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 January 1, 2000
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
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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
----- -----
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].
As of February 29, 2000, 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 $13.2 million.
As of February 29, 2000, 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 2000 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
JANUARY 1, 2000
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............................................... 9
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.... 18
Item 11. Executive Compensation................................ 18
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................ 18
Item 13. Certain Relationships and Related Transactions........ 18
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K........................................... 19
<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. (together with its subsidiaries, the "Company") is a specialty
retailer which operates stores and an on-line e-commerce web-site
(www.cache. com), which sells women's apparel and accessories under the trade
names Cache and Lillie Rubin. As of February 29, 2000, the Company operated
204 stores. The Company operates using two formats:
CACHE. Founded in 1975, Cache stores specialize in the sale of fashion
women's apparel (including dresses and sportswear), as well as
accessories, in the better to expensive price range, focusing on social
occasion dressing from informal get-togethers to formal black-tie affairs.
At February 29, 2000, the Company operated 184 Cache stores. The Company
plans to add approximately 5 new Cache stores in Fiscal 2000.
LILLIE RUBIN. The Company acquired the leases of 12 Lillie Rubin stores
in August 1998, as well as certain assets including all Lillie Rubin
trademarks and copyrights. Lillie Rubin offers sophisticated high fashion
women's apparel (primarily dresses) and accessories, in the better to
expensive price range, focusing on special occasion dressing. In January
2000, the Company acquired the leases of seven stores. Two of these
stores reopened as Lillie Rubin stores in January and the remaining five
stores will reopen in March 2000. At February 29, 2000, the Company
operated 20 Lillie Rubin stores. The Company will open approximately 5
more new Lillie Rubin stores in Fiscal 2000.
The Company's stores currently operate in 39 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.
1
<PAGE>
MERCHANDISING
- -------------
The Company's merchandise assortment in the Cache store format is
classified under three major categories: sportswear, dresses and accessories.
The sportswear classification is the largest segment of merchandise. It
encompasses sportswear separates, casual wear, collections, day and evening
suitings. Average sportswear price points range from $40 to $350. The dress
category includes both long and short dresses, 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 $125 to approximately $450. Cache accessories focus on key
classifications including jewelry, belts, hats and handbags. The average price
points on accessories range from $40 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.
The Lillie Rubin stores carry merchandise assortments under the same three
categories, dresses, sportswear and accessories. However, Lillie Rubin stores
offer more dresses than a typical Cache store and at price points approximately
25% higher than Cache. The Lillie Rubin customer tends to be more mature and
has more disposable income than the average Cache customer.
The following table sets forth the percentage of net sales by merchandise
classification;
Fiscal Fiscal Fiscal
Merchandise Classification 1999 1998 1997
- -------------------------- ------ ------ ------
Sportswear 62.7% 63.4% 66.5%
Dresses 29.3% 27.7% 25.0%
Accessories 8.0% 8.9% 8.5%
------ ------ ------
100.0% 100.0% 100.0%
====== ====== ======
The Company's buyers work closely with the designers, merchandisers, and
stylists in the apparel market, to develop and create new and exciting products.
The 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 our 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, the Company 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.
2
<PAGE>
During Fiscal 1999 and 1998, the Company purchased merchandise from more
than 500 suppliers located in North America, Europe and Asia.
In Fiscal 1999, 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 purchasing more than 10% of the
merchandise from foreign vendors in 2000. 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.
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 29, 2000, the Company operated 204 stores located in 39
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 4 Louisiana 5 Oklahoma 2
Arkansas 1 Maryland 5 Oregon 2
Arizona 4 Massachusetts 6 Pennsylvania 7
California 19 Michigan 4 Rhode Island 2
Colorado 1 Minnesota 1 South Carolina 3
Connecticut 3 Mississippi 1 Tennessee 5
Delaware 1 Missouri 1 Texas 16
Florida 33 Nebraska 1 Virgina 6
Georgia 7 Nevada 6 Washington 3
Hawaii 1 New Jersey 12 West Virginia 1
Illinois 6 New Mexico 1 Wisconsin 1
Indiana 2 New York 12 Washington, D.C. 1
Kansas 2 North Carolina 5 Puerto Rico 1
Kentucky 2 Ohio 8
3
<PAGE>
The Company opened 6 Lillie Rubin stores and 13 new Cache stores in 1999.
The Company expects to open approximately 5 Cache stores and approximately 10
Lillie Rubin stores during 2000. 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
beg.of during during end of Total
Fiscal Fiscal Fiscal Year Fiscal Year Fiscal Year square
year year Cache L.R. Cache L.R. Cache L.R. Totals footage
------ ------- ------ ---- ----------- ----------- ------ -------
1995 130 24 - 2 - 152 - 152 316,000
1996 152 14 - 5 - 161 - 161 334,000
1997 161 8 - - - 169 - 169 351,000
1998 169 4 12 1 - 172 12 184 390,000
1999 184 13 6 2 - 183 18 201 424,000
During 1999, the Company remodeled five stores. The Company expects to
continue remodeling selected stores during 2000. Most store remodels take from
four to six weeks to complete, but rarely require closing the store. The
Company spent approximately $1,224,000 in Fiscal 1999 to remodel five stores.
The Company spent $170,000 (2 stores) and $715,000 (3 stores) on remodeling, in
Fiscal 1998 and 1997, respectively. The Company closed two stores in 1999 and
one store in 1998. The Company closed no stores in Fiscal 1997. None of the
store closings had a material effect on the Company's financial statements.
The Company currently has 424,000 square feet of store space as of
February 29, 2000 including 34,000 square feet of store space added during
Fiscal 1999. The Company also added 39,000 and 17,000 square feet of store
space in Fiscal 1998 and 1997, respectively. During Fiscal 2000, the Company
expects to open approximately 5 new Cache stores, as well as approximately 10
new Lillie Rubin stores, which would add approximately 30,000 square feet of
store space, bringing total store square footage to approximately 454,000
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.
4
<PAGE>
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.
STORE OPERATIONS
- ----------------
Control over store operations is the responsibility of the Executive Vice
President of Store Operations, who is assisted by three Regional Vice
Presidents and nineteen 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 Company's concept of
fashion and responsiveness to customer needs. Store personnel are provided
centralized guidance on merchandising presentation including regular updates on
fashion trends in the coming seasons.
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.
The Company 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, management encourages store
personnel to identify and maintain contact with customers, with the objective
of converting infrequent shoppers into loyal clients.
5
<PAGE>
Customer service is one of the most important responsibilities of our
employees. 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. Our systems allow 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. The Company 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 stores host trunk shows
several times each year to present certain merchandise to customers.
INFORMATION SYSTEMS
- -------------------
The Company invests in technology for the future through both hardware and
software investments. The Company's point of sale store computer system (the
"POS System") offers 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 the Company 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 it 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.
The Company'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.
6
<PAGE>
In August 1999, the Company launched the Company's on-line e-commerce and
fashion web site www.cache.com. The web site utilizes the latest e-commerce
technology. Some of the features offered to consumers are 3D imaging, fabric
and detail zoom-in imaging, fashion advice, personalized shopping and events
calendar, virtual catalog downloads, one-click navigation as well as other
features.
ADVERTISING AND PROMOTION
- -------------------------
The Company's primary advertising tools are advertisements in print media,
including Vogue, a national high fashion magazine. The Company spent $517,000,
$429,000 and $416,000 on advertising in Fiscal 1999, 1998 and 1997,
respectively.
EMPLOYEE RELATIONS
- ------------------
As of February 29, 2000, the Company had approximately 1,700 employees, of
whom 950 were full-time employees and 750 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 third party credit card.
TRADEMARKS AND SERVICE MARKS
- ----------------------------
The Company is the owner in the United States of the trademark and service
mark "Cache", as well as, the trademark and service mark "Lillie Rubin". 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 and "Lillie
Rubin" mark are a significant part of the Company's business. Accordingly, the
Company intends to maintain its marks and the related registrations. The
Company is not aware of any material claims of infringement or other challenges
to the Company's right to use its marks in the United States.
7
<PAGE>
ITEM 2. PROPERTIES
All but 2 of the Company's 204 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 2011. The Company renegotiated lease terms on
seven stores in 1999, four leases of which were due to expire in 2000. 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 29, 2000, which expire during the periods indicated.
Number of Leases Expiring
-------------------------
Lillie
Fiscal Years Ending Cache Rubin Totals
------------------- ----- ------ ------
Present - 2002..... 41 8 49
2003 - 2005........ 70 5 75
2006 - 2008........ 53 1 54
2009 - 2011........ 20 6 26
----- ------ ------
184 20 204
===== ====== ======
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 53 Chairman of the Board and Director
Roy Smith 61 Executive Vice President/
Director of Store Operations and Director
Thomas Reinckens 46 Executive Vice President/Chief Financial
Officer and Director
Mae Soo Hoo 45 Executive Vice President/General
Merchandise Manager and Director
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.
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 January 1, 2000.
9
<PAGE>
PART II
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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 1999 and 1998, by fiscal quarters, are as follows:
Fiscal 1999 Fiscal 1998
----------- -----------
Fiscal Period High Low High Low
- ------------- ---- --- ---- ---
First Quarter $ 9.00 $ 4.38 $ 3.94 $ 3.03
Second Quarter $11.00 $ 5.50 $ 5.50 $ 3.44
Third Quarter $ 7.75 $ 2.88 $ 6.50 $ 3.84
Fourth Quarter $ 7.00 $ 3.06 $ 5.38 $ 3.19
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 29, 2000, there were approximately 600 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.
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)
---------------------------------------------------------------
JANUARY 1, JANUARY 2, DECEMBER 27, DECEMBER 28, DECEMBER 30,
2000 1999 (1) 1997 1996 1995
---------------------------------------------------------------
(in thousands, except store and per share data)
<S>
STORE DATA:
- ----------- <C> <C> <C> <C> <C>
# OPEN AT END OF PERIOD 201 184 169 161 152
# OPEN AT BEGINNING OF PERIOD 184 169 161 152 130
# OPENED DURING PERIOD 19 16 8 14 24
# CLOSED DURING PERIOD 2 1 -- 5 2
AVERAGE SALES PER SQUARE FOOT (3) $400 $403 $397 $401 $412
COMPARABLE STORE SALES INCREASE (4) 5% 2% 1% FLAT 1%
OPERATING RESULTS:
- ------------------
NET SALES $161,373 $146,831 $135,791 $128,986 $120,567
---------------------------------------------------------------
GROSS INCOME 56,228 51,572 46,599 43,301 40,343
STORE OPERATING, GENERAL AND
ADMINISTRATIVE EXPENSES 50,021 44,975 42,417 39,778 36,803
---------------------------------------------------------------
OPERATING INCOME 6,207 6,597 4,182 3,523 3,540
OTHER INCOME (PRIMARILY INTEREST) 286 227 42 7 56
INTEREST EXPENSE (134) (154) (214) (383) (564)
----------------------------------------------------------------
INCOME BEFORE INCOME TAXES 6,359 6,670 4,010 3,147 3,032
INCOME TAX PROVISION 2,350 2,735 1,645 1,181 1,120
---------------------------------------------------------------
NET INCOME $4,009 $3,935 $2,365 $1,966 $1,912
===============================================================
EARNINGS PER SHARE:
- ---------------------
BASIC EARNINGS PER SHARE $0.44 $0.43 $0.26 $0.22 $0.21
DILUTED EARNINGS PER SHARE $0.43 $0.43 $0.26 $0.22 $0.21
WEIGHTED AVERAGE SHARES OUTSTANDING (2) 9,305 9,170 9,103 9,107 9,127
</TABLE>
FOOTNOTES
- ---------
(1) - Results for the Fiscal year ended January 2, 1999 include 53 weeks.
Results for all other periods presented include 52 weeks.
(2) - Weighted average shares for the Fiscal years ended January 1, 2000,
January 2, 1999, December 27, 1997, December 28,1996, and December 30,
1995, include 214; 79: 12; 16; and 36 shares, respectively due to the
potential exercise of outstanding stock options that were outstanding
and exercisable in Fiscal 1999, 1998, 1997, 1996, and 1995, in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings per
Share".
(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.
11
<PAGE>
<TABLE>
CACHE, INC. AND SUBSIDIARIES
BALANCE SHEET DATA
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------------
JANUARY 1, JANUARY 2, DECEMBER 27, DECEMBER 28, DECEMBER 30,
2000 1999 1997 1996 1995
----------------------------------------------------------------
(in thousands, except ratios and per share data)
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS $38,364 $35,273 $26,682 $23,110 $20,381
CURRENT LIABILITIES 23,487 19,899 15,700 14,906 13,014
WORKING CAPITAL 14,877 15,374 10,982 8,204 7,367
TOTAL ASSETS 56,962 51,558 43,508 40,610 38,047
TOTAL LONG-TERM DEBT --- 2,000 2,000 2,000 3,300
STOCKHOLDERS' EQUITY 31,905 27,896 23,961 21,596 19,630
RATIO OF CURRENT ASSETS TO
CURRENT LIABILITIES 1.63:1 1.77:1 1.70:1 1.55:1 1.57:1
INVENTORY TURNOVER RATIO 4.86:1 5.13:1 4.92:1 5.07:1 5.22:1
CAPITAL EXPENDITURES 6,354 3,266 3,418 3,427 5,722
DEPRECIATION AND AMORTIZATION 4,602 4,136 3,898 3,503 3,090
DEBT TO EQUITY RATIO -- .07:1 .08:1 .09:1 .17:1
BOOK VALUE PER SHARE $3.51 $3.07 $2.64 $2.38 $2.16
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 has generally funded, through internally generated cash flows,
new store merchandise inventories, as well as the construction of new stores.
During 1999, 1998 and 1997, the Company expended approximately $6,354,000,
$3,266,000 and $3,418,000, respectively, for new store construction, store
renovation and equipment additions. During 1999, the Company generated
$4,617,000 in cash from operating activities. The 1999 expansion included
expenditures of approximately $3,669,000 for six new Lillie Rubin stores and
13 new Cache stores, $1,224,000 for remodeling 5 existing Cache stores and
$1,461,000 primarily for store equipment and fixture additions, as well as for
creation of the Cache.com web site. The Company expects to open approximately
5 new Cache stores in 2000, and approximately 10 new Lillie Rubin stores. The
Company estimates that the total capital expenditures for new stores to be
opened in 2000 and remodeling of certain existing stores will be approximately
$5,000,000. 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
amounts include estimated expenditures for leasehold improvements and fixtures,
after landlord allowances.
At January 1, 2000, the Company had $9,848,000 in cash and equivalents.
Cash equivalents consist primarily of municipal bonds that can readily be
converted to cash, as well as short term commercial paper and money market
funds. Inventories increased $5,488,000, principally due to the addition of
13 new Cache stores and 6 Lillie Rubin stores in Fiscal 1999. Accounts payable
increased $3,133,000, to fund the increase in inventory. Income taxes payable
decreased $943,000 due to the payment of accrued taxes from Fiscal 1998.
Accrued liabilities and compensation increased $846,000, primarily due to
accrued expenses payable at year end. Receivables increased $1,216,000
primarily due to an increase in receivables due from landlords for the
construction of new stores.
13
<PAGE>
During July 1999, the Company reached an agreement with it's Bank to
extend the maturity of the Amended Revolving Credit Facility until January 31,
2003. The Company's current Amended Revolving Credit Facility may be used for
either working capital or for letters of credit. Pursuant to the Amended
Revolving Credit Facility, $15,000,000 is available until expiration at January
31, 2003. The amounts outstanding thereunder bear interest at a maximum per
annum rate equal to the bank's prime interest rate. The agreement contains
selected covenants including covenants to maintain a minimum current ratio, a
maximum debt to equity ratio, a maximum capital expenditure covenant and a
minimum fixed charge coverage ratio. 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 January 1, 2000 and at January 2, 1999, there was no amount outstanding on
the line; in addition, the Company had no letters of credit outstanding pursuant
to the Revolving Credit Facility.
Management believes that the Company's internally generated cash flows
will be sufficient to meet anticipated requirements for operations and planned
expansion during 2000.
The Company completed a comprehensive review of its computer systems and
modified existing software and converted to new software, where necessary, in
preparation for the Year 2000. The Company spent approximately $260,000 for
external consulting, software and hardware improvements. The total costs
associated with modifying current systems and new software has not had a
material impact on results of operations, cash flows or financial condition in
any given year. The Company encountered no significant problems as result of
the Year 2000.
Results of Operations
- ---------------------
Results for Fiscal 1999 and 1997 include fifty-two weeks. Results for the
Fiscal 1998 ended January 2, 1999, include fifty-three weeks. The impact of
the additional week's sales in Fiscal 1998 was no greater than approximately 2%
of sales when compared to Fiscal 1999 and Fiscal 1997. To a lesser degree,
operating expenses also increased in Fiscal 1998 due to the additional week.
While it is worth noting the additional weeks's sales in Fiscal 1998, the
Company believes there was no material effect on net income due to the
additional week in Fiscal 1998, as compared to Fiscal 1999.
For the fifty-two weeks ended January 1, 2000, three major factors
contributed to the reduction in pre-tax income as compared to Fiscal 1998: the
increase in markdowns in dollars and as a percent of sales, together with the
increase in the number of new stores (19) opened in Fiscal 1999 and an increase
in the size of the headquarters buying staff. Comparable store sales (sales for
stores open at least one year or more), increased 5% in Fiscal 1999, increased
2% in Fiscal 1998, and increased 1% in Fiscal 1997.
14
<PAGE>
Over the last several years, the Company has experienced 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-16, which sets forth
certain unaudited results of operations for the Company's eight fiscal quarters
ended January 1, 2000.
Certain financial data for Fiscal years 1999, 1998 and 1997 expressed as a
percentage of net sales are as follows:
As a Percentage of Net Sales
----------------------------
Fiscal Fiscal Fiscal
1999 1998 1997
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Gross income 34.8% 35.1% 34.3%
Store operating expenses 26.1% 25.8% 26.3%
General and administrative 4.9% 4.8% 4.9%
Net income 2.5% 2.7% 1.7%
NET SALES. Net sales in Fiscal 1999 (52 weeks) increased $14.6 million or 9.9%
to $161.4 million from $146.8 million (53 weeks) in Fiscal 1998. The increase
in sales was due to comparable store sales increase of 5% in Fiscal 1999, as
well as an increase in sales due to the 19 new stores opened in Fiscal 1999.
Net sales in Fiscal 1998 (53 weeks) increased to $146.8 million from
$135.8 million in Fiscal 1997 (52 weeks), an increase of $11.0 million, or
8.1%. Total sales for the fifty-two week period ended January 2, 1999 increased
5.9% as compared to Fiscal 1997. The one week additional sales in Fiscal 1998
were approximately 2% of the total 8.1% sales increase. The increase in sales
was also due to sales generated by the Company's 16 new stores and the full year
sales impact for the 8 stores which were opened in 1997, and finally, a
comparable store sales increase of 2% in Fiscal 1998.
GROSS INCOME. Gross income in Fiscal 1999 increased $4.7 million as compared
to Fiscal 1998. The increase was primarily due to the sales increase in Fiscal
1999. The increase in gross income was partially offset by an increase in
occupancy expenses of $2.3 million in Fiscal 1999, primarily due to the new
stores opened during Fiscal 1999 and Fiscal 1998. In Fiscal 1999, gross income
as a percentage of net sales decreased by 0.3% from Fiscal 1998 (34.8% versus
35.1%). The decrease was due primarily to increased occupancy costs as a
percent of sales.
15
<PAGE>
Gross income in Fiscal 1998 increased $5.0 million as compared to Fiscal
1997. The $5.0 million increase in gross income was directly due to higher
sales in 1998, partially due to the 53 week Fiscal year in 1998, as compared to
Fiscal 1997 (which was a 52 week Fiscal year)and was partially offset by an
increase in occupancy expenses of $1.2 million in Fiscal 1998, primarily due to
the new stores opened during 1998 and 1997. Gross income in Fiscal 1998 as a
percentage of net sales increased by 0.8% from Fiscal 1997 (35.1% versus 34.3%).
The increase was due primarily to higher initial mark-up on Fiscal 1998
inventory purchases.
STORE OPERATING EXPENSES. Store operating expenses in Fiscal 1999 increased
$4.1 million (10.9%) from Fiscal 1998 amounts. The increase was due principally
to higher salaries, bonuses and commissions ($2.7 million), primarily due to the
increase in the average number of stores open in Fiscal 1999 versus 1998.
During Fiscal 1999, the Company had an average of 16.4 additional stores in
operation as compared to 1998, a 9.4% increase. Other store operating expenses
that increased in Fiscal 1999 included depreciation ($424,000), licenses and
taxes ($229,000), credit card fees ($223,000), advertising ($132,000), payroll
taxes ($159,000) and insurance ($129,000). As a percentage of sales, total
store operating expenses increased 0.3% in Fiscal 1999, as compared to 1998,
(26.1% versus 25.8%).
In Fiscal 1998, store operating expenses increased by $2.2 million (6.2%)
from Fiscal 1997 amounts. The increase was primarily due to higher salaries,
bonuses and commissions ($1.6 million), a direct result of the increase in
sales and new stores opened during 1998, and increases in bank credit card
processing fees ($291,000), depreciation ($231,000), payroll taxes ($157,000)
and licenses and taxes ($108,000), which were partially offset by reductions in
other expense categories . During Fiscal 1998, the Company opened 16 stores
which had the effect of adding, on average, 9.1 stores in operation as compared
to 1997, a 5.5% increase. Store operating expenses in Fiscal 1998 were also
higher than Fiscal 1997, due to the 53 week Fiscal 1998 period as compared to
the 52 week Fiscal 1997 period. As a percentage of sales, store operating
expenses decreased 0.5% in 1998 versus 1997 (25.8% versus 26.3%). The decrease
was primarily due to higher sales at new and existing stores.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $914,000 (12.9%) in Fiscal 1999 over 1998 results. The increase was
primarily due to higher payroll and related expenses ($771,000), principally
due to new additions in merchandising and field store support staff. As a
percentage of sales, general and administrative expenses increased slightly to
4.9% from 4.8%, as compared to Fiscal 1998.
16
<PAGE>
General and administrative expenses increased $351,000 (5.2%) in Fiscal
1998 from 1997 amounts. The increase was primarily due to higher payroll and
payroll taxes ($467,000) and travel ($75,000), and was partially offset by
reductions primarily in insurance, buying and professional fee expenses.
General and administrative expenses in Fiscal 1998 were also higher than Fiscal
1997, due to the 53 week Fiscal 1998 period as compared to the 52 week Fiscal
1997 period. As a percentage of sales, general and administrative expenses
decreased to 4.8% from 4.9% in Fiscal 1997.
INTEREST EXPENSE. Interest expense decreased from $154,000 in Fiscal 1998 to
$134,000 in Fiscal 1999, as the Company reduced long-term debt.
Interest expense decreased $60,000 or 28.0% in Fiscal 1998 as compared to
1997. The decrease was primarily due to lower average borrowing levels during
1998.
INTEREST AND OTHER INCOME. Interest income increased to $315,000 in Fiscal
1999 from $227,000 in Fiscal 1998. The increase was primarily due to increased
cash on hand during Fiscal 1999 versus Fiscal 1998.
Interest income increased to $227,000 in Fiscal 1998 as compared to
$32,000 in Fiscal 1997. The increase is primarily due to the increase in cash
and equivalents during Fiscal 1998, as compared to Fiscal 1997.
INCOME TAXES. In Fiscal 1999, the Company provided $2.4 million for income
taxes, which consisted of $2.1 million for federal income taxes and $0.3 million
for state income taxes. The effective tax rate in Fiscal 1999 was 37.7 % and
taxable income in Fiscal 1999 was approximately $5.9 million.
In Fiscal 1998, the Company provided $2.7 million for income taxes, which
consisted of $2.0 million for federal income taxes and $.7 million for state
income taxes. The effective tax rate in Fiscal 1998 was 41.0% and taxable
income in Fiscal 1998 was approximately $6.0 million.
In Fiscal 1997, the Company provided $1.6 million for income taxes, which
consisted of $1.4 million for federal income taxes and $0.2 million for state
income taxes. The effective tax rate in Fiscal 1997 was 41.0%.
17
<PAGE>
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 unaudited selected quarterly financial data is incorporated
herein by reference to Note 11 to the Company's consolidated financial
statements on page I-16. The Company's consolidated financial statements 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-16.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
--------
The information called for by Items 10, 11, 12, and 13 is incorporated
herein by reference from the definitive proxy statement to be filed by the
Company in connection with its 2000 Annual Meeting of Shareholders.
18
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS 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) (8)
10.3 1994 Stock Option Plan of the Company (5, Exhibit 10.3
thereof) (8)
10.4 Form of Option Agreement relating to Options issued
under the 1994 Stock Option Plan (5, Exhibit 10.4
thereof)(8)
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)
19
<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 Roy Smith and
Thomas Reinckens to the order of the Company, in an amount
equal to $170,000 and $80,000, respectively, (5, Exhibit
10.14 hereof),(8)
10.12 Amended and Restated Asset Purchase Agreement dated August
10, 1998 between Lillie Rubin Fashions, Inc. and the
Company. (7)
10.13 Master Amendment to Revolving Credit Agreement and Security
Agreement, dated July 19, 1999.
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.
20
<PAGE>
2. Exhibits (2) (continued)
(5) Incorporated by Reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994.
(6) Incorporated by Reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 28, 1996.
(7) Incorporated by Reference to the Company's Annual Report on Form
10-K for the fiscal year ended January 2, 1999.
(8) 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.
(9) 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
21
<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 30, 2000 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 30, 2000
- ------------------
ANDREW M. SAUL Director
(Principal Executive
Officer)
/s/ Thomas E. Reinckens Executive Vice President, March 30, 2000
- -----------------------
THOMAS E. REINCKENS Director
(Principal Financial Officer)
/s/ Roy C. Smith Executive Vice President, March 30, 2000
- ----------------
ROY C. SMITH Director
/s/ Mae Soo Hoo Executive Vice President, March 30, 2000
- ---------------
MAE SOO HOO Director
/s/ Joseph E. Saul Director March 30, 2000
- ------------------
JOSEPH E. SAUL
/s/ Morton J. Schrader Director March 30, 2000
- ----------------------
MORTON J. SCHRADER
/s/ Mark E. Goldberg Director March 30, 2000
- --------------------
MARK E. GOLDBERG
22
<PAGE>
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 1, 2000,
JANUARY 2, 1999,
AND
DECEMBER 27, 1997
I-1
<PAGE>
INDEX TO THE
------------
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
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 January 1, 2000 and January 2, 1999,
and the related consolidated statements of income, stockholders' equity and
cash flows for each of the three fiscal years ended January 1, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cache, Inc. and subsidiaries
as of January 1, 2000 and January 2, 1999, and the results of their operations
and their cash flows for each of the three fiscal years ended January 1, 2000
in conformity with accounting principles generally accepted in the United
States.
New York, New York
February 9, 2000 /s/ Arthur Andersen LLP
I-3
<PAGE>
</TABLE>
<TABLE>
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 1, 2000 AND JANUARY 2, 1999
<CAPTION>
<S>
A S S E T S
January 1, January 2,
2000 1999
----------- ------------
CURRENT ASSETS <C> <C>
Cash and equivalents (Note 1) $ 9,848,000 $ 13,720,000
Receivables (Note 2 ) 2,741,000 1,525,000
Notes receivable from related parties (Note 6 ) 256,000 295,000
Inventories 24,399,000 18,911,000
Deferred income taxes and other assets (Note 9) 396,000 193,000
Prepaid expenses 724,000 629,000
------------ ------------
Total Current Assets 38,364,000 35,273,000
PROPERTY AND EQUIPMENT, net (Note 3) 16,936,000 14,776,000
OTHER ASSETS 938,000 764,000
DEFERRED INCOME TAXES (Note 9) 724,000 745,000
------------ ------------
$ 56,962,000 $ 51,558,000
============ ============
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 $ 16,311,000 $ 13,178,000
Income taxes payable (Note 9) --- 943,000
Accrued compensation 1,618,000 1,447,000
Accrued liabilities (Note 4 ) 5,558,000 4,331,000
------------ ------------
Total Current Liabilities 23,487,000 19,899,000
------------ ------------
NOTES PAYABLE TO RELATED PARTY (Note 6 ) --- 2,000,000
OTHER LIABILITIES (Note 7 ) 1,570,000 1,763,000
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
January 1, 2000 and January 2, 1999 (Note 10) 91,000 91,000
Additional paid-in capital 19,564,000 19,564,000
Retained earnings 12,250,000 8,241,000
------------ ------------
Total Stockholders' Equity 31,905,000 27,896,000
------------ ------------
$ 56,962,000 $ 51,558,000
============ ============
<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 JANUARY 1, 2000, JANUARY 2, 1999, AND DECEMBER 27, 1997
<CAPTION>
Fifty-Two Fifty-Three Fifty-Two
Weeks Ended Weeks Ended Weeks Ended
JANUARY 1, JANUARY 2, DECEMBER 27,
2000 1999 1997
------------- ------------- -------------
<S> <C> <C> <C>
NET SALES $ 161,373,000 $ 146,831,000 $ 135,791,000
COST OF SALES, including occupancy and
buying costs (Note 8) 105,145,000 95,259,000 89,192,000
------------- ------------- -------------
GROSS INCOME 56,228,000 51,572,000 46,599,000
------------- ------------- -------------
EXPENSES
Store operating 42,049,000 37,917,000 35,710,000
General and administrative 7,972,000 7,058,000 6,707,000
Interest --- 14,000 74,000
Interest to related party 134,000 140,000 140,000
------------- ------------- -------------
TOTAL EXPENSES 50,155,000 45,129,000 42,631,000
============= ============= =============
OTHER INCOME
Interest income 315,000 227,000 32,000
Miscellaneous (29,000) --- 10,000
------------- ------------- -------------
TOTAL OTHER INCOME 286,000 227,000 42,000
------------- ------------- -------------
INCOME BEFORE INCOME TAXES 6,359,000 6,670,000 4,010,000
INCOME TAX PROVISION (NOTE 9) 2,350,000 2,735,000 1,645,000
------------- ------------- -------------
NET INCOME $ 4,009,000 $ 3,935,000 $ 2,365,000
============= ============= =============
BASIC EARNINGS PER SHARE $0.44 $0.43 $ .26
============= ============= =============
DILUTED EARNINGS PER SHARE $0.43 $0.43 $ .26
============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 9,305,000 9,170,000 9,103,000
============= ============= =============
<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 JANUARY 1, 2000, JANUARY 2, 1999, AND DECEMBER 27, 1997
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
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
------------------------- --------- ------------ ------------ ------------
Net Income --- --- 3,935,000 3,935,000
--------- ------------ ------------ ------------
BALANCE JANUARY 2, 1999 91,000 19,564,000 8,241,000 27,896,000
----------------------- --------- ------------ ------------ ------------
Net Income --- --- 4,009,000 4,009,000
--------- ------------ ------------ ------------
BALANCE JANUARY 1, 2000 $ 91,000 $ 19,564,000 $ 12,250,000 $ 31,905,000
----------------------- ========= ============ ============ ============
<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 JANUARY 1, 2000, JANUARY 2, 1999, AND DECEMBER 27, 1997
<CAPTION>
JANUARY 1, JANUARY 2, DECEMBER 27,
2000 1999 1997
<S> ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
------------------------------------- <C> <C> <C>
Net income $ 4,009,000 $ 3,935,000 $ 2,365,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,602,000 4,136,000 3,898,000
Decrease (increase) in deferred taxes (182,000) 28,000 713,000
Reversal of future rent escalations (88,000) (38,000) (51,000)
Change in assets and liabilities:
(Increase) decrease in receivables (1,216,000) 48,000 (195,000)
Decrease (increase) in notes receivable from related parties 39,000 (45,000) ---
Increase in inventories (5,488,000) (692,000) (209,000)
(Increase) decrease in prepaid expenses (95,000) (101,000) 22,000
Increase (decrease) in accounts payable 3,133,000 2,441,000 (138,000)
Decrease (increase) in income taxes payable (943,000) 584,000 359,000
Increase in accrued liabilities and accrued compensation 846,000 797,000 510,000
------------ ------------ ------------
Net cash provided by operating activities 4,617,000 11,093,000 7,274,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
-------------------------------------
Payments for property and equipment (6,354,000) (2,162,000) (3,418,000)
Purchase of Lillie Rubin, net --- (1,104,000) ---
Disposal of property and equipment 86,000 23,000 41,000
------------ ------------ ------------
Net cash used in investing activities (6,268,000) (3,243,000) (3,377,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
-------------------------------------
Proceeds from long-term bank debt 1,000,000 2,100,000 27,150,000
Repayment of long-term bank debt (1,000,000) (2,100,000) (27,150,000)
Repayment of notes payable to related party (2,000,000) --- ---
Other, net (221,000) (22,000) (165,000)
------------ ------------ ------------
Net cash used in financing activities (2,221,000) (22,000) (165,000)
------------ ------------ ------------
Net (decrease) increase in cash and equivalents (3,872,000) 7,828,000 3,732,000
Cash and equivalents, at beginning of period 13,720,000 5,892,000 2,160,000
------------ ------------ ------------
Cash and equivalents, at end of period $ 9,848,000 $ 13,720,000 $ 5,892,000
============ ============ ============
<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. (together with its subsidiaries, the "Company") owns and
operates two chains of women's apparel specialty stores, of which 184 stores
are operated under the trade name "Cache". In addition, 20 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,
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 1998, include 53 weeks. Results for Fiscal 1999
and 1997 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.
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 generally 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.
Revenue Recognition
- -------------------
Revenue is recognized by the Company upon completion of a sale to the
customer. An appropriate reserve for estimated sales returns is recorded and
is reflected in accrued liabilities.
Deferred Rent
- -------------
Many of the Company's operating leases contain predetermined fixed
increases of the minimum rental rate during the initial lease term. For these
leases, the Company recognizes the related rental expense on a straight-line
basis and records the difference between the amount charged to expense and the
rent paid as deferred rent.
Advertising costs
- -----------------
Costs associated with advertising are charged to expense when the
advertising first takes place. The Company spent $517,000, $429,000 and
$416,000 on advertising in Fiscal 1999, 1998 and 1997, respectively.
Pre-Opening Store Expenses
- --------------------------
Expenses associated with the opening of new stores are expensed as
incurred.
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.
I-9
<PAGE>
Earnings per Share
- ------------------
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 February 2, 1999, January 20, 1999, December
10, 1997 and October 28, 1995 were included in the computation of diluted EPS
and resulted in 214,000, 79,000 and 12,000 shares for Fiscal 1999, 1998 and
1997, respectively, included in weighted average shares outstanding, in
accordance with SFAS No. 128. All options were still outstanding at January 1,
2000.
New Accounting Pronouncements
- -----------------------------
In 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The Statement also requires that changes in derivatives fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. In 1999, the FASB approved SFAS No. 137 "Accounting For Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," which amends SFAS No. 133 to be effective for all fiscal
years beginning afer June 20, 2000. The Company is currently analyzing the
impact, if any, that this new pronouncement may have on its financial position
and results of operations.
Supplemental Statements of Cash Flow Information
- ------------------------------------------------
The Company paid interest of $134,000,$154,000 and $206,000 in Fiscal
1999, 1998 and 1997, respectively. During Fiscal 1999, 1998 and 1997, the
Company paid $3,475,000, $2,124,000 and $565,000 in income taxes, respectively.
I-10
<PAGE>
NOTE 2. RECEIVABLES
Fiscal Fiscal
1999 1998
----------- -----------
Construction Allowances $ 967,000 $ 205,000
Third Party Credit Card 1,568,000 1,171,000
Other 206,000 149,000
----------- -----------
$ 2,741,000 $ 1,525,000
=========== ===========
NOTE 3. PROPERTY AND EQUIPMENT
Fiscal Fiscal
1999 1998
----------- -----------
Leasehold improvements $18,347,000 $16,912,000
Furniture, fixtures and
equipment 21,407,000 19,864,000
----------- -----------
39,754,000 36,776,000
Less: accumulated depreciation
and amortization 22,818,000 22,000,000
----------- -----------
$16,936,000 $14,776,000
=========== ===========
Store operating and general and administrative expenses include
depreciation and amortization of $4,602,000 in Fiscal 1999, $4,136,000 in
Fiscal 1998 and $3,898,000 in Fiscal 1997.
NOTE 4. ACCRUED LIABILITIES
Fiscal Fiscal
1999 1998
----------- -----------
Operating expenses $ 1,694,000 $ 1,193,000
Taxes, other than income taxes 1,614,000 1,396,000
Leasehold additions 447,000 30,000
Other customer deposits 1,803,000 1,712,000
----------- -----------
$ 5,558,000 $ 4,331,000
=========== ===========
Leasehold additions 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 1999, the Company reached an agreement with its bank to
extend the maturity of the Amended Revolving Credit Facility until January 31,
2003. Pursuant to the newly Amended Revolving Credit Facility, $15,000,000 is
available until expiration at January 31, 2003. 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 including
covenants to maintain a minimum current ratio, a maximum debt to equity ratio,
a maximum capital expenditure covenant, and a minimum fixed charge coverage
ratio. 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.
I-11
<PAGE>
There was no outstanding balance on the line of credit at January 1, 2000
and January 2, 1999, respectively. In addition, there were no outstanding
letters of credit, pursuant to the Revolving Credit Facility, at January 1,
2000 and January 2, 1999. Loans outstanding under the line of credit during
Fiscal 1999 bore interest at a weighted average interest rate of 6.80% per
annum.
NOTE 6. INDEBTEDNESS TO/FROM RELATED PARTIES
As of January 2, 1999, the Company had outstanding, (i) a $250,000
long-term loan from a major stockholder payable quarterly, and (ii) a
$1,750,000 loan made by the same stockholder payable quarterly. Both notes
bore interest at 7% per annum. In December 1999, the Company repaid both
notes.
As of January 1, 2000 and January 2, 1999, the Company had notes receivable
totaling $256,000 and $250,000, respectively, from two executive officers of the
Company. The receivables, which are due on demand, are evidenced by secured
promissory notes, which bear interest at the rate of 7% per annum.
In September 1998, the Company loaned $50,000 to an employee of the
Company. The loan was to be repaid in 60 installments and was evidenced by a
secured promissory note, which bore interest at the rate of 8% per annum. The
balance of the loan was repaid in full in February, 1999.
NOTE 7. OTHER LIABILITIES
Other liabilities primarily consist of accruals of future rent
escalations.
NOTE 8. COMMITMENTS AND CONTINGENCIES
Leases
- ------
At January 1, 2000, the Company was obligated under operating leases for
various store locations expiring at various times through 2011. 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
1999 1998 1997
----------- ----------- ----------
Minimum rentals $14,870,000 $13,257,000 $12,465,000
Contingent rentals 5,763,000 5,119,000 4,678,000
----------- ----------- -----------
$20,633,000 $18,376,000 $17,143,000
=========== =========== ===========
I-12
<PAGE>
Future minimum payments under non-cancelable operating leases consisted of
the following at January 1, 2000:
Fiscal
------
2000 $ 16,362,000
2001 15,736,000
2002 13,880,000
2003 12,167,000
2004 9,990,000
Thereafter 22,206,000
------------
Total future minimum lease payments $ 90,341,000
============
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
1999 1998 1997
---------- ---------- ----------
Current:
Federal $2,079,000 $2,005,000 $1,289,000
State 294,000 655,000 223,000
---------- ---------- ----------
2,373,000 2,660,000 1,512,000
---------- ---------- ----------
Deferred:
Federal (12,000) 57,000 112,000
State (11,000) 18,000 21,000
---------- ---------- ----------
(23,000) 75,000 133,000
---------- ---------- ----------
Provisions for income
taxes $2,350,000 $2,735,000 $1,645,000
========== ========== ==========
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
1999 1998 1997
------ ------ ------
Statutory federal tax rate 34.0% 34.0% 34.0%
State and local income taxes,
net of federal tax benefit 3.7% 7.0% 7.0%
------ ----- -----
37.7% 41.0% 41.0%
====== ===== =====
I-13
<PAGE>
The major components of the Company's net deferred tax assets at January
1, 2000 and January 2, 1999 are as follows:
January 1, January 2,
2000 1999
------------ ----------
Net operating loss carryforwards ("NOL'S")....... $ 46,000 $ 40,000
Deferred rent.................................... 801,000 837,000
Other............................................ 113,000 61,000
---------- ----------
$ 960,000 $ 938,000
========== ==========
NOTE 10. INCENTIVE STOCK OPTION PLAN
On December 16, 1994, the Company adopted the 1994 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
600,000 shares of the Company's authorized common stock for issuance to
officers and key employees of the Company.
Options granted under the plan 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 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.
The following table summarizes all stock option transactions for the three
years ended January 1, 2000:
Weighted Average
Shares Exercise Prices
------- ----------------
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
-------
Options granted in 1998 ---
Options cancelled in 1998 ---
-------
Shares under option as of January 2, 1999 476,250 $3.12
-------
Options granted in 1999 173,750 $4.55
Options cancelled in 1999 ( 50,000) $3.06
-------
Shares under option as of January 1, 2000 600,000 $3.54
=======
I-14
<PAGE>
Significant option groups outstanding at January 1, 2000 and related
weighted average price and life information follows:
Options Options Exercise Remaining
Grant Date Outstanding Exercisable Price Life (Years)
- ---------- ----------- ----------- -------- ------------
1/20/99 123,750 18,561 $4.38 9
2/ 2/99 50,000 --- $5.00 9
12/10/97 276,250 276,250 $3.06 3
10/13/95 150,000 150,000 $3.25 5
The Company accounts for the Plan in accordance with APB Opinion No. 25,
under which no compensation cost has been recognized for stock option awards
granted at fair market value. Had compensation expense for the Plan been
determined based on the fair value at the grant dates for awards under the
Plan, consistent with the method of SFAS No. 123, the Company's net earnings,
basic EPS and diluted EPS would have been reduced to the pro forma amounts
listed below:
Fiscal Fiscal Fiscal
1999 1998 1997
---------- ---------- ----------
Net income - as reported $4,009,000 $3,935,000 $2,365,000
- pro-forma $3,834,000 $3,788,000 $2,318,000
Basic EPS - as reported $ .44 $ .43 $ .26
- pro-forma $ .42 $ .42 $ .25
Diluted EPS - as reported $ .43 $ .43 $ .26
- pro-forma $ .41 $ .41 $ .25
The weighted average fair value of options granted during the Fiscal years
ended December 27, 1997, January 2, 1999 and January 1, 2000 were $3.15, $0.00
and $4.55, 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:
1999 1997 1995
Grant Grant Grant
------ ------- ------
Expected dividend rate $ 0.00 $ 0.00 $ 0.00
Expected volatility 82.73% 112.92% 79.85%
Risk free interest rate 5.73% 5.42% 5.42%
Expected lives (years) 5.00 5.00 5.00
I-15
<PAGE>
<TABLE>
NOTE 11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
($000's omitted except per share amounts)
<CAPTION>
<S> First Second Third Fourth
Year ended January 1, 2000 Quarter Quarter Quarter Quarter
-------------------------- ----------------------------------------
<C> <C> <C> <C>
Net sales $36,486 $40,028 $34,276 $50,583
----------------------------------------
Gross income, less occupancy and buying costs 12,770 14,527 11,029 17,902
Income (loss) before income taxes 1,275 2,473 (1,283) 3,894
Income tax provision (benefit) 523 1,014 (527) 1,340
----------------------------------------
Net income (loss) $752 $1,459 ($756) $2,554
========================================
Basic and diluted earnings per share:
Basic earnings (loss) per share: $0.08 $0.16 ($0.08) $0.28
========================================
Diluted earnings (loss) per share: $0.08 $0.16 ($0.08) $0.27
========================================
First Second Third Fourth
Year ended January 2, 1999 Quarter Quarter Quarter Quarter
-------------------------- ----------------------------------------
Net sales $31,334 $36,520 $30,963 $48,014
----------------------------------------
Gross income, less occupancy and buying costs 10,555 12,978 10,147 17,892
Income (loss) before income taxes 97 2,040 (643) 5,176
Income tax provision (benefit) 40 836 (264) 2,123
----------------------------------------
Net income (loss) $57 $1,204 ($379) $3,053
========================================
Basic and diluted earnings per share:
Basic earnings (loss) per share: $0.01 $0.13 ($0.04) $0.34
========================================
Diluted earnings (loss) per share: $0.01 $0.13 ($0.04) $0.33
========================================
</TABLE>
I-16
<PAGE>
EXHIBIT 10.13
<PAGE>
MASTER AMENDMENT TO REVOLVING CREDIT AGREEMENT
----------------------------------------------
AND SECURITY AGREEMENT
----------------------
Master Amendment entered into as of July 19, 1999 between CACHE, INC.
(the "Borrower") and FLEET BANK, NATIONAL ASSOCIATION (the "Bank").
WHEREAS, the Borrower and the Bank are parties to a Second Amended and
Restated Revolving Credit Agreement dated as of August 26, 1996 (the
"Agreement");
WHEREAS, the Borrower has requested that the Bank amend, and the Bank
has agreed to amend, certain provisions of the Agreement;
WHEREAS, the Borrower and the Bank are parties to a Security Agreement
dated as of August 26, 1996 (the "Security Agreement"); and
WHEREAS, the Borrower has executed in favor of the Bank, a Note (as
such term is defined in the Agreement) in the face of amount of $12,000,000.00
and dated August 26, 1996 (the "Note").
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. The Agreement is hereby amended as follows:
(a) The Second Whereas clause is hereby amended by replacing
the reference to "$12,000,000" with "$15,000,000".
(b) Section 1.1(b) of the Agreement is hereby amended and
restated in its entirety to read as follows:
The total principal amount of all outstanding Loans,
together with the face amount of all outstanding Letters of
Credit, as hereinafter defined, shall not exceed
$15,000,000; provided, however, that for one consecutive
thirty day period during each fiscal year of the Borrower,
there shall be no Loans or Letters of Credit outstanding.
(c) Section 1.1(f) of the Agreement is hereby amended by adding
a new subsection (6) to read as follows:
(6) If the entire amount of any required principal and/or
interest is not paid in full within (10) days after the
same is due, Borrower shall pay to the Bank a late fee
equal to five percent (5%) of the required payment.
<PAGE>
(d) Section 1.1 of the Agreement is hereby amended by adding a
new subsection (i) to read as follows:
(i) The Borrower shall maintain with the Bank a non-interest
bearing deposits with average daily collected balances net
of activity costs equal to not less than $200,000 during
each calendar quarter. If the averge daily balance is less
than that required above, the Borrower shall pay a
deficiency fee during each such quarter equal to interest
on the deficiency at the average of the Prime Rate during
such quarter.
(e) Section 2.2 of the Agreement is hereby amended by deleting
the word "and" at the end of Subsection 2.2(b), replacing the reference to
"(c)" with "(d)" and by adding a new subsection (c) to read as follows:
(c) receipt by the Bank of a Guarantee of the Liabilities
executed by each Subsidiary of the Borrower formed or
acquired by the Borrower after the date of the initial
Loans, each satisfactory to the Bank in form and substance;
and
(f) Section 2.3 of the Agreement is hereby amended by replacing
the reference to "Section 2.1 hereof" with "Sections 2.1 and 4.24 hereof".
(g) Article 3 of the Agreement is hereby amended by adding a
new Section 3.21 to read as follows:
3.21 Year 2000. (a) The Borrower has taken and is taking
----------
all necessary and appropriate steps to ascertain the extent
of and successfully address business and financial risks
facing the Borrower as a result of the Year 2000 Risk (that
is the risk that computer applications used by the Borrower
may be unable to recognize and perform without error
date-sensitive functions involving certain dates prior to
and any date after December 31, 1999) and (b) the
Borrower's material computer applications and those of its
key vendors and suppliers will, on a timely basis,
adequately address the Year 2000 Risk in all material
respects.
(h) Section 4.12 of the Agreement is hereby amended and
restated in its entirety to read as follows:
4.12 Debt Ratio.
-----------
(a) The Borrower will not permit its Debt Ratio to
exceed (i) 1.00 to 1.00 as at the end of any of its first,
second or fourth fiscal quarters, or (ii) 1.25 to 1.00 as
at the end of any of its third fiscal quarters.
- 2 -
<PAGE>
(b) The Bank will determine compliance with the
foregoing based on the financial information which the
Borrower is required to submit to the Bank.
(i) Section 4.13 of the Agreement is hereby amended and
restated in its entirety to read as follows:
4.13 Fixed Charge Coverage Ratio.
----------------------------
(a) The Borrower will not permit its Fixed Charge
Coverage to be less than 1.15 to 1.00 as at the end of any
of its fiscal quarters, on a rolling four quarter basis.
(b) The Bank will determine compliance with the
foregoing based on the financial information which the
Borrower is required to submit to the Bank.
(j) Section 4.14 of the Agreement is hereby amended and
restated in its entirety to read as follows:
4.14 Current Ratio.
--------------
(a) The Borrower shall not permit the ratio of the
Borrower's current assets to current liabilities
(including, without limitation, all Liabilities and all
other long term loans (regardless of classification under
GAAP) owing to Persons other than the Bank) to be less than
(i) 1.15 to 1.00 as at the end of any of its first, second
or fourth fiscal quarters or (ii) 1.0 to 1.0 as at the end
of any of its third fiscal quarters.
(b) The Bank will determine compliance with the
foregoing based on the financial information which the
Borrower is required to submit to the Bank.
(k) Section 4.15 of the Agreement is hereby amended by amending
and restating subsection (n), (o) and (p) thereof in their entirety and by
adding new subsections (q), (r) and (s) to read as follows:
(n) The Borrower shall not make capital expenditures
in excess of $10,000,000 for the fiscal year ending
December 31, 1999.
(o) The Borrower shall not make capital expenditures
in excess of $11,000,000 for the fiscal year ending
December 31, 2000.
- 3 -
<PAGE>
(p) The Borrower shall not make capital expenditures
in excess of $13,000,000 for the fiscal year ending
December 31, 2001.
(q) The Borrower shall not make capital expenditures
in excess of $13,000,000 for the fiscal year ending
December 31, 2002.
(r) The Borrower shall not make capital expenditures
in excess of $2,500,000 for the period beginning January
1, 2003 and ending January 31, 2003.
(s) The Bank will determine compliance with the
foregoing based on the financial information which the
Borrower is required to submit to the Bank.
(l) Section 4.16 of the Agreement is hereby amended and
restated in its entirety to read as follows:
4.16 Intentionally Omitted.
----------------------
(m) Section 4.18 is amended and restated in its entirety to
read as follows:
The Borrower will not make any Restricted Payments at any
time, provided, that, the Borrower may pay dividends to its
shareholders so long as at the time there exists no Event
of Default.
(n) Article 4 of the Agreement is hereby amended by adding a
new Section 4.24 and a new Section 4.25 each to read in their entirety as
follows:
4.24 UCC Financing Statements. The Borrower shall
-------------------------
deliver to the Bank UCC-1 financing statements naming the
Borrower as debtor and executed by the Borrower and the
Bank as the secured party in proper form for filing in such
jurisidictions as the Bank may reasonably request, and
copies of UCC filing searches against the Borrower, as
debtor, conducted in each new jurisdiction in which any
Collateral is located.
4.25 Liens. The Borrower shall not (i) create, assume or
------
permit to exist, any Lien on any of its property or assets
now owned or hereafter acquired except (a) Liens in favor
of the Bank; (b) other liens incidental to the conduct of
its business or the ownership of its property and assets
which were not incurred in connection with the borrowing of
money or the obtaining of advances or credit and which do
not materially impair the use thereof in the operation of
its
- 4 -
<PAGE>
business; (c) Liens for taxes or other governmental charges
which are not delinquent or which are being contested in
good faith and for which a reserve shall have been
established in accordance with GAAP; and (d) purchase
money Liens granted to secure the unpaid purchase price of
any fixed assets purchased within the limitations of this
Agreement as long as such purchase money Liens do not
attach to any Collateral and (ii) enter into any agreement
which prohibits or limits the ability of the Borrower to
create, incur, assume or suffer to exist any Lien upon any
of its property or revenues, wheteher now owned or
hereafter acquired.
(o) Article 4 of the Agreement is hereby amended by adding a
new Section 4.26 to read as follows:
4.26 Investments. The Borrower shall maintain on
------------
deposit or in custody with the Bank cash and marketable
securities with a fair market value of not less than one
half of the amount of the average daily Available
Investment Amount ("Available Investment Amount" means
moneys of the Borrower available to be invested (or already
invested) by Borrower ( as reflected in Borrower's books
and records)).
(p) Section 5.1 of the Agreement is hereby amended by amending
the definition of "Applicable Margin" in its entirety to read as follows:
"Applicable Margin" shall mean with respect to Loans
-------------------
which are Prime Rate Loans, 0% and with respect to Loans
which are COF Loans or LIBOR Loans, 1.65%.
(q) Section 5.1 of the Agreement is hereby amended by amending
the definition of "Commitment Termination Date" in its enitirety to read as
follows:
"Commitment Termination Date" shall mean January 31, 2003.
-----------------------------
(r) Section 5.1 of the Agreement is hereby amended by deleting
the definition of "Debt Service Coverage" in its enitirety.
(s) Section 5.1 of the Agreement is hereby amended by adding a
new definition of "Fixed Charge Coverage Ratio" to be positioned in its
appropriate place alphabetically therein and to read as follows:
"Fixed Charge Coverage Ratio" shall mean, with respect to
-----------------------------
the Borrower and its Subsidiaries on a consolidated basis
for the applicable period of determination, the ratio of
(A) earnings before interest, taxes, depreciation and
- 5 -
<PAGE>
amortization for the period of determination plus rent paid
during the period of determination minus dividends paid
during the period of determination to (B) the sum of (i)
interest expense during the period of determination, plus
(ii) all payments of taxes during the period of
determination, plus (iii) the current portion of
indebtedness for borrowed money which by its terms matures
more than 12 months after the date incurred or if maturing
sooner, the maturity thereof may be extended at the option
of the debtor beyond such 12 month period, plus (iv)
principal and interest payments made on Indebtedness during
each such period of determination, plus (v) the current
portion of capital leases (as determined in accordance with
generally accepted accounting principles), plus (v) rent
paid during the period of determination.
(t) Section 5.1 of the Agreement is hereby amended by amending
the definition of Security Documents to read as follows:
"Security Documents" shall mean the Security Agreement,
--------------------
the financing statements referred to in Sections 2.1(f) and
4.24 hereof, the Guarantees referred to in Sections 2.1(j)
and 2.2(c) hereof and such other agreements, instruments
and documents as the bank may reasonably require to effect
the purposes of the Security Agreement and this Agreement.
2. The first "Whereas" clause of the Security Agreement is hereby amended
by deleting the reference to "$12,000,000" and substituting in its place
"$15,000,000".
3. The Borrower hereby represents and warrants to the Bank that:
(a) Each and every one of the representations and warranties
set forth in the Agreement is true as of the date hereof and with the same
effect as though made on the date hereof, and is hereby incorporated herein in
full by reference as if fully restated herein in its entirety.
(b) No Default or Event of Default and no event or condition
which, with the giving of notice or lapse of time or both, would constitute
such a Default or Event of Default, now exists or would exist.
4. All capitalized terms used herein, unless otherwise defined herein,
have the same meanings provided therefor in the Agreement.
5. The amendments and waivers set forth herein are limited precisely as
written and shall not be deemed to (a) be a consent to or a waiver of any other
term or condition of the Agreement or any of the documents referred to therein
or executed in connection therewith or (b) prejudice any right or rights which
the Bank may now have or may have
- 6 -
<PAGE>
in the future under or in connection with the Agreement or any documents
referred to therein or executed in connection therewith. Whenever the
Agreement is referred to in the Agreement or any of the instruments, agreements
or other documents or papers executed and delivered in connection therewith, it
shall be deemed to mean the Agreement as modified by this Master Amendment.
6. The Borrower shall execute and deliver concurrently herewith a
promissory note which shall be in replacement of and substitution for its
existing promissory note. Such new promisory note shall be in the form of
Exhibit A annexed hereto and be deemed the Note for all purposes of the
Agreement and documents relating thereto.
7. The Bank shall have no obligations under this Master Amendment and
this Master Amendment shall not be effective unless and until (i) the Bank has
received the March 31, 1999 interim financial statements of the Borrower and
same are in form and substance satisfactory to the Bank, (ii) the Bank has
received from the Borrower payment of a non-refundable Amendment Fee in the
amount of $56,250 (which Fee shall be payable upon the Borrower's execution
hereof) and (iii) the executed UCC-1 financing statements required by Paragraph
1(n) of this Amendment (with respect to locations existing as of the date
hereof).
8. If upon execution of this Master Amendment, the Borrower is in
compliance to the satisfaction of the Bank, on a pro forma basis, with all of
the financial covenants contained in the Agreement, as amended by this Master
Amendment, then Subordinated Indebtedness shall no longer be required and all
references in the Agreement to "Subordinated Indebtedness" and restrictions on
payment of same shall be deleted and the original notes, currently held by the
Bank in the amount of $1,750,000 and dated Novemebr 16, 1990 and in the amount
of $250,000 and dated November 19, 1991 made by Joseph Saul to the order of the
Borrower shall be returned to the Borrower.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
- 7 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed and delivered by their respective duly authorized officers
as of the date first above written.
CACHE, INC.
By: /s/ Thomas Reinckens
--------------------
Name: Thomas Reinckens
Title: EVP CFO
FLEET BANK, NATIONAL ASSOCIATION
By: /s/ Bonnie Bernstein
--------------------
Name: Bonnie Bernstein
Title: Vice President
- 8 -
<PAGE>
NOTE
----
15,000,000.00 New Brunswick, New Jersey
July 19, 1999
FOR VALUE RECEIVED, the undersigned, CACHE, INC., a Florida
corporation (the "Borrower"), hereby promises to pay to the order of FLEET
BANK, N.A. (the "Bank"), on January 31, 2003, the lesser of (a) the principal
sum of Fifteen Million and 00/100 ($15,000,000.00) Dollars, or (ii) the
aggregate unpaid principal amount of all Loans, as such term is defined in the
Second Amended and Restated Revolving Credit Agreement, dated as of the date
hereof, by and between the Borrower and the Bank (hereinafter, as amended by
the Master Amendment dated the date hereof and as it may from time to time be
amended, modified or supplemented, referred to as the "Credit Agreement"), then
outstanding. The Borrower further promises to pay the Bank interest on the
unpaid principal amount hereof from the date hereof until maturity at the rates
per annum set forth in or established pursuant to the Credit Agreement and as
calculated therein. Interest on this Note for each Prime Rate Loan, LIBOR Loan
or COF Loan, as the case may be, shall be payable prior to maturity on the last
day of the applicable Interest Period therefor. Interest shall be payable on
maturity of this Note, whether at stated maturity, by acceleration or
otherwise.
Anything herein to the contrary notwithstanding, the obligation of the
Borrower to make payments of interest shall be subject to the limitation that
payments of interest shall not be required to be made to the Bank to the extent
that the Bank's receipt thereof would not be permissible under the law or laws
applicable to the Bank limiting rates of interest which may be charged or
collected by the Bank. Any such payments of interest which are not made as a
result of the limitation referred to in the preceding sentence shall be made by
the borrower to the Bank on the earliest interest payment date or dates on
which the receipt thereof would be permissible under such laws applicable to
the Bank limiting rates of interest which may be charged or collected by the
Bank. Such deferred interest shall not bear interest.
Payments of both principal and interest on this Note are to be made at
the office of the bank, at 1125 route 22 West, Bridgewater, New Jersey 08807 or
such other place as the Bank shall designate to the Borrower in writing, in
lawful money of the United States of America in immediately available funds.
This Note is secured in the manner provided in the Credit Agreement and
the Security Documents, is subject to prepayment upon the terms and conditions
thereof
<PAGE>
and is entitled to the benefits thereof.
The Bank is hereby authorized by the Borrower to record on the schedule
annexed to this Note (or on a supplemental schedule thereto) the amount of each
Loan made by the Bank to the Borrower and the amount of each payment or
prepayment of principal of such Loans received by the Bank, it being
understood, however, that failure to make any such notation shall not affect
the rights of the Bank or the obligations of the Borrower hereunder in respect
of this Note.
Upon the occurrence of any Event of Default, as defined in the Credit
Agreement, the principal amount of and accrued interest on this Note may be
declared due and payable in the manner and with the effect provided in the
Credit Agreement. The Borrower hereby agrees to pay the costs of collection and
reasonable attorneys' fees and expenses in case default occurs in the payment
of this Note.
This Note shall replace and supersede the Note made by the Borrower to
the order of the Bank dated August 26, 1996 (the "Prior Note"); provided,
however, that the execution and delivery of this Note shall not in any
circumstance be deemed to have terminated, extinguished or discharged the
Borrower's indebtedness under such Prior Note, all of which indebtedness shall
continue under and be governed by this Note and the documents, instruments and
agreements executed pursuant hereto or in connection herewith. This Note is a
replacement, consolidation, amendment and restatement of the Prior Note and IS
NOT A NOVATION. The Borrower shall alao pay and this Note shall also evidence
any and all unpaid interest in all Loans made by the Bank to the Borrower
pursuant to the Prior Note, and at the interest rate specified therein, for
which this Note has been issued as replacement therefor.
All terms used in this Note and not otherwise defined herein shall have
the same meanings that such terms have in the Credit Agreement.
THIS NOTE IS BEING DELIVERED IN AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS.
CACHE, INC.
By:/s/ Thomas E. Reinckens
-----------------------
Name: Thomas E. Reinckens
Title: EVP CFO
<PAGE>
SCHEDULE TO NOTE
----------------
This Note evidences the Loans made under the within described
Credit Agreement, in the principal amounts, of the types (Prime Rate, COF
Loans or LIBOR Loans) and on the dates set forth below, and, with respect to
LIBOR Loans, for the interest period set forth below, subject to the payments
or prepayments of principal set forth below:
Principal
Principal Amount
Date Amount of Type of Interest Paid or Balance
Made Loans Loan Period Prepaid Outstanding
---- --------- ------- -------- --------- -----------
<PAGE>
EXHIBIT 11.1
<PAGE>
<TABLE>
EXHIBIT 11.1
CALCULATION OF BASIC AND DILUTED EARNINGS PER COMMON SHARE
<CAPTION>
<S> FISCAL FISCAL FISCAL
EARNINGS PER SHARE 1999 1998 1997
----------- ----------- -----------
Net Income Applicable <C> <C> <C>
to Common Stockholders $ 4,009,000 $ 3,935,000 $ 2,365,000
----------- ----------- -----------
BASIC EARNINGS PER SHARE
------------------------
Weighted Average Number of
Common Shares Outstanding 9,091,000 9,091,000 9,091,000
=========== =========== ===========
Basic Earnings Per Share $0.44 $0.43 $0.26
=========== =========== ===========
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 600,000 476,000 165,000
Less Assumed Repurchase
of Common Stock Pursuant
to the Treasury Stock Method (386,000) (397,000) (153,000)
----------- ----------- -----------
Weighted Average Number of
Common Shares Outstanding
As Adjusted 9,305,000 9,170,000 9,103,000
=========== =========== ===========
Diluted Earnings Per Share $0.43 $0.43 $0.26
=========== =========== ===========
</TABLE>
<PAGE>
EXHIBITS 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 of 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 included in this Form 10-K dated February 9, 2000, into the
Company's previously filed Registration Statement File Numbers 33-40354,
33-40358, 33-65113.
New York, New York
March 23, 2000 /s/ Arthur Andersen LLP
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JAN-01-2000
<CASH> 9,848,000
<SECURITIES> 0
<RECEIVABLES> 2,997,000
<ALLOWANCES> 0
<INVENTORY> 24,399,000
<CURRENT-ASSETS> 38,364,000
<PP&E> 39,754,000
<DEPRECIATION> 22,818,000
<TOTAL-ASSETS> 56,962,000
<CURRENT-LIABILITIES> 23,487,000
<BONDS> 0
<COMMON> 91,000
0
0
<OTHER-SE> 31,814,000
<TOTAL-LIABILITY-AND-EQUITY> 56,962,000
<SALES> 161,373,000
<TOTAL-REVENUES> 161,373,000
<CGS> 105,145,000
<TOTAL-COSTS> 105,145,000
<OTHER-EXPENSES> 50,021,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (181,000)
<INCOME-PRETAX> 6,359,000
<INCOME-TAX> 2,350,000
<INCOME-CONTINUING> 4,009,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,009,000
<EPS-BASIC> .44
<EPS-DILUTED> .43
</TABLE>
