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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000350199-02-000001.txt : 20020415
<SEC-HEADER>0000350199-02-000001.hdr.sgml : 20020415
ACCESSION NUMBER: 0000350199-02-000001
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20011229
FILED AS OF DATE: 20020328
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CACHE INC
CENTRAL INDEX KEY: 0000350199
STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-WOMEN'S CLOTHING STORES [5621]
IRS NUMBER: 591588181
STATE OF INCORPORATION: FL
FISCAL YEAR END: 0102
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-10345
FILM NUMBER: 02590390
BUSINESS ADDRESS:
STREET 1: 1460 BROADWAY
CITY: NEW YORK
STATE: NY
ZIP: 10036
BUSINESS PHONE: 2128404242
MAIL ADDRESS:
STREET 1: 1460 BROADWAY
CITY: NEW YORK
STATE: NY
ZIP: 10036
FORMER COMPANY:
FORMER CONFORMED NAME: ATOURS INC
DATE OF NAME CHANGE: 19830518
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>tenk.txt
<DESCRIPTION>10 K
<TEXT>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X Annual Report pursuant to Section 13 or 15 (d) of the Securities
- ------
Exchange Act of 1934 (No fee required)
For the fiscal year ended December 29, 2001
or
Transition Report pursuant to Section 13 or 15(d) of the Securities
- ------
Exchange Act of 1934 (No fee required)
Commission file number 0-10345
-------
Cache, Inc.
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-1588181
- ------------------------------ ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization
1460 Broadway, New York, New York 10036
- ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 575-3200
Securities registered pursuant to Section 12(b) of the Act: none
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 par value
- ----------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
Yes X No
------ -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [x].
As of February 28, 2002, 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 $15.2 million.
As of February 28, 2002, 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 2002 Annual Meeting of Stockholders has been
incorporated by reference into Part III (Items 10, 11, 12, and 13) of this
report on Form 10-K.
<page>
CACHE, INC.
FORM 10-K ANNUAL REPORT
DECEMBER 29, 2001
TABLE OF CONTENTS
Page
PART I
Item 1. Business.............................................. 1
Item 2. Properties............................................ 9
Item 3. Legal Proceedings..................................... 9
Item 4. Submission of Matters to a Vote of Security
Holders............................................... 10
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters........................... 10
Item 6. Selected Financial Data............................... 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 13
Item 8. Financial Statements and Supplementary Data........... 18
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................ 18
PART III
Item 10. Directors and Executive Officers of the Registrant.... 18
Item 11. Executive Compensation................................ 18
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................ 18
Item 13. Certain Relationships and Related Transactions........ 18
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K........................................... 18
<page>
PART I
------
ITEM 1. BUSINESS
STATEMENT REGARDING FORWARD LOOKING STATEMENTS
- ----------------------------------------------
Except for the historical information and current statements contained
in this Annual Report, certain matters discussed herein, including, without
limitation, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" are forward looking statements that involve risks and
uncertainties, including, without limitation, the effect of economic and
market conditions and competition, the ability to open new stores and expand
into new markets, and risks relating to foreign importing operations, which
would cause actual results to differ materially.
GENERAL
- -------
Cache, Inc. (together with its subsidiaries, the "Company") is a
specialty retailer which operates stores and an on-line e-commerce web-site
(www.cache.com), which sells women's apparel and accessories under the trade
names Cache and Lillie Rubin. As of February 28, 2002, the Company operated
222 stores. The Company operates using two formats:
CACHE. Founded in 1975, Cache stores specialize in the sale of
fashion women's apparel (including dresses and sportswear), as well as
accessories, in the better to expensive price range, focusing on social
occasion dressing from informal get-togethers to formal black-tie
affairs. At February 28, 2002, the Company operated 197 Cache stores.
The Company plans to add approximately ten new Cache stores in Fiscal
2002.
LILLIE RUBIN. The Company acquired the leases of 12 Lillie Rubin
stores in August 1998. Lillie Rubin offers sophisticated high fashion
women's apparel (primarily dresses) and accessories, in the better to
expensive price range, focusing on special occasion dressing. In January
2000, the Company acquired the leases of seven additional stores. The
Company also opened 6 additional new stores during the fall of Fiscal 2000.
At February 28, 2002 the Company operated 25 Lillie Rubin stores. The
Company will open approximately five new Lillie Rubin stores in Fiscal
2002.
The Company's stores currently operate in 39 states, as well as in
Puerto Rico. Stores are concentrated in large metropolitan and suburban areas
and are located in the finest shopping malls in the country. The typical store
averages 2,000 square feet and sells better sportswear, evening wear and
upscale accessories.
The Company was incorporated in the state of Florida on April 25, 1975.
The Company's principal executive offices are located at 1460 Broadway, New
York, New York 10036 and its telephone number is (212) 575-3200.
1
<page>
MERCHANDISING
- -------------
The Company's merchandise assortment in the Cache store format is
classified under three major categories: sportswear, dresses and accessories.
The sportswear classification is the largest segment of merchandise. It
encompasses sportswear separates, casual wear, collections, day and evening
suitings. Average sportswear price points range from $40 to $350. The dress
category includes both long and short dresses, available primarily for after
five and social occasion dressing. The dress category also includes, to a
lesser degree, day dress classifications. Average price points of Cache's
dresses range from $125 to approximately $450. Cache accessories focus on key
classifications including jewelry, belts, hats and handbags. The average
price points on accessories range from $40 to $150. Gross margins do not
vary significantly between the three major merchandise categories. Sales by
category, (as a percent of total sales), have not varied significantly over
the past several years. Fully allocated gross profit percentages by
classification have not varied significantly by year.
The Lillie Rubin stores carry merchandise assortments under the same
three categories, dresses, sportswear and accessories. However, Lillie Rubin
stores offer more dresses than a typical Cache store and at price points
approximately 25% higher than Cache. The Lillie Rubin customer tends to be
more mature and has more disposable income than the average Cache customer.
The following table sets forth the percentage of net sales by
merchandise classification;
Fiscal Fiscal Fiscal
Merchandise Classification 2001 2000 1999
- -------------------------- ------ ------ ------
Sportswear 64.6% 63.7% 62.7%
Dresses 27.0% 28.0% 29.3%
Accessories 8.4% 8.3% 8.0%
------ ------ ------
100.0% 100.0% 100.0%
====== ====== ======
The Company's buyers work closely with the designers, merchandisers, and
stylists in the apparel market, to develop and create new and exciting
products. The buying department generally places an order with a vendor for
a specific number of articles based on historical records and its impressions
of how well the articles will be received by our customers. After the order
is written, the planning department distributes the merchandise based on
historical data, sales patterns, store size, location, demographics and
seasonality. Internally, the Company groups its stores based primarily on
annual sales volumes and geographic location in order to distribute
merchandise. The Company also utilizes a basic core resource structure where
core merchandise is sold by all stores, while more discrete purchases are
made from select vendors and placed in different stores so as to enable the
Company to provide diverse merchandise choices at different locations.
Inventory levels and styles are evaluated weekly to determine any slow-
moving merchandise. In general, the Company permanently marks items down as
a result of change in customer preference, seasonality and if inventory
levels exceed customer demand. Generally, the Company does not offer timed
promotional sales.
2
<page>
During Fiscal 2001, the Company reduced the number of suppliers it does
business with to less than 300 vendors. In addition, the Company negotiated
improved pricing for merchandise by commiting to base fabric strategies with
its manufacturers resulting in higher gross margins. During Fiscal 2000, the
Company purchased merchandise from more than 500 suppliers located in North
America, Europe and Asia.
In Fiscal 2001, the Company purchased approximately 98% of the
merchandise sold from domestic vendors and approximately 2% from foreign
vendors. At the present time, the Company does not anticipate purchasing more
than 10% of the merchandise from foreign vendors in 2002. The Company's
importing operations are subject to the contingencies generally associated
with foreign operations, including fluctuations in currency values, customs
duty increases and quota limitations. These importing contingencies have not
had nor are expected to have a material impact on the Company's operating
results.
MERCHANDISE DISTRIBUTION
- ------------------------
The Company utilizes the "Drop Ship" method to distribute merchandise
directly from vendors to the stores. Under the Drop Ship method of
distribution, the Company's suppliers are provided distribution directions,
as well as packing lists, and are required to prepare and pack the
merchandise for shipment via commercial carriers to the Company's stores.
Drop Ship decreases the Company's distribution expenses and reduces the time
required to deliver merchandise to its stores.
The Company utilizes a contract warehouse in New Jersey to serve as a
staging area for new store fixtures and inventories. The Company distributes
most imported merchandise directly from overseas vendors to the Company's
stores, via common carriers.
STORE LOCATION AND EXPANSION
- ----------------------------
As of February 28, 2002, the Company operated 222 stores located in 39
states, as well as Puerto Rico. The following table sets forth the stores
that were open as of such date and the states in which such stores are
located.
Cache stores:
-------------
Alabama 4 Louisiana 4 Oklahoma 2
Arizona 3 Maryland 5 Oregon 2
Arkansas 1 Massachusetts 6 Pennsylvania 7
California 19 Michigan 5 Rhode Island 2
Colorado 2 Minnesota 1 South Carolina 3
Connecticut 4 Mississippi 1 Tennessee 5
Delaware 1 Missouri 1 Texas 16
Florida 28 Nebraska 1 Virginia 5
Georgia 6 Nevada 6 Washington 3
Hawaii 2 New Jersey 11 West Virginia 1
Illinois 6 New Mexico 1 Wisconsin 1
Indiana 2 New York 11 Puerto Rico 1
Kansas 2 North Carolina 5
Kentucky 2 Ohio 9
Totals 197
===
3
<page>
Lillie Rubin stores:
--------------------
Alabama 1 Louisiana 1 Ohio 1
Arizona 1 Michigan 1 Pennsylvania 1
Colorado 1 Nevada 1 Tennessee 1
Florida 9 New Jersey 1 Texas 3
Georgia 2 North Carolina 1
Totals 25
==
The Company opened one new Lillie Rubin store and nine new Cache stores
in 2001. The Company expects to open approximately ten Cache stores and
approximately five Lillie Rubin stores during 2002, depending on business
conditions. The Company continually reviews locations for possible new
stores. Store locations are selected on the basis of several factors,
including selection of a dominant fashion mall or malls within a specific
geographic area, demographics, principal and "anchor" stores in the mall,
location of the store within the mall, the types of other specialty stores
located in the mall and terms of the lease. The following table presents
information reflecting store openings and closings over the last five years:
Stores Stores Stores Stores
Open at Opened Closed Open at
beg.of during during end of Total
Fiscal Fiscal Fiscal Year Fiscal Year Fiscal Year square
year year Cache L.R. Cache L.R. Cache L.R. Totals footage
- ------ ------- ----- ---- ----- ---- ----- ---- ------ -------
1997 161 8 - - - 169 - 169 351,000
1998 169 4 12 1 - 172 12 184 390,000
1999 184 13 6 2 - 183 18 201 424,000
2000 201 8 8 1 1 190 25 215 448,000
2001 215 9 1 2 1 197 25 222 460,000
During 2001, the Company spent approximately $1,896,000 to remodel
eleven stores. The Company expects to continue remodeling selected stores
during 2002. Most store remodels take from four to six weeks to complete,
but rarely require closing the store. The Company spent $861,000 (3 stores)
and $1,224,000 (5 stores) on remodeling, in Fiscal 2000 and 1999,
respectively. The Company closed three stores in 2001, two stores in 2000
and two stores in 1999. None of the store closings had a material effect on
the Company's financial statements.
The Company currently has 460,000 square feet of store space as of
February 28, 2002 including 12,000 square feet of store space added during
Fiscal 2001. The Company also added 24,000 and 34,000 square feet of store
space in Fiscal 2000 and 1999, respectively. During Fiscal 2002, the
Company expects to open approximately ten new Cache stores, as well as
approximately five new Lillie Rubin stores, which would add approximately
30,000 square feet of store space, bringing total store square footage to
approximately 500,000 square feet. See "Management's Discussion and
Analysis - Liquidity and Capital Resources" for a discussion of the
restrictions on capital expenditures in the Company's Revolving Credit
Agreement.
4
<page>
Stores generally range in size from approximately 900 to 3,900 square
feet, with the typical store averaging approximately 2,000 square feet.
The typical store front is 20 to 30 feet in width. Store hours are
generally determined by the mall in which the store is located. Most stores
are open seven days and six nights a week, except major holidays.
As is customary in the industry, when the Company leases space in a
newly constructed urban, regional or specialty shopping mall, it leases the
bare space. The Company then contracts with an architect to design a Cache
store to fit the specifications of the leased space and selects a
contractor to do the actual construction. It generally takes four to six
weeks to complete construction, after all permits and drawings have been
approved. In most cases, the Company receives from the lessor a
construction allowance to help defray a portion of the costs of
improvements to the leased space. Rental terms usually include a fixed
minimum rent plus a percentage rent based on sales in excess of a specified
amount. In addition, there is generally a charge incurred for one or more
of the following: common area maintenance, utility consumption, promotional
activities and/or advertising, insurance and real estate taxes.
STORE OPERATIONS
- ----------------
Control over store operations is the responsibility of the Executive
Vice President of Store Operations, who is assisted by three Regional Vice
Presidents and 23 District Managers. A typical store is staffed by a
manager, co-manager, an assistant manager and a number of full and part-
time sales personnel. Special emphasis is placed on the recruitment of
fashion-conscious and career-oriented sales personnel. The Company trains
the majority of new store managers in designated training stores. The
Company trains most new store sales personnel on the job, stressing the
Company's concept of fashion and responsiveness to customer needs. Store
personnel are provided centralized guidance on merchandising presentation
including regular updates on fashion trends in the coming seasons.
Store managers and co-managers are compensated in the form of salaries
and performance based bonuses. Sales associates and assistant managers are
paid on an hourly basis plus performance incentives. From time to time,
the Company offers additional incentives to both management and sales
associates for enhanced sales. Those incentives generally are in the form
of sales contests, which occur over a specific time period with regular
motivational progress reports distributed to all stores.
The Company targets specific hourly sales performance from its sales
team, the store manager, the co-managers, assistant managers and sales
associates. Assisted by its preferred customer tracking system, management
encourages store personnel to identify and maintain contact with customers,
with the objective of converting infrequent shoppers into loyal clients.
5
<page>
Customer service is one of the most important responsibilities of our
employees. Sales associates are encouraged to inform regular customers of
new articles which may be of interest to them and provide customers with
assistance in coordinating wardrobe selections. Our systems allow a
customer the ability to special order for overnight delivery at her home
any merchandise available in its chain through its automated special order
system. The Company also offers a liberal return policy, which it believes
is comparable to those offered by better department stores and other
specialty retail stores. The Company encourages store management to become
involved in community affairs and to make contacts outside the work place
to develop potential customers. Stores are encouraged to participate in
local charity fashion shows to enhance name recognition and meet potential
customers. Select stores host trunk shows several times each year to
present certain merchandise to customers.
INFORMATION SYSTEMS
- -------------------
The Company invests in technology for the future through both hardware
and software investments. The Company's point of sale store computer
system (the "POS System") offers a fully integrated device with customized
software designed to help the Company maximize its business. The POS
System enables cash register/terminals located in each store the ability to
communicate with the host computer at the corporate office in New York.
The software includes a preferred customer tracking system, which allows
sales associates and store management to review customer purchases and also
to maintain customer contact with the objective of making an infrequent
shopper a regular customer. The system has been modified and customized to
allow the Company the ability to market particular sales events to those
customers who would most likely be interested in the special event.
The Company has a special order system which is designed to permit it
to provide maximum customer services and, at the same time, minimize its
inventory investment. The system tracks the availability of merchandise
throughout the chain including information on choice of colors available.
The Company's POS System also provides many administrative functions
including payroll, merchandise receipt and store merchandise transfers as
well as featuring a complete price look-up function.
The Company's Home Office systems are also designed to maximize
efficiency. Particular emphasis has been placed on the development of
support systems to enhance the Company's return on its merchandise
inventory. These systems include automated tracking of fast selling
merchandise, stock replenishment based upon store inventory turn and sales
statistics, a merchandise test tracking system which allows buyers to
review quickly, even on a daily basis, customers' response to merchandise
purchased on a test basis for possible reorder, automated transfer analysis
and a complete gross margin analysis by merchandise vendor, as well as
gross margin department analysis systems.
6
<page>
In August 1999, the Company launched the Company's on-line e-commerce
and fashion web site www.cache.com. The Company has periodically modified
-------------
the website to reflect changing technology. The latest version was launched
in March 2002 and captured elements of the Company's latest marketing
campaign.
ADVERTISING AND PROMOTION
- -------------------------
The Company's primary marketing tools are advertisements in print
media and direct mailings. Over the years, the Company has advertised in
such national fashion magazines as In Style and Vogue. The Company spent
$1,742,000, $799,000 and $517,000 for advertising, net of any
reimbursements in Fiscal 2001, 2000 and 1999, respectively. The Company
increased its commitment to advertising exposure in Fiscal 2001 and plans
to further expand advertising exposure in Fiscal 2002. Cache plans to spend
in excess of $3.0 million in both print media and direct mailings in Fiscal
2002 and for the first time to post outdoor advertising in selected
markets.
EMPLOYEE RELATIONS
- ------------------
As of February 28, 2002, the Company had approximately 1,775
employees, of whom 975 were full-time employees and 800 were part-time
employees. None of these employees are represented by a labor union. The
company considers its employee relations to be satisfactory.
COMPETITION
- -----------
The sale of women's apparel is a highly competitive business. The
Company competes with department stores and other retailers of women's
apparel in proximity to the Company's stores. The Company's approach to
retailing has been to concentrate on securing prime locations and to cater
to the high end of the women's fashion market through innovative and
distinctive design of its physical facilities, the purchasing of high-
quality and well-coordinated inventory and the rendering of personalized
service to the customer. Merchandise is sold for cash, check or by
third party credit card.
TRADEMARKS AND SERVICE MARKS
- ----------------------------
The Company is the owner in the United States of the trademark and
service mark "Cache", as well as, the trademark and service mark "Lillie
Rubin". These marks are registered with the United States Patent and
Trademark Office. Each federal registration is renewable indefinitely if
the mark is still in use at the time of renewal. The Company's rights in
the "Cache" mark and "Lillie Rubin" mark are a significant part of the
Company's business. Accordingly, the Company intends to maintain its marks
and the related registrations. The Company is not aware of any material
claims of infringement or other challenges to the Company's right to use
its marks in the United States.
7
<page>
EXECUTIVE OFFICERS OF THE COMPANY
- ---------------------------------
The Company's executive officers are as follows:
Name Age Position
----------------- --- -----------------------------------------
Brian Woolf 53 Chairman of the Board/
Chief Executive Officer and Director
Thomas Reinckens 48 President/
Chief Operating Officer and Director
Roy Smith 63 Executive Vice President/
Director of Store Operations and Director
Mae Soo Hoo 47 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.
Brian Woolf joined the Company on October 4, 2000 as Chairman of the
Board of Directors and Chief Executive Officer. Mr. Woolf held the position
of Executive Vice President and General Merchandise Manager at the Limited,
prior to coming to the Company.
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.
He was appointed President and Chief Operating Officer on October 4, 2000.
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.
Mae Soo Hoo joined the Company in February 1987 as a Vice President of
Merchandising. She was also appointed to the Board of Directors on
September 13, 1995 and was appointed Executive Vice President/General
Merchandise Manager on that date. She was appointed Executive Vice
President/ General Merchandise Manager of Lillie Rubin on October 4, 2000.
8
<page>
ITEM 2. PROPERTIES
All but 2 of the Company's 222 stores are located in shopping malls.
Existing stores contain from approximately 900 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 2013. The Company renegotiated
lease terms on approximately 25 stores in 2001, 20 leases of which were due
to expire in 2002. 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 28, 2002, which expire during the periods indicated.
Number of Leases Expiring
-------------------------
Lillie
Fiscal Years Ending Cache Rubin Totals
------------------- ----- ------ ------
Present - 2004..... 54 8 62
2005 - 2007........ 74 3 77
2008 - 2010........ 36 9 45
2011 - 2013........ 33 5 38
----- ------ ------
197 25 222
===== ====== ======
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 2004.
ITEM 3. LEGAL PROCEEDINGS
The Company recorded a one-time benefit of $1,518,000 related to the
settlement of a lawsuit during the first quarter of Fiscal 2001. The
lawsuit involved alleged trademark infringement by a third party.
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.
9
<page>
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 29, 2001.
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 2001 and 2000, by fiscal quarters, are as follows:
Fiscal 2001 Fiscal 2000
---------------- -----------------
Fiscal Period High Low High Low
- ------------- ------ ----- ------ ------
First Quarter $ 5.00 $ 2.59 $ 6.75 $ 3.56
Second Quarter $ 4.54 $ 3.00 $ 5.38 $ 3.31
Third Quarter $ 4.50 $ 3.06 $ 4.63 $ 2.66
Fourth Quarter $ 3.80 $ 3.15 $ 3.25 $ 1.72
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 28, 2002, there were approximately 600 holders of
record of the Company's Common Stock.
(c) The Company has not declared any cash dividends during the past
three years with respect to its Common Stock and does not anticipate paying
any cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following Selected Consolidated Financial Data should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto.
10
<page>
<table>
CACHE, INC. AND SUBSIDIARIES
STORE DATA AND OPERATING RESULTS
<caption>
FISCAL YEAR ENDED (1)
------------------------------------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1, JANUARY 2, DECEMBER 27,
2001 2000 2000 1999 (1) 1997
------------------------------------------------------------------
(in thousands, except store and per share data) (2)
<s>
STORE DATA:
- ------------------------------------ <c> <c> <c> <c> <c>
# OPEN AT END OF PERIOD 222 215 201 184 169
# OPEN AT BEGINNING OF PERIOD 215 201 184 169 161
# OPENED DURING PERIOD 10 16 19 16 8
# CLOSED DURING PERIOD 3 2 2 1 --
AVERAGE SALES PER SQUARE FOOT (3) $408 $409 $400 $403 $397
COMPARABLE STORE SALES INCREASE (4) FLAT 3% 5% 2% 1%
OPERATING RESULTS:
- -------------------------------------
NET SALES $179,899 $176,470 $161,373 $146,831 $135,791
------------------------------------------------------------------
GROSS INCOME 63,553 59,022 56,228 51,572 46,599
STORE OPERATING, GENERAL AND
ADMINISTRATIVE EXPENSES 60,218 57,309 50,021 44,975 42,417
------------------------------------------------------------------
OPERATING INCOME 3,335 1,713 6,207 6,597 4,182
OTHER INCOME (5) 1,858 64 286 227 42
INTEREST EXPENSE --- (40) (134) (154) (214)
------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 5,193 1,737 6,359 6,670 4,010
INCOME TAX PROVISION 1,895 634 2,350 2,735 1,645
------------------------------------------------------------------
NET INCOME $3,298 $1,103 $4,009 $3,935 $2,365
==================================================================
EARNINGS PER SHARE:
- -------------------------------------
BASIC EARNINGS PER SHARE $0.36 $0.12 $0.44 $0.43 $0.26
DILUTED EARNINGS PER SHARE $0.36 $0.12 $0.43 $0.43 $0.26
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING(2) 9,229 9,224 9,305 9,170 9,103
</table>
FOOTNOTES
- ---------
(1) - Results for the Fiscal year ended January 2, 1999 include 53 weeks.
Results for all other periods presented include 52 weeks.
(2) - Weighted average shares for the Fiscal years ended December 29, 2001,
December 30, 2000, January 1, 2000, January 2,1999 and December 27, 1997,
include 138,000:133,000:214,000; 79,000; and 12,000, respectively due
to the potential exercise of outstanding stock options that were
outstanding and exercisable in Fiscal 2001, 2000, 1999, 1998, and 1997,
in accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share".
(3) - Average sales per square foot are calculated by dividing net sales by the
weighted average store square footage available.
(4) - Comparable store sales data are calculated based on the net sales of
stores open at least 12 full months at the beginning of the period for
which the data are presented.
(5) - Other income in Fiscal 2001 included $1,518,000 from the settlement of a
trademark litigation claim undertaken against a third party, net of
professional fees related to the lawsuit.
11
<page>
<table>
CACHE, INC. AND SUBSIDIARIES
BALANCE SHEET DATA
<caption>
FISCAL YEAR ENDED
------------------------------------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1, JANUARY 2, DECEMBER 27,
2001 2000 2000 1999 1997
-------------------------------------------------------------------
(in thousands, except ratios and per share data)
<s> <c> <c> <c> <c> <c>
CURRENT ASSETS $39,862 $36,828 $38,364 $35,273 $26,682
CURRENT LIABILITIES 19,665 20,663 23,487 19,899 15,700
WORKING CAPITAL 20,197 16,165 14,877 15,374 10,982
TOTAL ASSETS 57,135 55,051 56,962 51,558 43,508
TOTAL LONG-TERM DEBT --- --- --- 2,000 2,000
STOCKHOLDERS' EQUITY 36,306 33,008 31,905 27,896 23,961
RATIO OF CURRENT ASSETS TO
CURRENT LIABILITIES 2.03:1 1.78:1 1.63:1 1.77:1 1.70:1
INVENTORY TURNOVER RATIO 5.07:1 4.84:1 4.86:1 5.13:1 4.92:1
CAPITAL EXPENDITURES 4,330 4,852 6,354 3,266 3,418
DEPRECIATION AND AMORTIZATION 4,870 4,891 4,602 4,136 3,898
DEBT TO EQUITY RATIO --- --- --- .07:1 .08:1
BOOK VALUE PER SHARE $3.99 $3.63 $3.51 $3.07 $2.64
</table>
12
<page>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
STATEMENT REGARDING FORWARD LOOKING STATEMENTS
- ----------------------------------------------
Except for the historical information and current statements
contained in this Annual Report, certain matters discussed herein,
including, without limitation, "Management's Discussion and Analysis of
statements that involve risks and uncertainties, including, without
limitation, the effect of economic and market conditions and
competition, the ability to open new stores and expand into new markets,
and risks relating to foreign importing operations, which would cause
actual results to differ materially.
Liquidity and Capital Resources
- -------------------------------
The Company has generally funded through internally generated cash
flows the payments for new store merchandise inventories, as well as
costs associated with the construction of new stores. During Fiscal
2001, 2000 and 1999, the Company expended approximately $4,330,000,
$4,852,000 and $6,354,000 respectively, for new store construction,
store renovation and equipment additions. Should cash flow from
operations decrease, the company has a $15,000,000 credit line available
to fund operations, if necessary.
During Fiscal 2001, the Company generated $9,588,000 in cash from
operating activities. The Fiscal 2001 expansion included expenditures of
approximately $1,195,000 for nine new Cache stores and one new Lillie
Rubin store, $1,896,000 for remodeling 11 existing Cache and Lillie
Rubin stores and $1,239,000 primarily for store equipment and fixture
additions. The Company expects to open approximately ten new Cache
stores in 2002, and approximately 5 new Lillie Rubin stores. The Company
estimates that the total capital expenditures for new stores to be
opened in Fiscal 2002 and remodeling of certain existing stores will be
approximately $5,000,000. The Company also estimates that the average
cost for initial store inventory investment at new stores ranges between
$70,000 and $110,000 per store depending upon the store size and when it
is opened. The capital expenditure amounts include estimated
expenditures for leasehold improvements and fixtures, after landlord
allowances.
At December 29, 2001, the Company had $12,101,000 in cash and
equivalents. The Company primarily invests in short term commercial
paper and money market funds, for any excess cash on hand. The Company
does not invest in stock options or other derivative instruments.
Accounts payable decreased by $1,227,000, due to lower inventory levels
at year end Fiscal 2001. Prepaid income taxes decreased $688,000 due to
reduced estimated tax payments. Receivables increased $1,060,000
primarily due to receivables related to the legal settlement and notes
receivable from related parties decreased by $350,000 due to the
repayment of a short term loan by one of the executive officers.
13
<page>
During July 1999, the Company reached an agreement with its Bank to
extend the maturity of the Amended Revolving Credit Facility until
January 31, 2003. The Company's current Amended Revolving Credit
Facility may be used for either working capital or for letters of
credit. Pursuant to the Amended Revolving Credit Facility, $15,000,000
is available until expiration at January 31, 2003. The amounts
outstanding thereunder bear interest at a maximum per annum rate equal
to the bank's prime interest rate. The agreement contains selected
covenants including covenants to maintain a minimum current ratio, a
maximum debt to equity ratio, a maximum capital expenditure covenant and
a minimum fixed charge coverage ratio. Effective upon the occurrence of
an "event of default" under the Revolving Credit Facility, the Company
grants to the bank a security interest in the Company's inventory and
certain receivables. At December 29, 2001 and at December 30, 2000,
there was no amount outstanding on the line; in addition, the Company
had $446,000 in standby letters of credit outstanding pursuant to the
Revolving Credit Facility, at December 29, 2001.
Management believes that the Company's internally generated cash
flows will be sufficient to meet anticipated requirements for operations
and planned expansion during 2002.
Results of Operations
- ---------------------
Results for Fiscal 2001, 2000 and 1999 include fifty-two weeks. For
the Fiscal year ended December 29, 2001, two major factors contributed
to the increase in pre-tax income as compared to Fiscal 2000. The
increase in gross margin, together with a net lawsuit settlement of
$1,518,000 were the primary factors driving the increase in pre-tax
income in Fiscal 2001. The Company believes its strategic actions,
primarily refocusing on buying strategies, such as quantity buys and
base fabric strategies contributed to strong Fall profitability despite
lower sales volumes. The Company anticipates gross margins to improve in
Fiscal 2002 and beyond as these strategies contributed to strong Fall
profitability despite lower sales volumes, the company anticipates gross
margins to improve in Fiscal 2002 and beyond as these strategies
continue to be implemented. Comparable store sales (sales for stores
open at least one year or more), were flat in Fiscal 2001, increased 3%
in Fiscal 2000, and increased 5% in Fiscal 1999.
Over the last several years, the Company has experienced and
expects to continue to experience quarterly fluctuations in net sales
and net income. The Company typically experiences higher net sales and
net income in the second and fourth quarters than in the first and third
quarters. The Company's quarterly results of operations may also
fluctuate as a result of a variety of factors, including the timing of
new store openings and the net sales contributed by new stores,
increases or decreases in comparable store sales, adverse weather
conditions, shifts in the timing of changes in the merchandise mix and
the timing and level of markdowns. See Note 11 to the Company's
consolidated financial statements on page I-17, which sets forth certain
unaudited results of operations for the Company's eight fiscal quarters
ended December 29, 2001.
14
<page>
Certain financial data for Fiscal years 2001, 2000 and 1999 expressed as
a percentage of net sales are as follows:
As a Percentage of Net Sales
----------------------------
Fiscal Fiscal Fiscal
2001 2000 1999
------- ------ ------
Net sales 100.0% 100.0% 100.0%
Gross profit 35.3% 33.4% 34.8%
Store operating expenses 28.5% 27.1% 26.3%
General and administrative 5.0% 5.4% 4.7%
Net income 1.8% 0.6% 2.5%
NET SALES. Net sales in Fiscal 2001 increased $3.4 million or 1.9%
to $179.9 million from $176.5 million in Fiscal 2000. The increase in
sales was primarily due to the ten new stores opened in Fiscal 2001.
Net sales in Fiscal 2000 increased to $176.5 million from $161.4
million in Fiscal 1999, an increase of $15.1 million, or 9.4%. The
increase in sales was partially due to sales generated by the Company's
16 new stores, also due to the full year sales impact for the 19 stores
which were opened in 1999, and finally, a comparable store sales
increase of 3% in Fiscal 1999.
GROSS PROFIT. Gross profit in Fiscal 2001 increased $4.5 million as
compared to Fiscal 2000. The increase was primarily due to the increase
in the initial margins on Fiscal 2001 purchases. The increase in gross
profit was partially offset by an increase in occupancy expenses of $1.3
million in Fiscal 2001, primarily due to the new stores opened during
Fiscal 2001 and Fiscal 2000, as well as higher markdowns taken in Fiscal
2001 to clear older inventory. In Fiscal 2001, gross profit as a
percentage of net sales increased by 1.9% from Fiscal 2000 (35.3% versus
33.4%). The Company expects the benefits created by higher initial
margins to continue to benefit results in Fiscal 2002 and beyond.
Gross profit in Fiscal 2000 increased $2.8 million as compared to
Fiscal 1999. The $2.8 million increase in gross profit was directly
related to higher sales in 2000 and was partially offset by an increase
in occupancy expenses of $2.3 million in Fiscal 2000, primarily due to
the new stores opened during 2000 and 1999. Gross profit in Fiscal 2000
as a percentage of net sales decreased by 1.4% from Fiscal 1999 (33.4%
versus 34.8%). The decrease was due primarily to higher markdowns and
was partially offset by higher initial margins on Fiscal 2000 inventory
purchases.
15
<page>
STORE OPERATING EXPENSES. Store operating expenses in Fiscal 2001
increased $3.5 million (7.2%) from Fiscal 2000 amounts. The increase was
due principally to higher salaries, bonuses and commissions ($2.0
million), primarily due to the increase in the average number of stores
open in Fiscal 2001 versus 2000. Other store operating expenses that
increased in Fiscal 2001 included licenses and taxes ($140,000),
advertising ($974,000), payroll taxes ($170,000) and insurance
($307,000). Several other expense categories decreased in Fiscal 2001,
partially offsetting some of the increases listed above. As a percentage
of sales, total store operating expenses increased 1.4% in Fiscal 2001,
as compared to Fiscal 2000 (28.5% versus 27.1%), as efforts to contain
expenses were not sufficient to offset lower comparable store sales and
the effect on fixed costs.
In Fiscal 2000, store operating expenses increased by $5.5 million
from Fiscal 1999 amounts. The increase was primarily due to higher
salaries, bonuses and commissions ($2.8 million), a direct result of the
increase in sales and new stores opened during 2000, and increases in
bank credit card processing fees ($433,000), advertising ($324,000),
depreciation ($288,000), insurance ($486,000), payroll taxes ($324,000)
and licenses and taxes ($318,000). During Fiscal 2000, the Company
opened 16 stores which had the effect of adding, on average, 9.1 stores
in operation as compared to 1999, a 5.5% increase. As a percentage of
sales, store operating expenses increased 0.8% in Fiscal 2000 versus
Fiscal 1999 (27.1% versus 26.3%).
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased approximately $0.6 million (5.8%) in Fiscal 2001 below Fiscal
2000. The decrease was primarily due to a reduction in professional fee
expenses ($1.0 million) and travel ($121,000), these savings were
partially offset by increases in payroll and benefits.
General and administrative expenses increased $1.8 million (23.9%)
in Fiscal 2000 over Fiscal 1999. The increase was primarily due to
higher payroll and payroll taxes ($903,000), travel ($102,000) and
professional fee expenses rose by $831,000, primarily due to costs
associated with the Company's claim of trademark infringement by a third
party.
INTEREST AND OTHER INCOME. Interest income increased to $300,000 in
Fiscal 2001 from $150,000 in Fiscal 2000. The increase was primarily due
to higher average cash on hand during Fiscal 2001 versus Fiscal 2000.
During the first quarter of Fiscal 2001, the Company recorded in other
income the settlement of a trademark litigation claim undertaken against
a third party for $1,518,000, net of professional fees related to the
lawsuit.
Interest income decreased to $150,000 in Fiscal 2000 from $315,000
in Fiscal 1999. The decrease was primarily due to lower average cash on
hand during Fiscal 2000 versus Fiscal 1999.
16
<page>
INCOME TAXES. In Fiscal 2001, the Company provided $1,895,000 for
income taxes, which consisted of $1,833,000 for federal income taxes and
$62,000 for state income taxes. The effective tax rate in Fiscal 2001
was 36.5% and taxable income in Fiscal 2001 was approximately $5.0
million.
In Fiscal 2000, the Company provided $634,000 for income taxes,
which consisted of $714,000 for federal income taxes and a benefit of
($80,000) for state income taxes. The effective tax rate in Fiscal 2000
was 36.5% and taxable income in Fiscal 2000 was approximately
$1,830,000.
In Fiscal 1999, the Company provided $2,350,000 for income taxes,
which consisted of $2,067,000 for federal income taxes and $283,000
for state income taxes. The effective tax rate in Fiscal 1999 was 37.7%
and taxable income in Fiscal 1999 was approximately $5.9 million.
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.
New Accounting Pronouncements
- -----------------------------
In July 2001, Statements of Financial Accounting Standards No. 141
"Business Combinations" ("SFAS 141") and No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142") were released. The related statements
address financial accounting and reporting for business combinations and
acquired goodwill and other intangible assets. SFAS 141 is effective for
all business combinations initiated after June 30, 2001. SFAS 142 is
effective for all fiscal years beginning after December 15, 2001.
The Company is required to adopt
SFAS 142 in Fiscal 2002. The Company has determined that the adoption of
SFAS 141 and that SFAS 142 will have no material impact on its financial
position and results of operations.
17
<page>
In October 2001, SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144") was released. This statement
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets for Long-Lived Assets to Be
Disposed Of". In August 2001, SFAS No. 143, Accounting for Asset
Retirement Obligations" ("SFAS 143") was released. This Statement
establishes accounting standards for recognition and measurement of a
liability for an asset retirement obligation and the associated asset
retirement cost. The Company has determined that the adoption of SFAS
144 and SFAS 143 will not have a material effect on its financial
position and results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's unaudited selected quarterly financial data is
incorporated herein by reference to Note 11 to the Company's
consolidated financial statements on page I-17. The Company's
consolidated financial statements and the report of independent public
accountants are listed at Item 14 of this Report and are included in
this Form 10-K on pages I-1 through I-18.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
--------
The information called for by Items 10, 11, 12, and 13 is
incorporated herein by reference from the definitive proxy statement to
be filed by the Company in connection with its 2002 Annual Meeting of
Shareholders.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) 1. The financial statements listed in the "Index To The
Consolidated Financial Statements" on page I-2 are filed
as a part of this report
2. Financial statement schedules are included on page I-18 or
are omitted because they are not applicable or the required
information is shown in the financial statements or notes
thereto.
18
<page>
3. Exhibits (5)
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) (11)
10.3 1994 Stock Option Plan of the Company (5, Exhibit
10.3 thereof) (11)
10.4 Form of Option Agreement relating to Options
issued under the 1994 Stock Option Plan
(5, Exhibit 10.4 thereof) (11)
10.5 2000 Stock Option Plan of the Company (10) (11)
10.6 Form of Option Agreement relating to Options
issued under the 2000 Stock Option Plan (11)
10.7 Second Amended and Restated Revolving Credit
Agreement (the "Credit Agreement") dated as of
August 26, 1996, between Fleet Bank, N.A.
(Successor in interest to National Westminster
Bank, New Jersey) and the Company (6)
10.8 Security Agreement, dated as of August 26, 1996,
between the Company and Fleet Bank, N. A. (6)
10.9 Form of Promissory Note made by each of Roy Smith
and Thomas Reinckens to the order of the Company,
in an amount equal to $170,000 and $80,000,
respectively, (5 Exhibit 10.14 thereof), (11)
10.10 Amended and Restated Asset Purchase Agreement
dated August 10, 1998 between Lillie Rubin
Fashions, Inc. and the Company. (7)
10.11 Master Amendment to Revolving Credit Agreement and
Security Agreement, dated July 19, 1999. (8)
19
<page>
3. Exhibits (5) (continued)
10.12 Employment Agreement, dated September 28, 2000,
between the Company and Brian Woolf (9) (11)
11.1 Calculation of Basic and Fully Diluted Earnings
per Common Share
12.1 Statements re: Computation of Ratios
24.1 Consent of Independent Public Accountants
99.1 Letter to Commission Pursuant to Temporary Note 3T
(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) Incorporated by Reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 28, 1996.
(7) Incorporated by Reference to the Company's Annual Report on
Form 10-K for the fiscal year ended January 2, 1999.
(8) Incorporated by Reference to the Company's Annual Report on
Form 10-K for the Fiscal year ended January 1, 2000.
(9) Incorporated by Reference to the Company's Annual Report or
Form 10-K for the Fiscal year ended December 30, 2000.
(10) Incorporated by Reference to the Company's Registration
Statement on Form S-8, dated March 25, 2002, Registration
No. 333-84848.
(11) Exhibits 10.2 through 10.6 and 10.12 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.
20
<page>
3. Exhibits (5) (Continued)
(12) 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: Chief Operating
Officer.
(b) Reports on Form 8-K
None
21
<page>
Signatures
----------
Pursuant to the requirement of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: March 28, 2002 CACHE, INC.
(Registrant)
By /s/ Victor J. Coster By /s/ Brian Woolf
--------------------------- ----------------------------
Victor J. Coster Brian Woolf
Treasurer Chairman and on
(Principal Accounting behalf of Cache, Inc.
Officer) and in his capacity
as Chief Executive
Officer (Principal
Executive 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/ Brian Woolf Chairman of the Board; March 28, 2002
- ----------------------- Director
BRIAN WOOLF (Chief Executive Officer)
/s/ Thomas E. Reinckens President, Director March 28, 2002
- ----------------------- (Chief Operating
THOMAS E. REINCKENS Officer)
/s/ Roy C. Smith Executive Vice President, March 28, 2002
- ----------------------- Director
ROY C. SMITH
/s/ Andrew M. Saul Director March 28, 2002
- -----------------------
ANDREW M. SAUL
/s/ Joseph E. Saul Director March 28, 2002
- -----------------------
JOSEPH E. SAUL
/s/ Morton J. Schrader Director March 28, 2002
- -----------------------
MORTON J. SCHRADER
/s/ Mark E. Goldberg Director March 28, 2002
- -----------------------
MARK E. GOLDBERG
22
<page>
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED DECEMBER 29, 2001,
DECEMBER 30, 2000,
AND
JANUARY 1, 2000
I-1
<page>
INDEX TO THE
------------
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
PAGE
----
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS I-3
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets........................... I-4
Consolidated Statements of Income..................... I-5
Consolidated Statements of Stockholders' Equity....... I-6
Consolidated Statements of Cash Flows................. I-7
Notes to Consolidated Financial Statements............ I-8
I-2
<page>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders' of
Cache, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of Cache,
Inc. (a Florida corporation)and subsidiaries as of December 29, 2001
and December 30, 2000, and the related statements of income,
stockholders' equity and cash flows for each of the three fiscal years
ended December 29, 2001. These consolidated financial statements and
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 auditing standards
generally accepted in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Cache,
Inc. and subsidiaries as of December 29, 2001 and December 30, 2000,
and the results of its operations and its cash flows for each of the
three fiscal years ended December 29, 2001 in conformity with
accounting principles generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in
the index to consolidated financial statements is presented for the
purpose of complying with the Securities and Exchange Commission's
rules and is not part of the basic financial statements. This schedule
has been subjected to the auditing procedures applied in the 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 1, 2002 /s/ Arthur Andersen LLP
I-3
<page>
<table>
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 29, 2001 AND DECEMBER 30, 2000
<caption)
<s>
A S S E T S
December 29, December 30,
2001 2000
------------ ------------
<c> <c>
CURRENT ASSETS
Cash and equivalents (Note 1) $ 12,101,000 $ 6,748,000
Receivables, net (Note 2 ) 4,318,000 3,258,000
Notes receivable from related parties (Note 6) 371,000 721,000
Inventories 21,761,000 24,123,000
Deferred income taxes and other assets (Note 9) 599,000 1,072,000
Prepaid expenses 712,000 906,000
------------ ------------
Total Current Assets 39,862,000 36,828,000
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net (Note 3) 15,906,000 16,597,000
OTHER ASSETS 825,000 869,000
DEFERRED INCOME TAXES, net (Note 9) 542,000 757,000
------------ ------------
Total Assets $ 57,135,000 $ 55,051,000
============ ============
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 $ 11,089,000 $ 12,316,000
Accrued compensation 2,135,000 1,979,000
Accrued liabilities (Note 4 ) 6,441,000 6,368,000
------------ ------------
Total Current Liabilities 19,665,000 20,663,000
------------ ------------
OTHER LIABILITIES (Note 7 ) 1,164,000 1,380,000
COMMITMENTS AND CONTINGENCIES (Note 8 )
STOCKHOLDERS' EQUITY
Common stock, par value $.01; authorized, 20,000,000
shares; issued and outstanding 9,091,338 share (Note 10) 91,000 91,000
Additional paid-in capital 19,564,000 19,564,000
Retained earnings 16,651,000 13,353,000
------------ ------------
Total Stockholders' Equity 36,306,000 33,008,000
------------ ------------
Total Liabilities and Stockholders $ 57,135,000 $ 55,051,000
============ ============
<fn>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</fn>
</table>
I-4
<page>
<table>
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 29, 2001, DECEMBER 30, 2000 AND JANUARY 1, 2000
<caption>
Fifty-Two Fifty-Two Fifty-Two
Weeks Ended Weeks Ended Weeks Ended
DECEMBER 29, DECEMBER 30, JANUARY 1,
2001 2000 2000
------------- ------------- -------------
<s> <c> <c> <c>
NET SALES $ 179,899,000 $ 176,470,000 $ 161,373,000
COST OF SALES, including buying and occupancy (Note 8) 116,346,000 117,448,000 105,145,000
------------- ------------- -------------
GROSS PROFIT 63,553,000 59,022,000 56,228,000
------------- ------------- -------------
EXPENSES
Store operating 51,289,000 47,828,000 42,366,000
General and administrative 8,929,000 9,481,000 7,655,000
------------- ------------- -------------
TOTAL EXPENSES 60,218,000 57,309,000 50,021,000
------------- ------------- -------------
OPERATING INCOME 3,335,000 1,713,000 6,207,000
------------- ------------- -------------
OTHER INCOME (EXPENSE)
Litigation settlement (net) 1,518,000 --- ---
Interest income 300,000 150,000 315,000
Miscellaneous income (net) 40,000 (86,000) (29,000)
Interest expense --- (40,000) (134,000)
------------- ------------- -------------
TOTAL OTHER INCOME 1,858,000 24,000 152,000
------------- ------------- -------------
INCOME BEFORE INCOME TAXES 5,193,000 1,737,000 6,359,000
INCOME TAX PROVISION (NOTE 9) 1,895,000 634,000 2,350,000
------------- ------------- -------------
NET INCOME $ 3,298,000 $ 1,103,000 $ 4,009,000
============= ============= =============
BASIC EARNINGS PER SHARE $0.36 $0.12 $0.44
============= ============= =============
DILUTED EARNINGS PER SHARE $0.36 $0.12 $0.43
============= ============= =============
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 9,091,000 9,091,000 9,091,000
============= ============= ============
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 9,229,000 9,224,000 9,305,000
============= ============= ============
<fn>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</fn>
</table>
I-5
<page>
<table>
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 29, 2001, DECEMBER 30, 2000 AND JANUARY 1, 2000
<caption>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------------ ------------ ------------ ------------
<s> <c> <c> <c> <c>
BALANCE JANUARY 2, 1999 $ 91,000 $ 19,564,000 $ 8,241,000 $ 27,896,000
-----------------------
Net Income --- --- 4,009,000 4,009,000
------------ ------------ ------------ ------------
BALANCE JANUARY 1, 2000 91,000 19,564,000 12,250,000 31,905,000
----------------------- ------------ ------------ ------------ ------------
Net Income --- --- 1,103,000 1,103,000
------------ ------------ ------------ ------------
BALANCE DECEMBER 30, 2000 91,000 19,564,000 13,353,000 33,008,000
------------------------- ------------ ------------ ------------ ------------
Net Income --- --- 3,298,000 3,298,000
------------ ------------ ------------ ------------
BALANCE DECEMBER 29, 2001 $ 91,000 $ 19,564,000 $ 16,651,000 $ 36,306,000
------------------------- ============ ============ ============ ============
<fn>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</fn>
</table>
I-6
<page>
<table>
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 29, 2001, DECEMBER 30, 2000 AND JANUARY 1, 2000
<caption>
DECEMBER 29, DECEMBER 30, JANUARY 1,
2001 2000 2000
<s> ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
------------------------------------- <c> <c> <c>
Net income $ 3,298,000 $ 1,103,000 $ 4,009,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,870,000 4,891,000 4,602,000
Gain on litigation settlement (1,518,000) --- ---
Decrease (increase) in deferred taxes 688,000 (709,000) (182,000)
Reversal of future rent escalations (289,000) (165,000) (88,000)
Change in assets and liabilities:
Decrease (increase) in receivables 1,040,000 (517,000) (1,216,000)
Decrease (increase) decrease in notes receivable from related parties 350,000 (465,000) 39,000
Decrease (increase) in inventories 2,362,000 276,000 (5,488,000)
Decrease (increase) in prepaid expenses 194,000 (182,000) (95,000)
(Decrease) increase in accounts payable (1,227,000) (3,995,000) 3,133,000
Decrease in income taxes payable --- --- (943,000)
(Decrease) increase in accrued liabilities and accrued compensation (180,000) 1,462,000 846,000
------------ ------------ ------------
Net cash provided by operating activities 9,588,000 1,699,000 4,617,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
-------------------------------------
Payments for equipment and leasehold improvements (4,330,000) (4,852,000) (6,354,000)
Disposal of property and equipment 103,000 36,000 86,000
------------ ------------ ------------
Net cash used in investing activities (4,227,000) (4,816,000) (6,268,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
-------------------------------------
Proceeds from long-term bank debt --- 10,400,000 1,000,000
Repayment of long-term bank debt --- (10,400,000) (1,000,000)
Repayment of notes payable to related party --- --- (2,000,000)
Other, net (8,000) 17,000 (221,000)
------------ ------------ ------------
Net cash (used in) provided by financing activities (8,000) 17,000 (2,221,000)
------------ ------------ ------------
Net increase (decrease) in cash and equivalents 5,353,000 (3,100,000) (3,872,000)
Cash and equivalents, at beginning of period 6,748,000 9,848,000 13,720,000
------------ ------------ ------------
Cash and equivalents, at end of period $ 12,101,000 $ 6,748,000 $ 9,848,000
============ ============ ============
<fn>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</fn>
</table>
I-7
<page>
CACHE, INC. AND SUBSIDIARIES
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
- --------
Cache, Inc. (together with its subsidiaries, the "Company") owns
and operates two chains of women's apparel specialty stores, of which
197 stores are operated under the trade name "Cache". In addition, 25
stores are operated under the trade name "Lillie Rubin". The Company
specializes in the sale of high fashion women's apparel and accessories
in the better to expensive price range.
Basis of Consolidation
- ----------------------
The consolidated financial statements include the accounts of the
Company, including subsidiaries. All significant intercompany balances
and transactions have been eliminated.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Fiscal Reporting Period
- -----------------------
The Company reports its annual results of operations based on
fiscal periods comprised of 52 or 53 weeks, which is in accordance with
industry practice. Results for Fiscal 2001, 2000 and 1999 include 52
weeks.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amounts of accounts receivable, accounts payable and
accrued liabilities approximate fair value due to the short-term nature
of such items.
Cash Equivalents
- ----------------
The Company considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
Inventories
- -----------
Inventories are valued at the lower of average cost or market,
using the retail inventory method of accounting.
I-8
<page>
Equipment and Leasehold Improvements
- ------------------------------------
Equipment and leasehold improvements are stated at cost.
Depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the related assets which
generally range from 3 to 10 years. For income tax purposes, accelerated
methods are generally used. Leasehold improvements are amortized over
the shorter of their useful life or lease term. In accordance with
Statement of Financial Accounting Standards ("SFAS")No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of," the Company continually evaluates, based upon income
and/or cash flow projections, whether events and circumstances have
occurred that indicate that the remaining balances of the property and
equipment may not be recoverable.
Goodwill
- --------
The Company recorded goodwill totaling $440,000 related to the
purchase of Lillie Rubin assets in Fiscal 1999. Accumulated amortization
at December 29, 2001 and December 30, 2000 was $100,000 and $71,000,
respectively. In accordance with SFAS 142 (see "New Accounting
Pronouncements" below), the Company will no longer amortize goodwill,
instead the Company will evaluate annually the reasonableness of the
carrying value of the goodwill and adjust the balance accordingly.
Revenue Recognition
- -------------------
Revenue is recognized by the Company upon completion of a sale to
the customer. An appropriate reserve for estimated sales returns is
recorded based on historical experience and is reflected in accrued
liabilities.
Deferred Rent
- -------------
Many of the Company's operating leases contain predetermined fixed
increases of the minimum rental rate during the initial lease term. For
these leases, the Company recognizes the related rental expense on a
straight-line basis and records the difference between the amount
charged to expense and the rent paid as deferred rent.
Advertising costs
- -----------------
Costs associated with advertising are charged to expense when the
advertising first takes place. The Company spent $1,742,000, $799,000
and $517,000 on advertising in Fiscal 2001, 2000 and 1999, respectively.
Pre-Opening Store Expenses
- --------------------------
Expenses associated with the opening of new stores are expensed as
incurred.
Employee Benefit Plan
- ---------------------
The Company's 401(k) plan is for employees eligible to participate
in the plan if they have been employed by the Company for one year, have
reached age 21, and work at least 1,000 hours annually.
I-9
<page>
Generally, employees can defer up to 18% of their gross wages up to the maximum
limit allowable under the Internal Revenue Code. The employer can make
a discretionary matching contribution for the employee. Employer
contributions to the plan for Fiscal 2001, Fiscal 2000 and Fiscal 1999
were $184,000, $154,447 and $142,329, respectively.
Income Taxes
- ------------
The Company accounts for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes." This statement requires the Company
to recognize deferred tax liabilities and assets for the expected future
tax consequences of events that have been recognized in the Company's
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between
the financial statement carrying amounts and tax bases of assets and
liabilities, using applicable tax rates for the years in which the
differences are expected to reverse.
Earnings per Share
- ------------------
Basic earnings per share (EPS) is computed as net earnings divided
by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur
from common shares issued through the exercise of outstanding dilutive
stock options.
The stock options issued on October 2, 2001, October 4, 2000, February 2,
1999, January 20, 1999, December 10, 1997 and October 28, 1995 were included
in the computation of Diluted EPS and resulted in 138,000, 133,000 and
214,000 shares for Fiscal 2001, 2000 and 1999, respectively, included in
weighted average shares outstanding. All options were still outstanding
at December 29, 2001.
New Accounting Pronouncements
- -----------------------------
In July 2001, Statements of Financial Accounting Standards No. 141
"Business Combinations" ("SFAS 141") and No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142") were released. The related statements
address financial accounting and reporting for business combinations and
acquired goodwill and other intangible assets. SFAS 141 is effective for
all business combinations initiated after June 30, 2001. SFAS 142 is
effective for all fiscal years beginning after December 15, 2001.
The Company is required to adopt
SFAS 142 in Fiscal 2002. The Company has determined that the adoption of
SFAS 141 and SFAS 142 will have no material impact on its financial
position and results of operations.
In October 2001, SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144") was released. This statement
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets for Long-Lived Assets to Be
Disposed Of". In August 2001, SFAS No. 143, Accounting for Asset
Retirement Obligations" ("SFAS 143") was released.
I-10
<page>
This Statement establishes accounting standards for recognition and
measurement of a liability for an asset retirement obligation and the
associated asset retirement cost. The Company has determined that the
adoption of SFAS 144 and SFAS 143 will not have a material effect on its
financial position and results of operations.
Supplemental Statements of Cash Flow Information
- ------------------------------------------------
The Company paid interest of $0, $40,000 and $134,000 in Fiscal
2001, 2000 and 1999, respectively. During Fiscal 2001, 2000 and 1999 the
Company paid $1,228,000, $1,234,000 and $3,475,000 in income taxes,
respectively.
Prior Years' Reclassification
- -----------------------------
Certain items previously reported in specific captions in the
accompanying financial statements and notes have been reclassified to
conform with the current year's classification.
NOTE 2. RECEIVABLES
Fiscal Fiscal
2001 2000
----------- -----------
Construction Allowances $ 1,501,000 $ 1,267,000
Legal Settlement 800,000 ---
Third Party Credit Card 1,704,000 1,839,000
Other 313,000 152,000
----------- -----------
$ 4,318,000 $ 3,258,000
=========== ===========
NOTE 3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Fiscal Fiscal
2001 2000
----------- -----------
Leasehold improvements $19,954,000 $19,053,000
Furniture, fixtures and
equipment 25,521,000 22,888,000
----------- -----------
45,475,000 41,941,000
Less: accumulated depreciation
and amortization 29,569,000 25,344,000
----------- -----------
$15,906,000 $16,597,000
=========== ===========
Store operating and general and administrative expenses include
depreciation and amortization of $4,870,000 in Fiscal 2001, $4,891,000
in Fiscal 2000 and $4,602,000 in Fiscal 1999.
NOTE 4. ACCRUED LIABILITIES
Fiscal Fiscal
2001 2000
----------- -----------
Operating expenses $ 2,465,000 $ 2,581,000
Taxes, other than income taxes 1,719,000 1,628,000
Leasehold additions 31,000 131,000
Other customer deposits 2,226,000 2,028,000
----------- -----------
$ 6,441,000 $ 6,368,000
=========== ===========
I-11
<page>
Leasehold additions generally represent a liability to general
contractors for a final 10% payable on construction contracts for store
construction or renovations.
NOTE 5. BANK DEBT
During August 1999, the Company reached an agreement with its bank
to extend the maturity of the Amended Revolving Credit Facility until
January 30, 2003. Pursuant to the newly Amended Revolving Credit
Facility, $15,000,000 is available until expiration at January 31, 2003.
The amounts outstanding thereunder bear interest at a maximum per annum
rate equal to the bank's prime rate. The agreement contains selected
financial and other covenants including covenants to maintain a minimum
current ratio, a maximum debt to equity ratio, a maximum capital
expenditure covenant, and a minimum fixed charge coverage ratio.
Effective upon the occurrence of an Event of Default under the Revolving
Credit Facility, the Company grants to the bank a security interest in
the Company's inventory and certain receivables.
There was no outstanding balance on the line of credit at December
29, 2001 and December 30, 2000. In addition, there was
$446,000 outstanding in standby letters of credit, pursuant to the
Revolving Credit Facility, at December 29, 2001.
NOTE 6. INDEBTEDNESS TO/FROM RELATED PARTIES
As of December 29, 2001 the Company had notes receivable totaling
$371,000 from two executive officers of the Company. The receivables,
which are due on demand, are evidenced by secured promissory notes,
which bear interest at rates of 6% and 7% per annum. One executive
repaid a $350,000 loan for the Company during Fiscal 2001, which was
outstanding at December 30, 2000.
NOTE 7. OTHER LIABILITIES
Other liabilities primarily consist of accruals of future rent
escalations.
NOTE 8. COMMITMENTS AND CONTINGENCIES
Leases
- ------
At December 29, 2001, the Company was obligated under operating
leases for various store locations expiring at various times through
2013. 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.
I-12
<page>
Store rental expense related to these leases, included in cost of
sales, consisted of the following:
Fiscal Fiscal Fiscal
2001 2000 1999
----------- ----------- -----------
Minimum rentals $17,141,000 $16,393,000 $14,870,000
Contingent rentals 7,106,000 6,576,000 5,763,000
----------- ----------- -----------
$24,247,000 $22,969,000 $20,633,000
=========== =========== ===========
Future minimum payments under non-cancelable operating leases
consisted of the following at December 29, 2001:
Fiscal
------
2002 $ 17,926,000
2003 17,017,000
2004 14,681,000
2005 12,220,000
2006 9,521,000
Thereafter 30,567,000
------------
Total future minimum lease payments $101,932,000
============
Contingencies
- -------------
The Company is exposed to a number of asserted and unasserted
potential claims. In the opinion of management, the resolution of these
matters is not presently expected to have a material adverse effect upon
the Company's financial position and results of operations.
NOTE 9. INCOME TAXES
The provision for income taxes includes:
Fiscal Fiscal Fiscal
2001 2000 1999
---------- ---------- ----------
Current:
Federal $1,726,000 $ 533,000 $2,079,000
State 54,000 ( 74,000) 294,000
---------- ---------- ----------
1,780,000 459,000 2,373,000
---------- ---------- ----------
Deferred:
Federal 107,000 181,000 (12,000)
State 8,000 ( 6,000) (11,000)
---------- ---------- ---------
115,000 175,000 (23,000)
---------- ---------- ---------
Provision for income taxes $1,895,000 $ 634,000 $2,350,000
========== ========== ==========
I-13
<page>
The Company's effective tax rate, as a percent of income before
income taxes differs from the statutory federal tax rates as follows:
Fiscal Fiscal Fiscal
2001 2000 1999
------ ------ ------
Statutory federal tax rate 34.0% 34.0% 34.0%
State and local income taxes,
net of federal tax benefit 2.5% 2.5% 3.7%
------ ------ ------
36.5% 36.5% 37.7%
====== ====== ======
The major components of the Company's net deferred tax assets at
December 29, 2001 and December 30, 2000 are as follows:
December 29, December 30,
2001 2000
------------ ------------
Net operating loss carryforwards ("NOL'S")... $ 183,000 $ 156,000
Deferred rent................................ 547,000 733,000
Other(principally depreciation expense)...... 204,000 241,000
------------ ------------
$ 934,000 $1,130,000
============ ============
NOTE 10. INCENTIVE STOCK OPTION PLAN
On October 4, 2000, the Company adopted the 2000 Stock Option Plan.
The plan is administered by the Compensation and Plan Administration
Committee of the Company's Board of Directors. Under the option plan the
Company reserved 550,000 shares of the Company's authorized common stock
for issuance to officers and key employees of the Company.
On December 16, 1994, the Company adopted the 1994 Stock Option
Plan. Under the option plan the Company reserved 600,000 shares of the
Company's authorized common stock for issuance to officers and key
employees of the Company.
Options granted under the plan have a ten-year term and may be
either incentive stock options or non-qualified stock options. The
options are granted at an exercise price equal to the fair market value
on the date of grant and generally vest over a four year period. The
granted options become exercisable earlier at the maximum rate of 25%
per annum, to the extent the Company's earning plan, as approved by the
Compensation and Plan Administration Committee, is achieved. The price
is payable in cash at the time of the exercise or at the discretion of
the Administrators, through the 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.
I-14
<page>
The following table summarizes all stock option transactions for
the three years ended December 29, 2001:
Weighted Average
Shares Exercise Prices
--------- ----------------
Shares under option as of January 2, 1999 476,250 $3.12
---------
Options granted in 1999 173,750 $4.55
Options canceled in 1999 ( 50,000) $3.06
---------
Shares under option as of January 1, 2000 600,000 $3.54
---------
Options granted in 2000 473,750 $2.59
Options canceled in 2000 (173,750) $4.55
---------
Shares under option as of December 30, 2000 900,000 $2.84
---------
Options granted in 2001 228,000 $3.20
Options canceled in 2001 ( 88,906) $2.59
---------
Shares under option as of
December 29, 2001 1,039,094 $2.94
=========
In October 2000, the Company canceled and reissued 123,750 options
at a reduced exercise price. As such, in accordance with FASB
Interpretation Number 44 ("FIN 44") "Accounting for Certain Transactions
Involving Stock Compensation", this transaction resulted in variable
accounting for reporting periods during Fiscal 2000 and 2001. Employees
surrendered 88,906 of these options in March 2001, ending variable
accounting treatment for these options and the employees were
subsequently issued new options in October 2001.
Significant option groups outstanding at December 29, 2001 and
related weighted average price and life information follows:
Options Options Exercise Remaining
Grant Date Outstanding Exercisable Price Life (Years)
- ---------- ----------- ----------- -------- ------------
10/2/01 228,000 -- $3.20 10
10/4/00 384,844 8,813 $2.59 9
12/10/97 276,250 276,250 $3.06 6
10/13/95 150,000 150,000 $3.25 4
I-15
<page>
The Company accounts for the Plan in accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees" under which no
compensation cost has been recognized for stock
option awards granted at fair market value. Had compensation expense
for the Plan been determined based on the fair value at the grant dates
for awards under the Plan, consistent with the method of SFAS No. 123,
"Accounting for Stock Based Compensation"
the Company's net earnings, basic EPS and diluted EPS would have been
reduced to the pro forma amounts listed below:
Fiscal Fiscal Fiscal
2001 2000 1999
---------- ---------- ----------
Net income - as reported $3,298,000 $1,103,000 $4,009,000
- pro-forma $3,275,000 $1,099,000 $3,834,000
Basic EPS - as reported $ 0.36 $ 0.12 $ 0.44
- pro-forma $ 0.36 $ 0.12 $ 0.42
Diluted EPS - as reported $ 0.36 $ 0.12 $ 0.43
- pro-forma $ 0.35 $ 0.12 $ 0.41
The weighted average fair value of options granted during the
Fiscal years ended December 29, 2001, December 30, 2000 were $3.20 and
$2.59 respectively. The fair value of each option grant was estimated on
the date of the grant using the Black-Scholes option pricing method with
the following weighted average assumptions:
2001 2000 1999
Grants Grants Grants
------- ------- -------
Expected dividend rate $ 0.00 $ 0.00 $ 0.00
Expected volatility 140.88% 81.62% 82.73%
Risk free interest rate 1.74% 4.92% 5.73%
Expected lives (years) 5.00 5.00 5.00
I-16
<page>
<table>
NOTE 11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
($000's omitted except per share amounts)
<caption>
<s> First Second Third Fourth
Year ended December 29, 2001 Quarter Quarter Quarter Quarter
---------------------------- ------- ------- ------- -------
<c> <c> <c> <c>
Net sales $44,191 $45,613 $37,859 $52,236
------- ------- ------- -------
Gross income, less occupancy and buying costs 15,235 16,084 12,859 19,375
Income (loss) before income tax provision (benefit) 1,887 989 (1,590) 3,907
Income tax provision (benefit) 689 360 (581) 1,427
------- ------- ------- -------
Net income (loss) $1,198 $629 ($1,009) $2,480
======= ======= ======= =======
Basic and diluted earnings per share:
Basic earnings (loss) per share: $0.13 $0.07 ($0.11) $0.27
======= ======= ======= =======
Diluted earnings (loss) per share: $0.13 $0.07 ($0.11) $0.27
======= ======= ======= =======
First Second Third Fourth
Year ended December 30, 2000 Quarter Quarter Quarter Quarter
------- ------- ------- -------
Net sales $40,914 $43,824 $37,988 $53,744
------- ------- ------- -------
Gross income, less occupancy and buying costs 13,970 15,358 11,962 17,732
Income (loss) before income tax provision (benefit) 515 1,534 (1,946) 1,634
Income tax provision (benefit) 188 560 (710) 596
------- ------- ------- -------
Net income (loss) $327 $974 ($1,236) $1,038
======= ======= ======= =======
Basic and diluted earnings per share:
Basic earnings (loss) per share: $0.04 $0.11 ($0.14) $0.11
======= ======= ======= =======
Diluted earnings (loss) per share: $0.04 $0.11 ($0.14) $0.11
======= ======= ======= =======
</table>
I-17
<page>
<table>
CACHE, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<caption>
<S>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
---------
CHARGED TO CHARGED TO
BALANCE AT COSTS AND OTHER BALANCE AT
DESCRIPTION BEG. OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- ---------------------------- --------------------------------------------------------------------------
SALES RETURN RESERVE
- ---------------------------- <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 29, 2001 $555,000 --- --- --- $555,000
YEAR ENDED DECEMBER 30, 2000 $480,000 $75,000 --- --- $555,000
</table>
I-18
<page>
Exhibit 10.6
<page>
STOCK OPTION AGREEMENT
----------------------
STOCK OPTION AGREEMENT dated as of ___________, 20XX between Cache, Inc.
(The "Company") and _____________ (the "Employee"), an employee of the Company.
The Employee is hereby granted (i) an option (the "Incentive Option")
to purchase from the Company ____________________ shares of the Company's
common stock, par value $.01 per share (the "Common Stock"), with the purchase
price per share being $_____, and (ii) an option (the "Non-Qualified Option")
to purchase from the Company _____ shares of the Company's Common Stock, with
the purchase price per share being $_____. The Incentive Option and the
Non-Qualified Option are collectively referred to herein as the "Option").
The Option may be exercised in whole or in part to the extent permitted
under paragraph 2 of the Terms and Conditions set forth below and shall expire
on _________, 20XX or, if the Employee's employment is terminated for any
reason prior to such date, on such other date determined in accordance with
paragraph 6 of the Terms and Conditions below (the "Expiration Date").
The Non-Qualified Option is not qualified for "incentive stock option"
treatment under the Internal Revenue Code of 1986, as amended (the "Code").
The Incentive Option is intended to be an "incentive stock option" within the
meaning of Section 422 of the Code and shall be construed and interpreted in
accordance with such intention. To the extend that the aggregate fair market
value of Common Stock to which Incentive Options granted to the Employee are
exercisable for the first time by the Employee during any calendar year
(whether under the terms of the Plan or any other stock option plan of the
Company) exceeds $100,000, the portion of such Incentive Option relating to
excess shall be treated as a non-qualified stock option.
The Employee understands and acknowledges that the Option is subject to
the Terms and Conditions of this agreement as set forth below.
<page>
TERMS AND CONDITIONS
--------------------
The following are Terms and Conditions of the Option in effect at the
date hereof. These Terms and Conditions relating to the Option may be
modified by the Company in certain circumstances.
1. The Employee is hereby granted each of the Incentive Option and the
Non-Qualified Option, subject to the condition set forth in the legend on the
first page hereof, for the purchase from the Company of the number of shares
of Common Stock of the Company set forth above at the purchase price set forth
above, pursuant to the Company's 2000 Stock Option and Performance Incentive
Plan as it may be amended from time to time (the "Plan"), subject to and under
the terms and conditions set forth in this agreement and the Plan.
2. The Option granted hereby becomes exercisable on _________, 20XX.
However, the Option may become exercisable earlier at the maximum rate of 25
percent per year for the year ended December 31, 20XX, December 31, 20XX and
December 31, 20XX, to the extent the Company's earnings plan, as approved by
the Committee, is achieved, based on the following sliding scale:
Percentage of Option Which
Percentage of Plan Earnings Achieved Will Become 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%
- ------------------------------------ ----------------------------
3. The Option may be exercised, to the extend permitted under paragraph 2
above, in whole or in part. Common Stock purchased upon the exercise of the
Option shall be paid for in full at the time of purchase. Such payment shall
be made in cash or, in the discretion of the Compensation and Plan
Administration Committee of the Company's Board of Directors (the "Committee"),
through delivery of shares of Common Stock, installment payments under the
Employee's promissory note or a combination of cash, Common Stock and/or
installment payments, in accordance with procedures to be established by the
Committee. Any shares so delivered shall be valued at their Market Price on
the date of exercise.
-2-
<page>
Upon receipt of notice of exercise and payment in accordance with
procedures to be established by the Committee, the Company or its agent shall
deliver to the person exercising the Option (or his or her designee) a
certificate for such shares. It shall be a condition to the Company's
obligation to issue Common Stock upon exercise of the Option, or to
subsequently transfer such Common Stock, that the Employee pay, or make
provision satisfactory to the Company for the payment of, any taxes which the
Company is obligated to collect with respect to this issue or transfer of
such Common Stock.
4. Subject to the terms of paragraph 6 of this Agreement, the Option may
be exercised, to the extent permitted under paragraph 2 above, in whole or in
part only until 5:00 p.m. New York City time on the Expiration Date and only
if the Employee is continuously employed by the Company or a subsidiary of
the Company ("Subsidiary") through any applicable Trigger Date or, to the
extent no Trigger Date has occurred, the Exercise Date.
5. The Option shall not be assignable or transferable by the Employee
except by will or by the laws of descent and distribution, unless the prior
written consent of the Committee is given. During the life of the Employee,
the Option shall be exercisable by the Employee only.
6. The Option shall terminate after 30 days following termination of
employment of the Employee with the Company or a Subsidiary, unless such
termination of employment occurs by reason of (i) Disability (as hereinafter
defined), (ii) Retirement ( as hereinafter defined), (iii) Death, or (iv) a
Special Event (as hereinafter defined), provided, in the case of a Special
Event, the Committee shall have modified the Option to remain exercisable as
provided below. The Option shall not be affected by any change of employment
as long as the Employee continues to be employed by either the Company or a
Subsidiary. Nothing in the Plan or in this Agreement shall confer on the
Employee any right to continue in the employ of the Company or any Subsidiary
or interfere in any way with the right of the Company or any Subsidiary to
terminate employment of the Employee at any time.
(a) In the event of Disability of the Employee, whether or not the Option
is otherwise exercisable on the date of Disability, the Option shall be
exercisable in full at any time until the Expiration Date, at which time the
Option shall terminate. "Disability" shall mean any termination of employment
with the Company or a Subsidiary because of a long-term or total disability,
as determined by the Committee in its sole discretion. The decision of the
Committee shall be final and conclusive.
(b) In the event of Retirement of the Employee, the Option shall remain
exercisable only to the extend it is exercisable on the date of Retirement,
until the Expiration Date, at which time the Option shall terminate.
"Retirement" shall mean a termination of employment with the Company or a
Subsidiary either (i) on a voluntary basis by an Employee who is at least 60
years of age and has at least 15 years of service with the Company or a
Subsidiary or (ii) otherwise with the written consent of the Committee in its
sole discretion. The decision of the Committee shall be final and conclusive.
-3-
<page>
(c) In the event of the death of the Employee while employed by the
Company or any Subsidiary, if such death occurs before the Option is
exercised, the Option, whether or not otherwise exercisable on the date of
death, shall be exercisable in full by the beneficiary designated by the
Employee for such purpose (the "Designated Beneficiary") or if no Designated
Beneficiary shall be appointed or if the Designated Beneficiary shall
predecease the Employee, by the Employee's personal representatives, heirs or
legatees at any time within three (3) years from the date of death, at which
time the Option shall terminate.
In the event of the death of the Employee following a termination of
employment due to Retirement, Disability or a Special Event (as hereinafter
defined), if such death occurs before the Option is exercised, the Option
whether or not otherwise exercisable on such date, shall be exercisable by the
Employee's Designated Beneficiary, or if no Designated Beneficiary shall be
appointed or if the Designated Beneficiary shall predecease the Employee, by
the Employee's personal representatives, heirs or legatees to the same extent
the Option would have been exercisable by the Employee following such
termination of employment.
(d) In the case of a Special Event resulting in the termination of the
Employee, the Committee in its sole discretion may elect to modify the Option,
whether or not exercisable on the date of such termination, to provide that
the Option, or a portion thereof, may continue to be exercisable for the term
and in the manner specified therein or for such other term and subject to such
other provisions and conditions (including, without limitation, acceleration
of the Exercise Date or modification of the conditions causing a Trigger Date)
as the Committee shall specify. The Committee shall have the sole discretion
to determine the employees to whom and in the manner in which any such
modification shall be made. If the Committee does not elect to modify the
Option, then the Option may be exercised only if exercisable at the date of
termination in accordance with the first sentence of this paragraph 6.
A "Special Event" shall mean (i) the sale or other disposition of a
subsidiary or division of the Company; (ii) the closing or discontinuation
of a specific operation of the Company or any subsidiary; (iii) the
elimination of job categories; or (iv) a limited program of terminations in
connection with a personnel reorganization or restructuring of the Company or
any Subsidiary scheduled to be completed on a date certain, provided, however,
that only those employees who meet the terms and conditions as established by
the Board or the Committee in its discretion shall be eligible to receive
accelerated vesting of Options.
(e) The Committee may, in its sole discretion, cause the Option to be
forfeited upon the Employee's termination of employment if the Employee was
terminated for one (or more) of the following reasons: (i) the Employee's
conviction, or plea of guilty or nolo contendere to the commission of a felony
(ii) the Employee's commission of any fraud, misappropriation or misconduct
which causes demonstrable injury to the Company or a Subsidiary, (iii) an act
of dishonesty by the Employee resulting or intended to result, directly or
indirectly, in gain or personal enrichment at the expense of the Company or a
Subsidiary, or (iv) any breach of the Employee's
-4-
<page>
fiduciary duties to the Company as an employee or officer. It shall be within
the sole discretion of the Committee to determine whether the Employee's
termination was for one of the foregoing reasons, and the decision of the
Committee shall be final and conclusive.
7. If the Employee is granted an approved leave of absence, the Option
shall not be affected unless such leave is longer than 13 weeks. If the
Option is not exercisable at the beginning of an approved leave of absence
lasting longer than 13 weeks, the Exercise Date of the Option shall be
postponed for a period equal to the length of such leave of absence, unless
such postponement is waived in writing by the Committee in its sole discretion.
8. The Employee shall have no rights as a stockholder with respect to any
shares issuable upon exercise of the Option until the date a stock certificate
is issued to the Employee for such shares. Except as otherwise expressly
provided in the Plan, no adjustment shall be made for cash dividends or other
rights for which the record date is prior to the date such stock certificate
is issued.
9. In the event there is during any fiscal year of the Company one or
more splits, subdivisions, or combinations of shares of Common Stock resulting
in an increase or decrease by more than 1% of the shares outstanding at the
beginning of the year, the number of shares deliverable upon the exercise
thereafter of the Option shall be increased or decreased proportionately, as
the case may be, without change in the aggregate purchase price. Common Stock
dividends, splits, subdivisions or combinations during any fiscal year which
do not exceed in the aggregate 1% of the Common Stock issued and outstanding
at the beginning of such year shall be ignored for purposes of the Plan. All
adjustments for any fiscal year shall be made as of the last day of such year.
10. In case the Company is merged or consolidated with another
corporation, or in case the property or stock of the Company is acquired by
another corporation or, in case of a change in control, defined as immediately
after the first date on which less than 25% of the outstanding Common Stock in
the aggregate is beneficially owned (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934) by Andrew M. Saul and Joseph E. Saul; members
of their immediate families and one or more trusts established for the benefit
of such individuals or members (the "Saul"), any Options outstanding under
this Grant shall become immediately exercisable and in such manner as to
enable the shares acquired on exercise to participate, in the same manner as
other outstanding shares, in the sale of the Corporation substantially as an
entirety (whether by sale of stock, sale of assets, merger, consolidation,
tender offer, exchange offer, or otherwise).
11. The interpretation and decision with regard to any questions arising
under the Plan or with respect to the Option made by the Committee shall be
final and conclusive on the Employee.
-5-
<page>
12. All notices hereunder shall be sufficiently made if personally
delivered to the Employee or sent by regular mail addressed (a) to the
Employee at the Employee's address as set forth in the books and records of
the Company or any Subsidiary, or (b) to the Company or the Committee at the
principal office of the Company clearly marked "Attention: Stock Option
Committee".
IN WITNESS WHEREOF, this Agreement has been executed by the Company by
one of its duly authorized officers as of the date specified above.
CACHE, INC.
By:____________________
I hereby acknowledge receipt of the Option and agree to the provisions set
forth in this Agreement.
Date: ----------------------
(Name)
-6-
<page>
Exhibit 11.1
<page>
<table>
EXHIBIT 11.1
CALCULATION OF BASIC AND DILUTED EARNINGS PER COMMON SHARE
<caption>
<s> FISCAL FISCAL FISCAL
EARNINGS PER SHARE 2001 2000 1999
------------------ ------------- ------------- -------------
Net Income Applicable <c> <c> <c>
to Common Stockholders $ 3,298,000 $ 1,103,000 $ 4,009,000
------------- ------------- -------------
BASIC EARNINGS PER SHARE
------------------------
Weighted Average Number of
Common Shares Outstanding 9,091,000 9,091,000 9,091,000
============= ============= =============
Basic Earnings Per Share $0.36 $0.12 $0.44
============= ============= =============
DILUTED EARNINGS PER SHARE
--------------------------
Weighted Average Number of
Common Shares Outstanding 9,091,000 9,091,000 9,091,000
Assuming Conversion of
Outstanding Stock Options 1,039,000 900,000 600,000
Less Assumed Repurchase
of Common Stock Pursuant
to the Treasury Stock Method (901,000) (767,000) (386,000)
------------- ------------- -------------
Weighted Average Number of
Common Shares Outstanding
As Adjusted 9,229,000 9,224,000 9,305,000
============= ============= =============
Diluted Earnings Per Share $0.36 $0.12 $0.43
============= ============= =============
</table>
<page>
Exhibit 12.1
<page>
EXHIBIT 12.1
COMPUTATION OF RATIOS
Ratio of current assets to current liabilities = current assets (at
- ----------------------------------------------
balance sheet date) divided by current liabilities (at balance sheet
date).
Inventory turnover ratio = total cost of sales divided by average
- ------------------------
inventory (beginning and ending inventory, divided by two, at the
balance sheet dates).
Debt 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 divided by common shares
- --------------------
outstanding (at balance sheet date).
<page>
Exhibit 24.1
<page>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K dated February 1, 2002 into the Company's
previously filed Registration Statement File Numbers 33-40354, 33-40358,
33-65113, 333-84848.
New York, New York
March 28, 2002 /s/ Arthur Andersen, LLP
<page>
Exhibit 99.1
<page>
Cache, Inc.
1460 Broadway
New York, NY 10036
LETTER TO COMMISSION PURSUANT TO TEMPORARY NOTE 3T
March 28, 2002
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0408
Ladies and Gentlemen:
Pursuant to Temporary Note 3T to Article 3 of Regulation S-X, Cache,Inc. has
obtained a letter of representation from Arthur Andersen LLP ("Andersen")
stating that the December 29, 2001 audit was subject to their quality control
system for the U.S. accounting and auditing practice to provide reasonable
assurance that the engagement was conducted in compliance with professional
standards, that there was appropriate continuity of Arthur Andersen personnel
working on the audit, availability of national office consultation and
availability of personnel at foreign affiliates of Arthur Andersen to conduct
the relevant portions of the audit.
Very truly yours,
Cache, Inc.
/s/ Thomas E. Reinckens
-----------------------
Thomas E. Reinckens
President and
Chief Operating Officer
<page>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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