<PAGE> 1
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 30, 1999
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 0-21258
CHICO'S FAS, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-2389435
- ------------------------------ ----------------------------
(State or other jurisdiction (IRS Employer Identification
of incorporation) No.)
11215 METRO PARKWAY, FORT MYERS, FLORIDA 33912
- ------------------------------------------- -----------------------------
(Address of principal executive offices) (Zip code)
(941) 277-6200
------------------------------
(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
--------------
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. ( )
State the aggregate market value of the voting stock held by non-affiliates of
the registrant:
Approximately $189,013,455 as of April 1, 1999 (based upon the closing
sales price reported by NASDAQ/NMS and published in the Wall Street
Journal on April 5, 1999)
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 -- 8,400,598 shares as of April
1, 1999
Documents incorporated by reference:
Part II Annual Report to Stockholders for the Fiscal Year Ended January
30, 1999
Part III Definitive Proxy Statement for the Company's Annual Meeting of
Stockholders presently scheduled for June 8, 1999
<PAGE> 2
CHICO'S FAS, INC.
ANNUAL REPORT ON FORM 10-K
for the
YEAR ENDED January 30, 1999
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............................................. 18
PART II.................................................................................................................. 19
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............................19
Item 6. Selected Financial Data......................................................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................................... 21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......................................22
Item 8. Financial Statements and Supplementary Data..................................................... 22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............ 22
PART III................................................................................................................. 22
Item 10. Directors and Executive Officers of the Registrant.............................................. 22
Item 11. Executive Compensation.......................................................................... 22
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................. 22
Item 13. Certain Relationships and Related Transactions.................................................. 22
PART IV.................................................................................................................. 23
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................. 23
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS.
GENERAL
Chico's FAS, Inc., (Chico's or the Company), directly and through
its wholly owned subsidiaries (which became operational in February 1999),
Chico's Distribution, Inc., Chico's Concept, Inc., and Chico's Media, Inc., is a
specialty retailer of exclusively designed, private label casual to dressy
clothing and complementary accessories. Virtually all of the clothing offered at
Chico's stores is designed by the Company's in-house product development team
and bears the "CHICO'S" trademark. Each Chico's store offers collections of
color coordinated tops, pants, shorts, skirts, jumpers, dresses, vests, jackets,
outerwear and accessories, including leather and fabric belts, scarves,
earrings, necklaces and bracelets. Emphasizing casual yet stylish comfort,
Chico's clothing is principally natural fabrics (including 100% cotton, rayon,
linen and silk) and newer sophisticated synthetics, loose fitting,
figure-flattering cuts and designed for easy care. During the past fiscal year,
the Company has successfully introduced certain synthetic fabrics which provide
a somewhat dressier look, yet which still offer the loose fit and easy care
characteristics. 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 provides a relaxed 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 to help maintain the integrity of the
Company's pricing strategy. During the past few years the Company has developed
a markdown strategy which is more in line with traditional retail clearance
methods and timing. Rather than focusing on taking most markdowns in outlets or
through warehouse sales, the Company has been taking its first, second, and in
some cases, later markdowns in front-line stores.
Also during this past fiscal year, the Company has been testing the
sale of non-clothing products, such as footwear, which complements the clothing
products and such as aroma-therapy candles, soaps, watches, and other products
which are designed by the Company as gift items. All of these new items are
intended to promote the Chico's brand name in areas beyond clothing. Because of
the additional space required to accommodate the non-clothing items and its
current markdown strategy, the Company is actively pursuing larger spaces for
its new stores. Rather than targeting a 1,300 net selling square foot store, the
Company now believes the ideal store size is nearer 1,700-1,800 net selling
square feet. Although the Company will still open stores within the 1,000-1,500
net selling square foot range, it is actively pursuing 1,800 to 2,000 net
selling square foot stores.
As of April 2, 1999, the Company's retail store system consisted of
168 stores (averaging approximately 1330 net selling square feet), of which 152
are Company-owned front-line "Chico's" stores, 9 are franchised front-line
"Chico's" stores and 7 are "Chico's Outlet" stores. Of this total, 31 stores are
located in Florida, 21 stores are located in California, 12 stores are located
in Texas and the remaining 104 stores are located in 32 other states and the
District of Columbia. 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 Company opened 21 new front-line and
one new outlet store (Company-owned) in the fiscal year ended January 30, 1999
(fiscal 1999) ,while during the same period acquiring two of its franchised
stores and closing two Company-owned outlet stores. In addition, a franchisee
opened one new front-line franchise store in fiscal 1999. The Company plans to
open a minimum of 30 new Company-owned stores in the fiscal year ended January
29, 2000 (fiscal 2000), but also expects to close between one and three existing
stores in fiscal 2000.
1
<PAGE> 4
The Company is in the process of developing and exploring
additional opportunities for offering clothing and accessories to its customers
and for enhancing its revenues and income in approaches to retailing which are
complementary to its core business. Over the next two years, the Company intends
to establish a catalog sales program and also to make Chico's products available
for purchase over the Internet. In addition, given some recent initial success
at its existing stores in testing a larger size in its clothing offerings, the
Company is seriously evaluating the possibility of developing a new casual store
concept which would operate under a different trade name and would cater to
women with a larger silhouette. Each of these opportunities will require the
additional expenditure of capital and will involve additional risks and
uncertainties. There can be no assurance that, if pursued, any such opportunity
will prove successful.
BUSINESS STRATEGIES
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 principally natural fabrics (including cotton, rayon, linen and silk) and
sophisticated synthetics , 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 product 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 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 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.
The Company has also successfully tested a size 4 in a limited assortment of
styles. Because of the stylish, yet 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.
During the next fiscal year the Company intends to continue to test, in its
larger store locations, a larger size 4 (and possibly a size 5), as well as a
petite size or sizes. The Company believes that the apparel market, and the type
of clothes offered by the Company, are well situated to take advantage of some
of the smaller and larger sizes that the Company is currently missing.
CERTAIN BUILDING BLOCKS OF THE COMPANY'S MERCHANDISING STRATEGY.
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.
2
<PAGE> 5
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 had experienced changes in design direction
in 1994 and 1996 that caused it to vary from the preferences of those women who
historically shopped at Chico's, the current merchandising plan intends to
continually focus the entire product development team on the Company's
historical target customer. As part of this focus, the Company is reestablishing
its frequent shopper club ("Passport Club") and has acquired software and
hardware that will allow it to monitor spending habits based on known
demographics.
Continual Introduction of New Merchandise. The Company seeks to keep
its stores fresh by continually introducing 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. Chico's intends to continue its focus 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 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
store-wide 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 and fiscal 1999,
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 or local warehouse sales, 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 reduces the need
to rely on its outlet stores and local 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 continuing markdowns in its front-line stores to provide more
immediate clearance of goods.
3
<PAGE> 6
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. A typical store has a warm feel with lots of
woodwork including hardwood or natural concrete floors, antiques and
wood fixtures made in the Company's own woodworking shop. However, each
store is somewhat different as the interior decor is chosen carefully
to complement the setting including both its location and the building
itself. These individual touches are balanced against a certain amount
of standardization. Merchandise is generally presented on wooden
fixtures with coordinating colors and outfits shown together rather
than being grouped by tops, bottoms, etc.
To encourage sales of multiple wardrobe items, Chico's stores
also may 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
and other non-apparel items accounted for approximately 12% of the
Company's net sales in fiscal 1999, which is less than it has been
historically. Continuing efforts are being made to improve the volume
of accessory sales in fiscal 2000 through better coordination of
accessories with clothing.
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 that the vendor has
the most experience making. The Company has recently been expanding its
use of domestic vendors, where possible, and it intends on continually
exploring opportunities with 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 complement 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 takes pride in empowering its employees to make decisions
that best service the customer. This healthy sense of empowerment enables
Chico's employees to exceed customers' expectations. In addition, many of the
Company's store managers and sales associates were themselves Chico's customers
prior to joining the Company and can therefore easily identify with customers.
4
<PAGE> 7
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.
CUSTOMER LOYALTY. Chico's frequent buyer program, established in
the early 90's and known as the "Passport Club", was originally 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 late 1994, the Company decided to
limit the number of new members and to evaluate ways to restructure the program.
During fiscal 1997 and fiscal 1998, the Company established a new database of
customers that shop at Chico's using credit cards (approximately 77% of sales in
fiscal 1999). Both of these databases have helped focus marketing and targeted
customer efforts. In fiscal 1999, the Company performed an independent study of
its existing Passport members (approximately 20,000 members were still active
from this club which included over 40,000 members at its peak) and store
managers to determine the most important features of the Club and to help assess
feasibility of relaunching the Club.
Based on this study and the past experiences of the Company with
the Passport Club, the Company relaunched the Passport Club on February 15, 1999
by mailing approximately 300,000 invitations to customers whose names were
maintained in its credit card, guest book and Passport databases. The
invitations included a temporary enrollment card and simply required a purchase
by the customer to activate their preassigned temporary Passport Club membership
number. Once the customer spends $500, she will be a permanent member of the
club and entitled to a 5% discount on future purchases.
With the more sophisticated database hardware and software the
Company has acquired to manage the SKU-level data being recorded for the
temporary (until she spends $500) and permanent Passport Club members, the
Company expects to more sharply focus its marketing, design and merchandising
efforts to better address and define the desires of our target customer. The
Company believes this reintroduction of its Passport Club should help the
Company more effectively to perform from a sales perspective as the Company
begins to come up against the strong monthly comparable store sales achieved in
fiscal 1999 and 1998.
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 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, stock purchase and 401(k)
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.
Chico's emphasis where possible on a "promote from within"
philosophy, combined with increases in the number of new Company-owned stores,
provide opportunities for qualified employees to advance to higher positions in
the Company.
5
<PAGE> 8
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. After slowing the opening pace of new company
stores in fiscal 1995 and fiscal 1997 (the Company changed its year end in 1996
from a calendar year to a January year end, thus resulting in a four week 1996
period in which no stores were opened), the Company opened a total of 14 new
Company-owned stores, acquired one store from a franchise and closed six
Company-owned stores in fiscal 1998. During fiscal 1999, the Company opened 22
new company stores and one new franchised store while closing two outlet stores.
As of April 2, 1999, the Company has opened six of the new stores planned to be
opened in fiscal 2000, and 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 one of its existing franchisees may be
able to further meet the Company's criteria for opening additional stores in
their respective limited territories. During fiscal 1999 the Company repurchased
two of its franchise stores. In addition, a franchisee opened one new franchised
store in both fiscal 1999 and thus far in fiscal 2000.
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.
Chico's Company-owned, front-line stores average approximately
1,310 net selling square feet, while the Company-owned outlet stores average
approximately 1,900 net selling square feet. In fiscal 1999, the Company began a
strategy of opening somewhat larger stores than it has opened in the past.
Currently, the Company is seeking to open front-line stores of approximately
1,700-1,800 net selling square feet to accommodate its new markdown strategy and
the expanded offerings of its current products. 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 2,800 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 2, 1999, there were 168 Chico's stores, of which 152 were
Company-owned front-line Chico's stores, 9 were franchised Chico's stores and
seven were Chico's Outlet stores. Chico's stores are located in the following
jurisdictions:
6
<PAGE> 9
<TABLE>
<CAPTION>
COMPANY-OWNED COMPANY-OWNED FRANCHISED
RETAIL STORES OUTLET STORES STORES TOTAL STORES
------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Florida 28 2 1 31
California 20 1 -- 21
Texas 12 -- -- 12
Illinois 7 1 -- 8
New Jersey 7 -- -- 7
Ohio 7 -- -- 7
Connecticut 6 -- -- 6
Minnesota -- -- 6 6
New York 6 -- -- 6
Pennsylvania 5 -- -- 5
Virginia 5 -- -- 5
Maryland 4 -- -- 4
Massachusetts 4 -- -- 4
Tennessee 3 1 -- 4
Colorado 2 1 -- 3
Michigan 2 -- 1 3
New Mexico 3 -- -- 3
South Carolina 3 -- -- 3
Washington 3 -- -- 3
Alabama 1 1 -- 2
District of Columbia 2 -- -- 2
Georgia 2 -- -- 2
Indiana 1 -- 1 2
Kansas 2 -- -- 2
Louisiana 2 -- -- 2
Missouri 2 -- -- 2
North Carolina 2 -- -- 2
Rhode Island 2 -- -- 2
Utah 2 -- -- 2
Arizona 1 -- -- 1
Kentucky 1 -- -- 1
Nebraska 1 -- -- 1
Nevada 1 -- -- 1
Oregon 1 -- -- 1
Vermont 1 -- -- 1
Wyoming 1 -- -- 1
---- ------ ----- ----
TOTAL 152 7 9 168
==== ====== ===== ====
</TABLE>
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
7
<PAGE> 10
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>
FEB. 1
NUMBER OF COMPANY-OWNED STORES: 1994 1995 1997** FY 1998 FY 1999
------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Stores at beginning of year ...... 78 104 111 123 132
Opened* ................. 26 8 13 14 22
Acquired from franchisees -- 5 1 1 2
Closed .................. -- (6) (2) (6) (2)
--- ---- ---- ---- ----
Stores at end of period .......... 104 111 123 132 154
--- ---- ---- ---- ----
NUMBER OF FRANCHISE STORES:
Stores at beginning of year ...... 16 17 12 10 9
Opened* ................. 1 -- -- -- 1
Sold to Company ......... -- (5) (1) (1) (2)
Closed .................. -- -- (1) -- --
--- ---- ---- ---- ----
Stores at end of period .......... 17 12 10 9 8
--- ---- ---- ---- ----
NUMBER OF TOTAL STORES ................. 121 123 133 141 162
=== ==== ==== ==== ====
</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.
OUTLET STORES
As of April 2, 1999, the Company operated seven outlet stores under the
name "Chico's." 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. Sales from the Company's outlet stores represented approximately 5.8%
of the Company's net sales by Company-owned stores during fiscal 1999. 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 1,900 net selling square feet. The Company opened only
one outlet store in fiscal 1999 and none in fiscal 1998, closed two outlet
stores in fiscal 1999 and does not anticipate opening more than one or two
outlet stores during fiscal 2000. 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. In fiscal 1999 and fiscal
1998, the Company sold inventory with a cost of $500,000 to liquidators and
during fiscal 1998 and fiscal 1997, the Company also conducted clearance sales
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
8
<PAGE> 11
clearing such merchandise in the future, including increasing front-line
markdowns and further strategic bulk sales to liquidators.
FRANCHISE STORES
Currently, there are nine franchised Chico's stores operated by four
owners, none of whom is otherwise 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. Currently, the merchandise offered by Chico's
franchisees at their stores is purchased from the Company at prices equal to 50%
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 1999, the Company's net sales to franchisees
was approximately $1.8 million, or 1.6% 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 franchisees the right to open the proposed Chico's store within
the respective limited territories granted to such franchisees. As of April 2,
1999, 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 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 1999, the Company
repurchased two 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
9
<PAGE> 12
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.
During fiscal 1999, the Company established a formalized training
program that was intended to reinforce and enhance the personalized customer
service offered by all associates as well as increase their merchandise
knowledge. The comprehensive training program includes a Fashion Information
Training (F.I.T.) module and a Most Amazing Personal Services (M.A.P.S.) module
which the Company believes has already begun to help assure sales associates
better understand the Chico's product and improve the level of service provided
to our customers.
The Company currently supervises store operations through its Director
of Stores, a National Sales Manager, a Territory Sales Manager and District
Sales Managers. As of April 2, 1999, the Company had 13 District Sales Managers.
Both the National Sales Manager and the Territory Sales Manager provide
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 through the National and Territory
Sales Managers. 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 headquarters. 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 using the Island Pacific
Software products.
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 fiscal 1999, the Company acquired sophisticated database marketing
software from STS Systems, Inc. to keep track of its Passport Club purchases and
to assist in analyzing merchandise selling within certain customer
emographics. Also 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.
YEAR 2000
The Year 2000 issue results from computer programs and electronic circuitry that
do not differentiate between the year 1900 and the year 2000 because they are
written using two, rather than four, digit dates to define the applicable year.
10
<PAGE> 13
If not corrected, many computer applications and date-sensitive devices could
fail or produce erroneous results when processing dates after December 31, 1999.
The Year 2000 issue affects virtually all companies and organizations including
Chico's.
Chico's employs a number of information technology systems in its operations,
including without limitation, computer networking systems, financial systems and
other similar systems, most of which are licensed from outside vendors, while a
few are internally developed. A number of these systems, including the Company's
merchandising, financial and sales software systems, have recently been upgraded
and thus most of these recently upgraded systems are believed to be Year 2000
compliant. Management has developed and has been pursuing a plan to identify
whether the Company's other information technology systems are Year 2000
compliant and has begun the process of implementing a conversion, modification
or upgrade of those other critical data processing systems which are not already
Year 2000 compliant. Management currently expects these activities to be
substantially complete by mid-1999.
Throughout its operations, the Company also employs electronic equipment such as
building security, product handling and other devices containing embedded
electronic circuits. Chico's is continuing with the process of identifying and
prioritizing any embedded technology devices which may be deemed to be mission
critical or that tend to have a more significant impact on normal operations. A
team of internal staff and management that has been identified to manage Chico's
Year 2000 initiative has already been able to secure confirmation that many of
the Company's embedded technology devices which are critical to Chico's overall
operations are Year 2000 compliant. This team will also be developing a separate
plan to upgrade any other embedded technology devices which are identified as
being mission critical. Management currently expects these activities to be
substantially complete by mid 1999.
Costs incurred to date in implementing the Year 2000 initiatives amount to less
than $50,000 and management currently expects that the overall cost of
implementing the Year 2000 initiatives relative to information technology
systems and the higher priority embedded technology devices, including internal
costs and costs incurred to date, will not exceed $75,000.
Chico's is also in the process of evaluating and managing the potential risk
posed by the impact of the Year 2000 issue on its major suppliers and vendors.
Formal and informal communications with these major suppliers and vendors have
been initiated, with an expectation and plan to substantially complete an
assessment in this regard by mid 1999. To date, Chico's is not aware of any
major suppliers or vendors who have not either addressed their Year 2000 issues
or provided assurances that such issues are in the process of being timely
addressed. In particular, Chico's key financial institution has confirmed that
it will be Year 2000 compliant on or before December 31, 1999. However it may be
difficult to determine with any certainty whether Chico's suppliers and vendors
will be able to successfully address their respective Year 2000 issues and the
extent to which any failure to do so would negatively impact Chico's operations.
Although Chico's does not believe, based on its current evaluation of these
matters, that the Year 2000 issue will have a significant effect on its overall
operations, Chico's initiatives in this regard are subject to a variety of risks
and uncertainties some of which are beyond the Company's control. The failure of
Chico's or any of its major suppliers or vendors to achieve Year 2000 readiness
could adversely impact the Company's business operations, which could in turn
have an adverse effect on the Company's future financial results.
MERCHANDISE DISTRIBUTION
New merchandise is generally received several times per week 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
1999 and 1998, the Company found it necessary to rely more heavily on air
shipments in order to keep its stores
11
<PAGE> 14
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 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 three
to five years of future growth.
MERCHANDISE DESIGN AND PRODUCT DEVELOPMENT
The Company's private label clothing is developed through the
coordinated efforts of the Company's planning and product 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 product development
department is headed up by Marvin and Helene Gralnick, the Company's founders.
The Company's General Merchandise Manager has 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
product 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 except for the "cut and sew" operations described below . The Company
does business with all of its foreign vendors and importers in United States
currency, often supported through letters of credit, particularly for newer
vendors. 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. Beginning in fiscal 1998, the
Company has been buying specialized cloth and providing the cloth to domestic
"cut and sew" manufacturers in the United States who are engaged by the Company
to make the specified designs and styles. The Company anticipates it may
continue this practice in the future.
Currently, the Company contracts with approximately 30 to 40 apparel
vendors, 30 to 40 accessory vendors and several fabric vendors. Over the past
several years, there has been a significant shift from vendors in Turkey and
Guatemala to vendors in Hong Kong and 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 continue to redirect a portion of its sourcing activities towards new vendors
in the United States and possibly other areas.
12
<PAGE> 15
In fiscal 1999, United States sources (including fabric and "cut and
sew" vendors) accounted for approximately 35% of the Company's purchases, Hong
Kong/China sources accounted for approximately 30% of the Company's purchases,
and Turkey sources accounted for approximately 16% of overall purchases, while
India, Indonesia and Peru sources amounted to just over 10% of overall
purchases. In fiscal 2000, the Company expects sourcing from Hong Kong/China to
remain at a similar percentage. 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 15-20% 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 1999 and it is expected this may grow again
in fiscal 2000.
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 in the process of developing
relationships with several new vendors in 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
Although Chico's has shifted a significant portion of its manufacturing
of clothing to United States manufacturers, most of Chico's clothing and
accessories are still manufactured outside of the United States. As a result,
the Company's business remains 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, Hong Kong, China and Peru currently all receive
the preferential tariff treatment that is accorded goods from countries
qualifying for normal trade relations status ("NTR"), formerly known as most
favored nation status If the NTR 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 NTR 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 NTR 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 NTR status to
continue for the countries where its principal vendors are located, the Company
cannot predict whether the US Government will act to remove NTR status for any
of the countries or impose an overall increase in duties on foreign made goods.
In particular, the NTR status for China is currently subject to a yearly review
and its status as such has been the subject of some debate. Although the
President supports renewal of China's NTR status (and has even suggested it be
made permanent rather than subject to yearly renewal), recent questions
concerning China's misappropriation of military proprietary information could
very well result in an increased pressure to not renew China's NTR status. Also,
in July 1997, Hong Kong
13
<PAGE> 16
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 NTR 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 Company's
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. 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 2, 1999, of the countries where the Company's existing or
planned key vendors have manufacturing operations or suppliers, none was a
priority foreign country. Turkey, India and Indonesia were on the priority watch
list and Peru was on the secondary watch list.
In addition, the Clinton Administration has revived 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
14
<PAGE> 17
sanctions. As of April 2, 1999, none of the countries where the Company's
existing or planned key vendors have manufacturing operations has been cited
under Super 301.
China continues to be monitored under a related provision of the Trade
Act of 1974, section 306. The United States Trade Representative will be in a
position to impose sanctions if China fails to adequately enforce existing
bilateral agreements concerning intellectual property rights.
Of countries where the Company's existing or planned key vendors have
manufacturing operations, Turkey, India, Indonesia and Peru 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 October 1998, the GSP was reinstated retroactively to June 1998 and
now is scheduled to expire by its terms on June 30, 1999. Although the USTR has
expressed their support for extension of the GSP program, 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 other than direct mail. Chico's prefers instead to attract customers
through word-of-mouth advertising, its general reputation, its relaunched
Passport Club and the visual appeal of its stores and window presentations of
its merchandise. Chico's sales associates promote this often by making personal
telephone calls to existing customers informing them about new merchandise. Over
the past two years and particularly in fiscal 1999, the Company 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 through its Passport database customers, as
well as, identifying "prospect" customers. During fiscal 1999, the Company
expanded its efforts in this area and the cost associated with this marketing
increased to $2.0 million dollars from $1.4 million in fiscal 1998.
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 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
15
<PAGE> 18
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 retailers that are believed to most directly compete
with Chico's stores in many of the same local market areas are the mid to
high-end department stores including Nordstrom's, Dillards, etc. and specialty
stores which include The Gap, The Limited and Banana Republic as well as local
boutique retailers in the areas served by individual Chico's stores. 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. 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 30, 1999, the Company employed approximately 1,300
persons, approximately 660 of whom were full-time employees and approximately
640 of whom were part-time employees. The number of part-time employees
fluctuates during peak selling periods. As of the above date, 90% of the
Company's employees worked in Chico's stores, Chico's Outlet stores and in
direct field supervision, 4% worked in the distribution center and woodshop and
6% 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
indefinitely if the mark is still in use at the time of renewal. The Company has
recently applied for trademarks on its "Goddess" collections, its "Passport"
Club and its "MAPS" training program. 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, in California and in the northeast United
States.
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 2, 1999, the average base rent for the Company's 159
16
<PAGE> 19
company-owned stores was approximately $34 per square foot. Lease terms
typically range from three to ten years and approximately 41% 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 160 Company-owned stores
existing as of April 2, 1999, 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 YEAR LEASES EXPIRING EACH YEAR
FISCAL YEAR IF NO RENEWALS EXERCISED IF ALL RENEWALS EXERCISED
<S> <C> <C>
2000......................................... 8 5
2001......................................... 13 8
2002......................................... 26 12
2003 AND AFTER............................... 112 134
</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 115,000 square
feet, consisting of approximately 85,000 square feet for distribution and
woodshop facilities and approximately 35,000 square feet for administrative and
design offices.
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.
The Company's previous storage facility, located in Ft. Myers, Florida,
continued to be leased by the Company under a lease that expired in November
1998. The annual base rent for the storage facility was approximately $60,000.
The Company leased this storage facility 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 this facility
and thus the lease on the storage facility was not renewed.
In the opinion of management, the existing headquarters facility should
provide sufficient warehouse and woodshop capacity to service the Company's
needs for its basic retail operations for at least two to four years of future
growth. The existing headquarters site contains sufficient land to at least
double the size of the facility as such becomes necessary. Management believes
that the Company needs to add between 30,000 and 35,000 square feet of office
and design space within the next 18 months and has begun the planning process
for such expansion. In addition, additional distribution space may need to be
considered as the Company expands into catalog and Internet offerings of its
merchandise.
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.
17
<PAGE> 20
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 64 15 Chief Executive Officer, President, Chairman of the Board
and Director
Helene B. Gralnick 51 15 Senior Vice President-Design and Concept and Director
Charles J. Kleman 48 10 Executive Vice President-Finance, Chief Financial Officer,
Secretary/ Treasurer and Director
Scott A. Edmonds 41 5 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 re-assumed 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 have been leading the Company in this regard.
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.
18
<PAGE> 21
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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the 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 1999 Annual Report to Stockholders and is incorporated herein by
reference.
On April 1, 1999, the last reported sale price of the Common Stock on
the NASDAQ National Market System was $22.50 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, 1999
-------------- ------------------------
<S> <C>
Common Stock, par value $.01 per share 431
</TABLE>
19
<PAGE> 22
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 referenced elsewhere
and incorporated 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 1 DECEMBER 31 JANUARY 28 JANUARY 28 FEBRUARY 1 JANUARY 31 JANUARY 30
1995 1995 1996 (1) 1996 (1) 1997 (1) 1998 1999
(52 WEEKS) (52 WEEKS) (4 WEEKS) (52 WEEKS) (53 WEEKS) (52 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 ..... $55,282 $57,636 $ 3,619 $58,091 $62,318 $73,597 $104,981
Net sales to franchisees(2) ..... 3,989 2,707 128 2,672 1,755 1,742 1,761
------- ------- ------- ------- ------- ------- --------
Net sales ..................... 59,271 60,343 3,747 60,763 64,073 75,339 106,742
Cost of goods sold(3) ........... 22,418 26,115 1,913 26,484 26,713 33,240 44,197
------- ------- ------- ------- ------- ------- --------
Gross profit .................. 36,853 34,228 1,834 34,279 37,360 42,099 62,545
General, administrative and store
operating expenses ............ 31,168 30,743 2,358 30,842 33,738 37,185 47,411
------- ------- ------- ------- ------- ------- --------
Income (loss) from operations . 5,685 3,485 (524) 3,437 3,622 4,914 15,134
Interest expense, net ......... 119 621 39 620 404 372 151
------- ------- ------- ------- ------- ------- --------
Income (loss) before taxes .. 5,566 2,864 (563) 2,817 3,218 4,542 14,983
Provision for income taxes .... 2,275 1,160 (225) 1,141 1,287 1,772 5,844
------- ------- ------- ------- ------- ------- --------
Net income (loss) ........... $ 3,291 $ 1,704 $ (338) $ 1,676 $ 1,931 $ 2,770 $ 9,139
======= ======= ======= ======= ======= ======= ========
Basic net income (loss) per
share ......................... $ .42 $ .22 $ (.04) $ .22 $ .25 $ .35 $ 1.12
======= ======= ======= ======= ======= ======= ========
Diluted net income (loss) per
share ......................... $ .42 $ .22 $ (.04) $ .21 $ .24 $ .34 $ 1.07
======= ======= ======= ======= ======= ======= ========
Weighted average shares
outstanding-diluted .. 7,922 7,838 7,777 7,836 7,976 8,033 8,530
======= ======= ======= ======= ======= ======= ========
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
PRO FORMA
ONE MONTH FISCAL YEAR
PERIOD ENDED
FISCAL YEAR ENDED ENDED (UNAUDITED) FISCAL YEAR ENDED
-----------------------------------------------------------------------------------
JANUARY 1 DECEMBER 31 JANUARY 28 JANUARY 28 FEBRUARY 1 JANUARY 31 JANUARY 30
1995 1995 1996 (1) 1996 (1) 1997 (1) 1998 1999
(52 WEEKS) (52 WEEKS) (4 WEEKS) (52 WEEKS) (53 WEEKS) (52 WEEKS) (52 WEEKS)
-----------------------------------------------------------------------------------
(In thousands, except per share and selected operating data)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Company stores at period end (4) .. 104 111 111 111 123 132 154
Franchise stores at period end (4) 7 12 12 12 10 9 8
------- ------- ----- ------- ------- ------- -------
Total stores at period end (4) .... 121 123 123 123 133 141 162
======= ======= ===== ======= ======= ======= =======
Average net sales per company
store (in thousands) (5) .. $ 613 $ 527 N/A $ 537 $ 523 $ 578 $ 745
Average net sales per net selling
square foot at company
stores(5) ............... $ 478 $ 413 N/A $ 405 $ 396 $ 449 $ 574
Percentage increase (decrease)
in comparable company store
net sales ................. (7.3)% (10.4)% 1.4% (10.1) % (1.3)% 10.7% 30.3%
BALANCE SHEET DATA (at year end):
Total assets ...................... $27,352 $27,009 N/A $27,681 $31,248 $34,472 $49,000
Stockholders' Equity .............. 14,226 15,959 N/A 15,621 18,021 21,456 34,303
Debt and lease obligations, less
current maturities ........ 4,663 5,896 N/A 7,131 7,008 6,703 6,713
Working capital ................... $ 1,460 $ 4,536 N/A $ 5,419 $ 6,585 $ 8,970 $19,852
</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 $5,000, $0, $0 , $0 and $5,000 of franchisee fees in fiscal
1994, 1995, 1997, 1998 and 1999.
(3) Cost of goods sold includes distribution and design costs, but does not
include occupancy cost.
(4) For information concerning stores opened, acquired, sold and closed,
see "Business -- Store Locations."
(5) 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.
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 30, 1999 is set
forth under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's 1999 Annual Report to
Stockholders and is incorporated herein by reference.
21
<PAGE> 24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this Item is set forth under the heading
"Management's Discussion and Analysis of Financial Conditions and Result of
Operations" in the Company's 1999 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 1999 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 1999 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 1999 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
1999 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
1999 Annual Meeting proxy statement and is incorporated herein by reference.
22
<PAGE> 25
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 4,
1999, which is included in the Company's Annual Report to
Stockholders for the fiscal year ended January 30, 1999, are
incorporated herein by reference.
Report of Independent Certified Public Accountants. Statements
of Income for the fiscal years ended January 30, 1999, January
31, 1998 and February 1, 1997. Balance Sheets, January 30,
1999 and January 31, 1998. Statements of Stockholders' Equity
for the fiscal years ended January 30, 1999 , January 31, 1998
and February 1, 1997. Statements of Cash Flows for the fiscal
years ended January 30, 1999 , January 31, 1998 and February
1, 1997. 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)
23
<PAGE> 26
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)
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 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)
10.6* 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)
10.7* 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)
10.8* 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)
10.9 First Amendment to 1993 Stock Option Plan
10.10* 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)
10.11 1993 Employee Stock Purchase Plan (as amended and restated
October 9, 1998)
10.12* 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)
10.13* 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)
10.14* 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)
10.15* 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)
10.16* 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)
24
<PAGE> 27
10.17* 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)
10.18* 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)
10.19* 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)
10.20* 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)
10.21* 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)
10.22* 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)
10.23* Sample Form of Purchase Agreement (Filed as Exhibit 10.15 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)
10.24* 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)
10.25* 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)
10.26* 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)
10.27* 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)
10.28* 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)
10.29* 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
25
<PAGE> 28
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)
10.30* 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)
10.31* 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)
10.32* 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)
10.33* 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)
10.34* Second Amendment to Third Amended and Restated Credit
Agreement by and between Chico's FAS, Inc. and NationsBank
(South), N. A. (Filed as Exhibit 10.49 to the Company's Form
10-K for the year ended January 31, 1998, as filed with the
Commission on April 27, 1998)
10.35 Third Amendment to Third Amended and Restated Credit Agreement
dated December 8, 1998 by and between Chico's FAS, Inc. and
NationsBank (South), N.A.
10.36* 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)
10.37 Amendment to Loan Agreement dated December 8, 1998 by and
between Chicos's FAS, Inc. and NationsBank (South), N.A.
10.38* 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)
10.39* 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)
10.40* 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)
10.41* 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)
26
<PAGE> 29
10.42* 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)
10.43* Nonemployee Stock Option Agreement by and between Chico's FAS,
Inc. and Ross Roeder dated February 10, 1998 (Filed as Exhibit
10.60 to the Company's Form 10-K for the year ended January
31, 1998, as filed with the Commission on April 27, 1998)
10.44* Nonemployee Stock Option Agreement by and between Chico's FAS,
Inc. and John Burden dated February 10, 1998 (Filed as Exhibit
10.61 to the Company's Form 10-K for the year ended January
31, 1998, as filed with the Commission on April 27, 1998)
10.45* Nonemployee Stock Option Agreement by and between Chico's FAS,
Inc. and Verna Gibson dated February 10, 1998 (Filed as
Exhibit 10.62 to the Company's Form 10-K for the year ended
January 31, 1998, as filed with the Commission on April 27,
1998)
10.46* Nonemployee Stock Option Agreement by and between Chico's FAS,
Inc. and Ross Roeder dated June 9, 1998 (Filed as Exhibit 10.2
to the Company's Form 10-Q for the quarter ended August 1,
1998, as filed with the Commission on September 2, 1998)
10.47* Nonemployee Stock Option Agreement by and between Chico's FAS,
Inc. and John Burden dated June 9, 1998 (Filed as Exhibit 10.3
to the Company's Form 10-Q for the quarter ended August 1,
1998, as filed with the Commission on September 2, 1998)
10.48* Nonemployee Stock Option Agreement by and between Chico's FAS,
Inc. and Verna Gibson dated June 9, 1998 (Filed as Exhibit
10.1 to the Company's Form 10-Q for the quarter ended August
1, 1998, as filed with the Commission on September 2, 1998)
10.49 Nonemployee Directors' Stock Option Plan
13 Annual Report to Stockholders
21 Subsidiaries of Company
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 30, 1999.
27
<PAGE> 30
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.
<TABLE>
<S> <C>
By: /s/ Marvin J. Gralnick April 26, 1999
---------------------------------------------------- --------------
MARVIN J. GRALNICK, Chief Executive Officer Date
and President
</TABLE>
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 26, 1999
---------------------------------------------------- --------------
MARVIN J. GRALNICK, Chief Executive Officer, Date
President, Director
(principal executive officer)
/s/ Charles J. Kleman April 26, 1999
---------------------------------------------------- --------------
CHARLES J. KLEMAN, Chief Financial Officer, Date
Director
(principal financial and accounting officer)
/s/ Helene B. Gralnick April 26, 1999
---------------------------------------------------- --------------
HELENE B. GRALNICK, Senior Vice President - Date
Design and Concept and Director
/s/ Verna K. Gibson April 26, 1999
---------------------------------------------------- --------------
VERNA K. GIBSON, Director Date
/s/ John W. Burden April 26, 1999
---------------------------------------------------- --------------
JOHN W. BURDEN, Director Date
/s/ Ross E. Roeder April 26, 1999
---------------------------------------------------- --------------
ROSS E. ROEDER, Director Date
</TABLE>
<PAGE> 1
EXHIBIT 10.9
FIRST AMENDMENT TO CHICO'S FAS, INC.
1993 STOCK OPTION PLAN
This First Amendment to the Chico's FAS, Inc. 1993 Stock Option Plan,
which increases the number of shares covered by the Plan by 500,000 shares, is
hereby adopted, effective the 25th day of February, 1999, as follows:
1. Section 1.5(a) of the Plan is hereby amended in its entirety to
read as follows:
a. The stock subject to the Options under the Plan shall be
authorized and unissued shares of Common Stock. The aggregate
number of shares that may be issued upon the exercise of Options
granted under the Plan shall not exceed 1,180,000 shares of
Common Stock, which limitation shall be subject to adjustment as
provided in Section 4.1.
<PAGE> 1
EXHIBIT 10.11
CHICO'S FAS, INC.
1993 EMPLOYEE STOCK PURCHASE PLAN
(restated to reflect impact of 2 for 1 stock split and including
an amendment effective upon stock split distribution and
an amendment adopted October 9, 1998)
ARTICLE 1
Purpose
The purpose of the Chico's FAS, Inc. Employee Stock Purchase Plan (the
"Plan") is to provide employees of Chico's FAS, Inc. (the "Company") and its
subsidiaries with an opportunity to acquire a proprietary interest in the
Company through the purchase of authorized but unissued shares of common stock
(par value $.01 per share) of the Company (the "Common Stock"). It is the
intention of the Company to have the Plan qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder, or any statute or
regulation of similar import. The provisions of the Plan, accordingly, shall be
construed so as to extend and limit participation in a manner consistent with
the requirements of that section of the Code.
ARTICLE 2
Definitions
The following words and terms as used herein shall have that meaning
set forth therefor in this Article 2 unless a different meaning is clearly
required by the context. Whenever appropriate, words used in the singular shall
be deemed to include the plural and vice versa, and the masculine gender shall
be deemed to include the feminine gender.
2.1 "Account" shall mean the payroll deduction account maintained for
an electing Eligible Employee as provided in Article 7.
2.2 "Board" or "Board of Directors" shall mean the Board of Directors
of the Company.
2.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.4 "Committee" shall mean the Employee Stock Purchase Plan Committee
of the Board.
2.5 "Common Stock" shall mean the common stock, $.01 par value, of the
Company.
2.6 "Company" shall mean Chico's FAS, Inc., a Florida corporation, and
any successor.
2.7 "Compensation" shall mean an Eligible Employee's regular salary
and wages, overtime pay, bonuses and commissions (in all cases, before any
reduction for elective contributions to any Code Section 401(k) or Code Section
125 Plan), but does not include credits or benefits under the Plan, or any
amount contributed by the Company to any pension, profit sharing or employee
stock ownership plan, or any employee welfare, life insurance or health
insurance plan or arrangement, or any deferred compensation plan or
arrangement.
2.8 "Eligible Employee" shall mean any individual employed by the
Company or any Subsidiary who meets the eligibility requirements of Article 4.
The Committee shall have the sole power to determine who is and who is not an
Eligible Employee.
1
<PAGE> 2
2.9 "Fair market value" of the shares of Common Stock shall mean 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 Committee in good faith and
based on all relevant factors.
2.10 "Purchase Documents" is defined in Section 6.1.
2.11 "Plan" shall mean the Chico's FAS, Inc. 1993 Employee Stock
Purchase Plan, as set forth herein and as amended from time to time.
2.12 "Shares" shall mean shares of the Common Stock.
2.13 "Subsidiary" shall mean any corporation that at the time
qualifies as a subsidiary of the Company under the definition of "subsidiary
corporation" contained in Section 424(f) of the Code.
ARTICLE 3
Administration
3.1 Committee. This Plan shall be administered by a committee
appointed by the Board of Directors (the "Committee"). The Committee shall
consist of not less than two (2) nor more than five (5) persons, each of whom
shall be a member of the Board and a disinterested person (as such term is
defined in Rule 16b-3 of the Securities Exchange Act of 1934, or any statute or
regulation of similar import), and none of whom shall be eligible to
participate under the Plan. The Board of Directors may from time to time remove
members from, or add members to, the Committee. Vacancies on the Committee,
howsoever caused, shall be filled by the Board of Directors.
3.2 Organization. The Committee shall select one of its members as
chairman, and shall hold meetings at such time and places as it may determine.
The acts of a majority of the Committee at which a quorum is present, or acts
reduced to or approved in writing by a majority of the members of the
Committee, shall be valid acts of the Committee.
3.3 Power and Authority. Subject to the provisions of the Plan, the
Committee shall have full authority, in its discretion: (a) to determine the
employees of the Company and its Subsidiaries who are eligible to participate
in the Plan; (b) to determine the purchase price of the shares of Common Stock
being offered; and (c) to interpret the Plan, and to prescribe, amend and
rescind rules and regulations with respect thereto. The interpretation and
construction by the Committee of any provision of the Plan over which it has
discretionary authority shall be final and conclusive. All actions and policies
of the Committee shall be consistent with the qualification of the Plan at all
times as an employee stock purchase plan under Section 423 of the Code.
(a) No Liability. No member of the Committee shall be liable for
any action or determination made in good faith with respect to the Plan.
ARTICLE 4
Employees Eligible To Participate
4.1 General Rule. Any person, including any officer but not a person
who is solely a director, who is in the employment of the Company or any
Subsidiary on the first day of an offering period is eligible to participate in
2
<PAGE> 3
the Plan with respect to that offering, except (a) a person who has been
employed less than one year; (b) a person whose customary employment is 20
hours or less per week; and (c) a person whose customary employment is for not
more than five months in any calendar year.
4.2 Special Rules. Notwithstanding any provision of the Plan to the
contrary, no employee shall be eligible to subscribe for any shares under the
Plan if:
(a) immediately after the subscription, the employee would own
stock and/or hold outstanding options to purchase stock, possessing 5% or more
of the total combined voting power or value of all classes of stock of the
Company or of any Subsidiary (as determined in accordance with the provisions
of Section 423(b)(3) of the Code);
(b) the subscription would permit his rights to purchase shares
under all stock purchase plans of the Company and its parent and subsidiary
corporations to accrue at a rate that exceeds $25,000 of fair market value of
such shares (determined at the time such right to subscribe accrues) for each
calendar year in which such right to subscribe is outstanding at any time;
(c) the subscription is otherwise prohibited by law; or
(d) except with respect to the first offering period (the
offering period ending May 31, 1993), his employment is terminated for any
reason prior to the time revocation or cancellation of participation in an
offering is prohibited under Section 6.2, and with respect to the first
offering period, his employment is terminated for any reason prior to the time
he elects to participate in such offering by satisfying the conditions of
Section 6.1.
ARTICLE 5
Offers
5.1 Offering Periods. There shall be eighteen (18) offering periods
under the Plan: the first offering period shall commence on the effective date
of the Plan and shall conclude on May 31, 1993; thereafter, a separate offering
period shall commence on the first day and conclude on the last day of the
months of May and November in each of the years 1993, 1994, 1995, 1996, 1997,
1998, 1999, 2000, and 2001. Except for the maximum number of shares to be
offered under the Plan, except for a lack of available shares, and except for
the limitation on the number of shares for which each Eligible Employee may
subscribe, there shall be no limit on the aggregate number of shares for which
subscriptions may be made with respect to any particular offering. The right of
an Eligible Employee to subscribe to shares in an offering shall not be deemed
to accrue until the first day of that offering period.
5.2 Price. The purchase price per share for an offering period shall
be 85% of the fair market value of the Common Stock on the last day immediately
preceding the first day of the offering period; provided, however, that with
respect to the first offering period (the offering period ending May 31, 1993),
the purchase price per share shall be 85% of the lesser of (a) the fair market
value of the Common Stock on the last day immediately preceding the first day
of the offering period or (b) the fair market value of the Common Stock on the
last day immediately preceding the last day of the offering period.
5.3 Number of Shares To Be Offered.
(a) The maximum number of shares of Common Stock that may be
offered under the Plan is 210,000.
(b) In each offering, an Eligible Employee shall be entitled to
subscribe for a total number of shares of Common Stock equal to one share for
each One Hundred Fifty Dollars ($150.00) of Compensation paid to him for the
calendar year immediately preceding the year in which the offering occurs.
However, no Eligible Employee shall be entitled to subscribe in any offering to
more than six hundred (600) shares or (for those Eligible Employees
3
<PAGE> 4
who are entitled to purchase at least ten (10) shares) fewer than ten (10)
shares. Notwithstanding the provisions of Section 8.1, no stock adjustment
referred to therein shall operate to change from ten (10) the minimum number of
shares required to be subscribed for by an Eligible Employee in any offering in
order for such Eligible Employee to participate in such offering.
(b) Subscriptions shall be allowed for full shares only. Any
rights to subscribe for fractional shares shall be void; and any computation
relating to fractional shares shall be rounded down to the next lowest whole
number of shares.
(c) If with respect to any offering the available shares are
oversubscribed, the aggregate of the subscriptions allowable under Section
5.3(b) shall be reduced to such lower figure as may be necessary to eliminate
the oversubscription. Such reduction shall be effected on a proportionate basis
as equitably as possible; but in no event shall such reduction result in a
subscription of less than the minimum subscription or a subscription for
fractional shares. In the event of an oversubscription and cutback as provided
in this paragraph (d), the Company will refund to the participating employees
any excess payment for subscribed shares as soon as practicable after
completion of the offering.
ARTICLE 6
Participation and Payment
6.1 Election To Participate. An Eligible Employee may become a
participant in an offering (a) by completing a subscription agreement,
indicating the number of shares of Common Stock to be purchased, and such other
documents as the Company may require (the "Purchase Documents"); and (b) by
tendering the Purchase Documents and cash or a check (payable in U.S. funds)
for the full subscription price (less the amount to be withdrawn from such
Eligible Employee's Account pursuant to Section 7.3) to the Secretary of the
Company (or such other person as may be designated by the Committee) at any
time during the offering. With respect to the first offering period (the
offering period ending May 31, 1993), the Eligible Employee shall tender an
amount equal to the purchase price based on the fair market value of the stock
as of the beginning of the offering period. If the final purchase price is
less, the Company shall refund the excess amount to the Eligible Employee as
soon as practicable after the close of the offering period. Purchase Documents
and cash or check received by the Secretary of the Company (or other designated
person) before or after the offering shall be void and shall be given no effect
with respect to the offering; and the Secretary shall return such documents and
cash or check to the involved employee as soon as practicable after receipt.
6.2 No Revocation of Election. No election to participate in an
offering may be revoked or cancelled by an Eligible Employee once the Purchase
Documents and full payment have been tendered to the Company; provided,
however, that with respect to the first offering period (the period ending May
31, 1993), an Eligible Employee may revoke his election to participate in the
offering by providing written notice thereof to the Secretary of the Company
(or other designated person) on or before the last day of such offering period.
Such revocation may be with respect to all or less than all of the shares of
Common Stock originally elected to be purchased. In the event of any such
revocation, the Company shall refund to such Eligible Employee, as soon as
practicable after such revocation, the amount previously tendered for the
shares to which the revocation relates.
6.3 No Interest. No interest shall be payable on the purchase price of
the shares of Common Stock subscribed for or on the funds returned to employees
as a result of an oversubscription, an overpayment, pursuant to Section 6.1 for
early or late delivery, or pursuant to Section 6.2 after a revocation.
6.4 Delivery of Certificates Representing Shares.
(a) As soon as practicable after the completion of each offering,
the Company shall deliver or cause to be delivered to each participating
employee a certificate or certificates representing the shares of Common Stock
purchased in the offering.
4
<PAGE> 5
(b) Certificates representing shares of Common Stock to be
delivered to a participating employee under the Plan will be registered in the
name of the participating employee, or if the participating employee so
directs, by written notice to the Company prior to the termination date of the
pertinent offering, and to the extent permitted by applicable law, in the names
of the participating employee and one such other person as may be designated by
the participating employee, as joint tenants with rights of survivorship.
6.5 Rights as Stockholder. No participating employee shall have any
right as a stockholder until after the completion of the offering in which the
employee participated and the date on which he becomes a record owner of the
shares purchased under the Plan (the "record ownership date"). No adjustment
shall be made for dividends or other rights for which the record date is prior
to the record ownership date.
6.6 Termination of Employment. An employee whose employment is
terminated for any reason shall have no right to participate in the Plan after
termination. However, the termination shall not affect any election to
participate in the Plan that is made prior to termination in accordance with
the provisions of Section 6.1.
6.7 Rights Not Transferable. The right of an Eligible Employee to
participate in the Plan shall not be transferable by the employee, and no right
of an Eligible Employee under this Plan may be exercised after his death, by
his Personal Representative or anyone else, or during his lifetime by any
person other than the Eligible Employee.
ARTICLE 7
Payroll Deduction
7.1 Election of Payroll Deduction. Each Eligible Employee may elect
(on such form as may be provided from time to time by the Company) to have a
portion of his Compensation deducted from each paycheck (or, if the Company so
permits, from only the first paycheck in each month), which amounts shall not
exceed in the aggregate Five Thousand Dollars ($5,000.00) in any calendar year.
An Eligible Employee may change the amount to be withheld from time to time in
accordance with rules established by the Committee, which rules may include,
among other things, limitations on the number of times changes are permitted
and when changes are permitted. A change shall be effective no earlier than the
first full payroll period following receipt of the new form by the Committee.
The Committee may, however, on a uniform and non-discriminatory basis delay the
effective date of a change if it determines that such a delay is either
necessary or appropriate for the proper administration of the Plan.
7.2 Maintenance of Accounts. A separate Account shall be maintained
for each Eligible Employee who has amounts withheld from his Compensation under
this Article 7. The maintenance of separate Accounts shall not require the
segregation of any assets from any other assets held under this Article 7. The
Accounts shall not bear interest. Each Account shall be adjusted from time to
time to reflect the amounts withheld from the Compensation of the Eligible
Employee to whom the Account relates, the amounts withdrawn by such Eligible
Employee for purchases of Common Stock under the Plan, and for other amounts
withdrawn by such Eligible Employee from the Account.
7.3 Use of Accounts To Purchase Common Stock. At the time that an
Eligible Employee elects to participate in an offering under Section 6.1, the
Eligible Employee may elect to have a specified amount from his Account (up to
the whole amount thereof) used to pay all or a portion of the purchase price.
7.4 Other Use of Accounts. At any time that a person is no longer an
employee (including by reason of death) or an Eligible Employee, the balance in
such person's Account shall be paid to such person or his legal representative.
In addition, the Committee may also permit the complete withdrawal of the
amounts in an Account under such uniform and non-discriminatory conditions as
it may impose from to time to time (including, without limitation, not
permitting the Eligible Employee making such withdrawal from again electing
payroll deductions for a specified period of time). Except as otherwise
provided in Section 7.3 and this Section 7.4, an Eligible Employee shall not
withdraw any amount from his Account, in whole or in part.
5
<PAGE> 6
ARTICLE 8
Miscellaneous
8.1 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 the Company, then, in any such
event, the number of shares of Common Stock that remain available under the
Plan, and the number of shares of Common Stock and the purchase price per share
of Common Stock then subject to subscription by Eligible Employees, 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 then subject to subscription by
Eligible Employees, and the purchase price thereof, shall be proportionately
and appropriately adjusted for any such change.
(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 the Plan.
(d) To the extent that the foregoing adjustments relate to stock
or securities of the Company, such adjustments shall be made by, and in the
discretion of, the Committee, whose determination in that respect shall be
final, binding and conclusive.
(e) Except as hereinabove expressly provided in this Section 8.1,
an Eligible Employee 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 the Company of shares of stock of any class, securities 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
any subscription.
(f) The existence of the Plan, and any subscription for shares of
Common Stock hereunder, shall not affect in any way the right or power of the
Company 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.
8.2 Necessity for Delay. If at any time the Committee shall determine,
in its discretion, that the listing, registration or qualification of the
shares of Common Stock covered by the Plan upon any securities exchange or
under any state or federal law or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in connection
with, the Plan or the offering, issue or purchase of shares thereunder, the
Plan shall not be effective as to later offerings unless and until such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.
Notwithstanding anything in the Plan to the contrary, if the provisions of this
Section 8.2 become operative and if, as a result thereof, an offering is missed
in whole or in part, then and in that event, the missed portion of the offering
shall be passed and the term of the Plan shall not be affected. Notwithstanding
the foregoing or any other provision in the Plan, the Company shall have no
obligation under the Plan to cause any shares of Common Stock to be registered
or qualified under any federal or state law or listed on any stock exchange or
admitted to any national marketing system.
6
<PAGE> 7
8.3 Term of Plan. The Plan, unless sooner terminated as provided in
Section 8.4, shall commence upon the satisfaction of the conditions of Section
8.9 and shall terminate on the conclusion of the offering to be made in
November 2001.
8.4 Amendment of the Plan; Termination. The Board shall have the right
to revise, amend or terminate the Plan at any time without notice, provided
that no Eligible Employee's existing rights are adversely affected thereby
without the consent of the Eligible Employee, and provided further that,
without approval of the stockholders of the Company, no such revision or
amendment shall (a) increase the total number of shares of Common Stock to be
offered; (b) change the formula by which the price at which the shares shall be
sold is determined; (c) increase the maximum number of shares of Common Stock
that an employee can purchase; (d) materially modify the requirements as to
eligibility for participation in the Plan; (e) otherwise materially increase
the benefits under the Plan to Eligible Employees; or (f) remove the
administration of the Plan from the Committee. The foregoing prohibitions shall
not be affected by adjustments in shares and purchase price made in accordance
with the provisions of Section 8.1.
8.5 Application of Funds. The proceeds received by the Company from
the sale of Common Stock pursuant to the Plan will be used for general
corporate purposes.
8.6 No Obligation to Participate. The offering of any Common Stock
under the Plan shall impose no obligation upon any Eligible Employee to
subscribe to purchase any such shares.
8.7 No Implied Rights to Employees. The existence of the Plan, and
the offering of shares of Common Stock under the Plan, shall in no way give any
employee the right to continued employment, give any employee the right to
receive any Common Stock or any additional Common Stock under the Plan, or
otherwise provide any employee any rights not specifically set forth in the
Plan.
8.8 Withholding. Whenever the Company proposes or is required to issue
or transfer shares of Common Stock under the Plan, the Company shall have the
right to require a participating employee to remit to the Company an amount
sufficient to satisfy any federal, state or local withholding tax liability
prior to the delivery of any certificate or certificates for such shares.
Whenever under the Plan payments are to be made in cash, such payments shall be
made net of an amount sufficient to satisfy any federal, state or local
withholding tax liability.
8.9 Conditions Precedent to Effectiveness. The Plan shall become
effective upon the satisfaction of all the following conditions, with the
effective date of the Plan being the date that the last such condition is
satisfied:
(a) the adoption of the Plan by the Board of Directors;
(b) the approval of the Plan by the stockholders of the Company
within 12 months after its adoption by the Board; and
(c) the closing of the initial public offering of the Company's
stock.
7
<PAGE> 1
EXHIBIT 10.35
THIRD AMENDMENT TO THIRD AMENDED AND
RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT
(the "Amendment") is dated as of December 8, 1998, 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, 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 and a Second Amendment thereto dated December 7, 1997 (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,
2000, 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, 2000, 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 is fully funded, (b) there has occurred no Default
or Event of
<PAGE> 2
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 deleted.
(b) The definition of "Collateral" in Section 1.1 of the
Agreement is hereby replaced with the following definition:
"Collateral" means, collectively (i) Accounts, (ii) Inventory,
(iii) Equipment, (iv) the Advance Account, and (v) all products and
proceeds of the foregoing, including without limitation all insurance
proceeds of the foregoing, including without limitation all insurance
proceeds and condemnation awards.
(c) The definition of "Loan Documents" in Section 1.1 of the
Agreement is hereby replaced with the following definition:
"Loan Documents" means, collectively this Agreement, the Notes,
the LC Applications, the Consolidated Amendment, the Security
Agreement, and all other instruments and documents executed or
delivered to and in favor of the Bank in connection with the Loans or
the Letters of Credit, as the same may be amended, modified or
supplemented from time to time.
(d) The definition of "Pledge" in Section 1.1 of the Agreement is
hereby deleted.
(e) The definition of "Termination Date" in Section 1.1 of the
Agreement is hereby replaced with the following definition:
"Termination Date" means May 31, 2000, with respect to the
indebtedness evidenced by the Renewal First Working Capital Line Note
and the Renewal Letter of Credit Line Note.
2
<PAGE> 3
(f) The definition of "Applicable Margin" in Section 1.1 of the
Agreement is hereby replaced with the following definition:
"Applicable Margin" means the following per annum percentages
applicable in the following situations:
<TABLE>
<CAPTION>
Applicability Applicable Margin
------------- -----------------
<S> <C> <C>
(i) If the Consolidated Debt Coverage 0%
Ratio is greater than or equal to 1.75,
and the Current Ratio is greater than or
equal to 1.75
(ii) If the Consolidated Debt Coverage 0.50%
Ratio is greater than or equal to 1.5
but is less than 1.75, and the Current
Ratio is greater than or equal to 1.5
but is less than 1.75
(iii) If the Consolidated Debt Coverage 1.00%
Ratio is greater than or equal to
1.25 but is less than 1.5, and the
Current Ratio is greater than or equal
to 1.5 but is less than 1.75
</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. Any such change shall occur
effective as of the first day of the first month following the subject
fiscal quarter for which such ratios are calculated.
(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 deleted.
(i) Section 6.18 of the Agreement is hereby replaced with the
following:
6.18 Consolidated Net Worth.
(a) As of January 30, 1999, maintain a Consolidated Net Worth of
at least $22,500,000.00.
(b) At the end of each fiscal year thereafter, maintain a
Consolidated Net Worth
3
<PAGE> 4
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.
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
4
<PAGE> 5
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 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.
5
<PAGE> 6
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.
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
- ---------------------------------- --------------------------------------
Charles J. Kleman,
/s/ Executive Vice President--Finance
- ----------------------------------
NATIONSBANK, N.A.,
a national banking association
By: /s/ James G. Allgood
-------------------------------------
James G. Allgood,
Senior Vice President
6
<PAGE> 1
EXHIBIT 10.37
AMENDMENT TO LOAN AGREEMENT
THIS AMENDMENT TO LOAN AGREEMENT (the "Amendment") is dated as of
December 8, 1998, between CHICO'S FAS, INC., a Florida corporation (the
"Borrower"), and NATIONSBANK, N.A., a national banking association (successor
by merger to Founder's National Trust Bank) (the "Bank").
BACKGROUND
Borrower and Bank executed a Loan Agreement dated January 4, 1996 (the
"Agreement"). The Agreement relates to (1) the purchase by Founder's National
Trust Bank of certain promissory notes secured by a mortgage upon and security
interest in certain property of Borrower (such promissory notes being referred
to therein as the "Original Notes"), the mortgage and security agreement
relating thereto, as modified (such mortgage and security agreement, as
modified, being referred to therein as the "Original Mortgage"), the collateral
assignment of rents and leases relating thereto (such collateral assignment of
rents and leases being referred to therein as the "Collateral Assignment") and
various other related loan documents, (2) the grant of a future advance to
Borrower under the Original Mortgage, and (3) the modification, extension,
renewal and consolidation of the terms of the terms and provisions of the
Original Notes and the amendment and restatement of the Original Mortgage.
Pursuant to the provisions of the Agreement, Bank is considered to have made a
$5,587,500.00 real estate loan to Borrower, evidenced by a note referred to
therein as the "Consolidated Replacement Note." Borrower has now requested
certain amendments to the Agreement and 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. AMENDED PROVISIONS. Subject to the conditions set forth in
paragraph 4 hereof, the Agreement shall be and hereby is amended, effective as
of the date hereof, as follows:
(a) The following subsections of the Agreement are deleted in their
entirety: (i) 3.20(m); (ii) 3.20(n); and (iii) 3.20(o).
(b) The following subsection is added at the end of Article 5.1 of
the Agreement:
(q) The occurrence of a default under the Third Amended and
Restated Credit Agreement dated December 30, 1995, as amended, between Borrower
and Bank, or any other Loan Document (as defined therein) relating thereto
beyond all applicable notice, grace and cure periods.
3. 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.
<PAGE> 2
4. LOAN AGREEMENT, RATIFICATION, NO NOVATION. Except as expressly
modified or supplemented hereby, the Agreement and all agreements, instruments,
and documents executed or delivered pursuant thereto (collectively, the "Loan
Documents") 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.
5. 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 III of the Agreement 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 Article 2.2
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.
6. NO WAIVER BY BANK. The execution of this Amendment 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.
7. RELIANCE UPON, SURVIVAL OF, AND MATERIALITY OF REPRESENTATIONS AND
WARRANTIES, AGREEMENTS, AND COVENANTS. All representations and warranties,
agreements, and covenants made by 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.
8. 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.
9. 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,
2
<PAGE> 3
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.
10. 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.
11. 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.
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
- ----------------------------------- ----------------------------------
Charles J. Kleman,
/s/ Executive Vice President -
- ----------------------------------- Finance
NATIONSBANK, N.A.,
a national banking association
By: /s/ James G. Allgood
----------------------------------
James G. Allgood,
Senior Vice President
3
<PAGE> 1
EXHIBIT 10.49
CHICO'S FAS, INC.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ARTICLE 1
GENERAL
1.1 PURPOSE. The purpose of the Chico's FAS, Inc. Non-Employee
Directors' Stock Option Plan is to secure for Chico's FAS, Inc. and its
stockholders the benefits of the incentive inherent in increased common stock
ownership by the members of the Board of Directors of the Company who are not
employees of the Company or any of its Subsidiaries.
1.2 MAXIMUM NUMBER OF SHARES. The maximum number of shares of
Common Stock that may be offered under the Plan is 150,000, subject to
adjustment as provided in Section 3.1 below. The Common Stock to be issued may
be either authorized and unissued shares or issued shares acquired by the
Company or its Subsidiaries. In the event that Options granted under the Plan
shall terminate or expire without being exercised in whole or in part, new
Options may be granted covering the shares not purchased under such lapsed
Options.
1.3 DEFINITIONS. The following words and terms as used herein
shall have that meaning set forth therefor in this Section 1.3 unless a
different meaning is clearly required by the context. Whenever appropriate,
words used in the singular shall be deemed to include the plural and vice versa,
and the masculine gender shall be deemed to include the feminine gender.
1.3.1 "BOARD" or "BOARD OF DIRECTORS" shall mean the Board of
Directors of the Company.
1.3.2 "CODE" shall mean the Internal Revenue Code of 1986, as
it may be amended from time to time, or any successor statute. Reference to a
specific section of the Code shall include a reference to any successor
provision.
1.3.3 "COMMITTEE" is defined in Section 1.4.
1.3.4 "COMMON STOCK" shall mean the common stock of the
Company.
1.3.5 "COMPANY" shall mean Chico's FAS, Inc. and its
successors.
1.3.6 "EFFECTIVE DATE" is defined in Section 3.9.
1.3.7 "FAIR MARKET VALUE" of the shares of Common Stock shall
mean 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 on the principal securities exchange in the United
<PAGE> 2
States on which such stock is listed, or if such stock is not listed on a
securities exchange in the United States, the closing price on such day in 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
Committee in good faith and based on all relevant factors.
1.3.8 "NSO" shall mean a nonqualified stock option granted in
accordance with the provisions of Article 2 of this Plan.
1.3.9 "NON-EMPLOYEE DIRECTOR" shall mean a member of the Board
of Directors who is not an employee of the Company or any Subsidiary.
1.3.10 "OPTION" shall mean an NSO, as defined in Section 1.3.8
above.
1.3.11 "OPTIONEE" shall mean a Non-Employee Director to whom
an Option is granted under the Plan.
1.3.12 "PLAN" shall mean the Chico's FAS, Inc. Non-Employee
Directors' Stock Option Plan, as set forth herein and as amended from time to
time.
1.3.13 "SUBSIDIARY" shall mean any corporation that at the
time qualifies as a subsidiary of the Company under the definition of
"subsidiary corporation" contained in Section 424(f) of the Code.
1.4 ADMINISTRATION. The Plan shall be administered by the Board or
by a committee of two or more members of the Board, as may be designated as such
by the Board (in either case, referred to for purposes of this Plan as the
"Committee").
1.4.1 The Committee shall have all the powers vested in it by
the terms of the Plan, such powers to include authority (within the limitations
described herein) to prescribe the form of the agreement embodying awards of
nonqualified stock options made under the Plan. The Committee shall, subject to
the provisions of the Plan, grant Options, and have the power to construe the
Plan, to determine all questions arising thereunder and to adopt and amend such
rules and regulations for the administration of the Plan as it may deem
desirable. Any decision of the Committee in the administration of the Plan, as
described herein, shall be final and conclusive. The Committee may act only by a
majority of its members in office, except that the members thereof may authorize
any one or more of their number or the Secretary or any other officer of the
Company to execute and deliver documents on behalf of the Committee.
1.4.2 To the fullest extent permitted by law, each person who
is or shall have been a member of the Committee shall be indemnified and held
harmless by the Company against and from any loss, cost, liability, or expense
that may be imposed upon or reasonably incurred by him or her in connection with
or resulting from any claim, action, suit, or proceeding to which he or she may
be
2.
<PAGE> 3
a party or in which he or she may be involved by reason of any action taken or
failure to act under the Plan and against and from any and all amounts paid by
him or her in settlement thereof, with the Company's approval, or paid by him or
her in satisfaction of any judgment in any such action, suit, or proceeding
against him or her, provided that the person shall give the Company an
opportunity, at its own expense, to handle and defend the same before the person
undertakes to handle and defend it on his or her own behalf. The foregoing right
of indemnification shall not be exclusive of any other rights of indemnification
to which such persons may be entitled under the Company's Certificate of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the
Company may have to indemnify them or hold them harmless.
1.5 ELIGIBILITY REQUIREMENTS. Each Non-Employee Director shall be
eligible to receive Options in accordance with Article 2 below. The adoption of
this Plan shall not be deemed to give any director any right to or be granted
options to purchase Common Stock, except to the extent and upon such terms and
conditions as set forth in this Plan.
ARTICLE 2
TERMS AND CONDITIONS OF OPTIONS
2.1 GRANT. Options granted under the Plan shall be evidenced by an
agreement in such form as the Board or the Committee shall prescribe from time
to time in accordance with the Plan and shall comply with the terms and
conditions set forth under this Article 2.
2.2 NONQUALIFIED STOCK OPTIONS. Options granted under the Plan
shall be an NSO which are intended to be options that do not qualify as
"incentive stock options" under Section 422 of the Code.
2.3 AUTOMATIC GRANTS.
2.3.1 Each Non-Employee Director shall be granted an Option
for 10,000 shares of Common Stock upon his or her initial appointment to the
Board. In addition, each year, as of the date of the Annual Meeting of
Stockholders of the Company, each Non-Employee Director who is then reelected or
who is continuing as a member of the Board after the adjournment of the Annual
Meeting shall be granted an Option for 10,000 shares of Common Stock.
2.3.2 The Option exercise price for each such automatic grant
shall be the Fair Market Value of the Common Stock on the date of the grant of
the Option.
2.3.3 One hundred percent (100%) of the total number of shares
of Common Stock covered by an automatic grant Option shall become exercisable
beginning with the date which is six (6) months after the date of the grant of
the Option and shall be exercisable by the Non-Employee Director for a period of
ten (10) years from the date of grant. Not less than one hundred (100) shares
3.
<PAGE> 4
may be exercised at any one time unless the number exercised is the total number
at the time exercisable under the Option.
2.3.4 Notwithstanding the foregoing, no automatic grant Option
or any part of an automatic grant Option shall be exercisable (a) before the
Non-Employee Director has served one term-year as a member of the Board (as
used herein, the term "term-year" means that period from one Annual Meeting to
the subsequent Annual Meeting), (b) after the expiration of ten (10) years from
the date the Option was granted, and (c) unless written notice of the exercise
is delivered to the Company specifying the number of shares to be purchased and
payment in full is made for the shares of Common Stock being acquired thereunder
at the time of exercise.
2.4 DISCRETIONARY GRANTS. The Committee may also make
discretionary grants of Options to Non-Employee Directors. The number of shares
of Common Stock underlying such discretionary Options and the exercise price,
vesting and other terms and conditions of such Options shall be determined by
the Committee at the time such Options are granted.
2.5 METHOD OF EXERCISE. An Option may be exercised by a
Non-Employee Director during such time as may be permitted by the Option and the
Plan by providing written notice to the Board and tendering the purchase price
in accordance with the provisions of Section 2.6, and complying with any other
exercise requirements contained in the Option or promulgated from time to time
by the Board.
2.6 METHOD OF PAYMENT. Each Option shall state the method of
payment of the Option price upon the exercise of the Option. The method of
payment stated in the Option shall include payment in full (a) in United States
dollars in cash or by check, bank draft or money order payable to the order of
the Company, (b) in the discretion of and in the manner determined by the Board,
by the delivery of shares of Common Stock already owned by the Optionee, (c) by
any other legally permissible means acceptable to the Board at the time of the
grant of the Option (including cashless exercise as permitted under the Federal
Reserve Board's Regulation T, subject to applicable legal restrictions), or (d)
in the discretion of the Board, through a combination of (a), (b) and (c) of
this Section 2.6. If the option price is paid in whole or in part through the
delivery of shares of Common Stock, the decision of the Board with respect to
the Fair Market Value of such shares shall be final and conclusive.
2.7 DEATH OR OTHER TERMINATION OF POSITION AS A DIRECTOR. Subject
to the specific term, vesting and exercise provisions of Section 2.5:
2.7.1 In the event that a Non-Employee Director (a) is removed
as a director for dishonesty or violation of his or her fiduciary duty to the
Company, (b) voluntarily resigns under or followed by such circumstances as
would constitute a violation of his or her fiduciary duty to the Company, or (c)
commits an act of dishonesty not discovered by the Company prior to the
cessation of his or her services as a director of the Company but that would
have resulted in his or her removal if discovered prior to such date, then
forthwith from the happening of any such event, any Option then
4.
<PAGE> 5
held by him or her and which was issued under this Plan shall terminate and
become void to the extent that it then remains unexercised.
2.7.2 If a person shall cease to be a director of the Company
as a result of such person's death or disability while such person is 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 thereunder shall terminate on
the earlier of (i) such date of expiration or (ii) one year following the date
of such death or disability. 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 its terms.
2.7.3 If a person shall cease to be a director of the Company
for any reason other than one or more of the reasons set forth in sections 2.7.1
and 2.7.2 and before the date of expiration of the Option, the Option shall
terminate and all rights to exercise thereunder shall terminate on the earlier
of (i) such date of expiration or (ii) one (1) year following the date such
person ceases to be a director of the Company.
2.7.4 If prior to the time a person shall cease to be a
director of the Company, there shall occur a change in control of the Company
and at such time shares of Common Stock remain subject to the Option, then the
Option shall become immediately exercisable without regard to the other vesting
provisions of the Option and such exercisability shall thereafter terminate only
at the end of the initial term of the Option without regard to the other
provisions of this article 2. For purposes hereof, a "change in control" of the
Company shall mean a change in control of a nature that would be required to
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1933 (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 the Option) is or becomes the beneficial owner,
directly or indirectly, of securities of the Company representing 20% or more of
the combined voting power of the Company'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 the Company cease for any
reason to constitute at least a majority thereof.
2.7.5 In the event any Option is exercised by the executors,
administrators, legatees or distributees of the estate of a deceased Optionee,
the Company shall be under no obligation to issue Common Stock thereunder unless
and until the Company is satisfied that the person or persons exercising the
Option are the duly appointed legal representatives of the deceased Optionee's
estate or the proper legatees or distributees thereof.
2.8 TRANSFERABILITY OF OPTIONS. The Option shall not be
transferable by the Optionee otherwise than by will or the laws of descent and
distribution, and shall be exercisable during his lifetime only by him or her.
5.
<PAGE> 6
2.9 DELIVERY OF CERTIFICATES REPRESENTING SHARES. As soon as
practicable after the exercise of an Option, the Company shall deliver, or cause
to be delivered, to the Non-Employee Director exercising the Option, a
certificate or certificates representing the shares of Common Stock purchased
upon the exercise. Certificates representing shares of Common Stock to be
delivered to a Non-Employee Director shall be registered in the name of such
director.
2.10 RIGHTS AS A STOCKHOLDER. A Non-Employee Director shall have no
rights as a stockholder with respect to any shares of Common Stock covered by
his or her Option until the date on which he or she becomes a record owner of
the shares purchased upon the exercise of the Option (the "record ownership
date"). No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property), distributions, or other rights
for which the record date is prior to the record ownership date.
ARTICLE 3
MISCELLANEOUS
3.1 STOCK ADJUSTMENTS.
3.1.1 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
Common Stock) or any other increase or decrease in the number of such shares
effected without any receipt of consideration by the Company, then, in any such
event, the number of shares of Common Stock that remain available under the
Plan, the number of shares of Common Stock covered by each outstanding Option,
and the purchase price per share of Common Stock covered by each outstanding
Option shall be proportionately and appropriately adjusted for any such increase
or decrease.
3.1.2 Subject to any required action by the stockholders, if
any change occurs in the Common Stock by reason of any recapitalization,
reorganization, merger, consolidation, split-up, combination or exchange of
shares, or of any similar change affecting Common Stock, then, in any such
event, the number and type of shares covered by each outstanding Option, and the
purchase price per share of Common Stock covered by each outstanding Option,
shall be proportionately and appropriately adjusted for any such change. A
dissolution or liquidation of the Company shall cause each outstanding Option to
terminate.
3.1.3 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 the Plan.
6.
<PAGE> 7
3.1.4 To the extent that the foregoing adjustments relate to
stock or securities of the Company, such adjustments shall be made by, and in
the discretion of, the Committee, whose determination in that respect shall be
final, binding and conclusive.
3.1.5 Except as hereinabove expressly provided in this Section
3.1, a Non-Employee 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 the
Company of shares of stock of any class, securities 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.
3.1.6 The existence of the Plan, and the grant of any Option
pursuant to the Plan, shall not affect in any way the right or power of the
Company 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.
3.2 LISTING AND REGISTRATION OF COMMON STOCK. Each Option shall be
subject to the requirement that if at any time the Board of Directors shall
determine, in its discretion, that the listing, registration or qualification of
the Common Stock covered thereby upon any securities exchange or under any state
or federal laws, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in connection with, the granting
of such Option or the issuance or purchase of shares thereunder, such Option may
not be exercised unless and until such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Board. Notwithstanding anything in the Plan to the
contrary, if the provisions of this Section 3.2 become operative, and if, as a
result thereof, the exercise of an Option is delayed, then and in that event,
the term of the Option shall not be affected. Notwithstanding the foregoing or
any other provision in the Plan, the Company shall have no obligation under the
Plan to cause any shares of Common Stock to be registered or qualified under any
federal or state law or listed on any stock exchange or admitted to any national
marketing system.
3.3 TERM OF THE PLAN. The Plan shall terminate upon the earlier of
the following dates or events: (a) upon the adoption of a resolution of the
Board terminating the Plan; or (b) ten years from the Effective Date.
3.4 AMENDMENT OF THE PLAN; TERMINATION. The Board may, insofar as
permitted by law, from time to time, with respect to any shares of Common Stock
at the time not subject to Options, suspend, discontinue or terminate the Plan
or revise or amend it in any respect whatsoever.
3.5 APPLICATION OF FUNDS. The proceeds received by the Company
from the sale of shares of Common Stock pursuant to Options will be used for
general corporate purposes.
7.
<PAGE> 8
3.6 NO OBLIGATION TO EXERCISE. The granting of any Option under
the Plan shall impose no obligation upon any Optionee to exercise such Option.
3.7 NO IMPLIED RIGHTS TO DIRECTORS. Except as expressly provided
for in the Plan, no Non-Employee Director or other person shall have any claim
or right to be granted an Option under the Plan. Neither the Plan nor any action
taken hereunder shall be construed as giving any Non-Employee Director any right
to be retained as a Director or in any other capacity.
3.8 WITHHOLDING. Whenever the Company proposes or is required to
issue or transfer shares of Common Stock under the Plan, the Company shall have
the right to require the Optionee to remit to the Company an amount sufficient
to satisfy any federal, state or local withholding tax liability prior to the
delivery of any certificate or certificates for such shares. Whenever under the
Plan payments are to be made in cash, such payments shall be made net of an
amount sufficient to satisfy any federal, state or local withholding tax
liability.
3.9 CONDITIONS PRECEDENT TO EFFECTIVENESS. The Plan shall become
effective upon the adoption of the Plan by the Board of Directors.
8.
<PAGE> 1
[COVER]
[PICTURE OF WOMAN STANDING WEARING BLACK OUTFIT OVER WHITE T-SHIRT]
[INSIDE FRONT COVER]
[PICTURE OF TWO WOMEN WALKING BAREFOOT IN SURF]
[INSIDE BACK COVER]
[PICTURE OF CHICO'S WORLD HEADQUARTERS FACILITY]
[BACK COVER]
[PICTURE OF WOMAN SEATED ON PARK BENCH WEARING PATTERNED TOP AND BLACK PANTS]
<PAGE> 2
[PICTURE - INSIDE FRONT COVER OF ANNUAL REPORT]
<PAGE> 3
To our Shareholders,
Fiscal 1999 was a banner year for Chicos. We exceeded all of our sales
expectations and twenty of our stores topped one million dollars in sales! We
had a comparable Company-owned store sales increase of 30.3% for the year and a
41.7% overall sales increase. Our stores averaged $574 in sales per square foot
and we more than tripled our earnings from $.34 to $1.07 per share for fiscal
year 99.
In fiscal 1999, we opened 23 new Chicos stores and remodeled or
relocated 10 of our existing locations. At year end, we had 162 stores,
including 8 franchise stores and 7 outlets in 35 states. We have streamlined
our site selection and new store opening procedures to enable us to open stores
more efficiently.
The average store net selling square footage for our stores is 1330
square feet, although we have successfully opened larger stores. We will
continue our flexible real estate strategy by opening stores with net selling
square footage ranging from 1000-3000 square feet, with a new target of
1700-1800 net selling square feet for our prototype store.
We have finalized a new, more extensive, training program emphasizing
customer service and product knowledge. Based on overwhelmingly positive
customer feedback, we believe this program is proving to be a huge success.
Our Travelers collection, made from a high performance, easy care
synthetic fabric, is an extensive, ever evolving collection which continues to
outperform all sales expectations. The Sausalito collection, another big winner
in a unique textured viscose fabric, is continually being restyled in new
shapes and colors. Natural fabrics such as linen, silk and cotton, as well as
the introduction of new synthetics, have proven to excite our customers as we
have continued to set new sales records.
We seek to control and improve our product by working closely on
partnerships with our long term vendors. We want Chicos clothing to offer value
with designer quality and style, while at a price which we feel the customer
will recognize and appreciate. Our accessories also have the same attention to
style and value, with many accessory items being developed in-house.
Our marketing efforts include direct mail brochures that have
generated high percentage returns and have contributed greatly to our sales
increases. We recently relaunched our Passport Frequent Buyer Incentive Program
(which had been on hold since 1994). Immediate response has been remarkable and
we expect to use this renewed program to dramatically expand our loyal and
repeat customer base.
Our overall sales for December 1998 of $11.3 million topped our
monthly overall sales record set in June 1998 of $10.5 million. For the Holiday
season, we introduced many Chicos branded products including our Goddess
Collection of body care products, Chicos Time watches, shoes and gift items. We
foresee the expansion of these product lines as we further extend the Chicos
brand. By the year 2001, we expect to initiate catalog sales; and we are
investigating the launching of e-commerce Internet sales.
We plan to open a minimum of 30 stores this year and increase this
number every year as long as the economy and momentum of the Company maintains
its forward pace.
Above all, we plan to stay focused on our target customer and concept,
build our team to support our growth, maintain margins and reduce SG&A,
maintain a 25% or better overall continuing growth rate and stay innovative and
creative.
As we grow, we see more and more opportunities. Our future has never
looked brighter. Watch us!
Sincerely,
/s/ Marvin J. Gralnick
Marvin J. Gralnick
CEO
<PAGE> 4
(CHICO'S LOGO)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PRO
ONE FORMA
MONTH FISCAL YEAR
PERIOD ENDED
FISCAL YEAR ENDED ENDED (UNAUDITED) FISCAL YEAR ENDED
-------------------------- ----------- ----------- ----------------------------------------
JANUARY 1, DECEMBER 31, JANUARY 28, JANUARY 28, FEBRUARY 1, JANUARY 31, JANUARY 30,
1995 1995 1996(1) 1996(1) 1997(1) 1998 1999
(52 WEEKS) (52 WEEKS) (4 WEEKS) (52 WEEKS) (53 WEEKS) (52 WEEKS) (52 WEEKS)
----------- ------------ ----------- ----------- ------------ ----------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net Sales.................. $59,271 $60,343 $3,747 $60,763 $64,073 $75,339 $106,742
Income (loss) from
Operations.............. 5,685 3,485 (524) 3,437 3,622 4,914 15,134
Net Income (loss).......... 3,291 1,704 (338) 1,676 1,931 2,770 9,139
Basic Earnings (loss) Per
Share................... 0.42 0.22 (0.04) 0.22 0.25 0.35 1.12
Diluted Earnings (loss) Per
Share................... 0.41 0.22 (0.04) 0.21 0.24 0.34 1.07
OPERATING DATA:
Total Assets............... $27,352 $27,009 $27,681 $31,248 $34,472 $ 49,000
Long-Term Debt............. 4,663 5,896 7,231 7,008 6,703 6,713
Stockholders' Equity....... 14,226 15,959 15,621 18,021 21,456 34,303
# of Stores (at end of
period):
Company Owned......... 104 111 111 123 132 154
Franchised............ 17 12 12 10 9 8
------- ------- ------- ------- ------- --------
Total...................... 121 123 123 133 141 162
======= ======= ======= ======= ======= ========
</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.
INDEX
3 Management's Discussion & Analysis
9 Stock Information
10 Financial Statements
26 Store Listing
28 Executive Officers/Directors
<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 162 stores as of January 30, 1999 (fiscal 1999), of which 154 are
Company-owned and 8 are franchised stores. Since fiscal 1989, the Company has
de-emphasized the granting of new franchises as a strategy for growth and, at
the same time, has been expanding its store base by opening Company-owned
stores. Where possible and practical, the Company has also acquired stores from
its franchisees. Since the beginning of fiscal 1994, the Company has acquired
nine stores from franchisees and opened 83 new Company-owned stores, and one
franchisee has opened two new franchised stores in this period. Of these new
company-owned stores, 22 were opened in fiscal 1999, 14 were opened in fiscal
1998, 13 were opened in fiscal 1997, 8 were opened in the pro forma fiscal year
ended January 28, 1996 and 26 were opened in the fiscal year ended January 1,
1995. During this same time period, the Company closed 16 Company-owned stores
and one franchised store also closed. The Company plans to open a minimum of 30
new Company-owned stores in the fiscal year ending January 29, 2000 (fiscal
2000). 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 one and three existing
Company-owned stores in fiscal 2000.
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.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED (000'S)
---------------------------------------------------------------
FEBRUARY 1, JANUARY 31, JANUARY 30,
1997 1998 1999
(53 WEEKS) % (52 WEEKS) % (52 WEEKS) %
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales by company stores................................. $62,318 97.3% $73,597 97.7% $104,981 98.4%
Net sales to franchisees.................................... 1,755 2.7 1,742 2.3 1,761 1.6
------- ----- ------- ----- -------- -----
Net sales............................................... 64,073 100.0 75,339 100.0 106,742 100.0
Cost of goods sold.......................................... 26,713 41.7 33,240 44.1 44,197 41.4
------- ----- ------- ----- -------- -----
Gross profit............................................ 37,360 58.3 42,099 55.9 62,545 58.6
General, administrative and store operating expenses........ 33,738 52.6 37,185 49.4 47,411 44.4
------- ----- ------- ----- -------- -----
Income from operations.................................. 3,622 5.7 4,914 6.5 15,134 14.2
Interest expense, net....................................... 404 0.7 372 .5 151 .2
------- ----- ------- ----- -------- -----
Income before taxes..................................... 3,218 5.0 4,542 6.0 14,983 14.0
Provision for income taxes.................................. 1,287 2.0 1,772 2.3 5,844 5.4
------- ----- ------- ----- -------- -----
Net income.............................................. $ 1,931 3.0% $ 2,770 3.7% $ 9,139 8.6%
======= ===== ======= ===== ======== =====
</TABLE>
FIFTY-TWO WEEKS ENDED JANUARY 30, 1999 COMPARED TO THE FIFTY-TWO WEEKS ENDED
JANUARY 31, 1998.
Net Sales. Net sales by Company-owned stores for the fifty-two weeks ended
January 30, 1999 (fiscal 1999) increased by $31.3 million, or 42.6%, over net
sales by Company-owned stores for the comparable fifty-two weeks ended January
31, 1998 (fiscal 1998). The increase was the result of a comparable Company
store net sales increase of $21.1 million and $10.2 million additional sales
from the new (or reacquired) stores not yet included in the Company's comparable
store base (net of sales of $1.0 million from seven stores closed in fiscal 1998
and fiscal 1999).
Net sales to franchisees for fiscal 1999 increased by approximately
$18,000, or 1.0% compared to net sales to franchisees for fiscal 1998. The
increase in net sales to franchisees primarily reflects increased sales to
franchisees due to the opening of one additional franchised location by an
existing franchisee and increased purchases by existing franchisees, net of
reduced sales attributable to the re-acquisition of three franchised stores in
fiscal 1998 and fiscal 1999.
Gross Profit. Gross profit for fiscal 1999 was $62.5 million, or 58.6% of
net sales, compared with $42.1 million, or 55.9% of net sales, for fiscal 1998.
The increase in the gross profit percentage primarily resulted from merchandise
planning and distribution costs which decreased by 1% of net sales as a result
3
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
of leverage associated with the Company's 30.3% comparable Company store net
sales increase for fiscal 1999, and higher margins in its front-line stores as a
result of fewer and less aggressive markdowns believed to be attributable to the
Company's refocusing of its product development departments as described more
fully below under the heading "Comparable Company Store Net Sales." To a lesser
degree, this increase in the gross profit percentage was due to decreased
shipping costs to the Company's stores because of a change in common carriers,
offset by an increase in inventory reserves for merchandise intended for
liquidation.
General, Administrative and Store Operating Expenses. General,
administrative and store operating expenses increased to $47.4 million, or 44.4%
of net sales, in fiscal 1999 from $37.2 million, or 49.4% of net sales, in
fiscal 1998. 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 additional store openings. The decrease in these expenses as a percentage
of net sales was principally due to leverage in direct store costs, including
store compensation, associated with the Company's 30.3% comparable Company store
sales increase for fiscal 1999, net of an effective increase in general and
administrative costs attributable to the fact that administrative costs in
fiscal 1998 had reflected the benefit of certain business interruption insurance
proceeds related to the temporary closing of one of the Company's stores.
Interest Expense, Net. Net interest expense decreased to approximately
$151,000 in fiscal 1999 from approximately $372,000 in fiscal 1998. This
decrease was primarily a result of increased interest earnings during fiscal
1999 resulting from the Company's increased cash position.
Net Income. As a result of the factors discussed above, net income
reflects an increase of 237% to $9.1 million in fiscal 1999 from net income of
$2.8 million in fiscal 1998. The income tax provision represented an effective
rate of 39% for both the current and prior periods.
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 purchases by the Company's largest franchisee, 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
4
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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.
COMPARABLE COMPANY-OWNED STORE NET SALES
Comparable Company store net sales increased by 30.3% for the fifty-two
weeks ended January 30, 1999 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 net
sales resulted from a refocusing of the Company's product development,
merchandise planning and buying departments on Chico's target customer. The
Company also believes that the look, fit, timing of receipts and pricing policy
(including markdowns) of the Company's product were in line with the refocusing
effort and that the increase in comparable store sales was fueled by increased
direct mailings and a larger database of existing customers for such mailings.
To a lesser degree, the Company believes the increase was due to increased
store-level training efforts associated with the Company's newly introduced
training programs and continuing sales associated with several styles of
clothing produced from a fabric newly introduced by the Company in the fourth
quarter of fiscal 1998. Clothing which utilized this newly introduced fabric
represented approximately 25% of net apparel sales in fiscal 1999.
Because of the perceived success of the Company's direct mail efforts, and
its past success during 1991-1994 with its frequent shopping club (the "Passport
Club"), the Company has, in the first quarter of fiscal 2000, re-established a
new and modified "Passport Club" program. This new "Passport Club" program
allows the Company to track customer sales at the SKU level through the use of
newly licensed software, allows for mailings to separate niches of customers and
offers discounts and other benefits for increased frequent shopping. The Company
believes that the re-introduction of the "Passport Club" should help the Company
as it seeks to continue store sales increases over the strong monthly comparable
store sales increases that were achieved in fiscal 1999 and 1998.
The following table sets forth for each of the four quarters of fiscal
1999, 1998 and 1997, the percentage changes in comparable store net sales at
Company-owned stores:
<TABLE>
<CAPTION>
FISCAL QUARTERS
------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR FULL YEAR
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Fiscal year ended 1/30/99: ................... 31.7% 23.0% 28.5% 30.4% 30.3%
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)%
</TABLE>
5
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary ongoing capital requirements are for funding capital
expenditures related to new store openings and merchandise inventory purchases.
In addition, over the next 18 months, the Company anticipates experiencing the
need for capital to address certain expansions of its office and design facility
at its headquarters facilities.
During the fifty-two weeks ended January 30, 1999 (fiscal 1999) and the
fifty-two weeks ended January 31, 1998 (fiscal 1998), the Company's primary
source of working capital was cash flow from operations of $12.2 million and
$3.6 million, respectively. The $8.6 million increase in the cash flow generated
from operations was primarily a result of an increase in net income to $9.1
million in fiscal 1999 from $2.8 million in fiscal 1998, an increase of
approximately $580,000 in inventory in fiscal 1999 versus an increase of $1.7
million in fiscal 1998, a decrease in prepaid expenses and other assets of
approximately $110,000 in fiscal 1999, versus an increase of approximately
$234,000 in fiscal 1998 and an increase in accounts payable and accrued
liabilities of $1.6 million in fiscal 1999, versus an increase of approximately
$298,000 in fiscal 1998, net of an increase in deferred taxes of approximately
$588,000 in fiscal 1999 as compared to a decrease of approximately $32,000 in
fiscal 1998. The increase in accounts payable and accrued liabilities is
associated with the Company's improved sales and profitability.
The Company invested $5.0 million in fiscal 1999 for capital expenditures
primarily associated with the opening of 24 new (or reacquired) Company-owned
stores and the remodeling of several existing stores. During fiscal 1998, the
Company invested approximately $2.0 million for capital expenditures associated
with the opening of 15 new (or reacquired) Company-owned stores, and the
remodeling of several existing stores.
During fiscal 1999, two of the Company's officers exercised 137,000 stock
options at prices ranging from $3.25 to $7.00, one of the Company's independent
directors exercised 25,000 options at prices ranging from $3.25 to $5.0625, a
former director exercised 61,000 options at prices ranging from $5.50 to $8.75
and several employees and former employees exercised in the aggregate 123,924
options at prices ranging from $3.25 to $12.00. Also during fiscal 1999, the
Company sold 34,775 shares of common stock under its employee stock purchase
plan at prices of $7.70 and $13.23. These various issuances of common stock
during fiscal 1999 resulted in an aggregate cash flow to the Company of $3.7
million, which included a benefit to the Company of $1.5 million attributable to
a reduction in corporate income taxes from associated income tax deductions.
The Company also invested approximately $233,000 in fiscal 1999 and
approximately $154,000 in fiscal 1998 in intangible assets associated with the
reacquisition of franchised stores and the extension of its credit lines for an
additional year. The Company repaid indebtedness of approximately $149,000 and
$354,000 in the current and prior periods, respectively. In addition, the
Company repaid under its then available credit lines approximately $285,000 in
fiscal 1998.
As more fully described in "Item 1 -- Business" under the heading "Imports
and Import Restrictions" of the Company's Annual Report on Form 10-K for the
fiscal year ended January 30, 1999, the Company is subject to ongoing risks
associated with imports. Although the Company has increased its percentage of
sourcing from United States vendors in fiscal 1999, the Company continues to
rely heavily on foreign sourcing for its product offerings. This continued
reliance on sourcing from foreign countries causes the Company to be exposed to
certain unique business and political risks. Import restrictions, including
tariffs and quotas, and changes in such tariffs or quotas could affect the
importation of apparel generally and, in that event, could increase the cost or
reduce the supply of apparel available to the Company and have an adverse effect
on the Company's business, financial condition and/or results of operations. The
Company's merchandise flow could also be adversely affected by political
instability in any of the countries in which its goods are manufactured, by
significant fluctuations in the value of the U.S. dollar against applicable
foreign currencies and by restrictions on the transfer of funds.
The Company plans to open a minimum of 30 new stores in fiscal 2000 and is
in the initial planning stages for an expansion of the office and design
facilities at its headquarters site. The Company also will
6
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
have capital needs associated with its planned catalog and internet sales
activities and the larger silhouette division which is currently being explored
as an additional opportunity. The Company believes that the liquidity needed for
its planned new store growth, continuing remodel program, maintenance of proper
inventory levels associated with this growth, expansion of its office and design
facilities, establishment of catalog and internet sales operations and the
possible development of a larger silhouette store concept will be funded
primarily from cash flow from operations and its strong existing cash balances.
The Company further believes that this liquidity will be sufficient, based on
currently planned new store openings, headquarters expansion plans and other
planned expansions of its business operations, to fund anticipated capital needs
over the near-term, including scheduled debt repayments. Given the Company's
strong cash balances, the Company does not believe that it would need to seek
other sources of financing to conduct its operations or pursue its expansion
plans even if cash flow from operations should prove to be less than anticipated
or even 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
The Company has utilized a derivative financial instrument to reduce its
exposure resulting from fluctuations in interest rates. The derivative financial
instrument in effect at January 31, 1999, consisted of an interest rate swap
agreement with a notional principal amount of $5.4 million at a term of four
years. For the applicable period, the interest rate swap agreement effectively
converts the interest on the outstanding mortgage loan with respect to the
Company's headquarters facility to a fixed effective swap rate of 9%. The
Company has entered into this interest rate swap for non-trading purposes. Risks
associated with the interest rate swap include those associated with changes in
the market value and interest rates. The interest rate swap agreement was
entered into with a major financial institution with the goal of minimizing the
risk of credit loss. Accordingly, management considers the potential for loss in
future earnings and cash flows attributable to the interest rate swap not to be
material. As indicated under the heading of Liquidity and Capital Resources, the
Company is currently in a strong cash position. However, in order to utilize a
portion of the available cash to prepay all or any portion of the mortgage loan
would require a simultaneous termination of the interest rate swap. The cost to
terminate the outstanding interest rate swap as of January 30, 1999, was
approximately $149,700. The Company intends to continue to reevaluate from time
to time the advisability of prepaying all or a portion of the outstanding
mortgage loan.
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 the current or prior periods.
Although sales have recently 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.
7
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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 development of
new styles, 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, continued demand for the Company's "slinky" line of clothing,
adequacy and perception of customer service, ability to coordinate product
development with buying and planning, rate of new store openings, performance of
management 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.
8
<PAGE> 11
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>
HIGH LOW
------ ------
<S> <C> <C>
FOR THE FISCAL YEAR ENDED JANUARY 30, 1999
Fourth Quarter (November 1, 1998 -- January 30,
1999)................................................. $28.00 $15.50
Third Quarter (August 2, 1998 -- October 31, 1998)..... 17.63 10.00
Second Quarter (May 3, 1998 -- August 1, 1998)......... 18.00 9.38
First Quarter (February 1, 1998 -- May 2, 1998)........ 10.00 6.38
FOR THE FISCAL YEAR ENDED JANUARY 31, 1998
Fourth Quarter (November 2, 1997 -- January 31,
1998)................................................. $ 8.75 $ 6.25
Third Quarter (August 3, 1997 -- November 1, 1997)..... 7.88 4.88
Second Quarter (May 4, 1997 -- August 2, 1997)......... 5.50 2.75
First Quarter (February 2, 1997 -- May 3, 1997)........ 4.25 2.69
</TABLE>
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, 1999
------------------------ -------------------
<S> <C>
Common Stock, par value $.01 per share...................... 431
</TABLE>
9
<PAGE> 12
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 30, 1999, and January 31, 1998, and the related
statements of income, stockholders' equity and cash flows for the fiscal years
ended January 30, 1999, January 31, 1998, and February 1, 1997. 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
30, 1999, and January 31, 1998, and the results of its operations and its cash
flows for the fiscal years ended January 30, 1999, January 31, 1998, and
February 1, 1997, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Tampa, Florida,
March 4, 1999
10
<PAGE> 13
CHICO'S FAS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS JANUARY 30, JANUARY 31,
------ 1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $14,484,776 $ 2,943,916
Receivables, less allowances of $90,000 and $75,000 for
sales returns, respectively............................ 1,149,078 894,895
Inventories............................................... 10,105,153 9,525,472
Prepaid expenses.......................................... 510,885 667,145
Deferred taxes............................................ 1,586,000 1,251,000
----------- -----------
Total current assets.............................. 27,835,892 15,282,428
CERTIFICATE OF DEPOSIT...................................... -- 1,000,000
PROPERTY AND EQUIPMENT, net................................. 19,665,261 16,979,386
DEFERRED TAXES.............................................. 812,000 559,000
OTHER ASSETS, net........................................... 686,923 650,702
----------- -----------
$49,000,076 $34,471,516
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------------------
CURRENT LIABILITIES:
Accounts payable.......................................... $ 3,995,123 $ 3,520,265
Accrued liabilities....................................... 3,679,355 2,540,375
Current portion of debt and lease obligations............. 309,520 251,762
----------- -----------
Total current liabilities......................... 7,983,998 6,312,402
DEBT AND LEASE OBLIGATIONS, excluding current portion....... 6,713,045 6,703,229
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 25,000,000 shares authorized
and 8,393,016 and 8,011,317 shares issued and
outstanding, respectively.............................. 83,930 80,113
Additional paid-in capital................................ 11,923,930 8,219,707
Retained earnings......................................... 22,295,173 13,156,065
----------- -----------
Total stockholders' equity........................ 34,303,033 21,455,885
----------- -----------
$49,000,076 $34,471,516
----------- -----------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
11
<PAGE> 14
CHICO'S FAS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
NET SALES BY COMPANY STORES............................... $104,981,219 $73,596,969 $62,317,817
NET SALES TO FRANCHISEES.................................. 1,760,374 1,742,183 1,754,788
------------ ----------- -----------
Net sales............................................... 106,741,593 75,339,152 64,072,605
COST OF GOODS SOLD........................................ 44,196,426 33,240,162 26,712,475
------------ ----------- -----------
Gross profit............................................ 62,545,167 42,098,990 37,360,130
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES...... 47,411,057 37,184,671 33,738,523
------------ ----------- -----------
Income from operations.................................. 15,134,110 4,914,319 3,621,607
INTEREST EXPENSE, net..................................... 151,002 372,303 404,054
------------ ----------- -----------
Income before income taxes.............................. 14,983,108 4,542,016 3,217,553
INCOME TAX PROVISION...................................... 5,844,000 1,772,000 1,287,000
------------ ----------- -----------
Net income.............................................. $ 9,139,108 $ 2,770,016 $ 1,930,553
------------ ----------- -----------
PER SHARE DATA:
NET INCOME PER COMMON SHARE -- BASIC.................... $ 1.12 $ .35 $ .25
NET INCOME PER COMMON AND COMMON EQUIVALENT
SHARE -- DILUTED..................................... $ 1.07 $ .34 $ .24
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -- BASIC..... 8,167,759 7,912,126 7,863,121
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING -- DILUTED............................... 8,529,896 8,032,871 7,976,466
</TABLE>
The accompanying notes are an integral part of these statements.
12
<PAGE> 15
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 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
Issuance of common stock............. 381,699 3,817 2,209,223 -- 2,213,040
Tax benefit of stock options
exercised......................... -- -- 1,495,000 -- 1,495,000
Net income for the fiscal year ended
January 30, 1999.................. -- -- -- 9,139,108 9,139,108
--------- ------- ----------- ----------- -----------
BALANCE, JANUARY 30, 1999.............. 8,393,016 $83,930 $11,923,930 $22,295,173 $34,303,033
========= ======= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE> 16
CHICO'S FAS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 9,139,108 $ 2,770,016 $ 1,930,553
-------------- -------------- --------------
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization............... 2,407,799 2,114,146 1,896,196
Deferred tax (benefit) provision............ (588,000) 32,000 (515,000)
Deferred rent expense, net.................. 216,978 129,712 (77,610)
Loss from disposal of property and
equipment................................. 195,027 317,206 200,103
(Increase) decrease in assets --
Receivables............................... (254,183) (131,444) 113,063
Inventories............................... (579,681) (1,680,110) (1,724,081)
Prepaid expenses.......................... 156,260 (193,700) (64,529)
Other assets.............................. (46,418) (40,180) (65,991)
Increase in liabilities --
Accounts payable.......................... 474,858 218,275 1,266,986
Accrued liabilities....................... 1,138,980 79,349 222,091
-------------- -------------- --------------
Total adjustments...................... 3,121,620 845,254 1,251,228
-------------- -------------- --------------
Net cash provided by operating
activities........................... 12,260,728 3,615,270 3,181,781
-------------- -------------- --------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Redemption of certificate of deposit........... 1,000,000 600,000 --
Purchases of property and equipment............ (5,045,809) (2,010,618) (2,926,309)
Proceeds from sale of property and equipment... -- 34,500 --
-------------- -------------- --------------
Net cash used in investing
activities........................... (4,045,809) (1,376,118) (2,926,309)
-------------- -------------- --------------
</TABLE>
14
<PAGE> 17
CHICO'S FAS, INC.
STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net.......... 3,708,040 665,271 469,088
Net (payments) borrowings under line of credit
agreement......................................... -- (284,919) 29,103
Principal payments on debt........................... (72,000) (265,872) (288,311)
Principal payments on lease obligations.............. (77,404) (88,374) (115,006)
Deferred finance costs............................... (232,695) (153,518) (62,536)
----------- ----------- ----------
Net cash provided by (used in) financing
activities................................. 3,325,941 (127,412) 32,338
----------- ----------- ----------
Net increase in cash and cash equivalents.... 11,540,860 2,111,740 287,810
CASH AND CASH EQUIVALENTS,
Beginning of period.................................. 2,943,916 832,176 544,366
----------- ----------- ----------
CASH AND CASH EQUIVALENTS,
End of period........................................ $14,484,776 $2,943,916 $ 832,176
=========== =========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest............................ $ 611,238 $ 609,956 $ 571,038
Income taxes...................................... $ 4,873,065 $1,757,259 $1,769,400
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE> 18
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 30, 1999
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 30, 1999,
the Company's retail store system consisted of 162 stores located throughout the
United States, 154 of which were owned and operated by the Company, and eight 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 30, 1999, and January 31,
1998, and for the fiscal years then ended is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 30, JANUARY 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Franchise stores opened..................................... 1 --
Franchise stores purchased from franchisees................. 2 1
Franchise stores in operation at fiscal year-end............ 8 9
Company-owned stores at fiscal year-end..................... 154 132
</TABLE>
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 $639,000 as of January 30, 1999, 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 FIFO or market method had been used, inventories would
have been approximately $360,000 and $267,000 higher at January 30, 1999, and
January 31, 1998, 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.
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.
16
<PAGE> 19
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 $421,000 and $431,000 as of
January 30, 1999, and January 31, 1998, respectively.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets and identifiable intangibles are reviewed periodically for
impairment if events or changes in circumstances indicate that the carrying
amount should be addressed. The Company has determined that there has been no
impairment in the carrying value of long-lived assets, as of January 30, 1999.
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 30, 1999.
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 sold to franchisees, net of estimated returns.
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
During the fiscal year ended January 31, 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share" (SFAS 128).
SFAS 128 establishes new standards for
17
<PAGE> 20
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Weighted average common shares outstanding -- Basic......... 8,167,759 7,912,126 7,863,121
Dilutive effect of options outstanding...................... 362,137 120,745 113,345
------------ ------------ ------------
Weighted average common and common equivalent shares
outstanding -- Diluted.................................... 8,529,896 8,032,871 7,976,466
------------ ------------ ------------
</TABLE>
The following options were outstanding as of the end of the fiscal years 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>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
------------------- --------------- ---------------
<S> <C> <C> <C>
Number of options........................................... 2,000 418,204 341,696
Exercise price.............................................. $ 23.06 - $26.25 $5.50 - $12.00 $7.00 - $12.00
Expiration date............................................. December 21, 2008 - March 31, 2003 - March 31, 2003 -
January 6, 2009 Sept. 21, 2007 April 30, 2005
</TABLE>
CURRENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP 98-5) effective for fiscal years beginning after December 15,
1998. This SOP provides guidance on the financial reporting of start-up costs
and organization costs. Management does not believe the implementation of SOP
98-5 will have any impact on the Company's financial statements.
In the fiscal year ended January 31, 1998, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). SFAS 131 established standards for reporting information about operating
segments of a business. The Company is not required to report any segment
information due to it not meeting or exceeding any of the quantitative
thresholds listed under SFAS 131.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133),
with an effective date for all fiscal years beginning after June 15, 1999. SFAS
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as Derivatives) and for hedging activities. SFAS 133
requires an entity to recognize all Derivatives as either assets or liabilities
and measures those instruments at fair value. As of January 30, 1999, management
of the Company has not assessed the future impact of SFAS 133 on the Company's
financial statements.
18
<PAGE> 21
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following as of January 30, 1999, and
January 31, 1998:
<TABLE>
<CAPTION>
ESTIMATED JANUARY 30, JANUARY 31,
USEFUL LIVES 1999 1998
------------- ----------- -----------
<S> <C> <C> <C>
Land........................................................ $ 1,039,904 $ 1,039,904
Land improvements........................................... 35 years 1,785,161 1,785,161
Building.................................................... 20 - 35 years 6,273,250 6,247,920
Equipment................................................... 2 - 10 years 4,213,678 4,076,277
Furniture and fixtures...................................... 3 - 10 years 4,268,966 3,618,457
Leasehold improvements...................................... 1 - 10 years 10,086,055 6,829,258
----------- -----------
27,667,014 23,596,977
Less -- Accumulated depreciation and amortization........... (8,001,753) (6,617,591)
----------- -----------
$19,665,261 $16,979,386
----------- -----------
</TABLE>
Assets acquired under capital lease obligations with a cost of $487,548 are
included in equipment as of January 30, 1999, and January 31, 1998. The
accumulated depreciation related to these assets is $455,893 and $408,399 as of
January 30, 1999, and January 31, 1998, respectively.
3. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following as of January 30, 1999, and
January 31, 1998:
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
<S> <C> <C>
Accrued payroll, bonuses and severance costs................ $1,759,928 $1,206,621
Allowance for estimated merchandise returns................. 1,065,000 720,000
Other....................................................... 854,427 613,754
---------- ----------
$3,679,355 $2,540,375
---------- ----------
</TABLE>
4. INCOME TAXES:
The Company's total income tax provision consisted of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Current:
Federal................................................... $5,080,000 $1,378,000 $1,434,000
State..................................................... 1,352,000 362,000 368,000
Deferred:
Federal................................................... (462,000) 24,000 (404,000)
State..................................................... (126,000) 8,000 (111,000)
------------- ------------- -------------
Total income tax provision.............................. $5,844,000 $1,772,000 $1,287,000
------------- ------------- -------------
</TABLE>
The reconciliation of the income tax provision based on the U.S. statutory
federal income tax rate (34 percent) to the Company's income tax provision is as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Tax expense at the statutory rate........................... $5,094,000 $1,544,000 $1,094,000
State income tax expense, net of federal tax benefit........ 769,000 225,000 176,000
Other....................................................... (19,000) 3,000 17,000
------------- ------------- -------------
Total income tax provision................................ $5,844,000 $1,772,000 $1,287,000
------------- ------------- -------------
</TABLE>
19
<PAGE> 22
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 30, 1999, and January
31, 1998:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1998
----------- -----------
<S> <C> <C>
Accruals and allowances..................................... $1,480,000 $1,105,000
Inventories................................................. 828,000 786,000
Property and equipment...................................... 243,000 43,000
Net operating loss carryforward............................. 117,000 146,000
---------- ----------
2,668,000 2,080,000
Less -- Valuation allowance................................. (270,000) (270,000)
---------- ----------
$2,398,000 $1,810,000
========== ==========
</TABLE>
Approximately $449,000 of a net operating loss for tax reporting purposes can be
carried forward ratably for the six subsequent fiscal years following the fiscal
year ended February 1, 1997. The remaining net operating loss carryforward was
approximately $300,000 as of January 30, 1999.
5. DEBT AND LEASE OBLIGATIONS:
Debt and lease obligations consisted of the following as of January 30, 1999,
and January 31, 1998:
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
<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 (7.75% percent as of January
30, 1999), secured by substantially all of the Company's
assets other than land, land improvements and building,
maturing in May 2000...................................... $ -- $ --
Mortgage note secured by a first priority mortgage on land,
land improvements, building and certain equipment......... 5,365,500 5,437,500
Obligations under capital leases, imputed interest rate of
5.9 percent, secured by equipment, varying monthly
payments of principal and interest, maturing September
1999...................................................... 89,772 167,176
Deferred rent............................................... 1,567,293 1,350,315
---------- ----------
Total debt and lease obligations....................... 7,022,565 6,954,991
Less -- Current portion................................ (309,520) (251,762)
---------- ----------
$6,713,045 $6,703,229
========== ==========
</TABLE>
The mortgage note (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, through January 2003, at
which time the remaining principal balance is due. On October 14, 1997, an
interest rate swap with a notional principal amount of approximately $5,400,000
as of January 30, 1999, and January 31, 1998, 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; however, a
termination fee would be assessed if the Mortgage Note is paid before January
2003.
20
<PAGE> 23
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
As of January 31, 1998, a $1,000,000 certificate of deposit (CD) was held at the
bank to secure the Line. During the fiscal year ended January 30, 1999, the bank
waived the CD requirement and the CD was redeemed.
As of January 30, 1999, 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 30, 1999, 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 are as follows as of January 30, 1999:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDING AMOUNT
- ----------- ----------
<S> <C>
2000........................................................ $ 72,000
2001........................................................ 72,000
2002........................................................ 72,000
2003........................................................ 5,149,500
----------
$5,365,500
==========
</TABLE>
Future minimum lease payments under capital lease obligations are as follows as
of January 30, 1999:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDING AMOUNT
- ----------- --------
<S> <C>
2000........................................................ $112,918
Less -- Interest imputed at 5.9 percent..................... (23,146)
--------
Present value of capital lease obligations.................. $ 89,772
========
</TABLE>
During the fiscal year ended February 1, 1997, capital lease obligations of
$130,598 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.
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."
7. COMMITMENTS AND CONTINGENCIES:
The Company leases retail store space and various office equipment under
operating leases expiring in various years through 2012. 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.
21
<PAGE> 24
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 30, 1999, were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDING AMOUNT
- ----------- -----------
<S> <C>
2000........................................................ $ 8,361,959
2001........................................................ 8,089,959
2002........................................................ 7,313,208
2003........................................................ 6,151,876
2004........................................................ 5,023,492
Thereafter.................................................. 11,473,798
-----------
$46,414,292
===========
</TABLE>
For the fiscal years ended January 30, 1999, January 31, 1998, and February 1,
1997, total rent expense under the Company's operating leases was $11,332,480,
$9,728,207, and $8,624,193, respectively, including common area maintenance
charges of $1,480,176, $1,328,466, and $1,252,635, other rental charges of
$1,637,276, $1,469,512, and $1,296,100, and contingent rental expense of
$425,859, $140,523, and $81,674, based on sales, respectively.
At January 30, 1999, the Company had $2,899,419 in commercial letters of credit
outstanding, which have arisen in the normal course of business due to foreign
purchase commitments. The commercial letters of credit are secured by the same
assets as the Line (see Note 5).
The Company is involved in claims and actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
adverse effect on the financial position of the Company.
8. STOCK OPTION PLANS AND CAPITAL STOCK TRANSACTIONS:
1992 STOCK OPTION PLAN
During fiscal year 1992, the Company adopted a stock option plan (the 1992
Plan), which reserved 548,800 shares of common stock for future issuance under
the 1992 Plan to eligible employees of the Company. The per share exercise price
of each stock option is not less than the fair market value of the stock on the
date of grant or, in the case of an employee owning more than 10 percent of the
outstanding stock of the Company and to the extent incentive stock options, as
opposed to nonqualified stock options, are issued, the price is not less than
110 percent of such fair market value. Also, the aggregate fair market value of
the stock with respect to which incentive stock options are exercisable for the
first time by an employee in any calendar year may not exceed $100,000. As of
January 30, 1999, 227,529 nonqualified options were outstanding and 320,569 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 30, 1999, 464,124 nonqualified
options were outstanding and 125,488 had been exercised under the 1993 Plan.
22
<PAGE> 25
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
OTHER STOCK OPTIONS
Since 1993, four independent directors of the Company have been granted a total
of 197,000 nonqualified options at exercise prices ranging from $3.25 to $12.81.
As of January 30, 1999, 111,000 nonqualified options were outstanding and 86,000
had been exercised. In October 1998, the Board of Directors (the Board) approved
a stock option plan (the Independent Directors' Plan), subject to stockholder
approval, which reserved 150,000 shares of common stock for future issuance to
eligible independent directors of the Company. As of January 30, 1999, no shares
had been granted under the Independent Directors' Plan.
AGGREGATE STOCK OPTION ACTIVITY
As of January 30, 1999, 802,653 nonqualified options were outstanding at a
weighted average exercise price of $6.04 per share, and 241,090 remained
available for future grants. Of the options outstanding, 432,693 options were
immediately exercisable. The Company recognized no compensation expense for
these options.
Stock option activity for the fiscal years ended January 30, 1999, January 31,
1998, and February 1, 1997, was as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 30, 1999 JANUARY 31, 1998 FEBRUARY 1, 1997
-------------------- -------------------- -------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-------- --------- -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of period......... 977,777 $5.14 971,206 $5.97 825,850 $5.74
Granted................................ 195,750 8.99 354,700 3.36 319,200 6.97
Exercised.............................. (346,924) 5.27 (105,931) 4.15 (78,752) 4.33
Canceled or expired.................... (23,950) 4.92 (242,198) 6.42 (95,092) 8.85
-------- -------- -------
Outstanding, end of period............... 802,653 $6.04 977,777 $5.14 971,206 $5.97
======== ======== =======
Options vested, end of period............ 432,693 $6.09 537,637 $5.84 534,789 $5.59
</TABLE>
The following table summarizes information about stock options as of January 30,
1999:
<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-$ 6.50 482,953 7.20 $ 4.11 292,544 $4.64
$ 6.75-$12.81 317,700 7.60 8.86 140,149 9.10
$23.06-$26.25 2,000 9.90 25.45 -- --
------- ---- ------ ------- -----
802,653 7.48 $ 6.04 432,693 $6.09
======= ==== ====== ======= =====
</TABLE>
CAPITAL STOCK TRANSACTIONS
The Board 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 and October 9, 1998,
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
23
<PAGE> 26
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 30, 1999, January 31, 1998, and February 1, 1997, 34,775,
21,268, and 22,868, 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.
The FASB later issued SFAS No. 123, "Accounting for Stock-Based Compensation"
(SFAS 123). 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 30, 1999, and January 31, 1998, and 6.2 percent for the fiscal year
ended February 1, 1997, 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 30, 1999, January 31, 1998 and
February 1, 1997, was $9.05, $3.16, and $5.21, 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 10 years. Had compensation expense been
determined consistent with SFAS 123, utilizing the assumptions detailed above,
the Company's net income and net income per common and common equivalent shares
outstanding would have been changed to the following pro forma amounts for the
fiscal years ended January 30, 1999, January 31, 1998, and February 1, 1997:
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income:
As reported............................................... $9,139,108 $2,770,016 $1,930,553
Pro forma................................................. 8,443,686 2,218,609 1,539,000
Net income per common share -- Basic:
As reported............................................... $ 1.12 $ .35 $ .25
Pro forma................................................. 1.01 .28 .20
Net income per common and common equivalent
share -- Diluted:
As reported............................................... $ 1.07 $ .34 $ .24
Pro forma................................................. .96 .28 .19
</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 defined contribution 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. For the fiscal years ended January 30, 1999, January 31, 1998,
24
<PAGE> 27
CHICO'S FAS, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
and February 1, 1997, the Company's profit sharing expense was approximately
$471,000, $280,000 and $185,000, respectively.
Effective as of January 1, 1999, the Company amended the Plan to incorporate a
401(k) savings plan feature (the 401(k)) into the Plan. Under the 401(k),
employees may contribute up to 20 percent of their annual compensation, subject
to certain statutory limitations. The Company matches employee contributions at
33 1/3 percent up to 6 percent of the employees' contributions. The Company
contributions to the 401(k) vest ratably over two to six years of service, as
specified in the Plan. The Company matching contributions related to the 401(k)
totaled approximately $16,000 for the one-month period ended January 30, 1999.
10. QUARTERLY RESULTS OF OPERATIONS (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 -- DILUTED
----------- ----------- ---------- --------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
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)
Fiscal year ended
January 30, 1999:
First quarter...... $25,895,908 $15,126,755 $2,328,505 $ .29 $ .28
Second quarter..... 27,358,542 16,346,471 2,713,082 .34 .32
Third quarter...... 26,754,149 15,713,456 2,371,442 .29 .28
Fourth quarter..... 26,732,994 15,358,485 1,726,079 .21 .20
</TABLE>
25
<PAGE> 28
<TABLE>
<S> <C> <C>
ALABAMA Santa Ana Union Station
Birmingham Main Place 202-289-4547
The Summit 714-558-2909
205-298-0440 FLORIDA
Santa Barbara Boca Raton
Foley Paseo Nuevo Boca Center
Riviera Centre Factory 805-568-0039 561-392-7181
Outlet Shops
334-943-2321 Santa Monica Mizner Park
Montana Avenue 561-361-9969
ARIZONA 310-394-2481
Scottsdale Bonita Springs
The Borgata of Scottsdale Sonoma The Promenade
602-483-8654 Sonoma Court Shops 941-948-2288
707-933-0100
CALIFORNIA Brandon
Carmel Vacaville Brandon Town Center
Carmel Plaza Factory Stores at Nut Tree II 813-689-7231
831-622-9618 707-453-1336
Captiva
Del Mar Valencia two locations:
Del Mar Plaza Valencia Town Center Chadwick Square
619-792-7080 805-284-1289 941-472-4426
941-472-6101
Encino Walnut Creek
Encino Place Broadway Plaza Destin
818-990-2519 925-906-0604 The Marketplace at
SanDestin
Fresno COLORADO 850-837-1358
Fig Garden Village Boulder
559-229-3596 Pearl Street Mall Estero
303-449-3381 Miromar Outlet
La Jolla 941-949-2252
Girard Avenue Castle Rock
619-456-6273 Castle Rock Factory Shops Fort Lauderdale
303-688-2950 The Galleria
Prospect Street 954-561-7527
619-456-9226 Denver
Cherry Creek North Fort Myers
Laguna Beach 303-377-6501 Bell Tower Shops
Forest Avenue 941-482-2831
949-494-0858 CONNECTICUT
Avon Key West
Palm Desert Shops at Riverpark Duval Street
El Paseo Collection North 860-674-8919 305-296-6685
760-779-1079
Glastonbury Miami
Pasadena Somerset Square Aventura Mall
West Colorado Boulevard 860-657-4737 305-933-0960
626-793-5519
Mystic The Falls
Pleasanton Main Street 305-259-0047
Stoneridge Mall 860-572-8530
925-598-0010 The Shops at Sunset Place
Ridgefield 305-662-2821
Sacramento Main Street
The Pavillions 203-431-0692 Miami Beach
916-567-1894 Lincoln Road
Stamford 305-604-3936
San Diego Stamford Towne Center
University Towne Centre 203-358-8846 Naples
619-457-3180 Fifth Avenue South
West Hartford 941-643-3148
San Francisco Farmington Avenue
San Francisco 860-523-1894 The Village on Venetian Bay
Shopping Center 941-261-0253
415-495-2748 DISTRICT OF
COLUMBIA Waterside Shops
Stonestown Galleria Georgetown 941-592-1108
415-664-8376 M Street NW
202-338-5723 Orlando
The Crossroads
407-827-1090
</TABLE>
<TABLE>
<S> <C>
The Pointe Skokie
407-352-4780 Old Orchard Center
847-673-5837
Palm Beach Gardens
The Gardens Wheaton
561-627-1460 Wheaton Town Square
630-653-4600
Sanibel
Palm Ridge Plaza INDIANA
941-472-3773 Indianapolis
Fashion Mall
Periwinkle Place 317-848-2676
941-472-0202
Michigan City
Sarasota The Works
Southgate Plaza 219-872-8699
941-957-6426
KANSAS
St. Armands Circle Leawood
two locations: Town Center Plaza
941-388-2926 913-498-8284
941-388-1393
KENTUCKY
St. Augustine Louisville
St. Augustine Outlet Center Mall St. Matthews
904-823-3669 502-896-6459
Stuart LOUISIANA
Harbour Bay Plaza Mandeville
561-283-3447 The Village
504-624-9459
Tampa
Citrus Park Town Center New Orleans
813-926-6536 Jackson Brewery Marketplace
504-568-9783
Old Hyde Park Village
813-254-4575 Riverwalk Marketplace
504-568-1201
Winterpark
Park Avenue North MARYLAND
407-645-0010 Annapolis
Market Space
GEORGIA 410-216-9251
Atlanta
Park Place Bethesda
770-673-0813 Norfolk Avenue
301-718-2539
Phipps Plaza
404-233-0603 Columbia
ILLINOIS The Mall in Columbia
Chicago 410-964-1904
Water Tower Place
312-943-2442 Potomac
River Road
Rush Street 301-765-8985
312-944-8832
MASSACHUSETTS
Gurnee Boston
Gurnee Mills Outlet Prudential Center
847-855-0110 617-247-3771
Naperville Burlington
W. Jefferson Burlington Mall
630-579-4207 781-270-1020
Northbrook Chestnut Hill
Northbrook Court The Mall at Chestnut Hill
847-272-9881 617-964-3365
Schaumburg
Woodfield Shopping Center
847-413-8233
</TABLE>
26
<PAGE> 29
<TABLE>
Chico's Store Directory
<S> <C> <C> <C>
Natick Princeton Cincinnati TENNESSEE
Natick Mall Market Fair at Marketplace Kenwood Towne Centre Chattanooga
508-650-5895 609-452-0089 513-792-9750 Warehouse Row Outlet
Palmer Square 423-267-4481
MICHIGAN 609-921-7086 Cleveland
Petoskey The Avenue at Germantown
Gas Light Direct Short Hills Tower City Center Saddle Creek South
616-347-2999 The Mall at Short Hills 216-566-0631 901-754-1670
973-258-9392
Troy Columbus Knoxville
Somerset Collection North Shrewsbury West Lane Avenue West Town Mall
248-816-1669 The Grove at Shrewsbury 614-488-7237 423-694-8388
732-758-0047
West Bloomfield Worthington Mall Nashville
The Boardwalk Westfield 614-846-4706 Grace's Plaza
248-932-5715 East Broad Street 615-292-0902
908-301-1737 Rocky River
MINNESOTA Beachcliff Market Square TEXAS
Bloomington Westwood 440-895-9261 Austin
Mall of America Westwood Avenue The Arboretum
612-851-0882 201-263-0273 Woodmere 512-346-3163
Eton Collection
Edina NEW MEXICO 216-292-3560 Highland Mall
France Avenue Santa Fe 512-450-1079
612-925-5474 Guadalupe Station OREGON
505-984-1132 Portland Dallas
St. Paul NW Westover Inwood Village
Grand Avenue Palace Court 503-227-5649 214-350-1735
651-227-5819 505-984-3134
PENNSLYVANIA Southlake Town Square
Wayzata West Marcy Street Ardmore 817-251-8797
East Lake Street 505-989-7702 Suburban Square
612-476-1812 610-645-0999 Fort Worth
NEW YORK Hulen Mall
White Bear Lake Albany King of Prussia 817-370-6220
Fourth Street Crossgates Mall The Court at King of Prussia
651-407-2579 518-464-9616 610-878-9390 Houston
Baybrook Mall
Woodbury Long Island Manayunk 281-286-5490
Tamarack Village Southampton Main Street
612-501-2000 516-287-9081 215-482-3536 Champions Forest Plaza
281-444-8420
MISSOURI Rye Pittsburgh
Kansas City Purchase Street Fifth Avenue Place River Oaks Center
Country Club Plaza 914-925-2503 412-471-6556 713-524-4787
816-931-3777
Stony Brook The Galleria at Southpointe Village Arcade
St. Louis Stony Brook Village 412-571-0122 Shopping Center
St. Louis Galleria 516-689-6426 713-527-8220
314-725-9099 RHODE ISLAND
White Plains Cranston San Antonio
NEBRASKA The Westchester Mall Garden City Center Alamo Quarry Market
Omaha 914-328-2628 401-946-0450 210-828-1718
One Pacific Place
402-391-2771 Woodbury Newport Huebner Oaks Center
Woodbury Commons Thames Street 210-558-7690
NEVADA Shopping Center 401-849-8286
Las Vegas 516-692-5098 The Rivercenter
Fashion Show Mall SOUTH CAROLINA 210-227-5954
702-791-3661 NORTH CAROLINA Charleston
Charlotte The Shops at UTAH
NEW JERSEY SouthPark Mall Charleston Place Provo
Hackensack 704-365-1005 843-937-8218 Shops at Riverwoods
Riverside Square 801-802-7917
201-525-1893 Raleigh Hilton Head
Crabtree Valley Mall Coligny Plaza Salt Lake City
Paramus 919-571-0109 843-686-6300 Crossroads Plaza
Paramus Park 801-328-2424
201-262-1844 OHIO Mall at Shelter Cove
Beachwood 843-785-4780 VERMONT
Beachwood Place Mall Burlington
216-831-6030 Church Street
802-860-1499
</TABLE>
<TABLE>
<S> <C>
VIRGINIA
Alexandria
King Street
703-535-1050
Charlottesville
Barracks Road
Shopping Center
804-295-4085
Fairfax
Fair Oaks
703-352-3698
Norfolk
MacArthur Center
757-627-4460
Reston
Reston Town Center
703-925-0856
WASHINGTON
Bellevue
Bellevue Square
425-454-4654
Redmond
Redmond Town Center
425-869-1875
Seattle
Pacific Place
206-624-5549
WYOMING
Jackson
Crabtree Corner
307-734-9141
COMING SOON:
Brea, CA ~ May
Birch Street Promenade
Los Gatos, CA ~ May
Old Town at Los Gatos
Chicago, IL ~ June
Halsted Road
West Palm Beach, FL ~ June
Clematis Street
Columbus, OH ~ June
Easton Town Center
Atlanta, GA ~ August
Avenue at East Cobb
Marlton, NJ ~ October
Marlton Square
VISIT US ONLINE
www.chicos.com
</TABLE>
27
<PAGE> 30
REPORTS ON FORM 10-K
A copy of the Company's annual report to the Securities and Exchange Commission
on Form 10-K will be sent to any shareholder without charge upon written
request to Investor Relations at the current
mailing address or website 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, P.A.
Tampa, Florida
Independent Certified Public Accountants:
Arthur Andersen LLP
Tampa, Florida
*
Annual Shareholders' Meeting:
Tuesday, June 8, 1999 at 2:00 p.m.
South Seas Resort
Captiva, Florida
CHICO'S(R) FAS, Inc.
<TABLE>
<CAPTION>
Executive Officers Directors
*** ***
<S> <C>
Marvin J. Gralnick Marvin J. Gralnick
Chief Executive Officer Chairman of the Board
President
Helene B. Gralnick
Helene B. Gralnick Senior Vice President - Design & Concept
Senior Vice President - Design & Concept
Charles J. Kleman
Charles J. Kleman Chief Financial Officer
Chief Financial Officer Executive Vice President - Finance
Executive Vice President - Finance Secretary/Treasurer
Secretary/Treasurer
Verna K. Gibson
Scott A. Edmonds Partner-Retail Options, Inc.
Senior Vice President - Operations
Assistant Secretary Ross E. Roeder
Chairman and Chief Executive Officer - Smart & Final, Inc.
John W. Burden
Retailing Consultant
</TABLE>
28
<PAGE> 31
[PICTURE - INSIDE BACK COVER OF ANNUAL REPORT]
<PAGE> 32
[PICTURE - BACK COVER OF ANNUAL REPORT]
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Registrant
Chico's Distribution, Inc., a Florida corporation
Chico's Concept, Inc., a Florida corporation
Chico's Media, Inc., a Florida corporation
<PAGE> 1
EXHIBIT 23
ARTHUR ANDERSEN LLP (LOGO)
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 included in or
made a part of this Form 10-K, into the Company's previously filed Registration
Statements (File Nos. 33-660524, 33-63822, 33-83840, 333-51297, 333-69643 and
333-69645).
/s/ Arthur Andersen LLP
Tampa, Florida
April 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
AUDITED FINANCIAL STATEMENTS OF CHICO'S FAS, INC. FOR THE FIFTY-TWO WEEKS ENDED
JANUARY 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-30-1999
<EXCHANGE-RATE> 1
<CASH> 14,484,776
<SECURITIES> 0
<RECEIVABLES> 1,149,078
<ALLOWANCES> 0
<INVENTORY> 10,105,153
<CURRENT-ASSETS> 27,835,892
<PP&E> 27,667,014
<DEPRECIATION> 8,001,753
<TOTAL-ASSETS> 49,000,076
<CURRENT-LIABILITIES> 7,983,998
<BONDS> 6,713,045
0
0
<COMMON> 83,930
<OTHER-SE> 34,219,103
<TOTAL-LIABILITY-AND-EQUITY> 49,000,076
<SALES> 106,741,593
<TOTAL-REVENUES> 106,741,593
<CGS> 44,196,426
<TOTAL-COSTS> 44,196,426
<OTHER-EXPENSES> 47,411,057
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 151,002
<INCOME-PRETAX> 14,983,108
<INCOME-TAX> 5,844,000
<INCOME-CONTINUING> 9,139,108
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,139,108
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.07
</TABLE>
