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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[ X ] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 30, 1995
or
Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file number 0-10345
Cache, Inc.
(Exact name of registrant as specified in its charter)
Florida 59-1588181
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1460 Broadway, New York, New York 10036
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 840-4242
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
Yes [X] No
As of February 29, 1996, the aggregate market value of the voting stock
held by non-affiliates of the registrant (based on the closing price in the
NASDAQ National Market) was approximately $10.6 million.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [x].
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
As of February 29, 1996, 9,091,338 common shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information included in the Registrant's Proxy Statement to be
filed in connection with its 1996 Annual Meeting of Stockholders has been
incorporated by reference into PART III (Items 10, 11, 12, and 13) of this
report on Form 10-K.
CACHE, INC.
FORM 10-K ANNUAL REPORT
DECEMBER 30, 1995
TABLE OF CONTENTS
Page
PART I
Item 1. Business.............................................. 1
Item 2. Properties............................................ 7
Item 3. Legal Proceedings..................................... 7
Item 4. Submission of Matters to a Vote of Security
Holders............................................... 8
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters........................... 9
Item 6. Selected Financial Data............................... 9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 12
Item 8. Financial Statements and Supplementary Data........... 17
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................ 17
PART III
Item 10. Directors and Executive Officers of the Registrant.... 18
Item 11. Executive Compensation................................ 18
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................ 18
Item 13. Certain Relationships and Related Transactions........ 18
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K........................................... 19
PART I
-------
ITEM 1. BUSINESS
STATEMENT REGARDING FORWARD LOOKING STATEMENTS
- ----------------------------------------------
Except for historical information and current statements contained
in this Annual Report on Form 10-K, certain matters discussed herein,
including, without limitation, under Part 1, Item 1,"Business-- Merchandising;
- -- Store Location and Expansion" and Part I, Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" are forward
looking statements that involve risks and uncertainties, including, without
limitation, the effect of economic and market conditions and competition,
the ability to open new stores and expand into new markets, and risks relating
to foreign importing operations, which could cause actual results to differ
materially.
GENERAL
- --------
Cache, Inc. (the "Company") owns and operates 150 women's apparel
specialty stores (as of February 29, 1996), all of which are operated under
the trade name "Cache". The Company specializes in the sale of high
fashion women's apparel and accessories in the better to expensive price
range focusing on social occasion dressing from informal get-togethers to
formal black-tie affairs.
The Company's stores currently operate in 33 states, as well as in
Puerto Rico and the District of Columbia. Stores are concentrated in large
metropolitan and suburban areas and are located in the finest shopping
malls in the country. The typical store averages 2,000 square feet and
sells better sportswear, evening wear and upscale accessories.
The Company was incorporated in the state of Florida on April 25,
1975. The Company's principal executive offices are located at 1460
Broadway, New York, New York 10036 and its telephone number is (212) 840-
4242.
MERCHANDISING
- --------------
Cache's merchandise is classified under three major categories:
sportswear, dresses and accessories. The sportswear classification is the
largest segment of merchandise. It encompasses casual wear, collections
and separates. Average sportswear price points range from $50 to $350.
The dress category includes both evening suits and selections available
primarily for after five and social occasion dressing. The dress category
also includes, to a lesser degree, day dress classifications. Average
price points of Cache's dresses range from $150 to approximately $450.
Cache accessories focus on key classifications including earrings, belts,
hats and handbags. The average price points on accessories range from $60
to $150. Gross margins do not vary significantly between the three major
merchandise categories. Sales by category, (as a percent of total sales),
have not varied significantly over the past several years. Fully allocated
gross income percentages by classification have not varied significantly by
year.
1
The following table sets forth the percentage of net sales by
merchandise classification;
Fiscal Fiscal Fiscal
Merchandise Classification 1995 1994 1993
- -------------------------- ------- -------- ---------
Sportswear 57.1% 57.4% 57.8%
Dresses 34.2% 33.4% 32.0%
Accessories 8.7% 9.2% 10.2%
------- -------- --------
100.0% 100.0% 100.0%
Cache's buyers work closely with the designers, merchandisers, and
stylists in the apparel market, to develop and create new and exciting
products. Cache's buying department generally places an order with a
vendor for a specific number of articles based on historical records and
its impressions of how well the articles will be received by Cache
customers. After the order is written, the planning department distributes
the merchandise based on historical data, sales patterns, store size,
location, demographics and seasonality. Internally, the Company groups
its stores based primarily on annual sales volumes and geographic location
in order to distribute merchandise. The Company also utilizes a basic core
resource structure where core merchandise is sold by all stores, while more
discrete purchases are made from select vendors and placed in different
stores so as to enable the Company to provide diverse merchandise choices
at different locations.
Inventory levels and styles are evaluated weekly to determine any
slow-moving merchandise. In general, Cache permanently marks items down as
a result of change in customer preference, seasonality and if inventory
levels exceed customer demand. Generally, the Company does not offer timed
promotional sales.
During Fiscal 1995, the Company purchased merchandise from
approximately 650 suppliers located in North America, Europe and Asia, as
compared to approximately 650 such suppliers in 1994.
In Fiscal 1995, the Company purchased approximately 97% of the
merchandise sold from domestic vendors and approximately 3% from foreign
vendors. At the present time, the Company does not anticipate it will
purchase in 1996 more than 10% of the merchandise from foreign vendors.
The Company's importing operations are subject to the contingencies
generally associated with foreign operations, including fluctuations in
currency values, customs duty increases and quota limitations. These
importing contingencies have not had nor are expected to have a material
impact on the Company's operating results.
MERCHANDISE DISTRIBUTION
- ------------------------
The Company utilizes the "Drop Ship" method to distribute merchandise
directly from vendors to the stores. Under the Drop Ship method of
distribution, the Company's suppliers are provided distribution directions,
as well as packing lists, and are required to prepare and pack the
merchandise for shipment via commercial carriers to the Company's stores.
Drop Ship decreases the Company's distribution expenses and reduces the
time required to deliver merchandise to its stores.
2
The Company utilizes a contract warehouse in New Jersey to distribute
imported merchandise to its stores, and to serve as a staging area for new
store fixtures and inventories. During 1994, the Company began a new
method of distributing most imported merchandise whereby merchandise is
shipped directly from overseas vendors to the Company's stores.
STORE LOCATION AND EXPANSION
- ----------------------------
As of February 29, 1996, the Company operated 150 stores located in 33
states, as well as Puerto Rico and the District of Columbia. The
following table sets forth the stores that were open as of such date and
the states in which such stores are located.
Alabama 1 Louisiana 3 Oklahoma 2
Arizona 3 Maryland 3 Oregon 1
California 20 Massachusetts 6 Pennsylvania 7
Colorado 1 Michigan 3 Rhode Island 1
Connecticut 2 Minnesota 1 South Carolina 2
Florida 23 Missouri 1 Tennessee 3
Georgia 4 Nebraska 1 Texas 13
Hawaii 1 Nevada 3 Virginia 4
Illinois 5 New Jersey 11 Washington 2
Indiana 1 New York 9 Washington, D.C. 1
Kansas 1 North Carolina 4 Puerto Rico 1
Kentucky 1 Ohio 5
The Company opened 24 new Cache stores in 1995. Included in the 1995
store openings are first time store openings in Denver and Kansas City,
Kansas. The Company expects to open approximately 12 Cache stores during
1996. The Company continually reviews locations for possible new stores.
Store locations are selected on the basis of several factors, including
selection of a dominant fashion mall or malls within a specific geographic
area, demographics, principal and "anchor" stores in the mall, location of
the store within the mall, the types of other specialty stores located in
the mall and terms of the lease. The following table presents information
reflecting store openings and closings over the last five years:
Number of Stores
-----------------
Open at Opened Closed Open at
begin. of during during end of Total
Fiscal Fiscal Fiscal Fiscal Fiscal square
year year year year year footage
------ --------- ------ ------- -------- --------
1991 66 11 - 77 158,000
1992 77 16 - 93 189,000
1993 93 18 - 111 227,000
1994 111 22 3 130 270,000
1995 130 24 2 152 320,000
3
During 1995, the Company remodeled four stores. The Company expects
to continue remodeling selected stores during 1996. Most store remodels
take from four to six weeks to complete, but rarely require closing the
store. Cache spent approximately $890,000 in Fiscal 1995 to remodel four
stores. The Company spent $994,000 (4 stores) and $836,000 (5 stores) on
remodeling, in Fiscal 1994 and 1993, respectively. The Company closed two
stores in 1995. The Company also closed three stores in Fiscal 1994. Two
of the stores closed in 1994 were closed as a result of the January 1994
California earthquake. None of the store closings had a material effect on
the Company's financial statements. The Company did not close any stores
during Fiscal 1993.
Cache currently has 320,000 square feet of store space as of February
29, 1996 including 50,000 square feet of store space added during 1995.
The Company also added 43,000 and 38,000 square feet of store space in
Fiscal 1994 and 1993, respectively. During Fiscal 1996, the Company
expects to open approximately 12 new stores, which would add approximately
25,000 square feet of store space, bringing total store square footage to
approximately 345,000 square feet. See "Management's Discussion and
Analysis - Liquidity and Capital Resources" for a discussion of the
restrictions on capital expenditures in the Company's Revolving Credit
Agreement.
Stores generally range in size from approximately 1,300 to 3,900
square feet, with the typical store averaging approximately 2,000 square
feet. The typical store front is 20 to 30 feet in width. Store hours are
generally determined by the mall in which the store is located. Most
stores are open seven days and six nights a week, except major holidays.
As is customary in the industry, when the Company leases space in a
newly constructed urban, regional or specialty shopping mall, it leases the
bare space. The Company then contracts with an architect to design a Cache
store to fit the specifications of the leased space and selects a
contractor to do the actual construction. It generally takes four to six
weeks to complete construction, after all permits and drawings have been
approved. In most cases, the Company receives from the lessor a
construction allowance to help defray a portion of the costs of
improvements to the leased space. Rental terms usually include a fixed
minimum rent plus a percentage rent based on sales in excess of a specified
amount. In addition, there is generally a charge incurred for one or more
of the following: common area maintenance, utility consumption, promotional
activities and/or advertising, insurance and real estate taxes.
STORE OPERATIONS
- ----------------
Control over store operations is the responsibility of the Director of
Store Operations, who is assisted by three Regional Managers and fifteen
District Managers. A typical store is staffed by a manager, assistant
manager and a number of full and part-time sales personnel. Special
emphasis is placed on the recruitment of fashion-conscious and career-
oriented sales personnel. Since 1993, the Company has trained a majority
4
of new store managers in designated training stores. The Company trains
most new store sales personnel on the job, stressing the Cache concept of
fashion and responsiveness to customer needs. Cache store personnel are
provided centralized guidance on merchandising presentation including
regular updates on fashion trends in the coming seasons.
Cache store managers are compensated in the form of salaries and
performance based bonuses. Sales associates and assistant managers are
paid on an hourly basis plus performance incentives. From time to time,
the Company offers additional incentives to both management and sales
associates for enhanced sales. Those incentives generally are in the form
of sales contests, which occur over a specific time period with regular
motivational progress reports distributed to all stores.
Cache targets specific hourly sales performance from its sales team,
from the store manager to assistant managers and sales associates.
Assisted by its preferred customer tracking system, Cache encourages store
personnel to identify and maintain contact with customers, with the
objective of converting infrequent shoppers into loyal clients.
Customer service is one of the most important responsibilities of
Cache employees. Cache sales associates are encouraged to inform regular
customers of new articles which may be of interest to them and provide
customers with assistance in coordinating wardrobe selections. Cache also
allows a customer the ability to special order for overnight delivery at
her home any merchandise available in its chain through its automated
special order system. Cache also offers a liberal return policy, which it
believes is comparable to those offered by better department stores and
other specialty retail stores. The Company encourages store management to
become involved in community affairs and to make contacts outside the work
place to develop potential customers. Stores are encouraged to participate
in local charity fashion shows to enhance name recognition and meet
potential customers. Select Cache stores host trunk shows several times
each year to present certain merchandise to customers.
INFORMATION SYSTEMS
- --------------------
The Company invests in technology for the future through both hardware
and software investments. The Company's point of sale store computer
systems (the "POS System") offer a fully integrated device with customized
software designed to help the Company maximize its business. The POS
System enables the ability to the cash register/terminals located in each
store to communicate with the host computer at the corporate office in New
York. The software includes a preferred customer tracking system, which
allows sales associates and store management to review customer purchases
and also to maintain customer contact with the objective of making an
infrequent shopper a regular customer. The system, which was introduced in
late Fiscal 1992, has been modified and customized to allow Cache the
ability to market particular sales events to those customers who would most
likely be interested in the special event.
5
The Company has a special order system which is designed to permit
Cache to provide maximum customer services and, at the same time, minimize
its inventory investment. The system tracks the availability of
merchandise throughout the chain including information on choice of colors
available.
The Company's POS System also provides many administrative functions
including payroll, merchandise receipt and store merchandise transfers as
well as featuring a complete price look-up function.
Cache's Home Office systems are also designed to maximize efficiency.
Particular emphasis has been placed on the development of support systems
to enhance the Company's return on its merchandise inventory. These
systems include automated tracking of fast selling merchandise, stock
replenishment based upon store inventory turn and sales statistics, a
merchandise test tracking system which allows buyers to review, quickly
even on a daily basis, customers' response to merchandise purchased on a
test basis for possible reorder, automated transfer analysis and a complete
gross margin analysis by merchandise vendor, as well as gross margin
department analysis systems.
ADVERTISING AND PROMOTION
- --------------------------
Cache's primary advertising tools are advertisements in print media,
including Vogue, a national high fashion magazine. The Company spent
$508,000, $469,000 and $511,000 on advertising in Fiscal 1995, 1994 and
1993, respectively.
EMPLOYEE RELATIONS
- ------------------
As of February 29, 1996, the Company had approximately 1,200
employees, of whom 700 were full-time employees and 500 were part-time
employees. None of these employees are represented by a labor union. The
Company considers its employee relations to be satisfactory.
COMPETITION
- -------------
The sale of women's apparel is a highly competitive business. The
Company competes with department stores and other retailers of women's
apparel in proximity to the Company's stores. The Company's approach to
retailing has been to concentrate on securing prime locations and to cater
to the high end of the women's fashion market through innovative and
distinctive design of its physical facilities, the purchasing of high-
quality and well-coordinated inventory and the rendering of personalized
service to the customer. Merchandise is sold for cash, check or by
international credit card.
6
TRADEMARKS AND SERVICE MARKS
- -----------------------------
The Company is the owner in the United States of the trademark and
service mark "Cache". These marks are registered with the United States
Patent and Trademark Office. Each federal registration is renewable
indefinitely if the mark is still in use at the time of renewal. The
Company's rights in the "Cache" mark are a significant part of the
Company's business. Accordingly, the Company intends to maintain its mark
and the related registration. The Company is not aware of any material
claims of infringement or other challenges to the Company's right to use
its mark in the United States.
ITEM 2. PROPERTIES
All but 2 of Cache's 150 stores are located in shopping malls.
Existing stores contain from approximately 1,300 to 3,900 square feet, with
the typical store averaging 2,000 square feet. The Company conducts all of
its retail operations in leased facilities. Rental terms usually include
a fixed minimum rent plus a percentage rent based on sales in excess of a
specified amount. In addition, there is generally a charge incurred for
one or more of the following: common area maintenance, utility consumption,
promotional activities and/or advertising, insurance and real estate taxes.
The leases expire at various dates through 2006. The Company renegotiated
lease terms on 14 stores in 1995. Four leases were due to expire in 1996,
and the Company has renewed three of these leases. The Company has several
leases which contain fixed escalation clauses which are reflected in the
financial statements over the life of each lease.
For further information with respect to leased facilities, see Item 1,
"Stores", Note 8 of the Notes to Consolidated Financial Statements and the
tables below.
The following table shows the number of leases for stores in operation
as of February 29, 1996, which expire during the periods indicated.
Number of
Leases
Fiscal Years Ending Expiring
------------------- ----------
Present - 1998..... 6
1999 - 2001........ 33
2002 - 2004........ 63
2005 - 2007........ 54
-----------
156
===========
The Company's corporate office is an 11,900 square foot facility
located at 1460 Broadway in New York City pursuant to a ten-year lease
which expires in 2003.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various lawsuits arising in the ordinary
course of its business. In management's opinion, the ultimate disposition
of these matters will not have a material adverse effect on the liquidity
or operating results of the Company.
7
EXECUTIVE OFFICERS OF THE COMPANY
- ---------------------------------
The Company's executive officers are as follows:
Name Age Position
------------ --- ----------------------------------
Andrew Saul 49 Chairman of the Board and Director
Roy Smith 57 Executive Vice President/
Director of Store Operations and Director
Thomas Reinckens 42 Executive Vice President/Chief Financial
Officer and Director
Mae Soo Hoo 41 Executive Vice President/General
Merchandise Manager and Director
The Company's executive officers hold office until the first meeting
of the Board of Directors following the next annual election of directors
and until their respective successors are duly elected and qualified.
Andrew Saul became Chairman of the Board of Directors of the Company
on February 27, 1993. He has been a partner of Saul Partners, an investment
partnership, since 1986. He is the son of Joseph E. Saul, who is also a
director of the Company.
Roy Smith joined the Company on December 30, 1986 as Vice
President/Director of Store Operations and was appointed Executive Vice
President in October 1990. He was appointed to the Board of Directors on
February 27, 1993.
Thomas Reinckens joined the Company in February 1987 as Controller,
and was appointed Vice President/Chief Financial Officer on November 30,
1989. He was appointed to the Board of Directors on February 27, 1993.
Mr. Reinckens was appointed Executive Vice President on September 13, 1995.
Mae Soo Hoo joined the Company in February 1987 as a Vice President of
Merchandising. She was appointed to the Board of Directors on September
13, 1995 and was appointed Executive Vice President/General Merchandise
Manager on that date.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the year ended December 30, 1995.
8
PART II
----------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(a) The principal market in which the Company's Common Stock is being
traded is the NASDAQ National Market System. The stock symbol is CACH.
The price range of the high and low bid information for the Company's
Common Stock during 1995 and 1994, by fiscal quarters, are as follows:
Common Stock
Quarter Ended High Low
- ------------- ------ ------
December 30, 1995 $ 4.00 $ 3.25
September 30, 1995 4.75 3.50
July 1, 1995 7.63 4.13
April 1, 1995 8.25 4.63
December 31, 1994 6.88 4.25
October 1, 1994 7.13 6.13
July 2, 1994 8.38 6.25
April 2, 1994 8.50 6.00
Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, markdown or commission and may not necessarily
represent actual transactions.
(b) As of February 29, 1996, there were approximately 750 holders of
record of the Company's Common Stock.
(c) The Company has not declared any cash dividends during the past
three years with respect to its Common Stock and does not anticipate paying
any cash dividends in the foreseeable future. The Company's banking
agreement prohibits the payment of any dividends on the Company's Common
Stock through January 31, 1997.
ITEM 6. SELECTED FINANCIAL DATA
The following Selected Consolidated Financial Data should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto.
9
CACHE, INC. AND SUBSIDIARIES
STORE DATA AND OPERATING RESULTS
FISCAL YEAR ENDED
----------------------------------------------------------------------
DECEMBER 30, DECEMBER 31, JANUARY 1, JANUARY 2, DECEMBER 28,
1995 1994 1994 1993 (1) 1991
----------------------------------------------------------------------
(in thousands, except store and per share data)
STORE DATA:
# OPEN AT END OF PERIOD 152 130 111 93 77
# OPEN AT BEGINNING OF PERIOD 130 111 93 77 66
# OPENED DURING PERIOD 24 22 18 16 11
# CLOSED DURING PERIOD 2 3 -- -- --
AVERAGE SALES PER SQUARE FOOT(3) $412.00 $431.00 $428.00 $420.00 $398.00
COMPARABLE STORE SALES INCREASE 1% 6% 6% 9% 10%
OPERATING RESULTS:
- --------------------------------
NET SALES $120,567 $104,714 $86,624 $72,605 $54,635
---------------------------------------------------------------------
GROSS INCOME 40,343 36,273 30,481 24,931 18,332
STORE OPERATING, GENERAL AND
ADMINISTRATIVE EXPENSES 36,747 30,619 26,471 22,410 17,356
---------------------------------------------------------------------
OPERATING INCOME 3,596 5,654 4,010 2,521 976
INTEREST EXPENSE 564 273 354 490 431
---------------------------------------------------------------------
INCOME BEFORE INCOME TAXES,
ACCOUNTING PRINCIPLE CHANGE
AND EXTRAORDINARY ITEM 3,032 5,381 3,656 2,031 545
INCOME TAX PROVISION (BENEFIT) 1,120 568 (155) 743 199
--------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF
ACCOUNTING PRINCIPLE CHANGE 1,912 4,813 3,811 1,288 346
EXTRAORDINARY ITEM -- -- -- 621 160
CUMULATIVE EFFECT OF
ACCOUNTING PRINCIPLE CHANGE -- -- 1,117 -- --
--------------------------------------------------------------------
NET INCOME $1,912 $4,813 $4,928 $1,909 $506
====================================================================
INCOME PER SHARE:
INCOME BEFORE EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF
ACCOUNTING PRINCIPLE CHANGE $0.21 $0.53 $0.42 $0.13 $0.02
EXTRAORDINARY ITEM -- -- -- $0.07 $0.02
CUMULATIVE EFFECT OF
ACCOUNTING PRINCIPLE CHANGE -- -- $0.13 -- --
-------------------------------------------------------------------
NET INCOME PER SHARE $0.21 $0.53 $0.55 $0.21 $0.04
===================================================================
CASH DIVIDENDS -- -- -- -- --
WEIGHTED AVERAGE SHARES
OUTSTANDING (2) 9,091 8,793 8,771 8,546 8,452
10
(Footnotes for preceding page)
(1) - Results for the Fiscal year ended January 2, 1993 include 53 weeks. Results for all other
periods presented include 52 weeks.
(2) - Weighted average shares for the Fiscal years ended December 30, 1995, December 31, 1994,
January 1, 1994, January 2, 1993 and December 28, 1991 include 0; 444,000; 732,000; 670,000 and 685,000
shares, respectively, due to the potential exercise of outstanding stock options that were outstanding
and exercisable in 1995, 1994, 1993, 1992 and 1991. All E.P.S. calculations reflect the one-for-four stock
split for Common Stock on September 15, 1993. See Note 1 of the Notes to Consolidated
Financial Statements.
(3) - Average sales per square foot are calculated by dividing net sales by the weighted
average store square footage available.
(4) - Comparable store sales data are calculated based on the net sales of stores
open at least 12 full months at the beginning of the period for which the data are presented.
CACHE, INC. AND SUBSIDIARIES
BALANCE SHEET DATA
FISCAL YEAR ENDED
------------------------------------------------------------------------
DECEMBER 30, DECEMBER 31, JANUARY 1, JANUARY 2, DECEMBER 28,
1995 1994 1994 1993 1991
------------------------------------------------------------------------
(in thousands, except ratios and per share data)
CURRENT ASSETS $20,381 $19,581 $13,665 $9,700 $8,301
CURRENT LIABILITIES 13,014 12,837 9,993 7,692 8,339
WORKING CAPITAL 7,367 6,744 3,672 2,008 (38)
TOTAL ASSETS 38,047 34,770 25,851 19,390 16,669
TOTAL LONG TERM DEBT 3,300 3,650 2,000 3,150 2,226
STOCKHOLDERS' EQUITY 19,630 16,430 12,175 7,224 5,268
RATIO OF CURRENT ASSETS TO
CURRENT LIABILITIES 1.57:1 1.53:1 1.37:1 1.26:1 1.00:1
INVENTORY TURNOVER RATIO 5.22:1 5.44:1 6.34:1 6.75:1 6.69:1
CAPITAL EXPENDITURES 5,722 5,541 3,790 2,992 2,487
DEPRECIATION AND AMORTIZAT 3,090 2,457 1,995 1,719 1,537
DEBT TO EQUITY RATIO .17:1 .22:1 .16:1 .46:1 .77:1
BOOK VALUE PER SHARE $2.16 $1.81 $1.17 $0.60 $0.38
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
STATEMENT REGARDING FORWARD LOOKING STATEMENTS
- ----------------------------------------------
Except for historical information and current statements contained
in this Annual Report on Form 10-K, certain matters discussed herein,
including, without limitation, under Part 1, Item 1,"Business-- Merchandising;
- -- Store Location and Expansion" and Part I, Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" are forward
looking statements that involve risks and uncertainties, including, without
limitation, the effect of economic and market conditions and competition,
the ability to open new stores and expand into new markets, and risks relating
to foreign importing operations, which could cause actual results to differ
materially.
Liquidity and Capital Resources
- -------------------------------
The Company's primary need for capital is to finance new store
merchandise inventories, as well as the construction of new stores. During
1995, 1994 and 1993, the Company expended approximately $5,722,000,
$5,541,000 and $3,790,000 respectively, for new store construction, store
renovation and equipment additions. During 1995, the Company generated
$5,338,000 in cash from operating activities. The 1995 expansion included
fixed asset additions of approximately $4,000,000 for 24 new stores,
$1,392,000 for remodeling existing Cache stores and $192,000 for home
office computer improvements and equipment additions. This was funded
primarily by operating cash flows. The Company expects to open
approximately 12 stores in 1996. The Company estimates that the total
capital expenditures for new stores to be opened in 1996 and remodeling of
certain existing stores will be approximately $3,000,000. The Company also
estimates that the average cost for initial store inventory investment at
new stores ranges between $70,000 and $110,000 per store depending upon the
store size and when it is opened. The capital expenditure amount includes
estimated expenditures for leasehold improvements and fixtures, after
landlord allowances.
The Company repaid $350,000 of long-term debt in Fiscal 1995.
Inventories increased $868,000, principally due to the expansion of 24 new
stores in 1995, which was partially offset by a reduction in average store
inventory levels of approximately 10% at year end Fiscal 1995 as compared
to 1994. Property and equipment increased $5,722,000 primarily due to the
expansion of 24 new stores in Fiscal 1995 and the renovation of 4 existing
stores. Notes receivable decreased $663,000 in Fiscal 1995 due to
repayment of notes by officers in September 1995.
The Company's current Revolving Credit Facility may be used for either
working capital or for letters of credit and will expire on January 31,
1997. Pursuant to the amended Revolving Credit Facility, $8,500,000 is
available from August 10, 1995 until expiration at January 31, 1997. The
12
Company is currently in the process of finalizing the renegotiation of the
Revolving Credit Facility with the Company's bank. The amounts outstanding
thereunder bear interest at a maximum per annum rate of 1.00% above the
bank's prime interest rate. The agreement contains selected covenants
including covenants to maintain a minimum current ratio, a maximum debt to
equity and total equity ratio, a maximum capital expenditure covenant, a
minimum earnings to bank interest coverage ratio and certain restrictions
on the payment of principal amounts to related parties. The agreement
prohibits the payment of any dividends on the Company's Common Stock.
Effective upon the occurrence of an "event of default" under the Revolving
Credit Facility, the Company grants to the bank a security interest in the
Company's inventory and certain receivables. At December 30, 1995, there
was $1,300,000 outstanding on the line; in addition, the Company had no
letters of credit outstanding pursuant to the Revolving Credit Facility, at
December 30, 1995.
Management believes that the Company's existing financial resources
will be sufficient to meet anticipated requirements for operations and
planned expansion during 1996.
Results of Operations
- ---------------------
Results for Fiscal 1995, 1994 and 1993 include fifty-two weeks.
For the fifty-two weeks ended December 30, 1995, the 1% increase in
comparative store sales, combined with the addition of 24 new stores in
1995, higher interest expenses and no favorable effect in 1995 on net
income relating to income tax valuation allowances previously recorded by
the Company in Fiscal 1994 and 1993, caused a reduction in net income in
1995 as compared to Fiscal 1994. The Company's efforts to limit general
and administrative expense growth resulted in a reduction of general and
administrative expenses as a percentage of sales in Fiscal 1995 and 1994 as
compared to Fiscal 1993. Comparable store sales (sales for stores open at
least one year or more), increased 1% in 1995, 6% in 1994 and 6% in 1993.
Net income in Fiscal 1994 was favorably impacted by the reversal of
valuation allowances ($1,450,000) recorded in 1993, as the Company recorded
higher operating profits. Net income for Fiscal 1993 includes the positive
impact of $1,117,000 in income tax benefits due to the cumulative effect of
the adoption of SFAS 109. This amount principally represents management
estimates of income tax benefits related to net operating loss
carryforwards and the valuation allowance. Net income in Fiscal 1993 was
favorably impacted by the reversal of valuation allowances ($1,500,000).
Over the last three years, the Company has begun to experience and
expects to continue to experience quarterly fluctuations in net sales and
net income. The Company typically experiences higher net sales and net
income in the second and fourth quarters than in the first and third
quarters. The Company's quarterly results of operations may also fluctuate
as a result of a variety of factors, including the timing of new store
13
openings and the net sales contributed by new stores, merchandise mix and
the timing and level of markdowns. See Note 13 to the Company's
consolidated financial statements on page I-16, which sets forth certain
unaudited results of operations for the Company's eight fiscal quarters
ended December 30, 1995.
Certain financial data for Fiscal years 1995, 1994 and 1993 expressed
as a percentage of net sales are as follows:
As a Percentage of Net Sales
----------------------------
1995 1994 1993
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Gross income 33.5% 34.6% 35.2%
Store operating expenses 25.2% 23.7% 24.2%
General and administrative,
and interest expenses 5.8% 5.8% 6.8%
Operating income 2.5% 5.1% 4.2%
NET SALES. Net sales in 1995 increased 15.1% over net sales in 1994. The
increase was due to comparable store sales increases of 1.0% at existing
stores, sales from the Company's 24 new stores and the full year sales
impact of the 22 which were opened in 1994.
Net sales in Fiscal 1994 increased 20.9% over net sales in 1993. The
increase was due to comparable store sales (sales for stores open at least
one year or more) increases of 6% at existing stores, sales from the
Company's 22 new stores and the full year sales impact for the 18 stores
which were opened in 1993. Comparable store sales also increased 6% in
1993 as compared to 1992.
GROSS INCOME. Gross income in Fiscal 1995 increased $4,070,000 as compared
to 1994. The increase was primarily due to the sales increase in 1995.
The increase in gross income was partially offset by an increase in
occupancy expenses from $12,228,000 in 1994 to $15,061,000 in 1995, due to
the 24 new stores opened during 1995 and the full year impact of occupancy
expenses for the 22 stores opened in 1994. In Fiscal 1995, gross income as
a percentage of net sales decreased by 1.1% from 1994 (33.5% versus 34.6%).
The decrease was due primarily to higher occupancy costs as a percent of
sales, primarily due to the addition of 24 new stores in Fiscal 1995.
Gross income in Fiscal 1994 as a percentage of net sales decreased by
.6% from 1993 (34.6% versus 35.2%). The decrease was due primarily to
higher markdowns as a percent of sales. The increase in markdowns taken
was directly related to an increase in average inventories on hand in 1994.
The $5,792,000 increase in gross income was directly due to higher sales in
1994 as compared to 1993 and was partially offset by an increase in
occupancy expenses from $10,171,000 in 1993 to $12,228,000 in 1994, due to
the new stores opened during 1994.
14
STORE OPERATING EXPENSES. Actual store operating expenses in Fiscal 1995
increased $5,555,000 (22.4%) from 1994 amounts. The increase was due
principally to higher salaries, bonuses and commissions ($3,293,000),
primarily due to the increase in the average number of stores open in 1995
versus 1994. During 1995 the Company had, on average, 22.4 additional
stores in operation as compared to 1994, a 19% increase. Other store
operating expenses that increased in 1995 included depreciation ($643,000),
payroll taxes ($306,000), insurance ($153,000), licenses and taxes
($271,000) and bank credit card processing fees ($228,000). As a
percentage of sales, total store operating expenses increased 1.5% in 1995
as compared to 1994, (25.2% versus 23.7%). Increases in sales at existing
and new stores were offset by increases primarily in payroll, depreciation,
and credit card fees, as well as licenses and taxes.
In Fiscal 1994, actual store operating expenses increased by
$3,836,000 (18.3%) from 1993 amounts. The increase was primarily due to
higher salaries, bonuses and commissions ($2,251,000), a direct result of
the increase in sales and new stores opened during 1994, and increases in
bank credit card processing fees ($125,000), payroll taxes ($248,000),
licenses and taxes ($181,000) and freight ($149,000), all primarily due to
the new stores and the full year impact of new stores added in 1993.
During 1994, the Company opened 22 stores which had the effect of adding,
on average, 17.7 stores in operation as compared to 1993, an 18% increase.
As a percentage of sales, store operating expenses decreased 0.5% in 1994
versus 1993 (23.7% versus 24.2%). The decrease was primarily due to
increased sales at new and existing stores.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $573,000 (9.8%) in Fiscal 1995 over 1994 results. The increase
was primarily due to higher payroll and payroll taxes ($606,000), as well
as travel ($140,000) and was partially offset by reductions primarily in
telephone, insurance and postage expenses. As a percentage of sales
general and administrative expenses decreased 0.3% to 5.3% as compared to
5.6% in 1994. The decrease was primarily attributed to the relatively
fixed nature of most administrative expenses.
General and administrative expenses increased $312,000 (5.7%) in
Fiscal 1994 from 1993 amounts. The increase was primarily due to higher
payroll ($365,000), travel ($34,000), and payroll taxes ($32,000), which
were partially offset by reductions in depreciation expense ($79,000) and
group insurance ($68,000). As a percentage of sales general and
administrative expenses were 5.6% and 6.4% in 1994 and 1993, respectively.
INTEREST EXPENSE. Interest expense increased by $291,000 or 106.6% in
Fiscal 1995 as compared to 1994. The increase was primarily due to the
retirement of preferred stock ($2,695,000) in December 1994, which created
higher average borrowing levels in 1995, as well as higher average interest
rates in 1995.
15
Interest expense decreased $81,000 or 22.9% in Fiscal 1994 as compared
to 1993. The decrease was due to lower average borrowing levels during
1994, and was partially offset by higher interest rates experienced in
1994.
Income Taxes
- ------------
Operating results for fiscal 1995 were presented on a fully taxed
basis as compared to 1994 and 1993 results, which included the benefits of
changes in valuation allowances which occurred in 1994 and 1993, as a
result of the Company's adoption of SFAS 109 in 1993.
Effective January 3, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). In
accordance with this statement, the Company recognized deferred tax assets
of $5,333,000, less a valuation allowance of $4,216,000, thereby creating
a net deferred tax asset of $1,117,000, which reflected the cumulative
effect of the accounting change for the benefit expected to be realized
from the utilization of net operating loss carryforwards ("NOLs") and
deductible temporary differences. In 1993, $1,345,000 was provided for
current income taxes consisting of federal taxes of $1,197,000 and state
income taxes of $148,000. In addition, management determined based upon
prior operating earnings and its expectations for the future that the
Company would utilize an additional $1,500,000 of the deferred tax asset.
This additional recordation was reflected in the Company's provision for
income taxes. During 1993, the Company accrued alternative minimum taxes
of approximately $65,000 for federal income taxes, and approximately
$100,000 for state income taxes. The marginal tax rate in Fiscal 1993 was
37% and taxable income earned in Fiscal 1993 was $3,656,000.
In 1994, the Company provided $2,018,000 for income taxes which
consisted of $1,824,000 for federal income taxes and $194,000 for state
income taxes. In addition, the Company received a tax benefit of
$1,450,000 from the reversal of the valuation allowance recorded in 1993,
due to higher operating profits. During 1994, the Company accrued
alternative minimum taxes of approximately $60,000 for federal income
taxes. The marginal tax rate in Fiscal 1994 was 37% and taxable income
earned in Fiscal 1994 was $5,381,000.
In 1995, the Company provided $1,120,000 for income taxes which
consisted of $898,000 for federal income taxes and $222,000 for state
income taxes. During 1995, the Company accrued alternative minimum taxes
of approximately $63,000 for federal income taxes. The marginal tax rate
in Fiscal 1995 was 37% and taxable income in Fiscal 1995 was approximately
$3,250,000. In addition, the Company reversed $1,831,000 of valuation
allowances in 1995 based upon utilization of net operating loss
carryforwards realized in 1994 and 1995. A total of $1,288,000 of the
valuation allowance reversals are included in additional paid-in capital,
related to stock option exercises in 1994 and prior. As a result of the
Company's continued operating profitibility, which gave them further
assurance that the deferred tax asset will be realized, the Company
eliminated the valuation allowance in 1995.
16
Impact of Inflation
- ---------------------
The Company's investment in inventories, property and equipment is not
adjusted for inflation. The Company values its inventories at the lower of
average cost or market, using the retail method of accounting. Inventory
turnover is also relatively constant. Therefore, the cost of goods sold,
reported on a historical basis in the financial statements, is not
significantly different from current costs nor is there a disparity in the
balance sheet valuation of inventories. In addition, it has been the
Company's practice to adjust selling prices for inflationary increases in
the cost of merchandise. The amount of property and equipment, which are
principally leasehold improvements, furniture, fixtures and equipment,
along with the related depreciation and amortization, would not be
significantly different under inflationary accounting.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's selected quarterly financial data is incorporated herein
by reference to Note 13 to the Company's consolidated financial statements
on page I-16. The Company's consolidated financial statements and
financial statement schedules and the report of independent public
accountants are listed at Item 14 of this Report and are included in this
Form 10-K on pages I-1 through I-16.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
17
PART III
---------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) to Form 10-K, the information
called for by this Item 10 (except for the information with respect to the
Company's executive officers, which information appears in Part I of this
Form 10-K) is incorporated by reference from the Company's definitive Proxy
Statement for its 1996 Annual Meeting of Stockholders, to be filed pursuant
to Regulation 14A under the Securities Exchange Act of 1934, as amended.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3) to Form 10-K, the information
called for by this Item 11 is incorporated by reference from the Company's
definitive Proxy Statement for its 1996 Annual Meeting of Stockholders, to
be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3) to Form 10-K, the information
called for by this Item 12 is incorporated by reference from the Company's
definitive Proxy Statement for its 1996 Annual Meeting of Stockholders, to
be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) to Form 10-K, the information
called for by this Item 13 is incorporated by reference from the Company's
definitive Proxy Statement for its 1996 Annual Meeting of Stockholders, to
be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended.
18
PART IV
--------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements
Report of Independent Public Accountants............ I-3
Consolidated Balance Sheets......................... I-4
Consolidated Statements of Operations............... I-5
Consolidated Statements of Stockholders' Equity..... I-6
Consolidated Statements of Cash Flows............... I-7
Notes to Consolidated Financial Statements.......... I-8
2. Exhibits (2)
3.1 Articles of Incorporation of the Company and
amendments thereto (2, Exhibit 3(i) thereof)
3.2 Bylaws of the Company (1, Exhibit 2(b) thereof)
10.1 Lease, dated May 13, 1993, between the
Company, as Tenant, and Robert H. Arnow, as
Landlord, for the Company's offices at 1460
Broadway, New York, New York (4, Exhibit 10.1
thereof)
10.2 1993 Stock Option Plan of the Company (3, Exhibit A
thereof) (6)
10.3 1994 Stock Option Plan of the Company (5, Exhibit 10.3
thereof) (6)
10.4 Form of Option Agreement relating to Options issued
under the 1994 Stock Option Plan (5, Exhibit 10.4
thereof) (6)
10.5 Employment Agreement, dated September 30, 1993,
between the Company and Michael Warner (4, Exhibit
10.6 thereof), (6)
10.6 Amended and Restated Revolving Credit Agreement (the
"Credit Agreement") dated as of December 15, 1993,
between National Westminster Bank, New Jersey and the
Company (4, Exhibit 10.9 thereof)
10.7 Security Agreement, dated as of December 15, 1993,
between the Company and National Westminster Bank, New
Jersey (4, Exhibit 10.10 thereof)
10.8 Intercreditor and Subordination Agreement, dated as
of December 15, 1993, among the Company, Joseph Saul
and National Westminster Bank, New Jersey (4, Exhibit
10.11 thereof)
19
2. Exhibits (2) (continued)
10.9 Guaranty, dated as of December 15, 1993, from the
Company's subsidiaries for the benefit of National
Westminster Bank, New Jersey (4, Exhibit 10.12
thereof)
10.10 Unsecured $1,750,000 Promissory Note of the Company,
dated December 14, 1993, in favor of Joseph Saul
(4, Exhibit 10.13 thereof)
10.11 Unsecured $250,000 Promissory Note of the Company,
dated December 14, 1993, in favor of Joseph Saul
(4, Exhibit 10.14 thereof)
10.12 Amendment No. 1, dated April 15, 1994, to the Credit
Agreement (5, Exhibit 10.12 thereof)
10.13 Amendment No. 2, dated December 15, 1994 to the Credit
Agreement (5, Exhibit 10.13 thereof)
10.14 Form of Promissory Note made by each of Michael
Warner, Roy Smith, Thomas Reinckens and Karen
Hubchik to the order of the Company, in an
amount equal to $600,000, $170,000, $80,000 and
$63,000, respectively, (5, Exhibit 10.14 thereof), (6)
10.15 Amendment No. 3 dated August 10, 1995 to the Credit
Agreement
11.1 Calculation of Primary and Fully Diluted Earnings
per Common Share
12.1 Statements re: Computation of Ratios
24.1 Consent of Independent Public Accountants
20
2. Exhibits (2) (continued)
(1) Incorporated by Reference to the Company's Registration
Statement on Form S-18, Dated December 29, 1980, Registration
No. 2-70418A.
(2) Incorporated by reference to the Company's Current Report on
Form 8-K dated September 15, 1993.
(3) Incorporated by Reference to the Company's Definitive Proxy
Statement for its 1993 Annual Meeting of Shareholders.
(4) Incorporated by Reference to the Company's Annual Report on Form
10-K for the fiscal year ended January 1, 1994.
(5) Incorporated by Reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994.
(6) Exhibits 10.2 through 10.5 and 10.14 are management contracts or
compensatory plans or arrangements required to be filed as an
exhibit pursuant to Item 14(c) of this Annual Report on Form
10-K.
(7) A Stockholder may obtain a copy of any of the exhibits included
in the Annual Report on Form 10-K upon payment of a fee to cover
the reasonable expenses of furnishing such exhibits, by written
request to CACHE, INC., at 1460 Broadway, 15th Floor, New York,
New York 10036 Attention: V.P., Chief Financial Officer.
(b) Reports on Form 8-K
None
21
Signatures
----------
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
Date: March 7, 1996 CACHE, INC.
(Registrant)
By /s/ Thomas E. Reinckens
THOMAS E. REINCKENS
Executive Vice President and
On behalf of Cache, Inc.
and in his capacity as
Chief Financial Officer
(Principal Financial and
Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Andrew M. Saul Chairman of the Board; March 7, 1996
ANDREW M. SAUL Director
(Principal Executive
Officer)
/s/ Thomas E. Reinckens Executive Vice President, March 7, 1996
THOMAS E. REINCKENS Director (Principal
Financial Officer)
/s/ Roy C. Smith Executive Vice President, March 7, 1996
ROY C. SMITH Director
/s/ Mae Soo Hoo Executive Vice President, March 7, 1996
MAE SOO HOO Director
/s/ Joseph E. Saul Director March 7, 1996
JOSEPH E. SAUL
/s/ Morton J. Schrader Director March 7, 1996
MORTON J. SCHRADER
/s/ Mark E. Goldberg Director March 7, 1996
MARK E. GOLDBERG
22
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED DECEMBER 30, 1995,
DECEMBER 31, 1994,
AND
JANUARY 1, 1994
I-1
INDEX TO THE
------------
CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------
AND SCHEDULES
-------------
PAGE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS I-3
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets........................... I-4
Consolidated Statements of Operations................. I-5
Consolidated Statements of Stockholders' Equity....... I-6
Consolidated Statements of Cash Flows................. I-7
Notes to Consolidated Financial Statements............ I-8
I-2
AUTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Cache, Inc.
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Cache,
Inc. (a Florida corporation) and subsidiaries as of December 30, 1995 and
December 31, 1994 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three fiscal years ended
December 30, 1995. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cache, Inc. and subsidiaries
as of December 30, 1995 and December 31, 1994, and the results of their
operations and their cash flows for each of the three fiscal years ended
December 30, 1995 in conformity with generally accepted accounting principles.
As explained in Note 9 to the consolidated financial statements, effective
January 3, 1993, the Company changed its method of accounting for income
taxes.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in index to the
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a required part of
the basic financial statements. This schedule has been subjected to the
auditing procedures applied in our audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial
data required to be set forth therein in relation to the basic financial
statements taken as a whole.
New York, New York
February 6, 1996 /s/ Arthur Andersen LLP
I-3
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 1995 AND DECEMBER 31, 1994
December 30, December 31,
1995 1994
------------- --------------
A S S E T S
CURRENT ASSETS
Cash and equivalents (Note 1) $ 1,025,000 $ 814,000
Receivables (Note 2 ) 1,331,000 1,481,000
Notes receivable from related parties (Note 6) 250,000 913,000
Inventories 15,803,000 14,935,000
Deferred income taxes (Note 9) 1,383,000 855,000
Prepaid expenses 589,000 583,000
Total Current Assets ------------- --------------
20,381,000 19,581,000
PROPERTY AND EQUIPMENT (Note 3) 16,577,000 14,172,000
OTHER ASSETS 188,000 195,000
DEFERRED INCOME TAXES (Note 9) 901,000 822,000
------------- --------------
$ 38,047,000 $ 34,770,000
============= ==============
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y
CURRENT LIABILITIES
Accounts payable $ 9,376,000 $ 9,333,000
Accrued compensation 749,000 644,000
Accrued liabilities (Note 4 ) 2,889,000 2,860,000
------------- --------------
Total Current Liabilities 13,014,000 12,837,000
------------- --------------
LONG - TERM BANK DEBT (Note 5 ) 1,300,000 1,650,000
SUBORDINATED INDEBTEDNESS TO RELATED
PARTY (Note 6 ) 2,000,000 2,000,000
OTHER LIABILITIES (Note 7 ) 2,103,000 1,853,000
COMMITMENTS AND CONTINGENCIES (Note 8 )
STOCKHOLDERS' EQUITY
Common stock, par value $.01; authorized, 20,000,000
shares issued and outstanding 9,091,338 shares at
December 30, 1995 and December 31, 1994 (Note 11) 91,000 91,000
Additional paid-in capital 19,564,000 18,276,000
Accumulated deficit (25,000) (1,937,000)
-------------- ---------------
Total Stockholders' Equity 19,630,000 16,430,000
============== ===============
$ 38,047,000 $ 34,770,000
============== ===============
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
I-4
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994, AND JANUARY 1, 1994
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
-------------- -------------- -----------
NET SALES $ 120,567,000 $ 104,714,000 $ 86,624,000
COST OF SALES, including occupancy and
buying costs (Note 8) 80,224,000 68,441,000 56,143,000
-------------- -------------- -------------
GROSS INCOME 40,343,000 36,273,000 30,481,000
-------------- -------------- -------------
EXPENSES
Store operating 30,343,000 24,788,000 20,952,000
General and administrative 6,404,000 5,831,000 5,519,000
Interest 424,000 133,000 189,000
Interest to related party 140,000 140,000 165,000
-------------- -------------- -------------
37,311,000 30,892,000 26,825,000
-------------- -------------- -------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING PRINCIPLE CHANGE 3,032,000 5,381,000 3,656,000
INCOME TAX PROVISION (BENEFIT) (NOTE 9) 1,120,000 568,000 (155,000)
-------------- -------------- --------------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING PRINCIPLE CHANGE 1,912,000 4,813,000 3,811,000
CUMULATIVE EFFECT OF ACCOUNTING
PRINCIPLE CHANGE (NOTE 9 ) --- --- 1,117,000
-------------- -------------- -------------
NET INCOME $ 1,912,000 $ 4,813,000 $ 4,928,000
============== ============== =============
INCOME PER COMMON SHARE
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING PRINCIPLE CHANGE $ .21 $ .53 $ .42
CUMULATIVE EFFECT OF ACCOUNTING
PRINCIPLE CHANGE -- -- .13
------------- -------------- -------------
NET INCOME PER SHARE $ .21 $ .53 $ .55
============= ============== =============
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
I-5
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994, AND JANUARY 1, 1994
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
--------------- ------------ --------------- ------------
BALANCE JANUARY 2, 1993 $ 321,000 $ 17,853,000 $ (10,950,000) $ 7,224,000
- --------------------------
Reverse stock split (one for four) (241,000) 241,000 --- ---
Exercise of Stock Options into 223,150
shares of Common Stock 3,000 20,000 --- 23,000
Net Income --- --- 4,928,000 4,928,000
------------- ------------ ------------- -------------
BALANCE JANUARY 1, 1994 83,000 18,114,000 (6,022,000) 12,175,000
- -------------------------- ------------- ------------ ------------- -------------
Payment of Preferred Stock Dividends --- --- (728,000) (728,000)
Retirement of Preferred Stock --- (1,967,000) --- (1,967,000)
Exercise of Stock Options into 839,699
shares of Common Stock 8,000 1,617,000 --- 1,625,000
Income tax benefit - stock options --- 512,000 --- 512,000
Net Income --- --- 4,813,000 4,813,000
------------- ------------ -------------- -------------
BALANCE DECEMBER 31, 1994 91,000 18,276,000 (1,937,000) 16,430,000
- ---------------------------- ------------- ------------ -------------- -------------
Income tax benefit - stock options --- 1,288,000 --- 1,288,000
Net Income --- --- 1,912,000 1,912,000
------------- ------------ -------------- -------------
BALANCE DECEMBER 30, 1995 $ 91,000 $ 19,564,000 $ (25,000) $ 19,630,000
- ---------------------------- ============= ============ ============== =============
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
I-6
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994, AND JANUARY 1, 1994
December 30, December 31, January 1,
1995 1994 1994
----------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
- -----------------------------------------
Net income $ 1,912,000 $ 4,813,000 $ 4,928,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of adoption of FAS 109 --- --- (1,117,000)
Depreciation and amortization 3,090,000 2,457,000 1,995,000
Deferred taxes 681,000 277,000 (325,000)
Accrual of future rent escalations 202,000 270,000 294,000
Change in assets and liabilities:
Decrease (increase) in receivables 150,000 (323,000) 241,000
(Increase) in inventories (868,000) (4,713,000) (2,740,000)
(Increase) decrease in prepaid expenses (6,000) (335,000) 107,000
Increase in accounts payable 43,000 2,549,000 1,766,000
Increase in accrued liabilities and accrued compensation 134,000 295,000 685,000
----------------- ----------------- --------------
Net cash provided by operating activities 5,338,000 5,290,000 5,834,000
----------------- ----------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -----------------------------------------
Decrease (increase) in notes receivable from related parties 663,000 (913,000) ---
Proceeds from property and equipment disposals 233,000 229,000 ---
Payments for property and equipment (5,722,000) (5,541,000) (3,790,000)
----------------- ------------------ ---------------
Net cash used in investing activities (4,826,000) (6,225,000) (3,790,000)
------------------ ------------------ ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ----------------------------------------
Principal payments under capital lease obligations --- --- (156,000)
Repayment of short-term bank debt --- --- (69,000)
Proceeds from long-term bank debt 49,550,000 25,550,000 25,825,000
Repayment of long-term bank debt (49,900,000) (23,900,000) (26,900,000)
Repurchase of preferred stock --- (1,967,000) ---
Payment of preferred stock dividends --- (728,000) ---
Proceeds from issuance of common stock --- 1,625,000 23,000
Other, net 49,000 (119,000) 57,000
----------------- ----------------- --------------
Net cash (used in) provided by financing activities (301,000) 461,000 (1,220,000)
----------------- ----------------- --------------
Net increase (decrease) in cash 211,000 (474,000) 824,000
Cash at beginning of period 814,000 1,288,000 464,000
----------------- ----------------- --------------
Cash at end of period $ 1,025,000 $ 814,000 $ 1,288,000
================= ================= ==============
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
I-7
CACHE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
- ---------
Cache, Inc. (the "Company") owns and operates a chain of women's
apparel specialty stores, all of which are operated under the trade name
"Cache". The Company specializes in the sale of high fashion women's
apparel and accessories in the better to expensive price range.
Basis of Consolidation
- ----------------------
The consolidated financial statements include the accounts of the
Company, including subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Fiscal Reporting Period
- -----------------------
The Company reports its annual results of operations based on fiscal
periods comprised of 52 or 53 weeks, which is in accordance with industry
practice. Results for fiscal 1993, 1994 and 1995 all include 52 weeks.
Cash Equivalents
- ----------------
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Inventories
- -----------
Inventories are valued at the lower of average cost or market, using
the retail inventory method of accounting.
Pre-Opening Store Expenses
- --------------------------
Expenses associated with the opening of new stores are expensed as
incurred.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the related assets which range from 3 to 10 years. For
income tax purposes, accelerated methods are generally used. Leasehold
improvements are amortized over the shorter of their useful life or lease
term.
Income Taxes
- -------------
Deferred income taxes are provided using the asset and liability
method, whereby deferred income taxes result from temporary differences
between the tax basis of assets and liabilities and their reported amounts
in the financial statements.
I-8
Income Per Share
- ----------------
Income per share is based on the weighted average number of common
shares and common share equivalents outstanding for the years presented.
Consolidated Statements of Cash Flows
- -------------------------------------
The Company paid interest of $563,000, $253,000 and $366,000 in 1995,
1994 and 1993, respectively. During 1995, 1994 and 1993, the Company paid
$506,000, $291,000, and $196,000 in income taxes, respectively.
Reclassification
- -----------------
Certain amounts reflected in fiscal 1993 financial statements have
been reclassified to conform with the presentation of similar items in
fiscal 1995 and 1994.
NOTE 2. RECEIVABLES
Fiscal Fiscal
1995 1994
----------- -----------
Construction Allowances $ 452,000 $ 526,000
Third Party Credit Card 814,000 942,000
Other 65,000 13,000
----------- -----------
$ 1,331,000 $ 1,481,000
=========== ===========
NOTE 3. PROPERTY AND EQUIPMENT
Fiscal Fiscal
1995 1994
----------- -----------
Leasehold improvements $15,661,000 $15,567,000
Furniture, fixtures and
equipment 13,170,000 9,348,000
----------- -----------
28,831,000 24,915,000
Less: accumulated depreciation
and amortization 12,254,000 10,743,000
----------- -----------
$16,577,000 $14,172,000
=========== ===========
Store operating and general and administrative expenses include
depreciation and amortization of $3,090,000 in fiscal 1995, $2,457,000 in
fiscal 1994 and $1,995,000 in fiscal 1993.
NOTE 4. ACCRUED LIABILITIES
Fiscal Fiscal
1995 1994
---------- -----------
Operating expenses $ 889,000 $ 968,000
Taxes, other than income taxes 1,022,000 888,000
Leasehold additions 52,000 295,000
Other 926,000 709,000
----------- -----------
$ 2,889,000 $ 2,860,000
=========== ===========
Leasehold addition amounts generally represent a liability to general
contractors for a final 10% payable on construction contracts for store
construction or renovations.
I-9
NOTE 5. BANK DEBT
The Company's current Revolving Credit Facility may be used for either
working capital or for letters of credit and will expire on January 31,
1997. Pursuant to the amended Revolving Credit Facility $8,500,000 is
available from August 10, 1995 until expiration at January 31, 1997. The
Company is currently in the process of finalizing the renegotiation of the
Revolving Credit Facility with the Company's bank. The amounts outstanding
thereunder bear interest at a maximum per annum rate up to 1.00% above the
bank's prime rate. The agreement contains selected financial and other
covenants including covenants to maintain a minimum current ratio, a
maximum debt to equity and total equity ratio, a maximum capital
expenditure covenant, a minimum earnings to bank interest coverage ratio
and certain restrictions on the repayment of principal amounts due to
related parties. The agreement prohibits the payment of any dividends on
the Company's common stock. Effective upon the occurrence of an Event of
Default under the Revolving Credit Facility, the Company grants to the bank
a security interest in the Company's inventory and certain receivables.
There was an outstanding balance of $1,300,000 on the line of credit
at December 30, 1995 and an outstanding balance of $1,650,000 at December
31, 1994. In addition, outstanding letters of credit, pursuant to the
Revolving Credit Facility, were none at December 30, 1995 and $30,000 at
December 31, 1994. Loans outstanding under the line of credit during
Fiscal 1995 bore interest at a weighted average interest rate of 8.51% per
annum. The related party debt is subordinated to the bank debt and
therefore will not be paid prior to expiration of the bank line of credit.
NOTE 6. INDEBTEDNESS TO/FROM RELATED PARTIES
As of December 30, 1995 and December 31, 1994 the Company had
outstanding, (i) a $250,000 long-term loan from a major stockholder bearing
interest payable quarterly with principal due upon demand at any time after
January 31, 1997; and (ii) a $1,750,000 loan made by the same stockholder
bearing interest payable quarterly with principal due upon demand at any
time after January 31, 1997. Interest was accrued on the $250,000 note
during Fiscal 1993 at 7-1/2% per year. Interest was accrued on the
$1,750,000 note during Fiscal 1993 at 8-1/2% per year. Interest on both
notes accrue at 7% per year through January 31, 1997.
In December 1994, the Company loaned a total of $913,000 to several
executive officers of the Company. The loans, which are payable upon
demand, are evidenced by secured promissory notes, which bear interest at
the rate of 9% per annum. In September 1995, two officers repaid a total
of $663,000 to the Company, while $250,000 remains outstanding at December
30, 1995.
NOTE 7. OTHER LIABILITIES
Other liabilities primarily consist of accruals of future rent
escalations.
I-10
NOTE 8. COMMITMENTS AND CONTINGENCIES
Leases
- -------
At December 30, 1995, the Company was obligated under operating leases
for various store locations expiring at various times through 2006. The
terms of the leases generally provide for the payment of minimum annual
rentals, contingent rentals based on a percentage of sales in excess of a
stipulated amount, and a portion of real estate taxes, insurance and common
area maintenance.
Store rental expense related to these leases, included in cost of
sales, consisted of the following:
Fiscal Fiscal Fiscal
1995 1994 1993
----------- ----------- -----------
Minimum rentals $10,821,000 $ 8,706,000 $ 7,127,000
Contingent rentals 3,920,000 3,228,000 2,791,000
----------- ----------- -----------
$14,741,000 $11,934,000 $ 9,918,000
=========== =========== ===========
Future minimum payments under non-cancelable operating leases
consisted of the following at December 30, 1995:
1996 $ 12,196,000
1997 12,359,000
1998 12,344,000
1999 11,825,000
2000 11,101,000
Thereafter 32,820,000
------------
Total future minimum lease payments: $ 92,645,000
============
Contingencies
- -------------
The Company is exposed to a number of asserted and unasserted
potential claims. In the opinion of management, the resolution of these
matters is not presently expected to have a material adverse effect upon
the Company's financial position and results of operations.
NOTE 9. INCOME TAXES
Effective January 3, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). In
accordance with this statement, the Company recognized deferred tax assets
of $5,333,000, less a valuation allowance of $4,216,000, thereby creating
a net deferred tax asset of $1,117,000, which reflected the cumulative
effect of the accounting change for the benefit expected to be realized
from the utilization of net operating loss carryforwards ("NOLs") and
deductible temporary differences.
In 1995, $1,120,000 was provided for income taxes consisting of
$898,000 in federal income taxes and $222,000 in state taxes. During 1995,
the Company accrued the alternative minimum taxes of approximately $63,000
for federal income taxes.
I-11
In 1994, the Company provided $2,018,000 for income taxes which
consisted of $1,824,000 for federal income taxes and $194,000 for state
income taxes. In addition, the Company received a tax benefit of
$1,450,000 from the reversal of the valuation allowance recorded in 1993,
due to higher operating profits. During 1994, the Company accrued
alternative minimum taxes of approximately $60,000 for federal income
taxes.
In 1993, $1,345,000 was provided for current income taxes consisting
of federal taxes of $1,197,000 and state income taxes of $148,000. In
addition, management determined at January 1, 1994, based upon prior
operating earnings and its expectations for the future that the Company
will utilize an additional $1,500,000 of the deferred tax asset. This
additional recordation is reflected in the Company's provision for income
taxes. During 1993, the Company accrued alternative minimum taxes of
approximately $65,000 for federal income taxes, and approximately $100,000
for state income taxes.
A reconciliation of the Company's 1995, 1994 and 1993 effective
income tax rate, based upon income before taxes with the statutory federal
tax rates as follows:
1995 1994 1993
----- ----- -----
Statutory federal tax rate 34.0% 34.0% 34.0%
State and local income taxes 3.0% 3.0% 2.8%
Recordation of net operating
loss carryforward and other
deductible temporary differences --- (26.5%) (41.0%)
------ ------- -------
37.0% 10.5% ( 4.2%)
====== ======= =======
The provision for income taxes at December 30, 1995 consisted of the
following:
Federal State Total
---------- --------- ----------
Current taxes $ 63,000 $ 222,000 $ 285,000
Deferred taxes 835,000 - 835,000
---------- --------- ----------
Provisions for income
taxes $ 898,000 $ 222,000 $1,120,000
========== ========= ==========
At December 30, 1995, the Company had net operating loss carryforwards
of $1,000,000 for federal income tax reporting purposes. The net operating
loss carryforwards expire at various dates through 2008. In 1995, the
Company realized for financial reporting purposes $1,288,000 of income tax
benefits from stock option exercises. This benefit was recorded as an
increase in paid-in capital. The Company had available at December 30,
1995 approximately $295,000 of alternative minimum tax credit carryforwards
for tax reporting purposes.
I-12
At December 30, 1995, the Company's deferred tax assets were
$2,135,000 and there was no deferred tax liability. The major components
of the Company's net deferred taxes at December 30, 1995 and December 31,
1994 are as follows:
December 30, December 31,
1995 1994
---------- ------------
Net operating loss carryforwards ("NOL'S") and
alternative minimum tax carryforwards.......... $ 508,000 $ 539,000
NOL'S resulting from stock option exercises..... 378,000 1,827,000
Deferred rent................................... 695,000 621,000
Inventory cost capitalization................... 348,000 315,000
Other........................................... 206,000 201,000
---------- -------------
2,135,000 3,503,000
Less: Valuation allowance....................... --- (1,831,000)
---------- -------------
$2,135,000 $1,672,000
========== =============
Statement No. 109 requires that the net operating loss carryforwards and
other deductible temporary differences be recorded as an asset to the
extent that management assesses the utilization of such carryforwards and
the realization of the deductible temporary differences to be more likely
than not. In fiscal 1993, the Company recorded a valuation allowance
against the deferred tax asset based on the Company's history of prior
operating earnings and its expectations for the future, whether the
operating income of the Company will more likely than not be sufficient to
fully utilize the carryforwards and the realization of the benefit related
to the deductible temporary differences prior to their ultimate expiration
before 2007. During the fourth quarter of Fiscal 1993 and during Fiscal
1994 and fiscal 1995, the Company reversed portions of the valuation
allowance on the strength of the Company's operating results which
increased the probability the net operating loss carryforwards will be
realized. As a result of the Company's continued operating profitability,
which gave them further assurance that the deferred tax asset will be
realized, the Company eliminated the valuation allowance in 1995.
NOTE 10. PREFERRED STOCK
On December 7, 1994, the Company repurchased the 1,967 shares of 7-
1/2% preferred stock ($1,000 face value) outstanding for $1,967,000. The
Company paid accrued dividends of $728,000 to the preferred stockholders,
who are also major stockholders.
NOTE 11. COMMON STOCK
On September 15, 1993, the Company completed a one-for-four reverse
stock split of the Company's common stock. Prior to the reverse stock
split there were 32,114,665 old shares outstanding. After the reverse
stock split 8,028,489 new shares were outstanding. As a result of the
reverse stock split, $241,000 was transferred from common stock to
additional paid-in capital due to the reduction in the number of shares
outstanding. Common stock equivalent shares and income per share
calculations have been restated to reflect the effect of the one-for-four
reverse stock split.
I-13
NOTE 12. INCENTIVE STOCK OPTION PLAN
On December 16, 1994, the Company adopted the 1994 Stock Option Plan
subject to shareholders approval at the 1995 Annual Meeting. Under the
option plan the Company reserved 600,000 shares of the Company's
authorized common stock for issuance to Officers and key employees of the
Company. On the same date, 563,750 options were granted under the option
plan to the Company's executive officers. All options were granted at an
exercise price of $4.25, equal to the fair market value on December 16,
1994. Options granted totaling 394,851 are incentive stock options, while
168,899 options granted are non-qualified options. The plan is
administered by the Compensation and Plan Administration Committee of the
Company's Board of Directors. The price is payable in cash at the time of
the exercise or in the discretion of the Administrators, through delivery
of shares of Common Stock, the Company's withholding of shares otherwise
deliverable to the employee, installment payments under an optionee's
promissory note or a combination thereof. The remaining 36,250 shares had
not been granted as of December 31, 1994.
On October 13, 1995, the Company cancelled the options granted to
Michael Warner (250,000 shares) and Karen Hubchik (37,500 shares), upon
their employment termination. On that same date, the Company granted
150,000 to the Company's executive officers, under the 1994 plan. All
options were granted at an exercise price of $3.25, equal to the fair
market value on that date. These options are incentive stock options. The
remaining 173,750 shares have not been granted as of December 30, 1995.
At December 30, 1995, options exercisable for an aggregate of 426,250
shares of Common Stock were outstanding under the 1994 Plan. The following
table summarizes stock option transactions for all plans for the three
years ended December 30, 1995:
Shares Exercise Prices
--------- ---------------
Shares under option as of January 2, 1993 988,800 $2.00
Options granted in 1993................. 225,000 $8.50
Options exercised in 1993............... (223,150) $2.00
---------
Shares under option as of January 1, 1994 990,650 $2.00 to $8.50
---------
Options granted in 1994................. 563,750 $4.25
Options exercised in 1994............... (765,650) $2.00
Options cancelled or expired in 1994.... (225,000) $8.50
---------
Shares under option as of December 31, 1994 563,750 $4.25
---------
Options granted in 1995 150,000 $3.25
Options cancelled in 1995 (287,500) $4.25
---------
Shares under option as of December 30, 1995 426,250 $3.25 to $4.25
==========
I-14
All of the options granted in 1994 pursuant to the 1994 Incentive
Option Plan become exercisable on December 31, 1998, subject to accelerated
vesting in certain circumstances, expire on December 31, 2003 and have an
exercise price of $4.25 per share, equal to the fair market value at the
date of grant. However, the granted options may become exercisable earlier
at the maximum rate of up to 25% per year for the three years ended
December 31, 1995, 1996 and 1997 to the extent the Company's earnings plan
for such fiscal year as previously approved by the Administrator, is
achieved, based on the following sliding scale:
All of the options granted in 1995 pursuant to the 1994 Incentive
Option Plan become exercisable on October 13, 2000, subject to accelerated
vesting in certain circumstances, expire on October 13, 2005 and have an
exercise price of $3.25 per share, equal to the fair market value at the
date of grant. However, the granted options may become exercisable earlier
at the maximum rate of up to 25% per year for the four years ended
December 31, 1996, 1997, 1998 and 1999 to the extent of the Company's
earnings plan for such fiscal year as previously approved by the
Administrator, is achieved, based on the following sliding scale:
Options Which
Will
Percentage of Become
Earnings Plan Achieved Exercisable
---------------------- ------------
Greater than or equal to 90%.......................... 25%
Greater than or equal to 75% but less than 90%........ 20
Greater than or equal to 60% but less than 75% 15
Less than 60%......................................... 0
I-15
NOTE 13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
($000's omitted except per share amounts)
First Second Third Fourth
Year ended December 30, 1995 Quarter Quarter Quarter Quarter
- ---------------------------- ------------------------------------------
Net sales $26,010 $30,822 $27,168 $36,567
Gross income, less occupancy and buying costs 9,132 10,297 8,475 12,439
Income before income taxes 762 1,009 (762) 2,023
Income tax provision (benefit) 281 366 (285) 758
-------------------------------------------
Net income $481 $643 ($477) $1,265
===========================================
Income per common share
- -----------------------
Net income $0.05 $0.07 ($0.05) $0.14
===========================================
First Second Third Fourth
Year ended December 31, 1994 Quarter Quarter Quarter Quarter
- ---------------------------- -------------------------------------------
Net sales $20,739 $27,073 $25,443 $31,459
-------------------------------------------
Gross income, less occupancy and buying costs 7,474 9,468 8,389 10,942
Income before income taxes 648 1,787 702 2,244
Income tax provision (benefit) (6) (9) 33 550
-------------------------------------------
Net income $654 $1,796 $669 $1,694
===========================================
Income per common share
- -----------------------
Net income $0.07 $0.20 $0.07 $0.19
==========================================
I-16
EXHIBIT 10.15
AMENDMENT NO. 3, dated as of August 10, 1995, to
Amended and Restated Revolving Credit Agreement, dated as of
December 15, 1993, by and between CACHE INC., a corporation
organized under the laws of the State of Florida with its
principal place of business at 1460 Broadway, New York, New
York 10036 (the "Borrower") and NATWEST BANK N.A., a national
banking association (and successor by merger to NATIONAL
WESTMINSTER BANK NJ), with a place of business at 400 Hamburg
Turnpike, Wayne, New Jersey 07470 (the "Bank").
W I T N E S S E T H:
WHEREAS, the Borrower and the Bank are parties to
that certain Amended and Restated Revolving Credit Agreement,
dated as of December 15, 1993, as amended by Amendment No. 1
thereto, dated as of April 15, 1994, and Amendment No. 2
thereto, dated as of December 15, 1994 (the "Credit Agree-
ment");
WHEREAS, the parties desire to amend the Credit
Agreement in the manner hereinafter set forth;
NOW, THEREFORE, the Borrower and the Bank hereby
agree as follows:
1. Definitions. All terms used herein, unless
otherwise defined shall have the meanings ascribed thereto in
the Credit Agreement.
-1-
2. Amendment.
(a) The Credit Agreement is hereby amended,
effective as of the date hereof by deleting Section 1.1(b) in
its entirety and inserting a new Section 1.1(b) in its place
to read as follows:
"(b) The total principal amount of all
outstanding Loans, together with the face amount of
all outstanding Letters of Credit, as hereinafter
defined, shall not exceed $8,500,000."
(b) The Credit Agreement is hereby amended,
effective as of the date hereof, by deleting the definition
of the term "Applicable Margin" from Section 5.1 and
inserting a new definition in its place to read as follows:
"'Applicable Margin' shall mean: (a) with re-
spect to Loans which are (i) Prime Rate Loans,
0.5%; and (ii) LIBOR Loans, 2.5%; provided that,
notwithstanding the foregoing, effective three
Business Days after receipt by the Bank from the
Borrower of financial statements demonstrating that
the Debt Ratio is less than a Debt Ratio in Column
A below, the Applicable Margin for each type of
Loan shall mean the respective percentages set
forth opposite such Debt Ratio in Column B below,
until the date which is three Business Days after
receipt by the Bank from the Borrower of financial
-2-
statements demonstrating a change in the Debt Ratio
to a ratio so that another Applicable Margin shall
be applied to the Loans; provided that (i) if an
Event of Default shall occur and be continuing or
(ii) if the Debt Ratio shall at any time equal or
exceed 1.00:1, then the Applicable Margin shall
again be the respective percentages first set forth
in this definition subject to subsequent adjustment
as set forth in the first proviso hereof.
Column A Column B
----------- --------
Debt Ratios
Less Than Prime LIBOR
----------- ----- -----
1.00:1 0% 2.25%
0.49:1 -0.5% 2.00%"
(d) Except as expressly amended hereby, the Credit
Agreement shall continue in full force and effect.
3. Representations. The Borrower makes the
following representations to the Bank each and all of which
shall survive the execution and delivery of this Agreement:
(a) The Borrower is a corporation, duly orga-
nized validly existing and in good standing under the laws of
the State of Florida with its principal corporate place of
business at 1460 Broadway, New York, New York 10036. The
Borrower is duly qualified to do business and is in good
standing in every jurisdiction where the nature of its busi-
ness requires it to be so qualified.
-3-
(b) The Borrower has full corporate power and
authority to execute, deliver and perform this Agreement.
The making and performance by the Borrower of this Agreement
have been duly authorized by all necessary corporate action
and do not and will not violate any provision of law, rules,
regulations or orders applicable to the Borrower; or result
in the breach of, or constitute a default or require any
consent under, any indenture or other agreement or instrument
by which the Borrower or any of its properties may be bound
or affected; or result in, or require, the creation or impo-
sition of any Lien upon or with respect to any properties of
the Borrower.
(c) No event has occurred and is continuing
which would constitute an Event of Default or which, upon a
lapse of time and notice, if applicable, would become such an
Event of Default.
(d) This Agreement constitutes the legal,
valid and binding obligation of the Borrower, enforceable in
accordance with its terms, except insofar as the enforceabil-
ity hereof may be limited by applicable bankruptcy, insolven-
cy or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of
equity.
-4-
4. Conditions Precedent. The effectiveness of
the amendments to the Credit Agreement provided for herein is
subject to the receipt by the Bank of the following docu-
ments, each of which shall be satisfactory to the Bank in
form and substance:
(a) A certificate from an officer of the
Borrower certifying (i) that its by-laws have not been
amended since December 15, 1993 and (to the extent relating
to this Agreement and the transactions contemplated hereby);
and (ii) the name and authorized signature of each of its
officers authorized to sign this Agreement, and who will,
until replaced by another officer duly authorized for that
purpose, act as its representative for purposes of signing
documents and giving notices and other communications in
connection with the Credit Agreement (as amended hereby) and
the transactions contemplated hereby. The Bank may conclu-
sively rely on the certificate delivered pursuant to this
Section 4(a) until it receives notice to the contrary in
writing from the Borrower.
(b) A certificate issued by the Secretary of
State of the State of Florida with respect to the Borrower
showing the Borrower to be in good standing in such State.
(c) Such other documents as the Bank or
counsel to the Bank may reasonably request.
-5-
5. Miscellaneous.
(a) This Agreement shall bind and inure to
the benefit of the parties hereto and their respective suc-
cessors and assigns.
(b) The Borrower agrees to pay the Bank,
concurrently with the execution and delivery of this Agree-
ment, an amendment fee of $5,000 which shall be in addition
to, and not in lieu, any fees payable by the Borrower under
the Credit Agreement.
(b) The Borrower agrees to pay the reasonable
fees and expenses of Rubin Baum Levin Constant & Friedman,
special counsel to the Bank, in connection with the prepara-
tion, execution and delivery of this Agreement.
(c) This Agreement shall be governed by, and
construed under, the laws of the State of New Jersey.
(d) This Agreement may be executed in one or
more counterparts, any or all of which shall constitute one
and the same instrument.
(e) Captions and section headings appearing
herein are included solely for convenience of reference only
and are not intended to affect the interpretation of any
provision of this Agreement.
-6-
IN WITNESS WHEREOF, the duly authorized officers of the
Borrower and the Bank have executed this Agreement as of the
date first above written.
CACHE, INC.
By: /s/ Thomas Reinckens
--------------------
Thomas Reinckens
Executive Vice President
Chief Financial Officer
NATWEST BANK N.A.
By: /s/ Robert Frega
-------------------------
Vice President
The undersigned hereby jointly and severally agree that
all references to the Credit Agreement in the Guaranty, dated
as of December 15, 1993, by each of the undersigned for the
benefit of NatWest Bank N.A. (successor by merger to National
Westminster Bank NJ), shall from and after the date hereof be
deemed references to the Amended and Restated Revolving
Credit Agreement, dated as of December 15, 1993, between
Cache and NatWest Bank N.A. (successor by merger to National
Westminster Bank NJ), as amended by Amendment No.1 thereto,
dated as of April 15, 1994, and Amendment No. 2 thereto,
dated as of December 15, 1994, and as amended by the fore-
going instrument.
CACHE APPAREL, INC.
By: /s/ Thomas E. Reinckens
------------------------
Thomas E. Reinckens
Executive Vice President
Chief Financial Officer
CACHE MARKETING CORP.
By: /s/ Thomas E. Reinckens
-----------------------
Thomas E. Reinckens
Executive Vice President
Chief Financial Officer
-7-
CACHE FINANCE CORP.
By: /s/ Thomas E. Reinckens
-----------------------
Thomas E. Reinckens
Executive Vice President
Chief Financial Officer
CACHE FRANCHISE CORP.
By: /s/ Thomas E. Reinckens
------------------------
Thomas E. Reinckens
Executive Vice President
Chief Financial Officer
FASHION AGENCY INC.
By: /s/ Thomas E. Reinckens
-------------------------
Thomas E. Reinckens
Executive Vice President
Chief Financial Officer
The undersigned hereby agrees that all references to the
Credit Agreement in the Intercreditor and Subordination
Agreement, dated as of December 15, 1993, among Cache Inc.,
the undersigned and NatWest Bank N.A. (successor by merger to
National Westminster Bank NJ) shall from and after the date
hereof be deemed references to the Amended and Restated
Revolving Credit Agreement, dated as of December 15, 1993,
between Cache and NatWest Bank N.A. (successor by merger to
National Westminster Bank NJ), as amended by Amendment No.1
thereto, dated as of April 15, 1994, and Amendment No. 2
thereto, dated as of December 15, 1994, and by the foregoing
instrument.
/s/ Joseph Saul
Joseph Saul
-8-
EXHIBIT 11.1
EXHIBIT 11.1
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER COMMON SHARE
FISCAL FISCAL FISCAL
1995 1994 1993
-------------- ---------------- ---------------
EARNINGS
- ---------------------------
Net Income Applicable
to Common Stockholders $ 1,912,000 $ 4,675,000 $ 4,781,000
------------- --------------- -------------
PRIMARY EARNINGS PER SHARE
- ---------------------------
Weighted Average Number of
Common Shares Outstanding 9,091,000 8,349,000 8,039,000
Assuming Conversion of
Outstanding Stock Options --- 662,000 973,000
Less Assumed Repurchase
of Common Stock Pursuant
to the Treasury Stock Method --- (218,000) (241,000)
------------- --------------- ------------
Weighted Average Number of
Common Shares Outstanding
As Adjusted 9,091,000 8,793,000 8,771,000
============= =============== ============
Primary Earnings Per $0.21 $0.53 $0.55
============= =============== ============
FULLY DILUTED EARNINGS PER SHARE
- --------------------------------
Weighted Average Number of
Common Shares Outstanding 9,091,000 8,349,000 8,039,000
Assuming Conversion of
Outstanding Stock Options --- 662,000 973,000
Less Assumed Repurchase
of Common Stock Pursuant
to the Treasury Stock Method --- (218,000) (241,000)
------------ --------------- ------------
Weighted Average Number of
Common Shares Outstanding
As Adjusted 9,091,000 8,793,000 8,771,000
============ =============== ============
Fully Diluted Earnings Per Share $0.21 $0.53 $0.55
============ =============== ============
EXHIBIT 12.1
EXHIBIT 12.1
COMPUTATION OF RATIOS
Ratio of current assets to current liabilities = current assets (at balance
sheet date) divided by current liabilities (at balance sheet date)
Inventory turnover ratio = total cost of sales divided by average inventory
(beginning and ending inventory, divided by two, at the balance sheet
dates).
Debt to equity ratio = total long-term debt (at balance sheet date) divided
by stockholders' equity (at balance sheet date).
Book value per share = stockholders' equity less preferred stockholders'
equity and dividends in arrears, divided by common shares outstanding
(at balance sheet date).
EXHIBIT 24.1
ARTHUR ANDERSEON
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorportion of
our report included in this form 10-K into the Company's previously filed
Registration Statement File Numbers 33-40354, 33-40358 and 33-65113
/s/ Arthur Andersen LLP
Arthur Andersen LLP
March 7, 1996