------- ------- ---------- ----------- -----------
BALANCE, JANUARY 28, 1996............... 7,782,498 77,825 7,087,636 8,455,496 15,620,957
Issuance of common stock.............. 101,620 1,016 468,072 -- 469,088
Net income for the fiscal year ended
February 1, 1997................... -- -- -- 1,930,553 1,930,553
--------- ------- ---------- ----------- -----------
BALANCE, FEBRUARY 1, 1997............... 7,884,118 $78,841 $7,555,708 $10,386,049 $18,020,598
========= ======= ========== =========== ===========
The accompanying notes are an integral part of these statements.
15
17
CHICO'S FAS, INC.
STATEMENTS OF CASH FLOWS
PERIOD FROM
JANUARY 1, 1996,
FISCAL YEAR ENDED THROUGH FISCAL YEAR ENDED FISCAL YEAR ENDED
FEBRUARY 1, JANUARY 28, DECEMBER 31, JANUARY 1,
1997 1996 1995 1995
--------------- -------------- --------------- ---------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss).............. $ 1,930,553 $ (337,993) $ 1,703,596 $ 3,290,631
-------------- ------------- -------------- -------------
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities --
Depreciation and
amortization.............. 1,896,196 147,144 1,741,820 1,074,700
Deferred tax (benefit)
provision................. (515,000) 80,000 303,000 (665,000)
Loss from disposal of
property and equipment.... 200,103 -- 88,846 29,320
Compensation contributed by
stockholder............... -- -- -- 113,647
Deferred rent expense,
net....................... (77,610) 2,365 (62,218) 1,037,336
Decrease (increase) in
assets --
Receivables............... 113,063 (305,032) 18,659 (477,134)
Inventories............... (1,724,081) 654,093 (139,681) 460,382
Prepaid expenses.......... (64,529) (31,928) (69,504) 743
Other assets.............. (65,991) 10,094 (47,422) 433
Increase (decrease) in
liabilities --
Accounts payable.......... 1,266,986 (70) (1,238,356) 742,612
Accrued liabilities....... 222,091 (228,296) (222,688) 595,264
Accrued income taxes...... -- -- -- (417,830)
-------------- ------------- -------------- -------------
Total adjustments...... 1,251,228 328,370 372,456 2,494,473
-------------- ------------- -------------- -------------
Net cash provided by
(used in) operating
activities........... 3,181,781 (9,623) 2,076,052 5,785,104
-------------- ------------- -------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of certificate of
deposit..................... -- (1,600,000) -- --
Purchases of property and
equipment................... (2,926,309) (8,529) (1,046,858) (11,457,673)
-------------- ------------- -------------- -------------
Net cash used in
investing
activities........... (2,926,309) (1,608,529) (1,046,858) (11,457,673)
-------------- ------------- -------------- -------------
16
18
CHICO'S FAS, INC.
STATEMENTS OF CASH FLOWS
(CONTINUED)
PERIOD FROM
JANUARY 1, 1996,
FISCAL YEAR ENDED THROUGH FISCAL YEAR ENDED FISCAL YEAR ENDED
FEBRUARY 1, JANUARY 28, DECEMBER 31, JANUARY 1,
1997 1996 1995 1995
--------------- -------------- --------------- ---------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
common stock, net........... 469,088 -- 29,319 108,836
Net borrowings (payments) under
line of credit agreement.... 29,103 (467,126) (103,895) 826,837
Principal payments on notes
payable..................... (288,311) (3,875,639) (549,969) (187,879)
Borrowings under notes
payable..................... -- 5,587,500 -- 4,500,000
Principal payments on lease
obligations................. (115,006) (9,455) (110,699) (104,748)
Deferred finance costs......... (62,536) (172,691) -- --
-------------- ------------- -------------- -------------
Net cash provided by
(used in) financing
activities........... 32,338 1,062,589 (735,244) 5,143,046
-------------- ------------- -------------- -------------
Net increase (decrease)
in cash and cash
equivalents.......... 287,810 (555,563) 293,950 (529,523)
-------------- ------------- -------------- -------------
CASH AND CASH EQUIVALENTS,
beginning of period............ 544,366 1,099,929 805,979 1,335,502
-------------- ------------- -------------- -------------
CASH AND CASH EQUIVALENTS, end of
period......................... $ 832,176 $ 544,366 $ 1,099,929 $ 805,979
============== ============= ============== =============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the fiscal
years or period for
interest.................. $ 571,038 $ 83,475 $ 594,384 $ 199,170
Income taxes................ $ 1,769,400 $ -- $ 947,546 $ 3,419,735
The accompanying notes are an integral part of these statements.
17
19
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 1, 1997
1. BUSINESS ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS ORGANIZATION
Chico's FAS, Inc. (the Company) is a specialty retailer of exclusively designed,
private label casual clothing and related accessories. As of February 1, 1997,
the Company's retail store system consisted of 133 stores located throughout the
United States, 123 of which were owned and operated by the Company, and 10 of
which were owned and operated by franchisees.
FRANCHISE OPERATIONS
A summary of the changes in the number of the Company's franchise stores as
compared to total Company-owned stores is as follows as of February 1, 1997, and
December 31, 1995, and for the fiscal years then ended:
FEBRUARY 1, DECEMBER 31,
1997 1995
----------- ------------
Franchise stores closed..................................... 1 --
Franchise stores purchased from franchisees................. 1 5
Franchise stores in operation at fiscal year-end............ 10 12
Company-owned stores at fiscal year-end..................... 123 111
FISCAL YEAR
In December 1996, management made the decision to change the Company's fiscal
year-end from the Sunday closest to December 31 to the Saturday closest to
January 31, continuing to result in a 52- or 53-week fiscal year. The change in
year-end resulted in a four-week transition period from January 1, 1996, through
January 28, 1996. Statements of income, shareholders' equity and cash flows for
the transition period are included in the accompanying financial statements. The
fiscal year ended February 1, 1997, contained 53 weeks, and the fiscal years
ended December 31, 1995, and January 1, 1995, contained 52 weeks.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and investments with maturities
of less than three months.
INVENTORIES
Inventories consist of finished clothing and accessories and are recorded at the
lower of cost or market using the last-in, first-out (LIFO) method. If the lower
of first-in, first-out cost or market method had been used, inventories would
have been approximately $161,000 and $94,000 higher at February 1, 1997, and
December 31, 1995, respectively, than those reported in the accompanying balance
sheets. Purchasing, distribution and design costs are expensed as incurred and
are included in the accompanying statements of income as cost of goods sold.
18
20
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Fixtures manufactured and leasehold
improvements constructed by the Company are recorded at cost, which includes
elements of raw materials, labor and overhead. Depreciation of property, plant
and equipment is provided on a straight-line basis over the estimated useful
lives of the assets. Assets acquired under capital lease obligations and
leasehold improvements are amortized over the lesser of the useful lives of the
assets or the lease terms. Maintenance and repairs of property and equipment are
expensed as incurred, and major improvements are capitalized.
Upon retirement, sale or other disposition of property and equipment, the cost
and accumulated depreciation or amortization are eliminated from the accounts,
and any gain or loss is charged to operations.
OTHER ASSETS
Included in other assets are intangible assets which include legal and other
costs of obtaining the Company's trademark and debt financing agreements,
non-compete agreements related to franchise repurchases and franchise
cancellation fees for stores that were acquired by the Company and are currently
in operation as Company-owned stores. Trademark costs and non-compete agreements
are being amortized on a straight-line basis over 10 and 5 years, respectively,
debt financing costs are being amortized over the term of the respective debt
agreement and franchise cancellation fees are being amortized over the remaining
terms of the related facilities' leases. Intangible assets are net of
accumulated amortization of approximately $368,000 and $354,000 at February 1,
1997 and December 31, 1995, respectively.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121), which
addresses when and how impairments to the value of long-lived assets should be
recognized. SFAS 121 is effective for fiscal years beginning after December 15,
1995, and was implemented by the Company in the fiscal year ended February 1,
1997. The implementation of SFAS 121 did not have a material effect on the
financial statements.
INCOME TAXES
The Company is a corporation subject to federal and state income taxes. The
provision for income taxes includes federal and state income taxes currently
payable and deferred income taxes, which are provided for temporary differences
between the recognition of income and expenses for financial and income tax
reporting purposes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The book value of all financial instruments approximates their fair market value
as of February 1, 1997. In the opinion of management, the aggregate fair market
value of the Company based on the above is not a valid estimate of the market
valuation of the Company as a whole.
REVENUE RECOGNITION
Net sales by company stores includes sales made to retail customers during the
period, net of estimated customer returns. Net sales to franchisees includes
merchandise shipped to franchisees, net of estimated returns.
19
21
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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
statements of income.
INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is calculated using the
treasury stock method under which net income is divided by the weighted average
common and common equivalent shares outstanding during the year. Differences
between primary and fully diluted net income per common and common equivalent
share were not significant.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). SFAS
128 establishes new standards for computing and presenting earnings per share
(EPS). Specifically, SFAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS, requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997; earlier application is not permitted. Management
has determined that the adoption of SFAS 128 will not have a material effect on
its financial statements.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at February 1, 1997, and
December 31, 1995:
ESTIMATED FEBRUARY 1, DECEMBER 31,
USEFUL LIVES 1997 1995
-------------- ----------- ------------
Land........................................................ $ 1,100,167 $ 1,100,167
Land improvements........................................... 35 years 1,785,161 1,778,601
Building.................................................... 20 - 35 years 6,155,063 6,155,063
Equipment................................................... 2 - 10 years 3,908,268 3,523,689
Furniture and fixtures...................................... 3 - 10 years 3,299,829 2,416,833
Leasehold improvements...................................... 1 - 10 years 6,082,124 5,092,708
----------- -----------
22,330,612 20,067,061
Less-- Accumulated depreciation and amortization............ (5,093,660) (3,847,093)
----------- -----------
$17,236,952 $16,219,968
=========== ===========
Assets acquired under capital lease obligations with a cost of $487,548 and
$356,950 are included in equipment at February 1, 1997, and December 31, 1995,
respectively. The accumulated amortization related to these assets is $278,877
and $141,831 at February 1, 1997, and December 31, 1995, respectively.
3. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following at February 1, 1997, and December
31, 1995:
FEBRUARY 1, DECEMBER 31,
1997 1995
----------- ------------
Accrued payroll, bonuses and severance costs................ $1,044,372 $ 911,424
Allowance for estimated merchandise returns................. 650,000 750,000
Other....................................................... 766,654 805,807
---------- ----------
$2,461,026 $2,467,231
========== ==========
20
22
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
4. INCOME TAXES:
The income tax provision (benefit) consisted of the following:
PERIOD FROM
JANUARY 1, 1996
FISCAL YEAR ENDED THROUGH FISCAL YEAR ENDED FISCAL YEAR ENDED
FEBRUARY 1, JANUARY 28, DECEMBER 31, JANUARY 1,
1997 1996 1995 1995
----------------- ---------------- ----------------- -----------------
Current:
Federal.......................................... $1,434,000 $(242,000) $ 677,000 $2,450,000
State............................................ 368,000 (63,000) 180,000 490,000
Deferred:
Federal.......................................... (404,000) 62,000 301,000 (497,000)
State............................................ (111,000) 18,000 2,000 (168,000)
-------------- -------------- -------------- --------------
Total income tax provision (benefit)........... $1,287,000 $(225,000) $1,160,000 $2,275,000
============== ============== ============== ==============
The reconciliation of the income tax provision (benefit) based on the U.S.
statutory federal income tax rate (34 percent) to the Company's income tax
provision (benefit) is as follows:
PERIOD FROM
JANUARY 1, 1996,
FISCAL YEAR ENDED THROUGH FISCAL YEAR ENDED FISCAL YEAR ENDED
FEBRUARY 1, JANUARY 28, DECEMBER 31, JANUARY 1,
1997 1996 1995 1995
----------------- ---------------- ----------------- -----------------
Tax expense (benefit) at the statutory rate........ $1,094,000 $(191,000) $ 974,000 $1,892,000
State income tax expense (benefit), net of federal
tax benefit...................................... 176,000 (31,000) 157,000 242,000
Other.............................................. 17,000 (3,000) 29,000 141,000
-------------- ------------- -------------- --------------
Total provision (benefit) for income taxes....... $1,287,000 $(225,000) $1,160,000 $2,275,000
============== ============= ============== ==============
Deferred tax assets are recorded due to different carrying amounts for financial
and income tax reporting purposes arising from cumulative temporary differences.
These differences consisted of the following at February 1, 1997, and December
31, 1995:
FEBRUARY 1, DECEMBER 31,
1997 1995
----------- ------------
Accruals.................................................... $1,206,000 $1,048,000
Inventories................................................. 718,000 505,000
Property and equipment...................................... (12,000) 24,000
Net operating loss carryforward............................. 200,000 --
----------- -----------
2,112,000 1,577,000
Less -- Valuation allowance................................. (270,000) (170,000)
----------- -----------
$1,842,000 $1,407,000
=========== ===========
During the fiscal year ended February 1, 1997, the Company increased the
valuation allowance for deferred tax assets by $100,000 to reserve for a portion
of the deferred tax asset relating to the net operating loss for the tax
reporting period from December 30, 1996, through February 1, 1997. The tax
effect of the approximately $514,000 net operating loss for tax reporting
purposes can be carried forward ratably for the six subsequent fiscal years
following the fiscal year ended February 1, 1997.
21
23
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
5. DEBT AND LEASE OBLIGATIONS:
Debt and lease obligations consisted of the following at February 1, 1997, and
December 31, 1995:
FEBRUARY 1, DECEMBER 31,
1997 1995
----------- ------------
Line of credit (the Line), variable borrowing capability of
up to $6 million, depending on inventory levels and the
amount of outstanding commercial letters of credit (Note
7), interest payable at prime (8.25 percent at February 1,
1997) plus 1 percent, secured by substantially all of the
Company's assets other than land, land improvements and
building, maturing in May 1998............................ $ 284,919 $ 722,942
Notes payable to a bank (the Notes Payable at December 31,
1995, and the Mortgage Note at February 1, 1997), interest
payable at prime (8.25 percent at February 1, 1997) plus
.5 percent, secured by a first priority mortgage on land,
land improvements, building, certain equipment and a
certificate of deposit.................................... 5,509,500 3,856,566
Notes payable to former franchisees, paid in full during
fiscal year ended February 1, 1997........................ -- 229,384
Obligations under capital leases, imputed interest rate of
5.9 percent, secured by equipment with a carrying value of
$270,998, varying monthly payments of principal and
interest, maturing September 1999......................... 255,550 249,413
Deferred rent............................................... 1,414,475 1,489,720
---------- -----------
Total debt and lease obligations....................... 7,464,444 6,548,025
Less -- Current portion................................ (456,602) (652,264)
---------- -----------
$7,007,842 $5,895,761
========== ===========
On January 4, 1996, the Notes Payable were refinanced with a $5,587,500 mortgage
note payable (the Mortgage Note), bearing interest at the Bank's prime rate plus
.5 percent. The Mortgage Note is payable in 84 monthly installments of $6,000,
plus accrued interest, through January 2003, at which time the remaining
principal balance is due. A portion of the proceeds from the Mortgage Note was
used to establish a $1,600,000 certificate of deposit securing the Mortgage
Note, the Line and commercial letters of credit issued by the Company.
As of February 1, 1997, the Line and Mortgage Note contained certain covenants
requiring, among other things, approval of acquisitions of businesses and
maintenance of specified tangible net worth, working capital, debt to equity and
debt service coverage ratios. At February 1, 1997, the Company was in compliance
with respect to all covenants under these agreements.
Deferred rent represents the difference between actual operating lease
obligations due and operating lease expense, which is recorded by the Company on
a straight-line basis over the terms of its leases.
22
24
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Maturities of the Line and the Mortgage Note were as follows at February 1,
1997:
FISCAL YEAR
ENDING AMOUNT
----------- ----------
1998........................................................ $ 72,000
1999........................................................ 356,919
2000........................................................ 72,000
2001........................................................ 72,000
2002........................................................ 72,000
Thereafter.................................................. 5,149,500
----------
$5,794,419
==========
Future minimum lease payments under capital lease obligations, together with the
present value of the future minimum lease payments, were as follows at February
1, 1997:
FISCAL YEAR
ENDING AMOUNT
----------- --------
1998........................................................ $ 93,878
1999........................................................ 85,224
2000........................................................ 99,278
--------
Total minimum lease payments................................ 278,380
Less-Interest imputed at 5.9 percent........................ (22,830)
--------
Present value of capital lease obligations.................. $255,550
========
During the fiscal year ended February 1, 1997, the period from January 1, 1996,
through January 28, 1996, and for fiscal years ended December 31, 1995, and
January 1, 1995, capital lease obligations of $130,598, $0, $23,200 and
$333,750, respectively were incurred when the Company entered into leases for
new equipment. In addition, existing capital lease obligations were refinanced
to the terms shown above during the fiscal year ended February 1, 1997.
During the fiscal year ended December 31, 1995, the Company acquired the assets
of five franchised stores. Acquired assets, recorded at fair value, consisted of
$79,796 in inventory, $196,000 in furniture, fixtures and leasehold
improvements, $115,000 in franchise cancellation fees and $129,000 for a
covenant not to compete which were included in other assets in the accompanying
balance sheets. Accounts receivable of $330,581 from franchisees were forgiven,
$323,798 in notes payable to franchisees were issued, and the Company incurred a
loss of $97,584 related to the writedown of franchise inventory, which was
included in general, administrative and store operating expenses. The remaining
inventory writedown loss of $37,000 was accrued in prior years.
Also, during the fiscal year ended December 31, 1995, a franchisee converted
accounts receivable of approximately $273,800 into a note receivable, payable in
$10,000 monthly installments of principal and interest through October 1997. The
long-term portion of the note receivable was included in other assets and the
current portion of the note receivable was included in receivables in the
accompanying balance sheets.
6. RELATED PARTY TRANSACTIONS:
All officers have entered into agreements with the Company which provide for
base salaries, annual bonuses or consulting fees, and certain severance benefits
in the event that their employment is terminated by the Company "without cause"
or by such officer or director following a "change of control."
23
25
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
In January 1997, the Company and the former president and general merchandise
manager reached agreement in concept that she would be resigning from the
Company. In March 1997, a separation agreement was signed under which she
received a consulting salary, severance compensation and certain benefits
through December 31, 1997. Approximately $325,000 relating to the separation was
accrued and is included in accrued liabilities in the accompanying balance sheet
as of February 1, 1997. The separation agreement also provides that all of her
granted, unvested options are forfeited, and with respect to those options
currently exercisable, the period for exercise shall expire on June 24, 1997.
In 1994, a separation agreement was signed, in connection with the resignation
of the former president, under which he continued to receive his annual base
salary, certain benefits and taxes through December 31, 1995, totaling
approximately $274,000. This amount was paid in full as of December 31, 1995.
Contemporaneously with the execution of the separation agreement, the former
president sold 344,384 shares of common stock in the Company to a significant
stockholder at a price above the market value on the closing date of the sale.
The difference between the market value of the Company's common stock on the
closing date of the transaction and the purchase price on this date was recorded
by the Company as compensation expense and was reflected as an increase in
additional paid-in capital.
In fiscal 1990, the Company agreed to make contingent payments to a former
stockholder based on a percentage of gross sales (as defined) in excess of the
gross sales base for four franchise stores purchased from him for each year
through March 31, 1995. The amount of contingent payments expensed during the
fiscal years ended January 1, 1995, and December 31, 1995, pursuant to this
agreement was $27,359 and $41,850, respectively.
The Company leased distribution center and storage facilities from certain
stockholders and former stockholders of the Company (see Note 7).
7. COMMITMENTS AND CONTINGENCIES:
The Company leases retail store space and various office equipment under
operating leases expiring in various years through 2006. Certain of the leases
provide that the Company may cancel the lease if the Company's retail sales at
that location fall below an established level, while certain leases provide for
additional rent payments to be made when sales exceed a base amount. Certain
operating leases provide for renewal options for periods from three to five
years at their fair rental value at the time of renewal. In the normal course of
business, operating leases are generally renewed or replaced by other leases.
Minimum future rental payments under noncancelable operating leases (exclusive
of common area maintenance charges and/or contingent rental payments based on
sales) at February 1, 1997, were as follows:
FISCAL YEAR ENDING AMOUNT
- ------------------ -----------
1998........................................................ $ 6,586,396
1999........................................................ 5,563,469
2000........................................................ 4,853,969
2001........................................................ 4,580,029
2001........................................................ 4,182,598
Thereafter.................................................. 7,874,354
-----------
$33,640,815
===========
For the fiscal year ended February 1, 1997, for the period from January 1, 1996,
through January 28, 1996, and for the fiscal years ended December 31, 1995, and
January 1, 1995, total rent expense under the Company's operating leases was
$8,624,193, $674,651, $7,934,824 and $6,424,162, respectively, including common
area maintenance charges of $1,252,635, $95,663, $1,128,054 and $821,072, other
24
26
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
rental charges of $1,296,100, $100,241, $1,145,643 and $900,704, and contingent
rental expense of $81,674, $6,900, $128,243 and $263,459 based on sales,
respectively.
The Company leased its former distribution center and storage facilities from
certain stockholders and former stockholders of the Company (see Note 6). The
leases were classified as operating leases and provided for minimum annual
rentals of approximately $216,000, with original lease terms through 1998. The
remaining obligations under these leases were accrued during fiscal year 1994
when the Company's operations were moved to its new corporate headquarters and
distribution center. Total rent expense for these facilities was $676,311 for
the fiscal year ended January 1, 1995. During the fiscal year ended February 1,
1997, the Company replaced its obligations under the lease with an obligation to
make up the difference between rental payments of a new tenant and the Company's
lease terms.
At February 1, 1997, the Company had $2,733,430 in commercial letters of credit
outstanding which have arisen in the normal course of business due to foreign
purchase commitments. The commercial letters of credit are secured by the same
assets as the Line (see Note 5).
The Company is involved in claims and actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
adverse effect on the financial position of the Company.
8. STOCK OPTION PLANS AND CAPITAL STOCK TRANSACTIONS:
1992 STOCK OPTION PLAN
During fiscal year 1992, the Company adopted a stock option plan (the 1992 plan)
which reserved 548,800 shares of common stock for future issuance under the 1992
plan to eligible employees of the Company. The per share exercise price of each
stock option is not less than the fair market value of the stock on the date of
grant or, in the case of an employee owning more than 10 percent of the
outstanding stock of the Company and to the extent incentive stock options as
opposed to nonqualified stock options are issued, the price is not less than 110
percent of such fair market value. Also, the aggregate fair market value of the
stock with respect to which incentive stock options are exercisable for the
first time by an employee in any calendar year may not exceed $100,000. As of
February 1, 1997, 388,360 nonqualified options were outstanding and 75,256 had
been exercised under the 1992 plan.
1993 STOCK OPTION PLAN
During fiscal year 1993, the Company adopted a stock option plan (the 1993 plan)
which reserved 680,000 shares of common stock for future issuance under the 1993
plan to eligible employees of the Company. The terms of the 1993 plan are the
same as the 1992 plan. As of February 1, 1997, 290,846 nonqualified options were
outstanding and 3,946 had been exercised under the 1993 plan.
OTHER STOCK OPTIONS
Since 1993, two directors and an officer of the Company have been granted a
total of 292,000 nonqualified options at exercise prices ranging from $5.13 to
$8.75. As of February 1, 1997, none of these options had been exercised.
25
27
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
AGGREGATE STOCK OPTION ACTIVITY
As of February 1, 1997, 971,206 nonqualified options were outstanding at a
weighted average exercise price of $5.97 per share, and 470,392 remained
available for future grants. Of the options outstanding, 534,789 options were
immediately exercisable. The Company recognized no compensation expense for
these options.
Stock option activity for the fiscal year ended February 1, 1997, the period
from January 1, 1996, through January 28, 1996, and for fiscal years ended
December 31, 1995, and January 1, 1995, was as follows:
PERIOD FROM
JANUARY 1, 1996,
FISCAL YEAR ENDED THROUGH FISCAL YEAR ENDED FISCAL YEAR ENDED
FEBRUARY 1, 1997 JANUARY 28,1995 DECEMBER 31, 1995 JANUARY 1, 1995
--------------------- --------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- --------- --------- --------- --------- --------- ---------
Outstanding, beginning
of year or period..... 825,850 $5.74 821,799 $5.78 607,166 $6.45 557,400 $6.41
Granted............... 319,200 6.97 10,100 4.29 293,100 5.31 119,650 8.75
Exercised............. (78,752) 4.33 -- -- -- -- (450) 7.00
Canceled or expired... (95,092) 8.85 (6,049) 7.67 (78,467) 9.26 (69,434) 10.09
-------- -------- -------- -------- -------- -------- -------- --------
Outstanding, end of year
or period............. 971,206 $5.97 825,850 $5.74 821,799 $5.78 607,166 $6.45
-------- -------- -------- --------
Options vested at year-
end or period-end..... 534,789 $5.59 507,827 $5.57 510,083 $5.40 410,139 $4.90
The following table summarizes information about stock options at February
1, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- --------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGES OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- ---------------------------- ----------- ------------ --------- ----------- ---------
$4.08-$7.00 867,975 7.8 $5.49 445,391 $ 4.67
$8.38-$12.00 103,231 6.7 9.98 89,398 10.17
------- --- ----- ------- ------
971,206 7.7 $5.97 534,789 $ 5.59
======= === ===== ======= ======
CAPITAL STOCK TRANSACTIONS
The Board of Directors adopted a noncompensatory employee stock purchase plan
(ESPP), which became effective upon the consummation of the Company's initial
public offering on April 1, 1993, and was amended on December 18, 1993, covering
an aggregate of 210,000 shares of common stock. Under the ESPP, all employees
are given the right to purchase up to 600 shares of the common stock of the
Company two times a year at a price equal to 85 percent of the value of the
stock immediately prior to the beginning of each exercise period. For the fiscal
year ended February 1, 1997, for the period from January 1, 1996, through
January 28, 1996, and for the fiscal years ended December 31, 1995, and January
1, 1995, 22,868, 0, 7,193 and 10,757 shares, respectively, were purchased under
the ESPP. The Company recognized no compensation expense for the issuance of
these shares.
26
28
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123, "ACCOUNTING FOR STOCK-BASED
COMPENSATION"
The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25), under which no compensation expense has been recognized. In October 1995,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123), which was effective for fiscal years beginning after December 15, 1995.
SFAS 123 allows companies to continue following the accounting guidance of APB
25, but requires pro forma disclosure of net income and earnings per share for
the effects on compensation expense had the accounting guidance of SFAS 123 been
adopted. The pro forma disclosures are required only for options granted in
fiscal years that begin after December 15, 1994.
The Company adopted SFAS 123 for disclosure purposes in 1996. For SFAS 123
purposes, the fair value of each option granted has been estimated as of the
grant date using the Black-Scholes option pricing model with the following
weighted average assumptions: risk-free interest rate of 6.2 percent, expected
life of seven years, no expected dividends, and expected volatility of 75
percent. The weighted average fair value of options granted during the fiscal
year ended February 1, 1997, for the period from January 1, 1996, through
January 28, 1996, and for fiscal year ended December 31, 1995, was $5.21, $3.17
and $3.96, respectively. Options granted under the 1992 and 1993 Stock Option
Plans vest ratably over three years. All other options were either immediately
exercisable or vested ratably over three years. The term of all options granted
is ten years. Had compensation expense been determined consistent with SFAS 123,
utilizing the assumptions detailed above, the Company's net income (loss) and
net income (loss) per common and common equivalent shares outstanding would have
been changed to the following pro forma amounts for the fiscal year ended
February 1, 1997, the period from January 1, 1996, through January 28, 1996, and
for fiscal year ended December 31, 1995:
PERIOD
FROM
JANUARY 1,
FISCAL YEAR 1996 FISCAL YEAR
ENDED THROUGH ENDED
FEBRUARY 1, JANUARY 28, DECEMBER 31,
1997 1996 1995
----------- ----------- ------------
Net income (loss):
As reported............................................... $1,930,553 $(337,993) $1,703,596
Pro forma................................................. 1,539,000 (357,000) 1,563,000
Net income (loss) per common and common equivalent share:
As reported............................................... $ .24 $ (.04) $ .22
Pro forma................................................. .19 (.05) .20
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 2, 1995, the resulting pro forma compensation expense
may not be representative of that to be expected in future years.
9. PROFIT SHARING PLAN:
In fiscal year 1992, the Company adopted a profit sharing plan (the Plan)
covering substantially all employees. Employees' rights to Company-contributed
benefits vest over two to six years of service, as specified in the Plan. The
Company intends to make a contribution, to be paid in the year ending January
31, 1998, in recognition of services performed by employees in the fiscal year
ended February 1, 1997, in an amount not to exceed $225,000, which was included
in accrued liabilities in the accompanying balance sheet as of February 1, 1997.
For the fiscal years ended February 1, 1997, December 31, 1995, and January 1,
1995, the profit sharing expense was $185,000, $50,000 and $225,000,
respectively. No contributions were made or accrued for relating to the period
from January 1, 1996, through January 28, 1996.
27
29
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
10. QUARTERLY RESULTS OF OPERATIONS (RESTATED AND UNAUDITED):
- --------------------------------------------------------------------------------
NET INCOME (LOSS) PER
NET GROSS INCOME COMMON AND COMMON
SALES PROFIT (LOSS) EQUIVALENT SHARE
----------- ----------- ----------- ---------------------
Restated fiscal year ended
January 29, 1995:
First quarter.................. $15,994,707 $10,522,636 $ 2,106,005 $ .26
Second quarter................. 15,006,203 9,535,443 1,196,935 .15
Third quarter.................. 14,980,212 9,163,130 799,931 .10
Fourth quarter................. 13,272,233 7,361,460 (1,080,571) (.14)
Restated fiscal year ended
January 28, 1996:
First quarter.................. $16,296,974 $ 8,799,773 $ 620,898 $ .08
Second quarter................. 15,436,821 9,184,838 722,539 .09
Third quarter.................. 14,812,600 8,523,099 470,214 .06
Fourth quarter................. 14,216,858 7,771,900 (137,368) (.02)
Restated fiscal year ended
February 1, 1997:
First quarter.................. $17,302,552 $ 9,862,647 $ 1,080,368 $ .13
Second quarter................. 16,073,289 10,080,421 940,998 .11
Third quarter.................. 15,727,262 9,368,363 655,964 .08
Fourth quarter................. 14,969,502 8,048,699 (746,777) (.09)
28
30
REPORT ON FORM 10-K
A copy of the company's annual report to the Securities and Exchange
Commission on Form 10-K will be sent to any shareholder without charge upon
written request to Investor Relations at the current address below:
Chico's FAS, Inc.
11215 Metro Parkway
Fort Myers, Florida 33912
---------------------
Transfer Agent and Registrar:
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
Legal Counsel:
Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis
Tampa, Florida
Independent Certified Public Accountants:
Arthur Andersen LLP
Tampa, Florida
CHICO'S
ANNUAL SHAREHOLDERS' MEETING
Tuesday, June 17, 1997, at 2:00 p.m.
Chico's World Headquarters
11215 Metro Parkway
Fort Myers, Florida 33912
- --------------------------------------------------------------------------------
CHICO'S FAS, INC.
EXECUTIVE OFFICERS
MARVIN J. GRALNICK
Chief Executive Officer
President
HELENE GRALNICK
Senior Vice President -- Design and Concept
CHARLES J. KLEMAN
Chief Financial Officer
Executive Vice President -- Finance
Secretary/Treasurer
SCOTT A. EDMONDS
Senior Vice President -- Operations
Assistant Secretary
DIRECTORS
MARVIN J. GRALNICK
Chairman of the Board
HELENE GRALNICK
Senior Vice President -- Design and Concept
CHARLES J. KLEMAN
Chief Financial Officer
Executive Vice President -- Finance
Secretary/Treasurer
VERNA K. GIBSON
Partner
Retail Options Inc.
W. KEITH SCHILIT
Business Consultant
29
31
[GRAPHIC SETTING FORTH STORE LOCATIONS]
32
[GRAPHIC - FOUR PICTURES INCLUDING THREE
SEPARATE FEMALE MODELS AND FLOWERS]
GET REAL
REAL PEOPLE
33
[GRAPHIC - THREE PICTURES OF FEMALE MODELS]
CHICO'S(R)
REAL CLOTHES FOR REAL PEOPLE
CHICO'S WORLD HEADQUARTERS
11215 METRO PARKWAY
FORT MYERS, FL 33912
PHONE: (941) 277-6200 - FAX: (941) 277-5237