UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXHCANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 1, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER 0-10345
CACHE, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-1588181
-------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1440 BROADWAY, NEW YORK, NEW YORK 10018
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 575-3200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK $.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) Yes [X] No [ ]
As of June 26, 2004, the aggregate market value of the voting stock held by
non-affiliates of the registrant (based on the closing price of $14.53 in the
NASDAQ National Market) was approximately $184 million.
As of February 28, 2005, 15,684,000 common shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information included in the Registrant's Proxy Statement to be
filed in connection with its 2005 Annual Meeting of Stockholders has been
incorporated by reference into Part III (Items 10, 11, 12, 13, 14 and 15) of
this report on Form 10-K.
CACHE, INC.
FORM 10-K ANNUAL REPORT
JANUARY 1, 2005
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business 1
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 17
Item 7A Quantitative and Qualitative Disclosures About Market Risk 24
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 25
Item 9A Controls and Procedures 26
Item 9B Other Information 29
PART III
Item 10. Directors and Executive Officers of the Registrant 29
Item 11. Executive Compensation 29
Item 12. Security Ownership of Certain Beneficial Owners and
Management 29
Item 13. Certain Relationships and Related Transactions 29
Item 14 Principal Accountant Fees and Services 29
Item 15. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 30
PART I
ITEM 1. BUSINESS
STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Except for the historical information and current statements contained in
this Annual Report, certain matters discussed herein, including, without
limitation, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" are forward-looking statements that involve risks and
uncertainties. Actual results and timing of certain events could differ
materially from those projected in or contemplated by forward-looking statements
due to a number of factors including, without limitation, industry trends,
merchandise and fashion trends, competition, changes in general economic
conditions and consumer spending patterns, vendor procurement issues and the
ability to obtain financing, any of which could cause actual results to differ
materially.
GENERAL
We are a specialty retailer of social occasion sportswear and dresses
targeting style-conscious women. We own and operate two separate store concepts,
Cache and Lillie Rubin, each of which carries its own distinctive branded
merchandise. Cache targets women between the ages of 25 and 45 while Lillie
Rubin stores offer a more sophisticated line of social occasion apparel
targeting women between the ages of 35 and 55.
Both store concepts focus on social occasion dressing designed for
contemporary women. Our Cache and Lillie Rubin lines extend from elegant
eveningwear to our distinctive day-into-evening sportswear, which encompasses a
variety of tops, bottoms and dresses versatile enough to be worn during the day
or evening. We operate 254 Cache and 37 Lillie Rubin stores (as of January 1,
2005) primarily situated in central locations in high traffic, upscale malls
throughout the United States.
MERCHANDISING
Our merchandising focuses on providing a selection of sportswear and
dresses extending from elegant eveningwear to day-into-evening sportswear. As a
result of our short lead time of four weeks to 12 weeks, we are able to employ a
constant process of test-and-ordering that allows us to restock popular items
during the same season. We also maintain a key item strategy, providing some
popular and core items for longer periods to meet ongoing customer demand. New
merchandise typically arrives on a weekly basis at each of our stores, giving
our customers a reason to visit our stores frequently. We introduce new floor
sets into each of our stores approximately every six weeks. These new floor sets
allow exciting changes in visual merchandising within both our stores and our
window presentations.
1
MERCHANDISE
We design and market three general categories of merchandise:
SPORTSWEAR. Sportswear consists of related tops and bottoms, versatile
enough to be worn during the day or out for evening affairs.
DRESSES. Dresses range from special occasion long dresses to shorter
lengths for cocktail and day-into-evening wear.
ACCESSORIES. Accessories consist primarily of jewelry, belts and
handbags intended to complement our sportswear and dress selections.
These categories of merchandise differ in style depending on whether
they are offered in our Cache or Lillie Rubin stores.
CACHE. Cache's average price points for sportswear range from $60 to $300,
dresses range from $125 to $450 and accessories range from $30 to $150. The
following table indicates the percentage of Cache's net sales by merchandise
category for each of the last three fiscal years:
52 WEEKS ENDED 53 WEEKS ENDED
----------------------------- --------------
DECEMBER 28, DECEMBER 27, JANUARY 1,
2002 2003 2005
------------ ------------ ----------
Sportswear 64.3% 67.3% 69.1%
Dresses 27.5% 24.3% 22.3%
Accessories 8.2% 8.4% 8.6%
------------ ------------ ----------
Total 100.0% 100.0% 100.0%
============ ============ ==========
LILLIE RUBIN. Price points at Lillie Rubin are approximately 25% to 30%
higher than at Cache. The following table indicates the percentage of Lillie
Rubin's net sales by merchandise category for each of the last three fiscal
years:
52 WEEKS ENDED 53 WEEKS ENDED
----------------------------- --------------
DECEMBER 28, DECEMBER 27, JANUARY 1,
2002 2003 2005
------------ ------------ ----------
Sportswear 44.9% 49.7% 58.1%
Dresses 47.1% 44.9% 36.6%
Accessories 8.0% 5.4% 5.3%
------------ ------------ ----------
Total 100.0% 100.0% 100.0%
============ ============ ==========
2
The percentage of sales represented by dresses is typically higher in the
first half of the year for both Cache and Lillie Rubin due to buying for the
Easter, wedding and prom seasons. The percentage of Lillie Rubin sales
represented by sportswear is expected to increase again in fiscal 2005 as a
result of the introduction in fall 2003 of an updated day-into-evening
sportswear collection in all of our Lillie Rubin stores.
DESIGN
Our apparel design and merchandising are organized around the spring and
fall seasons. Our internal design and merchandising team is comprised of a
designer, buyers who specialize in particular fashion classifications and
executive management personnel. Following the end of a season, our design team
reviews data from that season's results as well as market research, retail
trends, trade shows and other resources. Based on this information, our team
develops seasonal themes, which will influence our exclusive designs for the
following year.
Approximately nine to 12 weeks prior to a season, we begin to coordinate
with external designers at our vendors to select specific styles that reflect
our themes for the upcoming season. We have established close relationships with
many of our vendors, enabling us to frequently create and test new merchandise
in our stores prior to the upcoming season and stay abreast of changing fashion
trends and market demands. On an ongoing basis, we revise our styles or buying
levels accordingly.
We believe that our ability to offer an attractive but comfortable missy
fit is crucial for our customers. Once we have identified specific designs and
materials, our technical department works closely with our in-house fit model
and our manufacturers through a collaborative process that tests specific
measurements to ensure that the merchandise meets our high standards for fit and
comfort.
Our accessories are designed and manufactured for us by third-party
vendors.
In addition, in January 2004, we hired a new designer for the Lillie Rubin
brand. This new resource, we believe, has enhanced the Lillie Rubin merchandise
assortment and complements the Cache designer already in place.
PLANNING
We conduct our planning process based on our historical point-of-sale data,
economic trends, seasonality and anticipated demand based on market tests. We
determine at a corporate level the total number of stock keeping units and the
composition by product, print, color, style and size. Our vendors are then able
to negotiate bulk material purchase with their suppliers, which we believe
enables us to obtain better pricing.
Our merchandising and planning teams determine the appropriate level and
type of merchandise per store and communicate that information to our vendors
who drop ship the merchandise to each store. Following receipt at our stores the
merchandising staff obtains daily sales information and store-level inventory
generated by our point-of-sale computer system. Based upon this data management
teams make decisions with respect to re-orders, store transfers and markdowns.
In addition to introducing new merchandise, we employ a key item strategy
whereby we maintain an inventory of core items in every store. This provides
customers with a level of certainty that these items
3
will be in stock when they visit, rather than rotating out of the store with
merchandise changes. In certain situations, a store that is experiencing
particularly strong sell-throughs relays the information to our management team
and buyers, who in turn may add or adjust new merchandise in response to this
feedback.
SOURCING AND DISTRIBUTION
We employ a sourcing and distribution strategy that enhances our speed to
market, allows us to respond quickly to fashion preferences and demand, and
reduces inventory risk. We purchase the vast majority of our merchandise from
domestic vendors. Sourcing from domestic vendors provides us with short lead
times ranging from four to 12 weeks from order to shipment, compared with
typically much longer periods for sourcing from foreign vendors. Our five
largest vendors accounted for approximately 38% of our purchases in fiscal 2004,
and our largest vendor accounted for 19% of our purchases during this period.
Nearly all of our merchandise is drop shipped directly by our vendors to
our individual stores rather than sent to a warehouse or distribution center.
Drop shipping significantly decreases our distribution expenses and reduces the
time required to deliver merchandise to our stores. If a customer requests an
item out of stock at a specific store, we can ship the merchandise from another
store to the customer by overnight or common carrier, the cost of which
typically is borne by the customer.
STORE OPERATIONS
STORE DESIGN AND ENVIRONMENT
Most of our stores range in size from approximately 1,500 to 2,500 square
feet, with our typical store averaging approximately 2,000 square feet. We
believe that our relatively smaller store size enables us to create a
boutique-like atmosphere by providing a more intimate shopping environment and a
higher level of customer service than department stores. Most of our stores are
open during the same hours as the malls in which they are located, typically
seven days and six nights a week.
We have recently adopted new store designs and layouts for both our Cache
and Lillie Rubin stores to enhance their appeal to the customer, increase access
to merchandise, facilitate movement throughout the store and improve our
displays. Our new store design emphasizes a modern, sophisticated and well-lit
atmosphere with streamlined exteriors and sleek interiors. In addition, at Cache
we have moved the dressing rooms from the middle of the store to the rear, and
check-out locations from the front of the store to the side. This eliminates
barriers to movement throughout the store and permits greater flexibility in
merchandise displays, allowing us to more effectively market our clothing.
We began to remodel existing stores using this new design during late
fiscal 2001. We remodeled 19 Cache and two Lillie Rubin stores in fiscal 2004
and expect to remodel approximately 30 stores in fiscal 2005 and 30 stores in
fiscal 2006, as leases come up for renewal. Most store remodels take from four
to six weeks. During this period, we typically utilize temporary locations in
the mall near the existing location so that customers can continue to shop for
our merchandise.
4
STORE MANAGEMENT AND TRAINING
We organize our stores into regions and districts, which are overseen by
four regional vice presidents and 32 district managers, with each of our
district managers typically responsible for eight to 12 stores. We typically
staff our stores with two opening employees, three mid-day employees and two
closing employees.
We seek to provide our customers with superior customer service. To promote
this part of our strategy, store managers and co-managers receive both salaries
and performance-based bonuses. We pay sales associates and assistant managers on
an hourly basis as well as performance incentives. From time to time, we offer
additional incentives, such as sales contests, to both management and sales
associates. Additionally, we place special emphasis on the recruitment of
fashion-conscious and career-oriented sales personnel. We train most new store
managers in designated training stores and train most other new store sales
personnel on the job.
EXISTING STORE LOCATIONS
As of January 1, 2005 we operated 291 stores located in 43 states and
Puerto Rico. Of these 254 were Cache stores and 37 were Lillie Rubin stores. The
following tables indicate our stores by location:
CACHE STORES:
Alabama 5 Louisiana 5 Ohio 9
Arizona 4 Maryland 6 Oklahoma 2
Arkansas 1 Massachusetts 8 Oregon 2
California 27 Michigan 6 Pennsylvania 7
Colorado 3 Minnesota 2 Rhode Island 2
Connecticut 4 Mississippi 1 South Carolina 5
Delaware 1 Missouri 3 Tennessee 5
Florida 33 Nebraska 1 Texas 19
Georgia 9 Nevada 6 Utah 1
Hawaii 2 New Hampshire 3 Vermont 1
Illinois 8 New Jersey 13 Virginia 8
Indiana 2 New Mexico 2 Washington 5
Iowa 2 New York 14 West Virginia 1
Kansas 2 North Carolina 7 Wisconsin 3
Kentucky 3 Puerto Rico 1
LILLIE RUBIN STORES:
Alabama 1 Louisiana 1 North Carolina 1
Arizona 1 Maryland 1 Ohio 1
Colorado 1 Michigan 2 Pennsylvania 2
Florida 10 Minnesota 1 Tennessee 1
Georgia 2 Nevada 1 Texas 4
Illinois 1 New Jersey 1 Virginia 2
Indiana 1 New York 1 Washington 1
5
The following table indicates the number of stores opened and closed over the
past five fiscal years:
STORES OPEN STORES OPENED DURING STORES CLOSED STORES OPEN AT END
BEGINNING FISCAL YEAR DURING FISCAL YEAR OF FISCAL YEAR TOTAL
FISCAL OF -------------------- ------------------ ------------------ SQUARE
YEAR FISCAL YEAR CACHE L.R. CACHE L.R. CACHE L.R. TOTALS FOOTAGE
------ ----------- -------- -------- ------- ------- ------ ------- ------ ---------
2000 201 8 8 1 1 190 25 215 448,000
2001 215 9 1 2 1 197 25 222 460,000
2002 222 10 3 0 1 207 27 234 478,000
2003 234 22 2 2 1 227 28 255 514,000
2004 255 31 9 4 0 254 37 291 596,000
NEW STORE DEVELOPMENT
We continually review potential new locations for Cache and Lillie Rubin
stores. We locate our new stores primarily in upscale shopping malls. When
selecting a new site, we target high traffic locations with suitable
demographics and favorable lease economics. When evaluating a new site, we also
look at the principal and anchor stores in the mall, location of our store
within the mall and other specialty stores located in the mall.
During fiscal 2004, we opened 31 Cache stores and 9 Lillie Rubin stores and
closed 4 Cache stores. In fiscal 2005, we intend to open approximately 40 stores
consisting of 30 Cache and 10 Lillie Rubin stores. In fiscal 2006, we intend to
open approximately 50 stores, consisting of 30 Cache and 20 Lillie Rubin stores.
Currently 34 of our Lillie Rubin stores are located in malls that also contain
Cache stores, and we intend to locate the substantial majority of our new Lillie
Rubin stores in malls containing Cache stores.
MARKETING AND PROMOTION
Historically, we conducted limited marketing and advertising, relying on
our individual store displays, mall locations and word-of-mouth to attract
customers. In early fiscal 2002 and all during fiscal 2003 and 2004, we used a
variety of media to promote our Cache brand and increase sales, consisting
primarily of advertisements in magazines such as Harper's Bazaar, Latina, Lucky,
People and Vogue. We also introduced outdoor advertising in selected markets on
billboards and buses, including a large campaign in Grand Central Station in New
York. We expect to continue to increase our Cache advertising and marketing
expenditures. In fiscal 2003, we launched a first-time advertising and marketing
campaign for the Lillie Rubin brand. These increased marketing efforts for both
Cache and Lillie Rubin continued in fiscal 2004 and are intended to attract new
customers and increase sales to existing customers.
We use direct mail campaigns to both potential and existing Cache
customers. Over the past several years, we have built a database of over 2.8
million preferred Cache customers from our point-of-sale information system and
mail 10 to 12 promotions per year to our targeted customers. We have already
rapidly expanded the Lillie Rubin Preferred Customer database over the past
year. Our preferred customer tracking system enables us to identify and target
specific merchandise promotions targeted at individual customers. We also send
e-mail notices to customers and intend to increase our use of e-mail promotions
in the future.
6
Our Cache and Lillie Rubin brands are supported by visual merchandising,
which consists of window displays, front table layouts and various promotions.
This type of marketing is an important component of our marketing and promotion
strategies since our mall locations provide significant foot traffic. We make
decisions regarding store displays and advertising at the corporate level,
ensuring a consistent appearance and message throughout all our stores. In
addition, we encourage store management to become involved in community affairs,
such as participating in local charity fashion shows, to enhance brand
recognition and meet potential customers. Some stores host trunk shows several
times each year to present selected merchandise to customers.
We have operated a Cache website, www.cache.com, since August 1999. We
continue to enhance features on this website, which allows customers to purchase
merchandise online, view currently available styles and schedule private
fittings of merchandise at any Cache store. We have seen a strong increase in
sales at the website over the past two years, as website sales have increased
from $537,000 in fiscal 2002 to $1.3 million in fiscal 2003 and $1.9 million in
fiscal 2004.
COMPETITION
The market for women's social occasion sportswear, dresses and accessories
is highly competitive. We compete primarily with specialty retailers of women's
apparel and department stores. Our stores typically compete directly with other
women's apparel stores located in the same mall or a nearby location. We believe
our target customers choose to purchase apparel based on the following factors:
o Style and fashion,
o Fit and comfort,
o Customer service,
o Shopping convenience and environment and
o Value.
We believe that our Cache and Lillie Rubin stores and merchandise have
advantages over our competitors in meeting these needs.
INFORMATION SYSTEMS
We utilize a combination of off-the-shelf and custom software applications
in our point-of-sale computer system to track our sales and inventory levels on
a daily basis. Each store communicates this data directly to the host system at
our corporate headquarters in New York. Our systems enable us to quickly
identify issues and make decisions such as redirecting merchandise shipments,
adjusting prices, re-ordering based on results of test marketing and monitoring
the success of promotional campaigns. In addition, our systems facilitate
various administrative functions such as payroll, inventory control, merchandise
transfers, special orders and price checking.
TRADEMARKS AND SERVICE MARKS
We are the owner in the United States of the Cache and Lillie Rubin
trademarks and service marks. These marks are registered with the United States
Patent and Trademark Office. Each federal registration is renewable indefinitely
if the mark is still in use at the time of renewal. Our rights to the "Cache"
mark and "Lillie Rubin" mark are a significant part of our business.
Accordingly, we intend to maintain these marks and the related registrations. We
are unaware of any material claims of infringement or other
7
challenges to our right to use our marks in the United States, although we have
successfully brought infringement claims against third parties in the past.
EMPLOYEES
As of January 1, 2005, we had approximately 2,500 employees, of whom
approximately 1,200 were full-time employees and 1,300 were part time employees.
None of these employees is represented by a labor union. We consider our
employee relations to be satisfactory.
AVAILABLE INFORMATION
We make available on our website, www.cache.com, under "Investor
Relations," free of charge, our annual reports on Form 10-K, quarterly reports
on Form 10-Q, currents reports on Form 8-K and amendments to those reports as
soon as reasonably practicable after we electronically file or furnish such
materials to the U.S. Securities and Exchange Commission ("SEC").
Our Code of Business Conduct and Ethics, and Board of Directors' Committee
Charters are also available on our website, under "Corporate Governance".
8
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth information concerning our executive
officers, directors and key employees:
NAME AGE POSITION
--------------------------------- --- -----------------------------------------------------------------------
EXECUTIVE OFFICERS AND DIRECTORS
Brian Woolf 56 Chief Executive Officer and Chairman of the Board
Thomas E. Reinckens 51 President, Chief Operating Officer
Arthur S. Mintz 59 Director
Andrew M. Saul 58 Director
Morton J. Schrader 73 Director
Gene G. Gage 57 Director
Catherine McNeal 45 Executive Vice President, General Merchandise Manager, Cache
Maria Comfort 48 Executive Vice President, General Merchandise Manager, Lillie Rubin
OTHER KEY EMPLOYEES
Victor Coster 47 Treasurer and Secretary
Lisa Decker 43 Vice President, Marketing
Margaret Feeney 47 Vice President, Finance
Clifford Gray 49 Vice President, Construction
Joanne Marselle 44 Vice President, Planning and Distribution
Caryl Paez 44 Director, Information Technologies
EXECUTIVE OFFICERS AND DIRECTORS
BRIAN WOOLF has served as Chief Executive Officer and Chairman of the Board
since October 2000. From March 1999 to October 2000, Mr. Woolf served as Vice
President and General Merchandise Manager for The Limited. From 1995 to March
1999, Mr. Woolf served as Senior Vice President and General Merchandise Manager
for Caldor. Mr. Woolf has held various management positions within the retail
industry over the last 30 years.
THOMAS E. REINCKENS has served as President and Chief Operating Officer
since October 2000. Mr. Reinckens also is our current principal financial and
accounting officer. Mr. Reinckens joined our company in February 1987 and has
held various positions throughout his tenure, most recently serving as Chief
Financial Officer from November 1989 to October 2000 and Executive Vice
President from September 1995 to October 2000. Mr. Reinckens has over 20 years
of retail experience.
ARTHUR S. MINTZ has served as one of our directors since September 2002.
Mr. Mintz has served as the President of Bees & Jam, Inc., an apparel
manufacturer, since 1971.
ANDREW M. SAUL has served as one of our directors since 1986. Mr. Saul also
served as our Chairman of the Board from February 1993 to October 2000. Mr. Saul
is a partner in Saul Partners, an investment partnership, a position he has held
since 1986.
9
MORTON J. SCHRADER has served as one of our directors since 1989. Mr.
Schrader was the President of Abe Schrader Corp., a manufacturer of women's
apparel, from 1968 through March 1989. Since 1989, he has been active as a real
estate broker.
GENE G. GAGE has served as one of our directors since September 2004. Mr.
Gage is currently a Financial Advisor for New England Financial. He is a
certified public accountant, as well as a certified financial planner. He has
over 30 years of financial experience.
CATHERINE MCNEAL has served as Executive Vice President, Merchandise
Manager for our Cache stores since June 2003. From 1997 until joining Cache, Ms.
McNeal served in various managerial capacities for the Limited, most recently as
Vice President, Merchandising Manager for Limited stores. Ms. McNeal has over 20
years of retail experience.
MARIA COMFORT has served as Executive Vice President of Lillie Rubin since
April 2004. Ms. Comfort has served as Vice President and General Merchandise
Manager for our Lillie Rubin stores since May 2002. From 1999 until she joined
us, Ms. Comfort served as Executive Vice President for Giorgio Armani. From June
1997 to 1999, Ms. Comfort served as President of 9 & Co., a division of Nine
West Group, Inc., a women's apparel company. Ms. Comfort's background
encompasses a variety of merchandising functions, including design,
manufacturing and buying. Ms. Comfort has over 25 years of retail experience.
10
OTHER KEY EMPLOYEES
VICTOR COSTER has served as Secretary since July 1991 and as our Treasurer
since July 2001. Mr. Coster is responsible for all treasury and tax matters. Mr.
Coster joined us in February 1991, and has held various positions, most recently
as Controller from February 1997 to July 2001. Mr. Coster has over 25 years of
experience in finance and accounting and has been a Certified Public Accountant
since 1981.
LISA DECKER has served as Vice President of Marketing and Advertising since
1998 and was our Director of Marketing from 1991 until 1998. She has over 20
years of experience in marketing, advertising, sales promotion and visual
merchandising within the retail industry.
MARGARET FEENEY has served as Vice President of Finance since 2001. Ms.
Feeney has served in a variety of financial and operational capacities with us
since 1992. Prior to joining us, Ms. Feeney served as Manager of Financial
Analysis and Budgeting for Toys "R" Us and in various financial positions at
Brooks Fashion Stores, a junior specialty chain. Ms. Feeney has 20 years of
retail experience.
CLIFFORD GRAY has served as Vice President of Construction since 1999 and
was our Operations Manager from 1991 to 1999. Prior to joining us, Mr. Gray
served as Operations Manager with Kids "R" Us.
JOANNE MARSELLE has served as Vice President of Planning and Distribution
since 2000 and was our Director of Planning from 1990 to 2000. Prior to joining
us, Ms. Marselle served at various times as a Planning and Distribution Analyst
and a Merchandise Coordinator for both Country Road Australia and Ann Taylor.
Ms. Marselle has over 20 years experience in the areas of planning and
distribution.
CARYL PAEZ has served as Director of Information Technologies since he
rejoined our company in 1999. From 1996 to 1999, he was Director of Information
Technologies for Louis Vuitton Americas. From 1992 to 1996, he served as our
Director of Management Systems and from 1989 to 1992, as our Manager of Point of
Sales Systems.
11
ITEM 2. PROPERTIES
All but a few of our 291 stores are located in shopping malls. The
substantial majority of our stores contain between 1,500 and 2,500 square feet
of space, with the typical store averaging 2,000 square feet. All of our stores
are in leased facilities, and we typically negotiate our rental agreements based
on our portfolio of store locations with a particular landlord rather than on an
individual basis. Rental terms usually include a fixed minimum rent plus a
percentage rent based on sales in excess of a specified amount. In addition, we
generally are required to pay a charge for common area maintenance, utility
consumption, promotional activities and/or advertising, insurance and real
estate taxes. Many leases contain fixed escalation clauses. Most leases contain
leasehold improvement reimbursements from landlords and/or rent holidays. In
recognizing landlord incentives and minimum rent expenses, the Company amortizes
the charges on a straight line basis over the lease term.
Our leases expire at various dates through 2019. The following table
indicates the periods during which our leases expire.
FISCAL YEARS CACHE LILLIE RUBIN TOTALS
------------ ------- ------------ ------
Present-2007 76 5 81
2008-2010 40 6 46
2011-2013 59 15 74
2014-2016 77 10 87
2017-2019 2 1 3
------- ------ ------
Totals 254 37 291
Our corporate office is a 20,000 square foot facility located at 1440
Broadway in New York City. We lease this space under a 10-year lease through
2013 at a rate of approximately $543,000 per year.
We contract for space in a warehouse in New York on an as-needed basis to
serve as a staging area for new store inventories and fixtures.
ITEM 3. LEGAL PROCEEDINGS
We are party to various lawsuits arising in the ordinary course of our
business. Management does not believe it is reasonably possible that resolution
of these matters will result in a material loss.
12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Cache, Inc. held its annual meeting of shareholders at its headquarters in
New York, New York on October 14, 2004. Of the 15,634,000 shares outstanding as
of the record date, 14,360,822 shares were represented by proxy at the meeting.
Proxies were solicited by Cache pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended. At the meeting, Cache's shareholders voted on
the following matters:
(1) Proposal to elect five directors to hold office for a one-year term
and until their successors are elected and qualified.
FOR WITHHELD
-------------- ------------
Andrew M. Saul 14,054,948 305,874
Brian Woolf 14,191,272 169,550
Gene G. Gage 14,289,949 70,873
Arthur S. Mintz 14,135,084 225,738
Morton J. Schrader 14,034,998 325,824
(2) Proposal to ratify the appointment of KPMG LLP as our independent
auditors for the fiscal year ending January 1, 2005.
FOR AGAINST ABSTAIN
-------------- ----------- ----------
14,258,097 97,541 5,184
13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
a. The principal market in which the Company's Common Stock is being traded is
the NASDAQ National Market System. The stock symbol is CACH. The price
range of the high and low bid information (restated for the June 18, 2004,
3 for 2 stock split) for the Company's Common Stock during 2003 and 2004,
by fiscal quarters, are as follows:
FISCAL PERIOD FISCAL 2003 FISCAL 2004
------------- -------------------- --------------------
HIGH LOW HIGH LOW
-------- -------- -------- --------
First Fiscal Quarter $9.71 $6.70 $21.59 $12.50
Second Fiscal Quarter $10.21 $5.08 $23.63 $13.39
Third Fiscal Quarter $14.93 $9.81 $15.85 $11.31
Fourth Fiscal Quarter $18.22 $12.74 $18.53 $13.69
Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, markdown or commission and may not necessarily represent
actual transactions.
b. As of February 28, 2005, there were approximately 325 holders of record of
the Company's Common Stock.
c. The Company has never paid cash dividends on its common stock. Payment of
dividends is within the discretion of the Company's Board of Directors. On
June 18, 2004, the company paid a 3 for 2 stock dividend to holders of
record.
d. The following table summarizes our equity compensation plans as of January
1, 2005:
NUMBER OF
SECURITIES REMAINING
AVAILABLE FOR
WEIGHTED AVERAGE THE FUTURE ISSUANCE UNDER
EXERCISE EQUITY COMPENSATION PLANS
NUMBER OF SECURITIES TO PRICE OF (EXCLUDING SECURITIES
BE ISSUED UPON EXERCISE OUTSTANDING REFLECTED IN
PLAN CATEGORY OF OUTSTANDING OPTIONS OPTIONS COLUMN (a))
(a) (b) (c)
------------- ---------------------- ------- -----------
Equity compensation plans approved by
security holders 1,651,750 $10.43 145,782
Equity compensation plans not approved by
security holders 0 0 0
----------- -------- --------
Total 1,651,750 $10.43 145,782
========== ======== ========
14
ITEM 6. SELECTED FINANCIAL DATA
The following Selected Consolidated Financial Data should be read in conjunction
with the Company's Consolidated Financial Statements and Notes thereto.
CACHE, INC. AND SUBSIDIARIES
STORE DATA AND OPERATING RESULTS
53 WEEKS
52 WEEKS ENDED (1) ENDED
----------------------------------------------------------------- ---------
DEC. 30, DEC. 29, DEC. 28, DEC. 27, JAN. 1,
2000 2001 2002 2003 2005
------------- ----------- ----------- ----------- -----------
(in thousands, except per share and operating data)
OPERATING RESULTS:
NET SALES $177,313 $180,750 $200,315 $216,256 $247,300
COST OF SALES 119,091 117,201 116,490 120,731 135,745
------------- ----------- ----------- ----------- -----------
GROSS PROFIT 58,222 63,549 83,825 95,525 111,555
STORE OPERATING EXPENSES 47,028 51,285 57,322 63,546 76,466
GENERAL AND
ADMINISTRATIVE EXPENSES 9,481 8,929 12,190 14,074 14,221
------------- ----------- ----------- ----------- -----------
OPERATING INCOME 1,713 3,335 14,313 17,905 20,868
OTHER INCOME, (net) (2) 24 1,858 260 273 459
------------- ----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES 1,737 5,193 14,573 18,178 21,327
INCOME TAX PROVISION 634 1,895 5,632 7,089 8,030
------------- ----------- ----------- ----------- -----------
NET INCOME $1,103 $3,298 $8,941 $11,089 13,297
============= =========== =========== =========== ===========
EARNINGS PER SHARE:
BASIC EARNINGS PER SHARE $0.08 $0.24 $0.66 $0.78 $0.85
DILUTED EARNINGS
PER SHARE $0.08 $0.24 $0.62 $0.75 $0.83
WEIGHTED AVERAGE
SHARES OUTSTANDING:
BASIC 13,637 13,637 13,650 14,256 15,589
DILUTED (3) 13,836 13,844 14,448 14,721 16,004
STORE DATA:
NUMBER OF STORES OPEN
AT END OF PERIOD 215 222 234 255 291
AVERAGE SALES PER
SQUARE FOOT (4) $409 $408 $438 $450 $461
COMPARABLE STORE
SALES INCREASE (5) 3% 0% 7% 3% 5%
15
CACHE, INC. AND SUBSIDIARIES
BALANCE SHEET DATA
---------------------------------------------------------------------------------
DEC. 30, DEC. 29, DEC. 28, DEC. 27, JAN. 1,
2000 2001 2002 2003 2005
------------- ----------- ----------- ----------- -----------
(in thousands, except ratios and per share data)
WORKING CAPITAL $16,165 $20,197 $26,654 $41,034 $53,469
TOTAL ASSETS (6) $57,585 $61,182 $76,480 $104,067 $132,028
TOTAL LONG-TERM
DEBT --- --- --- --- ---
STOCKHOLDERS' EQUITY $33,008 $36,306 $45,292 $65,142 $84,840
RATIO OF CURRENT ASSETS
TO CURRENT LIABILITIES 1.78 : 1 2.03 : 1 2.07 : 1 2.41 : 1 2.75 : 1
INVENTORY TURNOVER
RATIO 4.84 : 1 5.07 : 1 5.28 : 1 4.94 : 1 4.60 : 1
CAPITAL EXPENDITURES (6) $6,196 $6,220 $9,033 $15,628 $21,753
DEPRECIATION AND
AMORTIZATION $5,106 $5,247 $5,519 $6,395 $8,232
BOOK VALUE PER SHARE $2.42 $2.66 $3.32 $4.35 $5.42
FOOTNOTES
(1) Results for all periods presented include 52 weeks, except for fiscal 2004
which includes 53 weeks.
(2) Other income in fiscal 2001 included $1,518,000 from the settlement of a
trademark litigation claim undertaken against a third party, net of
professional fees related to the lawsuit. Other income generally consists
of interest income.
(3) Diluted weighted average shares for the fiscal years ended, December 30,
2000, December 29, 2001, December 28, 2002, December 27, 2003 and January
1, 2005 include 200,000, 207,000, 798,000, 465,000 and 415,000, shares
respectively, due to the potential exercise of stock options that were
outstanding and exercisable during those years.
(4) Average sales per square foot are calculated by dividing net sales by the
weighted average store square footage available.
(5) Comparable store sales data is calculated based on the net sales of stores
open at least 12 full months at the beginning of the period for which the
data are presented.
(6) Restated. See Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
NET SALES. Net sales consist of sales from comparable stores and
non-comparable stores. A store is not included in comparable store sales until
the first day of the fiscal month following the twelfth full month of sales.
Non-comparable store sales include sales generated at new stores prior to the
period when they are considered comparable stores and sales generated from
stores that we have since closed.
SHIPPING AND HANDLING. Amounts billed to customers for shipping and
handling fees are included in net sales at the time of shipment. Costs incurred
for shipping and handling are included in cost of sales.
COST OF SALES. Cost of sales includes the cost of merchandise, cost of
freight from vendors, costs incurred for shipping and handling, payroll for our
design, buying and merchandising personnel and store occupancy costs. Store
occupancy costs include rent, contingent rents, common area maintenance and real
estate taxes.
STORE OPERATING EXPENSES. Store operating expenses include payroll, payroll
taxes, health benefits, insurance, credit card processing fees, depreciation,
licenses and taxes as well as marketing and advertising expenses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
include district and regional manager payroll, other corporate personnel payroll
and employee benefits, employment taxes, insurance, legal and other professional
fees and other corporate level expenses. Corporate level expenses are primarily
attributable to our corporate headquarters in New York.
RESTATEMENT OF FINANCIAL STATEMENTS
On February 7, 2005, the Office of the Chief Accountant of the SEC issued a
letter to the American Institute of Certified Public Accountants expressing its
views regarding certain operating lease accounting issues and their application
under generally accepted accounting principles ("GAAP") in the United States of
America. After reviewing this letter, Cache's management began a review of its
lease related accounting policies and determined that its then-current method of
accounting for leasehold improvements reimbursed by landlord incentives or
allowances under operating leases (landlord construction allowances) was not in
accordance with GAAP.
The Company had historically accounted for landlord construction allowance
reimbursements as reductions to leasehold improvements on the consolidated
balance sheets and capital expenditures in investing activities on the
consolidated statements of cash flows. Cache's management has determined that
the appropriate interpretation of FASB Technical Bulletin No. 88-1, "Issues
Relating to Accounting for Leases," requires these allowances to be recorded as
deferred rent liabilities on the consolidated balance sheets and as a component
of operating activities on the consolidated statements of cash flows.
As of January 1, 2005, the Company reclassified landlord construction
allowance reimbursements from net leasehold improvements to deferred rent to
conform with the requirements of SFAS No. 13, "Accounting for Leases". There was
no effect on the Company's income statements. Leasehold
17
improvements and total assets increased for each year presented as a result of
the reclassification and was offset by an increase in deferred rent and total
liabilities.
As a result of the above, the Company has restated its consolidated balance
sheet as of December 27, 2003 and its consolidated statements of cash flows for
each of the 52 week periods ended December 28, 2002 and December 27, 2003.
See Note 1 to the consolidated financial statements of the Report for a
summary of the effects of these changes on the Company's consolidated balance
sheet as of December 27, 2003, as well as on the Company's consolidated
statements of cash flows for the 52 week periods ended December 28, 2002 and
December 27, 2003. The accompanying Management's Discussion and Analysis
describes these corrections.
ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
appropriate application of certain accounting policies, many of which requires
us to make estimates and assumptions about future events and their impact on
amounts reported in our financial statements and related notes. Since future
events and their impact cannot be determined with certainty, the actual results
will inevitably differ from our estimates. Such differences could be material to
the financial statements.
Our accounting policies are more fully described in Note 1 to the financial
statements, located elsewhere in this document. We have identified certain
critical accounting policies which are described below.
INVENTORIES. Merchandise inventory is carried at the lower of cost or
market using the retail method of accounting. We make assumptions to adjust the
value of inventory based on historical experience and current information. This
procedure inherently reduces the carrying value of inventories as permanent
markdowns are initiated. These assumptions can have a significant impact on
current and future operating results and financial position.
SELF INSURANCE. We are self-insured for losses and liabilities related
primarily to employee health and welfare claims. Losses are accrued based upon
our estimates of the aggregate liability for claims incurred using certain
actuarial assumptions followed in the insurance industry and based on Company
experience.
REVENUE RECOGNITION. Sales are recognized at the "point of sale," which
occurs when merchandise is sold in an "over-the-counter" transaction or upon
receipt by a customer. Sales of merchandise via our website are recognized at
the time of shipment to the customer. Our customers have the right to return
merchandise. Sales are reported net of actual and estimated returns. We maintain
a reserve for potential product returns and record, as a reduction to sales, a
provision for estimated product returns, which is determined based on historical
experience.
18
OPERATING LEASES. The Company leases retail stores and office space under
operating leases. Most leases contain construction allowance reimbursements by
landlords, rent holidays, rent escalation clauses and/or contingent rent
provisions. The Company recognizes the related rental expense on a straight-line
basis over the lease term and records the difference between the amounts charged
to expense and the rent paid as a deferred rent liability.
To account for construction allowance reimbursements from landlords and
rent holidays, the Company records a deferred rent liability included in accrued
liabilities and other long-term liabilities on the consolidated balance sheets
and amortizes the deferred rent over the lease term, as a reduction to rent
expense on the consolidated income statements. For leases containing rent
escalation clauses, the Company records minimum rent expense on a straight- line
basis over the lease term on the consolidated income statement. The lease term
used for lease evaluation includes option periods only in instances in which the
exercise of the option period can be reasonably assured and failure to exercise
such options would result in an economic penalty.
RESULTS OF OPERATIONS
The following table sets forth our operating results, expressed as a
percentage of net sales.
52 WEEKS ENDED 53 WEEKS ENDED
---------------------------- --------------
DECEMBER 28, DECEMBER 27, JANUARY 1,
2002 2003 2005
------------ ------------ --------------
OPERATING RESULTS
Net sales 100.0% 100.0% 100.0%
Cost of sales 58.2 55.8 54.9
------------ ------------ --------------
Gross profit 41.8 44.2 45.1
Store operating expenses 28.6 29.4 30.9
General and administrative expenses 6.1 6.5 5.8
------------ ------------ --------------
Operating income 7.1 8.3 8.4
Other income (net) 0.1 0.1 0.2
Income before income taxes 7.3 8.4 8.6
Income taxes 2.8 3.3 3.2
------------ ------------ --------------
Net income 4.5% 5.1% 5.4%
============ ============ ==============
19
53 WEEKS ENDED JANUARY 1, 2005 (FISCAL 2004) COMPARED TO 52 WEEKS ENDED DECEMBER
27, 2003 (FISCAL 2003)
NET SALES. The results of the Company for fiscal 2004 were favorably
impacted by the extra reporting week. Net sales increased to $247.3 million from
$216.3 million, an increase of $31.0 million, or 14.3%, over the prior fiscal
year, for the 53 week period ended January 1, 2005 as compared to the 52 week
period in Fiscal 2003. The one week of additional sales in Fiscal 2004 was
approximately 2.7% of the total sales increase. The sales increase reflects
$10.1 million of additional net sales as a result of a 5% increase in comparable
store sales. The remainder of the increase was the result of additional net
sales from non-comparable stores.
GROSS PROFIT. Gross profit increased to $111.6 million from $95.5 million,
an increase of $16.1 million, or 16.9%, over the prior fiscal year. This
increase was the combined result of higher net sales, partially due to the
additional one week of sales in the Fiscal 2004 period and increased gross
profit margins. As a percentage of net sales, gross profit increased to 45.1%
from 44.2%. This increase as a percentage of net sales was primarily due to
higher initial margins resulting from sourcing improvements.
STORE OPERATING EXPENSES. Store operating expenses increased to $76.5
million from $63.5 million, an increase of $13.0 million, or 20.5%, over the
prior fiscal year. As a percentage of net sales, store operating expenses
increased to 30.9% from 29.4%, primarily due to the increase in stores opened
over the past two years and an increase in marketing and advertising expenses of
$1.8 million. Store operating expenses in Fiscal 2004 were also higher than
Fiscal 2003, due to the additional one week period included in Fiscal 2004
results.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $14.2 million from $14.1 million, an increase of $147,000 or 1.0%,
above the prior fiscal year. As a percentage of net sales, general and
administrative expenses decreased to 5.8% from 6.5%, primarily due to lower
incentive compensation expense in Fiscal 2004 costs. General and administrative
expenses in Fiscal 2004 were also slightly higher than Fiscal 2003, due the
additional one week period included in Fiscal 2004 results.
OTHER INCOME. Other income increased to $459,000 from $273,000, in the
prior fiscal year, primarily attributable to higher average cash balances and
higher interest rates during fiscal 2004, as compared to fiscal 2003. Other
income generally consists of interest income. We expect interest income to grow
in the future as cash flow from operations is greater than expenditures on new
stores and remodeling.
INCOME TAXES. Income taxes increased to $8.0 million from $7.1 million, an
increase of $941,000, over the prior fiscal year. This increase was attributable
to higher taxable income, and was partially offset by a decrease in the
effective tax rate from 39.0% in fiscal 2003 to 37.7% in fiscal 2004. The
decrease in the overall effective income tax rate is primarily attributable to a
reversal of state income tax over accrued in prior fiscal years.
NET INCOME. As a result of the foregoing, net income increased to $13.3
million from $11.1 million, an increase of $2.2 million or 19.8%, over the same
period last year.
20
52 WEEKS ENDED DECEMBER 27, 2003 (FISCAL 2003) COMPARED TO 52 WEEKS ENDED
DECEMBER 28, 2002 (FISCAL 2002)
NET SALES. Net sales increased to $216.3 million from $200.3 million, an
increase of $15.9 million, or 8.0%, over the prior fiscal year. This increase
reflects $6.2 million of additional net sales as a result of a 3% increase in
comparable store sales. The remainder of the increase was the result of
additional net sales from non-comparable stores. We believe our new store
expansion and remodeling program will help to materially increase sales during
the next few years.
GROSS PROFIT. Gross profit increased to $95.5 million from $83.8 million,
an increase of $11.7 million, or 14.0%, over the prior fiscal year. As a
percentage of net sales, gross profit increased to 44.2% from 41.8%. This
increase in gross profit was the combined result of higher net sales and an
increase in gross profit margins, due to a more focused approach to inventory
management. We plan to increase inventory turns in future years, as we reduce
dress inventory levels, turns of which are historically slower than sportswear
inventory turns.
STORE OPERATING EXPENSES. Store operating expenses increased to $63.5
million from $57.3 million, an increase of $6.2 million, or 10.9%, over the
prior fiscal year. This was due primarily to an increase in the total number of
new stores open. As a percentage of net sales, store operating expenses
increased to 29.4% from 28.6%, primarily due to an increase in payroll expense
of $3.0 million and an increase in advertising expense of $1.2 million. We
anticipate store operating expenses will run slightly higher than historical
levels, as a percent of sales in the short term, as we increase our rate of
store expansion.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $14.1 million from $12.2 million, an increase of $1.9 million or
15.5% from the prior fiscal year. As a percentage of net sales, general and
administrative expenses increased to 6.5% from 6.1%. This increase was primarily
attributable to increase in corporate level payroll of $1.4 million and
professional fees of $289,000. We anticipate general and administrative expenses
will return to lower historical levels in the next few years, as we have
completed most of the headquarters staffing necessary to fuel the current store
expansion.
OTHER INCOME. Other income increased to $273,000 from $260,000, primarily
attributable to higher average cash balances during fiscal 2003, partially
offset by lower interest rates in fiscal 2003. We expect interest income to grow
in the future due to stronger cash flows from operations and higher interest
rates, as the U.S. economy recovers.
INCOME TAXES. Income taxes increased to $7.1 million from $5.6 million, an
increase of $1.5 million, over the same period last year. This increase was
attributable to higher taxable income, as well as an increase in the effective
tax rate from 38.6% in fiscal 2002 to 39.0% in fiscal 2003. The increase in the
overall effective income tax rate is attributable to increased levels of federal
taxable income subject to tax in a higher tax bracket, as well as a change in
the mix of income subject to tax in the various states in which we conduct
business.
NET INCOME. As a result of the foregoing, net income increased to $11.1
million from $8.9 million, an increase of $2.2 million, over the same period
last year.
21
QUARTERLY RESULTS AND SEASONALITY
We experience seasonal and quarterly fluctuations in our net sales and
operating income. Our quarterly results of operations may fluctuate
significantly as a result of a variety of factors, including the timing of new
store openings, fashion trends and shifts in timing of certain holidays. Our
business is subject to seasonal influences, characterized by highest sales
during our fourth fiscal quarter (October, November and December) and lowest
sales during our third fiscal quarter (July, August and September).
The following table includes our unaudited quarterly results of operations
data for each of the eight quarters during the two-year period ended January 1,
2005. We derived this data from our unaudited quarterly consolidated financial
statements. We believe that we have prepared this information on the same basis
as our audited consolidated financial statements and that we have included all
necessary adjustments, consisting only of normal recurring adjustments, to
present fairly the selected quarterly information when read in conjunction with
our audited annual consolidated financial statements and the notes to those
statements included elsewhere in this document. The operating results for any
particular quarter are not necessarily indicative of the operating results for
any future period.
13 WEEKS ENDED 14 WEEKS ENDED
---------------------------------------------------------------------------------- -----------
MAR. 29, JUNE 28, SEPT. 27, DEC. 27, MAR. 27, JUNE 26, SEPT. 25, JAN. 1,
2003 2003 2003 2003 2004 2004 2004 2005
---------- --------- --------- --------- --------- --------- --------- ----------
(Unaudited)
(Dollars in thousands)
OPERATING RESULTS
Net sales $48,098 $56,193 $47,343 $64,622 $57,194 $62,087 $49,430 $78,589
Gross profit 20,037 24,913 20,223 30,352 25,688 29,149 19,596 37,122
Operating income (loss) 2,583 5,665 936 8,721 5,151 7,102 (961) 9,576
Net income (loss) $1,641 $3,541 $614 $5,293 $3,249 $4,361 ($521) $6,208
AS A PERCENTAGE OF NET SALES
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit 41.7% 44.3% 42.7% 47.0% 44.9% 46.9% 39.6% 47.2%
Operating income 5.4% 10.1% 2.0% 13.5% 9.0% 11.4% (1.9%) 12.2%
Net income 3.4% 6.3% 1.3% 8.2% 5.7% 7.0% (1.1%) 7.9%
SELECTED OPERATING DATA
Number of stores open at end of
period 237 240 244 255 258 269 276 291
Comparable store sales increase (3%) 4% 3% 4% 13% 3% (1%) 4%
LIQUIDITY AND CAPITAL RESOURCES
Our cash requirements are primarily for the construction of new stores and
inventory for new stores as well as the remodeling of existing stores. We have
historically satisfied our cash requirements principally through cash flow from
operations. Cash flows have increased significantly in fiscal 2003 and 2004, due
to the dramatic increase in gross margin contribution. We expect this trend to
continue over the next several years. As a result of the restatement of our
financial statements to reflect the reclassification of landlord construction
allowance reimbursements from net leasehold improvements to deferred rent, cash
flow from operations increased in fiscal 2002 and 2003 from the amounts
previously reported. Cash used in investing activities also increased in fiscal
2002 and 2003 reflecting the offsetting increase in leasehold improvements. As
of January 1, 2005, we had working capital of $53.5 million, which included cash
and marketable securities of $42.7 million.
22
During fiscal 2004, we generated $23.0 million in cash from operating
activities due primarily to net income, depreciation of $8.2 million, an
increase in deferred taxes of $2.7 million, an increase in accounts payable of
$2.7 million, an increase in accrued liabilities of $3.9 million and a tax
benefit of $1.6 million from stock option exercises, which were partially offset
by an increase in inventories of $5.6 million (primarily due to the net increase
of 36 stores), reversal of deferred rent of $1.2 million, and an increase in
receivables of $1.9 million.
During fiscal 2003, we generated $21.8 million in cash from operating
activities due primarily to net income, depreciation of $6.4 million, an
increase in accrued liabilities and compensation of $5.4 million, an increase in
accounts payable of $2.4 million, tax benefit from stock option exercises of
$2.9 million, partially offset by an increase in accounts receivable of $1.9
million, and an increase in inventories of $4.7 million, primarily due to the
net increase of 21 stores. During fiscal 2002, we generated $21.6 million in
cash from operating activities due primarily to net income, depreciation of $5.5
million, a decrease in receivables of $1.6 million, an increase in accounts
payable of $899,000 and an increase in accrued liabilities and compensation of
$5.8 million.
Cash used in investing activities was approximately $27.9 million in fiscal
2004, $21.0 million in fiscal 2003, and $23.4 million in fiscal 2002. These
amounts were used for the purchase of marketable securities as well as the
payment for equipment and leasehold improvements in new and remodeled stores.
Our capital requirements depend primarily on the number of new stores we open,
the number of existing stores we remodel and the timing of these expenditures.
Projected capital expenditures for fiscal 2005 to fund new store openings and
remodelings are approximately $18.0 to $20.0 million.
Based on our experience with new store openings, we estimate that the
average net investment to open new stores is approximately $225,000 to $375,000,
which includes new store opening expenses and initial inventory, net of landlord
contributions. We estimate that the average net investment to remodel an
existing store is approximately $200,000 to $300,000, net of landlord
contributions.
Cash provided by financing activities was approximately $4.9 million in
fiscal 2004, primarily due to stock option exercises and stock issuances. During
fiscal 2003, we received net proceeds of $5.8 million from stock issuances and
stock option exercises. Cash provided by financing activities was negligible in
fiscal 2002.
We have a line of credit with Fleet Bank, N.A., permitting us to borrow up
to $17.5 million on a revolving basis. At January 1, 2005, there was no
outstanding balance under this credit facility. Amounts outstanding under the
credit facility bear interest at a maximum annual rate equal to the bank's prime
rate, currently 5.50%. The agreement relating to this facility contains selected
financial and other covenants. In addition, the credit facility contains
restrictions on our ability to make capital expenditures, incur indebtedness or
create or incur liens on our assets. While this facility is unsecured, if a
default occurs under the facility, we are required to grant the lender a
security interest in our inventory and accounts receivable. We have at all times
been in compliance with all loan covenants. This facility currently expires in
November 2005.
We believe that cash flow from operations, our current available cash and
funds available under our revolving credit facility will be sufficient to meet
our working capital needs and contemplated new store opening expenses for at
least the next 12 months. If our cash flow from operations should decline
significantly or if we should accelerate our store expansion or remodeling
program, it may be necessary for us to seek additional sources of capital.
23
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following tables summarize our minimum contractual obligations and
commercial commitments as of January 1, 2005:
PAYMENTS DUE IN PERIOD
-----------------------------------------------------------------
WITHIN AFTER
TOTAL 1 YEAR 2-3 YEARS 4-5 YEARS 5 YEARS
------- -------- --------- --------- --------
(In thousands)
Contractual Obligations
Employment contracts $ 1,042 $ 500 $ 542 $ - $ -
Purchase Obligations 31,662 31,662 - - -
Operating leases 166,578 23,745 41,794 37,745 63,294
--------- -------- --------- --------- --------
Total $ 199,282 $ 55,907 $ 42,336 $ 37,745 $ 63,294
--------- -------- --------- --------- --------
PAYMENTS DUE IN PERIOD
-----------------------------------------------------------------
WITHIN AFTER
TOTAL 1 YEAR 2-3 YEARS 4-5 YEARS 5 YEARS
------- -------- --------- --------- --------
(In thousands)
Commercial Commitments
Credit facility $ - $ - $ - $ - $ -
Standby Letters of
credit 3,054 3,054 - - -
-------- -------- --------- --------- ---------
Total $ 3,054 $ 3,054 $ - $ - $ -
======== ======== ========= ========= =========
We issue standby letters of credit primarily for the importation of
merchandise inventories. The Company does not have any off balance sheet
financing arrangements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Our market risk relates primarily to changes in interest rates. We bear the
risk in two specific ways. First, the revolving credit facility carries a
variable interest rate that is tied to market indices and, therefore, the
statement of income and cash flows will be exposed to changes in interest rates.
As of January 1, 2005, we had no borrowing under our credit facility. However,
we may borrow funds under the revolving credit facility, as needed.
The second component of interest rate risk involves the short-term
investment of excess cash in short-term, investment-grade interest-bearing
securities. These investments are included in cash and equivalents as well as
marketable securities on our balance sheet, If there are changes in interest
rates, those changes would affect the investment income we earn on these
investments and, therefore, impact our cash flows and results of operations.
24
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No. 123R, "SHARE-BASED PAYMENT,"
which revises SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION," and
supersedes APB Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES." This
Statement focuses primarily on accounting for transactions in which an entity
obtains employee services in share-based payment transactions. This Statement
requires an entity to recognize the cost of employee services received in
share-based payment transactions and measure the cost on a grant-date fair value
of the award. That cost will be recognized over the period during which an
employee is required to provide service in exchange for the award. The
provisions of SFAS No. 123R will be effective for the Company's financial
statements issued for periods beginning after June 15, 2005.
In December 2003, the FASB issued FASB Interpretation No. 46R,
"CONSOLIDATION OF VARIABLE INTEREST ENTITIES" ("FIN 46R"), which addresses how a
business enterprise should evaluate whether it has a controlling financial
interest in an entity through means other than voting rights and accordingly
should consolidate the entity. The adoption of FIN46R did not have any impact on
our financial position and results of operations.
In March 2004, the Emerging Issues Task Force ("EITF") reached a consensus
on Issue No. 03-1, "THE MEANING OF OTHER-THAN-TEMPORARY IMPAIRMENTS AND ITS
APPLICATION TO CERTAIN INVESTMENTS" ("EITF 03-1"). EITF 03-1 provides a
three-step impairment model for determining whether an investment is
other-than-temporarily impaired and requires the Company to recognize such
impairments as an impairment loss equal to the difference between the
investment's cost and fair value at the reporting date. The guidance is
effective for the Company during the first quarter of fiscal 2005. The Company
does not believe that the adoption of EITF 03-1 will have a significant effect
on its financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's unaudited selected quarterly financial data is incorporated
herein by reference to Note 11 to the Company's consolidated financial
statements on page F-20. The Company's consolidated financial statements and the
report of independent public accountants are listed at Item 16 of this Report
and are included in this Form 10-K on pages F-1 through F-22.
ITEM 9. CHANGES IN AND/OR DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the two most recent fiscal years and the interim period through the
date of this disclosure, (i) there have been no disagreements with KPMG on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of KPMG, would have caused it to make reference to the subject
matter of the disagreements in connection with its report, and (ii) there were
no "reportable events" (as defined in Item 304(a)(1)(v) of Regulation S-K).
Please see our Current Report on Form 8-K filed February 15, 2005 for additional
disclosure regarding our change in accountants.
25
ITEM 9A. CONTROLS AND PROCEDURES
(1) DISCLOSURE CONTROLS AND PROCEDURES--The Company maintains a system of
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Company's reports under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms, and
that such information is accumulated and communicated to management, including
the Company's Chief Executive Officer ("CEO") and the Principal Financial and
Accounting Officer ("PFAC"), as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, as the Company's are designed to do,
and management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
In connection with the preparation of this Annual Report on Form 10-K, as
of January 1, 2005, an evaluation was performed under the supervision and with
the participation of the Company's management, including the CEO and PFAC, of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act).
In performing this evaluation, management reviewed the Company's lease
accounting and leasehold depreciation practices in light of the February 7, 2005
letter issued by the Office of the Chief Accountant of the SEC to the American
Institute of Certified Public Accountants. As a result of this review, the
Company concluded that its previously established lease accounting and leasehold
improvement depreciation practices were not appropriate and determined that the
Company's cash flows from operations and cash used in investing activities over
the last several years had been understated. There was no impact on net income,
as a result of the changes. Accordingly, as described below, the Company
determined to restate certain of its previously issued financial statements to
reflect the correction in the Company's lease accounting and leasehold
improvement depreciation practices. Based on that evaluation, the Company's CEO
and PFAC concluded that the Company's disclosure controls and procedures were
not effective as of January 1, 2005.
(2) MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING--Management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rules 13a-15(f). A system of internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation and fair presentation of financial
statements for external purposes in accordance with generally accepted
accounting principles. All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
Management has assessed the effectiveness of the Company's internal control
over financial reporting as of January 1, 2005. In making its assessment of
internal control over financial reporting, management used the criteria set
forth by the Committee of Sponsoring Organizations ("COSO") of the Treadway
Commission in INTERNAL CONTROL--INTEGRATED FRAMEWORK.
In performing this assessment, management reviewed the Company's lease
accounting practices in light of the SEC letter of February 7, 2005. As a result
of this review, management concluded that the Company's controls over the
selection and monitoring of accounting policies for construction allowances
received from landlords were insufficient, and, as a result, management has
determined that the
26
Company's cash flows from operations and cash used in investing activities over
the last several years had been understated. On March 11, 2005, the Audit
Committee of the Board of Directors (the "Committee") and management determined
to restate certain of the Company's previously issued financial statements to
reflect the correction in its accounting and for construction allowances
received from landlords.
Management evaluated the impact of this restatement on the Company's
assessment of its system of internal control and has concluded that the control
deficiency that resulted in the incorrect accounting for construction allowances
received from landlords represented a material weakness as of January 1, 2005.
As a result of this material weakness in the Company's internal control over
financial reporting, management has concluded that, as of January 1, 2005, the
Company's internal control over financial reporting was not effective based on
the criteria set forth by the COSO of the Treadway Commission in INTERNAL
CONTROL--INTEGRATED FRAMEWORK. A material weakness in internal control over
financial reporting is a control deficiency (within the meaning of the Public
Company Accounting Oversight Board's ("PCAOB") Auditing Standard No. 2), or
combination of control deficiencies, that results in there being more than a
remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. PCAOB Auditing Standard
No. 2 identifies a number of circumstances that, because of their likely
significant negative effect on internal control over financial reporting, are to
be regarded as at least significant deficiencies as well as strong indicators
that a material weakness exists, including the restatement of previously issued
financial statements to reflect the correction of a misstatement.
The Company's independent registered public accounting firm, KPMG LLP, has
issued an attestation report on management's assessment of the Company's
internal control over financial reporting. This report appears below.
(3) REMEDIATION STEPS TO ADDRESS MATERIAL WEAKNESS--To remediate the
aforementioned material weakness in the Company's internal control over
financial reporting, the Company implemented, subsequent to year end, additional
review procedures over the selection and monitoring of accounting policies for
construction allowances received from landlords.
(4) CHANGE IN INTERNAL CONTROL OVER FINANCIAL REPORTING -- No changes in
the Company's internal control over financial reporting has occurred during the
Company's last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial
reporting.
/s/ BRIAN WOOLF March 16, 2005
-------------------------------------
Brian Woolf
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
/s/ THOMAS E. REINCKENS March 16, 2005
-------------------------------------
Thomas E. Reinckens
PRESIDENT AND CHIEF OPERATING OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited management's assessment, included in the accompanying
Management's Annual Report on Internal Control over Financial Reporting (Item
9(A)(2)), that Cache, Inc. did not maintain effective internal control over
financial reporting as of January 1, 2005, because of the effect of deficiencies
in the Company's selection and monitoring of accounting policies for
construction allowances received from landlords, based on criteria established
in Internal Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Cache, Inc.'s
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the Company's
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. The following material weakness has been identified and included in
management's assessment: In its assessment as of January 1, 2005, management
identified as a material weakness the Company's lack of sufficient controls over
the selection and monitoring of accounting policies for construction allowances
received from landlords. As a result of this material weakness in internal
control, Cache, Inc. concluded the Company's previously reported annual cash
flows from operations and cash used in investing activities had been understated
and that previously issued financial statements should be restated.
28
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets of Cache, Inc. as of January 1, 2005 and December 27, 2003, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended January 1, 2005. The
aforementioned material weakness was considered in determining the nature,
timing, and extent of audit tests applied in our audit of the 2004 consolidated
financial statements, and this report does not affect our report dated March 15,
2005, which expressed an unqualified opinion on those consolidated financial
statements.
In our opinion, management's assessment that Cache, Inc. did not maintain
effective internal control over financial reporting as of January 1, 2005 is
fairly stated, in all material respects, based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Also, in our opinion, because
of the effect of the material weakness described above on the achievement of the
objectives of the control criteria, Cache Inc. has not maintained effective
internal control over financial reporting as of January 1, 2005, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
/s/ KPMG LLP
----------------------------------------
KPMG LLP
New York, New York
March 15, 2005
ITEM 9B. OTHER INFORMATION
None.
PART III
The information called for by Items 10, 11, 12, 13, and 14 is incorporated
herein by reference from the definitive proxy statement to be filed by the
Company in connection with its 2005 Annual Meeting of Shareholders.
29
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The financial statements listed in the "Index To The Consolidated
Financial Statements" on page F-2 are filed as a part of this report.
2. Financial statement schedules are included on page F-22 or are omitted
because they are not applicable or the required information is shown
in the financial statements or notes thereto.
3. Exhibits (9)
3.1 Articles of Incorporation of the Company and all amendments
thereto (2)
3.2 Bylaws of the Company (1)
10.1 Lease, dated July 28, 2003, between the Company, as Tenant,
and New 1440 Broadway Partners, LLC, as Landlord, for the
Company's offices at 1440 Broadway, New York, New York (11)
10.2 1994 Stock Option Plan of the Company (3) (12)
10.3 Form of Option Agreement relating to Options issued under
the 1994 Stock Option Plan (4) (12)
10.4 2000 Stock Option Plan of the Company (7) (12)
10.5 Form of Option Agreement relating to Options issued under
the 2000 Stock Option Plan (8) (12)
10.6 2003 Stock Option Plan of the Company (9) (12)
10.7 Form of Option Agreement relating to Options issued under
the 2003 Stock Option Plan (11) (12)
10.8 Second Amended and Restated Revolving Credit Agreement (the
"Credit Agreement") dated as of August 26, 1996, between
Fleet Bank, N.A. (Successor in interest to National
Westminster Bank, New Jersey) and the Company (4)
10.9 Security Agreement, dated as of August 26, 1996 (the
"Security Agreement"), between the Company and Fleet Bank,
N.A. (4)
10.10 Amended and Restated Asset Purchase Agreement dated August
10, 1998 between Lillie Rubin Fashions, Inc. and the
Company (5)
30
10.11 Master Amendment, dated July 19, 1999, to Revolving Credit
Agreement and Security Agreement (6)
10.12 Employment Agreement, dated September 30, 2003, between the
Company and Brian P. Woolf (10) (12)
10.13 Second Master Amendment, dated November 21, 2002, to
Revolving Credit Agreement (11)
10.14 Third Master Amendment, dated May 20, 2004, to Revolving
Credit Agreement (11)
11.1 Calculation of Basic and Fully Diluted Earnings per Common
Share
12.1 Statements re: Computation of Ratios
23.1 Consent of KPMG LLP
31.1 Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Principal Financial and Accounting
Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
32.1 Certification of the Chief Executive Officer and Principal
Financial and Accounting Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-18, dated December 29, 1980.
(2) Incorporated by reference to the Company's Current Report on Form 8-K,
dated September 15, 1993.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 28, 1996.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended January 2, 1999.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended January 1, 2000.
(7) Incorporated by reference to the Company's Definitive Proxy Statement filed
on September 18, 2001.
31
(8) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 29, 2001.
(9) Incorporated by reference to the Company's Definitive Proxy Statement filed
on October 6, 2003.
(10) Incorporated by reference to the Company's Registration Statement on Form
S-3, dated November 17, 2003.
(11) Incorporated by references to the Company's Annual Report on Form 10-K for
the fiscal year ended December 27, 2003.
(12) Exhibits 10.2 through 10.7 and 10.12 are management contracts or
compensatory plans or arrangements, which are required to be filed as an
exhibit pursuant to Item 16(c) of this Annual Report on Form 10-K.
(13) A Stockholder may obtain a copy of any of the exhibits included in the
Annual Report on Form 10-K upon payment of a fee to cover the reasonable
expenses of furnishing such exhibits, by written request to CACHE, Inc., at
1440 Broadway, 5th Floor, New York, New York 10018 Attention: Chief
Operating Officer.
(b) Reports on Form 8-K
None.
32
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: March 16, 2005 CACHE, INC.
(Registrant)
By: /s/ BRIAN WOOLF
-------------------------------
Brian Woolf
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
---------------------------- -------------------------- ----------------
/s/ BRIAN WOOLF Chairman of the Board March 16, 2005
----------------------
BRIAN WOOLF
/s/ THOMAS E. REINCKENS President March 16, 2005
---------------------- (Principal Financial
THOMAS E. REINCKENS and Accounting Officer)
/s/ GENE GAGE Director March 16, 2005
----------------------
GENE GAGE
/s/ ARTHUR S. MINTZ Director March 16, 2005
----------------------
ARTHUR S. MINTZ
/s/ ANDREW M. SAUL Director March 16, 2005
----------------------
ANDREW M. SAUL
/s/ MORTON J. SCHRADER Director March 16, 2005
----------------------
MORTON J. SCHRADER
33
EXHIBIT 11.1 CALCULATION OF BASIC AND DILUTED EARNINGS PER COMMON SHARE
52 WEEKS ENDED 53 WEEKS ENDED
---------------------------------- ---------------
DECEMBER 28, DECEMBER 27, JANUARY 1,
EARNINGS PER SHARE 2002 2003 2005
-------------- ------------- ---------------
Net income applicable
to common stockholders $8,941,000 $11,089,000 $13,297,000
-------------- ------------- ---------------
BASIC EARNINGS PER SHARE
Weighted average number of
common shares outstanding 13,650,000 14,256,000 15,589,000
============== ============= ===============
Basic earnings per share $0.66 $0.78 $0.85
============== ============= ===============
DILUTED EARNINGS PER SHARE
Weighted average number of
common shares outstanding 13,650,000 14,256,000 15,589,000
Assuming conversion of
outstanding stock options 1,710,000 2,015,000 1,651,000
Less: assumed repurchase
of common stock pursuant
to the treasury stock method (912,000) (1,550,000) (1,236,000)
-------------- ------------- ---------------
Weighted average number of
common shares outstanding
as adjusted 14,448,000 14,721,000 16,004,000
============== ============= ===============
Diluted earnings per share $0.62 $0.75 $0.83
============== ============= ===============
EXHIBIT 12.1 COMPUTATION OF RATIOS
RATIO OF CURRENT ASSETS TO CURRENT LIABILITIES = current assets (at balance
sheet date) divided by current liabilities (at balance sheet date).
INVENTORY TURNOVER RATIO = total cost of sales divided by average inventory
(beginning and ending inventory, divided by two, at the balance sheet date).
BOOK VALUE PER SHARE = stockholders' equity divided by common shares outstanding
(at balance sheet date).
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Cache, Inc.:
We consent to the incorporation by reference in the registration statements
(Nos. 333-65113, 333-84848, 333-96717 and 333-110553) on Forms S-8 of Cache,
Inc. of our reports dated March 15, 2005, with respect to the consolidated
balance sheets of Cache, Inc. as of January 1, 2005 and December 27, 2003, and
the related consolidated statements of income, stockholders' equity, and cash
flows, for each of the years in the three-year period ended January 1, 2005, and
the related financial statement schedule, management's assessment of the
effectiveness of internal control over financial reporting as of January 1, 2005
and the effectiveness of internal control over financial reporting as of January
1, 2005, which reports appear in the January 1, 2005 annual report on Form 10-K
of Cache, Inc.
Our report dated March 15, 2005 on the consolidated balance sheets of Cache,
Inc. as of January 1, 2005 and December 27, 2003, and the related consolidated
statements of income, stockholders' equity, and cash flows, for each of the
years in the three-year period ended January 1, 2005 contains an explanatory
paragraph that states that the consolidated balance sheet as of December 27,
2003 and the related consolidated statements of cash flows for the years ended
December 27, 2003 and December 28, 2002, have been restated.
Our report dated March 15, 2005 on management's assessment of the effectiveness
of internal control over financial reporting and the effectiveness of internal
control over financial reporting as of January 1, 2005, expresses our opinion
that Cache, Inc. did not maintain effective internal control over financial
reporting as of January 1, 2005 because of the effect of a material weakness on
the achievement of the objectives of the control criteria and contains an
explanatory paragraph that states that as of January 1, 2005, Cache, Inc. had
insufficient controls over the selection and monitoring of accounting policies
for construction allowances received from landlords which could have prevented
the Company from concluding that its previously reported annual and quarterly
cash flows from operating activities, cash used in investing activities,
equipment and leasehold improvements and other long term liabilities relating to
construction allowances received from landlords had been understated and that
previously issued financial statements should be restated.
/s/ KPMG LLP
New York, New York
March 16, 2005
EXHIBIT 31.1 CERTIFICATION
I, Brian Woolf, certify that:
1. I have reviewed this annual report on Form 10-K of Cache Inc. (Cache);
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements are made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
Cache as of, and for, the periods presented in this annual report;
4. Cache's other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the
registrant and have:
a. designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to Cache,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
annual report is being prepared;
b. designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c. evaluated the effectiveness of Cache's disclosure controls and
procedures and presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures as of the
end of the period covered by this annual report based on such
evaluation; and
d. disclosed in this report any change in Cache's internal control over
financial reporting that occurred during Cache's fourth quarter that
has materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting;
5. Cache's other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to Cache's
auditors and the audit committee of Cache's Board of Directors;
a. all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect Cache's ability to record,
process, summarize and report financial information ; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in Cache's internal control over
financial reporting.
March 16, 2005 By: /s/ BRIAN WOOLF
---------------------------
Brian Woolf
CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
EXHIBIT 31.2 CERTIFICATION
I, Thomas E. Reinckens, certify that:
1. I have reviewed this annual report on Form 10-K of Cache Inc. (Cache);
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements are made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
Cache as of, and for, the periods presented in this annual report;
4. Cache's other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the
registrant and have:
a. designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to Cache,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
annual report is being prepared;
b. designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c. evaluated the effectiveness of Cache's disclosure controls and
procedures and presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures as of the
end of the period covered by this annual report based on such
evaluation; and
d. disclosed in this report any change in Cache's internal control over
financial reporting that occurred during Cache's fourth quarter that
has materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting;
5. Cache's other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to Cache's
auditors and the audit committee of Cache's Board of Directors;
a. all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect Cache's ability to record,
process, summarize and report financial information ; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in Cache's internal control over
financial reporting.
March 16, 2005 By: /s/ THOMAS E. REINCKENS
--------------------------------------------
Thomas E. Reinckens
PRESIDENT AND CHIEF OPERATING OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
EXHIBIT 32.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Pursuant to, and solely for purposes of, 18 U.S.C. Section 1350 (Section 906 of
the Sarbanes-Oxley Act of 2002), each of the undersigned hereby certifies in the
capacity and on the date indicated below that:
1. The Annual Report of Cache, Inc. on Form 10-K for the period ending January
1, 2005 as filed with the Securities and Exchange Commission on the date
hereof (the "Report") fully complies with the requirements of Section 13
(a) or 15 (d) of the Securities and Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of Cache, Inc.
/s/ BRIAN WOOLF March 16, 2005
-----------------------------------
Brian Woolf
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
/s/ THOMAS E. REINCKENS March 16, 2005
------------------------------------
Thomas E. Reinckens
PRESIDENT AND CHIEF OPERATING OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 1, 2005,
DECEMBER 27, 2003,
AND
DECEMBER 28, 2002
F-1
CACHE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INDEX PAGE
Independent Auditors' Report F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Income F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
Valuation and Qualifying Accounts F-22
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Cache, Inc.:
We have audited the accompanying consolidated balance sheets of Cache, Inc. and
subsidiaries as of January 1, 2005 and December 27, 2003, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three-year period ended January 1, 2005. In connection with
our audits of the consolidated financial statements, we also have audited the
financial statement schedule. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cache, Inc. and
subsidiaries as of January 1, 2005 and December 27, 2003, and the results of
their operations and their cash flows for each of the years in the three-year
period ended January 1, 2005, in conformity with U.S. generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the Company has
restated its consolidated balance sheet as of December 27, 2003 and its
consolidated statements of cash flows for the years ended December 27, 2003 and
December 28, 2002.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Cache, Inc.'s
internal control over financial reporting as of January 1, 2005, based on
criteria established in Internal Control--Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated March 15, 2005 expressed an unqualified opinion on management's
assessment of, and an adverse opinion on the effective operation of, internal
control over financial reporting.
/s/ KPMG LLP
New York, New York
March 15, 2005
F-3
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 27, JANUARY 1,
2003 2005
(RESTATED -
NOTE 1)
------------------ ------------------
CURRENT ASSETS
Cash and equivalents (Note 1) $16,887,000 $16,848,000
Marketable securities 19,746,000 25,874,000
Receivables, net (Note 2) 4,614,000 6,545,000
Inventories 26,724,000 32,296,000
Deferred income taxes (Note 9) 936,000 567,000
Prepaid expenses and other current assets 1,239,000 1,948,000
-------------- --------------
Total Current Assets 70,146,000 84,078,000
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET (Note 3) 33,048,000 47,118,000
OTHER ASSETS 873,000 832,000
-------------- --------------
TOTAL ASSETS $104,067,0000 $132,028,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $14,362,000 $17,055,000
Accrued compensation 4,675,000 1,927,000
Accrued liabilities (Note 4) 10,075,000 11,627,000
-------------- --------------
Total Current Liabilities 29,112,000 30,609,000
OTHER LIABILITIES (Note 7) 9,126,000 13,556,000
DEFERRED INCOME TAXES, NET (Note 9) 687,000 3,023,000
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY
Common stock, par value $.01; authorized, 20,000,000
shares; issued and outstanding 15,665,053 shares (Note 10) 100,000 157,000
Additional paid-in capital 28,361,000 34,705,000
-------------- --------------
Retained earnings 36,681,000 49,978,000
-------------- --------------
Total Stockholders' Equity 65,142,000 84,840,000
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $104,067,000 $132,028,000
============== ==============
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-4
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
52 WEEKS ENDED 53 WEEKS ENDED
---------------------------------------- -----------------
DECEMBER 28, DECEMBER 27, JANUARY 1,
2002 2003 2005
------------------ ---------------- -----------------
NET SALES $ 200,315,000 $ 216,256,000 $ 247,300,000
COST OF SALES, INCLUDING BUYING
AND OCCUPANCY (Note 8) 116,490,000 120,731,000 135,745,000
--------------- -------------- -------------
GROSS PROFIT 83,825,000 95,525,000 111,555,000
EXPENSES
Store operating expenses 57,322,000 63,546,000 76,466,000
General and administrative expenses 12,190,000 14,074,000 14,221,000
--------------- -------------- -------------
TOTAL EXPENSES 69,512,000 77,620,000 90,687,000
--------------- -------------- -------------
OPERATING INCOME 14,313,000 17,905,000 20,868,000
--------------- -------------- -------------
OTHER INCOME (EXPENSE)
Interest income 260,000 259,000 439,000
Miscellaneous income (net) -- 14,000 20,000
--------------- ------------- ------------
TOTAL OTHER INCOME 260,000 273,000 459,000
--------------- -------------- -------------
INCOME BEFORE INCOME TAXES 14,573,000 18,178,000 21,327,000
INCOME TAX PROVISION (Note 9) 5,632,000 7,089,000 8,030,000
--------------- -------------- -------------
NET INCOME $ 8,941,000 $ 11,089,000 $ 13,297,000
=============== ============== =============
BASIC EARNINGS PER SHARE $0.66 $0.78 $0.85
=============== ============== =============
DILUTED EARNINGS PER SHARE $0.62 $0.75 $0.83
=============== ============== =============
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING 13,650,000 14,256,000 15,589,000
=============== ============== =============
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 14,448,000 14,721,000 16,004,000
=============== ============== =============
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-5
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------------- ----------- ----------- -----------
BALANCE DECEMBER 29, 2001 $91,000 $19,564,000 $16,651,000 $36,306,000
---------------------------------------
Net Income ---- ---- 8,941,000 8,941,000
Issuance of common stock ---- 45,000 ---- 45,000
-------- ----------- ----------- -----------
BALANCE DECEMBER 28, 2002 91,000 19,609,000 25,592,000 45,292,000
--------------------------------------- -------- ----------- ----------- -----------
Net Income ---- ---- 11,089,000 11,089,000
Tax benefit from stock option exercises ---- 2,933,000 ---- 2,933,000
Issuance of common stock 9,000 5,819,000 ---- 5,828,000
-------- ----------- ----------- -----------
BALANCE DECEMBER 27, 2003 100,000 28,361,000 36,681,000 65,142,000
--------------------------------------- -------- ----------- ----------- -----------
Net Income ---- ---- 13,297,000 13,297,000
Tax benefit from stock option exercises ---- 1,583,000 ---- 1,583,000
Issuance of common stock 5,000 4,813,000 ---- 4,818,000
Stock Split 52,000 (52,000) ---- ----
-------- ----------- ----------- -----------
BALANCE JANUARY 1, 2005 $157,000 $34,705,000 $49,978,000 $84,840,000
======== =========== =========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
F-6
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
52 WEEKS ENDED 53 WEEKS ENDED
---------------------------------- --------------
DECEMBER 28, DECEMBER 27, JANUARY 1,
2002 2003 2005
(RESTATED - (RESTATED -
NOTE 1) NOTE 1)
---------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $8,941,000 $11,089,000 $13,297,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,519,000 6,395,000 8,232,000
Income tax benefit from stock option exercises ---- 2,933,000 1,583,000
Decrease (increase) in deferred tax assets (24,000) 916,000 2,705,000
Reversal of deferred rent (672,000) (835,000) (1,221,000)
Change in assets and liabilities:
Decrease (increase) in receivables 1,641,000 (1,937,000) (1,931,000)
Decrease in notes receivable from related parties 50,000 321,000 ----
Increase in inventories (304,000) (4,659,000) (5,572,000)
Increase in prepaid expenses (308,000) (219,000) (709,000)
Increase in accounts payable 899,000 2,374,000 2,693,000
Increase in accrued liabilities
and accrued compensation 5,816,000 5,432,000 3,906,000
-------------- ------------- -----------------
Net cash provided by operating activities 21,558,000 21,810,000 22,983,000
-------------- ------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (21,184,000) (19,746,000) (25,874,000)
Maturities of marketable securities 6,792,000 14,392,000 19,746,000
Payments for equipment and leasehold improvements (9,033,000) (15,628,000) (21,753,000)
-------------- ------------- -----------------
Net cash used in investing activities (23,425,000) (20,982,000) (27,881,000)
-------------- ------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 45,000 5,828,000 4,818,000
Other, net 8,000 (56,000) 41,000
-------------- ------------- -----------------
Net cash provided by financing activities 53,000 5,772,000 4,859,000
-------------- ------------- -----------------
Net increase (decrease) in cash and equivalents (1,814,000) 6,600,000 (39,000)
Cash and equivalents, at beginning of period 12,101,000 10,287,000 16,887,000
-------------- ------------- -----------------
Cash and equivalents, at end of period $10,287,000 $16,887,000 $16,848,000
============== ============= =================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
F-7
CACHE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Cache, Inc. (together with its subsidiaries, the "Company") owns and
operates two chains of women's apparel specialty stores, of which 254 stores (as
of January 1, 2005) are operated under the trade name "Cache" and 37 stores are
operated under the trade name "Lillie Rubin". The Company specializes in the
sale of high fashion women's apparel and accessories in the better to expensive
price range.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany balances and transactions have been eliminated.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
appropriate application of certain accounting policies, many of which requires
us to make estimates and assumptions about future events and their impact on
amounts reported in our financial statements and related notes. Since future
events and their impact cannot be determined with certainty, the actual results
will inevitably differ from our estimates. Such differences could be material to
the financial statements.
FISCAL REPORTING PERIOD
The Company reports its annual results of operations based on fiscal
periods comprised of 52 or 53 weeks, which is in accordance with industry
practice. Results for fiscal 2004 includes 53 weeks. Results for fiscal 2002 and
2003 include 52 weeks.
RESTATEMENT OF FINANCIAL STATEMENTS
On February 7, 2005, the Office of the Chief Accountant of the SEC issued a
letter to the American Institute of Certified Public Accountants expressing its
views regarding certain operating lease accounting issues and their application
under generally accepted accounting principles ("GAAP") in the United States of
America. After reviewing this letter, Cache's management began a review of its
lease related accounting policies and determined that its then-current method of
accounting for leasehold improvements reimbursed by landlord incentives or
allowances under operating leases (landlord construction allowances) was not in
accordance with GAAP.
The Company had historically accounted for landlord construction allowance
reimbursements as reductions to leasehold improvements on the consolidated
balance sheets and capital expenditures in investing activities on the
consolidated statements of cash flows. Cache's management has determined that
the appropriate interpretation of FASB Technical Bulletin No. 88-1, "Issues
Relating to Accounting for Leases," requires these allowances to be recorded as
deferred rent liabilities on the consolidated balance sheets and as a component
of operating activities on the consolidated statements of cash flows.
F-8
As a result of the above, the Company has restated its consolidated balance
sheet as of December 27, 2003 and its consolidated statements of cash flows for
each of the 52 week periods ended December 28, 2002 and December 27, 2003.
As of January 1, 2005, the Company reclassified landlord construction
allowance reimbursements from net leasehold improvements to deferred rent to
conform with the requirements of SFAS No. 13, "ACCOUNTING FOR LEASES". There was
no effect on the Company's income statements. Leasehold improvements and total
assets increased for each year presented as a result of the reclassification and
was offset by an increase in deferred rent and total liabilities. The table
presented below summarizes the effect of the reclassification for the years
presented;
AS ORIGINALLY AS
REPORTED ADJUSTMENT RESTATED
-------------- --------------- ----------------
BALANCE SHEET AT DECEMBER 27, 2003
------------------------------------------------------------
Equipment and leasehold improvements, (net) $25,010,000 $8,038,000 $33,048,000
Total assets 96,029,000 8,038,000 104,067,000
Other liabilities 1,088,000 8,038,000 9,126,000
Total liabilities and stockholders' equity $96,029,000 $8,038,000 $104,067,000
=============== ============ ============
STATEMENT OF CASH FLOWS AT DECEMBER 28, 2002
------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Depreciation and amortization $4,963,000 $556,000 $5,519,000
Reversal of deferred rent (116,000) (556,000) (672,000)
Increase in accrued liabilities and
accrued compensation 4,125,000 1,691,000 5,816,000
Net cash provided by operating activities $19,867,000 $1,691,000 $21,558,000
=============== ============= ============
CASH FLOW FROM INVESTING ACTIVITIES:
Payments for equipment and
leasehold improvements ($7,342,000) ($1,691,000) ($9,033,000)
Net cash used in investing activities ($21,734,000) ($1,691,000) ($23,425,000)
=============== ============= ============
STATEMENT OF CASH FLOWS AT DECEMBER 27, 2003
CASH FLOWS FROM OPERATIONS ACTIVITIES:
Depreciation and amortization $5,570,000 $825,000 $6,395,000
Reversal of deferred rent (10,000) (825,000) (835,000)
Increase in accrued liabilities and
accrued compensation 1,751,000 3,681,000 5,432,000
Net cash provided by operating activities $18,129,000 $3,681,000 $21,810,000
============== ============ ============
CASH FLOW FROM INVESTING ACTIVITIES:
Payments for equipment and
leasehold improvements ($11,947,000) ($3,681,000) ($15,628,000)
Net cash used in investing activities ($17,301,000) ($3,681,000) ($20,982,000)
============== ============= =============
F-9
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable, accounts payable and accrued
liabilities approximate fair value due to the short-term nature of such items.
CASH EQUIVALENTS
The Company considers all highly liquid investments that mature within
three months of the date of purchase to be cash equivalents.
MARKETABLE SECURITIES:
Marketable securities at January 1, 2005 and December 27, 2003 primarily
consist of short-term United States Treasury bills. The Company classifies its
short-term investments as held-to-maturity. Held-to-maturity securities are
those securities in which the Company has the ability and intent to hold the
securities until maturity. Because the Company's held-to-maturity securities
mature within one year of the purchase date, the securities are classified as
short-term marketable securities. Held-to-maturity debt securities are recorded
at amortized cost, adjusted for the amortization or accretion of premiums or
discounts and such carrying values approximate fair value. A decline in the
market value of any held-to-maturity security below cost that is deemed to be
other than temporary results in a reduction in carrying amount to fair value.
The impairment is charged to earnings and a new cost basis for the security is
established. Premiums and discounts are amortized or accreted over the life of
the related held-to-maturity as an adjustment to yield using the effective
interest method. Interest income is recognized when earned.
INVENTORIES
Merchandise inventory is carried at the lower of cost or market using the
retail method of accounting. We make assumptions to adjust the value of
inventory based on historical experience and current information. This procedure
inherently reduces the carrying value of inventories as permanent markdowns are
initiated. These assumptions can have a significant impact on current and future
operating results and financial position.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the related assets which generally range from three to 10 years.
For income tax purposes, accelerated methods are generally used. Leasehold
improvements are amortized over the shorter of their useful life or lease term.
The Company adopted SFAS No. 144, "ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS", on December 30, 2001. The adoption of SFAS No.
144 did not affect the Company's financial statements. In accordance with SFAS
No. 144, long-lived assets, such as property, and equipment, and purchased
intangibles subject to amortization, are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Assets are grouped and evaluated at the lowest level for
which there are identifiable cash flows that are largely independent of the cash
flows of other groups of assets. The Company has identified this lowest level to
be principally individual stores. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to
F-10
be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value of an asset.
Assets to be disposed of would be separately presented in the balance sheet
and reported at the lower of the carrying amount or fair value less costs to
sell, and are no longer depreciated. The assets and liabilities of a disposed
group classified as held for sale would be presented separately in the
appropriate asset and liability sections of the balance sheet.
SELF INSURANCE
We are self-insured for losses and liabilities related primarily to
employee health and welfare claims. Losses are accrued based upon our estimates
of the aggregate liability for claims incurred using certain actuarial
assumptions followed in the insurance industry and based on Company experience.
GOODWILL
Goodwill represents the excess of costs over fair value of assets of
businesses acquired. The Company adopted the provisions of SFAS No. 142,
"GOODWILL AND OTHER INTANGIBLE ASSETS", as of January 1, 2002. Pursuant to
Statement 142, 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 Statement 142. Statement 142 also requires that intangible assets
with estimable useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 144.
Goodwill is tested annually for impairment, and is tested for impairment
more frequently if events and circumstances indicate that the asset might be
impaired. An impairment loss is recognized to the extent that the carrying
amount exceeds the asset's fair value. This determination is made at the
reporting unit level and consists of two steps. First, the Company determines
the fair value of a reporting unit and compares it to its carrying amount.
Second, if the carrying amount of a reporting unit exceeds its fair value, an
impairment loss is recognized for any excess of the carrying amount of the
reporting unit's goodwill over the implied fair value of that goodwill. The
implied fair value of goodwill is determined by allocating the fair value of the
reporting unit in a manner similar to a purchase price allocation, in accordance
with SFAS No. 141, "BUSINESS COMBINATIONS". The residual fair value after this
allocation is the implied fair value of the reporting unit goodwill.
REVENUE RECOGNITION
Sales are recognized at the "point of sale," which occurs when merchandise
is sold in an "over-the-counter" transaction or upon receipt by a customer.
Sales of merchandise via our website are recognized at the time of shipment to
the customer. Our customers have the right to return merchandise. Sales are
reported net of actual and estimated returns. We maintain a reserve for
potential product returns and record, as a reduction to sales, a provision for
estimated product returns, which is determined based on historical experience.
Amounts billed to customers for shipping and handling fees are included in
net sales at the time of shipment. Costs incurred for shipping and handling are
included in cost of sales.
F-11
OPERATING LEASES
The Company leases retail stores and office space under operating leases.
Most leases contain construction allowance reimbursements by landlords, rent
holidays, rent escalation clauses and/or contingent rent provisions. The Company
recognizes the related rental expense on a straight-line basis over the lease
term and records the difference between the amounts charged to expense and the
rent paid as a deferred rent liability.
To account for construction allowance reimbursements from landlords and
rent holidays, the Company records a deferred rent liability included in accrued
liabilities and other long-term liabilities on the consolidated balance sheets
and amortizes the deferred rent over the lease term, as a reduction to rent
expense on the consolidated income statements. For leases containing rent
escalation clauses, the Company records minimum rent expense on a straight-line
basis over the lease term on the consolidated income statement. The lease term
used for lease evaluation includes option periods only in instances in which the
exercise of the option period can be reasonably assured and failure to exercise
such options would result in an economic penalty.
ADVERTISING COSTS
Costs associated with advertising are charged to store operating expense
when the advertising first takes place. We spent $4,375,000, $5,610,000 and
$7,373,000 on advertising in fiscal 2002, 2003 and 2004, respectively.
PRE-OPENING STORE EXPENSES
Expenses associated with the opening of new stores are expensed as
incurred.
EMPLOYEE BENEFIT PLAN
Employees are eligible to participate in the Company's 401(k) plan if they
have been employed by the Company for one year, have reached age 21, and work at
least 1,000 hours annually. Generally, employees can defer up to 18% of their
gross wages up to the maximum limit allowable under the Internal Revenue Code.
We can make a discretionary matching contribution for the employee. Employer
contributions to the plan for fiscal 2002, fiscal 2003 and fiscal 2004 were
$190,000, $195,000, and $205,000, respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"ACCOUNTING FOR INCOME TAXES." This statement requires the Company to recognize
deferred tax liabilities and assets for the expected future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement carrying amounts and tax
bases of assets and liabilities, using applicable tax rates for the years in
which the differences are expected to reverse.
STOCK OPTION PLANS
As permitted by SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION",
the Company has elected to continue to apply the intrinsic-value-based method of
accounting and has adopted the disclosure requirements of Statement 123, as
amended. Under this method, compensation expense is
F-12
recorded on the date of grant only if the current market price of the underlying
stock exceeded the exercise price. SFAS No. 123, and SFAS No. 148, "ACCOUNTING
FOR STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE, AN AMENDMENT OF FASB
STATEMENT NO. 123", established accounting and disclosure requirements using a
fair-value-based method of accounting for stock-based employee compensation
plans.
EARNINGS PER SHARE
Basic earnings per share (EPS) is computed as net earnings divided by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur from common shares issued
through the exercise of outstanding dilutive stock options.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No. 123R, "SHARE-BASED PAYMENT,"
which revises SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION," and
supersedes APB Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES." This
Statement focuses primarily on accounting for transactions in which an entity
obtains employee services in share-based payment transactions. This Statement
requires an entity to recognize the cost of employee services received in
share-based payment transactions and measure the cost on a grant-date fair value
of the award. That cost will be recognized over the period during which an
employee is required to provide service in exchange for the award. The
provisions of SFAS No. 123R will be effective for the Company's financial
statements issued for periods beginning after June 15, 2005.
In December 2003, the FASB issued FASB Interpretation No. 46R,
"CONSOLIDATION OF VARIABLE INTEREST ENTITIES" ("FIN 46R"), which addresses how a
business enterprise should evaluate whether it has a controlling financial
interest in an entity through means other than voting rights and accordingly
should consolidate the entity. The adoption of FIN46R did not have any impact on
our financial position and results of operations.
In March 2004, the Emerging Issues Task Force ("EITF") reached a consensus
on Issue No. 03-1, "THE MEANING OF OTHER-THAN-TEMPORARY IMPAIRMENTS AND ITS
APPLICATION TO CERTAIN INVESTMENTS" ("EITF 03-1"). EITF 03-1 provides a
three-step impairment model for determining whether an investment is
other-than-temporarily impaired and requires the Company to recognize such
impairments as an impairment loss equal to the difference between the
investment's cost and fair value at the reporting date. The guidance is
effective for the Company during the first quarter of fiscal 2005. The Company
does not believe that the adoption of EITF 03-1 will have a significant effect
on its financial statements.
SUPPLEMENTAL STATEMENTS OF CASH FLOW INFORMATION
The Company paid no interest charges in fiscal 2002, 2003 and 2004. During
fiscal 2002, 2003 and 2004 the Company paid $5,160,000, $4,071,000 and
$4,143,000 in income taxes, respectively. The Company also generated income tax
benefits of $2,933,000 and $1,583,000 from stock option exercises in fiscal 2003
and 2004.
F-13
NOTE 2. RECEIVABLES
DECEMBER 27, JANUARY 1,
2003 2005
-------------- ----------------
Construction allowances $ 1,850,000 $ 3,270,000
Third party credit card 2,368,000 2,885,000
Other 396,000 390,000
-------------- ----------------
$ 4,614,000 $ 6,545,000
============== ================
NOTE 3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
DECEMBER 27, JANUARY 1,
2003 2005
(RESTATED-NOTE 1)
----------------- ------------
Leasehold improvements $ 34,105,000 $ 45,349,000
Furniture, fixtures, and equipment 36,644,000 45,049,000
------------- ------------
70,749,000 90,398,000
Less: accumulated depreciation and
amortization (37,701,000) (43,280,000)
------------- ------------
$ 33,048,000 $ 47,118,000
============= ============
Store operating and general and administrative expenses include
depreciation and amortization of $5,519,000, $6,395,000 and $8,232,000 in fiscal
years 2002, 2003 and 2004, respectively.
NOTE 4. ACCRUED LIABILITIES
DECEMBER 27, JANUARY 1,
2003 2005
---------------- ------------
Operating expenses $ 2,631,000 $ 3,315,000
Taxes, including income taxes 2,426,000 2,185,000
Group insurance 696,000 509,000
Sales return reserve 812,000 832,000
Leasehold additions 379,000 928,000
Other customer deposits and credits 3,131,000 3,858,000
----------- -----------
$10,075,000 $11,627,000
=========== ===========
Leasehold additions generally represent a liability to general contractors
for a final 10% payable on construction contracts for store construction or
renovations.
F-14
NOTE 5. BANK DEBT
During May 2004, the Company reached an agreement with its bank to amend
the amount available under the Amended Revolving Credit Facility. Pursuant to
the newly Amended Revolving Credit Facility, $17,500,000 is available until
expiration at November 30, 2005. The amounts outstanding thereunder bear
interest at a maximum per annum rate equal to the bank's prime rate. The
agreement contains selected financial and other covenants. Effective upon the
occurrence of an Event of Default under the Revolving Credit Facility, the
Company grants to the bank a security interest in the Company's inventory and
certain receivables. The Company has at all times been in compliance with all
loan covenants.
There have been no borrowings against the line of credit during fiscal 2003
and 2004. There were outstanding letters of credit of $2.1 million and $3.1
million pursuant to the Revolving Credit Facility at December 27, 2003 and
January 1, 2005, respectively.
NOTE 6. INDEBTEDNESS TO/FROM RELATED PARTIES
As of December 28, 2002, the Company had notes receivable totaling $321,000
from one current executive officer and one former executive officer of the
Company. The receivables, which were due on demand, were evidenced by secured
promissory notes, which bore interest at rates of 6% and 9% per annum. These
notes were repaid in July 2003.
NOTE 7. OTHER LIABILITIES
Other liabilities primarily consist of accruals of future rent escalations
and unamortized landlord construction allowances.
NOTE 8. COMMITMENTS AND CONTINGENCIES
LEASES
At January 1, 2005, the Company was obligated under operating leases for
various store locations expiring at various times through 2019. The terms of the
leases generally provide for the payment of minimum annual rentals, contingent
rentals based on a percentage of sales in excess of a stipulated amount, and a
portion of real estate taxes, insurance and common area maintenance. Most leases
contain leasehold improvement reimbursements from landlords and/or rent
holidays. In recognizing landlord incentives and minimum rent expenses, the
Company amortizes the charges on a straight line basis over the lease term.
Store rental expense related to these leases, included in cost of sales,
consisted of the following:
52 WEEKS ENDED 53 WEEKS ENDED
------------------------------ --------------
DECEMBER 28, DECEMBER 27, JANUARY 1,
2002 2003 2005
------------ ------------ ------------
Minimal rentals $ 17,611,000 $ 19,058,000 $ 21,410,000
Contingent rentals 7,555,000 8,258,000 9,176,000
------------ ------------ ------------
$ 25,166,000 $ 27,316,000 $ 30,586,000
============ ============ ============
F-15
Future minimum payments under non-cancelable operating leases consisted of
the following at January 1, 2005:
Fiscal Year
2005 $ 23,745,000
2006 21,642,000
2007 20,152,000
2008 19,145,000
2009 18,600,000
Thereafter 63,294,000
------------
Total future minimum lease payments $166,578,000
============
CONTINGENCIES
The Company is exposed to a number of asserted and unasserted potential
claims. Management does not believe it is reasonably possible that resolution of
these matters will result in a material loss.
NOTE 9. INCOME TAXES
The provision for income taxes includes:
52 WEEKS ENDED 53 WEEKS ENDED
---------------------------- --------------
DECEMBER 28, DECEMBER 27, JANUARY 1,
2002 2003 2005
------------ ------------ --------------
Current:
Federal $4,841,000 $5,105,000 $4,628,000
State 1,023,000 1,067,000 736,000
---------- ------------ ----------
5,864,000 6,172,000 5,364,000
---------- ------------ ----------
Deferred:
Federal (205,000) 1,110,000 2,189,000
State (27,000) (193,000) 477,000
---------- ------------ ----------
(232,000) 917,000 2,666,000
---------- ------------ ----------
Provision for income taxes $5,632,000 $7,089,000 $8,030,000
========== ============ ==========
F-16
The Company's effective tax rate, as a percent of income before income
taxes differs from the statutory federal tax rates as follows:
52 WEEKS ENDED 53 WEEKS ENDED
----------------------------------- --------------
DECEMBER 28, DECEMBER 27, JANUARY 1,
2002 2003 2005
------------- ------------ --------------
Effective federal tax rate 34.3% 34.5% 34.5%
State and local income taxes,
net of federal tax benefit 4.5% 4.7% 4.6%
Reversal of state and local
income tax overaccural --- --- (1.3%)
Other net, primarily tax free (0.2%) (0.2%) (0.1%)
-------------- ------------- ---------------
Provision for income taxes 38.6% 39.0% 37.7%
============== ============= ===============
The major components of the Company's net deferred tax assets (liabilities)
at December 27, 2003 and January 1, 2005 are as follows:
DECEMBER 27, JANUARY 1,
2003 2005
--------------- --------------
State tax net operating loss carryforwards $ 89,000 $ 76,000
Deferred rent 543,000 590,000
Group insurance 275,000 199,000
Sales return reserve 321,000 325,000
Inventory 356,000 407,000
Prepaid expenses ---- (364,000)
Other (principally depreciation expense) (1,335,000) (3,690,000)
----------- -------------
$ 249,000 $ (2,457,000)
=========== =============
NOTE 10. INCENTIVE STOCK OPTION PLAN
On July 22, 2003, the Company adopted the 2003 Stock Option Plan. The plan
is administered by the Compensation and Plan Administration Committee of the
Company's Board of Directors. Under the option plan the Company reserved 900,000
shares of the Company's authorized common stock for issuance to officers and key
employees of the Company.
On October 4, 2000, the Company adopted the 2000 Stock Option Plan. The
plan is administered by the Compensation and Plan Administration Committee of
the Company's Board of Directors. Under the option plan the Company reserved
550,000 shares of the Company's authorized common stock for issuance to officers
and key employees of the Company.
On December 16, 1994, the Company adopted the 1994 Stock Option Plan. Under
the option plan the Company reserved 600,000 shares of the Company's authorized
common stock for issuance to officers and key employees of the Company.
Options granted under the plans have a ten-year term and may be either
incentive stock options or non-qualified stock options. The options are granted
at an exercise price equal to the fair market value on the date of grant and
generally vest over a four year period. The granted options generally become
F-17
exercisable at the maximum rate of 25% per annum, to the extent the Company's
earning plan, as approved by the Compensation and Plan Administration Committee,
is achieved. The price is payable in cash at the time of the exercise or, at the
discretion of the Administrators, through the delivery of shares of Common Stock
or the Company's withholding of shares otherwise deliverable to the employee, or
a combination thereof.
The following table summarizes all stock option transactions for the three
fiscal years ended January 1, 2005:
WEIGHTED AVERAGE EXERCISE
SHARES PRICES
---------------- ----------
Shares under option as of December 29, 2001 1,558,641 $1.96
Options granted in 2002 279,000 4.54
Options exercised in 2002 (13,218) 1.73
Options canceled in 2002 (114,048) 1.73
----------------
Shares under option as of December 28, 2002 1,710,375 2.40
Options granted in 2003 1,222,500 12.44
Options exercised in 2003 (871,500) 2.09
Options canceled in 2003 (39,375) 3.30
----------------
Shares under option as of December 27, 2003 2,022,000 8.46
Options granted in 2004 105,000 15.17
Options exercised in 2004 (392,750) 2.36
Options canceled in 2004 (82,500) 9.67
----------------
Shares under options as of January 1, 2005 1,651,750 $10.43
================
Significant option groups outstanding at January 1, 2005 and related
weighted average price and life information follows:
OPTIONS OPTIONS EXERCISE REMAINING
GRANT DATE OUTSTANDING EXERCISABLE PRICE LIFE (YEARS)
----------------- ------------- -------------- ----------- -------------
1/22/04 105,000 26,250 $15.17 9
7/22/03 1,127,250 294,750 12.65 8
5/23/03 28,125 9,375 5.83 8
5/13/02 18,750 9,375 7.47 7
4/16/02 121,500 121,500 4.69 7
3/11/02 8,125 8,125 3.30 7
10/2/01 130,500 130,500 2.13 7
10/4/00 112,500 112,500 1.73 6
F-18
The Company accounts for stock options in accordance with the intrinsic
value method described in APB Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES" and allowed by SFAS No. 123, "ACCOUNTING FOR STOCK BASED
COMPENSATION" under which no compensation cost has been recognized for stock
option awards granted at fair market value. Had compensation expense been
determined based on the fair value at the grant dates for awards under the
plans, the Company's net earnings, basic EPS and diluted EPS would have been
reduced to the pro forma amounts listed below:
52 WEEKS ENDED 53 WEEKS ENDED
------------------------------ -----------------
DECEMBER 28, DECEMBER 27, JANUARY 1,
2002 2003 2005
------------ ----------- ----------------
--as reported $ 8,941,000 $11,089,000 $ 13,297,000
--pro-forma $ 7,857,000 $10,377,000 $ 12,211,000
--as reported $ 0.65 $ 0.78 $ .85
--pro-forma $ 0.57 $ 0.73 $ .78
--as reported $ 0.62 $ 0.75 $ .83
--pro-forma $ 0.55 $ 0.71 $ .76
The weighted average fair value of options granted during fiscal years
ended December 28, 2002, December 27, 2003 and January 1, 2005 were $4.54,
$12.44 and $15.17, respectively. The fair value of each option grant was
estimated on the date of the grant using the Black-Scholes option pricing method
with the following weighted average assumptions:
2002 2003 2004
GRANTS GRANTS GRANTS
----------------------------------------------
Expected dividend rate $ 0.00 $ 0.00 $ 0.00
Expected volatility 70.3% 98.9% 97.8%
Risk free interest rate 3.0% 3.0% 3.8%
Expected lives (years) 5.0 5.0 5.0
F-19
NOTE 11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ---------- -----------
52 WEEKS ENDED DECEMBER 27, 2003
Net sales $48,098 $56,193 $47,343 $64,622
Gross profit 20,037 24,914 20,222 30,352
Income before income tax provision 2,657 5,735 998 8,788
Income tax provision 1,016 2,194 384 3,495
--------- --------- -------- --------
Net income $1,641 $3,541 $614 $5,293
========= ========= ======== ========
Basic and diluted earnings per share:
Basic earnings per share: $0.12 $0.26 $0.04 $0.35
========= ========= ======== ========
Diluted earnings per share: $0.11 $0.25 $0.04 $0.34
========= ========= ======== ========
53 WEEKS ENDED JANUARY 1, 2005
Net sales $57,194 $62,087 $49,430 $78,589
Gross profit 25,688 29,149 19,596 37,122
Income loss before income tax provision 5,246 7,229 (854) 9,706
Income tax provision benefit 1,997 2,868 (333) 3,498
--------- --------- -------- --------
Net income loss $3,249 $4,361 ($521) $6,208
========= ========= ======== ========
Basic and diluted earnings loss per share:
Basic earnings loss per share: $0.21 $0.28 ($0.03) $0.40
========= ========= ======== ========
Diluted earnings loss per share: $0.20 $0.27 ($0.03) $0.39
========= ========= ======== ========
F-20
The effect of the restatement on the first three quarters of the year ended
January 1, 2005 is summarized as follows:
First Second Third
Quarter Quarter Quarter
BALANCE SHEET
--------------------------------------------------------------------------------------------------------------------
Equipment and leasehold improvements, (net) - as reported $26,984,000 $29,310,000 $32,466,000
Equipment and leasehold improvements, (net) - as restated $35,307,000 $39,589,000 $43,378,000
Other liabilities - as reported $1,129,000 $1,163,000 $1,230,000
Other liabilities - as restated $9,452,000 $11,442,000 $12,142,000
STATEMENT OF CASH FLOWS
Cash flows from operating activities - as reported $2,037,000 $5,876,000 $6,935,000
Cash flows from operating activities - as restated $2,578,000 $8,642,000 $10,707,000
Cash provided by (used in) investing activities - as reported $2,962,000 ($6,087,000) ($15,692,000)
Cash provided by (used in) investing activities - as restated $2,421,000 ($8,853,000) ($19,464,000)
F-21
CACHE, INC AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
----------------------------
BALANCE AT CHARGE TO BALANCE AT
BEG. OF COSTS AND OTHER DEDUCTIONS END OF
SALES RETURN RESERVE PERIOD EXPENSES ACCOUNTS $ PERIOD
-------------------------------- ------------ ----------- ----------- ----------- ------------
52 Weeks Ended
December 28, 2002 $555,000 $191,000 -- -- $746,000
52 Weeks Ended
December 27, 2003 $746,000 $66,000 -- -- $812,000
53 Weeks Ended
January 1, 2005 $812,000 $20,000 -- -- $832,000
F-22