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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-21258
CHICO'S FAS, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 59-2389435
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(State or other jurisdic- (IRS Employer Identi-
tion of incorporation) fication No.)
11215 Metro Parkway, Ft. Myers, Florida 33912
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(Address of principal executive offices) (Zip code)
(941) 277-6200
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(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
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Common Stock, Par Value $.01 Per Share
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 such
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 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]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant.
Approximately $70,610,897 as of April 1, 1998 (based upon the
closing sales price reported by NASDAQ/NMS and published in
the Wall Street Journal on April 2, 1998)
Indicate the number of shares outstanding of each of the
registrant's classes of common equity, as of the latest practicable date:
Common Stock, par value $.01 per share -- 8,012,584 shares as of
April 1, 1998
Documents incorporated by reference:
Part II Annual Report to Stockholders for the Fiscal Year Ended January 31, 1998
Part III Definitive Proxy Statement for the Company's Annual Meeting of
Stockholders presently scheduled for June 9, 1998.
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CHICO'S FAS, INC.
ANNUAL REPORT ON FORM 10-K
for the
YEAR ENDED JANUARY 31, 1998
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I................................................................................................... 1
Item 1. Business........................................................................... 1
Item 2. Properties......................................................................... 16
Item 3. Legal Proceedings.................................................................. 17
Item 4. Submission of Matters to a Vote of Security-Holders................................ 17
PART II.................................................................................................. 20
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.............. 20
Item 6. Selected Financial Data............................................................ 21
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................................. 23
Item 8. Financial Statements and Supplementary Data........................................ 23
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure......................................................................... 23
PART III................................................................................................. 23
Item 10. Directors and Executive Officers of the Registrant................................. 23
Item 11. Executive Compensation............................................................. 23
Item 12. Security Ownership of Certain Beneficial Owners and Management..................... 23
Item 13. Certain Relationships and Related Transactions..................................... 23
PART IV.................................................................................................. 24
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................... 24
</TABLE>
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PART I
ITEM 1. BUSINESS.
GENERAL
Chico's is a specialty retailer of exclusively designed, private label
casual clothing and related accessories. Virtually all of the clothing offered
at Chico's stores is designed by the Company's in-house staff and bears the
"CHICO'S" trademark. Each Chico's store offers collections of color coordinated
tops, pants, shorts, skirts, jumpsuits, dresses, vests, jackets, outerwear,
socks and accessories, including leather and fabric belts, scarves, earrings,
necklaces and bracelets. Emphasizing casual comfort, Chico's clothing is
principally natural fabrics (including 100% cotton, rayon, linen and silk),
loose fitting and designed for easy care. Chico's believes that its target
customer includes women of all ages who seek style and attitude in their casual
clothing, with a particular focus on 35 to 60 year old women with moderate and
higher income levels.
The Company has sought to employ several innovative approaches to
retailing, including: offering Chico's exclusively designed private label
clothing that offers a casual fit at moderate prices; continually introducing
new merchandise and designs which complement other Chico's merchandise that its
customers may have in their existing wardrobes; using a boutique store design
and personalized service and customer assistance to enhance the shopping
experience; and utilizing Chico's Outlets and periodic warehouse sales at or
near the Company's distribution center in Ft. Myers as inventory clearance
vehicles to help maintain the integrity of the Company's pricing strategy.
However, during the past few years, the Company has experienced some difficulty
in continuing to implement all of these retailing approaches. Because of
increased levels of promotional pricing being offered by other women's clothing
retailers and a deviation from the Company's traditional approach to the look
and fit of the clothing, the Company's price points tended to be considered
above the moderate level for the value being offered and the Company found it
necessary to significantly increase the number and level of markdowns at its
stores. The Company is continuing the process, which began in early 1997, of
refocusing its efforts on a merchandising direction more like the approach taken
by the Company in the early 1990's, with certain modifications designed to
address perceived changes in the desires of its target customer, including
offering items for sale at markdown prices during traditional retail clearance
periods and offering certain synthetic fabrics which provide a somewhat dressier
look. Although current management believes these refocusing efforts have taken
the Company in the right direction, there can be no assurance that these
refocusing efforts will continue to be successful or, that customers will
continue to respond favorably to these changes.
In March 1997, as part of these refocusing efforts, the Company and
Melissa Payner, President since August 1996, signed a separation agreement and
in connection therewith Ms. Payner resigned her position as President. Mr.
Gralnick reassumed the President's position, while also continuing as the Chief
Executive Officer. In December 1996, Charles J. Kleman, the Company's Chief
Financial Officer was promoted to Executive Vice President-Finance while
retaining his title as Chief Financial Officer. In connection with the
reallocation of responsibilities following Ms. Payner's departure, Mr. Kleman
also took on the additional responsibility of overseeing merchandise buying,
planning and related areas until the Company hired a Senior Merchant in
September 1997.
As of April 1, 1998, the Company's retail store system consisted of 141
stores (averaging approximately 1,300 net selling square feet each), of which
133 are front-line "Chico's" stores and 8 are "Chico's Outlet" stores. Of this
total, 29 stores are located in Florida, 16 stores are located in California, 9
stores are located in Texas and the remaining 87 stores are located in 31 other
states and the District of Columbia. Franchisees own and operate 7 of the 141
Chico's stores. Chico's intends to continue locating its front-line
Company-owned stores primarily in established upscale, outdoor destination
shopping areas and high-end enclosed malls located either in tourist areas or in
or near mid-to-larger sized markets. The
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Company opened 13 new front-line and one new outlet store (Company-owned) in the
fiscal year ended January 31, 1998 (fiscal 1998) ,while during the same period
acquiring one of its franchised stores and closing six Company-owned stores. The
Company plans to open 16 to 20 new Company-owned stores in the fiscal year ended
January 30, 1999 (fiscal 1999), but also expects to close between 2 and 6
existing stores. In addition, the Company has recently repurchased (in fiscal
1999) two franchised stores from one franchisee.
BUSINESS STRATEGIES
IMPLEMENTATION OF A REVISED MERCHANDISING PLAN. The Company has
recently developed and is in the process of implementing a new merchandising
plan which addresses operations over the near term as well as a longer term
structure keyed to the ultimate identification of the appropriate senior
management for merchandising, product development and quality control. The plan
addresses each of the following areas of responsibility: product development,
sourcing/production and quality control activities; and buying, planning and
inventory management activities.
Under the new merchandising plan, Marvin Gralnick and Helene Gralnick
are responsible for overall design and product concept and for supervision of
and coordination with Patricia Murphy, Senior Merchant, and Karen Glass,
Director of Product Development. The Director of Product Development manages
product concept and design, including development of styles, sizes and samples.
Ms. Murphy, who has been Senior Merchant since she began with the Company in
September 1997, is principally responsible for the buying, planning and
distribution activities associated with procurement of merchandise. Ms. Murphy
has also been given primary responsibility for production and quality control
and she will work with Ms. Glass to help improve product sourcing. In an attempt
to more effectively utilize its existing buying and planning staff, the Company
has established more specific and distinct responsibilities for the members of
the buying and planning team along with procedures designed to improve
communications and coordination among the members of the entire merchandising
team. The Company believes that this structure and these procedures should
enable effective operation of the merchandising function at least over the short
term. In the meantime, the Company will be carefully evaluating its longer term
needs for additional management in the merchandising area.
DISTINCTIVE IN-HOUSE DESIGNED CASUAL CLOTHING AND COORDINATED
ACCESSORIES. The most important element of the Company's business strategies is
the distinctive private label casual clothing and complementary accessories
offered for sale at Chico's stores. Emphasizing casual comfort, Chico's clothing
is predominantly natural fabrics (including cotton, rayon, linen and silk) ,
loose fitting and designed for easy care. Accessories, such as leather and
fabric belts and jewelry, including earrings, necklaces and bracelets, are
specifically purchased and designed to coordinate with the colors and patterns
of Chico's clothing, enabling customers to easily enhance and individualize
their wardrobe selections.
Virtually all of the clothing offered by Chico's is designed in-house,
and the Company controls most aspects of the design process, including choices
of pattern, construction, fabric, treatment and color. A majority of the
accessory designs also are developed in-house or are modified at Chico's request
by the manufacturer to complement specific items of clothing or support a look
that is distinctively Chico's.
Chico's private label clothing is designed through the coordinated
efforts of the Company's planning and design departments. Style, pattern, color
and fabric for individual items of the Company's private label clothing are
developed based upon historical sales data, anticipated future sales and
perceived current and future fashion trends that will appeal to Chico's target
customer.
The Company's design team develops these in-house designs and design
modifications. By designing in-house and then contracting directly with
manufacturers and providing some on-site quality control, the
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Company has been able to realize higher average gross profit margins than the
industry while at the same time providing value to its customers.
The distinctive nature of Chico's clothing is carried through in its
sizing. In early 1992, Chico's modified its approach to sizing from principally
a one-size-fits-all approach to one that principally incorporates international
type sizing, utilizing sizes 0 (extra small), 1 (small), 2 (medium) and 3
(large), while retaining one-size-fits-all sizing for some items. Because of the
casual loose-fitting nature of Chico's clothing, this sizing also allows Chico's
to offer a wide selection of clothing without having to invest in a large number
of different sizes within a single style.
CERTAIN BUILDING BLOCKS OF THE COMPANY'S MERCHANDISING STRATEGY. In
addition to the structural changes in the oversight of the merchandising
function as described above, the Company continues to follow certain important
elements of the merchandising strategy that it has sought to follow since the
early 1990's. These important elements include the Company's focus on its target
customer, the continual introduction of new merchandise, its pricing policies,
the store design and merchandise presentation and its quality assurance
programs.
Focus on the Target Customer. Based upon informally gathered
information from customers, sales associates and store managers, as
well as studies provided by an outside database service, the Company
seeks to anticipate and respond to the perceived needs and preferences
of its target customer. Chico's target customers are believed to
include women of all ages who seek style and attitude in distinctive,
casual clothing which represents good value, with a particular focus on
35 to 60 year old women in the moderate and higher income levels.
Although, the Company has experienced changes in design direction that
caused it to vary from the preferences of those women who historically
shopped at Chico's, the new merchandising plan intends to continually
focus the entire product development team on the Company's historical
target customer.
Continual Introduction of New Merchandise. The Company seeks
to continually introduce new merchandise and designs to its stores. The
Company is continuing its efforts to reactivate the design philosophy
for new merchandise whereby merchandise is evolutionary, rather than
revolutionary. Although Chico's experienced some design and outfit
coordination problems over the past few years which resulted in a build
up in inventory that was not received well at the front-line stores,
Chico's intends to give greater focus again in fiscal 1999 on trying to
make certain that new merchandise items will generally complement the
colors and styles of other previously offered Chico's merchandise. This
approach is designed to allow Chico's customers to supplement the
wardrobe purchases made today with the new merchandise that will arrive
in Chico's stores in the future. The Company believes its target
customer prefers this continuity in Chico's styles to frequent changes
in style and design.
As part of the Company's strategy to continually introduce new
merchandise, Chico's seeks to provide only a limited supply of each
item of merchandise to each store and in most cases seeks to restock
its stores, after the initial shipment is redistributed to all stores,
with new styles and designs instead of continually providing additional
pieces of existing styles and designs (except for certain core items).
This merchandising strategy is intended to foster a sense of urgency
for Chico's customers by creating a limited period of time to buy new
styles and designs. Slower selling items and the remaining pieces of
better selling items still in a store when new merchandise arrives are
frequently consolidated in certain front-line stores and, then marked
down and/or sent to its outlet stores. If the style becomes
out-of-place due to seasonality, color, etc., it may be subjected to
additional markdowns or returned to the Company's distribution center
to be held for replenishment at outlet stores or for liquidation.
Pricing Policies. The Company's strategy is to offer its
exclusively designed private label
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clothing and complementary accessories at moderate prices that are
believed to be generally competitive with the prices charged for
similar quality goods by other specialty apparel retailers and by
upscale department stores. For example, tops, pants and jackets are
offered at retail price points generally ranging from $15 to $128 per
item and accessories are offered at retail price points generally
ranging from $9 to $50 per item.
Historically, the Company's philosophy was generally to avoid
storewide price markdowns at its front-line stores and the Company
believes that in the past it utilized price markdowns and special
promotions to a lesser degree than have its principal competitors.
During fiscal 1998, the Company shifted its strategy for markdowns and
clearance of slower moving merchandise. Rather than placing the
emphasis on clearing most of the goods at outlet stores, the Company is
making more extensive use of its front line stores to clear slower
selling merchandise through chain wide markdowns of these items and by
initiating such markdowns at an earlier date in the product life cycle.
The Company believes this new strategy will reduce the need to rely on
its outlet stores and warehouse sales as a principal means of clearing
slower selling merchandise. The Company expects to continue to
complement its pricing policies with its strategy to continually
replace merchandise at its front-line stores and to transfer older
merchandise to its outlet stores or the Company's distribution center
for liquidation, although the Company intends on increasing markdowns
in its front-line stores to provide more immediate clearance of goods.
Store Design and Merchandise Presentation. Chico's historical
store design, interior layout and merchandise presentation tends to
complement Chico's private label casual clothing and personalized
service, helping to create a "boutique" atmosphere with an open and
comfortable ambiance. Although some stores were changed over the past
several years to present a cleaner look designed to make shopping at
Chico's easier, the Company has since developed a store design which
returns to a "boutique" look but in an updated store environment. Both
the older styles of Chico's stores and the newer style store generally
utilize hardwood and occasionally concrete floors, simple wooden
display modules, flat wooden whole body mannequins, wooden hanging
racks and wooden display cases, checkout counters and dressing rooms.
The Company is refocusing its store design program by sprucing up its
stores while at the same time trying to retain more of the historical
layout and atmosphere. Most store fixtures, except for certain
antiques, are manufactured by the Company in its own woodshop in Ft.
Myers.
To encourage sales of multiple wardrobe items, Chico's stores
also use "color areas," which present coordinated colors or seasonal
themes in different areas of the store. Rather than displaying clothing
by type (for example, tops with tops, pants with pants, etc.),
merchandise is grouped by color coordinated items of clothing and
accessories. Such a grouping typically includes several different
coordinated tops, pants, shorts or other items of clothing as well as
accessories such as belts, earrings and necklaces that could be used to
create several different ensembles and looks that appeal to various
lifestyles. Sales associates are trained to assist customers in
creating such ensembles. Management believes the color coordinated
grouping of merchandise strengthens the style image of the merchandise
and enhances the likelihood for multiple item purchases. Accessories
accounted for approximately 13% of the Company's net sales in fiscal
1998, which is less than it has been historically. Continuing efforts
are being made through better coordination of accessories with clothing
to improve the volume of accessory sales in fiscal 1999.
Quality Assurance. Currently, most of the clothing offered for
sale at Chico's stores is manufactured abroad. The Company has
diversified its manufacturing sources to a number of different
countries but continually finds it necessary to address quality
control. The Company has now developed a more focused system for
inspection of clothing upon receipt in this country and has had some
greater experience with vendors to identify those who provide the level
of quality Chico's demands. Also, Chico's has been more careful to
utilize each vendor to manufacture the merchandise
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that the vendor has the most experience making. The Company has
recently been expanding its use of domestic vendors, when possible, and
it intends on continually exploring vendors closer to its headquarters.
PERSONALIZED SERVICE AND CUSTOMER ASSISTANCE. The Company has always
considered personalized customer service one of the most important factors in
determining its success. The Company intends, through training efforts, to make
certain that Chico's sales associates offer assistance and advice on various
aspects of their customers' fashion and wardrobe needs, including clothing and
accessory style and color selection, coordination of complete outfits and
suggestions on different ways in which to wear the Chico's clothing and
accessories. As part of its strategy to reinforce the casual aspects of Chico's
clothing, Chico's sales associates are trained to demonstrate to customers
creative ways to wear Chico's clothing. Dressing rooms are not equipped with
mirrors, encouraging customers to come out of the dressing rooms in Chico's
clothes so that store personnel can provide such assistance. The Company has not
found it necessary to offer alteration services.
Chico's sales associates are encouraged to know their regular
customers' preferences and to assist those customers in selecting merchandise
best suited to their tastes and wardrobe needs. The Company strongly encourages
its sales associates to wear Chico's clothing and accessories at its stores at
all times and to compliment this it offers substantial employee discounts. To
better serve the Chico's customer, sales associates are encouraged to become
familiar with new styles and designs of clothing and accessories by trying on
new merchandise.
Chico's employees are expected to keep individual stores open until the
last customer in the store has been served. If an item is not available at a
particular store, sales associates are encouraged to arrange for the item to be
shipped directly to the customer from another Chico's store.
Chico's frequent buyer program, known as the "Passport Club" has been
designed to encourage repeat sales and customer loyalty. Features of the club
include discounts, special promotions, invitations to private sales and
personalized phone calls regarding new merchandise. In 1994, the Company decided
to limit the number of new members and to evaluate ways to restructure the
program. During fiscal 1996 and fiscal 1997, the Company established a new
database of customers that shop at Chico's using credit cards (approximately 84%
of sales). Both of these databases have helped focus marketing and targeted
customer efforts. The Company is continuing to work with both programs and
anticipates it will be establishing a new, revitalized "Passport Club" to
replace the old program by late fiscal 1999. As of April 1, 1998, approximately
19,000 Chico's customers were actively enrolled in the Passport Club, and
approximately 150,000 were being tracked in the credit card database. Management
intends to continue the reevaluation of these programs.
HIGH-ENERGY, LOYAL EMPLOYEES. The Company believes that the dedication,
high-energy level and experience of the members of its senior management team,
support staff and store employees are key to its continued growth and success
and help to encourage personalized attention to the needs of Chico's customers.
In selecting its employees at all levels of responsibility, Chico's
looks for quality individuals with high-energy levels who project a positive
outlook. The Company has found that such persons perform most effectively for
the Company and contribute to a fun and exciting shopping experience for Chico's
customers.
Sales associates are compensated with a base hourly wage but also have
opportunities to earn substantial incentive compensation based on their
individual sales. For the most part, these incentives are based upon the dollar
amount of sales to individual customers, thereby encouraging sales of multiple
items. In addition, the Company periodically sponsors sales-based contests for
its Company-owned stores. Store managers receive base salaries and are eligible
to earn various incentive bonuses tied to individual sales and
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storewide sales performance. District managers also have the opportunity to earn
incentive compensation based upon the sales performance of stores in their
districts.
The Company offers its employees other recognition programs and the
opportunity to participate in its stock option and stock purchase programs.
Management believes that all these programs and policies offer Chico's sales
associates and other employees opportunities to earn total compensation at
levels generally above the average in the retail industry for comparable
positions.
Increases in the number of Chico's Company-owned stores and Chico's
emphasis where possible on a "promote from within" philosophy provide
opportunities for qualified employees to advance to higher positions in the
Company.
ADDITIONAL COMPANY-OWNED STORES. Management believes that the ability
to open additional Company-owned Chico's stores will be a factor in the future
success of the Company. However, in an effort to focus on the difficulties
experienced by the Company in 1994, the Company decided to reduce substantially
its 1995 store opening program. The Company opened 26 new Company-owned Chico's
stores in fiscal 1994, and opened seven new stores in fiscal 1995 while during
the same period closing six stores. In fiscal 1997, the Company began to open
additional stores at a faster pace, opening 13 new stores while during the same
period acquiring one store from a franchisee but closing two stores. In fiscal
1998, the Company opened a total of 14 new Company-owned stores, acquired one
store from a franchise and closed six Company-owned stores. During fiscal 1999,
Chico's plans to open between 16 and 20 new stores while closing between two and
six stores. As of April 1, 1998, the Company has not yet opened any of the new
stores planned to be opened in fiscal 1999, but it has signed leases for several
new Chico's store locations. The Company also is currently engaged in
negotiations for the leasing of additional sites.
In general the Company intends to locate its new stores predominantly
outside of Florida. In deciding whether to open a new store, the Company
undertakes an extensive analysis which includes the following: identifying an
appropriate geographic market; satisfying certain local demographic
requirements; evaluating the location of the shopping area or mall and the site
within the shopping area or mall; assessing proposed lease terms; and evaluating
the sales volume necessary to achieve certain profitability criteria. Once the
Company takes occupancy, it usually takes from three to five weeks to open a
store. After opening, Chico's front-line stores have typically generated
positive cash flow within the first year of operation (after allocation of a
portion of home office administrative expense based on sales and after recovery
of the Company's out-of-pocket cash expenses in opening the new store). However,
there can be no assurance that new Chico's stores will achieve operating results
similar to those achieved in the past.
The Company plans to grow by opening additional Company-owned stores
and the Company does not currently intend to increase the number of franchisees.
The Company intends to continue providing full support for its franchise network
and anticipates that some of its existing franchisees may be able to meet the
Company's criteria for opening additional stores in their respective limited
territories. During fiscal 1998 and thus far in fiscal 1999, the Company
repurchased three of its franchise stores.
STORE LOCATIONS
Chico's stores are situated, for the most part, either in tourist areas
or in, or near, mid-to-larger sized markets. The Company's front-line stores are
located almost exclusively in upscale outdoor destination shopping areas,
high-end enclosed shopping malls and, to a lesser degree, regional malls, which
offer high traffic of Chico's target customers. The Company seeks to locate the
Company-owned front-line stores where there are other upscale specialty stores
and, as to its mall locations, where there are two or more better department
stores as anchor tenants. Chico's Outlet stores are located in outlet centers.
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Chico's Company-owned, front-line stores average approximately 1,250
net selling square feet, while the Company-owned outlet stores average
approximately 1,735 net selling square feet. However, in locations where the
Company has a desire to establish a store but where the optimum store size is
unavailable, the Company often will lease a front-line store with as few as 900
net selling square feet or as many as 2,000 net selling square feet. If the
volume of business at one of these smaller stores is sufficient, and there is no
ability to expand the existing store, the Company may choose to open additional
stores nearby, operating two or three Chico's stores in the same general
shopping area.
At April 1, 1998, there were 141 Chico's stores, of which 126 were
Company-owned front-line Chico's stores, 7 were franchised Chico's stores and 8
were Chico's Outlet stores. Chico's stores are located in the following
jurisdictions: (See table on page 7)
<TABLE>
<CAPTION>
COMPANY- COMPANY-
OWNED CHICO'S OWNED OUTLET FRANCHISED
STATE STORES STORES CHICO'S STORES TOTAL STORES
- ----- ------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Florida ............ 26 2 1 29
California ......... 15 1 -- 16
Texas .............. 9 -- -- 9
Ohio ............... 7 -- -- 7
Illinois ........... 5 1 -- 6
New Jersey ......... 5 -- -- 5
Pennsylvania ....... 5 -- -- 5
Massachusetts ...... 4 -- -- 4
Minnesota .......... -- -- 4 4
New York ........... 4 -- -- 4
Tennessee .......... 3 1 -- 4
Colorado ........... 2 1 -- 3
Connecticut ........ 3 -- -- 3
Maryland ........... 3 -- -- 3
Michigan ........... 2 -- 1 3
New Mexico ......... 3 -- -- 3
South Carolina ..... 3 -- -- 3
Virginia ........... 3 -- -- 3
Alabama ............ 1 1 -- 2
Arizona ............ 1 1 -- 2
District of Columbia 2 -- -- 2
Indiana ............ 1 -- 1 2
Kansas ............. 2 -- -- 2
Louisiana .......... 2 -- -- 2
Missouri ........... 2 -- -- 2
North Carolina ..... 2 -- -- 2
Rhode Island ....... 2 -- -- 2
Washington ......... 2 -- -- 2
Georgia ............ 1 -- -- 1
Kentucky ........... 1 -- -- 1
Nebraska ........... 1 -- -- 1
Nevada ............. 1 -- -- 1
Oregon ............. 1 -- -- 1
Vermont ............ 1 -- -- 1
Wyoming ............ 1 -- -- 1
--- --- --- ---
Total ..... 126 8 7 141
=== === === ===
</TABLE>
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In a typical new front-line Chico's store, the Company's cost of
leasehold improvements, fixtures, store equipment and beginning inventory ranges
from $80,000 to $200,000 (after taking into account landlord construction
allowances and other concessions).
Chico's utilizes teams of employees experienced in new store openings
who are able to do final build-out and set up store interiors rapidly,
including, where necessary, the flooring, furniture, fixturing, equipment and
initial inventory displays. The use of in-house crews and the fact that Chico's
manufactures most of the wood fixtures, display modules, mannequins and other
interior furnishings allows the Company to open a new store generally within
three to five weeks after taking occupancy. Management believes that, as a
result, the Company opens its new stores more rapidly and at less cost than many
of its competitors. In an attempt to further streamline the process, in 1994 the
Company set up an arrangement whereby the final design and initial build-out of
the space is handled by third party architectural and contracting firms, with
offices or affiliates throughout the country. Under such an arrangement, Chico's
in-house crews are still responsible for the final stages of the build-out and
for setting up the store interiors.
The following table sets forth information concerning changes in the
number of Chico's Company-owned and franchise stores during the past five fiscal
years:
<TABLE>
<CAPTION>
FEBRUARY FY
NUMBER OF COMPANY-OWNED STORES 1993 1994 1995 1, 1997 ** 1998
---- ---- ---- ---------- ----
<S> <C> <C> <C> <C> <C>
Stores at beginning of year 57 78 104 111 123
Opened* ................. 21 26 8 13 14
Acquired from franchisees -- -- 5 1 1
Closed .................. -- -- (6) (2) (6)
--- --- ---- ---- ----
Stores at end of period ... 78 104 111 123 132
--- --- ---- ---- ----
NUMBER OF FRANCHISE STORES
Stores at beginning of year 18 16 17 12 10
Opened* ................. -- 1 -- -- --
Sold to the Company ..... -- -- (5) (1) (1)
Closed .................. (2) -- -- (1) --
--- --- ---- ---- ----
Stores at end of period ... 16 17 12 10 9
--- --- ---- ---- ----
NUMBER OF TOTAL STORES ............... 94 121 123 133 141
=== === ==== ==== ====
</TABLE>
* Does not include stores that opened as relocations of previously
existing stores within the same general market area (approximately five
miles) or substantial renovations of stores.
** Numbers of stores relate to a 13 month period which runs from January
1, 1996 through February 1, 1997.
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OUTLET STORES
As of April 1, 1998, the Company operated eight outlet stores under the
name "Chico's Outlet"and one Chico's temporary "warehouse sale" store in Fort
Myers. Chico's Outlet stores carry slower selling items removed from front-line
stores, remaining pieces of better selling items replaced by new shipments of
merchandise to front-line stores, returns of merchandise accepted from franchise
stores under the Company's franchisee return policy and seconds of the Company's
merchandise. Chico's Outlet stores act as a vehicle for marking down the prices
on such merchandise while continuing to allow Chico's front-line stores to
maintain a somewhat limited markdown policy. Prices at Chico's Outlet stores
generally range from 30% to 70% below regular retail prices at Chico's
front-line stores. Although service is also important at Chico's Outlet stores,
there is somewhat less emphasis in the outlet stores on personalized customer
service. The "warehouse sale" store, which is generally only open during the
Florida tourist season, provides further liquidation for styles which require
lower prices than at the Chico's Outlets. Sales from the Company's outlet stores
represented approximately 7.1% of the Company's net sales by Company-owned
stores during fiscal 1998. Chico's Outlet stores have not been intended to be
profit centers.
Chico's Outlet stores are generally larger than front-line stores,
averaging approximately 1,735 net selling square feet. The Company did not open
any new outlet stores in fiscal 1997, opened only one outlet store in fiscal
1998, and does not anticipate opening more than one or two outlet stores during
fiscal 1999. The Company is reevaluating the extent to which it should continue
to rely on an increase in the number of outlet stores as the basis for clearing
out excess merchandise. During fiscal 1998 and fiscal 1997, the Company
conducted clearance sales at and near the Company's warehouse in Ft. Myers.
These clearance sales generated approximately $690,000 and $1.4 million total
sales in fiscal 1998 and fiscal 1997, respectively. The Company is exploring
various other options for clearing such merchandise in the future, including
increasing front-line markdowns, similar warehouse sales, an outlet store in
Puerto Rico and strategic bulk sales to liquidators.
FRANCHISE STORES
Currently, there are 7 franchised Chico's stores operated by four
owners, none of whom is affiliated with the Company. Each franchisee paid an
initial franchise fee of between $5,000 and $75,000 per store and is not
required to pay any continuing monthly royalty. Each franchisee has been
provided an exclusive license at a specified location to operate a Chico's store
and to utilize the Company's trademarks, service marks and other rights of the
Company relating to the sale of Chico's merchandise. The term of the franchise
is generally ten years, renewable for additional ten year periods if certain
conditions pertaining to the renewal are met (including the payment of a renewal
fee). Franchisees are required to operate their Chico's stores in compliance
with the Company's methods, standards and specifications regarding such matters
as store design, fixturing and furnishings, decor and signage, merchandise type
and presentation, and customer service. The franchisee has full discretion to
determine the prices to be charged to customers generally by changing or
replacing any pre-ticketed price tags. Franchisees are required to purchase all
Chico's brand clothing from Chico's and all accessories from Chico's or from
suppliers approved by the Company. Most of the merchandise offered by Chico's
franchisees at their stores is purchased from the Company at prices
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averaging between 50% and 57% of suggested retail prices. In certain situations,
franchise stores may carry other brands of clothing or accessories if such
merchandise is approved by the Company. In such cases, franchisees may be
required to pay to the Company a monthly royalty equal to 5% of gross sales of
any approved merchandise not purchased from Chico's. In fiscal 1998, the
Company's net sales to franchisees was approximately $1.7 million, or 2.3% of
total net sales.
Some franchisees have entered into franchise territory development
agreements with the Company, which grant to the franchisee the right to develop
and own a specified number of Chico's stores within a specified period of time
or which preclude the Company from opening Company or franchised stores without
first giving the respective franchisees the right to open the proposed Chico's
store within the respective limited territories granted to such franchisees. As
of April 1, 1998, the franchisee holding franchise rights in Minnesota has the
right to open additional Chico's stores, and one other franchisee has the right
to preclude the Company from opening a Company or franchised store in the
respective territory without first giving the respective franchisee the right to
open the store. With respect to the franchise rights granted in Minnesota, the
Company granted an exclusive right to develop Chico's stores and subfranchise
within the state of Minnesota. Certain of these franchisees, including the
Minnesota franchisee, may technically have the ability to open an unlimited
number of additional stores within their respective limited territories.
However, the Company believes that economic, logistic and other practical
considerations effectively limit the number of additional stores that these
franchisees may open in the future. The Company does not believe that these
territory and right of first refusal rights will significantly limit the
Company's ability to expand.
The Company intends to continue supporting its existing franchise
network. However, the Company does not intend at this time to pursue any new
franchises or to enter into any additional franchise territory development
agreements. In the past, the Company has acquired certain franchise stores that
have been offered for sale to the Company. During fiscal 1998 and thus far in
fiscal 1999, the Company repurchased three of its franchise stores and will
consider additional purchases of franchise stores that may be offered to the
Company from time to time in the future. In addition, the Company may terminate
franchises where performance or circumstances so justify. Management expects
that Chico's franchise stores will play an increasingly less important role in
the Company's future sales and profitability.
STORE OPERATIONS
Chico's stores typically employ a manager, two assistant managers, and
one to five sales associates who are either full-time or part-time employees.
During the peak selling seasons, stores generally hire additional sales
associates.
Store managers take an active part in selling at the stores and are
expected to be on the sales floor at all times during business hours.
Purchasing, merchandising, advertising, accounting, cash management and other
store support functions are handled by the Company's corporate headquarters. The
Company attempts to keep administrative tasks for the store managers to a
minimum, thereby allowing the store managers more time to focus on store sales,
personalized customer service and in-store and local community merchandising
strategies including outreach programs.
Chico's recognizes that over the past few years the Company has not
spent an appropriate amount of time focusing on formalized training activities.
This is one of several important areas that is to receive attention as the
Company's refocuses its efforts and seeks to return to stronger profitability.
The Company is actively working on establishing a more formalized training
program that focuses attention on its sales associates and, during the last
quarter of fiscal 1998, the Company implemented phase I of its comprehensive
training program, which focused on Fashion Information Training (F.I.T.) for the
sales associates. It is anticipated that phase II, which includes a sales module
entitled Most Amazing Personal Services (M.A.P.S.) and which is intended to
eventually cover all sales associates, will begin sometime during the first six
months of fiscal 1999.
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The Company currently supervises store operations through its Director
of Stores, a National Sales Manager and District Sales Managers. As of April 1,
1998, the Company had a National Sales Manager and 13 District Sales Managers.
The National Sales Manager provides assistance to the Director of Stores in
supervision of the District Sales Managers. Each District Sales Manager
supervises multiple store locations and currently reports to the Director of
Stores. District Sales Managers have primary responsibility for assisting
individual store managers in meeting established sales goals, and carrying out
merchandise presentation, training and expense-control programs established by
the home office. Management is continually reviewing its supervisory structure
with the intent of improving the performance of individual stores and store
managers.
MANAGEMENT INFORMATION SYSTEMS
The Company's current management information systems are based on an
IBM AS400 (Model 510) located at the home office in Ft. Myers, which provides a
full range of retail, financial and merchandising information systems, including
purchasing, inventory distribution and control, sales reporting, accounts
payable, warehousing and merchandise management.
All Chico's stores utilize point of sale cash register computers, which
are polled nightly to collect store-level sales data and inventory receipt and
transfer information for each item of merchandise, including information by
item, style, color and size. Management evaluates this information, together
with its weekly reports on merchandise shipments to the stores, to analyze
profitability, formulate and implement company-wide merchandise pricing
decisions, assist management in the scheduling and compensation of employees
(including the determination of incentives earned) and, most importantly, to
implement merchandising decisions regarding needs for additional merchandise,
allocation of merchandise, future design and manufacturing needs and movement of
merchandise from front-line stores to Chico's Outlet stores.
In 1995, the Company converted to a new back-office software system for
all of its operations including the implementation of new merchandise planning
and control modules. In fiscal 1998, the Company implemented a PC based software
package that is linked to the AS400 and provides additional reporting
capabilities on merchandise. The Company also upgraded its computer hardware in
fiscal 1997 by moving to the new RISC architecture and implementing bar code
scanning for its cash registers at the stores.
The Company is committed to an ongoing review and improvement of its
information systems to enable the Company to obtain useful information on a
timely basis and to maintain effective financial and operational controls. This
review includes testing of new products and systems to assure that the Company
is able to take advantage of technological developments.
The company has assessed the year 2000 readiness of its systems and has
determined that the costs and uncertainties that may be associated with
addressing the year 2000 issues for its systems are not expected to have a
material impact on its business operations or its financial condition.
MERCHANDISE DISTRIBUTION SYSTEM
New merchandise is generally received several times per month at the
Company's distribution center in Ft. Myers, Florida. Most of the merchandise
arrives in this country via air or sea at Miami, Florida, and is transported via
truck to Ft. Myers. After arrival at the distribution center, merchandise is
sorted and packaged for shipment to individual stores. Merchandise is generally
pre-ticketed with price and all other tags at the time of manufacture. In fiscal
1998, the Company found it necessary to rely more heavily on air shipments in
order to keep its stores supplied with merchandise, thus impacting the cost of
obtaining merchandise and the gross profit margins. As the Company addresses its
merchandising challenges and works towards implementing stronger lines of
communication and controls, it is likely that air shipments may
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still need to be relied upon. However, the plan is to improve the Company's
scheduling and distribution systems so as to reduce the need to rely on air
transportation to obtain merchandise.
The Company's distribution center is automated, thus generally
permitting turnaround time between distribution center receipt of merchandise
and arrival at Chico's stores to average approximately 24 to 48 hours for its
Florida stores and two days to a week for its other stores. In an attempt to
ensure a steady flow of new merchandise, the Company ships merchandise
continuously to its stores. The Company uses common carriers, such as United
Parcel Service, for most shipments to its stores.
The capacity of the Company's distribution center should be sufficient,
in the opinion of management, to service the Company's needs for at least five
years of future growth.
MERCHANDISE DESIGN, PURCHASING AND SOURCES OF SUPPLY
The Company's private label clothing is developed through the
coordinated efforts of the Company's planning and design/development
departments. Style, pattern, color and fabric for individual items of the
Company's private label clothing are developed based upon historical sales data,
anticipated future sales and perceived current and future fashion trends that
will appeal to Chico's target customer. The Company's design/development
department is headed up by Marvin and Helene Gralnick, the Company's founders.
Recently, the Company hired a new senior merchant who has taken on the
responsibility of overseeing and coordinating the buying, planning, quality
control and distribution of merchandise.
The product development and production teams create the Company's
in-house designs and design modifications. In addition to selecting distinctive
patterns and colors, the Company's product development team is particularly
attentive to the design and specification of clothing style, construction, trim
and fabric treatment. The Company believes this attention to design detail
assists in distinguishing Chico's clothing and strengthening the customer's
perception of quality and value.
Although the Company develops merchandise for specific seasons, the
design and development efforts are a constant process which result in the
continual introduction of new merchandise in the Company's front-line stores.
This continual process supports the Company's merchandising and inventory
strategy, and serves to reduce somewhat the Company's exposure to fashion risk.
The Company has historically purchased most of its clothing and
accessories from companies that manufacture such merchandise in foreign
countries. The Company does business with all of its foreign vendors and
importers in United States currency, generally supported through letters of
credit. Clothing manufacturers utilize the designs and specifications provided
by the Company through its CAD programs. The Company generally does not purchase
and supply the raw materials for its clothing, leaving the responsibility for
purchasing raw materials with the manufacturers. Recently, the Company has been
buying specialized cloth and employing domestic "cut and sew" manufacturers to
make the specified designs and styles. The Company anticipates it will continue
this practice in the future.
Currently, the Company contracts with approximately 30 to 50 apparel
vendors and 20 to 30 accessory vendors. Over the past several years, there has
been a significant shift from vendors in Turkey (who in 1993 accounted for over
50% of total purchases) to vendors in Guatemala, followed by a further shift
from the vendors in Turkey and Guatemala to vendors in Hong Kong and to
importers who import from vendors in Hong Kong, China and Peru. However, because
of certain perceived higher sourcing costs that can be associated with the
Company's vendors in the far east and certain other long term uncertainties
presented by such vendor relationships, the Company intends to begin to redirect
a portion of its sourcing activities towards new vendors in the United States
and possibly other areas.
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In fiscal 1998, Hong Kong sources accounted for approximately 32% of
the Company's purchases, and Turkey accounted for approximately 23% of overall
purchases, while the United States and India amounted to between 10% to 20% of
overall purchases. In fiscal 1999, the Company expects sourcing from Hong Kong
to remain at a similar percentage. It is not expected that China's take over of
Hong Kong has or will have, any immediate significant impact on sourcing from
Hong Kong but, over time the Company may find greater challenges as a result.
The Company intends to monitor this situation. Purchases from vendors in Mexico
and other countries in Central America are expected to remain under 10% of total
purchases, while vendors in Turkey can be expected to continue to provide
approximately 20-25% of total purchases. Purchases from vendors in India and
Indonesia are likely to grow above their current amounts. United States vendors
were utilized more heavily in fiscal 1998 and it is expected this will grow
slightly in fiscal 1999.
From time to time, the Company has experienced certain difficulties
with the quality and timeliness of delivery of merchandise manufactured
overseas. Although the Company has been sensitive to quality control and has
taken certain steps to better control the quality of merchandise secured from
foreign vendors, there can be no assurance that the Company will not experience
problems in the future with matters such as quality or timeliness of delivery.
If political instability, the Asian financial crisis or other factors in a
foreign country in which merchandise is produced for the Company disrupt,
curtail or otherwise impact overseas production, or curtail delivery of such
merchandise to the United States, the Company's operations could be materially
and adversely affected.
The Company has no long-term or exclusive contracts with any
manufacturer or supplier and competes for production facilities with other
companies offering clothing and accessories utilizing similar manufacturing
processes. Although the Company believes that its relationships with its
existing vendors are good, there can be no assurance that these relationships
can be maintained in the future. If there should be any significant disruption
in the delivery of merchandise from one or more of its current key vendors,
management believes there would likely be a material adverse impact on the
Company's operations. Also, the Company is just developing relationships with
several new vendors in Mexico, India, and other countries. Although the Company
has investigated the past performance of these vendors and has inspected
factories and sample merchandise, there can be no assurance that the Company
will not experience delays or other problems with these new sources of supply.
New relationships often present a number of uncertainties, including payment
terms, cost of manufacturing, adequacy of manufacturing capacity, quality
control, timeliness of delivery and possible limitations imposed by trade
restrictions. Although management believes it could establish satisfactory
relationships with other new vendors if required to do so, any such further new
relationships would involve similar uncertainties.
IMPORTS AND IMPORT RESTRICTIONS
Because most of Chico's clothing and accessories are manufactured
outside of the United States, the Company's business is subject to the various
risks of doing business abroad and to the imposition of United States customs
duties. In the ordinary course of its business, the Company may from time to
time be subject to claims by the United States Custom Service for tariffs,
duties and other charges.
Imports from Turkey, Guatemala, Hong Kong, China and Peru currently all
receive the preferential tariff treatment that is accorded goods from most
favored nations ("MFN"). If the MFN status of any of these countries were to be
lost and the merchandise purchased by the Company were then to enter the United
States without the benefit of MFN treatment or subject to retaliatory tariffs,
it would be subject to significantly higher duty rates. Increased duties,
whether as a result of a change in MFN status or any overall change in foreign
trade policy, could have a material adverse effect on the cost and supply of
merchandise from these countries. Although Chico's expects MFN status to
continue for the countries where its principal vendors are located, the Company
cannot predict whether the US Government will act to remove MFN status for any
of the countries or impose an overall increase in duties on foreign made goods.
In particular, the MFN status for China is currently subject to a yearly review
and its status as such has been the subject of
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some debate. Also, in July 1997, Hong Kong changed from its former status as a
British colony to become the subject of Chinese sovereignty. Although for trade
purposes the United States has continued to treat Hong Kong as a separate
territory, and it has continued to negotiate directly with Hong Kong while at
the same time it has continued its MFN trade status, there can be no assurance
that Hong Kong's shift to Chinese sovereignty will not have an impact on the
Company's sourcing activities, particularly if the Company continues significant
sourcing from Hong Kong.
The import of the Company's clothing and some of its accessories is
also subject to constraints imposed by bilateral textile agreements between the
United States and a number of foreign jurisdictions. These agreements impose
quotas that limit the amount of certain categories of clothing that can be
imported from these countries into the United States. The bilateral agreements
through which quotas are imposed have been negotiated under the framework
established by the Arrangement Regarding International Trade, known as the
"Multifiber Arrangement."
In 1994, the member-countries of the International Trade Organization
completed the Uruguay Round of trade negotiations of the General Agreement on
Tariffs and Trade and the Agreement was approved by the United States Congress.
This pact, as it applies to textiles, which is now known as the WTO Agreement on
Textiles and Clothing (the "ATC"), was implemented on January 1, 1995 and, as a
result, the Multifiber Arrangement is being phased out over a period of ten
years, thus eliminating many of the existing restrictions on the ability to
import Chico's merchandise, including quotas. The ATC could have an impact on
the Company's sourcing strategy as the Multifiber Arrangement phases out. The
Company cannot accurately assess at this time how the ATC will affect its
financial results and operations or whether there might be other arrangements
added in the future which impose other types of restrictions on imports of
apparel and related accessories.
In recent years, the Company's imports from countries subject to the
Multifiber Arrangement have all fallen within the applicable quota limits. There
can be no assurance that, as long as the quotas remain in effect, the Company's
vendors will be able to continue to secure sufficient quotas for shipments to
Chico's or will continue to allocate to Chico's a sufficient portion of their
respective quotas.
The Omnibus Trade and Competitiveness Act of 1988 added a new provision
to the Trade Act of 1974 dealing with intellectual property rights. This
provision, which is commonly referred to as "Special 301" and which remains
effective even following the approval of the ATC, directed the United States
Trade Representative (the "USTR") to designate those countries that deny
adequate and effective intellectual property rights or fair and equitable market
access to United States firms that rely on intellectual property. From the
countries designated, the USTR is to identify as "priority" countries those
where the lack of intellectual property rights protection is most egregious and
has the greatest adverse impact on United States products. The USTR is to
identify and investigate as priority foreign countries only those that have not
entered into good faith negotiations or made significant progress in protecting
intellectual property. Where such an investigation does not lead to a
satisfactory resolution of such practices, through consultations or otherwise,
the USTR is authorized to take retaliatory action, including the imposition of
retaliatory tariffs and import restraints on goods from the priority foreign
country.
Under Special 301, the USTR has also created a two-tier "watch list"
that requires the country so listed to make progress on intellectual property
protection reform or risk designation as a priority foreign country.
China has been designated as a priority foreign country. Although no
new investigation has been initiated as a result of this designation, greater
focus is being given to China's compliance with existing agreements concerning
intellectual property that are in place between the United States and China. As
a
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result, the USTR can decide at any time to impose trade sanctions on China if
the USTR were to conclude that China is not satisfactorily implementing the
terms of the existing agreements.
Countries named on the first tier of the watch list, i.e., the priority
watch list, are requested to make progress in certain areas by specific dates.
Countries named to the second tier, i.e., the secondary watch list, are asked to
improve their intellectual property protection efforts. As of April 1, 1998, of
the countries where the Company's existing or planned key vendors have
manufacturing operations or suppliers, Turkey, India and Indonesia were on the
priority watch list and Hong Kong, Guatemala and Peru were on the secondary
watch list. In addition, the Clinton Administration has revived, at least
through 1998, Super 301 (an even more powerful portion of Special 301). Super
301 requires the administration to identify and investigate annually foreign
trade practices that do the most harm in blocking U.S. exports. This
identification is intended to be followed by negotiations backed with the threat
of sanctions. As of April 1, 1998, no countries have been cited under Super 301
but China was identified for special scrutiny under Super 301.
Of countries where the Company's key vendors have manufacturing
operations, Turkey and Guatemala have enjoyed Designated Beneficiary Developing
Country ("DBDC") status under the Generalized System of Preferences ("GSP"), a
special status that is granted by the United States to developing nations. DBDC
status allows certain products imported from those countries to enter the United
States under a reduced rate of duty. In order to maintain that status, the
countries are required to meet several criteria.
In 1997, the GSP was reinstated retroactively to June 1997 and now is
scheduled to expire by its terms on June 30, 1998. Although the President's
fiscal year 1999 budget request contains a commitment to extend the program
through 2001, the likelihood of this extension is uncertain.
The Company cannot predict whether any of the foreign countries in
which its clothing and accessories are currently manufactured or any of the
countries in which the Company's clothing and accessories may be manufactured in
the future will be subject to these or other import restrictions by the United
States Government, including the likelihood, type or effect of any trade
retaliation. Trade restrictions, including increased tariffs or more restrictive
quotas, or both, applicable to apparel items could affect the importation of
apparel generally and, in that event, could increase the cost or reduce the
supply of apparel available to the Company and adversely affect the Company's
business, financial condition and results of operations. The Company's
merchandise flow may also be adversely affected by political instability in any
of the countries in which its goods are manufactured, significant fluctuation in
the value of the U.S. dollar against applicable foreign currencies and
restrictions on the transfer of funds.
ADVERTISING AND PROMOTION
Chico's does not allocate significant resources to mass media
advertising. Chico's prefers instead to attract customers through word-of-mouth
advertising, its general reputation and the visual appeal of its stores and
window presentations of its merchandise. Chico's sales associates promote this
by often making personal telephone calls to existing customers informing them
about new merchandise. In addition, the Company has increased its use of
brochures and other merchandise image pieces mailed to customers and made
available at Chico's stores. The Company intends on continuing using and
expanding its use of direct mail to its Passport and credit card database
customers, as well as, certain "prospect" customers. During fiscal 1998, the
Company expanded its efforts in this area and the costs associated with this
marketing increased to $1.4 million dollars from $.9 million in fiscal 1997.
As an important part of its promotional program, Chico's places
additional emphasis on what it refers to as its "outreach programs." Chico's
outreach programs include, among other events, fashion shows and wardrobing
parties that are organized and hosted by Chico's store managers and sales
associates. As part
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of these outreach programs, the Company also encourages Chico's managers and
sales associates to become involved in community projects. The Company has found
its outreach programs are effective in providing introductions to new customers.
The Company believes that these programs are effective marketing vehicles and it
has developed programs to help its store level employees use these programs.
COMPETITION
The women's retail apparel business is highly competitive and has
become even more competitive in the past several years. Chico's stores compete
with a broad range of national and regional retail chains, including other
women's apparel stores, department stores and specialty stores, as well as local
retailers in the areas served by individual Chico's stores, all of which sell
merchandise generally similar to that offered in Chico's stores. Even discount
department stores have begun to carry merchandise which is designed to compete
for the consumers that historically have been the Company's target customer.
Although management believes that there is limited direct competition for
Chico's merchandise largely because of the distinctive nature of Chico's stores
and merchandise, the specialty retailers that are believed to most directly
compete with Chico's stores in many of the same local market areas are The Gap,
The Limited and Banana Republic. The number of competitors and the level of
competition facing Chico's stores varies by the specific local market area
served by individual Chico's stores.
The Company believes that the distinctive designs of Chico's casual
clothing and accessories which provide good value, their exclusive availability
at Chico's stores, the Company's emphasis on personalized service and customer
assistance, and the locations of its stores are the principal means by which the
Company competes. Although the Company believes that it has been able in the
past to compete effectively, during the past three fiscal years it did not
compete as effectively as it had in the past as a result of problems with
merchandise mix. Also, the Company's performance is impacted by the fact that
many of the Company's competitors are significantly larger and have
substantially greater financial, marketing and other resources and enjoy greater
national, regional and local name recognition than does the Company. It should
also be noted that while the Company believes it also competes effectively for
favorable site locations and lease terms, competition is intense for prime
locations within upscale shopping districts and high-end malls and women's
apparel stores have tended to oversaturate these prime locations.
EMPLOYEES
As of January 31, 1998, the Company employed approximately 1,100
persons, approximately 600 of whom were full-time employees and approximately
500 of whom were part-time employees. The number of part-time employees
fluctuates during peak selling periods. As of the above date, 89% of the
Company's employees worked in Chico's, Chico's Outlet stores and in direct field
supervision, 4% worked in the distribution center and woodshop and 7% worked in
corporate headquarters and support functions.
The Company has no collective bargaining agreements covering any of its
employees, has never experienced any material labor disruption and is unaware of
any efforts or plans to organize its employees. The Company contributes part of
the cost of medical and life insurance coverage for eligible employees and also
maintains a profit sharing plan, stock option plan and stock purchase plan. All
employees also receive substantial discounts on Company merchandise. The Company
considers relations with its employees to be good.
TRADEMARKS AND SERVICE MARKS
The Company is the owner in the United States of the trademarks
"CHICO'S" and "Wear It Out," each of which is registered with the United States
Patent and Trademark Office covering clothing. Each of the registrations has a
term of 20 years (expiring in 2009 and 2016, respectively) and is renewable
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indefinitely if the mark is still in use at the time of renewal. In the opinion
of management, the Company's rights in the marks are important to the Company's
business. This is particularly the case for the "CHICO'S" mark because this mark
is well-known by Chico's customers. Accordingly, the Company intends to maintain
its marks and the related registrations. The Company is not aware of any claims
of infringement or other challenges to the Company's right to use its marks in
the United States.
ITEM 2. PROPERTIES.
STORES
Chico's stores are located throughout the United States, with a
significant concentration in Florida and in California.
As a matter of policy, the Company prefers to lease its stores and all
of the Chico's and Chico's Outlet stores currently operated by the Company are
leased. At April 1, 1998, the average base rent for the Company's 134
company-owned stores was approximately $32 per square foot. Lease terms
typically range from three to ten years and approximately 27% contain one or
more renewal options. Historically, the Company has exercised most of its lease
renewal options. In excess of 80% of the leases have percentage rent clauses
which require the payment of additional rent based on the store's net sales in
excess of a certain threshold.
The following table, which covers all of the 134 Company-owned stores
existing as of April 1, 1998, sets forth (i) the number of leases that will
expire each year if the Company does not exercise renewal options and (ii) the
number of leases that will expire each year if the Company exercises all of its
renewal options (assuming in each case the lease is not otherwise terminated by
either party pursuant to any other provision thereof):
<TABLE>
<CAPTION>
LEASES EXPIRING EACH LEASES EXPIRING EACH
YEAR IF NO YEAR IF ALL
FISCAL YEAR RENEWALS EXERCISED RENEWALS EXERCISED
- ----------- -------------------- -------------------
<S> <C> <C>
1999........................................................... 20 16
2000........................................................... 8 2
2001........................................................... 12 7
2002-2012...................................................... 94 109
</TABLE>
DISTRIBUTION CENTER, WOODSHOP AND HEADQUARTERS
The Company's World Headquarters, which is located on approximately 27
acres in Ft. Myers, Florida, was completed and opened in September 1994 and
consists of a distribution center, woodshop and corporate and administrative
headquarters. The combined facilities comprise approximately 125,000 square
feet, consisting of approximately 93,000 square feet for distribution and
woodshop facilities and approximately 32,000 square feet for administrative and
design offices. In the opinion of management these expanded facilities provide
sufficient warehouse, office and woodshop capacity to service the Company's
needs for at least five years of future growth. There remains sufficient land on
the site to at least double the size of the facilities when and if necessary.
The construction cost of the combined corporate headquarters,
distribution center and woodshop facility was approximately $9.6 million, which
includes the $1.3 million purchase price for the land. Further, the Company
spent approximately $1.6 million for new distribution center equipment, software
and furnishings. Currently, the Company's World Headquarters secures a $5.4
million mortgage loan which matures in 2003.
17
<PAGE> 20
The Company's previous storage facilities, located in Ft. Myers,
Florida, continue to be leased by the Company under a lease that expires in
November 1998. The annual base rent for the storage facilities is approximately
$60,000. The Company leases these storage facilities under a lease from certain
of its stockholders and former stockholders. As a result of the completion of
the Company's World Headquarters, the Company no longer has a need for these
facilities. In addition, the Company's former distribution center, located in
Ft. Myers, Florida also had been leased by the Company through fiscal 1998 from
certain of the Company's stockholders and former stockholders and also is no
longer needed by the Company. This lease expired in January 1998. In the fourth
quarter of 1994, the Company recognized nonrecurring pre-tax charges against
income in an amount (approximately $365,000) equal to the remaining lease
payments for the previous distribution center and the storage facilities, net of
amounts previously accrued. As payments were made by a new tenant for the former
distribution center, the Company was able to recover portions of that charge.
ITEM 3. LEGAL PROCEEDINGS.
Chico's is not a party to any legal proceedings, other than various
claims and lawsuits arising in the normal course of the Company's business,
which the Company believes should not have a material adverse effect on its
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
ITEM A. EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the
Company's existing executive officers:
<TABLE>
<CAPTION>
YEARS WITH
NAME AGE COMPANY POSITIONS
- ---- --- ------- ---------
<S> <C> <C> <C>
Marvin J. Gralnick 63 14 Chief Executive Officer, President, Chairman of the
Board and Director
Helene B. Gralnick 50 14 Senior Vice President - Design and Concept and
Director
Charles J. Kleman 47 9 Executive Vice President-Finance, Chief Financial
Officer, Secretary/ Treasurer and Director
Scott A. Edmonds 40 4 Senior Vice President-Operations and Assistant
Secretary
</TABLE>
Marvin J. Gralnick, together with his wife, Helene B. Gralnick, founded
Chico's in December 1983. He served the Company as its Chief Executive Officer
until September 1, 1993, at which time Jeffrey J. Zwick succeeded Mr. Gralnick
in this position. In connection with the November 7, 1994 resignation of Jeffrey
J. Zwick as Chief Executive Officer, President and a director of the Company,
Mr. Gralnick and Ms. Gralnick returned to the Company on a full time basis to
head up merchandise design, marketing and image for the Company. In February
1995, Mr. Gralnick reassumed the role of Chief Executive Officer and in March
1997 reassumed the position of President following the departure of Melissa
Payner. In addition, Mr. Gralnick continues to serve as Chairman of the Board
and as a director. Mr. Gralnick served as President from the Company's founding
until 1990 when he became Chairman of the Board and was given the official title
of Chief Executive Officer. Mr. and Ms. Gralnick's vision and creative talents
led the development and evolution of the Company's philosophy and the design and
feel of Chico's merchandise and Chico's stores through September 1, 1993 and
since November 1994 again are leading the Company in this regard.
18
<PAGE> 21
Helene B. Gralnick was a co-founder of Chico's, together with her
husband, Marvin J. Gralnick, and has served the Company in various senior
executive capacities throughout its history. She was first elected Vice
President/Secretary in 1983. Ms. Gralnick was elected as Senior Vice
President-Merchandise Concept in 1992. In September 1993, Ms. Gralnick stepped
down from all officer positions with the Company. In connection with the
November 7, 1994 resignation of Jeffrey J. Zwick as Chief Executive Officer,
President and a director of the Company, Ms. Gralnick, together with Mr.
Gralnick, returned to the Company on a full time basis to head up merchandise
design, marketing and image for the Company. In February 1995, Ms. Gralnick was
elected as Senior Vice President - Design and Concept. In addition, she
continues to serve as a director of the Company.
Charles J. Kleman has been employed by Chico's since January 1989, when
he was hired as the Company's Controller. In 1991, he was elected as Vice
President/Assistant Secretary. In 1992, Mr. Kleman was designated as the
Company's Chief Financial Officer. On September 1, 1993, he was elected to the
additional position of Secretary/Treasurer, served as Senior Vice President -
Finance from January 1, 1996 through November 1996 and effective December 3,
1996, was promoted to the position of Executive Vice President -Finance. Prior
to joining Chico's, Mr. Kleman was an independent accounting consultant in 1988,
and from 1986 to 1988 Mr. Kleman was employed by Electronic Monitoring &
Controls, Inc., a manufacturer and distributor of energy management systems, as
its Vice President/Controller. Prior to 1986, Mr. Kleman was employed by various
independent certified public accounting firms, spending over four years of that
time with Arthur Andersen & Co. Mr. Kleman is responsible for accounting,
financial reporting, management information systems, investor relations and
overall management of the distribution center.
Scott A. Edmonds has been employed by Chico's since September 1993,
when he was hired as Operations Manager. In February 1994, he was elected to the
position of Vice President - Operations and effective January 1, 1996 he was
promoted to the position of Senior Vice President - Operations. Mr. Edmonds is
responsible for human resources, store development and operations, leasing and
maintenance, franchise operations, and management of the headquarters and
woodshop. From March 1985 until September 1993, he was President/General Manager
of the Ft. Myers branch of Ferguson Enterprises, Inc. an electric and plumbing
wholesaler.
Marvin J. Gralnick and Helene B. Gralnick are husband and wife. None of
the other executive officers or directors are related to one another.
There are no arrangements or understandings pursuant to which any
officer was elected to office. Executive officers are elected by and serve at
the discretion of the Board of Directors.
19
<PAGE> 22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on NASDAQ National Market System.
The high and low prices per share of the Company's Common Stock for each
quarterly period since the Company's initial public offering is set forth in the
Company's 1998 Annual Report to Stockholders and is incorporated herein by
reference.
On April 1, 1998, the last reported sale price of the Common Stock on
the NASDAQ National Market System was 813/16 per share.
Since the initial public offering, the Company has not paid any cash
dividends except for $5,853,000 of dividends representing previously taxed
undistributed S corporation earnings which dividends were declared prior to the
Company's initial public offering and paid to persons who were stockholders
prior to the offering. The Company does not intend to pay any cash dividends for
the foreseeable future and intends to retain earnings, if any, for the future
operation and expansion of the Company's business. Any determination to pay
dividends in the future will be at the discretion of the Company's Board of
Directors and will be dependent upon the Company's results of operations,
financial condition, contractual restrictions and other factors deemed relevant
by the Board of Directors. The Company's existing credit facilities contain
restrictions on the payment of cash dividends on the Common Stock. Under the
provisions of the credit facilities, dividends will be prohibited to the extent
such aggregate dividends would cause the Company's tangible net worth to fall
below the sum of $16 million plus 50% of aggregate net income after fiscal 1999.
The approximate number of equity security holders of the Company is as
follows:
<TABLE>
<CAPTION>
Number of Record Holders
Title of Class as of April 1, 1998
-------------- -------------------
<S> <C>
Common Stock, par value $.01 per share 569
</TABLE>
20
<PAGE> 23
ITEM 6. SELECTED FINANCIAL DATA.
Selected Financial Data at the dates and for the periods indicated
should be read in conjunction with, and is qualified in its entirety by
reference to the financial statements and the notes thereto set forth elsewhere
in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
PRO FORMA
ONE MONTH FISCAL YEAR
PERIOD ENDED
FISCAL YEAR ENDED ENDED (UNAUDITED) FISCAL YEAR ENDED
-----------------------------------------------------------------------------------------
JANUARY 2, JANUARY 1, DECEMBER JANUARY 28, JANUARY 28, FEBRUARY 1, JANUARY 31,
1994 1995 31, 1995 1996 (1) 1996 (1) 1997 (1) 1998
(52 WEEKS) (52 WEEKS) (52 WEEKS) (4 WEEKS) (52 WEEKS) (53 WEEKS) (52 WEEKS)
-----------------------------------------------------------------------------------------
(in thousands, except per share and selected operating data)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT DATA
Net sales by company stores $42,303 $55,282 $57,636 $3,619 $58,091 $62,318 $73,597
Net sales to franchisees(2) 4,532 3,989 2,707 128 2,672 1,755 1,742
------- ------- ------- ------ ------- ------- -------
Net sales 46,835 59,271 60,343 3,747 60,763 64,073 75,339
Cost of goods sold(3) 16,874 22,418 26,115 1,913 26,484 26,713 33,240
------- ------- ------- ------ ------- ------- -------
Gross profit 29,961 36,853 34,228 1,834 34,279 37,360 42,099
General, administrative and store
operating expenses 21,976 31,168 30,743 2,358 30,842 33,738 37,185
------- ------- ------- ------ ------- ------- -------
Income (loss) from operations 7,985 5,685 3,485 (524) 3,437 3,622 4,914
Interest expense (income), net (55) 119 621 39 620 404 372
------- ------- ------- ------ ------- ------- -------
Income (loss) before taxes(4) 8,040 5,566 2,864 (563) 2,817 3,218 4,542
Provision for income taxes (4) 3,138 2,275 1,160 (225) 1,141 1,287 1,772
------- ------- ------- ------ ------- ------- -------
Net income (loss)(4) $ 4,902 $ 3,291 $ 1,704 $ (338) $ 1,676 $ 1,931 $ 2,770
======= ======= ------- ====== ======= ======= =======
Basic net income (loss) per
share(4)(5) $ .63 $ .42 $ .22 $ (.04) $ .22 $ .25 $ .35
======= ======= ======= ====== ======= ======= =======
Diluted net income (loss) per
share(4)(5) $ .62 $ .42 $ .22 $ (.04) $ .21 $ .24 $ .34
======= ======= ======= ====== ======= ======= =======
Weighted average shares
outstanding (supplemental pro
forma for 1993)(5) 7,924 7,922 7,838 7,777 7,836 7,976 8,033
======= ======= ======= ====== ======= ======= =======
SELECTED OPERATING DATA
Company stores at period end(6) 78 104 111 111 111 123 132
Franchise stores at period end (6) 16 17 12 12 12 10 9
------- ------- ------- ------ ------- ------- -------
Total stores at period end(6) 94 121 123 123 123 133 141
Average net sales per company
store (in thousands)(7) $ 647 $ 613 $ 527 N/A $ 537 $ 523 $ 578
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
PRO FORMA
ONE MONTH FISCAL YEAR
PERIOD ENDED
FISCAL YEAR ENDED ENDED (UNAUDITED) FISCAL YEAR ENDED
-------------------------------------------------------------------------------------------
JANUARY 2, JANUARY 1, DECEMBER JANUARY 28, JANUARY 28, FEBRUARY 1, JANUARY 31,
1994 1995 31, 1995 1996 (1) 1996 (1) 1997 (1) 1998
(52 WEEKS) (52 WEEKS) (52 WEEKS) (4 WEEKS) (52 WEEKS) (53 WEEKS) (52 WEEKS)
-------------------------------------------------------------------------------------------
(in thousands, except per share and selected operating data)
<S> <C> <C> <C> <C> <C> <C> <C>
Average net sales per net selling
square foot at company
stores(7) $ 496 $ 478 $ 413 N/A $ 405 $ 396 $ 449
Percentage increase (decrease) in
comparable company store
net sales 12.3% (7.3)% (10.4)% 1.4% (10.1%) (1.3)% 10.7%
BALANCE SHEET DATA (at Year End):
Working capital $ 4,771 $ 1,460 $ 4,536 $ 5,419 $ 6,585 $ 8,970
Total assets 16,589 27,352 27,009 27,681 31,248 34,472
Debt and lease obligations, less
current maturities 593 4,663 5,896 7,131 7,008 6,703
Stockholders' Equity $10,713 $14,226 $15,959 $15,621 $18,021 $21,456
</TABLE>
(1) In December 1996, the Company elected to change its fiscal year end,
effective January 29, 1996, from a 52/53 week fiscal year, ending on
the Sunday closest to December 31st to a 52/53 week fiscal year ending
on the Saturday closest to January 31st. The selected financial data
presents financial results for, among other periods, the short one
month transition period in January 1996, and for a pro forma fiscal
year ended January 28, 1996.
(2) Includes $0, $5,000, $0, $0 and $0 of franchisee fees in fiscal 1993,
1994, 1995, 1997 and 1998.
(3) Cost of goods sold includes distribution and design costs, but does not
include occupancy cost.
(4) For all periods prior to the consummation of the Company's initial
public offering on April 1, 1993, the Company was an S Corporation for
federal and state income tax purposes and, accordingly, was not subject
to corporate federal income taxes or corporate income taxes in Florida
and certain other states. The pro forma and supplemental pro forma
information has been computed as if the Company was subject to
corporate federal and state income taxes for all periods presented,
based on the tax laws in effect during the respective periods.
(5) Restated to give retroactive effect for 2 for 1 stock split in January
1994. In addition, for purposes of calculating supplemental pro forma
net income per share, the weighted average number of shares outstanding
has been adjusted to give effect to both (1) the common stock
equivalents associated with outstanding stock options calculated
pursuant to the treasury stock method, and (2) the 866,684 shares
issued by the Company in the initial public offering (split-adjusted),
the net proceeds of which were used to partially fund a $5,853,000
distribution to persons who were stockholders prior to the initial
public offering.
(6) For information concerning stores opened, acquired, sold and closed,
see "Business -- Store Locations."
(7) Average net sales per company store and average net sales per net
selling square foot of company stores are based on net sales of stores
that have been operated by the Company for the full year. For fiscal
1997, average net sales per company store and average net sales per net
selling square foot of company stores have been adjusted to exclude the
effect of the fifty-third week.
22
<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
A discussion and analysis of the financial condition and results of
operations for the specified fiscal periods through January 31, 1998 is set
forth under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's 1998 Annual Report to
Stockholders and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements and supplementary financial information is set
forth under the heading "Financial Statements" in the financial information
portion of the Company's 1998 Annual Report to Stockholders and is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information about directors and nominees for director of the Company in
the Company's 1998 Annual Meeting proxy statement is incorporated herein by
reference. Information about executive officers of the Company is included in
Item A of Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Information about Executive Compensation in the Company's 1998 Annual
Meeting proxy statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is included in the Company's 1998
Annual Meeting proxy statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is included in the Company's 1998
Annual Meeting proxy statement and is incorporated herein by reference.
23
<PAGE> 26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) The following financial statements of Chico's FAS, Inc.
and the report thereon of Arthur Andersen LLP dated March 3,
1998, which is included in the Company's Annual Report to
Stockholders for the fiscal year ended January 31, 1998, are
incorporated herein by reference.
Report of Independent Certified Public Accountants.
Statements of Income for the fiscal years ended January 31,
1998 and February 1, 1997, for the period from January 1, 1996
through January 28, 1996 and for the fiscal year ended
December 31, 1995.
Balance Sheets, January 31, 1998 and February 1, 1997.
Statements of Stockholders' Equity for the fiscal years ended
January 31, 1998 and February 1, 1997, for the period from
January 1, 1996 through January 28, 1996 and for the fiscal
year ended December 31, 1995.
Statements of Cash Flows for the fiscal years ended January
31, 1998 and February 1, 1997, for the period from January 1,
1996 through January 28, 1996 and for the fiscal year ended
December 31, 1995.
Notes to Financial Statements.
(2) The following Financial Statement Schedules are included
herein:
Schedules are not submitted because they are not applicable or
not required or because the required information is included
in the financial statements or the notes thereto.
(3) The following exhibits are filed as part of this report
(exhibits marked with an asterisk have been previously filed
with the Commission as indicated and are incorporated herein
by this reference):
2* Agreement and Plan of Merger Dated December 19, 1992, between
the Company and Chico's International, Inc. (Filed as Exhibit
2 to the Company's Registration Statement on Form S-1 (File
No. 33-58134) filed with the Commission on February 10, 1993,
as amended)
3.1* Amended and Restated Articles of Incorporation (Filed as
Exhibit 3.3 to the Company's Form 10-Q for the quarter ended
April 4, 1993, as filed the Commission on May 18, 1993)
3.2* Agreement and Plan of Recapitalization dated February 3, 1993,
by and among Marvin J. Gralnick, Helene B. Gralnick, Barry E.
Szumlanski, Lynn Mann and Jeffrey Jack Zwick and Chico's FAS,
Inc. (Filed as Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (File No. 33-70620) filed with the
Commission on October 21, 1993, as amended)
3.3* Amended and Restated By-laws (Filed as Exhibit 3.5 to the
Company's Form 10-Q for the quarter ended April 4, 1993, as
filed with the Commission on May 18, 1993)
4.1* Amended and Restated Articles of Incorporation (Filed as
Exhibit 3.3 to the Company's Form 10-Q for the quarter ended
April 4, 1993, as filed with the Commission on May 18, 1993)
4.2* Amended and Restated Bylaws (Filed as Exhibit 3.5 to the
Company's Form 10-Q for the quarter ended April 4, 1993, as
filed with the Commission on May 18, 1993)
4.3* Form of Common Stock Certificate (Filed as Exhibit 4.5 to the
Company's Registration Statement on Form S-1 (File No.
33-58134) filed with the Commission on February 10, 1993, as
amended)
10.1* Employment Agreement for Marvin J. Gralnick (Filed as Exhibit
10.1 to the Company's Form 10-K for the year ended January 1,
1995, as filed with the Commission on April 1, 1995)
24
<PAGE> 27
10.2* Employment Agreement for Helene B. Gralnick (Filed as Exhibit
10.1 to the Company's Form 10-K for the year ended January 1,
1995, as filed with the Commission on April 1, 1995)
10.3* Employment Agreement for Charles J. Kleman (Filed as Exhibit
10.6.5 to the Company's Form 10-Q for the quarter ended April
4, 1993, as filed with the Commission on May 18, 1993)
10.4* Employment Agreement for Scott A. Edmonds (Filed as Exhibit
10.1 to the Company's Form 10-Q for the quarter ended July 2,
1995, as filed with the Commission on August 14, 1995)
10.5* Employment Agreement for Melissa Payner-Gregor (Filed as
Exhibit 10.3 to the Company's Form 10-Q for the quarter ended
July 2, 1995, as filed with the Commission on August 14, 1995)
10.6* Supplement to Employment Agreement for Melissa Payner-Gregor.
(Filed as Exhibit 10.1 to the Company's Form 10-Q for the
quarter ended June 30, 1996, as filed with the Commission on
August 13, 1996)
10.7* Second Supplement to Employment Agreement for Melissa
Payner-Gregor. (Filed as Exhibit 10.5 to the Company's Form
10-Q for the quarter ended June 30, 1996, as filed with the
Commission on August 13, 1996)
10.8* Employment Agreement for Mori Cameron-MacKenzie (Filed as
Exhibit 10.4 to the Company's Form 10-Q for the quarter ended
October 1, 1995, as filed with the Commission on November 13,
1995)
10.9* 1992 Stock Option Plan (Filed as Exhibit 10.7 to the Company's
Registration Statement on Form S-1 (File No. 33-58134) as
filed with the Commission on February 10, 1993, as amended)
10.10* First Amendment to 1992 Stock Option Plan (Filed as Exhibit
10.13 to the Company's Form 10-K for the year ended January 2,
1994, as filed with the Commission on April 1, 1994)
10.11* 1993 Stock Option Plan (Filed as Exhibit 10.14 to the
Company's Form 10-K for the year ended January 2, 1994, as
filed with the Commission on April 1, 1994)
10.12* 1993 Employee Stock Purchase Plan (Filed as Exhibit 10.8 to
the Company's Form 10-Q for the quarter ended April 4, 1993,
as filed with the Commission on May 18, 1993)
10.13* Nonemployee Director's Stock Option Agreement by and between
Chico's FAS, Inc., and Verna K. Gibson (Filed as Exhibit 10.14
to the Company's Registration Statement on Form S-1 (File No.
33-70620) as filed with the Commission on October 21, 1993, as
amended)
10.14* Nonemployee Director's Stock Option Agreement by and between
Chico's FAS Inc., and W. Keith Schilit (Filed as Exhibit 10.15
to the Company's Registration Statement on Form S-1 (File No.
33-70620) as filed with the Commission on October 21, 1993, as
amended)
10.15* Form of Nonemployee Director's Stock Option Agreement by and
between Chico's FAS, Inc. and Verna K. Gibson (Filed as
Exhibit 10.51 to the Company's Form 10-K for the year ended
January 1, 1995, as filed with the Commission on April 1,
1995)
10.16* Nonemployee Director's Stock Option Agreement by and between
Chico's FAS, Inc. and W. Keith Schilit dated November 7, 1994
(Filed as Exhibit 10.52 to the Company's Form 10-K for the
year ended January 1, 1995, as filed with the Commission on
April 1, 1995)
10.17* Nonemployee Director's Stock Option Agreement by and between
Chico's FAS, Inc., and Verna K. Gibson (Filed as Exhibit 10.6
to the Company's Form 10-Q for the quarter ended July 2, 1995,
as filed with the Commission on August 14, 1995)
10.18* Nonemployee Director's Stock Option Agreement by and between
Chico's FAS Inc., and W. Keith Schilit (Filed as Exhibit 10.7
to the Company's Form 10-Q for the quarter ended July 2, 1995,
as filed with the Commission on August 14, 1995)
25
<PAGE> 28
10.19* Nonemployee Director's Stock Option Agreement by and between
Chico's FAS Inc., and W. Keith Schilit (Filed as Exhibit 10.8
to the Company's Form 10-Q for the quarter ended July 2, 1995,
as filed with the Commission on August 14, 1995)
10.20* Nonemployee Director's Stock Option Agreement by and between
Chico's FAS, Inc., and Verna K. Gibson (Filed as Exhibit 10.3
to the Company's Form 10-Q for the quarter ended June 30,
1996, as filed with the Commission on August 13, 1996)
10.21* Nonemployee Director's Stock Option Agreement by and between
Chico's FAS Inc., and W. Keith Schilit (Filed as Exhibit 10.4
to the Company's Form 10-Q for the quarter ended June 30,
1996, as filed with the Commission on August 13, 1996)
10.22* Indemnification Agreement with Lynn D. Mann (Filed as Exhibit
10.9 to the Company's Form 10-Q for the quarter ended April 4,
1993, as filed with the Commission on May 18, 1993)
10.23* Indemnification Agreement with Marvin J. Gralnick (Filed as
Exhibit 10.9.1 to the Company's Form 10-Q for the quarter
ended July 4, 1993, as filed with the Commission on August 13,
1993)
10.24* Indemnification Agreement with Helene B. Gralnick (Filed as
Exhibit 10.9.2 to the Company's Form 10-Q for the quarter
ended July 4, 1993, as filed with the Commission on August 13,
1993)
10.25* Indemnification Agreement with Jeffrey J. Zwick (Filed as
Exhibit 10.9.3 to the Company's Form 10-Q for the quarter
ended July 4, 1993, as filed with the Commission on August 13,
1993)
10.26* Indemnification Agreement with Barry E. Szumlanski (Filed as
Exhibit 10.9.4 to the Company's Form 10-Q for the quarter
ended July 4, 1993, as filed with the Commission on August 13,
1993)
10.27* Indemnification Agreement with Charles J. Kleman (Filed as
Exhibit 10.9.5 to the Company's Form 10-Q for the quarter
ended July 4, 1993, as filed with the Commission on August 13,
1993)
10.28* Indemnification Agreement with Michal Szumlanski (Filed as
Exhibit 10.9.8 to the Company's Form 10-Q for the quarter
ended July 4, 1993, as filed with the Commission on August 13,
1993)
10.29* Indemnification Agreement with W. Keith Schilit (Filed as
Exhibit 10.9.7 to the Company's Form 10-Q for the quarter
ended July 4, 1993, as filed with the Commission on August 13,
1993)
10.30* Indemnification Agreement with Verna K. Gibson (Filed as
Exhibit 10.9.6 to the Company's Form 10-Q for the quarter
ended July 4, 1993, as filed with the Commission on August 13,
1993)
10.31* Indemnification Agreement with Scott A. Edmonds (Filed as
Exhibit 10.2 to the Company's Form 10-Q for the quarter ended
July 2, 1995, as filed with the Commission on August 14, 1995)
10.32* Indemnification Agreement with Melissa Payner-Gregor (Filed as
Exhibit 10.4 to the Company's Form 10-Q for the quarter ended
July 2, 1995, as filed with the Commission on August 14, 1995)
10.33* S Corporation Tax Allocation and Indemnification Agreement
(Filed as Exhibit 10.11 to the Company's Form 10-Q for the
quarter ended April 4, 1993, as filed with the Commission on
May 18, 1993)
10.34* Sample Form of Franchise Agreement (Filed as Exhibit 10.13 to
the Company's Registration Statement on Form S-1 (File No.
33-58134) as filed with the Commission on February 10, 1993,
as amended)
10.35* Sample Form of Territory Development Agreement (Filed as
Exhibit 10.14 to the Company's Registration Statement on Form
S-1 (File No. 33-58134) as filed with the Commission on
February 10, 1993, as amended)
10.36* Sample Form of Purchase Agreement (Filed as Exhibit 10.15 to
the Company's Registration Statement on Form S-I (File No.
33-58134) as filed with the Commission on February 10, 1993,
as amended)
26
<PAGE> 29
10.37* Lease Agreement dated February 1, 1988 by and between Lynn
Mann, Marvin Gralnick and Barry Szumlanski and Chico's Folk
Art Specialties, Inc. (Filed as Exhibit 10.19 to the Company's
Registration Statement on Form S-1 (File No. 33-58134) as
filed with the Commission on February 10, 1993, as amended)
10.38* Lease Agreement dated December 1, 1988 by and between Marvin
Gralnick, Helene Gralnick, Lynn Mann and Barry Szumlanski, and
Chico's Folk Art Specialties, Inc. (Filed as Exhibit 10.20 to
the Company's Registration Statement on Form S-1 (File No.
33-58134) as filed with the Commission on February 10, 1993,
as amended)
10.39* Lease Termination and Settlement Agreement dated June 13, 1996
by and among: Marvin Gralnick, Helene Gralnick, Lynn Mann and
Barry Szumlanski; Chico's FAS, Inc. and (Filed as Exhibit 10.8
to the Company's Form 10-Q for the quarter ended September 29,
1996, as filed with the Commission on November 12, 1996)
10.40* Amended and Restated Revolving Line of Credit and
Reimbursement Agreement dated October 13, 1993 by and between
Chico's FAS, Inc, and NationsBank of Florida, National
Association (Filed as Exhibit 10.38 to the Company's
Registration Statement on Form S-1 (File No. 33-70620) as
filed with the Commission on October 21, 1993, as amended)
10.41* Consolidated Amendment to Loan Documents dated as of October
13, 1993, by and between Chico's FAS, Inc., and NationsBank of
Florida, National Association (Filed as Exhibit 10.39 to the
Company's Registration Statement on Form S-1 (File No.
33-70620) as filed with the Commission on October 21, 1993, as
amended)
10.42* First Amendment to Amended and Restated Revolving Line of
Credit and Reimbursement Agreement dated December 20, 1993 by
and between Chico's FAS, Inc. and NationsBank of Florida,
National Association (Filed as Exhibit 10.43 to the Company's
Form 10-K for the year ended January 2, 1994, as filed with
the Commission on April 1, 1994)
10.43* Second Amendment to Amended and Restated Revolving Line of
Credit and Reimbursement Agreement dated June 14, 1994 by and
between Chico's FAS, Inc., and NationsBank of Florida National
Association (Filed as Exhibit 10.48 to the Company's Form 10-Q
for the quarter ended October 2, 1994, as filed with the
Commission on November 15, 1994)
10.44* Third Amendment to Amended and Restated Revolving Line of
Credit and Reimbursement Agreement dated December 9, 1994 by
and between Chico's FAS, Inc., and NationsBank of Florida
National Association (Filed as Exhibit 10.49 to the Company's
Form 10-K for the year ended January 1, 1995, as filed with
the Commission on April 1, 1995)
10.45* Fourth Amendment to Amended and Restated Revolving Line of
Credit and Reimbursement Agreement dated February 14, 1995 by
and between Chico's FAS, Inc., and NationsBank of Florida
National Association (Filed as Exhibit 10.50 to the Company's
Form 10-K for the year ended January 1, 1995, as filed with
the Commission on April 1, 1995)
10.46* Second Amended and Restated Credit Agreement dated September
28, 1995 by and between Chico's FAS, Inc. and NationsBank of
Florida, National Association (Filed as Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended October 1, 1995, as
filed with the Commission on November 13, 1995)
10.47* Third Amended and Restated Credit Agreement by and between
Chico's FAS, Inc. and NationsBank (South), N. A. (Filed as
Exhibit 10.57 to the Company's Form 10-K for the year ended
December 31, 1995, as filed with the Commission on April 1,
1996)
10.48* First Amendment to Third Amended and Restated Credit Agreement
by and between Chico's FAS, Inc. and NationsBank (South), N.
A. (Filed as Exhibit 10.7 to the Company's Form 10-Q for the
quarter ended September 29, 1996, as filed with the Commission
on November 12, 1996)
10.49 Second Amendment to Third Amended and Restated Credit
Agreement by and between Chico's FAS, Inc. and NationsBank
(South), N. A.
27
<PAGE> 30
10.50* Loan Agreement dated January 4, 1996 by and between Chico's
FAS, Inc. and Founders National Trust Bank (Filed as Exhibit
10.58 to the Company's Form 10-K for the year ended December
31, 1995, as filed with the Commission on April 1, 1996)
10.51* Amendment and Restatement of the Chico's FAS, Inc. Profit
Sharing Plan (Filed as Exhibit 10.47 to the Company's Form
10-Q for the quarter ended April 3, 1994, 1994, as filed with
the Commission on May 9, 1994)
10.52* Separation Agreement dated November 10, 1994 by and between
Chico's FAS, Inc. and Jeffrey J. Zwick (Filed as Exhibit 10.55
to the Company's Form 10-K for the year ended January 1, 1995,
as filed with the Commission on April 1, 1995)
10.53* Separation Agreement dated February 14, 1995 by and between
Chico's FAS, Inc. and Barry E. Szumlanski (Filed as Exhibit
10.57 to the Company's Form 10-K for the year ended January 1,
1995, as filed with the Commission on April 1, 1995)
10.54* Separation Agreement dated February 14, 1995 by and between
Chico's FAS, Inc. and Michal Szumlanski (Filed as Exhibit
10.58 to the Company's Form 10-K for the year ended January 1,
1995, as filed with the Commission on April 1, 1995)
10.55* Separation Agreement dated as of March 24, 1997 by and between
Chico's FAS, Inc. and Melissa Payner (Filed as Exhibit 10.76
to the Company's Form 10-K for the year ended February 1,
1997, as filed with the commission on April 30, 1997)
10.56* Nonemployee Stock Option Agreement by and between Chico's FAS,
Inc. and Verna Gibson dated May 13, 1997 (Filed as Exhibit
10.1 to the Company's Form 10-Q for the quarter ended August
2, 1997, as filed with the commission on September 5, 1997)
10.57* Nonemployee Stock Option Agreement by and between Chico's FAS,
Inc. and Ross Roeder dated June 17, 1997 (Filed as Exhibit
10.2 to the Company's Form 10-Q for the quarter ended August
2, 1997, as filed with the commission on September 5, 1997)
10.58* Nonemployee Stock Option Agreement by and between Chico's FAS,
Inc. and John Burden dated June 17, 1997 (Filed as Exhibit
10.3 to the Company's Form 10-Q for the quarter ended August
2, 1997, as filed with the commission on September 5, 1997)
10.59* Nonemployee Stock Option Agreement by and between Chico's FAS,
Inc. and Verna Gibson dated June 17. 1997 (Filed as Exhibit
10.4 to the Company's Form 10-Q for the quarter ended August
2, 1997, as filed with the commission on September 5, 1997)
10.60 Nonemployee Stock Option Agreement by and between Chico's FAS,
Inc. and Ross Roeder dated February 10, 1998
10.61 Nonemployee Stock Option Agreement by and between Chico's FAS,
Inc. and John Burden dated February 10, 1998
10.62 Nonemployee Stock Option Agreement by and between Chico's FAS,
Inc. and Verna Gibson dated February 10, 1998
13 Annual Report to Stockholders
23 Consent to use of Report of Independent Certified Public
Accountants
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K.
The company did not file any reports on Form 8-K during the fifty-two
weeks ended January 31, 1998.
28
<PAGE> 31
SIGNATURES
Pursuant to the requirements 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.
CHICO'S FAS, INC.
By: /s/ Marvin J. Gralnick April 21, 1998
------------------------------------------------- ----------------
MARVIN J. GRALNICK, Chief Executive Officer Date
and President
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.
<TABLE>
<S> <C>
/s/ Marvin J. Gralnick April 21, 1998
- ------------------------------------------------------ ----------------
MARVIN J. GRALNICK, Chief Executive Officer, Date
President, Director
(principal executive officer)
/s/ Charles J. Kleman April 21, 1998
- ------------------------------------------------------ ----------------
CHARLES J. KLEMAN, Chief Financial Officer, Date
Director
(principal financial and accounting officer)
/s/ Helene B. Gralnick April 21, 1998
- ------------------------------------------------------ ----------------
HELENE B. GRALNICK, Senior Vice President - Date
Design and Concept and Director
/s/ Verna K. Gibson April 21, 1998
- ------------------------------------------------------ ----------------
VERNA K. GIBSON, Director Date
/s/ John W. Burden April 21, 1998
- ------------------------------------------------------ ----------------
JOHN W. BURDEN, Director Date
/s/ Ross E. Roeder April 21, 1998
- ------------------------------------------------------ ----------------
ROSS E. ROEDER, Director Date
</TABLE>
29
<PAGE> 1
EXHIBIT 10.49
SECOND AMENDMENT TO THIRD AMENDED AND
RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT
(the "Second Amendment") is dated as of December 7, 1997, between CHICO'S FAS,
INC., a Florida corporation (the "Borrower"), and NATIONSBANK, N.A., a national
banking association (successor by merger to NCNB National Bank of Florida and
NationsBank of Florida, N.A. and NationsBank, N.A. (South)) (the "Bank").
BACKGROUND
Borrower and Bank executed a Third Amended and Restated Credit
Agreement dated December 30, 1995 and a First Amendment thereto dated September
15, 1996 (collectively, the "Agreement"). Pursuant to the provisions of the
Agreement, Bank established a $2,000,000.00 renewal working capital line of
credit (the "Renewal First Working Capital Line") and a $4,000,000.00 renewal
documentary letter of credit facility (the "Letter of Credit Line").
Borrower has now requested the: (1) renewal of the Renewal First
Working Capital Line, and (2) renewal of the Letter of Credit Line. Bank has
agreed to the request of Borrower on the terms and conditions of this Amendment.
TERMS
NOW, THEREFORE, in consideration of the foregoing and the promises
contained herein, the parties agree as follows:
1. DEFINED TERMS. Any capitalized terms used but not defined
herein shall have the meanings set forth in the Agreement.
2. RENEWAL FIRST WORKING CAPITAL LINE. Subject to the terms and
conditions of the Agreement, as amended by this Amendment, the Renewal First
Working Capital Line is hereby renewed in the maximum principal amount of
$2,000,000.00. The Renewal First Working Capital Line will expire on May 31,
1999, at which time all indebtedness thereunder will be due and payable in full.
Interest shall be payable monthly in arrears. The Renewal First Working Capital
Line will be evidenced by a $2,000,000.00 renewal promissory note of Borrower in
form and substance satisfactory to Bank (the "Renewal First Working Capital Line
Note").
3. RENEWAL LETTER OF CREDIT LINE. Subject to the terms and
conditions of the Agreement, as amended by this Amendment, the Letter of Credit
Line is hereby renewed in the maximum principal amount of $4,000,000.00 (the
"Renewal Letter of Credit Line"). The Renewal Letter of Credit Line will expire
on May 31, 1999, at which time all indebtedness thereunder will be due and
payable in full. Interest shall be payable monthly in arrears. The Renewal
Letter of Credit Line shall be evidenced by a $4,000,000.00 renewal promissory
note of Borrower in form and substance satisfactory to Bank (the "Renewal Letter
of Credit Line Note"). Bank will not make any Advances of funds to Borrower
under the Renewal Letter of Credit Line unless the Renewal First Working Capital
Line is fully funded. Subject to the foregoing, the Bank agrees to make Advances
of funds to Borrower under the Renewal Letter of Credit Line upon receipt of
written request therefor from Borrower, upon and subject to the terms and
conditions set forth herein and in the Agreement, so long as (a) the Renewal
First Working Capital Line
<PAGE> 2
is fully funded, (b) there has occurred no Default or Event of Default, and (c)
the sum of all outstanding unpaid Advances does not exceed the Borrowing Base.
4. AFFIRMATION OF COLLATERAL DOCUMENTS. Payment of the Renewal
First Working Capital Line Note and the Renewal Letter of Credit Line Note shall
be and is hereby secured by all Collateral described in Article III of the
Agreement. Borrower ratifies and confirms the provisions of the Agreement and
the Security Agreement with respect to the Collateral and agrees to execute or
otherwise provide to Bank any and all modifications, financing statements, and
other agreements or consents reasonably required by Bank now or in the future in
connection therewith. Borrower will execute or otherwise provide to Bank any and
all modifications, financing statements, and other agreements or consents
required by Bank now or in the future in connection therewith.
5. AMENDED PROVISIONS. Subject to the conditions set forth in
paragraph 7 hereof, the Agreement shall be and hereby is further amended,
effective as of the date hereof, as follows:
(a) The definition of "Certificate of Deposit" in Section 1.1
of the Agreement is hereby replaced with the following definition:
"Certificate of Deposit" means the Certificate of Deposit from
time to time issued or to be issued to Borrower by Bank, and pledged by
Borrower to Bank as collateral, together with all proceeds and
replacements thereof, the principal amount of which shall be reduced to
$1,000,000.00 in January, 1998.
(b) The definition of "Consolidated Tangible Net Worth" in
Section 1.1 of the Agreement is hereby replaced with the following
definition:
"Consolidated Net Worth" means the depreciated book value
amount of all assets of the Borrower and its Subsidiaries, with no
adjustment from and after December 31, 1988 due to revaluation,
depreciation, reserves or otherwise, and after elimination of any
intercompany transactions, less:
(i) treasury stock;
(ii) advances to employees, officers, directors,
stock-holders or affiliates of the Borrower or any
Subsidiary of the Borrower in excess of aggregate
advances of $50,000.00; and
(iii) Consolidated Total Liabilities minus Subordinated
Debt.
(c) The definition of "Pledge" in Section 1.1 of the Agreement
is hereby replaced with the following definition:
"Pledge" means the collateral Assignment of Certificate of
Deposit, pursuant to which Borrower has pledged or will pledge to Bank
the Certificate of Deposit, as has been executed or will be executed by
Borrower in favor of Bank.
2
<PAGE> 3
(d) The definition of "Termination Date" in Section 1.1 of the
Agreement is hereby replaced with the following definition:
"Termination Date" means May 31, 1999, with respect to the
indebtedness evidenced by the Renewal First Working Capital Line Note
and the Renewal Letter of Credit Line Note.
(e) The definition of "Applicable Margin" is hereby added to
Section 1.1 of the Agreement, as follows:
"Applicable Margin" means the following per annum percentages
applicable in the following situations:
<TABLE>
<CAPTION>
Applicability Applicable Margin
------------- -----------------
<S> <C>
(i) If the Consolidated Debt Coverage 0%
Ratio is greater than or equal to 1.75,
and the Current Ratio is equal to or
greater than 1.75
(ii) If the Consolidated Debt Coverage 0.50%
Ratio is greater than or equal to
1.30 but is less than 1.75, and the
Current Ratio is less than 1.75
(iii) If the Consolidated Debt Coverage 1.00%
Ratio is less than 1.30
</TABLE>
The Applicable Margin payable by the Borrower shall be subject
to reduction or increase, as applicable and as set forth in the table
above, on a quarterly basis according to the performance of the
Borrower as tested by the relevant ratios.
(f) The definition of "Current Ratio" is hereby added to
Section 1.1 of the Agreement, as follows:
"Current Ratio" means the ratio of Consolidated Current Assets
to Consolidated Current Liabilities.
(g) Each reference to "Letter of Credit Line" shall be deemed
to refer to the Renewal Letter of Credit Line, wherever such reference appears
in the Agreement. Each reference to "Letter of Credit Line Note" shall be deemed
to refer to the Renewal Letter of Credit Line Note, wherever such reference
appears in the Agreement.
(h) Section 3.3 of the Agreement is hereby replaced with the
following:
3
<PAGE> 4
3.3 Certificate of Deposit. The full and timely payment of the
Liabilities (with the exception of (i) the Amended and Restated
Mortgage, Security Agreement and assignment of Rents and Leases dated
as of January 4, 1996, by Borrower and originally delivered to Founders
National Trust Bank and currently held by Bank, as amended from time to
time, (ii) the related Loan Agreement dated as of January 4, 1996, as
amended from time to time, and (iii) the related $5,587,500 Amended,
Renewal and Consolidated Replacement Promissory Note Agreements, as
amended, replaced and/or renewed from time to time), whether now
existing or hereafter arising, will be secured by the Certificate of
Deposit as pledged or to be pledged to Bank pursuant to the Pledge,
which will grant to Bank a continuing first lien in the property
described therein.
(i) Effectively retroactively to September 14, 1996, the
number "$3,000.000.00" in Section 4.1(e) is replaced with the number
"$4,000,000.00"
(j) Section 6.16 of the Agreement is hereby replaced with the
following:
6.16 Liabilities to Net Worth. Maintain a ratio of
Consolidated Total Liabilities to Consolidated Net Worth of not greater
than 1.00 to 1.00 at the end of each fiscal quarter.
(k) Section 6.18 of the Agreement is hereby replaced with the
following:
6.18 Consolidated Net Worth.
(a) As of January 31, 1998, maintain a
Consolidated Net Worth of at least
$16,000,000.00.
(b) At the end of each fiscal year thereafter,
maintain a Consolidated Net Worth at least
equal to the sum of: (i) the required
Consolidated Net Worth for the immediately
preceding fiscal year end plus (ii) fifty
percent (50%) of Borrower's net income for
the current fiscal year.
(c) At the end of each fiscal quarter, maintain
a Consolidated Net Worth at least equal to
the required Consolidated Net Worth for the
immediately preceding fiscal year end.
6. EXPENSES. Without limiting the provisions of the Agreement,
Borrower covenants and agrees to pay all costs and expenses of Bank in
connection with the closing of the transactions evidenced hereby, including, but
not limited to, Bank's reasonable attorneys' fees, recording or filing costs or
expenses, intangible taxes, documentary stamps, surtax and other revenue fees,
and similar items.
7. LOAN AGREEMENT, RATIFICATION, NO NOVATION. The Renewal First
Working Capital Line Note and the Renewal Letter of Credit Line Note each shall
be deemed issued pursuant to and shall be subject to the terms of the Agreement,
as amended hereby, except as may be expressly modified or supplemented hereby or
by the terms of such notes, together with this Amendment, shall each be deemed
to be a "Loan Document" for the purposes of the Agreement and hereof. Except as
expressly modified or supplemented hereby, the Loan Documents and all
agreements, instruments, and documents executed or delivered pursuant thereto
have remained and shall remain at all times in full force and effect in
accordance with their respective terms, and have not been novated by the
provisions of this Amendment.
4
<PAGE> 5
8. REPRESENTATIONS AND WARRANTIES. To induce Bank to enter into
this Amendment and to perform the transactions described herein, Borrower hereby
represents and warrants to Bank that Borrower has re-examined the Agreement and
on and as of the date hereof:
(a) The representations and warranties made by the Borrower in
Article V of the Agreement (except that the financial statements referred to in
Section 5.03 shall be those most recently furnished to the Bank pursuant to
Section 6.01) are correct and complete as of the date of this Amendment, except
to the extent written waivers have been provided by the Bank;
(b) There has been no material adverse change in the
condition, financial or otherwise, of the Borrower since the date of the most
recent financial reports of the Borrower received by the Bank under Section 6.01
thereof, other than changes in the ordinary course of business; and
(c) No event has occurred and no condition exists that, upon
the consummation of the transaction contemplated hereby, constitutes a default
or an Event of Default on the part of the Borrower under the Agreement or any
Note, either immediately or with the lapse of time or the giving of notice, or
both.
9. CONDITIONS PRECEDENT. The obligation of the Bank to continue to
make the Loans from and after the date of this Amendment and to continue to
issue Letters of Credit under the Agreement are subject to the conditions
precedent set forth in the Agreement and the additional conditions precedent
that the Bank shall have received, on the date of this Amendment in form and
substance satisfactory to the Bank, the following:
(a) Executed originals of each of the Loan Documents, together
with all schedules and exhibits thereto in form and substance satisfactory to
the Bank (it being understood that the Loan Documents shall also include this
Amendment, the Renewal First Working Capital Line Note and the Renewal Letter of
Credit Line Note);
(b) Favorable written opinion of counsel to the Borrower dated
the date of this Amendment, addressed to the Bank and satisfactory to Holland &
Knight LLP, counsel to the Bank;
(c) Resolutions of the board of directors of the Borrower
certified by its secretary or assistant secretary as of the date of this
Amendment, approving and adopting the Loan Documents to be executed by the
Borrower in connection with this Amendment;
(d) All fees payable by the Borrower on the date of this
Amendment to Bank; and
(e) Such other documents, instruments, certificates, and
opinions as the Bank may reasonably request on or before the date of this
Amendment in connection with the consummation of the transactions contemplated
hereby.
10. NO WAIVER BY BANK. The execution of this Amendment and the new
Loan Documents shall not constitute a waiver of any default or Event of Default
in the Agreement or any other Loan Document existing on the date hereof, nor
shall it eliminate any right which Bank may otherwise have to accelerate the
indebtedness subject to the Agreement by virtue of any default or Event of
Default.
11. RELIANCE UPON, SURVIVAL OF, AND MATERIALITY OF REPRESENTATIONS
AND WARRANTIES, AGREEMENTS, AND COVENANTS. All representations and warranties,
agreements, and covenants made by
5
<PAGE> 6
Borrower herein are material and shall be deemed to have been relied upon by
Bank, notwithstanding any investigation heretofore or hereafter made by Bank,
shall survive the execution and delivery of this Amendment, and shall continue
in full force and effect so long as any indebtedness is owed by Borrower to
Bank.
12. COOPERATION, FURTHER ASSURANCES. Borrower agrees to cooperate
with Bank so that the interests of Bank are protected and the intent of the Loan
Documents and this Amendment can be effectuated. Borrower agrees to execute
whatever further documents and to provide whatever further assurances Bank may
reasonably request or deem necessary to effectuate the terms of the Renewal
First Working Capital Line, the Renewal Letter of Credit Line, and this
Amendment.
13. ESTOPPEL AND RELEASE. Borrower hereby acknowledges and agrees
that, as of the date hereof, there exists no right of offset, defense,
counterclaim, claim, or objection in favor of such party as against Bank with
respect to any of the Loan Documents, any collateral therefor, or any other
aspect of the transactions contemplated by the Agreement or the Loan Documents.
In connection with the foregoing, Borrower hereby releases and discharges Bank,
its subsidiaries, affiliates, directors, officers, employees, attorneys, agents,
successors, and assigns from any and all rights, claims, demands, actions,
causes of action, suits, proceedings, agreements, contracts, judgments, damages,
debts, duties, liabilities, or obligations of any kind or character, including
without limitation such claims and defenses as fraud, mistake, and usury,
whether in law or in equity, known or unknown, choate or inchoate, which it has
had, now has, or hereafter may have, arising under or in any manner relating to,
whether directly or indirectly, the Loan Documents, any collateral therefor or
guaranties thereof, or any other aspect of the transactions contemplated
thereby, from the beginning of time until the date hereof.
14. COURSE OF DEALING; AMENDMENT; SUPPLEMENTAL AGREEMENTS. No
course of dealing between the parties hereto shall be effective to amend,
modify, or change any provision of this Amendment or the other Loan Documents.
This Amendment, the Agreement and the other Loan Documents may not be amended,
modified, or changed in any respect except by an agreement in writing signed by
the party against whom such change is to be enforced. The parties hereto may,
subject to the provisions of this Section, from time to time, enter into written
agreements supplemental hereto for the purpose of adding any provision to this
Amendment or the other Loan Documents or changing in any manner the rights and
obligations of the parties hereunder. Any such supplemental agreement in writing
shall be binding upon the parties thereto.
15. HEADINGS. The titles and headings preceding the text of the
paragraphs of this Amendment have been inserted solely for convenience of
reference and shall neither constitute a part of this Amendment nor affect its
meaning, interpretation, or effect.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
WITNESSES: CHICO'S FAS, INC.,
a Florida corporation
/s/
------------------------------
By:/s/ Charles J. Kleman
---------------------------------
/s/ Charles J. Kleman,
------------------------------ Executive Vice President-Finance
NATIONSBANK, N.A.,
a national banking association
By: /s/ Karen O. Hanlon
----------------------------------
Karen O. Hanlon,
Assistant Vice President
7
<PAGE> 1
EXHIBIT 10.60
NONEMPLOYEE DIRECTOR'S STOCK OPTION AGREEMENT
THIS AGREEMENT is made this 14th day of April, 1998 but is effective as of
the 10th day of February, 1998, between CHICO'S FAS, Inc., a Florida corporation
("Chico's") and Ross E. Roeder, a nonemployee member of Chico's Board of
Directors (the "Director").
W I T N E S S E T H
WHEREAS, the Director is now a member of Chico's Board of Directors and
Chico's desires to have the Director remain in its service and desires to
encourage stock ownership by the Director and to increase the Director's
proprietary interest in Chico's success; and as an inducement thereto has
determined to grant to the Director the option herein provided for, to the end
that the Director may thereby be assisted in obtaining an interest, or an
increased interest, as the case may be, in the stock ownership of Chico's.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto hereby agree as follows:
1. Grant. Chico's hereby grants to the Director an option (the "Option")
to purchase 10,000 shares of Chico's common stock, par value $.01 per share
("Common Stock") at $6.50 per share, both as adjusted pursuant to Section 10
hereof.
2. Exercise. The Option may be exercised at any time during the period
hereinafter permitted by presentation at the principal offices of Chico's in Ft.
Myers, Florida of (a) written notice to Chico's advising Chico's of the election
of the Director to purchase the shares of Common Stock covered by this Option
and (b) payment of the aggregate option price therefor.
3. Period of Exercise. The Option is exercisable in whole or from time to
time in part during the period from August 10, 1998 through February 10, 2008,
except as provided in Section 8 hereof.
4. Vesting Schedule. The Optionee's rights under the Option shall vest
100% on August 10, 1998.
5. Requirements of Law. Chico's shall not be required to sell or issue any
shares under the Option if the issuance of such shares shall constitute a
violation of any provisions of any law or regulation of any governmental
authority. Specifically, in connection with the Securities Act of 1933 (the
"Act"), upon exercise of the Option, unless a registration statement under the
Act is in effect with respect to the shares of Common Stock covered by the
Option, Chico's shall not be required to issue such shares unless Chico's has
received evidence reasonably satisfactory to the effect that the Director is
acquiring such shares for investment and not with a view to the distribution
thereof, and unless the certificate
<PAGE> 2
issued representing the shares of Common Stock bears the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AS AMENDED AND APPLICABLE
STATE SECURITIES LAWS."
Any reasonable determination in this connection by Chico's shall be final,
binding and conclusive.
At such time as a registration statement under the Act is in effect
with respect to the shares of Common Stock represented by certificates
bearing the above legend or at such time as, in the opinion of counsel for
Chico's, such legend is no longer required solely for compliance with
applicable securities laws, then the holders of such certificates shall be
entitled to exchange such certificates for certificates representing a like
number of shares but without such legend. Chico's may, but shall in no
event be obligated to, register any securities covered hereby pursuant to
the Act. Chico's shall not be obligated to take any other affirmative
action in order to cause the exercise of the Option or the issuance of
shares pursuant thereto to comply with any law or regulation of any
governmental authority.
6. Method of Payment. Payment shall be made:
(a) in United States dollars by certified check, or bank draft or
(b) by tendering to Chico's Common Stock shares owned by the person
exercising the Option and having a fair market value equal to the cash
exercise price applicable to such Option, such fair market value to be the
closing price, on the date in question (or, if no shares are traded on such
day, on the next preceding day on which shares were traded), of the Common
Stock as reported on the Composite Tape, or if not reported thereon, then
such price as reported in the trading reports of the principal securities
exchange in the United States on which such stock is listed, or if such
stock is not listed on a securities exchange in the United States, the mean
between the dealer closing "bid" and "ask" prices on the over-the-counter
market as reported by the National Association of Security Dealers
Automated Quotation System (NASDAQ), or NASDAQ's successor, or if not
reported on NASDAQ, the fair market value of such stock as determined by
the Board in good faith and based on all relevant factors, or
2.
<PAGE> 3
(c) by a combination of United States dollars and Common Stock shares
as aforesaid.
7. Transferability of Option. The Option shall not be transferable by the
Director otherwise than by will or the laws of descent and distribution, and
shall be exercisable during his lifetime only by him.
8. Termination of Service, Death, Disability and Change in Control. Except
as may be otherwise expressly provided in this Agreement, the Option herein
granted shall terminate and all rights to exercise hereunder shall terminate (a)
immediately in the event of the Director's discontinuance of service on Chico's
Board of Directors as a result of his or her removal for cause and (b) seven (7)
months after the date of the Director's discontinuance of service on Chico's
Board of Directors for any other reason, other than death, disability or
retirement.
In the event of the death, disability or retirement of the Director while a
member of the Board of Directors and before the date of expiration of the
Option, the Option shall terminate and all rights to exercise hereunder shall
terminate on the earlier of such date of expiration or one year following the
date of such death, disability or retirement. After the death of the Director,
his executors or administrators, or any person or persons to whom the Option may
be transferred by will or by the laws of descent and distribution, shall have
the right, at any time prior to such termination, to exercise the Option
pursuant to the terms of this Agreement.
If there shall occur a change in control of Chico's while any shares of
Common Stock remain subject to this Option, then the Option shall become
immediately exercisable without regard to Section 2 hereof and such
exercisability shall terminate only pursuant to Section 2 hereof without regard
to the other provisions of this Section 8. For purposes of this Agreement, a
"change in control" of Chico's shall mean a change in control of a nature that
would be required to reported in response to Item 5(f) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1931 (the
"Exchange Act") as in effect on the date hereof; provided, that, without
limitation, such a change in control shall be deemed to have occurred if (i) any
"person" (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act
and other than the persons who are directors on the date of this Agreement) is
or becomes the beneficial owner, directly or indirectly, of securities of
Chico's representing 20% or more of the combined voting power of Chico's then
outstanding securities or (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of Chico's cease for any reason to constitute at least a majority
thereof.
3.
<PAGE> 4
9. No Rights as Stockholder. The Director shall have no rights as a
stockholder with respect to shares covered by the Option until the date of
issuance of a stock certificate for such shares; no adjustment for dividends, or
otherwise, except as provided in Section 10, shall be made if the record date
therefor is prior to the date of exercise of such option.
10. Stock Adjustments.
(a) In the event of any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split or other division or
consolidation of shares or the payment of a stock dividend (but only on the
Common Stock) or any other increase or decrease in the number of such
shares effected without any receipt of consideration by Chico's, then, in
any such event, the number of shares of Common Stock covered by the Option,
and the purchase price per share of Common Stock covered by the Option
shall be proportionately and appropriately adjusted for any such increase
or decrease.
(b) Subject to any required action by the stockholders, if any change
occurs in the shares of Common Stock by reason of any recapitalization,
reorganization, merger, consolidation, split-up, combination or exchange of
shares, or of any similar change affecting the shares of Common Stock,
then, in any such event, the number and type of shares covered by the
Option, and the purchase price per share of Common Stock covered by the
Option, shall be proportionately and appropriately adjusted for any such
change. A dissolution or liquidation of Chico's shall cause each
outstanding Option to terminate.
(c) In the event of a change in the Common Stock as presently
constituted that is limited to a change of all of its authorized shares
with par value into the same number of shares with a different par value or
without par value, the shares resulting from any change shall be deemed to
be shares of Common Stock within the meaning of this Agreement.
(d) To the extent that the foregoing adjustments relate to stock or
securities of Chico's, such adjustments shall be made by, and in the
discretion of, the Board, whose determination in that respect shall be
final, binding and conclusive.
(e) Except as hereinabove expressly provided in this Section 10, the
Director shall have no rights by reason of any division or consolidation of
shares of stock of any class or the payment of any stock dividend or any
other increase or decrease in the number of shares of stock of any class or
by reason of any dissolution, liquidation, merger or consolidation, or
spin-off of assets or stock of another corporation; and any issuance by
Chico's of shares of stock of any class, securities
4.
<PAGE> 5
convertible into shares of stock of any class, or warrants or options for
shares of stock of any class shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
Common Stock subject to the Option.
(f) The grant of this Option shall not affect in any way the right or
power of Chico's to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge or to consolidate,
or to dissolve, to liquidate, to sell, or to transfer all or any part of
its business or assets.
11. Withholding. It shall be a condition to the obligation of Chico's to
issue Common Stock shares upon exercise of an Option, that the Director (or any
beneficiary or person entitled to act under Section 8 above) pay to Chico's,
upon its demand, such amount as may be requested by Chico's for the purpose of
satisfying any liability to withhold federal, state, local or foreign income or
other taxes. If the amount requested is not paid, Chico's may refuse to issue
Common Stock shares.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CHICO'S FAS, INC.
By: /s/ Marvin J. Gralnick
------------------------------------------
Marvin J. Gralnick, President
/s/ Ross E. Roeder
------------------------------------------
Ross E. Roeder, Director
5.
<PAGE> 1
EXHIBIT 10.61
NONEMPLOYEE DIRECTOR'S STOCK OPTION AGREEMENT
THIS AGREEMENT is made this 14th day of April, 1998 but is effective as of
the 10th day of February, 1998, between CHICO'S FAS, Inc., a Florida corporation
("Chico's") and John W. Burden, a nonemployee member of Chico's Board of
Directors (the "Director").
W I T N E S S E T H
WHEREAS, the Director is now a member of Chico's Board of Directors and
Chico's desires to have the Director remain in its service and desires to
encourage stock ownership by the Director and to increase the Director's
proprietary interest in Chico's success; and as an inducement thereto has
determined to grant to the Director the option herein provided for, to the end
that the Director may thereby be assisted in obtaining an interest, or an
increased interest, as the case may be, in the stock ownership of Chico's.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto hereby agree as follows:
1. Grant. Chico's hereby grants to the Director an option (the "Option")
to purchase 10,000 shares of Chico's common stock, par value $.01 per share
("Common Stock") at $6.50 per share, both as adjusted pursuant to Section 10
hereof.
2. Exercise. The Option may be exercised at any time during the period
hereinafter permitted by presentation at the principal offices of Chico's in Ft.
Myers, Florida of (a) written notice to Chico's advising Chico's of the election
of the Director to purchase the shares of Common Stock covered by this Option
and (b) payment of the aggregate option price therefor.
3. Period of Exercise. The Option is exercisable in whole or from time to
time in part during the period from August 10, 1998 through February 10, 2008,
except as provided in Section 8 hereof.
4. Vesting Schedule. The Optionee's rights under the Option shall vest
100% on August 10, 1998.
5. Requirements of Law. Chico's shall not be required to sell or issue any
shares under the Option if the issuance of such shares shall constitute a
violation of any provisions of any law or regulation of any governmental
authority. Specifically, in connection with the Securities Act of 1933 (the
"Act"), upon exercise of the Option, unless a registration statement under the
Act is in effect with respect to the shares of Common Stock covered by the
Option, Chico's shall not be required to issue such shares unless Chico's has
received evidence reasonably satisfactory to the effect that the Director is
acquiring such shares for investment and not with a view to the distribution
thereof, and unless the certificate
<PAGE> 2
issued representing the shares of Common Stock bears the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AS AMENDED AND APPLICABLE
STATE SECURITIES LAWS."
Any reasonable determination in this connection by Chico's shall be final,
binding and conclusive.
At such time as a registration statement under the Act is in effect with
respect to the shares of Common Stock represented by certificates bearing the
above legend or at such time as, in the opinion of counsel for Chico's, such
legend is no longer required solely for compliance with applicable securities
laws, then the holders of such certificates shall be entitled to exchange such
certificates for certificates representing a like number of shares but without
such legend. Chico's may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Act. Chico's shall not be obligated to
take any other affirmative action in order to cause the exercise of the Option
or the issuance of shares pursuant thereto to comply with any law or regulation
of any governmental authority.
6. Method of Payment. Payment shall be made:
(a) in United States dollars by certified check, or bank draft or
(b) by tendering to Chico's Common Stock shares owned by the person
exercising the Option and having a fair market value equal to the cash
exercise price applicable to such Option, such fair market value to be the
closing price, on the date in question (or, if no shares are traded on such
day, on the next preceding day on which shares were traded), of the Common
Stock as reported on the Composite Tape, or if not reported thereon, then
such price as reported in the trading reports of the principal securities
exchange in the United States on which such stock is listed, or if such
stock is not listed on a securities exchange in the United States, the mean
between the dealer closing "bid" and "ask" prices on the over-the-counter
market as reported by the National Association of Security Dealers
Automated Quotation System (NASDAQ), or NASDAQ's successor, or if not
reported on NASDAQ, the fair market value of such stock as determined by
the Board in good faith and based on all relevant factors, or
2.
<PAGE> 3
(c) by a combination of United States dollars and Common Stock shares
as aforesaid.
7. Transferability of Option. The Option shall not be transferable by the
Director otherwise than by will or the laws of descent and distribution, and
shall be exercisable during his lifetime only by him.
8. Termination of Service, Death, Disability and Change in Control. Except
as may be otherwise expressly provided in this Agreement, the Option herein
granted shall terminate and all rights to exercise hereunder shall terminate (a)
immediately in the event of the Director's discontinuance of service on Chico's
Board of Directors as a result of his or her removal for cause and (b) seven (7)
months after the date of the Director's discontinuance of service on Chico's
Board of Directors for any other reason, other than death, disability or
retirement.
In the event of the death, disability or retirement of the Director while a
member of the Board of Directors and before the date of expiration of the
Option, the Option shall terminate and all rights to exercise hereunder shall
terminate on the earlier of such date of expiration or one year following the
date of such death, disability or retirement. After the death of the Director,
his executors or administrators, or any person or persons to whom the Option may
be transferred by will or by the laws of descent and distribution, shall have
the right, at any time prior to such termination, to exercise the Option
pursuant to the terms of this Agreement.
If there shall occur a change in control of Chico's while any shares of
Common Stock remain subject to this Option, then the Option shall become
immediately exercisable without regard to Section 2 hereof and such
exercisability shall terminate only pursuant to Section 2 hereof without regard
to the other provisions of this Section 8. For purposes of this Agreement, a
"change in control" of Chico's shall mean a change in control of a nature that
would be required to reported in response to Item 5(f) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1931 (the
"Exchange Act") as in effect on the date hereof; provided, that, without
limitation, such a change in control shall be deemed to have occurred if (i) any
"person" (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act
and other than the persons who are directors on the date of this Agreement) is
or becomes the beneficial owner, directly or indirectly, of securities of
Chico's representing 20% or more of the combined voting power of Chico's then
outstanding securities or (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of Chico's cease for any reason to constitute at least a majority
thereof.
3.
<PAGE> 4
9. No Rights as Stockholder. The Director shall have no rights as a
stockholder with respect to shares covered by the Option until the date of
issuance of a stock certificate for such shares; no adjustment for dividends, or
otherwise, except as provided in Section 10, shall be made if the record date
therefor is prior to the date of exercise of such option.
10. Stock Adjustments.
(a) In the event of any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split or other division or
consolidation of shares or the payment of a stock dividend (but only on the
Common Stock) or any other increase or decrease in the number of such
shares effected without any receipt of consideration by Chico's, then, in
any such event, the number of shares of Common Stock covered by the Option,
and the purchase price per share of Common Stock covered by the Option
shall be proportionately and appropriately adjusted for any such increase
or decrease.
(b) Subject to any required action by the stockholders, if any change
occurs in the shares of Common Stock by reason of any recapitalization,
reorganization, merger, consolidation, split-up, combination or exchange of
shares, or of any similar change affecting the shares of Common Stock,
then, in any such event, the number and type of shares covered by the
Option, and the purchase price per share of Common Stock covered by the
Option, shall be proportionately and appropriately adjusted for any such
change. A dissolution or liquidation of Chico's shall cause each
outstanding Option to terminate.
(c) In the event of a change in the Common Stock as presently
constituted that is limited to a change of all of its authorized shares
with par value into the same number of shares with a different par value or
without par value, the shares resulting from any change shall be deemed to
be shares of Common Stock within the meaning of this Agreement.
(d) To the extent that the foregoing adjustments relate to stock or
securities of Chico's, such adjustments shall be made by, and in the
discretion of, the Board, whose determination in that respect shall be
final, binding and conclusive.
(e) Except as hereinabove expressly provided in this Section 10, the
Director shall have no rights by reason of any division or consolidation of
shares of stock of any class or the payment of any stock dividend or any
other increase or decrease in the number of shares of stock of any class or
by reason of any dissolution, liquidation, merger or consolidation, or
spin-off of assets or stock of another corporation; and any issuance by
Chico's of shares of stock of any class, securities
4.
<PAGE> 5
convertible into shares of stock of any class, or warrants or options for
shares of stock of any class shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
Common Stock subject to the Option.
(f) The grant of this Option shall not affect in any way the right or
power of Chico's to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge or to consolidate,
or to dissolve, to liquidate, to sell, or to transfer all or any part of
its business or assets.
11. Withholding. It shall be a condition to the obligation of Chico's to
issue Common Stock shares upon exercise of an Option, that the Director (or any
beneficiary or person entitled to act under Section 8 above) pay to Chico's,
upon its demand, such amount as may be requested by Chico's for the purpose of
satisfying any liability to withhold federal, state, local or foreign income or
other taxes. If the amount requested is not paid, Chico's may refuse to issue
Common Stock shares.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CHICO'S FAS, INC.
By: /s/ Marvin J. Gralnick
------------------------------------------
Marvin J. Gralnick, President
/s/ John W. Burden
------------------------------------------
John W. Burden, Director
5.
<PAGE> 1
EXHIBIT 10.62
NONEMPLOYEE DIRECTOR'S STOCK OPTION AGREEMENT
THIS AGREEMENT is made this 14th day of April, 1998 but is effective as of
the 10th day of February, 1998, between CHICO'S FAS, Inc., a Florida corporation
("Chico's") and Verna K. Gibson, a nonemployee member of Chico's Board of
Directors (the "Director").
W I T N E S S E T H
WHEREAS, the Director is now a member of Chico's Board of Directors and
Chico's desires to have the Director remain in its service and desires to
encourage stock ownership by the Director and to increase the Director's
proprietary interest in Chico's success; and as an inducement thereto has
determined to grant to the Director the option herein provided for, to the end
that the Director may thereby be assisted in obtaining an interest, or an
increased interest, as the case may be, in the stock ownership of Chico's.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto hereby agree as follows:
1. Grant. Chico's hereby grants to the Director an option (the "Option")
to purchase 25,000 shares of Chico's common stock, par value $.01 per share
("Common Stock") at $6.50 per share, both as adjusted pursuant to Section 10
hereof.
2. Exercise. The Option may be exercised at any time during the period
hereinafter permitted by presentation at the principal offices of Chico's in Ft.
Myers, Florida of (a) written notice to Chico's advising Chico's of the election
of the Director to purchase the shares of Common Stock covered by this Option
and (b) payment of the aggregate option price therefor.
3. Period of Exercise. The Option is exercisable in whole or from time to
time in part during the period from August 10, 1998 through February 10, 2008,
except as provided in Section 8 hereof.
4. Vesting Schedule. The Optionee's rights under the Option shall vest
100% on August 10, 1998.
5. Requirements of Law. Chico's shall not be required to sell or issue any
shares under the Option if the issuance of such shares shall constitute a
violation of any provisions of any law or regulation of any governmental
authority. Specifically, in connection with the Securities Act of 1933 (the
"Act"), upon exercise of the Option, unless a registration statement under the
Act is in effect with respect to the shares of Common Stock covered by the
Option, Chico's shall not be required to issue such shares unless Chico's has
received evidence reasonably satisfactory to the effect that the Director is
acquiring such shares for investment and not with a view to the distribution
thereof, and unless the certificate
<PAGE> 2
issued representing the shares of Common Stock bears the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AS AMENDED AND APPLICABLE
STATE SECURITIES LAWS."
Any reasonable determination in this connection by Chico's shall be final,
binding and conclusive.
At such time as a registration statement under the Act is in effect with
respect to the shares of Common Stock represented by certificates bearing the
above legend or at such time as, in the opinion of counsel for Chico's, such
legend is no longer required solely for compliance with applicable securities
laws, then the holders of such certificates shall be entitled to exchange such
certificates for certificates representing a like number of shares but without
such legend. Chico's may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Act. Chico's shall not be obligated to
take any other affirmative action in order to cause the exercise of the Option
or the issuance of shares pursuant thereto to comply with any law or regulation
of any governmental authority.
6. Method of Payment. Payment shall be made:
(a) in United States dollars by certified check, or bank draft or
(b) by tendering to Chico's Common Stock shares owned by the person
exercising the Option and having a fair market value equal to the cash
exercise price applicable to such Option, such fair market value to be the
closing price, on the date in question (or, if no shares are traded on such
day, on the next preceding day on which shares were traded), of the Common
Stock as reported on the Composite Tape, or if not reported thereon, then
such price as reported in the trading reports of the principal securities
exchange in the United States on which such stock is listed, or if such
stock is not listed on a securities exchange in the United States, the mean
between the dealer closing "bid" and "ask" prices on the over-the-counter
market as reported by the National Association of Security Dealers
Automated Quotation System (NASDAQ), or NASDAQ's successor, or if not
reported on NASDAQ, the fair market value of such stock as determined by
the Board in good faith and based on all relevant factors, or
2.
<PAGE> 3
(c) by a combination of United States dollars and Common Stock shares
as aforesaid.
7. Transferability of Option. The Option shall not be transferable by the
Director otherwise than by will or the laws of descent and distribution, and
shall be exercisable during his lifetime only by him.
8. Termination of Service, Death, Disability and Change in Control. Except
as may be otherwise expressly provided in this Agreement, the Option herein
granted shall terminate and all rights to exercise hereunder shall terminate (a)
immediately in the event of the Director's discontinuance of service on Chico's
Board of Directors as a result of his or her removal for cause and (b) seven (7)
months after the date of the Director's discontinuance of service on Chico's
Board of Directors for any other reason, other than death, disability or
retirement.
In the event of the death, disability or retirement of the Director while a
member of the Board of Directors and before the date of expiration of the
Option, the Option shall terminate and all rights to exercise hereunder shall
terminate on the earlier of such date of expiration or one year following the
date of such death, disability or retirement. After the death of the Director,
his executors or administrators, or any person or persons to whom the Option may
be transferred by will or by the laws of descent and distribution, shall have
the right, at any time prior to such termination, to exercise the Option
pursuant to the terms of this Agreement.
If there shall occur a change in control of Chico's while any shares of
Common Stock remain subject to this Option, then the Option shall become
immediately exercisable without regard to Section 2 hereof and such
exercisability shall terminate only pursuant to Section 2 hereof without regard
to the other provisions of this Section 8. For purposes of this Agreement, a
"change in control" of Chico's shall mean a change in control of a nature that
would be required to reported in response to Item 5(f) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1931 (the
"Exchange Act") as in effect on the date hereof; provided, that, without
limitation, such a change in control shall be deemed to have occurred if (i) any
"person" (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act
and other than the persons who are directors on the date of this Agreement) is
or becomes the beneficial owner, directly or indirectly, of securities of
Chico's representing 20% or more of the combined voting power of Chico's then
outstanding securities or (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of Chico's cease for any reason to constitute at least a majority
thereof.
3.
<PAGE> 4
9. No Rights as Stockholder. The Director shall have no rights as a
stockholder with respect to shares covered by the Option until the date of
issuance of a stock certificate for such shares; no adjustment for dividends, or
otherwise, except as provided in Section 10, shall be made if the record date
therefor is prior to the date of exercise of such option.
10. Stock Adjustments.
(a) In the event of any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split or other division or
consolidation of shares or the payment of a stock dividend (but only on the
Common Stock) or any other increase or decrease in the number of such
shares effected without any receipt of consideration by Chico's, then, in
any such event, the number of shares of Common Stock covered by the Option,
and the purchase price per share of Common Stock covered by the Option
shall be proportionately and appropriately adjusted for any such increase
or decrease.
(b) Subject to any required action by the stockholders, if any change
occurs in the shares of Common Stock by reason of any recapitalization,
reorganization, merger, consolidation, split-up, combination or exchange of
shares, or of any similar change affecting the shares of Common Stock,
then, in any such event, the number and type of shares covered by the
Option, and the purchase price per share of Common Stock covered by the
Option, shall be proportionately and appropriately adjusted for any such
change. A dissolution or liquidation of Chico's shall cause each
outstanding Option to terminate.
(c) In the event of a change in the Common Stock as presently
constituted that is limited to a change of all of its authorized shares
with par value into the same number of shares with a different par value or
without par value, the shares resulting from any change shall be deemed to
be shares of Common Stock within the meaning of this Agreement.
(d) To the extent that the foregoing adjustments relate to stock or
securities of Chico's, such adjustments shall be made by, and in the
discretion of, the Board, whose determination in that respect shall be
final, binding and conclusive.
(e) Except as hereinabove expressly provided in this Section 10, the
Director shall have no rights by reason of any division or consolidation of
shares of stock of any class or the payment of any stock dividend or any
other increase or decrease in the number of shares of stock of any class or
by reason of any dissolution, liquidation, merger or consolidation, or
spin-off of assets or stock of another corporation; and any issuance by
Chico's of shares of stock of any class, securities
4.
<PAGE> 5
convertible into shares of stock of any class, or warrants or options for
shares of stock of any class shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
Common Stock subject to the Option.
(f) The grant of this Option shall not affect in any way the right or
power of Chico's to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge or to consolidate,
or to dissolve, to liquidate, to sell, or to transfer all or any part of
its business or assets.
11. Withholding. It shall be a condition to the obligation of Chico's to
issue Common Stock shares upon exercise of an Option, that the Director (or any
beneficiary or person entitled to act under Section 8 above) pay to Chico's,
upon its demand, such amount as may be requested by Chico's for the purpose of
satisfying any liability to withhold federal, state, local or foreign income or
other taxes. If the amount requested is not paid, Chico's may refuse to issue
Common Stock shares.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CHICO'S FAS, INC.
By: /s/ Marvin J. Gralnick
------------------------------------------
Marvin J. Gralnick, President
/s/ Verna K. Gibson
------------------------------------------
Verna K. Gibson, Director
5.
<PAGE> 1
EXHIBIT 13
[GRAPHIC -- PICTURE OF FEMALE MODEL LEANING AGAINST TRUCK]
CHICO'S(R)
1998 ANNUAL REPORT
<PAGE> 2
[MODEL POSING ON BEACH]
<PAGE> 3
To our shareholders,
Fiscal 1998 was a successful turn around year for Chico's. We are on the
road to realizing our goal of making Chico's a prominent and leading retail
force in the casual women's apparel marketplace.
Although our stores only average 1300 selling square feet, we are excited
that, in fiscal 1998 four of our stores topped the million-dollar sales mark
with Scottsdale, Arizona exceeding one and one-half million dollars in sales.
We now have more than 141 stores, including seven franchise stores and
eight outlets. Every Chico's has its own character with the size, layout and
unique furnishings contributing to each store's personality. In fiscal 1998, we
opened 14 new stores and remodeled 25. This year we plan to open 16 to 20 new
Chico's stores and will continue to remodel and update existing stores.
We had positive comparable store sales for the last eleven months of the
fiscal year with eight of those showing double-digit increases. Our net income
increased as well to 35 cents per share versus 24 cents per share in the prior
year.
Our success this year can be attributed to increased product knowledge,
better merchandise presentation in our stores, an improved style mix combined
with better distribution methods, increased holiday sales, a more focused
marketing effort, and the opening of successful new stores in prime locations.
These achievements are made possible because of our enthusiastic employees
nationwide.
Our product development team is more focused and has been responsible for
raising our standards in design, quality and promptness of delivery. We have
purchased new software to make our design process more effective and we are
continuously introducing new fabrics and styles.
Chico's customers appreciate the casually sophisticated, comfortable
styling and easy care fabrics of our clothing. A winning combination is created
with our unique products, boutique store settings and attentive store teams.
Our great customer service starts with product knowledge. In the fall, as
part of our new training program, we initiated Fashion Information Training
(F.I.T.) store notebooks which contain drawings, descriptions, fabric content,
care instruction, sizing and pricing of the clothing we will sell in coming
months.
Because we pride ourselves on unique customer service, sales training is
also of the utmost importance. In the spring of 1998, our district sales
managers will begin training with our Most Amazing Personal Service (M.A.P.S.)
sales module. They in turn, will train store managers who will train their
teams. This sales training will address the history and values of Chico's,
product experience and selling techniques.
In December, Chico's women everywhere raved about the Traveler's Dress, the
first item in our immensely popular Traveler's Collection. Our February 1998
mailer highlights this collection of six easy pieces which can be worn in
different combinations. In the future, we will be introducing new colors,
weaves, textures and designs in this fabulous fabric (the Traveler's Collection)
that is wrinkle free, easy to care for, and looks great on every body style.
Since our best months are generally in the Spring, while other retailers
peak in December, our 1997 holiday season presented us with a challenge. In
addition to dressier holiday clothing, we offered gift items such as angel pins
on cards, candles and brass ornaments. Chico's celebrated a Mexican holiday
season by decorating our stores with festive banners, candle and ornament trees
and menorahs. Our customers bought these ornaments and the displays as well as
our clothing. Although we have made progress in our holiday season performance,
our goal for the future is to improve upon these results.
Our bimonthly direct mail marketing results have been extremely positive.
Every mailer is designed in house much like our clothing. We continue to feature
current and former employees as models, bringing reality into our photography.
Our mailer results have been improved by targeting our best customers and
prospecting in markets in which we want to expand. Our marketing success,
combined with wide customer acceptance, has been continuously increasing our
customer base.
With the addition of Pat Murphy, our senior merchant, we have rounded out
Chico's management team. This team, along with our dedicated employees and our
experienced board of directors, should enable us to achieve our goal of being a
prominent and leading retail force in the casual women's apparel marketplace.
Sales are brisk, morale is high and our potential seems limitless.
Happy trails and great sales,
/s/ Marvin Gralnick
Marvin Gralnick
Chairman of the Board
<PAGE> 4
[CHICOS LOGO]
REAL CLOTHES FOR REAL PEOPLE
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PRO FORMA
ONE FISCAL YEAR
FISCAL YEAR ENDED MONTH ENDED FISCAL YEAR ENDED
--------------------------- ENDED (UNAUDITED) -----------------
1993 1994 1995 1/28/96(1) 1996(1) 1997(1) 1998
------- ------- ------- ---------- ----------- ------- -------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net Sales $46,835 $59,271 $60,343 $3,747 $60,763 $64,073 $75,339
Income (loss) from
Operations 7,985 5,685 3,485 (524) 3,437 3,622 4,914
Net Income (loss)(2) 4,902 3,291 1,704 (338) 1,676 1,931 2,770
Basic Earnings (loss)
Per Share .63 .42 .22 (.04) .22 .25 .35
Diluted Earnings
(loss) Per Share .61 .41 .22 (.04) .21 .24 .34
OPERATING DATA:
Total Assets 16,589 27,352 27,009 27,681 31,248 34,472
Long-Term Debt 593 4,663 5,896 7,231 7,008 6,703
Stockholders' Equity $10,713 $14,226 $15,959 $15,621 $18,021 $21,456
Number of Stores (at
end of period):
Company-owned 78 104 111 111 123 132
Franchised 16 17 12 12 10 9
--- ---- ---- ------ ---- ----
Total 94 121 123 123 133 141
--- ---- ---- ------ ---- ----
</TABLE>
(1) In December 1996, the Company elected to change its fiscal year end,
effective January 29, 1996, from a 52/53 week fiscal year ending on the
Sunday closest to December 31st to a 52/53 week fiscal year ending on the
Saturday closest to January 31st. The selected financial data presents
financial results for, among other periods, the short one month transition
period in January 1996 and a pro forma fiscal year ended January 28, 1996.
(2) Represents unaudited supplemental pro forma net income for fiscal period
1993.
------------------------------------------------------------------------------
INDEX
<TABLE>
<C> <S>
4 Management's Discussion & Analysis
9 Stock Information
10 Financial Statements
26 Executive Officers/Directors
27 Store Listing
</TABLE>
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Since the Company opened its first store in 1983 principally selling folk
art, its retail store system, now selling principally women's apparel, has grown
to 141 stores as of January 31, 1998 (fiscal 1998), of which 132 are
Company-owned and 9 are franchised stores (two were acquired by the Company in
March 1998). Since fiscal 1989, the Company has de-emphasized the granting of
new franchises as a strategy for growth and, at the same time, has been
expanding its store base by opening Company-owned stores. Where possible and
practical, the Company has also acquired stores from its franchisees. Since the
beginning of fiscal 1993, the Company has acquired 7 stores from franchisees
(excluding the two acquired subsequent to January 31, 1998) and opened 82 new
Company-owned stores, 14 of which were opened in fiscal 1998, 13 of which were
opened in fiscal 1997, 8 of which were opened in the pro forma fiscal year ended
January 28, 1996, 26 of which were opened in the fiscal year ended January 1,
1995 and 21 of which were opened in the fiscal year ended January 2, 1994.
During this same time period, the Company closed 14 Company-owned stores and 3
franchised stores were closed. The Company plans to open 16 to 20 new
Company-owned stores in the fiscal year ending January 30, 1999 (fiscal 1999).
In addition, the Company is evaluating certain existing Company-owned store
locations, including stores with leases coming up for renewal, and is
considering the possibility of closing between 2 and 6 existing Company-owned
stores in fiscal 1999.
RESULTS OF OPERATIONS
The following table sets forth, for each of the respective periods
indicated, certain operating statement data and the percentage of the Company's
net sales represented by each line item presented. The Company elected,
effective January 29, 1996, to change its fiscal year from a 52/53 week fiscal
year ending on the Sunday closest to December 31st, to a 52/53 week fiscal year
ending on the Saturday closest to January 31st. To assist in a review of the
Company's results of operations, the following table includes operating
statement data for the short one month transition period in January 1996, for a
pro forma fiscal year ended January 28, 1996 and the first two new full fiscal
years ended in 1997 and 1998.
<TABLE>
<CAPTION>
ONE MONTH PERIOD PRO FORMA FISCAL YEAR
FISCAL YEAR ENDED ENDED ENDED (UNAUDITED) FISCAL YEAR ENDED
-------------------- ------------------- --------------------- -------------------
DECEMBER 31, JANUARY 28, JANUARY 28, FEBRUARY 1,
1995 1996 1996 1997
(52 WEEKS) % (4 WEEKS) % (52 WEEKS) % (53 WEEKS) %
------------ ----- ----------- ----- ------------ ------ ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales by company stores.... $57,636 95.5% $3,619 96.6% $58,091 95.6% $62,318 97.3%
Net sales to franchisees....... 2,707 4.5 128 3.4 2,672 4.4 1,755 2.7
------- ----- ------ ----- ------- ----- ------- -----
Net sales.................... 60,343 100.0 3,747 100.0 60,763 100.0 64,073 100.0
Cost of goods sold............. 26,115 43.3 1,913 51.0 26,484 43.6 26,713 41.7
------- ----- ------ ----- ------- ----- ------- -----
Gross profit................. 34,228 56.7 1,834 49.0 34,279 56.4 37,360 58.3
General, administrative and
store operating expenses..... 30,743 50.9 2,358 63.0 30,842 50.7 33,738 52.6
------- ----- ------ ----- ------- ----- ------- -----
Income (loss) from
operations................... 3,485 5.8 (524) (14.0) 3,437 5.7 3,622 5.7
Interest expense, net.......... 621 1.1 39 1.0 620 1.0 404 .7
------- ----- ------ ----- ------- ----- ------- -----
Income (loss) before taxes..... 2,864 4.7 (563) (15.0) 2,817 4.7 3,218 5.0
Provision for (benefit from)
income taxes................. 1,160 1.9 (225) (6.0) 1,141 1.9 1,287 2.0
------- ----- ------ ----- ------- ----- ------- -----
Net Income (loss).............. $ 1,704 2.8% $ (338) (9.0)% $ 1,676 2.8% $ 1,931 3.0%
======= ===== ====== ===== ======= ===== ======= =====
<CAPTION>
FISCAL YEAR ENDED
-------------------
JANUARY 31,
1998
(52 WEEKS) %
----------- -----
<S> <C> <C>
Net sales by company stores.... $73,597 97.7%
Net sales to franchisees....... 1,742 2.3
------- -----
Net sales.................... 75,339 100.0
Cost of goods sold............. 33,240 44.1
------- -----
Gross profit................. 42,099 55.9
General, administrative and
store operating expenses..... 37,185 49.4
------- -----
Income (loss) from
operations................... 4,914 6.5
Interest expense, net.......... 372 .5
------- -----
Income (loss) before taxes..... 4,542 6.0
Provision for (benefit from)
income taxes................. 1,772 2.3
------- -----
Net Income (loss).............. $ 2,770 3.7%
======= =====
</TABLE>
4
<PAGE> 6
FIFTY-TWO WEEKS ENDED JANUARY 31, 1998 COMPARED TO FIFTY-THREE WEEKS ENDED
FEBRUARY 1, 1997
NET SALES. Net sales by Company-owned stores for the fifty-two weeks ended
January 31, 1998 (fiscal 1998) increased by $11.3 million, or 17.6%, over net
sales by Company-owned stores for the fifty-three weeks ended February 1,1997
(fiscal 1997). The increase was the result of $4.7 million additional sales from
the new (or reacquired) stores not yet included in the Company's comparable
store base (net of sales of $1.1 million from eight stores closed in fiscal 1997
and fiscal 1998), a comparable Company-owned store net sales increase of $6.1
million, and approximately $464,000 in additional sales resulting from the
liquidation of inventory through an independent liquidator.
Net sales to franchisees for fiscal 1998 decreased by approximately
$13,000, or .7% compared to net sales to franchisees for fiscal 1997. The
Company believes that the decrease in net sales to franchisees was primarily
caused by the reacquisition of two franchises in fiscal 1998 and fiscal 1997,
and a decrease in the purchases from the Company's largest franchise, offset by
a decrease in the volume of returned merchandise under the Company's new return
policy implemented in mid 1996.
GROSS PROFIT. Gross profit for fiscal 1998 was $42.1 million, or 55.9% of
net sales, compared with $37.4 million, or 58.3% of net sales for fiscal 1997.
The decrease in the gross profit percentage primarily resulted from a revised
merchandising strategy as the Company reduced price points to more effectively
meet competitive price points and increased sales promotions and other markdowns
at both front line and outlet stores in an effort to reduce the Company's levels
of inventories, particularly older inventory that was being held at the
Company's warehouse for future clearance. To a lesser degree, the decrease in
gross margins resulted from (1) increased freight costs due to an increased use
of air shipments as the Company attempted to rapidly increase its in-store
inventory levels of newer merchandise, (2) a sale, at cost, of approximately
$464,000 of inventory to an independent liquidator, and (3) additional inventory
charges associated with certain of the Company's older designs and styles.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES. General,
administrative and store operating expenses increased to $37.2 million, or 49.4%
of net sales, in fiscal 1998 from $33.7 million, or 52.7% of net sales, in
fiscal 1997. The increase in general, administrative and store operating
expenses was, for the most part, the result of increases in store operating
expenses, including store compensation, occupancy and other costs associated
with new store openings. The decrease in these expenses as a percentage of net
sales was principally due to direct store costs which decreased by 2.4% of net
sales due to leverage associated with the Company's 10.7% comparable store sales
increase. To a lesser degree, the decrease is also attributable to net business
interruption insurance proceeds related to the temporary closing of one of the
Company's stores and a prior year nonrecurring cost of approximately $325,000
related to separation expenses associated with the former president of the
Company, all net of the impact of an increase in marketing expenses.
INTEREST EXPENSE, NET. Net interest expense decreased to approximately
$372,000 in fiscal 1998 from approximately $404,000 in fiscal 1997. This
decrease was primarily a result of an increase in interest earnings associated
with the Company's improved cash position.
NET INCOME. As a result of the factors discussed above, net income
reflects an increase of 43.5% to $2.7 million in fiscal 1998 from net income of
$1.9 million in fiscal 1997. The provision for income taxes represented an
effective rate of 39.0% in the fifty-two weeks ended January 31, 1998, as
compared to 40.0% in the fifty-three weeks ended February 1, 1997. The decrease
in the effective income tax rate resulted from a lower effective state income
tax rate.
FIFTY-THREE WEEKS ENDED FEBRUARY 1, 1997 COMPARED TO PRO FORMA FIFTY-TWO WEEKS
ENDED JANUARY 28, 1996
NET SALES. Net sales by Company owned stores for the fifty-three weeks
ended February 1, 1997 (fiscal 1997) increased by $4.2 million over net sales by
Company-owned stores for the pro forma fifty-two weeks ended January 28, 1996
(pro forma fiscal 1996).
The increase was primarily the result of $3.9 million in additional sales
provided (1) by the fourteen stores opened or acquired in the fiscal year ended
February 1, 1997 (net of two stores closed during the fiscal year) prior to such
stores being included in the Company's comparable store base and (2) by several
extended clearance sales conducted at, or near, the Company's warehouse
(approximately
5
<PAGE> 7
$992,000 of additional net sales). Approximately $1.0 million of the additional
sales were attributable to the twelve stores opened or acquired in the pro forma
fiscal year ended January 28, 1996 (net of five stores closed during such
period). These increases in net sales were offset in part by a comparable
Company-owned store net sales decrease of $704,000.
Net sales to franchisees for fiscal 1997 decreased by approximately
$917,000, or 34.4%, compared to net sales to franchisees for pro forma fiscal
1996. This decrease in net sales to franchisees resulted in part from the
acquisition by the Company of six franchised stores during the two fiscal years
ended February 1, 1997, and the closing of one franchise in March 1996.
Management believes the balance of this decrease in net sales to franchisees
resulted in part from conservative buying positions established by the
franchisees as the Company began delivering its new designs and styles in late
March 1996, combined with increased returns of older merchandise in anticipation
of a new, more restrictive return policy which became effective in July 1996.
GROSS PROFIT. Gross profit for fiscal 1997 was $37.4 million, or 58.3% of
net sales, compared with $34.3 million, or 56.4% of net sales for pro forma
fiscal 1996. The increase in the gross profit percentage primarily resulted from
improved gross margins related to the Company's new spring and holiday goods,
and an increase in the Company's outlet gross margins due to a change in its
merchandising strategies together with the effect of the decreased percentage of
total sales attributable to franchisees which carry lower margins.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES. General,
administrative and store operating expenses increased to $33.7 million, or 52.6%
of net sales, in fiscal 1997 from $30.8 million, or 50.7% of net sales, in pro
forma fiscal 1996. The increase in general, administrative and store operating
expenses, for the most part, was the result of increases in store operating
expenses, including store compensation and occupancy costs associated with
additional store openings. To a lesser degree, the increase in general,
administrative and store operating expense was a result of increased marketing
and promotion costs associated with mailings to existing and potential
customers, combined with the Company's increased outreach efforts. In addition,
the increase was also due to a nonrecurring cost of approximately $325,000
related to separation expenses associated with the former President of the
Company. During the pro forma fiscal year ended January 28, 1996, general,
administrative and store operating costs were negatively impacted by an
approximate $235,000 nonrecurring cost related to the Company's refinancing of
its outstanding indebtedness. The increase in these expenses as a percentage of
net sales was principally a result of the increased marketing and promotion
costs, combined with the decline in comparable Company-owned store net sales.
INTEREST EXPENSE, NET. Interest expense, net, decreased to approximately
$404,000 in fiscal 1997 from approximately $620,000 in fiscal 1996. This
decrease was primarily a result of decreased interest rates due to the
refinancing accomplished in January 1996.
NET INCOME. As a result of the factors discussed above, net income
reflects an increase of 15.1% to $1.9 million for fiscal 1997 from net income of
$1.7 million for pro forma fiscal 1996. The income tax provision represented an
effective rate of 40.0% for fiscal 1997, while the income tax provision for pro
forma fiscal 1996 represented an effective rate of 40.5%. The decrease in the
effective rate is largely attributable to lower permanent book-to-tax
differences in the current fiscal year.
COMPARISON OF FIFTY-THREE WEEKS ENDED
FEBRUARY 1, 1997 TO FISCAL 1995
As is evident from the table shown previously, the results of operations
for the pro forma fiscal year ended January 28, 1996 and the fiscal year ended
December 31, 1995 are substantially the same, particularly as to the relative
percentages of net sales for each line item. Accordingly, a discussion of a
comparison of the fifty-three weeks ended February 1, 1997 to the fiscal year
ended December 31, 1995 would be largely the same as the above discussion which
compares the fifty-three weeks ended February 1, 1997 to the pro forma fifty-two
weeks ended January 28, 1996.
FOUR WEEKS ENDED JANUARY 28, 1996
GENERAL. The Company has historically cleared merchandise at marked down
prices during the month of January. This practice, which the Company believes to
be consistent with other apparel
6
<PAGE> 8
retailers, results in a four week period that is not representative of the full
year results. Weekly sales during this four week period are generally lower due
to substantially increased returns resulting from the Christmas selling season,
combined with the deep markdowns required to clear merchandise and meet
competition.
For the one month period ended January 28, 1996, the gross profit
percentage of 49.0% is substantially less than the Company experiences on a full
quarter basis due to the focus on clearance of goods. Further, the general,
administrative and store operating expense percentage of 62.9% for the one month
period was also substantially higher than the Company experiences on a full
quarter basis due to the reduced sales described above, combined with certain
relatively fixed levels of expenses.
As a result of the above, the losses shown for this month are generally
consistent with past January results.
COMPARABLE COMPANY-OWNED STORE NET SALES
Comparable Company store net sales increased by 10.7% for the fifty-two
weeks ended January 31, 1998 when compared to the comparable fifty-two weeks of
the previous period. Comparable Company store net sales data is calculated based
on the change in net sales of currently open Company-owned stores that have been
operated as a Company store for at least thirteen months.
The Company believes that the increase in comparable Company store sales
resulted primarily from the Company's return in June 1997 to its traditional
Chico's look, fit and pricing policies. The Company also believes that the
increase in comparable store sales was fueled by increased direct mail and other
promotions, sales and markdowns of previous styles and designs as well as the
Company's national sidewalk sale held in July 1997, and a more focused
merchandising effort during the Christmas selling season.
The following table sets forth for each of the four quarters of fiscal
1998, 1997 and 1996 (restated to reflect the change in year end), the percentage
changes in comparable store net sales at Company-owned stores:
<TABLE>
<CAPTION>
FISCAL QUARTERS
-----------------------------------------
1ST 2ND 3RD 4TH FULL
QTR QTR QTR QTR YEAR
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Fiscal year ended 1/31/98: (1.1%) 13.3% 12.0% 20.1% 10.7%
Fiscal year ended 2/1/97: 2.9% 2.2% (0.3%) (10.6%) (1.3%)
Fiscal year ended 1/28/96: (17.2%) (13.5%) (8.1%) 0.2% (10.1%)
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES. The Company's primary on going capital
requirements are for funding capital expenditures related to new store openings
and merchandise inventory purchases.
During the fifty-two weeks ended January 31, 1998 (fiscal 1998) and the
fifty-three weeks ended February 1, 1997 (fiscal 1997), the Company's primary
source of working capital was cash flow from operations of $3.6 million and $3.2
million, respectively. The increase in cash flow from operations was primarily
due to the increase in net income of approximately $839,000. The increase in
cash flow provided by operations was also due to a deferred tax provision of
approximately $32,000 in fiscal 1998 versus a deferred tax benefit of
approximately $515,000 in fiscal 1997 and an increase in deferred rent of
approximately $130,000 in fiscal 1998 versus a decrease of approximately $78,000
in fiscal 1997, offset by an increase in accounts payable and accrued
liabilities of approximately $298,000 in fiscal 1998 versus an increase of $1.5
million in fiscal 1997.
The Company invested $2.0 million during fiscal 1998 for capital
expenditures primarily associated with the opening of fifteen new (or
reacquired) stores, the relocating of three existing stores and the remodeling
of several existing stores. The Company also sold a small piece of land it
originally acquired for its headquarters (with a cost of approximately $60,000)
for approximately $35,000 and the Company closed six stores during this period.
Also, during fiscal 1998 the Company amended its credit facilities which reduced
a required certificate of deposit from $1.6 million to $1.0 million. During
fiscal 1997, the Company invested $2.9 million for capital expenditures
associated with the opening of thirteen new stores, the remodeling of several
existing stores and a company-wide refixturing program.
7
<PAGE> 9
The Company repaid under its then available credit lines approximately
$285,000 and $256,000 in fiscal 1998 and 1997, respectively. The Company also,
repaid other debt and lease obligations of approximately $354,000 and $403,000
in the same periods. In addition, the Company invested $100,000 in intangible
assets associated with the reacquisition of one franchised store and the Company
invested approximately $54,000 in fiscal 1998 and $63,000 in fiscal 1997 in
renewal fees associated with the extension of its existing credit lines.
As more fully described in "Item 1-Business" beginning on page 14 of the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998,
the Company is subject to ongoing risks associated with imports. The Company's
reliance on sourcing from foreign countries causes the Company to be exposed to
certain unique business and political risks. Import restrictions, including
tariffs and quotas, and changes in such tariffs or quotas could affect the
importation of apparel generally and, in that event, could increase the cost or
reduce the supply of apparel available to the Company and have an adverse effect
on the Company's business, financial condition and/or results of operations. The
Company's merchandise flow could also be adversely affected by political
instability in any of the countries in which its goods are manufactured, by
significant fluctuations in the value of the U.S. dollar against applicable
foreign currencies and by restrictions on the transfer of funds.
During fiscal 1998, the Company sold 21,268 shares at prices of $2.44 and
$4.83 under its Employee Stock Purchase Plan, an officer of the Company
exercised 100,000 stock options at the price of $4.08 and several employees
exercised an aggregate of 5,931 stock options at prices ranging from $4.625 to
$7.00. The proceeds from these issuances of stock amounted to approximately
$665,000. During fiscal 1997, one of the former officers exercised 71,540 stock
options at a price of $4.08, several other employees exercised an aggregate of
7,212 options at prices ranging from $5.50 to $8.75 and the Company sold 22,868
shares at prices of $3.83 and $5.42 under its Employee Stock Purchase Plan. The
proceeds from these issuances of stock amounted to approximately $469,000.
The Company plans to open approximately 16 to 20 new stores in fiscal 1999
and 20 to 24 stores in fiscal 2000. The Company believes that the liquidity
needed for its planned new store growth, remodeling program and maintenance of
proper inventory levels associated with this growth will be funded primarily
from cash flow from operations. The Company further believes that this liquidity
will be sufficient, based on currently planned new store openings, to fund
anticipated capital needs over the near-term, including scheduled debt
repayments. If cash flow from operations should prove to be less than
anticipated or if there should arise a need for additional letter of credit
capacity due to establishing new and expanded sources of supply, or if the
Company were to increase the number of new Company stores planned to be opened
in future periods, the Company might need to seek other sources of financing to
conduct its operations or pursue its expansion plans and there can be no
assurance that such other sources of financing would be available.
SEASONALITY AND INFLATION
Although the operations of the Company are influenced by general economic
conditions, the Company does not believe that inflation has had a material
effect on the results of operations during fiscal 1998 or during fiscal 1997.
Although sales have been somewhat higher in the Company's first and second
fiscal quarters (February through July), the Company does not consider its
business to be seasonal.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Annual Report may contain forward looking statements which reflect the
current views of the Company with respect to certain events that could have an
effect on the Company's future financial performance. These statements include
the words "expects," "believes," and similar expressions. These forward-looking
statements are subject to various risks and uncertainties that could cause
actual results to differ materially from historical results or those currently
anticipated. These potential risks and uncertainties include the ability to
secure customer acceptance of Chico's styles, propriety of inventory mix and
sizing, quality of merchandise received from vendors, timeliness of vendor
production and deliveries, increased competition, extent of the market demand by
women for private label clothing and related accessories, adequacy and
perception of customer service, ability to coordinate product development along
with buying and planning, rate of new store openings, performance of management
8
<PAGE> 10
information systems, ability to hire, train, energize and retain qualified sales
associates and other employees, availability of quality store sites, ability to
hire and retain qualified managerial employees and other risks. In addition,
there are potential risks and uncertainties that are peculiar to the Company's
heavy reliance on sourcing from foreign vendors including the impact of work
stoppages, transportation delays and other interruptions, political instability,
foreign currency fluctuation, imposition of and changes in tariffs and import
and export controls such as import quotas, changes in governmental policies in
or towards such foreign countries and other similar factors.
The company has assessed the year 2000 readiness of its systems and has
determined that the costs and uncertainties that may be associated with
addressing the year 2000 issues for its systems are not expected to have a
material impact on its business operations or its financial conditions.
TRADING AND DIVIDEND INFORMATION
The following table sets forth, for the periods indicated, the range of
high and low closing sale prices for the Common Stock, as reported on the NASDAQ
National Market System.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED JANUARY 31, 1998 HIGH LOW
- ------------------------------------------ ------ -----
<S> <C> <C>
First Quarter (February 2, 1997 - May 3, 1997).............. $ 4.25 $2.69
Second Quarter (May 4, 1997 - August 2, 1997)............... 5.50 2.75
Third Quarter (August 3, 1997 - November 1, 1997)........... 7.88 4.88
Fourth Quarter (November 2, 1997 - January 31, 1998)........ 8.75 6.25
</TABLE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1997
- ------------------------------------------
<S> <C> <C>
First Quarter (January 29, 1996 - April 28, 1996)........... $ 7.00 $4.13
Second Quarter (April 29, 1996 - July 28, 1996)............. 11.75 6.50
Third Quarter (July 29, 1996 - October 27, 1996)............ 9.00 6.00
Fourth Quarter (October 28, 1996 - February 1, 1997)........ 6.69 3.63
</TABLE>
Since its initial public offering, the Company has not paid any cash
dividends except for $5,853,000 of dividends representing previously taxed
undistributed S corporation earnings which dividends were declared prior to the
Company's initial public offering and paid to persons who were stockholders
prior to the offering. The Company does not intend to pay any cash dividends for
the foreseeable future and intends to retain earnings, if any, for the future
operation and expansion of the Company's business. Any determination to pay
dividends in the future will be at the discretion of the Company's Board of
Directors and will be dependent upon the Company's results of operations,
financial condition, contractual restrictions and other factors deemed relevant
by the Board of Directors.
The approximate number of equity security holders of the Company is as
follows:
<TABLE>
<CAPTION>
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF APRIL 1, 1998
------------------------ -------------------
<S> <C>
Common Stock, par value $.01 per share...................... 569
</TABLE>
9
<PAGE> 11
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO CHICO'S FAS, INC.:
We have audited the accompanying balance sheets of Chico's FAS, Inc. (a Florida
corporation) as of January 31, 1998, and February 1, 1997, and the related
statements of income, stockholders' equity and cash flows for the fiscal years
ended January 31, 1998, and February 1, 1997, for the period from January 1,
1996, through January 28, 1996, and for the fiscal year ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Chico's FAS, Inc. as of January
31, 1998, and February 1, 1997, and the results of its operations and its cash
flows for the fiscal years ended January 31, 1998, and February 1, 1997, for the
period from January 1, 1996, through January 28, 1996, and for the fiscal year
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Tampa, Florida,
March 3, 1998
10
<PAGE> 12
CHICO'S FAS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS JANUARY 31, FEBRUARY 1,
------ 1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,943,916 $ 832,176
Receivables, less allowances of $75,000 and $105,000 for
sales returns, respectively............................ 894,895 763,451
Inventories............................................... 9,525,472 7,845,362
Prepaid expenses.......................................... 667,145 473,444
Deferred taxes............................................ 1,251,000 1,290,000
----------- -----------
Total current assets.............................. 15,282,428 11,204,433
CERTIFICATE OF DEPOSIT...................................... 1,000,000 1,600,000
PROPERTY AND EQUIPMENT, net................................. 16,979,386 17,236,952
DEFERRED TAXES.............................................. 559,000 552,000
OTHER ASSETS, net........................................... 650,702 654,673
----------- -----------
$34,471,516 $31,248,058
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------------------
CURRENT LIABILITIES:
Accounts payable.......................................... $ 3,520,265 $ 3,301,990
Accrued liabilities....................................... 2,540,375 2,461,026
Current portion of debt and lease obligations............. 251,762 456,602
----------- -----------
Total current liabilities......................... 6,312,402 6,219,618
DEBT AND LEASE OBLIGATIONS, excluding current portion....... 6,703,229 7,007,842
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 25,000,000 shares authorized
and 8,011,317 and 7,884,118 shares issued and
outstanding, respectively.............................. 80,113 78,841
Additional paid-in capital................................ 8,219,707 7,555,708
Retained earnings......................................... 13,156,065 10,386,049
----------- -----------
Total stockholders' equity........................ 21,455,885 18,020,598
----------- -----------
$34,471,516 $31,248,058
----------- -----------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
11
<PAGE> 13
CHICO'S FAS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM
FISCAL YEAR FISCAL YEAR JANUARY 1, 1996, FISCAL YEAR
ENDED ENDED THROUGH ENDED
JANUARY 31, FEBRUARY 1, JANUARY 28, DECEMBER 31,
1998 1997 1996 1995
----------- ----------- ---------------- ------------
<S> <C> <C> <C> <C>
NET SALES BY COMPANY STORES.......... $73,596,969 $62,317,817 $3,619,519 $57,635,904
NET SALES TO FRANCHISEES............. 1,742,183 1,754,788 127,614 2,707,284
----------- ----------- --------------- -----------
Net sales.......................... 75,339,152 64,072,605 3,747,133 60,343,188
COST OF GOODS SOLD................... 33,240,162 26,712,475 1,912,512 26,115,326
----------- ----------- --------------- -----------
Gross profit....................... 42,098,990 37,360,130 1,834,621 34,227,862
GENERAL, ADMINISTRATIVE AND STORE
OPERATING EXPENSES................. 37,184,671 33,738,523 2,358,122 30,742,863
----------- ----------- --------------- -----------
Income (loss) from operations...... 4,914,319 3,621,607 (523,501) 3,484,999
INTEREST EXPENSE, net................ 372,303 404,054 39,492 621,403
----------- ----------- --------------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.... 4,542,016 3,217,553 (562,993) 2,863,596
INCOME TAX PROVISION (BENEFIT)....... 1,772,000 1,287,000 (225,000) 1,160,000
----------- ----------- --------------- -----------
Net income (loss).................. $ 2,770,016 $ 1,930,553 $ (337,993) $ 1,703,596
----------- ----------- --------------- -----------
PER SHARE DATA:
NET INCOME PER COMMON
SHARE -- BASIC.................. $.35 $.25 ($.04) $.22
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE -- DILUTIVE.... $.34 $.24 ($.04) $.22
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING -- BASIC............ 7,912,126 7,863,121 7,777,330 7,776,777
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING -- DILUTIVE......... 8,032,871 7,976,466 7,777,330 7,838,401
</TABLE>
The accompanying notes are an integral part of these statements.
12
<PAGE> 14
CHICO'S FAS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL
PAR PAID-IN RETAINED
SHARES VALUE CAPITAL EARNINGS TOTAL
--------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995................ 7,775,305 $77,753 $7,058,389 $ 7,089,893 $14,226,035
Issuance of common stock.............. 7,193 72 29,247 -- 29,319
Net income for the fiscal year ended
December 31, 1995.................. -- -- -- 1,703,596 1,703,596
--------- ------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1995.............. 7,782,498 77,825 7,087,636 8,793,489 15,958,950
Net loss for the period from January
1, 1996, through January 28,
1996............................... -- -- -- (337,993) (337,993)
--------- ------- ---------- ----------- -----------
BALANCE, JANUARY 28, 1996............... 7,782,498 77,825 7,087,636 8,455,496 15,620,957
Issuance of common stock.............. 101,620 1,016 468,072 -- 469,088
Net income for the fiscal year ended
February 1, 1997................... -- -- -- 1,930,553 1,930,553
--------- ------- ---------- ----------- -----------
BALANCE, FEBRUARY 1, 1997............... 7,884,118 78,841 7,555,708 10,386,049 18,020,598
Issuance of common stock.............. 127,199 1,272 509,999 -- 511,271
Tax benefit of stock options
exercised.......................... -- -- 154,000 -- 154,000
Net income for the fiscal year ended
January 31, 1998................... -- -- -- 2,770,016 2,770,016
--------- ------- ---------- ----------- -----------
BALANCE, JANUARY 31, 1998............... 8,011,317 $80,113 $8,219,707 $13,156,065 $21,455,885
--------- ------- ---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE> 15
CHICO'S FAS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1996,
FISCAL YEAR ENDED FISCAL YEAR ENDED THROUGH FISCAL YEAR ENDED
JANUARY 31, FEBRUARY 1, JANUARY 28, DECEMBER 31,
1998 1997 1996 1995
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss).............. $ 2,770,016 $ 1,930,553 $ (337,993) $ 1,703,596
---------------- ---------------- ---------------- ----------------
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities --
Depreciation and
amortization.............. 2,114,146 1,896,196 147,144 1,741,820
Deferred tax provision
(benefit)................. 32,000 (515,000) 80,000 303,000
Deferred rent expense,
net....................... 129,712 (77,610) 2,365 (62,218)
Loss from disposal of
property and equipment.... 317,206 200,103 -- 88,846
(Increase) decrease in
assets --
Receivables............... (131,444) 113,063 (305,032) 18,659
Inventories............... (1,680,110) (1,724,081) 654,093 (139,681)
Prepaid expenses.......... (193,700) (64,529) (31,928) (69,504)
Other assets.............. (40,180) (65,991) 10,094 (47,422)
Increase (decrease) in
liabilities --
Accounts payable.......... 218,275 1,266,986 (70) (1,238,356)
Accrued liabilities....... 79,349 222,091 (228,296) (222,688)
---------------- ---------------- ---------------- ----------------
Total adjustments...... 845,254 1,251,228 328,370 372,456
---------------- ---------------- ---------------- ----------------
Net cash provided by
(used in) operating
activities........... 3,615,270 3,181,781 (9,623) 2,076,052
---------------- ---------------- ---------------- ----------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Redemption (purchase) of
certificate of deposit...... 600,000 -- (1,600,000) --
Purchases of property and
equipment................... (2,010,618) (2,926,309) (8,529) (1,046,858)
Proceeds from sale of property
and equipment............... 34,500 -- -- --
---------------- ---------------- ---------------- ----------------
Net cash used in
investing
activities........... (1,376,118) (2,926,309) (1,608,529) (1,046,858)
---------------- ---------------- ---------------- ----------------
</TABLE>
14
<PAGE> 16
CHICO'S FAS, INC.
STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1996,
FISCAL YEAR ENDED FISCAL YEAR ENDED THROUGH FISCAL YEAR ENDED
JANUARY 31, FEBRUARY 1, JANUARY 28, DECEMBER 31,
1998 1997 1996 1995
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
common stock, net........... 665,271 469,088 -- 29,319
Net borrowings (payments) under
line of credit agreement.... (284,919) 29,103 (467,126) (103,895)
Principal payments on debt..... (265,872) (288,311) (3,875,639) (549,969)
Borrowings under mortgage
note........................ -- -- 5,587,500 --
Principal payments on lease
obligations................. (88,374) (115,006) (9,455) (110,699)
Deferred finance costs......... (153,518) (62,536) (172,691) --
---------------- ---------------- ---------------- ----------------
Net cash (used in)
provided by financing
activities........... (127,412) 32,338 1,062,589 (735,244)
---------------- ---------------- ---------------- ----------------
Net increase (decrease)
in cash and cash
equivalents.......... 2,111,740 287,810 (555,563) 293,950
---------------- ---------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS,
beginning of period............ 832,176 544,366 1,099,929 805,979
---------------- ---------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS, end of
period......................... $2,943,916 $ 832,176 $ 544,366 $1,099,929
---------------- ---------------- ---------------- ----------------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for interest...... $ 609,956 $ 571,038 $ 83,475 $ 594,384
Income taxes................ $1,757,259 $1,769,400 $ -- $ 947,546
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE> 17
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998
1. BUSINESS ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS ORGANIZATION
Chico's FAS, Inc. (the Company) is a specialty retailer of exclusively designed,
private label casual clothing and related accessories. As of January 31, 1998,
the Company's retail store system consisted of 141 stores located throughout the
United States, 132 of which were owned and operated by the Company, and 9 of
which were owned and operated by franchisees.
FRANCHISE OPERATIONS
A summary of the changes in the number of the Company's franchise stores as
compared to total Company-owned stores as of January 31, 1998, and February 1,
1997, and for the fiscal years then ended is as follows:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
Franchise stores closed..................................... -- 1
Franchise stores purchased from franchisees................. 1 1
Franchise stores in operation at fiscal year-end............ 9 10
Company-owned stores at fiscal year-end..................... 132 123
</TABLE>
FISCAL YEAR
In December 1996, management made the decision to change the Company's fiscal
year-end from the Sunday closest to December 31 to the Saturday closest to
January 31, continuing to result in a 52- or 53-week fiscal year. The change in
year-end resulted in a four-week transition period from January 1, 1996, through
January 28, 1996. Statements of income, shareholders' equity and cash flows for
the transition period are included in the accompanying financial statements. The
fiscal years ended January 31, 1998, and February 1, 1997, contained 52 and 53
weeks, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and investments with maturities
of less than three months.
INVENTORIES
Raw material inventories of approximately $315,000 as of January 31, 1998, are
recorded at the lower of cost using the first-in, first-out (FIFO) method or
market. All other inventories consist of finished clothing and accessories and
are recorded at the lower of cost using the last-in, first-out (LIFO) method or
market. If the lower of first-in, first-out cost or market method had been used,
inventories would have been approximately $267,000 and $161,000 higher at
January 31, 1998, and February 1, 1997, respectively, than those reported in the
accompanying balance sheets. Purchasing, distribution and design costs are
expensed as incurred and are included in the accompanying statements of income
as cost of goods sold.
16
<PAGE> 18
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Fixtures manufactured and leasehold
improvements constructed by the Company are recorded at cost, which includes
elements of raw materials, labor and overhead. Depreciation of property and
equipment is provided on a straight-line basis over the estimated useful lives
of the assets. Assets acquired under capital lease obligations and leasehold
improvements are depreciated over the lesser of the useful lives of the assets
or the lease terms. Maintenance and repairs of property and equipment are
expensed as incurred, and major improvements are capitalized.
Upon retirement, sale or other disposition of property and equipment, the cost
and accumulated depreciation or amortization are eliminated from the accounts,
and any gain or loss is charged to operations.
OTHER ASSETS
Included in other assets are intangible assets which include legal and other
costs of obtaining the Company's trademark and debt financing agreements,
territory rights agreements related to franchise repurchases and franchise
cancellation fees for stores that were acquired by the Company and are currently
in operation as Company-owned stores. Trademark costs and non-compete agreements
are being amortized on a straight-line basis over 10 and five years,
respectively, debt-financing costs are being amortized over the term of the
respective debt agreement and franchise cancellation fees are being amortized
over the remaining terms of the related facilities' leases. Intangible assets,
net of accumulated amortization, are approximately $431,000 and $475,000 as of
January 31, 1998, and February 1, 1997, respectively.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board (FASB) released
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121), which addresses when and how impairments to the value of long-lived
assets should be recognized. SFAS 121 is effective for fiscal years beginning
after December 15, 1995, and was implemented by the Company in the fiscal year
ended February 1, 1997. The implementation of SFAS 121 did not have a material
effect on the financial statements.
INCOME TAXES
The provision for income taxes includes federal and state income taxes currently
payable and deferred income taxes, which are provided for temporary differences
between the recognition of income and expenses for financial and income tax
reporting purposes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The book value of all financial instruments approximates their fair market value
as of January 31, 1998. In the opinion of management, the aggregate fair market
value of the Company based on the above is not a valid estimate of the market
valuation of the Company as a whole.
REVENUE RECOGNITION
Net sales by company stores includes sales made to retail customers during the
period, net of estimated customer returns. Net sales to franchisees includes
merchandise shipped to franchisees, net of estimated returns.
17
<PAGE> 19
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
STORE PRE-OPENING COSTS
Operating costs (including store set-up, rent and training expenses) incurred
prior to the opening of new stores are expensed as incurred and are included in
general, administrative and store operating expenses in the accompanying
statements of income.
INCOME PER COMMON AND COMMON EQUIVALENT SHARE
In the fiscal year ended January 31, 1998, the Company adopted SFAS No. 128,
"Earnings per Share" (SFAS 128). SFAS 128 establishes new standards for
computing and presenting earnings per share (EPS). Specifically, SFAS 128
replaces the presentation of primary EPS with a presentation of basic EPS,
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Basic EPS is based
upon the weighted average number of common shares outstanding and diluted EPS is
based upon the weighted average number of common shares outstanding plus the
dilutive common equivalent shares outstanding during the period. The following
is a reconciliation of the denominators of the basic and diluted EPS
computations shown on the face of the accompanying statements of income:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1996,
FISCAL YEAR ENDED FISCAL YEAR ENDED THROUGH FISCAL YEAR ENDED
JANUARY 31, FEBRUARY 1, JANUARY 28, DECEMBER 31,
1998 1997 1996 1995
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Basic weighted average number of common shares..... 7,912,126 7,863,121 7,777,330 7,776,777
Dilutive effect of options outstanding............. 120,745 113,345 -- 61,624
------------ ------------ ----------- ------------
Diluted weighted average common and
common equivalent shares outstanding............. 8,032,871 7,976,466 7,777,330 7,838,401
------------ ------------ ----------- ------------
</TABLE>
The following options were outstanding as of the end of the fiscal years or the
period but were not included in the computation of diluted EPS because the
options' exercise prices were greater than the average market price of the
common shares:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1, JANUARY 28, DECEMBER 31,
1998 1997 1996 1995
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Number of options.............................. 418,204 341,696 389,746 220,131
Exercise price (range)......................... $5.50 - $12.00 $7.00 - $12.00 $5.13 - $12.00 $7.00 - $12.00
Expiration date (range)........................ March 31, 2003 - March 31, 2003 - March 31, 2003 - March 31, 2003 -
Sept. 21, 2007 April 30, 2005 July 7, 2004 March 31, 2004
</TABLE>
As a result of adopting SFAS 128, the Company's EPS for the fiscal year ended
February 1, 1997, the period from January 1, 1996, through January 28, 1996, and
for the fiscal year ended December 31, 1995, were restated.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following as of January 31, 1998, and
February 1, 1997:
<TABLE>
<CAPTION>
ESTIMATED JANUARY 31, FEBRUARY 1,
USEFUL LIVES 1998 1997
-------------- ----------- -----------
<S> <C> <C> <C>
Land........................................................ $ 1,039,904 $ 1,100,167
Land improvements........................................... 35 years 1,785,161 1,785,161
Building.................................................... 20 - 35 years 6,247,920 6,155,063
Equipment................................................... 2 - 10 years 4,076,277 3,908,268
Furniture and fixtures...................................... 3 - 10 years 3,618,457 3,299,829
Leasehold improvements...................................... 1 - 10 years 6,829,258 6,082,124
----------- -----------
23,596,977 22,330,612
Less -- Accumulated depreciation and amortization........... (6,617,591) (5,093,660)
----------- -----------
$16,979,386 $17,236,952
----------- -----------
</TABLE>
Assets acquired under capital lease obligations with a cost of $487,548 are
included in equipment as of January 31, 1998, and February 1, 1997. The
accumulated depreciation related to these assets is $408,399 and $278,877 as of
January 31, 1998, and February 1, 1997, respectively.
18
<PAGE> 20
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
3. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following as of January 31, 1998, and
February 1, 1997:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
Accrued payroll, bonuses and severance costs................ $1,206,621 $1,044,372
Allowance for estimated merchandise returns................. 720,000 650,000
Other....................................................... 613,754 766,654
----------- -----------
$2,540,375 $2,461,026
----------- -----------
</TABLE>
4. INCOME TAXES:
The income tax provision (benefit) consisted of the following:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1996
FISCAL YEAR ENDED FISCAL YEAR ENDED THROUGH FISCAL YEAR ENDED
JANUARY 31, FEBRUARY 1, JANUARY 28, DECEMBER 31,
1998 1997 1996 1995
----------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Current:
Federal........................................... $1,378,000 $1,434,000 $(242,000) $ 677,000
State............................................. 362,000 368,000 (63,000) 180,000
Deferred:
Federal........................................... 24,000 (404,000) 62,000 301,000
State............................................. 8,000 (111,000) 18,000 2,000
-------------- -------------- ------------ --------------
Total income tax provision (benefit)............ $1,772,000 $1,287,000 $(225,000) $1,160,000
-------------- -------------- ------------ --------------
</TABLE>
The reconciliation of the income tax provision (benefit) based on the U.S.
statutory federal income tax rate (34 percent) to the Company's income tax
provision (benefit) is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1996
FISCAL YEAR ENDED FISCAL YEAR ENDED THROUGH FISCAL YEAR ENDED
JANUARY 31, FEBRUARY 1, JANUARY 28, DECEMBER 31,
1998 1997 1996 1995
----------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Tax expense (benefit) at the statutory rate......... $1,544,000 $1,094,000 $(191,000) $ 974,000
State income tax expense (benefit), net of
federal tax benefit............................... 225,000 176,000 (31,000) 157,000
Other............................................... 3,000 17,000 (3,000) 29,000
-------------- -------------- ------------ --------------
Total income tax provision (benefit).............. $1,772,000 $1,287,000 $(225,000) $1,160,000
-------------- -------------- ------------ --------------
</TABLE>
Deferred tax assets are recorded due to different carrying amounts for financial
and income tax reporting purposes arising from cumulative temporary differences.
These differences consisted of the following as of January 31, 1998, and
February 1, 1997:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
Accruals and allowances..................................... $1,105,000 $1,206,000
Inventories................................................. 786,000 718,000
Property and equipment...................................... 43,000 (12,000)
Net operating loss carryforward............................. 146,000 200,000
----------- -----------
2,080,000 2,112,000
Less -- Valuation allowance................................. (270,000) (270,000)
----------- -----------
$1,810,000 $1,842,000
----------- -----------
</TABLE>
During the fiscal year ended February 1, 1997, the Company increased the
valuation allowance for deferred tax assets by $100,000 to reserve for a portion
of the deferred tax asset relating to the net operating loss for the tax
reporting period from December 30, 1996, through February 1, 1997. Approximately
$449,000 of a net operating loss for tax reporting purposes can be carried
forward
19
<PAGE> 21
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
ratably for the six subsequent fiscal years following the fiscal year ended
February 1, 1997. The remaining net operating loss carryforward was
approximately $374,000 as of January 31, 1998.
5. DEBT AND LEASE OBLIGATIONS:
Debt and lease obligations consisted of the following as of January 31, 1998,
and February 1, 1997:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
Line of credit (the Line), variable borrowing capability of
up to $6 million, depending on inventory levels and the
amount of outstanding commercial letters of credit (Note
7), interest payable at prime (8.5 percent as of January
31, 1998), secured by substantially all of the Company's
assets other than land, land improvements and building,
maturing in May 1999...................................... $ -- $ 284,919
Mortgage Note secured by a first priority mortgage on land,
land improvements, building and certain equipment......... 5,437,500 5,509,500
Obligations under capital leases, imputed interest rate of
5.9 percent, secured by equipment, varying monthly
payments of principal and interest, maturing September
1999...................................................... 167,176 255,550
Deferred rent............................................... 1,350,315 1,414,475
---------- ----------
Total debt and lease obligations....................... 6,954,991 7,464,444
Less -- Current portion................................ (251,762) (456,602)
---------- ----------
$6,703,229 $7,007,842
---------- ----------
</TABLE>
Mortgage note payable (the Mortgage Note) was financed with a bank, bearing
interest at the bank's prime rate plus .5 percent. The Mortgage Note is payable
in 84 monthly installments of $6,000, plus accrued interest at the bank's prime
rate plus .5 percent, through January 2003, at which time the remaining
principal balance is due. On October 14, 1997, an interest rate swap was
effectuated whereby the interest at the bank's prime rate plus .5 percent was
exchanged for a fixed rate of 9 percent of the outstanding principal of the
Mortgage Note. The Company incurred no additional costs associated with the
interest rate swap.
A $1,000,000 certificate of deposit is held at the bank to secure the Line. An
investment with the bank, satisfied by this certificate of deposit, is required
to be maintained as long as the Line is in existence.
As of January 31, 1998, the Line and Mortgage Note contained certain covenants
requiring, among other things, approval of acquisitions of businesses and
maintenance of specified tangible net worth, working capital, debt to equity and
debt service coverage ratios. As of January 31, 1998, the Company was in
compliance with all covenants under these agreements.
Deferred rent represents the difference between actual operating lease
obligations due and operating lease expense, which is recorded by the Company on
a straight-line basis over the terms of its leases.
Maturities of the Mortgage Note were as follows as of January 31, 1998:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDING AMOUNT
- ----------- ----------
<S> <C>
1999........................................................ $ 72,000
2000........................................................ 72,000
2001........................................................ 72,000
2002........................................................ 72,000
2003........................................................ 5,149,500
----------
$5,437,500
----------
</TABLE>
20
<PAGE> 22
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Future minimum lease payments under capital lease obligations were as follows as
of January 31, 1998:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDING AMOUNT
- ----------- --------
<S> <C>
1999........................................................ $ 85,224
2000........................................................ 92,176
--------
Total minimum lease payments................................ 177,400
Less -- Interest imputed at 5.9 percent..................... (10,224)
--------
Present value of capital lease obligations.................. $167,176
--------
</TABLE>
During the fiscal years ended January 31, 1998, and February 1, 1997, the period
from January 1, 1996, through January 28, 1996, and the fiscal year ended
December 31, 1995, capital lease obligations of $0, $130,598, $0 and $23,200,
respectively, were incurred when the Company entered into leases for new
equipment. In addition, existing capital lease obligations were refinanced to
the terms shown above during the fiscal year ended February 1, 1997.
During the fiscal year ended December 31, 1995, the Company acquired the assets
of five franchised stores. Acquired assets, recorded at fair value, consisted of
$79,796 in inventory, $196,000 in furniture, fixtures and leasehold
improvements, $115,000 in franchise cancellation fees and $129,000 for a
covenant not to compete which were included in other assets in the accompanying
balance sheets. Accounts receivable of $330,581 from franchisees were forgiven,
$323,798 in notes payable to franchisees were issued, and the Company incurred a
loss of $97,584 related to the writedown of franchise inventory, which was
included in general, administrative and store operating expenses. The remaining
inventory writedown loss of $37,000 was accrued in prior years.
Also, during the fiscal year ended December 31, 1995, a franchisee converted
accounts receivable of approximately $273,800 into a note receivable, payable in
$10,000 monthly installments of principal and interest through October 1997. The
long-term portion of the note receivable was included in other assets and the
current portion of the note receivable was included in receivables in the
accompanying balance sheets. This note receivable was paid in the fiscal year
ended January 31, 1998.
6. RELATED PARTY TRANSACTIONS:
All officers have entered into agreements with the Company which provide for
base salaries, annual bonuses or consulting fees, and certain severance benefits
in the event that their employment is terminated by the Company "without cause"
or by such officer or director following a "change of control."
In January 1997, the Company and a former president and general merchandise
manager reached agreement in concept that she would be resigning from the
Company. In March 1997, a separation agreement was signed under which she
received a consulting salary, severance compensation and certain benefits
through December 31, 1997. Approximately $325,000 relating to the separation was
accrued and is included in accrued liabilities in the accompanying balance sheet
as of February 1, 1997. The separation agreement also provided that all of
granted, unvested options be forfeited, and all exercisable options expired on
June 24, 1997.
In 1994, a separation agreement was signed, in connection with the resignation
of a former president, under which he continued to receive his annual base
salary, certain benefits and taxes through December 31, 1995, totaling
approximately $274,000. This amount was paid in full as of December 31, 1995.
Contemporaneously with the execution of the separation agreement, the former
president sold 344,384 shares of common stock of the Company to a significant
stockholder at a price above the market value on the closing date of the sale.
The difference between the market value of the Company's common stock on the
closing date of the transaction and the purchase price on this date was recorded
by the Company as compensation expense and was reflected as an increase in
additional paid-in capital.
21
<PAGE> 23
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The Company leased distribution center and storage facilities from certain
stockholders and former stockholders of the Company (see Note 7).
7. COMMITMENTS AND CONTINGENCIES:
The Company leases retail store space and various office equipment under
operating leases expiring in various years through 2006. Certain of the leases
provide that the Company may cancel the lease if the Company's retail sales at
that location fall below an established level, while certain leases provide for
additional rent payments to be made when sales exceed a base amount. Certain
operating leases provide for renewal options for periods from three to five
years at their fair rental value at the time of renewal. In the normal course of
business, operating leases are generally renewed or replaced by other leases.
Minimum future rental payments under noncancellable operating leases (exclusive
of common area maintenance charges and/or contingent rental payments based on
sales) as of January 31, 1998, were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDING AMOUNT
- ----------- -----------
<S> <C>
1999........................................................ $ 6,800,638
2000........................................................ 6,204,570
2001........................................................ 5,930,809
2002........................................................ 5,422,273
2003........................................................ 4,219,560
Thereafter.................................................. 8,534,145
-----------
$37,111,995
-----------
</TABLE>
For the fiscal years ended January 31, 1998, and February 1, 1997, for the
period from January 1, 1996, through January 28, 1996, and for the fiscal year
ended December 31, 1995, total rent expense under the Company's operating leases
was $9,728,207, $8,624,193, $674,651 and $7,934,824 respectively, including
common area maintenance charges of $1,328,466, $1,252,635, $95,663 and
$1,128,054, other rental charges of $1,469,512, $1,296,100, $100,241 and
$1,145,643 and contingent rental expense of $140,523, $81,674, $6,900 and
$128,243 based on sales, respectively.
The Company leased its former distribution center and storage facilities from
certain stockholders and former stockholders of the Company (see Note 6). The
leases were classified as operating leases and provided for minimum annual
rentals of approximately $216,000, with original lease terms through 1998. The
remaining obligations under these leases were accrued during fiscal year 1994
when the Company's operations were moved to its new corporate headquarters and
distribution center. During the fiscal year ended February 1, 1997, the Company
replaced its obligations under the leases with an obligation to make up the
difference between rental payments of a new tenant and the Company's lease
terms. Rental payments of the new tenant reduced the company's expense by
approximately $80,000 during the fiscal years ended January 31, 1998, and
February 1, 1997, respectively.
At January 31, 1998, the Company had $3,246,779 in commercial letters of credit
outstanding which have arisen in the normal course of business due to foreign
purchase commitments. The commercial letters of credit are secured by the same
assets as the Line (see Note 5).
The Company is involved in claims and actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
adverse effect on the financial position of the Company.
22
<PAGE> 24
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
8. STOCK OPTION PLANS AND CAPITAL STOCK TRANSACTIONS:
1992 STOCK OPTION PLAN
During fiscal year 1992, the Company adopted a stock option plan (the 1992 Plan)
which reserved 548,800 shares of common stock for future issuance under the 1992
Plan to eligible employees of the Company. The per share exercise price of each
stock option is not less than the fair market value of the stock on the date of
grant or, in the case of an employee owning more than 10 percent of the
outstanding stock of the Company and to the extent incentive stock options as
opposed to nonqualified stock options are issued, the price is not less than 110
percent of such fair market value. Also, the aggregate fair market value of the
stock with respect to which incentive stock options are exercisable for the
first time by an employee in any calendar year may not exceed $100,000. As of
January 31, 1998, 281,128 nonqualified options were outstanding and 178,588 had
been exercised under the 1992 Plan.
1993 STOCK OPTION PLAN
During fiscal year 1993, the Company adopted a stock option plan (the 1993 Plan)
which reserved 680,000 shares of common stock for future issuance under the 1993
Plan to eligible employees of the Company. The terms of the 1993 Plan are the
same as the 1992 Plan. As of January 31, 1998, 559,649 nonqualified options were
outstanding and 6,545 had been exercised under the 1993 Plan.
OTHER STOCK OPTIONS
Since 1993, four independent directors of the Company have been granted a total
of 137,000 nonqualified options at exercise prices ranging from $3.25 to $8.38.
As of January 31, 1998, none of these options had been exercised.
AGGREGATE STOCK OPTION ACTIVITY
As of January 31, 1998, 977,777 nonqualified options were outstanding at a
weighted average exercise price of $5.14 per share, and 202,890 remained
available for future grants. Of the options outstanding, 537,637 options were
immediately exercisable. The Company recognized no compensation expense for
these options.
Stock option activity for the fiscal years ended January 31, 1998, and February
1, 1997, for the period from January 1, 1996, through January 28, 1996, and for
the fiscal year ended December 31, 1995, was as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1996,
FISCAL YEAR ENDED FISCAL YEAR ENDED THROUGH FISCAL YEAR ENDED
JANUARY 31, 1998 FEBRUARY 1, 1997 JANUARY 28, 1996 DECEMBER 31, 1995
-------------------- ------------------- ------------------- -------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-------- --------- ------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of period........... 971,206 $5.97 825,850 $5.74 821,799 $5.78 607,166 $6.45
Granted............. 354,700 3.36 319,200 6.97 10,100 4.29 293,100 5.31
Exercised........... (105,931) 4.15 (78,752) 4.33 -- -- -- --
Canceled or
expired.......... (242,198) 6.42 (95,092) 8.85 (6,049) 7.67 (78,467) 9.26
-------- -------- ------- -------- ------- -------- ------- --------
Outstanding, end of
period.............. 977,777 $5.14 971,206 $5.97 825,850 $5.74 821,799 $5.78
-------- ------- ------- -------
Options vested, end of
period.............. 537,637 $5.84 534,789 $5.59 507,827 $5.57 510,083 $5.40
</TABLE>
23
<PAGE> 25
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The following table summarizes information about stock options as of
January 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED
-------------------------------------------- ----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGES OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE VESTED PRICE
- ----------------------------- ----------- ------------ --------- ------- ---------
<S> <C> <C> <C> <C> <C>
$3.25-$6.50 713,161 7.5 $4.07 366,421 $4.57
$6.75-$12.00 264,616 7.0 8.01 171,216 8.56
------- --- ----- ------- -----
977,777 7.4 $5.14 537,637 $5.84
----------- -------- -------- ------- --------
</TABLE>
CAPITAL STOCK TRANSACTIONS
The Board of Directors adopted a noncompensatory employee stock purchase plan
(ESPP), which became effective upon the consummation of the Company's initial
public offering on April 1, 1993, and was amended on December 18, 1993, covering
an aggregate of 210,000 shares of common stock. Under the ESPP, all employees
are given the right to purchase up to 600 shares of the common stock of the
Company two times a year at a price equal to 85 percent of the value of the
stock immediately prior to the beginning of each exercise period. For the fiscal
years ended January 31, 1998, and February 1, 1997, for the period from January
1, 1996, through January 28, 1996, and for the fiscal year ended December 31,
1995, 21,268, 22,868, 0 and 7,193 shares, respectively, were purchased under the
ESPP. The Company recognized no compensation expense for the issuance of these
shares.
SFAS NO. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION"
The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25), under which no compensation expense has been recognized. In October 1995,
the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS
123), which was effective for fiscal years beginning after December 15, 1995.
SFAS 123 allows companies to continue following the accounting guidance of APB
25, but requires pro forma disclosure of net income and EPS for the effects on
compensation expense had the accounting guidance of SFAS 123 been adopted. The
pro forma disclosures are required only for options granted in fiscal years that
begin after December 15, 1994.
The Company adopted SFAS 123 for disclosure purposes in 1996. For SFAS 123
purposes, the fair value of each option granted has been estimated as of the
grant date using the Black-Scholes option pricing model with the following
weighted average assumptions: risk-free interest rate of 6.3 percent as of
January 31, 1998 and 6.2 percent for the fiscal years ended February 1, 1997,
and December 31, 1995 and for the period from January 1, 1996, through January
28, 1996, expected life of seven years, no expected dividends, and expected
volatility of 75 percent. The weighted average fair value of options granted
during the fiscal years ended January 31, 1998, and February 1, 1997, for the
period from January 1, 1996, through January 28, 1996 and for the fiscal year
ended December 31, 1995 was $3.16, $5.21, $3.17 and $3.96, respectively. Options
granted under the 1992 Plan and 1993 Plan vest ratably over three years. All
other options were either immediately exercisable or vested ratably over three
years. The term of all options granted is ten years. Had compensation expense
been determined consistent with SFAS 123, utilizing the assumptions detailed
above, the Company's net income (loss) and net income (loss) per common and
common equivalent shares outstanding would have been changed to the following
pro forma amounts for the fiscal years ended January 31, 1998, and February 1,
24
<PAGE> 26
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
1997, for the period from January 1, 1996, through January 28, 1996, and for the
fiscal year ended December 31, 1995:
<TABLE>
<CAPTION>
PERIOD
FROM
JANUARY 1,
FISCAL YEAR FISCAL YEAR 1996 FISCAL YEAR
ENDED ENDED THROUGH ENDED
JANUARY 31, FEBRUARY 1, JANUARY 28, DECEMBER 31,
1998 1997 1996 1995
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net income (loss):
As reported........................................ $2,770,016 $1,930,553 $(337,993) $1,703,596
Pro forma.......................................... 2,218,609 1,539,000 (357,000) 1,563,000
Net income (loss) per common share -- Basic:
As reported........................................ $ .35 $ .25 $ (.04) $ .22
Pro forma.......................................... .28 .20 (.05) .20
Net income (loss) per common and common equivalent
share -- Dilutive:
As reported........................................ $ .34 $ .24 $ (.04) $ .22
Pro forma.......................................... .28 .19 (.05) .20
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 2, 1995, the resulting pro forma compensation expense
may not be representative of that to be expected in future years.
9. PROFIT SHARING PLAN:
In fiscal year 1992, the Company adopted a profit sharing plan (the Plan)
covering substantially all employees. Employees' rights to Company-contributed
benefits vest over two to six years of service, as specified in the Plan. The
Company intends to make a contribution, to be paid in the year ending January
31, 1999, in recognition of services performed by employees in the calendar year
ended December 31, 1997, in an amount not to exceed $300,000 which was included
in accrued liabilities in the accompanying balance sheet as of January 31, 1998.
For the fiscal years ended January 31, 1998, February 1, 1997, and December 31,
1995, the profit sharing expense was $280,000, $185,000 and $50,000,
respectively.
10. QUARTERLY RESULTS OF OPERATIONS (RESTATED AND UNAUDITED):
<TABLE>
<CAPTION>
NET INCOME (LOSS) PER
NET GROSS INCOME NET INCOME (LOSS) PER COMMON AND COMMON
SALES PROFIT (LOSS) COMMON SHARE -- BASIC EQUIVALENT SHARE -- DILUTIVE
----------- ----------- ---------- --------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
Restated fiscal year
ended
January 28, 1996:
First quarter...... $16,296,974 $ 8,799,773 $ 620,898 $ .08 $ .08
Second quarter..... 15,436,821 9,184,838 722,539 .09 .09
Third quarter...... 14,812,600 8,523,099 470,214 .06 .06
Fourth quarter..... 14,216,858 7,771,900 (137,368) (.02) (.02)
Fiscal year ended
February 1, 1997:
First quarter...... $17,302,552 $ 9,862,647 $1,080,368 $ .14 $ .14
Second quarter..... 16,073,289 10,080,421 940,998 .12 .12
Third quarter...... 15,727,262 9,368,363 655,964 .08 .08
Fourth quarter..... 14,969,502 8,048,699 (746,777) (.09) (.09)
Fiscal year ended
January 31, 1998:
First quarter...... $18,719,797 $10,603,437 $1,002,456 $ .13 $ .13
Second quarter..... 20,080,574 10,918,044 967,556 .12 .12
Third quarter...... 18,923,374 10,884,187 955,532 .12 .12
Fourth quarter..... 17,615,407 9,693,322 (155,528) (.02) (.02)
</TABLE>
25
<PAGE> 27
REPORTS OF FORM 10-K
A copy of the company's annual report to the Securities and Exchange
Commission on Form 10-K will be sent to any shareholder without charge upon
written request to Investor Relations at the current address below:
Chico's FAS, Inc.
11215 Metro Parkway
Fort Myers, Florida 33912
Website: www.chicos.com
---------------------
Transfer Agent and Registrar:
The Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
Legal Counsel:
Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis
Tampa, Florida
Independent Certified Public Accountants:
Arthur Andersen LLP
Tampa, Florida
ANNUAL SHAREHOLDERS' MEETING:
Tuesday, June 9, 1998 at 2:00 p.m.
Chico's World Headquarters
11215 Metro Parkway
Fort Myers, Florida 33912
- --------------------------------------------------------------------------------
CHICO'S FAS, INC.
EXECUTIVE OFFICERS
MARVIN J. GRALNICK
Chief Executive Officer
President
HELENE B. GRALNICK
Senior Vice President -- Design & Concept
CHARLES J. KLEMAN
Chief Financial Officer
Executive Vice President -- Finance
Secretary/Treasurer
SCOTT A. EDMONDS
Senior Vice President -- Operations
Assistant Secretary
DIRECTORS
MARVIN J. GRALNICK
Chairman of the Board
HELENE B. GRALNICK
Senior Vice President -- Design & Concept
CHARLES J. KLEMAN
Chief Financial Officer
Executive Vice President -- Finance
Secretary/Treasurer
VERNA K. GIBSON
Partner
Retail Options, Inc.
ROSS E. ROEDER
Chief Executive Officer -- Mdr, Inc.
JOHN W. BURDEN
Partner
Retail Options, Inc.
26
<PAGE> 28
[GRAPHIC SETTING FORTH STORE LOCATIONS]
<PAGE> 29
[GRAPHIC -- THREE FEMALE MODELS IN FIELD]
<PAGE> 30
[GRAPHIC -- PICTURE OF FEMALE MODEL AT CHICO'S WORLD HEADQUARTERS]
Chico's World Headquarters
11215 Metro Parkway
Fort Myers, FL 33912
Phone: (941) 277-6200 -- Fax: (941) 277-5237
www.chicos.com
<PAGE> 1
EXHIBIT 23
CONSENT TO USE OF REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report, and to all references to our firm incorporated by
reference in this Form 10-K, into the Company's previously filed Registration
Statements (File No. 33-60524, File No. 33-63822 and File No. 33-83840).
/s/ ARTHUR ANDERSEN LLP
Tampa, Florida
April 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF CHICO'S FAS, INC. FOR THE FIFTY-TWO WEEKS ENDED JANUARY
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 2,943,916
<SECURITIES> 0
<RECEIVABLES> 894,895
<ALLOWANCES> 0
<INVENTORY> 9,525,472
<CURRENT-ASSETS> 15,282,428
<PP&E> 23,596,977
<DEPRECIATION> 6,617,591
<TOTAL-ASSETS> 34,471,516
<CURRENT-LIABILITIES> 6,312,402
<BONDS> 6,703,229
0
0
<COMMON> 80,113
<OTHER-SE> 21,375,772
<TOTAL-LIABILITY-AND-EQUITY> 21,455,885
<SALES> 75,339,152
<TOTAL-REVENUES> 75,339,152
<CGS> 33,240,162
<TOTAL-COSTS> 33,240,162
<OTHER-EXPENSES> 37,184,671
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 372,303
<INCOME-PRETAX> 4,542,016
<INCOME-TAX> 1,772,000
<INCOME-CONTINUING> 2,770,016
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,770,016
<EPS-PRIMARY> .35
<EPS-DILUTED> .34
</TABLE>
