1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended February 1, 2003
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to ___________________
Commission file number 1-7288
THE BOMBAY COMPANY, INC.
(Exact name of registrant as specified in its charter)
A Delaware Corporation 75-1475223
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
550 Bailey Avenue
Fort Worth, Texas 76107
(Address of principal executive (Zip Code)
offices)
(Registrant's telephone number, including area code)
(817) 347-8200
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, Par Value, New York Stock Exchange
$1 Per Share
Securities registered pursuant to Section 12(g) of the Act:
NONE
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.____
The aggregate market value of the voting stock held by nonaffiliates of the
registrant based on the closing price of the stock on August 3, 2003 was
approximately $92,359,634.
Shares outstanding at April 5, 2003: Common Stock, $1 Par Value: 33,629,036
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Definitive Proxy Statement for the Annual Meeting to be held
May 15, 2003 (as expressly incorporated by reference in Part III).
Page 1 of 41
2
FORM 10-K
PART I
ITEM 1. BUSINESS.
(a) General Development of Business
The Bombay Company, Inc. and its wholly-owned subsidiaries (the "Company" or
"Bombay") design, source and market a unique line of fashionable home
accessories, wall decor and furniture through a network of retail locations
throughout the United States and Canada, through specialty catalogs, over the
Internet and internationally through licensing arrangements.
Bombay's unique position in the market place is a result of its core
competencies in design, sourcing and importing. Approximately 90% of its
product is sourced from approximately 20 foreign countries. Over 95% of the
product has been designed or styled to Bombay's specifications.
The Company is taking the opportunity to expand its product offering to a line
of children's furniture, textiles and accessories. Following its introduction
through catalog and Internet in Fiscal 2001, the Company opened its first five
BombayKIDS stores during Fiscal 2002. Four of these stores reflect a
combination format with a BombayKIDS store adjacent to a core Bombay store.
The Company intends to open 25 to 30 BombayKIDS stores in the next year, and
grow this portion of the business to over 100 stores over the next three years.
In addition to its primary retail operations, the Company has other operating
initiatives underway which contributed incrementally to profitability but which
were not significant to the Company's operations in Fiscal 2002. Unless
specified otherwise, the discussions in this Annual Report on Form 10-K relate
to the Bombay retail operations, including BombayKIDS and outlets.
(b) Financial Information About Segments
The Company operates primarily in one business segment as a multi-channel
retailer selling decorative home furnishings, furniture and related items.
(c) Narrative Description of Business
Merchandise Sales, Purchasing and Distribution
Bombay operates a chain of stores, located primarily in regional shopping
malls, certain secondary malls and selected urban and suburban locations. As
of February 1, 2003, there were 370 Bombay stores in 42 states in the United
States and 52 stores in nine Canadian provinces. Bombay also markets its
products through its mail order operations in the United States and Canada and
through e-commerce over the Internet at www.bombaycompany.com and
www.bombay.ca.
The Company offers a diverse selection of products consisting of approximately
4,400 stock keeping units ("SKUs") of which over 95% of the product has been
designed or styled to Bombay's specifications. Bombay's proprietary product
offers unique design, quality and exceptional value to a wide audience of
consumers. The Company regularly updates its merchandise assortment by
introducing new products while discontinuing others. The Company has a fashion
component to its product offerings, primarily in the accessory and wall
d{e'}cor areas, which is introduced seasonally. Other products with longer
lives are discontinued as they approach the end of their life cycles.
Approximately 2,600 new SKUs were introduced in both Fiscal 2002 and Fiscal
2001. Typically, new product introductions are concentrated during the
Company's spring, fall and Christmas marketing periods. The principal
categories of merchandise include the following:
Furniture - The Company sells two broad categories of furniture as described
below. Bombay's furniture is manufactured by contract manufacturers located
principally in China, Taiwan, Malaysia, the Philippines, Indonesia and India.
Occasional Furniture - This category includes wood and metal hall
tables, end and coffee tables, plant stands and other small accent tables,
stands and curios that are ready-to-assemble, take home products.
Occasional furniture represented 12%, 12% and 8% of total sales in Fiscal
2002, 2001 and 2000, respectively.
Large Furniture - This category includes both wood and metal
furniture focusing on the bedroom, living room, dining room and home
office. Many of the larger items are displayed in store and stocked in
the Company's distribution centers, available for store delivery typically
within ten days. Large furniture represented 32%, 31% and 37% of total
sales in Fiscal 2002, 2001 and 2000, respectively.
3
Accessories - This is the broadest category and represented 43%, 43% and 41% of
total sales in Fiscal 2002, 2001 and 2000, respectively. This category
includes both functional and decorative accessories including lamps, jewelry
and memorabilia boxes, baskets, crystal, ceramics, frames and desktop items,
textiles, floral, candles and holiday. The items are imported from over 15
countries in Asia, North America and Europe.
Wall Decor - This category includes prints, mirrors and wall
accessories, which represented 13%, 14% and 14% of total sales in Fiscal 2002,
2001 and 2000, respectively. This merchandise is sourced primarily from the
United States, various countries in Asia and Canada.
Merchandise is manufactured to Company specifications through a network of
contract manufacturers located principally in Asia and North America.
Approximately 90% of production needs are sourced from foreign countries. The
Company has branch offices located in Taiwan, Malaysia, Indonesia, China and
Vietnam and utilizes agents in various countries to locate prospective vendors,
coordinate production requirements with manufacturers and provide technical
expertise and quality control.
Bombay is not dependent on any particular supplier and has had long standing
relationships with many of its vendors. Over 65% of the Company's merchandise
requirements are supplied by 35 contract manufacturers in 11 countries. No
long-term production agreements are in place; however, agreements are generally
in place with major manufacturers that prohibit the production of proprietary
product for other parties. Additional manufacturing capacity and alternative
sources, both domestic and international, continue to be added through new
vendors and plant expansions by existing vendors. The Company does business
with its vendors principally in United States currency and has not historically
experienced any material disruptions as a result of any foreign political,
economic or social instabilities.
Usually it takes several months from the time a merchandise order is placed
with a manufacturer until the goods are received at regional distribution
centers in the United States and Canada. Depending on the category, the source
country and whether an item is new or a reordered product, lead times can vary
from as little as two months to as much as twelve months from order placement
until arrival at the stores. Order times are slightly less for North American
manufacturers principally due to shorter shipping times. Lead times may also
be impacted by seasonality factors especially in months when manufacturers are
producing at or near peak capacity to meet seasonal demands. As a result,
Bombay strives to maintain an adequate inventory position in its distribution
centers to ensure a sufficient supply of products to its customers.
Store inventories are replenished from regional distribution centers located in
Fort Worth, Texas; McDonough, Georgia; Gilbertsville, Pennsylvania; Mira Loma,
California and Mississauga, Ontario. The Company plans to open a 300,000 square
foot distribution center in Plainfield, Indiana during the third quarter of
Fiscal 2003. The distribution centers are strategically located and provide
the capability to replenish the majority of store inventories within 48 hours
of when the order is processed. The Company uses dedicated trucks and less-
than-truckload carriers to transport its product from its distribution centers
to the stores.
Channels of Distribution
RETAIL
Stores and Real Estate
Historically, the Company has located its stores primarily in regional shopping
malls, certain secondary malls and selected urban and suburban locations that
satisfy its demographic and financial return criteria. Over the next two
years, 188 of the Company's store leases will come up for renewal. The Company
is currently pursuing an off-mall strategy focusing on open-air lifestyle
centers, high-end strip and to a lesser extent street locations. Such
locations offer the opportunity to lower occupancy costs, improve operating
efficiencies and provide a more convenient shopping experience for our
customer. The Company's preference is to identify locations where it can
operate a combined Bombay and BombayKIDS store, thereby realizing economies
that come with a larger location while attracting a new and younger customer to
Bombay.
In selecting store locations, the Company's real estate department conducts
extensive analyses of potential store sites and bases its selection on the
performance of other specialty retail tenants, the size of the market and the
demographics of the surrounding area. In evaluating a store location,
placement of the store relative to retail traffic patterns and customer base of
other retailers in the nearby vicinity are important considerations.
Significant attention is given to visual merchandising opportunities to
maximize the ability to display product in the most attractive setting.
Currently 79% of the stores are mall based. The Company will seek out the most
potentially profitable locations for the opening of new stores regardless of
the venue. The Company is currently targeting 8,500 square foot locations where
it can construct a Bombay store of approximately 4,500 square feet and a
BombayKIDS store of approximately 4,000 square feet. Bombay mall stores are
slightly smaller in size currently averaging approximately 3,600 square feet.
New Bombay off-mall locations are expected to be in the 4,000 to 5,000 square
4
foot range while mall stores are expected to be in the 3,500 to 4,500 square
foot range. In addition to building new stores, the Company will continue to
selectively convert its existing regular stores, which average approximately
1,800 square feet to the larger format. As of February 1, 2003, there were 37
regular stores left in the chain.
At February 1, 2003, the store chain included a total of 46 outlet stores. The
Company views the use of outlets as an opportunity to increase sales to a
different customer base, to assist in the orderly clearance of merchandise and
to further capitalize on its strength in designing and sourcing proprietary
product.
Following is a table summarizing the Company's store activity and composition:
February 1 February 2 February 3
2003 2002 2001
Number of stores:
Beginning of year... 419 408 415
Opened.............. 28 32 10
Closed.............. 25 21 17
End of year......... 422 419 408
Store composition:
Large format....... 334 324 291
Regular............ 37 59 93
Outlet............. 46 36 24
BombayKIDS......... 5 - -
Retail square footage:*
Large format....... 1,297 1,244 1,116
Regular............ 68 107 163
Outlet............. 193 151 92
BombayKIDS......... 20 - -
Total.............. 1,578 1,502 1,371
* In thousands.
During Fiscal 2003, the Company plans to open approximately 75 to 85 new
stores, which includes 25 to 30 BombayKIDS stores and two outlet locations.
The Company plans to close 30 to 35 stores, ending the year with approximately
465 to 475 stores. For store count purposes, a combined Bombay and BombayKIDs
location represents two stores.
The Company's average cost of leasehold improvements, furniture, fixtures and
machinery for stores (excluding outlets) opened or converted in Fiscal 2002,
net of landlord allowances, was approximately $250,000 per store or $55 per
square foot. In addition, other investments, which consist primarily of
inventory in the store location, averaged approximately $95,000 per large
format store. The Company expects the average net cost of a BombayKIDs store to
be slightly higher than a Bombay large format store, in total and on a per
square foot basis due to higher fixturing costs. Inventory investment is
expected to average $100,000 for a BombayKIDs store. The average cost of
leasehold improvements, furniture, fixtures and machinery for outlet stores
opened in Fiscal 2002, net of landlord allowances, was approximately $105,000
per store while the inventory investment averaged approximately $75,000 per
store. Inventory physically in store is approximately 40% of the total
inventory investment on a per store basis. Bombay stores typically achieve
store level operating profitability during their first full year of operations
and reach maturity in three years.
5
As of February 1, 2003, 370 stores were operating in 42 states in the United
States and 52 stores were operating in nine provinces in Canada as illustrated
in the map below.
{The paper version of the Annual Report on Form 10-K contains herein a map
of the United States and Canada with states and provinces outlines, labeled
with the appropriate number of Bombay stores located in each, as follows:
UNITED STATES:
AL - 6 KY - 3 NY - 17
AR - 1 LA - 7 OH - 13
AZ - 5 MA - 11 OK - 5
CA - 48 MD - 10 OR - 2
CO - 6 MI - 10 PA - 16
CT - 7 MN - 4 RI - 1
DE - 2 MO - 5 SC - 6
FL - 36 MS - 3 TN - 11
GA - 18 NC - 12 TX - 30
IA - 1 NE - 1 UT - 3
ID - 1 NH - 4 VA - 15
IL - 14 NJ - 17 WA - 4
IN - 5 NM - 1 WI - 2
KS - 3 NV - 3 WV - 1
CANADA:
AB - 3 NB - 1 ON - 28
BC - 8 NF - 1 PQ - 7
MB - 1 NS - 2 SK - 1 }
6
Internet
The Company offers virtually all its retail SKUs for electronic commerce
through its websites for Bombay, BombayKIDS, Bombay Outlets and Bombay Canada,
which was launched in 2003. The Company continues to pursue various online
marketing partnerships to broaden its reach to additional customers. Business
to consumer revenues over the Internet were approximately $8 million in Fiscal
2002. The Company also maintains websites supporting its wholesale activities.
WHOLESALE
Bailey Street Trading Company - During Fiscal 2000, the Company created a
wholesale division, Bailey Street Trading Company ("Bailey Street"). The brand
is separate from Bombay and allows the Company to capitalize on its strengths
in product design, sourcing and importing. Current product offerings are
focused on furniture but may be expanded to include wall decor and accessories
in the future. Bailey Street distributes its merchandise to a variety of
customers including independent gift stores, catalogers, department stores,
furniture stores and mass merchants through a network of independent regional
sales representatives. During Fiscal 2002, Bailey Street exceeded its revenue
goals, reaching $8.4 million compared to $2.2 million in Fiscal 2001.
International - Bombay International, Inc. ("International") is the Company's
international licensing distribution channel. International operations have
extended to ten licensed stores as of the end of Fiscal 2002 operating in the
Middle East and the Caribbean. International revenues more than doubled to $3.5
million. In the short-term, the Company plans to continue expansion abroad
through licensing and distribution agreements in existing markets or with
current partners. During Fiscal 2003, approximately six to eight additional
International stores are planned to open by our licensees.
Intangibles
The Company owns a number of the trademarks and service marks used in its
business, including federal registrations for the marks "The Bombay Company"
and "Bombay", and the palm tree logo. The Company's trademarks are also
registered or are the subject of pending applications in a number of foreign
countries. Each registration is renewable indefinitely if the mark is still
in use at the time of renewal. Appropriate applications are on file for the
new wholesale business.
The Company believes that its trademarks have significant value and that these
marks enhance the Bombay{reg-trade-mark} brand and are instrumental in the
Company's ability to create, sustain demand for and market its product. From
time to time, the Company discovers products in the marketplace that are
counterfeit reproductions of the Company's product or that otherwise infringe
upon trademark or tradedress rights held by the Company. The Company has and
will continue to vigorously defend it rights under the marks as necessary.
Seasonality
Operating results are subject to seasonal variation. Historically, the largest
proportion of sales and substantially all of the income occurs in the fiscal
quarter that includes the Christmas season. Inventory balances are generally
built to their highest levels prior to the Christmas selling season.
Inventories decline and cash balances increase significantly in December due to
the Christmas business.
Competition
The home furnishings and decorative accessories market is highly fragmented.
The Company faces competition from furniture stores, department stores and
other specialty retailers. The Company believes that it competes primarily on
the basis of style, selection, quality and value of merchandise.
Employees
The Company has approximately 5,000 employees, which include approximately
3,000 part-time employees, and is not a party to any union contract. Employee
relations are considered to be good.
7
Risks and Uncertainties
All statements in this Annual Report on Form 10-K, including those incorporated
herein by reference, that do not reflect historical information are forward-
looking statements made in reliance upon the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: downward pressure in retail due to economic
pessimism and declining consumer sentiment; competition; seasonality; success
of operating initiatives; new product development and introduction schedules;
uninterrupted flow of product from overseas sources; acceptance of new product
offerings including children's merchandise; inherent safety of product
offerings; advertising and promotional efforts; adverse publicity; expansion of
the store chain; availability, locations and terms of sites for store
development; ability to renew leases on an economic basis; changes in business
strategy or development plans; availability and terms of borrowings or capital
for operating purposes; labor and employee benefit costs; ability to obtain
insurance at a reasonable cost; reliance on technology; security of the
technological infrastructure; changes in government regulations; risks
associated with international business; potential travel or import restrictions
due to communicable diseases; terrorism; war or threat of war; regional weather
conditions; hiring and retention of key management personnel and other risks
and uncertainties.
(d) Financial Information About Geographic Areas
The Company operates in one industry segment, specialty retailing.
Substantially all revenues result from the sale of home furnishings and
accessories through retail stores, mail order and Internet in the United States
and Canada. The Company's wholesale operations have been immaterial to the
operations and financial results of the Company to date. Long-lived assets
include all non-current assets except deferred taxes.
The following table shows net revenues and long-lived assets by geographic area
(in thousands):
Year Ended
February 1 February 2 February 3
2003 2002 2001
Net revenues:
United States $442,339 $388,789 $375,275
Canada 51,661 48,668 48,184
Total $494,000 $437,457 $423,459
Long-lived assets:
United States $46,201 $51,367 $53,448
Canada 4,040 4,226 4,006
Total $50,241 $55,593 $57,454
(e) Available Information
The Company makes available free of charge through its website,
http://www.bombaycompany.com, all materials that it files electronically with
the SEC, including the Company's annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as soon as reasonably practicable after electronically
filing such materials with, or furnishing them to, the SEC. During the period
covered by this Form 10-K, the Company made all such materials available
through its website as soon as reasonably practicable after filing or
furnishing such materials with the SEC.
Any materials filed by the Company with the SEC may also be read and copied at
the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549.
Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet
website, http://www.sec.gov, that contains reports, proxy and information
statements and other information which the Company files electronically with
the SEC.
8
ITEM 2. PROPERTIES.
The Company owns its United States headquarters office complex of which it
occupies approximately 87,000 square feet. The Company leases stores,
distribution centers, regional and Canadian offices under numerous operating
leases. Owned and leased facilities are summarized following:
Square Feet
Description Owned Leased
Stores:
Outlet -- 193,000
Regular -- 103,000
Large format -- 1,282,000
Distribution centers:
Mira Loma, CA -- 156,000
McDonough, GA -- 254,000
Gilbertsville, PA -- 300,000
Fort Worth, TX -- 350,000
Mississauga, ON, CAN -- 114,000
Offices and storage:
Mississauga, ON, CAN... -- 9,000
Regional sites... -- 2,000
Fort Worth, TX 121,000 24,000
121,000 2,787,000
Leases generally have 10 year terms, expiring between 2003 and 2013. Rents
under the store leases are generally based upon a minimum rental plus a
percentage of the store sales in excess of specified levels. Store lease terms
generally require additional payments covering taxes, common area charges and
certain other costs. Rental expense for Fiscal 2002, Fiscal 2001 and Fiscal
2000 totaled $50,669,000, $47,366,000 and $45,137,000, respectively.
As of the end of Fiscal 2002, the minimum rental commitments for future fiscal
years related to real estate properties totaling $206,508,000. Subsequent to
the end of the year, the Company entered into leases with an aggregate
commitment of $21,301,000. Commitments by year are as follows (in thousands):
Subsequent Total at
February 1 to April 15
Fiscal 2003 Year End 2003
2003 $43,388 $858 $44,246
2004 32,642 1,958 34,600
2005 25,417 1,958 27,375
2006 23,502 2,030 25,533
2007 22,043 2,119 24,162
Thereafter in total 59,516 12,378 71,893
$206,508 $21,301 $227,809
Bombay believes that the insurance coverage maintained on all properties is
adequate.
ITEM 3. LEGAL PROCEEDINGS.
The Company has certain contingent liabilities resulting from litigation and
claims incident to the ordinary course of business. Management believes that
the probable resolution of such contingencies will not materially affect the
financial position or results of operations of the Company.
On February 13, 2003, the Company agreed to settle a wage and hour lawsuit in
California. The action alleged that the Company had improperly classified its
California store managers as exempt from overtime pay and sought to recoup such
pay on behalf of the class. In order to avoid the expense of the litigation,
the Company agreed to settle the action for approximately $1,350,000, subject
to final documentation and judicial approval in due course. The settlement was
included in selling, general and administrative expenses during the Company's
Fiscal 2002 fourth quarter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the fourth
quarter of Fiscal 2002.
9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) The principal market for the registrant's common stock is the New York
Stock Exchange. The high and low trading prices, quoted by fiscal quarter,
follow:
Year ended Year ended
February 1, 2003 High Low February 2, 2002 High Low
First quarter $4.45 $2.14 First quarter $3.29 $2.26
Second quarter 5.25 2.61 Second quarter 3.65 2.50
Third quarter 3.10 2.15 Third quarter 3.13 2.01
Fourth quarter 5.95 2.96 Fourth quarter 2.88 2.10
(b) The approximate number of record holders of common stock on March 31,
2003 was 2,000.
(c) The Company has bank credit agreements with restrictions related to
payment of dividends. The Company has not paid dividends the past two
years and will continue to utilize available funds primarily for the
expansion of its retail stores and operating purposes.
(d) The information required by this item appears under the caption "Approval
of the Executive Management Incentive Compensation Plan, as
Amended Proposal 2)" in the Definitive Proxy Statement of The Bombay
Company, Inc. relating to the Company's Annual Meeting of Shareholders,
which information is incorporated by reference.
10
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data has been derived from the consolidated
financial statements of The Bombay Company, Inc. The data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's consolidated
financial statements and notes thereto.
Year Ended
Financial Data: February 1 February 2 February 3 January 29 January 30
2003 2002 2001 2000 1999
Net revenues* $494,000 $437,457 $423,459 $392,578 $358,565
Net revenues
increase 13% 3% 8% 9% 7%
Same store sales
increase(decrease) 5% (2)% 5% 5% 6%
Net income* $7,217 $3,724 $8,645 $7,342 $4,010
Basic and diluted
earnings per share $.22 $.11 $.26 $.20 $.11
Total assets* $236,189 $206,889 $206,651 $201,872 $193,519
Stockholders'
equity* $169,408 $158,707 $154,727 $156,248 $156,143
Return on average
assets 3.3% 1.8% 4.2% 3.7% 2.1%
Return on average
equity 4.4% 2.4% 5.6% 4.7% 2.6%
Operating Data:
Average sales per
store open for
full fiscal year* $1,098 $1,012 $1,012 $926 $863
Average sales per
square foot $296 $288 $306 $288 $278
Number of stores:
Beginning of year 419 408 415 412 415
Opened 28 32 10 19 15
Closed 25 21 17 16 18
End of year 422 419 408 415 412
Store composition:
Large format 334 324 291 270 251
Regular 37 59 93 125 148
Outlet 46 36 24 20 13
BombayKIDS 5 - - - -
Retail square
footage:*
Large format 1,297 1,244 1,116 1,049 989
Regular 68 107 163 216 253
Outlet 193 151 92 72 50
BombayKIDS 20 - - - -
Total 1,578 1,502 1,371 1,337 1,292
The Company has paid no cash dividends during the periods presented.
* In thousands.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
General
The Bombay Company, Inc. ("Company" or "Bombay") designs, sources and markets a
unique line of fashionable home accessories, wall d{e'}cor and furniture
through 422 retail stores in 42 states in the United States and nine Canadian
provinces, through specialty catalogs and over the Internet principally in the
U.S. and Canada. Merchandise is manufactured to Company specification through a
network of contract manufacturers in approximately 20 countries located
principally in Asia and North America.
In addition to its primary retail operations, the Company has several other
operating initiatives underway, all of which contributed incrementally to
profitability but which were not significant to the Company's operations in
Fiscal 2002.
Following its introduction through catalog and Internet in Fiscal 2001, the
first BombayKIDS stores, featuring children's furniture, textile and accessory
collections, were opened in Fiscal 2002. Four of these stores reflect a
combination format with a BombayKIDS store adjacent to a core Bombay store.
Sales of BombayKIDS product, both through store locations as well as direct
marketing, increased to $8.2 million from $1.9 million last year. With the
success and potential of this product line, the Company intends to open 25 to
30 BombayKIDS stores in the next year, and grow this portion of the business to
over 100 stores over the next three years.
Bailey Street Trading Company ("Bailey Street"), which represents the Company's
wholesale operations, began in Fiscal 2000. During Fiscal 2002, Bailey Street
exceeded its revenue goals, reaching $8.4 million in Fiscal 2002 compared to
$2.2 million in Fiscal 2001. Bailey Street continues to expand its customer
base which includes independent gift stores, catalogers, department stores,
furniture stores and mass merchants.
Bombay International, Inc. ("International") has expanded to ten licensed
stores currently operating in the Middle East and the Caribbean. International
revenues more than doubled in Fiscal 2002, to $3.5 million. By partnering with
strong licensees in opportunistic markets, International continues to offer the
Company the potential for growth with limited capital investment. During Fiscal
2003, approximately six to eight additional International stores are planned to
open.
The largest percentage of the Company's sales and operating income is realized
in the fiscal quarter that includes December (Christmas season).
Because the majority of the Company's products are proprietary, the impact of
inflation on operating results is typically not significant. The Company
attempts to alleviate inflationary pressures by improving designs, finding
alternative production sources in lower cost countries and increasing selling
prices (subject to competitive conditions).
The Company has a retail (52-53 week) fiscal year that ends on the Saturday
nearest January 31. Fiscal 2002 and Fiscal 2001 represent 52 week periods while
Fiscal 2000 included 53 weeks.
Special Note Regarding Forward-Looking Statements
Certain statements in this Annual Report to Shareholders under "Management's
Discussion and Analysis" constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: downward pressure in retail due
to economic pessimism and declining consumer sentiment; competition;
seasonality; success of operating initiatives; new product development and
introduction schedules; uninterrupted flow of product from overseas sources;
acceptance of new product offerings including children's merchandise; inherent
safety of product offerings; advertising and promotional efforts; adverse
publicity; expansion of the store chain; availability, locations and terms of
sites for store development; ability to renew leases on an economic basis;
changes in business strategy or development plans; availability and terms of
borrowings or capital for operating purposes; labor and employee benefit costs;
ability to obtain insurance at a reasonable cost; reliance on technology;
security of the technological infrastructure; changes in government
regulations; risks associated with international business; potential travel or
import restrictions due to communicable diseases; terrorism; war or threat of
war; regional weather conditions; hiring and retention of key management
personnel and other risks and uncertainties.
12
NET REVENUES
Net revenues consist of sales to retail customers and wholesale sales through
Bailey Street and to our international licensees as well as shipping fees.
Shipping fees reflect revenue from customers for delivery of merchandise.
(In millions)
Fiscal Fiscal Fiscal
2002 2001 2000
Sales................. $489.4 $434.7 $421.5
Shipping.............. 4.6 2.8 2.0
Total.............. $494.0 $437.5 $423.5
Fiscal 2002
Net revenues increased $56.5 million, or 13%, to $494.0 million, compared to
$437.5 million in Fiscal 2001. Revenues from retail operations increased $48.3
million, or 11%, from the prior year. Same store sales (stores in existence for
one year or more) increased 5% for the year. New stores also contributed to
revenue growth, as the Company opened 14 large format stores, 9 outlets and 5
BombayKIDS stores while expanding 2 stores from the regular to the large
format. Sales growth from new real estate activity was partially offset by
store closures. Internet and mail order revenues grew 73% to $20.6 million from
$11.9 million last year, fueled by sales of BombayKIDS product and improvement
made to the Company's website. The remainder of the increase was the result of
growth in the Company's wholesale operations. Bailey Street revenues increased
to $8.4 million in Fiscal 2002 from its prior year level of $2.2 million.
International revenues more than doubled to approximately $3.5 million in the
current year.
From a merchandise mix standpoint, all categories increased in dollars.
However, growth in furniture outpaced the other categories due to the improved
in-stock position and the improved selling environment for big ticket items
compared to last year. Sales in Fiscal 2002 consisted of 44% furniture, 43%
accessories and 13% wall decor. In Fiscal 2001, the sales mix was 43%
furniture, 43% accessories and 14% wall decor. The number of retail
transactions for the year increased 7% and the average ticket increased 4% to
$82 from $79 last year.
All regions of the U.S. and Canada reported mid single-digit same store sales
increases. At the end of Fiscal 2002, the Company had 334 large stores, 37
regular stores, 46 outlets and five BombayKIDS stores. During the year, 25
stores were closed. Total retail square footage increased 5% compared to year-
end Fiscal 2001, while the number of stores increased by a net 3 units.
Fiscal 2001
Net revenues increased $14.0 million, or 3%, to $437.5 million, compared to
$423.5 million in Fiscal 2000 primarily due to new store openings. During the
year, the Company opened 32 new stores, including 12 outlets, and 18 regular
stores were converted to the large store format. These increases were partially
offset by the closure of 21 stores. Same store sales declined 2% for the year.
The lack of a 53rd week during Fiscal 2001 adversely impacted sales comparisons
by approximately 2%. At the end of Fiscal 2001, the Company had 324 large
stores, 59 regular stores and 36 outlets resulting in a 10% increase in retail
square footage.
Our customers' resistance to big-ticket purchases during the year resulted in a
shift in the overall product mix. Furniture sales were 43% of the total during
Fiscal 2001 compared to 45% in Fiscal 2000. Accessories represented 43%
compared to 41% in the prior year, while wall d{e'}cor (principally prints,
mirrors and sconces) accounted for 14% in both years. Total transactions for
the year increased 2% while the average ticket remained constant at $79. The
growth in the accessories business resulted in an increase in the average
number of items per transaction year over year, offsetting the impact of shifts
in the product mix.
All regions of the U.S. and Canada reported low single-digit same store sales
declines for the year. Outlet stores continued to perform well during Fiscal
2001, reporting low single-digit same store sales gains.
13
COST OF SALES, BUYING AND STORE OCCUPANCY COSTS
(In millions)
Fiscal Fiscal Fiscal
2002 2001 2000
Cost of sales, buying
and occupancy costs $344.0 $309.6 $291.7
Shipping 5.6 3.9 2.3
Total $349.6 $313.5 $294.0
Fiscal 2002
Cost of sales, including buying and store occupancy costs, for Fiscal 2002 was
$349.6 million or 70.8% of revenues. As a percentage of revenues, these costs
declined from 71.7% in Fiscal 2001. Product margins declined 40 basis points as
the Company targeted key price points to drive volume. Buying and occupancy
costs were 19.1% of revenues, a 130 basis points decline, as a result of
leveraging costs against the stronger sales levels. Buying and occupancy costs
included impairment charges totaling $.7 million to write down the fixed assets
related to six unprofitable stores.
Fiscal 2001
Cost of sales, including buying and store occupancy costs, for Fiscal 2001 was
$313.5 million or 71.7% of revenues. As a percentage of revenues, these costs
increased from 69.4% in Fiscal 2000. Product margins declined 130 basis points
as a result of the more promotionally driven retail environment. Same store
sales declines, which contributed to lower sales per square foot, resulted in
negative leverage of the buying and occupancy costs.
These costs were 20.4% of revenues, an increase of 90 basis points compared to
the prior year. Buying and occupancy costs included an impairment charge of $.7
million to write down the fixed assets related to eleven unprofitable stores.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Fiscal 2002
Selling, general and administrative expenses were $132.3 million compared to
$117.6 million in Fiscal 2001. As a percentage of sales, expenses were slightly
lower at 26.8% in Fiscal 2002 compared to 26.9% in Fiscal 2001. Fiscal 2002
included a charge of $1.1 million relating to the departure of the Chief
Executive Officer and a $1.3 million charge related to the settlement of a
California wage and hour lawsuit. Excluding these charges, selling, general
and administrative costs were 26.3% of revenues. The Company was able to
leverage costs such as store payroll, depreciation and other fixed costs
against the higher revenue base. However, this leverage was somewhat offset by
increases in other areas including investments made in marketing, higher
insurance costs and higher credit card costs as a result of a change in private
label credit card provider.
Fiscal 2001
Selling, general and administrative expenses were $117.6 million compared to
$115.6 million in Fiscal 2000. Although the dollars increased $2.0 million or
1.8%, as a percentage of revenues, selling, general and administrative costs
declined from 27.3% in Fiscal 2000 to 26.9% in Fiscal 2001. The 40 basis point
decline is the result of strong controls over expenses throughout the year.
INTEREST
Fiscal 2002
During Fiscal 2002, the Company had interest income of $331,000 and interest
expense of $152,000, compared to interest income of $248,000 and interest
expense of $566,000 in Fiscal 2001. Improvement resulted from higher average
cash balances generated through higher sales and profits, lower capital
expenditures and lower average inventory levels, resulting in lower utilization
of the credit facility. In addition, borrowings were at lower interest rates.
Fiscal 2001
The Company had interest income of $248,000 and interest expense of $566,000,
compared to interest income of $967,000 and interest expense of $424,000 in
Fiscal 2000. Changes in interest amounts resulted from lower average cash
balances and greater utilization of credit facilities due to the Company's
lower operating profits, higher average inventory levels and capital
expenditures.
14
INCOME TAXES
The Company provided income taxes of $5.1 million, $2.3 million and $5.8
million in Fiscal 2002, Fiscal 2001 and Fiscal 2000, respectively. The
effective rates were 41.2%, 38.6% and 40.0% in the respective periods.
Fluctuations in the effective rate were primarily related to foreign taxes that
change in accordance with earnings in the Canadian subsidiary and in state tax
expenses that have not changed proportionately to income before income taxes.
The increased effective rate during Fiscal 2002 was due primarily to a multi-
year tax settlement in Canada.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of liquidity and capital resources are cash flows from
operations and a line of credit with banks. The Company has an unsecured,
revolving credit agreement with a group of banks, with an aggregate commitment
of up to $50.0 million for working capital and letter of credit purposes. The
bank commitment is limited to 45% of saleable inventory. At February 1, 2003,
the bank commitment was $46.0 million, and $38.3 million was available for
borrowings or additional letters of credit. The credit facility expires July 5,
2005.
Fiscal 2002
At February 1, 2003, cash and short-term investments were $56.6 million, $18.2
million higher than at February 2, 2002. The primary sources of cash were net
income including non-cash depreciation and amortization expense, increases in
payables including those related to higher inventory purchases, taxes, payroll
and insurance as well as proceeds from the exercise of stock options. These
sources were partially offset by higher inventory levels and capital
expenditures for store construction and routine equipment purchases.
At February 1, 2003, inventory levels were $13.0 million higher than at the
previous year end due to improved flow of product to support the strong sales
trend experienced during the second half of Fiscal 2002, and to support
continued growth into Fiscal 2003.
Capital expenditures totaled $10.2 million and included the costs of 28 new
stores and the conversion of two regular stores to the larger format, as well
as continued investments in software and equipment. The capital expenditures
program for Fiscal 2003 is planned at approximately $30 to $35 million with the
majority relating to the Company's store opening plans. The Company plans to
open approximately 75 to 85 new stores including 25 to 30 BombayKIDS stores.
Generally, a new or converted store is profitable in its first full year of
operations. Approximately $4 to $5 million of the capital expenditures program
relates to improvement in information systems including the point-of-sale
software and communication infrastructure upgrades. Another $4 million of the
program has been allocated for distribution center investment to support
Company growth. A 300,000 square foot leased facility in the Midwest is
expected to open in the early fall, and the Company also plans to expand its
East Coast distribution center and replace outdated scanning devices. The
remainder relates to other routine purchases required in the normal course of
business.
In connection with continuing operations, the Company has various contractual
obligations and commercial commitments requiring payment in future periods,
summarized in the table below.
(In thousands)
Payments Due by Period
Less than 1-3 4-5 After 5
Total 1 Year Years Years Years
CONTRACTUAL OBLIGATIONS
Real estate operating
leases $206,508 $43,388 $81,561 $41,371 $40,188
Unconditional purchase
orders 170,025 170,025 - - -
Equipment operating
leases 1,216 614 602 - -
Employment
contracts 960 960 - - -
Other contractual
obligations 9,106 6,000 3,062 44 -
Total contractual
cash obligations $387,815 $220,987 $85,225 $41,415 $40,188
COMMERCIAL COMMITMENTS
Import letters of
credit $5,736 $5,736 $ - $ - $ -
Standby letters of
credit 1,957 1,957 - - -
Guarantees of travel
cards 75 75 - - -
Total commercial
commitments $7,768 $7,768 $ - $ - $ -
The Company intends to fund its operations and planned capital expenditures
program through its current cash position, cash flows from operations and
credit facility. With its current growth plans, the Company may have a need to
increase its credit facility or obtain alternative financing arrangements given
the current, favorable interest rate environment.
15
Fiscal 2001
At February 2, 2002, cash and short-term investments were $38.4 million, $16.3
million higher than at February 3, 2001. The primary sources of cash were net
income, including non-cash depreciation and amortization expense, and decreases
in inventory levels. These sources were partially offset by capital
expenditures for store construction and routine equipment purchases.
At February 2, 2002, inventory levels were $15.1 million lower than at the
previous year end reflecting the Company's conservative balance sheet
management during the second half of the year in light of economic
uncertainties and the events of September 11th. Capital expenditures totaled
$14.1 million and included the costs of 32 new stores and the conversion of 18
regular stores to the larger format, as well as continued investments in
software and equipment.
CRITICAL ACCOUNTING POLICIES
In the course of preparing the financial statements, management makes certain
judgments relative to accounting policies that are appropriate in the
circumstances and the application of those policies. The following policies
are those deemed to be most critical.
Inventory Valuation Policy
Inventories are valued at the lower of cost or market, cost being determined
based upon the weighted average inventory method. Cost is calculated based upon
the actual landed cost of an item at the time it is received in the warehouse
based upon actual vendor invoices or estimates of costs for which an invoice is
not present or for which an allocation of shared costs is required. In
addition, the Company includes the cost of warehousing and transporting product
to the stores in its costs.
The Company regularly evaluates its compliance with the lower of cost or market
principle. Items are evaluated by stock keeping unit ("SKU") and to the extent
that the cost of the item exceeds the current selling price, provision is made
to reduce the carrying cost of the item. Additionally, the Company reviews the
aging of its inventory by SKU. The carrying cost of the item is reduced based
upon certain age criteria and product category. Since the determination of
carrying value of inventory involves both estimation and judgment of cost and
market value, differences in these estimates could result in valuations that
vary from the recorded asset.
Each month, the Company records an allowance for shrinkage to provide for the
cost of lost or stolen inventory. The amount of the allowance is determined
based upon the historical shrinkage results and is adjusted at least annually
to reflect current circumstances. Inventory is physically counted at all
locations at least once each year, at which time actual results are reflected
in the financial statements. Physical counts were taken at all stores and all
the distribution centers during January 2003.
Impairment of Long-Lived Assets
Long-lived assets with definite lives are reviewed at least annually and
whenever events or changes in circumstances indicate that the carrying value of
the asset may not be recoverable. This review includes the evaluation of
individual under-performing retail stores and assessing the recoverability of
the carrying value of the fixed assets related to the store. Future cash flows
are projected for the remaining lease life using a probability-weighted
approach to estimate the fair value of the store assets. These projections
consider such factors as future sales levels, gross margins, changes in rent
and other expenses as well as the overall operating environment specific to
that store. If the estimated future cash flows are less than the carrying value
of the assets, a charge equal to the difference between the assets' fair value
and carrying value is recorded as an impairment. Since the projection of future
cash flows involves judgment and estimates, differences in circumstances or
estimates could produce different results.
Deferred Taxes
The Company currently has recorded $11.2 million of deferred tax assets
representing the difference between the timing of deductions taken for
financial statement purposes and for tax purposes. Underlying the assumption
that the benefit of those assets will be recoverable in some future period is
the concept that the Company will have future taxable income. If future
conditions indicate that the benefit of the deferred tax assets will not be
fully realized, a valuation allowance will be recorded to reduce the assets to
their estimated realizable value.
Insurance
The Company is self-insured with respect to medical and dental insurance
coverage offered to its eligible employees, up to a maximum of $125,000 per
claim. Above that amount, medical insurance coverage is in place. In
connection with the self-insured portion, the Company maintains a liability for
claims that are in the process of being paid and those that have been incurred
but not yet reported to the Company's insurance carrier. The amount of the
liability is estimated based upon historical claims experience and actuarial
estimates regarding the exposure for claims incurred but not yet reported. At
February 1, 2003, the balance of the medical and dental liability was $1.1
million.
16
Beginning in Fiscal 2001, the Company also maintains workers' compensation
insurance coverage with a deductible of $100,000 per claim. At February 1,
2003, the Company had recorded a liability of $2.3 million representing the
estimated amount that will have to be paid in future periods related to the
settlement of claims under the insurance policies for Fiscal 2002 and Fiscal
2001. The amount of the liability reflects expected remaining workers'
compensation claims based upon actuarial estimates made by the Company's
insurance carrier, utilizing historical claims experience and other relevant
information and trends. Prior to Fiscal 2001, the Company's workers'
compensation insurance was not subject to a deductible.
If circumstances change or if information becomes available that would indicate
that future payments with respect to insurance liabilities would be different
than what was previously estimated, such liabilities will be adjusted
accordingly. Since the amounts recorded for insurance liabilities are based
upon various estimates, actual future requirements could vary from the recorded
liabilities.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, Accounting for Asset Retirement
Obligations ("FAS 143"). FAS 143 requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The standard is
effective for the Company's financial statements beginning in the first quarter
of Fiscal 2003, and its adoption is not expected to have a significant impact
on the Company's consolidated financial position or results of operations.
In December 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation
- - Transition and Disclosure - an amendment of FASB Statement No. 123 ("FAS
148"). FAS 148 requires additional disclosure regarding stock-based
compensation both in annual and interim financial statements. The Company has
adopted the disclosure provisions of FAS 148.
17
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of February 1, 2003 the Company had no market risk sensitive instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The index to the consolidated financial statements is found on page 23. The
Company's consolidated financial statements and notes to the consolidated
financial statements follow the index.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
There have been no changes in or disagreements with accountants on accounting
or financial disclosures.
18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item appears under the captions "Election of
Directors", "Executive Officers of the Company" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Definitive Proxy Statement of The Bombay
Company, Inc. relating to the Company's Annual Meeting of Shareholders, which
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item appears under the captions "Executive
Compensation" and "Compensation of Directors" in the Definitive Proxy Statement
of The Bombay Company, Inc. relating to the Company's Annual Meeting of
Shareholders, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information required by this item appears under the captions "Approval of
the Executive Management Incentive Compensation Plan, as Amended (Proposal 2)"
and "Security Ownership" and in the Definitive Proxy Statement of The Bombay
Company, Inc. relating to the Company's Annual Meeting of Shareholders, which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item appears under the caption "Certain
Transactions" in the Definitive Proxy Statement of The Bombay Company, Inc.
relating to the Company's Annual Meeting of Shareholders, which information is
incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES.
Within 90 days prior to the date of this filing, an evaluation was performed
under the supervision and with the participation of the Company's management,
including the Executive Committee and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Rule 13a-14 under the Securities Exchange Act of
1934. Based upon that evaluation, the Chair of the Executive Committee and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures were effective in timely alerting them to material information
relating to the Company that is required to be included in periodic filings
with the Securities and Exchange Commission. There have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect internal controls subsequent to the date of the
evaluation.
19
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)The following documents are filed as a part of this Annual Report for The
Bombay Company, Inc. and its
subsidiaries:
(1)Financial Statements:
Report of Independent Accountants
Consolidated Statements of Income for the Years Ended February 1,
2003, February 2, 2002 and February 3, 2001
Consolidated Balance Sheets at February 1, 2003 and February 2, 2002
Consolidated Statements of Cash Flows for the Years Ended February 1,
2003, February 2, 2002 and February 3, 2001
Consolidated Statements of Stockholders' Equity for the Years Ended
February 1, 2003, February 2, 2002 and February 3, 2001
Notes to Consolidated Financial Statements
(2)Financial statement schedules not included in this Form 10-K Annual
Report have been omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
(3) Exhibits:
A list of exhibits required to be filed as part of this report is set
forth in the Index to Exhibits, which immediately precedes such
exhibits, and is incorporated herein by reference.
(b) Reports on Form 8-K.
The Securities and Exchange Commission requires the filing of a Form 8-K
for certain events specified under Sections 13 or 15(d) of the Securities
Exchange Act of 1934, for nonpublic information required to be disclosed
by Regulation FD, or for any other information which the Company deems of
importance to security holders. No reports on Form 8-K were filed during
the quarter ended February 1, 2003.
20
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.
THE BOMBAY COMPANY, INC.
(Registrant)
Date: April 16, 2003 /s/ BRIAN N. PRIDDY
Brian N. Priddy
Executive Vice President, Operations
Chairman, Executive Committee*
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Name Position Date
/s/ JAMES D. CARREKER Chairman of the Board April 17, 2003
James D. Carreker
Director
John H. Costello
/s/ GLENN E. HEMMERLE Director April 16, 2003
Glenn E. Hemmerle
/s/ JULIE L. REINGANUM Director April 17, 2003
Julie L. Reinganum
Bruce R. Smith Director
/s/ NIGEL TRAVIS
Nigel Travis Director April 17, 2003
/s/ ELAINE D. CROWLEY Senior Vice President, April 16, 2003
Elaine D. Crowley Chief Financial Officer
and Treasurer
* On August 20, 2002, the Company announced the resignation of its Chairman,
President and Chief Executive Officer. An Executive Committee of management
has been appointed to direct the Company's business until a new Chief Executive
Officer is named.
21
CERTIFICATION
I, Brian N. Priddy, certify that:
1. I have reviewed this annual report on Form 10-K of The Bombay Company,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operation and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: April 15, 2003
/s/ BRIAN N. PRIDDY
Brian N. Priddy
Executive Vice President, Operations
Chair, Executive Committee
22
CERTIFICATION
I, Elaine D. Crowley, certify that:
1. I have reviewed this annual report on Form 10-K of The Bombay Company,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operation and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: April 16, 2003
/s/ ELAINE D. CROWLEY
Elaine D. Crowley
Senior Vice President, Chief
Financial Officer and Treasurer
23
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page No.
Report of Independent Accountants 24
Consolidated Statements of Income for the Years Ended
February 1, 2003, February 2, 2002 and February 3, 2001 25
Consolidated Balance Sheets at February 1, 2003 and February 2, 2002
Consolidated Statements of Stockholders' Equity for the Years Ended
February 1, 2003, February 2, 2002 and February 3, 2001 27-28
Consolidated Statements of Cash Flows for the Years Ended February 1,
2003, February 2, 2002 and February 3, 2001 29
Notes to Consolidated Financial Statements 30-38
Unaudited Quarterly Financial Data 39
24
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
The Bombay Company, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index on page 23 present fairly, in all material respects, the
financial position of The Bombay Company, Inc. and its subsidiaries at February
1, 2003 and February 2, 2002, and the results of their operations and their
cash flows for each of the three years in the period ended February 1, 2003, in
conformity with accounting principles generally accepted in the United States
of America. 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 of these statements in
accordance with auditing standards generally accepted in the United States of
America which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Fort Worth, Texas
March 11, 2003
25
CONSOLIDATED STATEMENTS OF INCOME
The Bombay Company, Inc. and Subsidiaries
(In thousands, except per share amounts)
Year Ended
February 1 February 2 February 3
2003 2002 2001
Net revenues $494,000 $437,457 $423,459
Costs and expenses:
Cost of sales, buying and store
occupancy costs 349,599 313,484 294,043
Selling, general and
administrative expenses 132,305 117,589 115,559
Interest expense (income), net (179) 318 (543)
481,725 431,391 409,059
Income before income taxes 12,275 6,066 14,400
Provision for income taxes 5,058 2,342 5,755
Net income $7,217 $3,724 $8,645
Basic earnings per share $.22 $.11 $.26
Diluted earnings per share $.22 $.11 $.26
Average common shares outstanding 33,048 32,967 33,262
Average common shares outstanding
and dilutive potential common
shares 33,298 32,992 33,292
The accompanying notes are an integral part of these consolidated financial
statements.
26
CONSOLIDATED BALANCE SHEETS
The Bombay Company, Inc. and Subsidiaries
(In thousands, except shares)
February 1 February 2
2003 2002
ASSETS
Current assets:
Cash and cash equivalents (short-term investments
of $46,622 and $31,437 respectively) $56,608 $38,415
Inventories, at lower of cost or market 102,768 89,798
Other current assets 21,123 16,893
Total current assets 180,499 145,106
Property and equipment, at cost:
Land 892 892
Building 5,198 5,198
Leasehold improvements 81,827 80,291
Furniture and equipment 33,345 30,622
121,262 117,003
Accumulated depreciation (75,961) (68,290)
Net property and equipment 45,301 48,713
Deferred taxes and other assets 9,966 12,640
Goodwill, less amortization of $611 and $604,
respectively 423 430
Total assets $236,189 $206,889
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $37,202 $24,825
Income taxes payable 6,673 3,220
Accrued payroll and bonuses 7,192 5,015
Gift certificates redeemable 5,923 5,724
Accrued Insurance 3,609 2,456
Total current liabilities 60,599 41,240
Accrued rent and other liabilities 6,182 6,942
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value, 1,000,000 shares
authorized
Common stock, $1 par value, 50,000,000 shares
authorized, 38,149,646 shares issued 38,150 38,150
Additional paid-in capital 75,446 75,267
Retained earnings 76,361 69,144
Accumulated other comprehensive income (loss) (1,394) (1,776)
Common shares in treasury, at cost, 4,621,440
and 5,112,696 shares, respectively (18,918) (20,861)
Stock purchase loans and accrued interest (950)
Deferred compensation (237) (267)
Total stockholders' equity 169,408 158,707
Commitments and contingencies (Note 5)
Total liabilities and stockholders' equity $236,189 $206,889
The accompanying notes are an integral part of these consolidated financial
statements.
27 AND 28
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
The Bombay Company, Inc. and Subsidiaries
(In thousands)
Accumulated
Common Stock Treasury Stock Additional Stock Other Annual
Paid-In Purchase Deferred Retained Comprehensive Comprehensive
Shares Amount Shares Amount Capital Loans Comp. Earnings Income(Loss) Income
Total,
January 29, 2000 38,150 $38,150 (2,677) $(13,129) $76,082 $(617) $ - $56,775 $(1,013)
Purchases of
treasury shares - - (3,040) (10,303) - - - - -
Shares contributed
or sold to
employee benefit
plans - - 130 541 (250) - - - -
Director fee
distributions - - 2 7 (1) - - - -
Restricted stock
distributions - - 28 130 24 - - - -
Shares sold to
officers with stock
purchase loans - - 101 434 (120) (314) - - -
Interest charged on
stock purchase
loans - - - - - (60) - - -
Net income - - - - - - - 8,645 - $8,645
Foreign currency
translation
adjustments - - - - - - - - (254) (254)
Total,
February 3, 2001 38,150 38,150 (5,456) (22,320) 75,735 (991) - 65,420 (1,267) $8,391
Purchases of
treasury shares - - (39) (103) - - - - -
Shares contributed or
sold to employee
benefit plans - - 102 418 (225) - - - -
Director fee
distributions - - 30 123 (48) - - - -
Restricted stock
distributions - - 250 1,021 (195) - (552) - -
Deferred compensation
expense - - - - - - 285 - -
Collections of stock
purchase loans - - - - - 86 - - -
Interest (charges)
collections on
stock purchase
loans, net - - - - - (45) - - -
Net income - - - - - - - 3,724 - $3,724
Foreign currency
translation
adjustments - - - - - - - - (509) (509)
Total,
February 2, 2002 38,150 38,150 (5,113) (20,861) 75,267 (950) (267) 69,144 (1,776) $3,215
Purchases of
treasury shares - - (202) (895) - 864 - - -
Shares contributed
or sold to employee
benefit plans - - 66 271 (89) - - - -
Exercise of stock
options - - 596 2,438 45 - - - -
Director fee
distributions - - 77 313 3 - - - -
Restricted stock
distributions - - (45) (184) 220 - (44) - -
Deferred compensation
expense - - - - - - 74 - -
Net repayments of
stock purchase
loans - - - - - 103 - - -
Interest charges on
stock purchase
loans, net - - - - - (17) - - -
Net income - - - - - - - 7,217 - $7,217
Foreign currency
translation
adjustments - - - - - - - - 382 382
Total,
February 1, 2003 38,150 $38,150 (4,621) $(18,918) $75,446 $ - $(237) $76,361 $(1,394) $7,599
The accompanying notes are an integral part of these consolidated financial
statements.
29
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Bombay Company, Inc. and Subsidiaries
(In thousands)
Year Ended
February 1 February 2 February 3
2003 2002 2001
Cash flows from operating activities:
Net income $7,217 $3,724 $8,645
Adjustments to reconcile net income to
net cash from operations:
Depreciation 12,740 13,000 11,748
Amortization 2,743 3,472 3,003
Restricted stock compensation 66 298 98
Deferred taxes and other (1,543) (707) 248
Change in assets and liabilities:
(Increase) decrease in inventories (12,430) 14,090 (14,692)
(Increase) decrease in other current
assets (2,033) (807) (2,113)
Increase in accounts payable and
accrued expenses 13,624 50 256
Increase (decrease) in income taxes
payable 3,608 (2,700) 764
Increase (decrease) in accrued payroll
and bonuses 2,156 (607) 1,137
(Increase) decrease in noncurrent
assets 13 74 62
Increase in noncurrent liabilities (535) (563) 9
Net cash provided by operations 25,626 29,324 9,165
Cash flows from investing activities:
Purchases of property, equipment and
other (10,224) (14,127) (16,721)
Proceeds from sale of property and
equipment 289 614 375
Net cash used by investing activities (9,935) (13,513) (16,346)
Cash flows from financing activities:
Purchases of treasury stock (31) (103) (10,303)
Sale of stock to employee benefit plans 182 193 291
(Issuance) collection of stock purchase
loans 104 86 -
Exercise of stock options 2,328 - -
Net cash provided (used) by financing
activities 2,583 176 (10,012)
Effect of exchange rate change on cash (81) 271 176
Net increase (decrease) in cash and cash
equivalents 18,193 16,258 (17,017)
Cash and cash equivalents at beginning of
year 38,415 22,157 39,174
Cash and cash equivalents at end of year $56,608 $38,415 $22,157
Supplemental disclosures of cash flow
information:
Interest paid $152 $566 $424
Income taxes paid 2,298 5,687 4,254
Non-cash financing activities:
Distributions of director fees 316 75 6
Distributions of restricted stock 368 826 154
Loans issued to purchase Company stock - - 314
Repurchase of shares from stock purchase
loans 864 - -
The accompanying notes are an integral part of these consolidated financial
statements.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany transactions,
balances and profits have been eliminated. The Company has a retail (52-53
week) fiscal year which ends on the Saturday nearest January 31. The periods
ended February 1, 2003 ("Fiscal 2002") and February 2, 2002 ("Fiscal 2001")
represent 52 weeks. The period ended February 3, 2001 ("Fiscal 2000")
represents 53 weeks.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates. These estimates
affect reported amounts of assets, liabilities, revenues, expense and related
disclosures. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's Canadian operations is the Canadian
dollar. Fiscal year end exchange rates are used to translate assets and
liabilities to U.S. dollars. Monthly average exchange rates are used to
translate income and expenses. The cumulative effect of foreign currency
translation adjustments is reported in accumulated other comprehensive income
(loss) within stockholders' equity.
CASH AND CASH EQUIVALENTS
Cash in stores, deposits in banks and short-term investments with original
maturities of three months or less are considered as cash and cash equivalents
for the purposes of the financial statements. Short-term investments are
recorded at the lower of cost or fair market value.
INVENTORIES
Inventories are primarily finished merchandise and are valued at the lower of
cost or market, cost being determined based upon the weighted average inventory
method.
PROPERTY AND EQUIPMENT
Property and equipment are depreciated over the estimated useful lives of the
assets using the straight-line method over the lives shown:
Building Forty years
Furniture and equipment Two to ten years
Leasehold improvements The lesser of the life of the lease or asset
Maintenance and repairs are charged to expense as incurred. Renewals and
betterments which materially prolong the useful lives of the assets are
capitalized. The cost and related accumulated depreciation of property retired
or sold are removed from the accounts, and gains or losses are recognized in
the statements of income.
CAPITALIZED SOFTWARE COSTS
The Company capitalizes certain external and internal costs associated with
computer software and significant enhancements to software features of existing
products. The costs are amortized utilizing the straight-line method over the
estimated economic lives of the software, which range from three to seven
years. Total costs capitalized were $19,500,000 and $18,703,000 at February 1,
2003 and February 2, 2002, respectively. Accumulated amortization related to
these assets was $15,236,000 and $12,517,000 in Fiscal 2002 and Fiscal 2001,
respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
During Fiscal 2002, the Company adopted the provisions of Financial Accounting
Standards No. 144, Accounting for Impairment or Disposal of Long-Lived Assets
("FAS 144"). FAS 144 requires that long-lived assets with definite lives be
evaluated for impairment whenever conditions indicate that the carrying value
of the assets may not be recoverable. In determining if an impairment exists,
assets must be grouped at the lowest level for which there are identifiable
cash flows that are largely independent of cash flows from other groups of
assets. In performing this impairment test, the Company groups its assets at
the store level. If an impairment exists, the amount of the impairment is
measured as the difference between the carrying value and the estimated fair
value of the assets. The adoption of FAS 144 did not have a significant impact
on the Company's financial statements.
For periods prior to Fiscal 2002, assessment of impairment of long-lived assets
was determined in accordance with the provisions of Financial Accounting
Standards No. 121, which were similar to the provisions of FAS 144.
31
GOODWILL
During Fiscal 2002, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 142, Accounting for Goodwill and Other
Intangibles ("FAS 142"). FAS 142 provides that goodwill should no longer be
amortized, but should be tested for impairment at least annually, and whenever
conditions indicate that such an impairment could exist. Goodwill is tested for
impairment by comparing the estimated fair value of the Company's net assets to
their carrying value. If the carrying value exceeds the estimated fair value,
the implied value of goodwill will be calculated and an impairment loss will be
recognized. No impairment was recorded in Fiscal 2002. The adoption of FAS 142
did not have a significant impact on the Company's financial statements, nor
would it have had a significant impact on prior years if the provisions of FAS
142 had been applied.
REVENUE RECOGNITION
Revenue is recognized when delivery has occurred, the sales price is fixed or
determinable, and collectibility is reasonably assured. Revenues are net of
returns and exclude sales tax.
The Company includes in revenues amounts collected from customers for shipping
and handling orders. In Fiscal 2002, Fiscal 2001 and Fiscal 2000, these
revenues totaled $4,626,000, $2,779,000 and $1,945,000, respectively. The
associated shipping and handling expenses are included in cost of sales.
GIFT CERTIFICATES
Proceeds from the sale of gift cards and certificates are recorded as a
liability at the time they are received. When the holder of the card or
certificate redeems it for merchandise, the liability is relieved and revenue
is recognized.
ADVERTISING COSTS
Advertising costs are expensed the first time the advertising takes place.
During Fiscal 2002, Fiscal 2001 and Fiscal 2000, advertising expense was
$20,258,000, $14,597,000 and $14,701,000, respectively.
INCOME TAXES
The Company uses the liability method of computing deferred income taxes on all
material temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases. The
Company assesses realizability of deferred tax assets and, if necessary, a
valuation allowance is provided.
All unremitted earnings of the foreign subsidiary are considered to be
permanently reinvested. Accordingly, no U.S. deferred taxes have been provided
on such earnings.
COMPREHENSIVE INCOME
Comprehensive income represents the change in equity (net assets) of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. It includes all changes in equity during a period
except those resulting from investments by owners and distributions to owners.
Such amounts are included in accumulated other comprehensive income (loss)
within stockholders' equity and consist of the cumulative effect of foreign
currency translation adjustments.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, Accounting for Asset Retirement
Obligations ("FAS 143"). FAS 143 requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The standard is
effective for the Company's financial statements beginning in the first quarter
of Fiscal 2003, and its adoption is not expected to have a significant impact
on the Company's consolidated financial position or results of operations.
In December 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation
- - Transition and Disclosure - an amendment of FASB Statement No. 123 ("FAS
148"). FAS 148 requires additional disclosure regarding stock-based
compensation both in annual and interim financial statements. The Company has
adopted the disclosure provisions of FAS 148.
EARNINGS PER SHARE
Basic earnings per share are based upon the weighted average number of shares
outstanding. Diluted earnings per share are based upon the weighted average
number of shares outstanding plus the shares that would be outstanding assuming
exercise of dilutive stock options, unissued restricted stock and distribution
of deferred director compensation.
32
The computation for basic and diluted earnings from continuing operations per
share are as follows (in thousands, except per share amounts):
Year Ended
February 1 February 2 February 3
2003 2002 2001
Numerator:
Net income $7,217 $3,724 $8,645
Denominator for basic earnings per share:
Average common shares outstanding 33,048 32,967 33,262
Denominator for diluted earnings per share:
Average common shares outstanding 33,048 32,967 33,262
Stock options 227 1 -
Restricted stock 11
Deferred director compensation 23 24 19
33,298 32,992 33,292
Basic earnings per share $.22 $.11 $.26
Diluted earnings per share $.22 $.11 $.26
STOCK-BASED COMPENSATION
The Company applies the recognition and measurement principles of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations and the disclosure-only provisions of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("FAS
123") in accounting for its stock-based incentive plans. No compensation
expense related to grants of stock options has been reflected in net income, as
all options granted under the plans had an exercise price equal to the market
price of the Company's common stock on the date of grant. Compensation expense
related to grants of restricted stock is measured as the quoted market price of
the Company's common stock at the measurement date, amortized to expense over
the vesting period. The following table illustrates the effect on net income
and earnings per share if the Company had applied the fair value recognition
provisions of FAS 123 to stock-based compensation (in thousands):
Year Ended
February 1 February 2 February 3
2003 2002 2001
Net income as reported $7,217 $3,724 $8,645
Stock-based compensation expense
determined under FAS 123, net of tax (925) (964) (1,124)
Net income, pro forma $6,292 $2,760 $7,521
Basic earnings per share, as reported .22 .11 .26
Diluted earnings per share, as reported .22 .11 .26
Basic earnings per share, pro forma .19 .08 .23
Diluted earnings per share, pro forma .19 .08 .23
NOTE 2 - STORE IMPAIRMENTS AND CLOSING LIABILITY
Following the holiday selling season, the Company reviewed its real estate
portfolio for impairment, focusing on store locations with operating losses. Of
the 422 Company owned stores open as of February 1, 2003, six stores were
identified for which the carrying amount of the store assets were not expected
to be recoverable. As a result of the review, the Company recorded an
impairment charge to buying and occupancy costs of $693,000. A similar review,
performed in Fiscal 2001, in accordance with FAS 121, resulted in a charge to
buying and occupancy costs of $715,000.
The Company previously had accrued a liability for obligations associated with
closing under-performing stores. At February 1, 2003 and February 2, 2002, the
liability was $0 and $342,000, respectively. Costs of $80,000 and $373,000 were
charged against the liability in Fiscal 2002 and Fiscal 2001, respectively, and
the remaining balance of $262,000 was credited to buying and occupancy costs in
Fiscal 2002.
33
NOTE 3 - DEBT
The Company has an unsecured, revolving credit agreement with a group of banks,
with an aggregate commitment of up to $50,000,000. The Company has the option
to request an increase in the aggregate commitment to $75,000,000, subject to
approval by the banks, through the addition of another lending bank or
increased commitment by the existing lending banks. The facility, which expires
July 5, 2005, is for working capital, inventory financing and letter of credit
purposes. Borrowings under the facility can be made, at the Company's option
and subject to certain limitations, in the form of loans or by the issuance of
bankers' acceptances with respect to inventory purchases. Loans under the
facility bear interest, at the Company's option, at either the lead bank's
prime lending rate plus a margin of .5% to 1.0% or the LIBOR rate plus a margin
of 1.25% to 2.0%, with the margin depending on the Company's leverage ratio.
Under the terms of the agreement, the Company is required to maintain certain
financial ratios and other financial conditions. The agreement prohibits the
Company from making certain investments, advances or loans, and limits the
dollar amounts of capital expenditures, purchases of treasury shares, cash
dividends and asset sales. In the event that the Company is in default of
certain provisions of the agreement, the lenders would be permitted to file
liens against the Company's inventory located in the United States and perfect
the pledge of 65% of the stock of the Company's Canadian subsidiary, thereby
securing the indebtedness.
The bank commitment is limited to 45% of saleable inventory. At February 1,
2003, the bank commitment was $46,020,000. Letters of credit totaling
$7,694,000 were outstanding under the facility, and $38,326,000 was available
for borrowings or additional letters of credit. Interest expense and negotiated
fees for Fiscal 2002, Fiscal 2001 and Fiscal 2000, totaled $617,000, $884,000
and $610,000, respectively.
NOTE 4 - INCOME TAXES
The components of the provision for domestic and foreign income taxes are shown
below (in thousands):
Year Ended
February 1 February 2 February 3
2003 2002 2001
Income before income taxes:
Domestic $11,146 $5,447 $12,503
Foreign 1,129 619 1,897
$12,275 $6,066 $14,400
Provision (benefit) for income taxes:
Current:
Federal $5,065 $2,290 $3,950
Foreign 884 339 919
State and local 498 147 387
6,447 2,776 5,256
Deferred (prepaid):
Federal (1,303) (423) 389
Foreign 57 29 44
State and loca (143) (40) 66
(1,389) (434) 499
Total provision for income taxes $5,058 $2,342 $5,755
The effective tax rate differs from the federal statutory tax rate for the
following reasons:
Year Ended
February 1 February 2 February 3
2001 2003 2002
Federal statutory tax rate 34.0% 34.0% 35.0%
Increase in effective tax rate
rate due to:
Foreign income taxes 4.5 2.6 2.1
State and local taxes,
net of federal income tax benefit 1.9 1.1 2.2
Other, net .8 .9 .7
Effective tax rate 41.2% 38.6% 40.0%
34
Deferred taxes reflect the net tax impact of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
amounts used for income tax purposes. Deferred tax assets (liabilities) are
comprised of the following (in thousands):
February 1 February 2
2003 2002
Deferred tax liabilities ($1,426) ($1,279)
Deferred tax assets:
Accrued rent 2,374 2,617
Depreciation 2,998 2,391
Inventory valuation 1,625 2,014
Accrued insurance 1,270 813
Other 2,930 1,826
11,197 9,661
Net deferred tax assets $9,771 $8,382
Deferred tax assets, net of liabilities:
Current $4,322 $2,192
Non-current 5,449 6,190
Total $9,771 $8,382
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Store, distribution and field office facilities and equipment are leased under
operating leases expiring through 2013. The store leases are generally based
upon a minimum rental plus a percentage of the store sales in excess of
specified levels. Store lease terms generally require additional payments
covering taxes, common area changes and certain other costs. Rental expense
for Fiscal 2002, Fiscal 2001 and Fiscal 2000 totaled $50,669,000, $47,366,000
and $45,137,000, respectively.
The minimum rental commitments for future fiscal years are as follows (in
thousands):
Fiscal
2003 $44,002
2004 33,224
2005 25,437
2006 23,502
2007 22,043
Thereafter 59,516
$207,724
On February 13, 2003, the Company agreed to settle a wage and hour lawsuit in
California. The action alleged that the Company had improperly classified its
California store managers as exempt from overtime pay and sought to recoup such
pay on behalf of the class. In order to avoid the expense of the litigation,
the Company agreed to settle the action for approximately $1,350,000, subject
to final documentation and judicial approval in due course. The settlement was
included in selling, general and administrative expenses during the Company's
Fiscal 2002 fourth quarter.
The Company has certain contingent liabilities resulting from litigation and
claims incident to the ordinary course of business. Management believes that
the probably resolution of such contingencies will not materially affect the
financial position or results of operations of the Company.
The Company is party to employment agreements with certain executives which
provide for compensation and certain other benefits. The agreements also
provide for severance payments under certain circumstances.
35
NOTE 6 - EMPLOYEE BENEFIT PLANS
The Bombay Company, Inc. Employee 401(k) Savings and Stock Ownership Plan
("401(k) Plan") is open to substantially all employees who have been employed
for one year and who work at least 1,000 hours per year. Under the 401(k) Plan,
a participant may contribute up to 75% of earnings with the Company matching
100% of the initial 3% contribution, and 50% of the next 2% contributed by the
participant. Participant contributions and Company match are paid to a
corporate trustee and invested in various funds or Company stock, as directed
by the participant. Company matching contributions made to participants'
accounts are fully vested immediately. Similar benefit plans are in effect for
eligible foreign employees.
To the extent employees are unable to contribute up to 5% of their earnings to
the 401(k) Plan because of limitations imposed by IRS regulations, a
Supplemental Stock Program was adopted. Under this program, employee
contributions in excess of IRS limitations, along with Company matching
contributions, are distributed annually in the form of Company common stock.
The Bombay Company, Inc. Stock Purchase Program ("SPP") is open to all full-
time employees who have at least 90 days of service. Each participant may
contribute 1% to 10% of qualifying compensation, to a maximum annual
contribution of $21,250. Contributions are used to purchase shares of Company
common stock at a discount of 15% from current market rates. The participants'
shares are fully vested upon purchase. Participants` shares are held by a
third-party administrator until the respective participant requests a
distribution.
Total Company contributions to these plans for Fiscal 2002, Fiscal 2001 and
Fiscal 2000 were $723,000, $644,000 and $738,000, respectively.
NOTE 7 - COMMON STOCK AND STOCK OPTIONS
The Company's Board of Directors has authorized a stock repurchase program to
purchase up to an aggregate of $30 million of the Company's stock. The shares
may be purchased from time to time, through open market purchases and privately
negotiated transactions. During Fiscal 2002, Fiscal 2001 and Fiscal 2000,
13,000, 39,000 and 3,039,550 shares, respectively, were acquired at an
aggregate cost of $31,000, $103,000 and $10,303,000, respectively. Treasury
shares are used for various employee and director stock plans as the need
arises.
The Bombay Company, Inc. 1986 Stock Option Plan and 1996 Long Term Incentive
Stock Plan ("Employee Plans") provide for the granting of options (and other
types of stock-related awards under the 1996 plan) to officers and key
management employees. At February 1, 2003, the option shares reserved for the
Employee Plans were 5,678,763. The option price is fixed at the market price or
higher on the date of the grant. Options are generally exercisable annually at
a rate of 33% per year beginning one year after the grant date. Shares
available for additional grants were 2,432,019; 1,459,552 and 1,732,538 at
February 1, 2003, February 2, 2002 and February 3, 2001, respectively.
During Fiscal 2001, restricted stock aggregating 200,000 shares was granted
under the 1996 Long Term Incentive Stock Plan to three key executives. The
respective shares were to become vested in designated increments contingent
upon continued employment of the respective executive after 12 months, 24
months and 36 months. During Fiscal 2002, 40,000 of the shares became vested
and were distributed. Also in Fiscal 2002, two of the executives left the
employment of the Company and 120,000 restricted shares expired unvested. If
the third executive remains employed by the Company under the terms of the
grant, 15,000 and 25,000 shares will be vested in Fiscal 2003 and Fiscal 2004,
respectively. Compensation expense of $285,000 was recognized during Fiscal
2001, and in Fiscal 2002 net expenses of $87,000 were reversed in connection
with the restricted stock.
During Fiscal 2002, 75,000 shares of restricted stock were granted and issued
to the Chairman of the Board. One third of the shares vested upon his
acceptance of the position. Contingent upon continued Board service, one third
of the shares will become vested after 12 months and 24 months, respectively.
Compensation expense of $153,000 was recognized during Fiscal 2002 in
connection with the restricted stock. The Bombay Company, Inc. Non-Employee
Director Equity Plan ("Director Plan") provides for the granting of options to
members of the Board of Directors who are neither employees nor officers of the
Company. At February 1, 2003, the option shares reserved for the Director Plan
were 626,585. The option price is fixed at the market price on the date of the
grant. For Fiscal 2002, the option grant, initial and annual, was the lesser
of 8,000 shares or $75,000 in face value. The initial grant becomes exercisable
at a rate of 20% per year beginning one year after the grant date. Each
additional annual grant becomes fully exercisable six months after the grant
date. Shares available for additional grants were 325,196; 354,210 and 481,696
at February 1, 2003, February 2, 2002 and February 3, 2001 respectively.
36
The Director Plan also allows directors the option to receive retainer and
meeting fees in the form of Company common stock or to defer receipt of such
fees. Deferred amounts are credited to an account for such director in units
equivalent to Company common stock.
The following table includes option information for the Employee Plans and
Director Plan:
Weighted
Number Option Price Average
Stock Option Activity Of Shares Per Share Option Price
January 29 , 2000 2,857,385 $3.60-25.75 $5.67
Options granted 1,027,500 1.75-5.00 3.77
Options cancelled (207,644) 2.50-15.88 4.61
February 3, 2001 3,677,241 1.75-25.75 5.20
Options granted 1,157,200 2.35-4.00 2.77
Options cancelled (603,856) 2.31-25.75 4.83
February 2, 2002 4,230,585 1.75-25.75 4.59
Options granted 1,200,388 2.38-5.02 2.71
Options exercised (595,703) 2.65-5.44 3.91
Options cancelled (1,547,000) 2.38-25.75 4.55
February 1, 2003 3,288,270 1.75-25.75 4.05
Exercisable at:
February 3, 2001 2,100,473 3.60-25.75 5.60
February 2, 2002 2,502,548 1.75-25.75 5.27
February 1, 2003 1,821,900 1.75-25.75 4.96
The following table summarizes stock options outstanding at February 1, 2003:
OUTSTANDING EXERCISABLE
Weighted Weighted Weighted
Exercise Average Average Average
Price Remaining Exercise Exercise
Range Shares Life Price Shares Price
$ 1.75-2.48 637,700 9.0 $2.37 30,343 $ 2.18
2.55-2.94 730,153 8.2 2.77 280,644 2.76
3.00-3.94 940,376 7.1 3.75 635,871 3.81
4.00-4.95 469,341 5.7 4.54 372,675 4.53
5.00-5.94 105,963 5.9 5.40 99,630 5.42
6.00-6.75 264,380 5.5 6.52 262,380 6.52
7.25-25.75 140,357 1.5 12.99 140,357 12.99
3,288,270 7.1 $4.05 1,821,900 $ 4.96
The exercise of non-qualified stock options in Fiscal 2002 resulted in income
tax benefits of $155,000 which were credited to additional paid-in capital. The
income tax benefits are the tax effect of the difference between the market
price on the date of exercise and the option price.
37
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock - Based
Compensation ("FAS 123"). Accordingly, no compensation cost has been recognized
for options granted. Had compensation cost for the Company's stock option plans
been determined based on the fair value at the grant date for awards in Fiscal
1995 through Fiscal 2002 in accordance with the provisions of FAS 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below (in thousands, except per share amounts):
Year Ended
February 1 February 2 February 3
2003 2002 2001
Net income, as reported $7,217 $3,724 $8,645
Net income, pro forma 6,292 2,760 7,521
Basic earnings per share, as reported .22 .11 .26
Diluted earnings per share, as reported .22 .11 .26
Basic earnings per share, pro forma .19 .08 .23
Diluted earnings per share, pro forma .19 .08 .23
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model based upon the following assumptions:
Year Ended
February 1 February 2 February 3
2003 2002 2001
Expected volatility 63.9% 59.9% 59.8%
Expected life years 6 6 6
Expected dividends
Risk-free interest rate 3.8-5.8% 5.0-5.5% 5.2-6.8%
The weighted average fair value of options granted during Fiscal 2002, Fiscal
2001 and Fiscal 2000 was $1.71, $1.69 and $2.34, respectively.
NOTE 8 - SHAREHOLDERS' RIGHTS PLAN
The Company has a shareholders' rights plan under which each share of Company
common stock includes one Preferred Share Purchase Right ("Right") entitling
the holder to buy one one-thousandth of a share of Series A Junior
Participating Preferred Stock of the Company at an exercise price of $50. The
Rights, which have ten year terms expiring in 2005, are exercisable if a person
or group acquires 15% or more of the common stock of the Company or announces a
tender offer for 15% or more of the common stock. If a person or group acquires
15% or more of the outstanding common stock of the Company, each Right will
entitle the holder to purchase, at the Right's exercise price, a number of
shares of Company common stock having a market value of twice the Right's
exercise price. If the Company is acquired in a merger or other business
combination transaction after a person or group acquires 15% or more of the
Company's common stock, each Right will entitle its holder to purchase, at the
Right's exercise price, a number of shares of the acquiring company's common
stock having a market value of twice the Right's exercise price. The Rights are
redeemable at one cent per Right at any time before they become exercisable.
38
NOTE 9 - STOCK PURCHASE LOANS
On May 16, 2002, the Board of Directors elected to abolish the Company's
Executive Stock Loan Program, which originated in August 1999. Under the
program, certain executive officers were given the opportunity to borrow funds
for up to specified amounts to be used to purchase shares of Company common
stock at current market prices. All principal and accrued interest on the loans
were payable at the end of a three year term. The loans were not collateralized
by the common stock, but the program provided that if any of the shares were
sold within three years following the date of purchase, any sales proceeds per
share over the purchase price per share would be payable to the Company unless
at the time of the sale all principal and accrued interest on the loan used to
purchase the common stock had been paid to the Company.
As of May 16, 2002, participants owned 189,031 shares of Company common stock
purchased under the program. The Company reacquired, at current market prices
aggregating $864,000, the Company common stock that was previously purchased by
the executive officers under the program, and the notes were extinguished.
Amounts owed to the Company or the participants as a result of the difference
between the market value of the stock and the loan balance plus accrued
interest have been paid in full.
During Fiscal 2002, Fiscal 2001 and Fiscal 2000, $17,000, $53,000 and $60,000
respectively, in interest income was recognized related to the loans.
NOTE 10 - GEOGRAPHIC AREAS
The Company operates primarily in one industry segment, specialty retailing.
Substantially all revenues result from the sale of home furnishings and
accessories through retail stores in the United States and Canada. Long-lived
assets include all non-current assets except deferred taxes.
The following table shows net revenues and long-lived assets by geographic area
(in thousands):
Year Ended
February 1 February 2 February 3
2003 2002 2001
Net revenues:
United States $442,339 $388,789 $375,275
Canada 51,661 48,668 48,184
Total $494,000 $437,457 $423,459
Long-lived assets
United States $46,201 $51,367 $53,448
Canada 4,040 4,226 4,006
Total $50,241 $55,593 $57,454
39
UNAUDITED QUARTERLY FINANCIAL DATA
The Bombay Company, Inc. and Subsidiaries
(In thousands, except per share amounts)
Unaudited quarterly financial data for the quarters ended:
February 1 November 2 August 3 May 4
2003 2002 2002 2002
Net sales $189,264 $113,841 $100,040 $90,855
Gross profit 65,266 32,870 23,885 22,380
Net income (loss) 13,841 84 (3,276) (3,432)
Basic earnings (loss)
per share .41 - (.10) (.10)
Diluted earnings (loss)
per share .41 - (.10) (.10)
February 2 November 3 August 4 May 5
2002 2001 2001 2001
Net sales $152,506 $96,945 $97,030 $90,976
Gross profit 51,150 25,156 24,180 23,487
Net income (loss) 11,673 (2,233) (2,680) (3,036)
Basic earnings (loss)
per share .35 (.07) (.08) (.09)
Diluted earnings (loss)
per share .35 (.07) (.08) (.09)
40
THE BOMBAY COMPANY, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Filed with the Annual Report on Form 10-K for the fiscal year ended
February 1, 2003.
Number Description
3(a) - Restated Certificate of Incorporation dated January 1, 1993 and
Certificate of Amendment of the Restated Certificate of Incorporation
dated March 31, 1993. (1)
3(b) - Bylaws, as amended and restated effective May 21, 1997. (9)
4(a) - Preferred Stock Purchase Rights Plan. (2)
4(b) - Amendment to Preferred Stock Purchase Rights Plan.
10(a) - Form of Indemnification Agreement.
10(b) - The Bombay Company, Inc. Supplemental Stock Program. (3)
10(c) - Executive Long Term Disability Plan. (4)
10(d) - The Bombay Company, Inc. 1996 Long-Term Incentive Stock Plan. (5)
10(e) - Form of Award Agreement under the 1996 Long-Term Incentive Stock
Plan. (7)
10(f) - The Bombay Company, Inc. Amended and Restated 2001 Non-Employee
Directors' Equity Plan. (9)
10(g) - Form of Agreement used to evidence stock option grants under The
Bombay Company, Inc. Amended and Restated 2001 Non-Employee
Directors' Equity Plan. (9)
10(h) - Executive Management Incentive Compensation Plan. (11)
10(i) - Employment Contract with Executive Officer. (7)
10(j) - Employment Letters with Executive Officers. (8)
10(k) - Employment Letter with Executive Officer. (10)
10(l) - Employment Letter with Executive Officer. (10)
10(m) - Employment Letter with Executive Officer. (10)
10(n) - Agreement with Chairman of the Board of Directors.
10(o) - Restricted Stock Agreement with the Chairman of the Board of
Directors.
10(p) - Amended and Restated Credit Agreement among The Bombay Company, Inc.,
as Borrower, Bank of America, N.A., as Administrative Agent, Swing
Line Lender, and L/C Issuer, and the Other Lenders Party Hereto,
dated July 5, 2002. (10)
21 - Subsidiaries of the Registrant. (8)
41
THE BOMBAY COMPANY, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS (CONT.)
Number Description
22 - Definitive Proxy Statement of the Company relating to Annual Meeting
of Shareholders (certain portions of such Proxy Statement are
incorporated herein by reference and are identified by reference to
caption in the text of this report). (11)
23 - Consent of Independent Accountants.
99 - Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
________________
(1)Filed with the Commission as an Exhibit to the Company's Annual Report on
Form 10-K for the year ended July 4, 1993. Such Exhibit is incorporated
herein by reference.
(2)Filed with the Commission as an Exhibit to the Company's Registration
Statement on Form 8A filed June 12, 1995. Such Exhibit is incorporated
herein by reference.
(3)Filed with the Commission as an Exhibit to the Company's Annual Report on
Form 10-K for the year ended June 28, 1992. Such Exhibit is incorporated
herein by reference.
(4)Filed with the Commission as an Exhibit to the Company's Annual Report on
Form 10-K for the year ended July 3, 1994. Such Exhibit is incorporated
herein by reference.
(5)Filed with the Commission as an Exhibit to the Company's Definitive Proxy
Statement dated April 3, 1996, which Proxy
Statement was filed with the Commission as an Exhibit to the Company's
Annual Report on
Form 10-K for the year ended February 3, 1996. Such Exhibit is incorporated
herein by reference.
(6)Filed with the Commission as an Exhibit to the Company's Annual Report on
Form 10-K for the year ended January 31, 1998. Such Exhibit is incorporated
herein by reference.
(7)Filed with the Commission as an Exhibit to the Company's Annual Report on
Form 10-K for the year ended January 30, 1999. Such Exhibit is incorporated
herein by reference.
(8)Filed with the Commission as an Exhibit to the Company's Annual Report on
Form 10-K for the year ended January 29, 2000. Such Exhibit is incorporated
herein by reference.
(9)Filed with the Commission as an Exhibit to the Company's Annual Report on
Form 10-K for the year ended January 2, 2002. Such Exhibit is incorporated
herein by reference.
(10)Filed with the Commission as an Exhibit to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended August 3, 2002.
(11)Filed with the Commission on April 10, 2003.