SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X Annual Report pursuant to Section 13 or 15 (d) of the Securities
- ------ Exchange Act of 1934 (No fee required)
For the fiscal year ended December 27, 1997
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
1460 Broadway, New York, New York 10036
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 575-3200
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
----- -----
As of February 28, 1998, the aggregate market value of the voting stock held
by non-affiliates of the registrant (based on the closing price in the NASDAQ
National Market) was approximately $8.6 million.
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 [x].
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
As of February 28, 1998, 9,091,338 common shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information included in the Registrant's Proxy Statement to be filed
in connection with its 1998 Annual Meeting of Stockholders has been
incorporated by reference into Part III (Items 10, 11, 12, and 13) of this
report on Form 10-K.
<PAGE>
CACHE, INC.
FORM 10-K ANNUAL REPORT
DECEMBER 27, 1997
TABLE OF CONTENTS
Page
PART I
------
Item 1. Business.............................................. 1
Item 2. Properties............................................ 8
Item 3. Legal Proceedings..................................... 8
Item 4. Submission of Matters to a Vote of Security
Holders............................................... 10
PART II
-------
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters........................... 10
Item 6. Selected Financial Data............................... 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 13
Item 8. Financial Statements and Supplementary Data........... 18
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................ 18
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.... 19
Item 11. Executive Compensation................................ 19
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................ 19
Item 13. Certain Relationships and Related Transactions........ 19
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K........................................... 20
<PAGE>
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, including, without limitation, the effect of economic and
market conditions and competition, the ability to open new stores and expand
into new markets, and risks relating to foreign importing operations, which
would cause actual results to differ materially.
GENERAL
- -------
Cache, Inc. (the "Company") owns and operates 169 women's apparel
specialty stores (as of February 28, 1998), all of which are operated under
the trade name "Cache". The Company specializes in the sale of high fashion
women's apparel and accessories in the better to expensive price range
focusing on social occasion dressing from informal get-togethers to formal
black-tie affairs.
The Company's stores currently operate in 36 states, as well as in
Puerto Rico and the District of Columbia. Stores are concentrated in large
metropolitan and suburban areas and are located in the finest shopping malls
in the country. The typical store averages 2,000 square feet and sells
better sportswear, evening wear and upscale accessories.
The Company was incorporated in the state of Florida on April 25, 1975.
The Company's principal executive offices are located at 1460 Broadway, New
York, New York 10036 and its telephone number is (212) 575-3200.
MERCHANDISING
- -------------
Cache's merchandise is classified under three major categories:
sportswear, dresses and accessories. The sportswear classification is the
largest segment of merchandise. It encompasses casual wear, collections and
separates. Average sportswear price points range from $50 to $350. The
dress category includes both evening suits and selections available primarily
for after five and social occasion dressing. The dress category also
includes, to a lesser degree, day dress classifications. Average price
points of Cache's dresses range from $150 to approximately $450. Cache
accessories focus on key classifications including jewelry, belts, hats and
handbags. The average price points on accessories range from $60 to $150.
Gross margins do not vary significantly between the three major merchandise
categories. Sales by category, (as a percent of total sales), have not
varied significantly over the past several years. Fully allocated gross
income percentages by classification have not varied significantly by year.
1
<PAGE>
The following table sets forth the percentage of net sales by
merchandise classification;
Fiscal Fiscal Fiscal
Merchandise Classification 1997 1996 1995
- -------------------------- ------ ------ ------
Sportswear 53.0% 54.0% 57.1%
Dresses 38.4% 37.5% 34.2%
Accessories 8.6% 8.5% 8.7%
------ ------ ------
100.0% 100.0% 100.0%
====== ====== ======
Cache's buyers work closely with the designers, merchandisers, and
stylists in the apparel market, to develop and create new and exciting
products. Cache's buying department generally places an order with a vendor
for a specific number of articles based on historical records and its
impressions of how well the articles will be received by Cache customers.
After the order is written, the planning department distributes the
merchandise based on historical data, sales patterns, store size, location,
demographics and seasonality. Internally, the Company groups its stores
based primarily on annual sales volumes and geographic location in order to
distribute merchandise. The Company also utilizes a basic core resource
structure where core merchandise is sold by all stores, while more discrete
purchases are made from select vendors and placed in different stores so as
to enable the Company to provide diverse merchandise choices at different
locations.
Inventory levels and styles are evaluated weekly to determine any slow-
moving merchandise. In general, Cache permanently marks items down as a
result of change in customer preference, seasonality and if inventory levels
exceed customer demand. Generally, the Company does not offer timed
promotional sales.
During Fiscal 1997, the Company purchased merchandise from more than 500
suppliers located in North America, Europe and Asia, as compared to
approximately 500 such suppliers in 1996.
In Fiscal 1997, the Company purchased approximately 99% of the
merchandise sold from domestic vendors and approximately 1% from foreign
vendors. At the present time, the Company does not anticipate it will
purchase in 1998 more than 10% of the merchandise from foreign vendors. The
Company's importing operations are subject to the contingencies generally
associated with foreign operations, including fluctuations in currency
values, customs duty increases and quota limitations. These importing
contingencies have not had nor are expected to have a material impact on the
Company's operating results.
MERCHANDISE DISTRIBUTION
- ------------------------
The Company utilizes the "Drop Ship" method to distribute merchandise
directly from vendors to the stores. Under the Drop Ship method of
distribution, the Company's suppliers are provided distribution directions,
as well as packing lists, and are required to prepare and pack the
merchandise for shipment via commercial carriers to the Company's stores.
Drop Ship decreases the Company's distribution expenses and reduces the time
required to deliver merchandise to its stores.
2
<PAGE>
The Company utilizes a contract warehouse in New Jersey to serve as a
staging area for new store fixtures and inventories. The Company distributes
most imported merchandise directly from overseas vendors to the Company's
stores, via common carriers.
STORE LOCATION AND EXPANSION
- ----------------------------
As of February 28, 1998, the Company operated 169 stores located in 36
states, as well as Puerto Rico and the District of Columbia. The following
table sets forth the stores that were open as of such date and the states in
which such stores are located.
Alabama 2 Maryland 3 Oklahoma 2
Arizona 3 Massachusetts 6 Oregon 2
California 18 Michigan 4 Pennsylvania 7
Colorado 1 Minnesota 1 Rhode Island 1
Connecticut 3 Mississippi 1 South Carolina 3
Florida 24 Missouri 1 Tennessee 5
Georgia 4 Nebraska 1 Texas 14
Hawaii 1 Nevada 4 Virginia 5
Illinois 5 New Jersey 11 Washington 2
Indiana 1 New Mexico 1 Wisconsin 1
Kansas 2 New York 10 Washington, D.C. 1
Kentucky 2 North Carolina 4 Puerto Rico 1
Louisiana 4 Ohio 8
The Company opened 8 new Cache stores in 1997. Included in the 1997
store openings are first time store openings in Mobile, AL; Chattanooga, TN;
and Charleston, SC. The Company expects to open approximately 5 to 10 Cache
stores during 1998. The Company continually reviews locations for possible
new stores. Store locations are selected on the basis of several factors,
including selection of a dominant fashion mall or malls within a specific
geographic area, demographics, principal and "anchor" stores in the mall,
location of the store within the mall, the types of other specialty stores
located in the mall and terms of the lease. The following table presents
information reflecting store openings and closings over the last five years:
Stores Stores Stores Stores
Open at Opened Closed Open at
begin. of during during end of Total
Fiscal Fiscal Fiscal Fiscal Fiscal square
year year year year year footage
------ --------- ------ ------ ------- -------
1993 93 18 - 111 227,000
1994 111 22 3 130 270,000
1995 130 24 2 152 316,000
1996 152 14 5 161 334,000
1997 161 8 - 169 351,000
3
<PAGE>
During 1997, the Company remodeled three stores. The Company expects
to continue remodeling selected stores during 1998. Most store remodels
take from four to six weeks to complete, but rarely require closing the
store. Cache spent approximately $715,000 in Fiscal 1997 to remodel three
stores. The Company spent $638,000 (4 stores) and $890,000 (4 stores) on
remodeling, in Fiscal 1996 and 1995, respectively. The Company closed no
stores in 1997. The Company closed five stores in Fiscal 1996, and two
stores in Fiscal 1995. None of the store closings had a material effect on
the Company's financial statements.
Cache currently has 351,000 square feet of store space as of February
28, 1998 including 17,000 square feet of store space added during Fiscal
1997. The Company also added 14,000 and 50,000 square feet of store space
in Fiscal 1996 and 1995, respectively. During Fiscal 1998, the Company
expects to open approximately 5 to 10 new stores, which would add
approximately 20,000 square feet of store space, bringing total store
square footage to approximately 375,000 square feet. See "Management's
Discussion and Analysis - Liquidity and Capital Resources" for a discussion
of the restrictions on capital expenditures in the Company's Revolving
Credit Agreement.
Stores generally range in size from approximately 1,300 to 3,900
square feet, with the typical store averaging approximately 2,000 square
feet. The typical store front is 20 to 30 feet in width. Store hours are
generally determined by the mall in which the store is located. Most
stores are open seven days and six nights a week, except major holidays.
As is customary in the industry, when the Company leases space in a
newly constructed urban, regional or specialty shopping mall, it leases the
bare space. The Company then contracts with an architect to design a Cache
store to fit the specifications of the leased space and selects a
contractor to do the actual construction. It generally takes four to six
weeks to complete construction, after all permits and drawings have been
approved. In most cases, the Company receives from the lessor a
construction allowance to help defray a portion of the costs of
improvements to the leased space. Rental terms usually include a fixed
minimum rent plus a percentage rent based on sales in excess of a specified
amount. In addition, there is generally a charge incurred for one or more
of the following: common area maintenance, utility consumption, promotional
activities and/or advertising, insurance and real estate taxes.
4
<PAGE>
STORE OPERATIONS
- ----------------
Control over store operations is the responsibility of the Executive
Vice President of Store Operations, who is assisted by three Regional
Managers and sixteen District Managers. A typical store is staffed by a
manager, co-manager, an assistant manager and a number of full and part-
time sales personnel. Special emphasis is placed on the recruitment of
fashion-conscious and career-oriented sales personnel. The Company trains
the majority of new store managers in designated training stores. The
Company trains most new store sales personnel on the job, stressing the
Cache concept of fashion and responsiveness to customer needs. Cache store
personnel are provided centralized guidance on merchandising presentation
including regular updates on fashion trends in the coming seasons.
Cache store managers and co-managers are compensated in the form of
salaries and performance based bonuses. Sales associates and assistant
managers are paid on an hourly basis plus performance incentives. From
time to time, the Company offers additional incentives to both management
and sales associates for enhanced sales. Those incentives generally are in
the form of sales contests, which occur over a specific time period with
regular motivational progress reports distributed to all stores.
Cache targets specific hourly sales performance from its sales team,
the store manager, the co-managers, assistant managers and sales
associates. Assisted by its preferred customer tracking system, Cache
encourages store personnel to identify and maintain contact with customers,
with the objective of converting infrequent shoppers into loyal clients.
Customer service is one of the most important responsibilities of
Cache employees. Cache sales associates are encouraged to inform regular
customers of new articles which may be of interest to them and provide
customers with assistance in coordinating wardrobe selections. Cache also
allows a customer the ability to special order for overnight delivery at
her home any merchandise available in its chain through its automated
special order system. Cache also offers a liberal return policy, which it
believes is comparable to those offered by better department stores and
other specialty retail stores. The Company encourages store management to
become involved in community affairs and to make contacts outside the work
place to develop potential customers. Stores are encouraged to participate
in local charity fashion shows to enhance name recognition and meet
potential customers. Select Cache stores host trunk shows several times
each year to present certain merchandise to customers.
5
<PAGE>
INFORMATION SYSTEMS
- -------------------
The Company invests in technology for the future through both hardware
and software investments. The Company's point of sale store computer
systems (the "POS System") offer a fully integrated device with customized
software designed to help the Company maximize its business. The POS
System enables cash register/terminals located in each store the ability to
communicate with the host computer at the corporate office in New York.
The software includes a preferred customer tracking system, which allows
sales associates and store management to review customer purchases and also
to maintain customer contact with the objective of making an infrequent
shopper a regular customer. The system has been modified and customized to
allow Cache the ability to market particular sales events to those
customers who would most likely be interested in the special event.
The Company has a special order system which is designed to permit
Cache to provide maximum customer services and, at the same time, minimize
its inventory investment. The system tracks the availability of
merchandise throughout the chain including information on choice of colors
available.
The Company's POS System also provides many administrative functions
including payroll, merchandise receipt and store merchandise transfers as
well as featuring a complete price look-up function.
Cache's Home Office systems are also designed to maximize efficiency.
Particular emphasis has been placed on the development of support systems
to enhance the Company's return on its merchandise inventory. These
systems include automated tracking of fast selling merchandise, stock
replenishment based upon store inventory turn and sales statistics, a
merchandise test tracking system which allows buyers to review quickly,
even on a daily basis, customers' response to merchandise purchased on a
test basis for possible reorder, automated transfer analysis and a complete
gross margin analysis by merchandise vendor, as well as gross margin
department analysis systems.
ADVERTISING AND PROMOTION
- -------------------------
Cache's primary advertising tools are advertisements in print media,
including Vogue, a national high fashion magazine. The Company spent
$416,000,$418,000 and $568,000 on advertising in Fiscal 1997, 1996 and
1995, respectively.
6
<PAGE>
EMPLOYEE RELATIONS
- ------------------
As of February 28, 1998, the Company had approximately 1,300
employees, of whom 740 were full-time employees and 560 were part-time
employees. None of these employees are represented by a labor union. The
company considers its employee relations to be satisfactory.
COMPETITION
- -----------
The sale of women's apparel is a highly competitive business. The
Company competes with department stores and other retailers of women's
apparel in proximity to the Company's stores. The Company's approach to
retailing has been to concentrate on securing prime locations and to cater
to the high end of the women's fashion market through innovative and
distinctive design of its physical facilities, the purchasing of high-
quality and well-coordinated inventory and the rendering of personalized
service to the customer. Merchandise is sold for cash, check or by
international credit card.
TRADEMARKS AND SERVICE MARKS
- ----------------------------
The Company is the owner in the United States of the trademark and
service mark "Cache". 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. The
Company's rights in the "Cache" mark are a significant part of the
Company's business. Accordingly, the Company intends to maintain its mark
and the related registration. The Company is not aware of any material
claims of infringement or other challenges to the Company's right to use
its mark in the United States.
7
<PAGE>
ITEM 2. PROPERTIES
All but 2 of Cache's 169 stores are located in shopping malls.
Existing stores contain from approximately 1,300 to 3,900 square feet, with
the typical store averaging 2,000 square feet. The Company conducts all of
its retail operations in leased facilities. Rental terms usually include
a fixed minimum rent plus a percentage rent based on sales in excess of a
specified amount. In addition, there is generally a charge incurred for
one or more of the following: common area maintenance, utility consumption,
promotional activities and/or advertising, insurance and real estate taxes.
The leases expire at various dates through 2009. The Company renegotiated
lease terms on eight stores in 1997, three leases of which were due to
expire in 1998. The Company has several leases which contain fixed
escalation clauses which are reflected in the financial statements over the
life of each lease.
For further information with respect to leased facilities, see Item 1,
"Stores", Note 8 of the Notes to Consolidated Financial Statements and the
tables below.
The following table shows the number of leases for stores in operation
as of February 28, 1998, which expire during the periods indicated.
Number of
Leases
Fiscal Years Ending Expiring
------------------- ---------
Present - 2000..... 16
2001 - 2003........ 56
2004 - 2006........ 80
2007 - 2009........ 17
---------
169
=========
The Company's corporate office is an 11,900 square foot facility
located at 1460 Broadway in New York City pursuant to a ten-year lease
which expires in 2003.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various lawsuits arising in the ordinary
course of its business. In management's opinion, the ultimate disposition
of these matters will not have a material adverse effect on the liquidity
or operating results of the Company.
8
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
- ---------------------------------
The Company's executive officers are as follows:
Name Age Position
---- --- --------
Andrew Saul 51 Chairman of the Board and Director
Roy Smith 59 Executive Vice President/
Director of Store Operations and Director
Thomas Reinckens 44 Executive Vice President/Chief Financial
Officer and Director
Mae Soo Hoo 43 Executive Vice President/General
Merchandise Manager and Director
Barry Schwartz 51 Vice President/
Regional Sales Manager
The Company's executive officers hold office until the first meeting
of the Board of Directors following the next annual election of directors
and until their respective successors are duly elected and qualified.
Andrew Saul became Chairman of the Board of Directors of the Company
on February 27, 1993. He has been a partner of Saul Partners, an investment
partnership, since 1986. He is the son of Joseph E. Saul, who is also a
director of the Company.
Roy Smith joined the Company on December 30, 1986 as Vice
President/Director of Store Operations and was appointed Executive Vice
President in October 1990. He was appointed to the Board of Directors on
February 27, 1993.
Thomas Reinckens joined the Company in February 1987 as Controller,
and was appointed Vice President/Chief Financial Officer on November 30,
1989. He was appointed to the Board of Directors on February 27, 1993.
Mr. Reinckens was appointed Executive Vice President on September 13, 1995.
Mae Soo Hoo joined the Company in February 1987 as a Vice President of
Merchandising. She was also appointed to the Board of Directors on
September 13, 1995 and was appointed Executive Vice President/General
Merchandise Manager on that date.
Barry Schwartz joined the Company in March 1997, as a Vice President
of Sales Operations and as Regional Sales Manager; from July 1992 to
October 1994, Mr., Schwartz was President of Guess Inc.'s, outlet division
and from February 1995 to February 1997, he was President of Chorus Line
Inc.'s retail division.
9
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the year ended December 27, 1997.
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 for the Company's
Common Stock during 1997 and 1996, by fiscal quarters, are as follows:
Fiscal 1997 Fiscal 1996
----------- -----------
Fiscal Period High Low High Low
- ------------- ---- --- ---- ---
First Quarter $ 5.00 $ 3.13 $ 5.00 $ 2.50
Second Quarter $ 3.94 $ 3.00 $ 7.00 $ 3.25
Third Quarter $ 3.63 $ 3.00 $ 4.00 $ 3.00
Fourth Quarter $ 4.13 $ 2.94 $ 4.50 $ 3.25
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, 1998, there were approximately 700 holders of
record of the Company's Common Stock.
(c) The Company has not declared any cash dividends during the past
three years with respect to its Common Stock and does not anticipate paying
any cash dividends in the foreseeable future. The Company's banking
agreement prohibits the payment of any dividends on the Company's Common
Stock through January 31, 2000.
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.
10
<PAGE>
<TABLE>
CACHE, INC. AND SUBSIDIARIES
STORE DATA AND OPERATING RESULTS
<CAPTION>
FISCAL YEAR ENDED (1)
---------------------------------------------------------------
DECEMBER 27, DECEMBER 28,DECEMBER 30, DECEMBER 31, JANUARY 1,
1997 1996 1995 1994 1994
---------------------------------------------------------------
(in thousands, except store and per share data)
<S>
STORE DATA:
- ----------- <C> <C> <C> <C> <C>
# OPEN AT END OF PERIOD 169 161 152 130 111
# OPEN AT BEGINNING OF PERIOD 161 152 130 111 93
# OPENED DURING PERIOD 8 14 24 22 18
# CLOSED DURING PERIOD -- 5 2 3 --
AVERAGE SALES PER SQUARE FOOT (3) $397.00 $401.00 $412.00 $431.00 $428.00
COMPARABLE STORE SALES INCREASE (4) 1% FLAT 1% 6% 6%
OPERATING RESULTS:
- ------------------
NET SALES $135,791 $128,986 $120,567 $104,714 $86,624
------------------------------------------------------------
GROSS INCOME 46,599 43,301 40,343 36,273 30,481
STORE OPERATING, GENERAL AND
ADMINISTRATIVE EXPENSES 42,417 39,778 36,803 30,553 26,472
------------------------------------------------------------
OPERATING INCOME 4,182 3,523 3,540 5,720 4,009
OTHER INCOME (LOSS) 42 7 56 (66) 1
INTEREST EXPENSE (214) (383) (564) (273) (354)
------------------------------------------------------------
INCOME BEFORE INCOME TAXES,
AND CUMULATIVE EFFECT OF
ACCOUNTING PRINCIPLE CHANGE 4,010 3,147 3,032 5,381 3,656
INCOME TAX PROVISION (BENEFIT) 1,645 1,181 1,120 568 (155)
------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING PRINCIPLE CHANGE 2,365 1,966 1,912 4,813 3,811
CUMULATIVE EFFECT OF
ACCOUNTING PRINCIPLE CHANGE -- -- -- -- 1,117
------------------------------------------------------------
NET INCOME $2,365 $1,966 $1,912 $4,813 $4,928
============================================================
EARNINGS PER SHARE:
- ---------------------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING PRINCIPLE CHANGE $0.26 $0.22 $0.21 $0.53 $0.42
CUMULATIVE EFFECT OF
ACCOUNTING PRINCIPLE CHANGE -- -- -- -- $0.13
------------------------------------------------------------
BASIC AND DILUTED EARNINGS PER SHARE $0.26 $0.22 $0.21 $0.53 $0.55
============================================================
CASH DIVIDENDS -- -- -- -- --
WEIGHTED AVERAGE SHARES OUTSTANDING (2) 9,103 9,107 9,127 8,793 8,771
</TABLE>
11
<PAGE>
(Footnotes for preceding page)
------------------------------
(1) - Results for all periods presented include 52 weeks.
(2) - Weighted average shares for the Fiscal years ended
December 27, 1997, December 28, 1996, December 30,1995, December 31, 1994 and
January 1, 1994, include 12,000; 16,000; 36,000; 444,000; and 732,000;
shares, respectively, due to the potential exercise of outstanding stock
options that were outstanding and exercisable in Fiscal 1997, 1996, 1995,
1994 and 1993, in accordance with Statement of Financial Accounting Standards
No. 128, "Earnings per Share". All E.P.S. calculation reflect the one-for-four
stock split for Common Stock on September 15, 1993. See Note 1 of the Notes
to Consolidated Financial Statements.
(3) - Average sales per square foot are calculated by dividing net
sales by the weighted average store square footage available.
(4) - Comparable store sales data are 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.
<TABLE>
CACHE, INC. AND SUBSIDIARIES
BALANCE SHEET DATA
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 30, DECEMBER 31, JANUARY 1,
1997 1996 1995 1994 1994
--------------------------------------------------------------
(in thousands, except ratios and per share data)
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS $26,682 $23,110 $20,381 $19,581 $13,665
CURRENT LIABILITIES 15,700 14,906 13,014 12,837 9,993
WORKING CAPITAL 10,982 8,204 7,367 6,744 3,672
TOTAL ASSETS 43,508 40,610 38,047 34,770 25,851
TOTAL LONG TERM DEBT 2,000 2,000 3,300 3,650 2,000
STOCKHOLDERS' EQUITY 23,961 21,596 19,630 16,430 12,175
RATIO OF CURRENT ASSETS TO
CURRENT LIABILITIES 1.70 : 1 1.55 : 1 1.57 : 1 1.53 : 1 1.37 : 1
INVENTORY TURNOVER RATIO 4.92 : 1 5.07 : 1 5.22 : 1 5.44 : 1 6.34 : 1
CAPITAL EXPENDITURES 3,418 3,427 5,722 5,541 3,790
DEPRECIATION AND AMORTIZATION 3,898 3,503 3,090 2,457 1,995
DEBT TO EQUITY RATIO .08 : 1 .09 : 1 .17 : 1 .22 : 1 .16 : 1
BOOK VALUE PER SHARE $2.64 $2.38 $2.16 $1.81 $1.17
</TABLE>
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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, including, without limitation, the effect of
economic and market conditions and competition, the ability to open new
stores and expand into new markets, and risks relating to foreign importing
operations, which would cause actual results to differ materially.
Liquidity and Capital Resources
- -------------------------------
The Company's primary need for capital is to finance new store
merchandise inventories, as well as the construction of new stores. During
1997, 1996 and 1995, the Company expended approximately $3,418,000,
$3,427,000 and $5,722,000, respectively, for new store construction, store
renovation and equipment additions. During 1997, the Company generated
$7,274,000 in cash from operating activities. The 1997 expansion included
fixed asset additions of approximately $1,129,000 for 8 new stores,
$715,000 for remodeling existing Cache stores and $1,574,000 for home
office computer improvements and equipment additions. Approximately
$900,000 of the amount above was spent for floorset fixtures and signage,
to highlight a new sportswear separates area in all stores. This was
funded primarily by operating cash flows. The Company expects to open
approximately 5 to 10 stores in 1998. The Company estimates that the total
capital expenditures for new stores to be opened in 1998 and remodeling of
certain existing stores will be approximately $3,000,000. The Company also
estimates that the average cost for initial store inventory investment at
new stores ranges between $70,000 and $110,000 per store depending upon the
store size and when it is opened. The capital expenditure amount includes
estimated expenditures for leasehold improvements and fixtures, after
landlord allowances.
Inventories increased $209,000, principally due to the expansion of 8
new stores in Fiscal 1997. Property and equipment increased $3,418,000
primarily due to the expansion of 8 new stores in Fiscal 1997 and the
renovation of 3 existing stores.
13
<PAGE>
The Company's current Revolving Credit Facility may be used for either
working capital or for letters of credit and will expire on January 31,
2000. Pursuant to the Revolving Credit Facility, $12,000,000 is available
from August 26, 1996 until expiration at January 31, 2000. The amounts
outstanding thereunder bear interest at a maximum per annum rate of .50%
above the bank's prime interest rate. The agreement contains selected
covenants including covenants to maintain a minimum current ratio, a
maximum debt to equity and total equity ratio, a maximum capital
expenditure covenant, a minimum earnings to bank interest coverage ratio
and certain restrictions on the payment of principal amounts to related
parties. The agreement prohibits the payment of any dividends on the
Company's Common Stock. 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. At December 27, 1997 and at December 28, 1996, there was no
amount outstanding on the line; in addition, the Company had no letters of
credit outstanding pursuant to the Revolving Credit Facility.
The Company is conducting a comprehensive review of its computer
systems to identify the systems that could be affected by the "Year 2000"
issue and is developing an implementation plan to resolve the issue. The
Company presently believes that, with modifications to existing software
and converting to new software, where necessary, the Year 2000 problem will
not pose significant operational problems for the Company's computer
systems as so modified and converted.
Management believes that the Company's internally generated cash flows
will be sufficient to meet anticipated requirements for operations and
planned expansion during 1998.
Results of Operations
- ---------------------
Results for Fiscal 1997, 1996 and 1995 include fifty-two weeks.
For the fifty-two weeks ended December 27, 1997, the increase of 8
stores in 1997, and lower interest expense caused an increase in net income
in 1997 as compared to Fiscal 1996. The Company's efforts to limit general
and administrative expense growth resulted in a reduction of general and
administrative expenses as a percentage of sales in Fiscal 1997 and 1996 as
compared to Fiscal 1995. Comparable store sales (sales for stores open at
least one year or more), increased 1% in Fiscal 1997, were flat in Fiscal
1996 and increased 1% in Fiscal 1995.
14
<PAGE>
Over the last several years, the Company has begun to experience and
expects to continue to experience quarterly fluctuations in net sales and
net income. The Company typically experiences higher net sales and net
income in the second and fourth quarters than in the first and third
quarters. The Company's quarterly results of operations may also fluctuate
as a result of a variety of factors, including the timing of new store
openings and the net sales contributed by new stores, merchandise mix and
the timing and level of markdowns. See Note 11 to the Company's
consolidated financial statements on page I-17, which sets forth certain
unaudited results of operations for the Company's eight fiscal quarters
ended December 27, 1997.
Certain financial data for Fiscal years 1997, 1996 and 1995 expressed
as a percentage of net sales are as follows:
As a Percentage of Net Sales
----------------------------
Fiscal Fiscal Fiscal
1997 1996 1995
------- ------- --------
Net sales 100.0% 100.0% 100.0%
Gross income 34.3% 33.6% 33.5%
Store operating expenses 26.3% 26.0% 25.2%
General and administrative,
and interest expenses 5.1% 5.2% 5.8%
Operating income 3.0% 2.4% 2.5%
NET SALES. Net sales in Fiscal 1997 increased 5.3% over net sales in
Fiscal 1996. The increase was due to comparable store sales (sales for
stores open at least one year or more) increases of 1.0% at existing
stores, sales from the Company's 8 new stores and the full year sales
impact of the 14 stores which were opened in 1996.
Net sales in Fiscal 1996 increased 7.0% over net sales in Fiscal 1995.
The increase was primarily due to sales from the Company's 14 new stores
and the full year sales impact for the 24 stores which were opened in 1995.
Comparable store sales were flat in Fiscal 1996 and increased 1% in Fiscal
1995, as compared to Fiscal 1994.
15
<PAGE>
GROSS INCOME. Gross income in Fiscal 1997 increased $3,298,000 as compared
to Fiscal 1996. The increase was primarily due to the sales increase in
Fiscal 1997. The increase in gross income was partially offset by an
increase in occupancy expenses from $16,574,000 in 1996 to $17,474,000 in
1997, due to the 8 new stores opened during 1997 and the full year impact
of occupancy expenses for the 14 stores opened in 1996. In Fiscal 1997,
gross income as a percentage of net sales increased by 0.7% from 1996
(34.3% versus 33.6%). The increase was due primarily to lower markdowns as
a percent of sales, as well as improved initial mark-up.
Gross income in Fiscal 1996 as a percentage of net sales increased by
.1% from 1995 (33.6% versus 33.5%). The increase was due primarily to
lower markdowns as a percent of sales. The $2,958,000 increase in gross
income was directly due to higher sales in 1996 as compared to 1995 and was
partially offset by an increase in occupancy expenses of $1,513,000 in
1996, primarily due to the new stores opened during 1995 and 1996.
STORE OPERATING EXPENSES. Actual store operating expenses in Fiscal 1997
increased $2,198,000 (6.6%) from 1996 amounts. The increase was due
principally to higher salaries, bonuses and commissions ($1,080,000),
primarily due to the increase in the average number of stores open in
Fiscal 1997 versus 1996. During Fiscal 1997 the Company had, on average,
9.9 additional stores in operation as compared to 1996, a 6.4% increase.
Other store operating expenses that increased in Fiscal 1997 included
depreciation ($387,000), licenses and taxes ($207,000), payroll taxes
($170,000)and insurance ($220,000). As a percentage of sales, total store
operating expenses increased 0.3% in Fiscal 1997, as compared to 1996,
(26.3% versus 26.0%).
In Fiscal 1996, actual store operating expenses increased by
$3,113,000 (10.2%) from 1995 amounts. The increase was primarily due to
higher salaries, bonuses and commissions ($1,736,000), a direct result of
the increase in sales and new stores opened during 1996, and increases in
bank credit card processing fees ($110,000), payroll taxes ($112,000),
licenses and taxes ($259,000) and freight ($290,000), all primarily due to
the new stores and the full year impact of new stores added in 1995.
During Fiscal 1996, the Company opened 14 stores which had the effect of
adding, on average, 7.0 stores in operation as compared to 1995, a 4.6%
increase. As a percentage of sales, store operating expenses increased
0.8% in 1996 versus 1995 (26.0% versus 25.2%). The increase was primarily
due to lower sales at new and existing stores.
16
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $441,000 (7.0%) in Fiscal 1997 over 1996 results. The increase
was primarily due to higher payroll and payroll taxes ($423,000), and was
partially offset by reductions primarily in travel, and office supply
expenses. As a percentage of sales, general and administrative expenses
were a constant 4.9%, as compared to Fiscal in 1996.
General and administrative expenses decreased $138,000 (2.2%) in
Fiscal 1996 from 1995 amounts. The decrease was primarily due to lower
payroll, travel, and group insurance expenses in 1996. As a percentage of
sales, general and administrative expenses decreased to 4.9%, from 5.3% in
1995.
INTEREST EXPENSE. Interest expense decreased by $169,000 or 44.1% in
Fiscal 1997, as compared to 1996. The decrease was primarily due to lower
average borrowing levels in Fiscal 1997, as compared to Fiscal 1996.
Interest expense decreased $181,000 or 32.1% in Fiscal 1996 as
compared to 1995. The decrease was due to lower average borrowing levels
during 1996, as well as, lower interest rates experienced in 1996.
INTEREST AND OTHER INCOME. Interest income increased to $32,000 in Fiscal
1997 as compared to $7,000 in Fiscal 1996. The increase is primarily due
to improved cash flows in Fiscal 1997 and repayment of the bank line of
credit.
Income Taxes
- ------------
In Fiscal 1997, the Company provided $1,645,000 for income taxes,
which consisted of $1,401,000 for federal income taxes and $244,000 for
state income taxes. The effective tax rate in Fiscal 1997 was 41.0% and
taxable income in Fiscal 1997 was approximately $3,500,000. The increase
in the effective tax rate in Fiscal 1997 over Fiscal 1996 is primarily due
to the turnaround of timing differences.
During Fiscal 1996, the Company provided $1,181,000 for income taxes,
which consisted of $850,000 for federal income taxes and $331,000 for state
income taxes. The effective tax rate in Fiscal 1996 was 37.5% and taxable
income in Fiscal 1996 was approximately $2,622,000.
17
<PAGE>
In Fiscal 1995, the Company provided $1,120,000 for income taxes which
consisted of $898,000 for federal income taxes and $222,000 for state
income taxes. During 1995, the Company accrued alternative minimum taxes
of approximately $63,000 for federal income taxes. The effective tax rate
in Fiscal 1995 was 36.9% and taxable income in Fiscal 1995 was
approximately $3,250,000. In addition, the Company reversed $1,831,000 of
valuation allowances in 1995 based upon utilization of net operating loss
carryforwards realized in 1994 and 1995. A total of $1,288,000 of the
valuation allowance reversals are included in additional paid-in capital,
related to stock option exercises in 1994 and prior. As a result of the
Company's continued operating profitability, which gave them further
assurance that the deferred tax asset will be realized, the Company
eliminated the valuation allowance in 1995.
Impact of Inflation
- -------------------
The Company's investment in inventories, property and equipment is not
adjusted for inflation. The Company values its inventories at the lower of
average cost or market, using the retail method of accounting. Inventory
turnover is also relatively constant. Therefore, the cost of goods sold,
reported on a historical basis in the financial statements, is not
significantly different from current costs nor is there a disparity in the
balance sheet valuation of inventories. In addition, it has been the
Company's practice to adjust selling prices for inflationary increases in
the cost of merchandise. The amount of property and equipment, which are
principally leasehold improvements, furniture, fixtures and equipment,
along with the related depreciation and amortization, would not be
significantly different under inflationary accounting.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's selected quarterly financial data is incorporated herein
by reference to Note 11 to the Company's consolidated financial statements
on page I-17. The Company's consolidated financial statements and
financial statement schedules and the report of independent public
accountants are listed at Item 14 of this Report and are included in this
Form 10-K on pages I-1 through I-17.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) to Form 10-K, the information
called for by this Item 10 (except for the information with respect to the
Company's executive officers, which information appears in Part I of this
Form 10-K) is incorporated by reference from the Company's definitive Proxy
Statement for its 1998 Annual Meeting of Stockholders, to be filed pursuant
to Regulation 14A under the Securities Exchange Act of 1934, as amended.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3) to Form 10-K, the information
called for by this Item 11 is incorporated by reference from the Company's
definitive Proxy Statement for its 1998 Annual Meeting of Stockholders, to
be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3) to Form 10-K, the information
called for by this Item 12 is incorporated by reference from the Company's
definitive Proxy Statement for its 1998 Annual Meeting of Stockholders, to
be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) to Form 10-K, the information
called for by this Item 13 is incorporated by reference from the Company's
definitive Proxy Statement for its 1998 Annual Meeting of Stockholders, to
be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended.
19
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements
Report of Independent Public Accountants............ I-3
Consolidated Balance Sheets......................... I-4
Consolidated Statements of Income................... I-5
Consolidated Statements of Stockholders' Equity..... I-6
Consolidated Statements of Cash Flows............... I-7
Notes to Consolidated Financial Statements.......... I-8
2. Exhibits (2)
3.1 Articles of Incorporation of the Company and
amendments thereto (2, Exhibit 3(i) thereof)
3.2 Bylaws of the Company (1, Exhibit 2(b) thereof)
10.1 Lease, dated May 13, 1993, between the
Company, as Tenant, and Robert H. Arnow, as
Landlord, for the Company's offices at 1460
Broadway, New York, New York (4, Exhibit 10.1
thereof)
10.2 1993 Stock Option Plan of the Company (3, Exhibit A
thereof) (7)
10.3 1994 Stock Option Plan of the Company (5, Exhibit 10.3
thereof) (7)
10.4 Form of Option Agreement relating to Options issued
under the 1994 Stock Option Plan (5, Exhibit 10.4
thereof)(7)
10.5 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
(6)
10.6 Security Agreement, dated as of August 26, 1996,
between the Company and Fleet Bank, N. A. (6)
10.7 Amended and Restated Intercreditor and Subordination
Agreement, dated as of August 26, 1996, among the
Company, Joseph Saul and Fleet Bank, N.A. (6)
20
<PAGE>
2. Exhibits (2) (continued)
10.8 Guaranty, dated as of August 26, 1996, from the
Company's subsidiaries for the benefit of Fleet Bank,
N.A. (6)
10.9 Unsecured $1,750,000 Promissory Note of the Company,
dated December 14, 1993, in favor of Joseph Saul
(4, Exhibit 10.13 thereof)
10.10 Unsecured $250,000 Promissory Note of the Company,
dated December 14, 1993, in favor of Joseph Saul
(4, Exhibit 10.14 thereof)
10.11 Form of Promissory Note made by each of Michael
Warner, Roy Smith, Thomas Reinckens and Karen
Hubchik to the order of the Company, in an
amount equal to $600,000, $170,000, $80,000 and
$63,000, respectively, (5, Exhibit 10.14 thereof), (7)
11.1 Calculation of Primary and Fully Diluted Earnings
per Common Share
12.1 Statements re: Computation of Ratios
24.1 Consent of Independent Public Accountants
(1) Incorporated by Reference to the Company's Registration
Statement on Form S-18, dated December 29, 1980, Registration
No. 2-70418A.
(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 Definitive Proxy
Statement for its 1993 Annual Meeting of Shareholders.
(4) Incorporated by Reference to the Company's Annual Report on Form
10-K for the fiscal year ended January 1, 1994.
(5) Incorporated by Reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994.
21
<PAGE>
2. Exhibits (2) (continued)
(6) Incorporated by Reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 28, 1996.
(7) Exhibits 10.2 through 10.4 and 10.11 are management contracts or
compensatory plans or arrangements required to be filed as an
exhibit pursuant to Item 14(c) of this Annual Report on Form
10-K.
(8) 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 1460 Broadway, 15th Floor, New York,
New York 10036 Attention: E.V.P., Chief Financial Officer.
(b) Reports on Form 8-K
None
22
<PAGE>
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 18, 1998 CACHE, INC.
(Registrant)
By /s/ Thomas E. Reinckens
------------------------------------
THOMAS E. REINCKENS
Executive Vice President and
On behalf of Cache, Inc.
and in his capacity as
Chief Financial Officer
(Principal Financial and
Principal Accounting 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/ Andrew M. Saul Chairman of the Board; March 18, 1998
- ------------------
ANDREW M. SAUL Director
(Principal Executive
Officer)
/s/ Thomas E. Reinckens Executive Vice President, March 18, 1998
- -----------------------
THOMAS E. REINCKENS Director (Principal Financial Officer)
/s/ Roy C. Smith Executive Vice President, March 18, 1998
- ----------------
ROY C. SMITH Director
/s/ Mae Soo Hoo Executive Vice President, March 18, 1998
- ---------------
MAE SOO HOO Director
/s/ Joseph E. Saul Director March 18, 1998
- ------------------
JOSEPH E. SAUL
/s/ Morton J. Schrader Director March 18, 1998
- ----------------------
MORTON J. SCHRADER
/s/ Mark E. Goldberg Director March 18, 1998
- --------------------
MARK E. GOLDBERG
23
<PAGE>
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED DECEMBER 27, 1997,
DECEMBER 28, 1996,
AND
DECEMBER 30, 1995
I-1
<PAGE>
INDEX TO THE
------------
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
AND SCHEDULES
-------------
PAGE
----
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS I-3
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets........................... I-4
Consolidated Statements of Income..................... I-5
Consolidated Statements of Stockholders' Equity....... I-6
Consolidated Statements of Cash Flows................. I-7
Notes to Consolidated Financial Statements............ I-8
I-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Cache, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of
Cache, Inc. (a Florida corporation)and subsidiaries as of December
27, 1997 and December 28, 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for each of
the three fiscal years ended December 27, 1997. These financial
statements and the information included in Note 11 referred to below
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements and information included in Note 11 based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Cache,
Inc. and subsidiaries as of December 27, 1997 and December 28, 1996,
and the results of their operations and their cash flows for each of
the three fiscal years ended December 27, 1997 in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The information
included in Note 11 is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a required part
of the basic financial statements. This information included in Note
11 has been subjected to the auditing procedures applied in our
audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as
a whole.
New York, New York
February 6, 1998 /s/ Arthur Andersen LLP
I-3
<PAGE>
<TABLE>
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 27, 1997 AND DECEMBER 28, 1996
<CAPTION>
<S>
A S S E T S
December 27, December 28,
1997 1996
------------- -------------
CURRENT ASSETS <C> <C>
Cash and equivalents (Note 1) $ 5,892,000 $ 2,160,000
Receivables (Note 2 ) 1,573,000 1,378,000
Notes receivable from related parties (Note 6 ) 250,000 250,000
Inventories 18,219,000 18,010,000
Deferred income taxes and other assets (Note 9) 220,000 770,000
Prepaid expenses 528,000 542,000
------------- -------------
Total Current Assets 26,682,000 23,110,000
PROPERTY AND EQUIPMENT (Note 3) 15,869,000 16,385,000
OTHER ASSETS 211,000 198,000
DEFERRED INCOME TAXES (Note 9) 746,000 917,000
------------- -------------
$ 43,508,000 $ 40,610,000
============= =============
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y
CURRENT LIABILITIES
Accounts payable $ 10,737,000 $ 10,875,000
Income taxes payable (Note 9) 359,000 ---
Accrued compensation 742,000 721,000
Accrued liabilities (Note 4 ) 3,862,000 3,310,000
------------- -------------
Total Current Liabilities 15,700,000 14,906,000
------------- -------------
SUBORDINATED INDEBTEDNESS TO RELATED
PARTY (Note 6 ) 2,000,000 2,000,000
OTHER LIABILITIES (Note 7 ) 1,847,000 2,108,000
COMMITMENTS AND CONTINGENCIES (Note 8 )
STOCKHOLDERS' EQUITY
Common stock, par value $.01; authorized, 20,000,000
shares issued and outstanding 9,091,338 shares at
December 27, 1997 and December 28, 1996 (Note 10) 91,000 91,000
Additional paid-in capital 19,564,000 19,564,000
Retained earnings 4,306,000 1,941,000
------------- -------------
Total Stockholders' Equity 23,961,000 21,596,000
------------- -------------
$ 43,508,000 $ 40,610,000
============= =============
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</FN>
</TABLE>
I-4
<PAGE>
<TABLE>
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995
<CAPTION>
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
NET SALES $ 135,791,000 $ 128,986,000 $ 120,567,000
COST OF SALES, including occupancy and
buying costs (Note 8) 89,192,000 85,685,000 80,224,000
------------- ------------- -------------
GROSS INCOME 46,599,000 43,301,000 40,343,000
------------- ------------- -------------
EXPENSES
Store operating 35,710,000 33,512,000 30,399,000
General and administrative 6,707,000 6,266,000 6,404,000
Interest 74,000 243,000 424,000
Interest to related party 140,000 140,000 140,000
------------- ------------- -------------
TOTAL EXPENSES 42,631,000 40,161,000 37,367,000
------------- ------------- -------------
OTHER INCOME
Interest income 32,000 7,000 73,000
Miscellaneous 10,000 --- (17,000)
------------- ------------- -------------
TOTAL OTHER INCOME 42,000 7,000 56,000
------------- ------------- -------------
INCOME BEFORE INCOME TAXES 4,010,000 3,147,000 3,032,000
INCOME TAX PROVISION (NOTE 9) 1,645,000 1,181,000 1,120,000
------------- ------------- -------------
NET INCOME $ 2,365,000 $ 1,966,000 $ 1,912,000
============= ============= =============
BASIC AND DILUTED EARNINGS PER SHARE $ .26 $ .22 $ .21
============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 9,103,000 9,107,000 9,127,000
============= ============= =============
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</FN>
</TABLE>
I-5
<PAGE>
<TABLE>
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1994 $ 91,000 $ 18,276,000 $ (1,937,000) $ 16,430,000
-------------------------
Income tax benefit - stock options --- 1,288,000 --- 1,288,000
Net Income --- --- 1,912,000 1,912,000
------------- ------------- ------------- -------------
BALANCE DECEMBER 30, 1995 91,000 19,564,000 (25,000) 19,630,000
------------------------- ------------- ------------- ------------- -------------
Net Income --- --- 1,966,000 1,966,000
------------- ------------- ------------- -------------
BALANCE DECEMBER 28, 1996 91,000 19,564,000 1,941,000 21,596,000
------------------------- ------------- ------------- ------------- -------------
Net Income --- --- 2,365,000 2,365,000
------------- ------------- ------------- -------------
BALANCE DECEMBER 27, 1997 $ 91,000 $ 19,564,000 $ 4,306,000 $ 23,961,000
------------------------- ============= ============= ============= =============
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</FN>
</TABLE>
I-6
<PAGE>
<TABLE>
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995
<CAPTION>
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
<S> ------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
------------------------------------- <C> <C> <C>
Net income $ 2,365,000 $ 1,966,000 $ 1,912,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,898,000 3,503,000 3,090,000
Deferred taxes 713,000 597,000 681,000
Accrual of future rent escalations (reductions) (51,000) 231,000 202,000
Change in assets and liabilities:
Decrease (increase) in receivables (195,000) 39,000 150,000
Increase in inventories (209,000) (2,207,000) (868,000)
Decrease (increase) in prepaid expenses 22,000 47,000 (6,000)
Increase (decrease) in accounts payable (138,000) 1,499,000 43,000
Increase in income taxes payable 359,000 --- ---
Increase in accrued liabilities and accrued compensation 510,000 181,000 134,000
------------- ------------- -------------
Net cash provided by operating activities 7,274,000 5,856,000 5,338,000
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
-------------------------------------
Decrease in notes receivable from related parties --- --- 663,000
Proceeds from property and equipment disposals 41,000 122,000 233,000
Payments for property and equipment (3,418,000) (3,427,000) (5,722,000)
------------- ------------- -------------
Net cash used in investing activities (3,377,000) (3,305,000) (4,826,000)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
-------------------------------------
Proceeds from long-term bank debt 27,150,000 50,600,000 49,550,000
Repayment of long-term bank debt (27,150,000) (51,900,000) (49,900,000)
Other, net (165,000) (116,000) 49,000
------------- ------------- -------------
Net cash used in financing activities (165,000) (1,416,000) (301,000)
------------- ------------- -------------
Net increase in cash and equivalents 3,732,000 1,135,000 211,000
Cash and equivalents at beginning of period 2,160,000 1,025,000 814,000
------------- ------------- -------------
Cash and equivalents at end of period $ 5,892,000 $ 2,160,000 $ 1,025,000
============= ============= =============
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</FN>
</TABLE>
I-7
<PAGE>
CACHE, INC. AND SUBSIDIARIES
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
- --------
Cache, Inc. and subsidiaries (the "Company") owns and operates a chain
of women's apparel specialty stores, all of which are operated under the
trade name "Cache". 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, including subsidiaries. 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 generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
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 1997, 1996 and 1995 all include 52 weeks.
Cash Equivalents
- ----------------
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Inventories
- -----------
Inventories are valued at the lower of average cost or market, using
the retail inventory method of accounting.
Pre-Opening Store Expenses
- --------------------------
Expenses associated with the opening of new stores are expensed as
incurred.
I-8
<PAGE>
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the related assets which range from 3 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. In accordance with Statement of Financial Accounting Standards
("SFAS")No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of," the Company continually evaluates,
based upon income and/or cash flow projections, whether events and
circumstances have occurred that indicate that the remaining balances of
the property and equipment may not be recoverable.
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.
Effect of Recent Accounting Pronouncements
- ------------------------------------------
In March 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share". This statement establishes standards for
computing and presenting earnings per share ("EPS"), replacing the
presentation of currently required Primary EPS with a presentation of Basic
EPS. For entities with complex capital structures, the statement requires
the dual presentation of both Basic EPS and Diluted EPS on the face of the
statement of operations. Under this new standard, Basic EPS is computed on
the weighted average number of shares actually outstanding during the year.
Diluted EPS includes the effect of potential dilution from the exercise of
outstanding dilutive stock options and warrants into common stock using the
treasury stock method. SFAS No. 128 is effective for the current fiscal
year end, and was adopted by the Company.
The stock options issued on December 10, 1997 and October 28, 1995
were included in the computation of diluted EPS and resulted in 12,000,
16,000 and 36,000 shares for 1997, 1996 and 1995, respectively, included
in weighted average shares outstanding, in accordance with SFAS No. 128.
All options were still outstanding at December 27, 1997.
In July 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income", which establishes standards for
reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. The objective of the
statement is to report a measure of all changes in equity of an enterprise
I-9
<PAGE>
that result from transactions and other economic events of the period other
than transactions with owners ("comprehensive income"). SFAS No. 130 is
effective for financial statements issued for fiscal years beginning after
December 15, 1997 with earlier application permitted. The Company believes
that the impact of adoption of this statement will not have a significant
effect on the Company's financial position and results of operations.
Income Per Share
- ----------------
Income per share is based on the weighted average number of common
shares and common share equivalents outstanding for the years presented.
Consolidated Statements of Cash Flows
- -------------------------------------
The Company paid interest of $206,000,$398,000 and $563,000 in Fiscal
1997, 1996 and 1995, respectively. During Fiscal 1997, 1996 and 1995, the
Company paid $565,000,$584,000 and $506,000 in income taxes, respectively.
Reclassification
- ----------------
Certain amounts reflected in Fiscal 1995 and Fiscal 1996 financial
statements have been reclassified to conform with the presentation of
similar items in Fiscal 1997.
NOTE 2. RECEIVABLES
Fiscal Fiscal
1997 1996
----------- -----------
Construction Allowances $ 334,000 $ 490,000
Third Party Credit Card 1,099,000 780,000
Other 140,000 108,000
----------- -----------
$ 1,573,000 $ 1,378,000
=========== ===========
NOTE 3. PROPERTY AND EQUIPMENT
Fiscal Fiscal
1997 1996
----------- -----------
Leasehold improvements $16,242,000 $16,271,000
Furniture, fixtures and
equipment 18,335,000 15,706,000
----------- -----------
34,577,000 31,977,000
Less: accumulated depreciation
and amortization 18,708,000 15,592,000
----------- -----------
$15,869,000 $16,385,000
=========== ===========
Store operating and general and administrative expenses include
depreciation and amortization of $3,898,000 in Fiscal 1997, $3,503,000 in
Fiscal 1996 and $3,090,000 in Fiscal 1995.
I-10
<PAGE>
NOTE 4. ACCRUED LIABILITIES
Fiscal Fiscal
1997 1996
----------- -----------
Operating expenses $ 1,119,000 $ 803,000
Taxes, other than income taxes 1,141,000 1,121,000
Leasehold additions 160,000 107,000
Other customer deposits 1,442,000 1,279,000
----------- -----------
$ 3,862,000 $ 3,310,000
=========== ===========
Leasehold addition amounts generally represent a liability to general
contractors for a final 10% payable on construction contracts for store
construction or renovations.
NOTE 5. BANK DEBT
During August 1996, the Company reached an agreement with its bank
to extend the maturity of the Amended Revolving Credit Facility until
January 31, 2000. Pursuant to the Amended Revolving Credit Facility
$12,000,000 is available until expiration at January 31, 2000. The
amounts outstanding thereunder bear interest at a maximum per annum rate up
to .50% above the bank's prime rate. The agreement contains selected
financial and other covenants including covenants to maintain a minimum
current ratio, a maximum debt to equity and total equity ratio, a maximum
capital expenditure covenant, a minimum earnings to bank interest coverage
ratio and certain restrictions on the repayment of principal amounts due to
related parties. The agreement prohibits the payment of any dividends on
the Company's common stock. 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.
There was no outstanding balance on the line of credit at December 27,
1997 and December 28, 1996, respectively. In addition, there were no
outstanding letters of credit, pursuant to the Revolving Credit Facility,
at December 27, 1997 and December 28, 1996. Loans outstanding under the
line of credit during Fiscal 1997 bore interest at a weighted average
interest rate of 7.87% per annum. The related party debt is subordinated
to the bank debt and repayment is subject to terms of the Amended Revolving
Credit Facility.
NOTE 6. INDEBTEDNESS TO/FROM RELATED PARTIES
As of December 27, 1997 and December 28, 1996 the Company had
outstanding, (i) a $250,000 long-term loan from a major stockholder bearing
interest payable quarterly, with principal due upon demand at any time
after January 31, 2000; and (ii) a $1,750,000 loan made by the same
stockholder bearing interest payable quarterly with principal due upon
demand at any time after January 31, 2000. Both notes bear interest at 7%
per annum. The Company may make loan repayments of $1,000,000 each on
December 31, 1997 and December 31, 1998, subject to the Tangible Net Worth
covenant contained in the Amended Revolving Credit Facility.
I-11
<PAGE>
In December 1994, the Company loaned a total of $913,000 to several
executive officers of the Company. The loans, which are payable upon
demand, are evidenced by secured promissory notes, which bear interest at
the rate of 9% per annum. In September 1995, two officers repaid a total
of $663,000 to the Company, while $250,000 was outstanding at December 27,
1997 and December 28, 1996.
NOTE 7. OTHER LIABILITIES
Other liabilities primarily consist of accruals of future rent
escalations.
NOTE 8. COMMITMENTS AND CONTINGENCIES
Leases
- ------
At December 27, 1997, the Company was obligated under operating leases
for various store locations expiring at various times through 2009. 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.
Store rental expense related to these leases, included in cost of
sales, consisted of the following:
Fiscal Fiscal Fiscal
1997 1996 1995
----------- ----------- -----------
Minimum rentals $12,465,000 $11,940,000 $10,821,000
Contingent rentals 4,678,000 4,313,000 3,920,000
----------- ----------- -----------
$17,143,000 $16,253,000 $14,741,000
=========== =========== ===========
Future minimum payments under non-cancelable operating leases
consisted of the following at December 27, 1997:
1998 $ 13,529,000
1999 13,227,000
2000 12,681,000
2001 11,616,000
2002 9,867,000
Thereafter 22,280,000
------------
Total future minimum lease payments: $ 83,200,000
============
I-12
<PAGE>
Contingencies
- -------------
The Company is exposed to a number of asserted and unasserted
potential claims. In the opinion of management, the resolution of these
matters is not presently expected to have a material adverse effect upon
the Company's financial position and results of operations.
NOTE 9. INCOME TAXES
The provision for income taxes includes:
Fiscal Fiscal Fiscal
1997 1996 1995
------ ------ ------
Current:
Federal $1,289,000 $ 433,000 $ 63,000
State 223,000 231,000 222,000
---------- ---------- ----------
1,512,000 664,000 285,000
---------- ---------- ----------
Deferred:
Federal 112,000 417,000 835,000
State 21,000 100,000 ---
---------- ---------- ----------
133,000 517,000 835,000
---------- ---------- ----------
Provisions for income
taxes $1,645,000 $1,181,000 $1,120,000
========== ========== ==========
The Company's effective tax rate, as a percent of income before income
taxes differs from the statutory federal tax rates as follows:
Fiscal Fiscal Fiscal
1997 1996 1995
------ ------ ------
Statutory federal tax rate 34.0% 34.0% 34.0%
State and local income taxes,
net of federal tax benefit 7.0% 7.0% 4.8%
Other --- ( 3.5%) ( 1.9%)
------ ------ ------
41.0% 37.5% 36.9%
====== ====== ======
The Company had available at December 26, 1996 approximately $351,000
of alternative minimum tax credit carryforwards for tax reporting purposes,
as well as an investment tax credit carryforward of approximately $19,000.
The Company believes these credits will be utilized in Fiscal 1997.
I-13
<PAGE>
At December 27, 1997, the Company's deferred tax assets were $966,000.
The major components of the Company's net deferred taxes at December 27,
1997 and December 28, 1996 are as follows:
December 27, December 28,
1997 1996
------------ ------------
Net operating loss carryforwards ("NOL'S"),
investment tax credit and alternative minimum
tax carryforwards.............................. $ 92,000 $ 692,000
Deferred rent................................... 853,000 852,000
Other........................................... 21,000 135,000
----------- ------------
$ 966,000 $1,679,000
=========== ============
NOTE 10. INCENTIVE STOCK OPTION PLAN
The Company has a stock option plan which reserves shares of common
stock for issuance to Company executives and key employees. The Company
has adopted the disclosure-only provisions of SFAS No. 123. Accordingly,
no compensation cost has been recognized for the stock option plan. Had
compensation cost for the Company's stock option plan been determined based
on the fair value at the grant date for awards in 1995 and 1997 consistent
with the provisions of SFAS No. 123, the Company's net earnings and
earnings per share would have been reduced to the pro-forma amounts
indicated below:
Fiscal Fiscal Fiscal
1997 1996 1995
---------- ---------- ----------
Net earnings - as reported $2,365,000 $1,966,000 $1,912,000
Net earnings - pro-forma $2,318,000 $1,921,000 $1,903,000
Earnings per share - as reported $ 0.26 $ .22 $ .21
Earnings per share - pro-forma $ 0.25 $ .21 $ .21
Since the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro-forma
compensation cost may not be representative of that to be expected in
future years.
The fair value of each option grant is estimated on the date of grant
using the Black - Scholes option pricing model, with the following weighted
average assumptions used for grants in Fiscal 1997: expected volatility of
101.94%; risk free interest rate of 6.01%; there are no expected dividends;
and expected lives of 5 years.
The fair value of each option grant is estimated on the date of grant
using the Black - Scholes option-pricing model, with the following
weighted-average assumptions used for grants in Fiscal 1995: expected
volatility of 131.01%; risk free interest rate of 6.32%; there are no
expected dividends; and expected lives of 5 years.
I-14
<PAGE>
On December 16, 1994, the Company adopted the 1994 Stock Option Plan
subject to shareholders approval at the 1995 Annual Meeting. 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. On the same date, 563,750 options were granted under the option
plan to the Company's executive officers. All options were granted at an
exercise price of $4.25, equal to the fair market value on December 16,
1994. Options granted totaling 394,851 are incentive stock options, while
168,899 options granted are non-qualified options. The plan is
administered by the Compensation and Plan Administration Committee of the
Company's Board of Directors. The price is payable in cash at the time of
the exercise or at the discretion of the Administrators, through delivery
of shares of Common Stock, the Company's withholding of shares otherwise
deliverable to the employee, installment payments under an optionee's
promissory note or a combination thereof.
On October 28, 1995, the Company cancelled 287,500 options. On that
same date, the Company granted 150,000 options to the Company's executive
officers, under the 1994 plan. All options were granted at an exercise
price of $3.25, equal to the fair market value on that date. These options
are incentive stock options.
On January 24, 1997, the Company granted 50,000 incentive stock
options to one officer, under the 1994 plan. The options were granted at
an exercise price of $3.75, equal to the fair market value on that date.
On December 10, 1997, the Company canceled 326,250 options. On that same
date, the Company granted 326,250 options to the Company's executive
officers, under the 1994 plan. All options were granted at an exercise
price of $3.0625, equal to the fair market value on that date. Options
granted totalling 245,918, are incentive stock options, while 80,332
options granted are non-qualified options. The remaining 123,750 shares
have not been granted as of December 27, 1997.
At December 27, 1997, options exercisable for an aggregate of 426,250
shares of Common Stock were outstanding under the 1994 plan. The following
table summarizes stock option transactions for all plans for the three
years ended December 27, 1997:
Weighted Average
Shares Exercise Prices
------ ----------------
Shares under option as of December 31, 1994 563,750 $4.25
-------
Options granted in 1995 150,000 $3.25
Options cancelled in 1995 (287,500) $4.25
-------
Shares under option as of December 30, 1995 426,250 $3.90
-------
Options granted in 1996 ---
Options cancelled in 1996 ---
-------
Shares under option as of December 28, 1996 426,250 $3.90
-------
Options granted in 1997 376,250 $3.15
Options cancelled in 1997 (326,250) $4.17
-------
Shares under option as of December 27, 1997 476,250 $3.12
=======
I-15
<PAGE>
Significant option groups outstanding at December 27, 1997 and related
weighted average price and life information follows:
Options Options Exercise Remaining
Grant Date Outstanding Exercisable Price Life (Years)
- ---------- ----------- ----------- -------- ------------
12/10/97 326,250 48,937 $3.06 10
10/13/95 150,000 22,500 $3.25 8
Options totalling 276,250 granted in 1997 pursuant to the 1994
Incentive Option Plan become exercisable on December 31, 1998, subject to
accelerated vesting in certain circumstances, expire on December 31, 2003
and have an exercise price of $3.06 per share, equal to the fair market
value at the date of grant. However, the granted options may become
exercisable earlier at the maximum rate of up to 25% per year for the year
ended December 31, 1997, to the extent the Company's earnings plan for such
fiscal year as previously approved by the Administrator, are achieved.
Options totalling 50,000 granted in 1997 pursuant to the 1994
Incentive Option Plan become exercisable on January 31, 2002, subject to
accelerated vesting in certain circumstances, expire on January 31, 2007
and have an exercise price of $3.06 per share, equal to the fair market
value at the date of grant. However, the granted options may become
exercisable earlier at the maximum rate of up to 25% per year for the four
years ended December 31, 1997, 1998 1999 and 2000, to the extent the
Company's earnings plan for such fiscal year as previously approved by the
Administrator are achieved.
All of the options granted in 1995 pursuant to the 1994 Incentive
Option Plan become exercisable on October 13, 2000, subject to accelerated
vesting in certain circumstances, expire on October 13, 2005 and have an
exercise price of $3.25 per share, equal to the fair market value at the
date of grant. However, the granted options may become exercisable earlier
at the maximum rate of up to 25% per year for the four years ended December
31, 1996, 1997, 1998 and 1999 to the extent of the Company's earnings plan
for such fiscal year as previously approved by the Administrator, are
achieved. In each case, early exercise of options is based on the
following sliding scale:
Options Which
Will
Percentage of Become
Earnings Plan Achieved Exercisable
---------------------- -----------
Greater than or equal to 90%.......................... 25%
Greater than or equal to 75% but less than 90%........ 20
Greater than or equal to 60% but less than 75%........ 15
Less than 60%......................................... 0
I-16
<PAGE>
<TABLE>
NOTE 11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
($000's omitted except per share amounts)
<CAPTION>
<S> First Second Third Fourth
Year ended December 27, 1997 Quarter Quarter Quarter Quarter
---------------------------- -------------------------------------------
<C> <C> <C> <C>
Net sales $30,306 $34,111 $30,237 $41,137
-------------------------------------------
Gross income, less occupancy and buying costs 10,262 12,214 9,647 14,476
Income (loss) before income taxes (188) 1,363 (740) 3,575
Income tax provision (benefit) (77) 559 (303) 1,466
-------------------------------------------
Net income (loss) ($111) $804 ($437) $2,109
===========================================
Basic and diluted earnings per share ($0.01) $0.09 ($0.05) $0.23
===========================================
First Second Third Fourth
Year ended December 28, 1996 Quarter Quarter Quarter Quarter
---------------------------- -------------------------------------------
Net sales $28,307 $32,722 $28,986 $38,971
-------------------------------------------
Gross income, less occupancy and buying costs 9,768 11,219 8,456 13,858
Income (loss) before income taxes 133 1,311 (1,359) 3,062
Income tax provision (benefit) 50 492 (510) 1,149
-------------------------------------------
Net income (loss) $83 $819 ($849) $1,913
===========================================
Basic and diluted earnings per share $0.01 $0.09 ($0.09) $0.21
</TABLE>
I-17
<PAGE>
EXHIBIT 11.1
<PAGE>
<TABLE>
EXHIBIT 11.1
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER COMMON SHARE
<CAPTION>
<S> FISCAL FISCAL FISCAL
EARNINGS PER SHARE 1997 1996 1995
------------------ ------------- ------------- -------------
Net Income Applicable <C> <C> <C>
to Common Stockholders $ 2,365,000 $ 1,966,000 $ 1,912,000
------------- ------------- -------------
BASIC EARNINGS PER SHARE
------------------------
Weighted Average Number of
Common Shares Outstanding 9,091,000 9,091,000 9,091,000
Assuming Conversion of
Outstanding Stock Options --- --- ---
Less Assumed Repurchase
of Common Stock Pursuant
to the Treasury Stock Method --- --- ---
------------- ------------- -------------
Weighted Average Number of
Common Shares Outstanding
As Adjusted 9,091,000 9,091,000 9,091,000
============= ============= =============
Basic Earnings Per Share $0.26 $0.22 $0.21
============= ============= =============
DILUTED EARNINGS PER SHARE
--------------------------
Weighted Average Number of
Common Shares Outstanding 9,091,000 9,091,000 9,091,000
Assuming Conversion of
Outstanding Stock Options 165,000 150,000 302,000
Less Assumed Repurchase
of Common Stock Pursuant
to the Treasury Stock Method (153,000) (134,000) (266,000)
------------- ------------- -------------
Weighted Average Number of
Common Shares Outstanding
As Adjusted 9,103,000 9,107,000 9,127,000
============= ============= =============
Fully Diluted Earnings Per Share $0.26 $0.22 $0.21
============= ============= =============
</TABLE>
<PAGE>
EXHIBIT 12.1
<PAGE>
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 dates).
Debt to equity ratio = total long-term debt (at balance sheet date) divided
- --------------------
by stockholders' equity (at balance sheet date).
Book value per share = stockholders' equity less preferred stockholders'
- --------------------
equity and dividends in arrears, divided by common shares outstanding
(at balance sheet date).
<PAGE>
EXHIBIT 24.1
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated February 6, 1998 in this Form
10-K, into the company's previously filed Registration
Statement File Numbers 33-40354, 33-40358, 33-65113.
New York, New York
March 12, 1998 /s/ Arthur Andersen LLP
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> DEC-27-1997
<CASH> 5,892,000
<SECURITIES> 0
<RECEIVABLES> 1,823,000
<ALLOWANCES> 0
<INVENTORY> 18,219,000
<CURRENT-ASSETS> 26,682,000
<PP&E> 34,577,000
<DEPRECIATION> 18,708,000
<TOTAL-ASSETS> 43,508,000
<CURRENT-LIABILITIES> 15,700,000
<BONDS> 0
<COMMON> 91,000
0
0
<OTHER-SE> 23,870,000
<TOTAL-LIABILITY-AND-EQUITY> 43,508,000
<SALES> 135,791,000
<TOTAL-REVENUES> 135,791,000
<CGS> 89,192,000
<TOTAL-COSTS> 89,192,000
<OTHER-EXPENSES> 42,417,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 214,000
<INCOME-PRETAX> 4,010,000
<INCOME-TAX> 1,645,000
<INCOME-CONTINUING> 2,365,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,365,000
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
