FORM 10-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
January 31, 2009
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number 0-21258
Chicos FAS,
Inc.
(Exact name of registrant as
specified in its charter)
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Florida
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59-2389435
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(State or other jurisdiction
of incorporation)
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(IRS Employer
Identification No.)
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11215 Metro Parkway,
Fort Myers, Florida 33966
(Address of principal executive
offices) (Zip code)
(239) 277-6200
(Registrants telephone
number)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Class
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Name of Exchange on Which Registered
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Common Stock, Par Value $.01 Per Share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No
o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No
þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No
o
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 registrants 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 o.
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definition of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller
reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates of the registrant:
Approximately $963,000,000 as of August 1, 2008 (based upon
the closing sales price reported by the NYSE and published in
the Wall Street Journal on August 4, 2008).
Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date:
Common Stock, par value $.01 per share
177,272,938 shares as of March 16, 2009.
Documents incorporated by reference:
Part III Definitive Proxy Statement for the Companys
Annual Meeting of Stockholders presently scheduled for
June 25, 2009.
CHICOS
FAS, INC.
ANNUAL REPORT ON
FORM 10-K
FOR THE
YEAR ENDED JANUARY 31, 2009
TABLE OF CONTENTS
1
PART I
General
Chicos FAS, Inc. (together with its subsidiaries, the
Company) is a specialty retailer of private branded,
sophisticated, casual-to-dressy clothing, intimates,
complementary accessories, and other non-clothing gift items
under the Chicos, White House |Black Market
(WH|BM) and Soma Intimates (Soma) brand
names.
Chicos. The Chicos brand,
which began operations in 1983, sells primarily exclusively
designed, private branded clothing focusing on women 35 and over
with a moderate to high income level. The styling interprets
fashion trends in a unique, relaxed, figure-flattering manner
using generally easy-care fabrics. The Chicos brand
generally controls most aspects of the design process, including
choices of pattern, prints, construction, design specifications,
fabric, finishes and color through in-house designers, purchased
designs, and working with its independent vendors to develop
designs.
WH|BM. The WH|BM brand, which began
operations in 1985 and was acquired by the Company in September
2003, sells fashion and merchandise primarily in black and white
and related shades focusing on women who are 25 years old
and up with a moderate to high income level. WH|BM controls
almost all aspects of the design process, including choices of
pattern, construction, specifications, fabric, finishes and
color utilizing an in-house design team and also works closely
with its independent vendors and agents to select, modify, and
create its product offerings.
Soma Intimates. The Soma brand, which
began operations in 2004 under the name Soma by
Chicos, sells primarily exclusively designed private
branded intimate apparel, sleepwear and activewear. Soma was
initially focused on the Chicos brand target customer.
However, in early 2007, the Soma brand was repositioned under
the name Soma Intimates in response to its appeal to
a broader customer base. The Soma brand product offerings are
developed by working closely with a small number of its
independent vendors and agents to design proprietary products
in-house primarily through a close collaborative effort and, in
some cases, include designs provided by its independent vendors
and under labels other than the Soma label.
Prior to 2007, the Company consisted of both franchised and
Company-owned stores. In 2007, the Company completed its
strategic plan to take full control of its brand image by
acquiring all outstanding franchise rights and having entirely
Company-owned stores with no further franchise operations. Going
forward, the Company does not intend to establish any franchise
arrangements, or to enter into any additional franchise
territory development agreements for any of its brands.
At this time, the Company has no immediate plans to enter any
foreign markets and it has not decided if, when, or in what
manner, it may enter any foreign markets in the future.
The Company will, from time to time, consider the acquisition or
organic development of other specialty retail concepts when its
research indicates that the opportunity is appropriate and in
the best interest of the shareholders. At present, the Company
believes it is important to focus its energies on its core
Chicos, WH|BM and Soma brands. The Company continues to
explore a number of potential merchandise venues and brand
extensions that would both complement the current brands and
provide future growth.
Business
Strategies
Overall Growth Strategy. The Companys
growth strategy is multi-faceted. Over the last several years,
the Company has built its store base primarily through the
opening of new stores for all of its brands, through the
expansion of existing stores in its Chicos and WH|BM
brands, through the acquisition and expansion of other concepts
such as WH|BM, and through the organic growth of the Soma
concept. During that time, the Company built its infrastructure
to accommodate the growth in its store base, its multi-branded
and multi-channel approach to retailing, and the associated
increase in revenues and expenses. This increase in
infrastructure included significant and necessary additions of
senior and middle management level headquarters associates,
including the merchandising and marketing teams, increases in
direct-to-consumer staffing, the roll out of the SAP software to
all brands
2
(for more detail, see page 6), and other infrastructure
initiatives. More recently, however, the Company is revisiting
much of its planned infrastructure investments because of
declining sales trends, the current recessionary economic
environment and is choosing judiciously where to invest in order
to increase market share for each of the brands and the
direct-to-consumer channel.
In fiscal 2009, the Company will continue to focus on improving
the performance of merchandising efforts in its existing stores
and expanding its direct-to-consumer business. These activities,
coupled with a strong balance sheet, a commitment to better
control its expense structure and more effectively manage its
inventory investments, and targeting its capital expenditures
for higher returns, should allow the Company to effectively
manage its growth strategies.
Distinctive Private Branded Clothing and Coordinated
Accessories. The most important element of the
Companys business strategies is the distinctive clothing
and complementary accessories it sells under its proprietary
brands.
Chicos. Interpreting current
fashion trends with frequent deliveries of new and distinctive
designs, Chicos targets women 35 and over, emphasizing a
comfortable relaxed fit in a modern style. Accessories, such as
handbags, belts, scarves, and jewelry, including earrings,
watches, necklaces and bracelets, are specifically designed to
coordinate with the colors and patterns of the Chicos
brand clothing, enabling customers to easily enhance and
individualize their wardrobe selections.
The distinctive nature of Chicos clothing is carried
through to its sizing. Chicos uses international sizing,
comprising sizes 0 (size 4-6), 1 (size 8-10), 2 (size
10-12), and
3 (size
14-16). As
in the past, Chicos occasionally will offer
one-size-fits-all and small, medium and large sizing for some
items. The relaxed nature of the clothing allows the stores to
utilize this unusual sizing and thus offer a wide selection of
clothing without having to invest in a large number of different
sizes within a single style. Chicos has also added half
sizes (sizes 0.5, 1.5, 2.5 and 3.5) to some of its bottom and
top styles.
WH|BM. WH|BM offers feminine,
sophisticated apparel and accessories from wearable basics to
elegant fashion. Its clothing is made primarily in white and
black and related shades. The accessories at WH|BM, such as
handbags, shoes, belts and jewelry, including earrings,
necklaces and bracelets, are specifically developed and
purchased to coordinate with the colors and patterns of the
clothing, enabling customers to easily coordinate with and
individualize their wardrobe selections.
WH|BM stores use American sizes in the 0-14 range (with online
sizing up to size 16), which the Company believes is more
appropriate for the target WH|BM customer. As a result, the fit
of the WH|BM clothing tends to be more styled to complement the
figure of a body-conscious woman, while still remaining
comfortable.
Soma Intimates. Soma offerings are
broken into two broad categories: foundations and apparel. The
foundations category includes bras, panties, and shapewear,
while the apparel category includes activewear, sleepwear, robes
and loungewear. Accessories volume within the Soma concept is
currently small but may be developed further in the future.
The apparel offerings utilize small, medium and large sizing,
while bras are sized using traditional American band and cup
sizes.
Personalized Service and Customer
Assistance. Another important element in the
Companys strategy for success is outstanding and
personalized customer service through the Companys
commitment to its Most Amazing Personal Service
standard. The Company provides store associates with specialized
training in providing customer assistance and advice on their
customers fashion and wardrobe needs, including clothing
and accessory style and color selection, coordination of
complete outfits, and suggestions on different ways in which to
wear the clothing and accessories. The Companys sales
associates are encouraged to know their regular customers
preferences and to assist those customers in selecting
merchandise best suited to their tastes and wardrobe needs.
The Company takes pride in empowering its associates to make
decisions that best serve the customer. The Company believes
this sense of empowerment enables the Companys associates
to exceed customers expectations. In addition, many of the
store managers and sales associates, especially for the
Chicos brand, were
3
themselves customers prior to joining the Company and can
therefore more easily identify with current customers. The
Companys associates are expected to keep individual stores
open until the last customer in the store has been served. If an
item is not available at a particular store, sales associates
are encouraged to arrange for the item to be shipped directly to
the customer from other stores or the distribution center.
Customer Loyalty. Another key success strategy
is building customer loyalty through focused preferred customer
programs and effective implementation of the Companys
merchandising and customer service strategies. The
Companys customer tracking database allows the Company to
more sharply focus its design, merchandising and marketing
efforts to better address and define the desires of its target
customer.
Chicos and Soma
Intimates. Chicos preferred customer
club is known as the Passport Club
(Passport), and is designed to encourage repeat
sales and customer loyalty for its Chicos and Soma brands.
Features of the club include discounts, special promotions,
invitations to private sales, and personalized phone calls
regarding new Chicos and Soma merchandise.
A Chicos or Soma customer signs up to join the Passport
Club at no cost, initially as a preliminary member.
Once the customer spends a total of $500 over any time frame in
either brand, the customer becomes a permanent
member and is currently entitled to a 5% discount on all apparel
and accessory purchases, advance sale notices and other
benefits, subject to certain restrictions.
In fiscal 2007, in conjunction with the repositioning of the
Soma Intimates brand to appeal to a broader customer base, the
Company began testing a separate loyalty program for its Soma
brand. Although the test ended in fiscal 2008, it is possible
the Company will offer a separate Soma loyalty program at a
future date.
WH|BM. In late fiscal 2004, the Company
launched a customer loyalty program for WH|BM called The
Black Book. Similar to the Passport Club, The Black Book
is designed to encourage repeat sales and customer loyalty.
Features of the club are similar to the Passport Club and
include discounts, special promotions, invitations to private
sales, and personalized phone calls regarding new WH|BM
merchandise.
A WH|BM customer signs up to join The Black Book at no cost,
initially as a preliminary member. Once the customer
spends a total of $300 on WH|BM merchandise over any time frame,
the customer becomes a permanent member and is
currently entitled to a 5% discount on all apparel and accessory
purchases, advance sale notices and other benefits, subject to
certain restrictions.
Stores
and Expansion
As of January 31, 2009, the Company operated 1,076 retail
stores in 49 states, the District of Columbia, the
U.S. Virgin Islands and Puerto Rico. The retail stores
operate under the Companys three brands. The following
table provides information regarding the Companys stores
by brand:
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Soma
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Chicos
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WH|BM
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Intimates
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Total
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Stores
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Stores
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Stores
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Stores
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Specialty Centers
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377
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183
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32
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592
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Malls
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159
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125
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36
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320
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Street
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83
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20
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2
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105
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Total Front-line
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619
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328
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70
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1,017
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Outlets
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41
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17
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1
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59
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Total Stores
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660
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345
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71
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1,076
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Average Selling Square Footage
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2,668
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2,022
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1,935
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2,412
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Management believes the ability to open additional stores will
be a factor in the future success of the Company, particularly
in the WH|BM and Soma brands. Due to current macroeconomic and
other business conditions, the Company has scaled back its real
estate growth targets for 2009 and 2010, and does not intend to
increase the number of new stores beyond current commitments
until it begins to see improvements in the economy and
individual brand performance.
4
Although there were some items manufactured for outlets, the
Companys outlet stores have historically acted mainly as a
vehicle for clearing marked down merchandise. Soma also uses the
Chicos outlets as a clearance vehicle for its products at
this time. The use of the outlets as a vehicle for clearing
merchandise helps front-line stores maintain a more limited
markdown policy. Because of the challenging economic times in
recent years and the inability of the outlets to absorb the
increased volume of marked down merchandise, the Companys
front-line stores have seen a more significant growth in the
volume of markdowns. Although the Company is addressing this
trend by working to manage the overall inventory levels more
tightly, this trend is likely to continue until there is an
improvement in the economy and the Companys performance.
Additionally, the Company has targeted an increase of
made-for-outlet product primarily within the Chicos brand
which is intended to increase outlet store margins and lower the
accessibility to transfer clearance merchandise from the
front-line to outlet stores.
The following tables set forth information concerning changes in
the number of retail stores during the past five fiscal years:
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Fiscal Year Ended
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January 29,
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January 28,
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February 3,
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February 2,
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January 31,
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2005
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2006
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2007
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2008
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2009
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(52 weeks)
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(52 weeks)
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(53 weeks)
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(52 weeks)
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|
(52 weeks)
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Company-Owned Stores
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Stores at beginning of year*
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545
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645
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749
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907
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1,038
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Opened**
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109
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|
109
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157
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143
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62
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Acquired from franchisees
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1
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1
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13
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Acquired pursuant to Fitigues Transaction
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12
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Closed
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(10
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)
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(5
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)
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(12
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)
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(25
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)***
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(24
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)
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Stores at end of year
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645
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749
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907
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1,038
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1,076
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Franchise Stores
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Stores at beginning of year
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12
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12
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|
14
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|
13
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Opened
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1
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2
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Acquired by Company
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(1
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)
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(1
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)
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(13
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)
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Stores at end of year
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12
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|
14
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|
13
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Total Stores
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657
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763
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920
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1,038
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|
1,076
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*
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Not retroactively restated to
include Fitigues stores prior to January 31, 2006.
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**
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Not retroactively restated to
include Fitigues stores prior to January 31, 2006. Also,
does not include relocations, expansions or conversions of
previously existing stores within the same general market area
(approximately five miles).
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***
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Includes 10 Fitigues stores closed
in fiscal 2007.
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Fiscal Year Ended
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|
January 29,
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January 28,
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February 3,
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February 2,
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January 31,
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2005
|
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|
2006
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|
2007
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|
|
2008
|
|
|
2009
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|
|
|
(52 weeks)
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(52 weeks)
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(53 weeks)
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(52 weeks)
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|
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(52 weeks)
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|
Stores by Brand
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Chicos front-line
|
|
|
450
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|
499
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541
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604
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619
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|
Chicos outlet
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|
25
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|
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31
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34
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37
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41
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|
Chicos franchise
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12
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14
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13
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WH|BM front-line
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|
156
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196
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254
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|
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309
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328
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|
WH|BM outlet
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|
4
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8
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16
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19
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17
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Soma Intimates front-line
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|
10
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15
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52
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68
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70
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|
Soma Intimates outlet
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|
|
|
|
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1
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|
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1
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Fitigues front-line
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9
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Fitigues outlet
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1
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|
|
|
|
|
|
|
|
|
|
Total stores at end of year
|
|
|
657
|
|
|
|
763
|
|
|
|
920
|
|
|
|
1,038
|
|
|
|
1,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
Direct-to-Consumer
The Company currently mails a Chicos and WH|BM catalog to
its current and prospective customers virtually every month.
These catalogs are designed to drive customers into the stores,
as well as promote the website and catalog sales. Each of the
Companys brands has its own dedicated website,
www.chicos.com, www.whitehouseblackmarket.com and
www.soma.com. Each website provides customers the ability
to order merchandise online or through the call center. The
Company occasionally sends a stand-alone Soma catalog, but
utilizes Soma catalog inserts in selected Chicos mailings,
where applicable, as a highly efficient customer prospecting
vehicle.
Sales through the Companys three websites, together with
sales from the Companys call centers toll free
telephone numbers, amounted to $70.6 million in fiscal 2008
and are viewed as additional sales that provide a customer
service for those who prefer shopping through these alternative
channels.
The Company is targeting the direct-to-consumer channel as a
growth area that is currently under-penetrated. To that end, the
Company is continuing its investment in new hardware, software
and personnel to increase its direct-to-consumer (i.e.
Internet & catalog) sales penetration.
Advertising
and Promotion
The marketing program for the Company currently consists of the
following integrated components:
|
|
|
|
|
The Companys loyalty programs the Passport
Club and The Black Book
|
|
|
|
Direct Marketing efforts: direct mail,
e-mail, and
localized calling campaigns
|
|
|
|
National print and broadcast advertising
|
|
|
|
Internet and direct phone sales
|
|
|
|
Public relations and community outreach programs
|
The Companys direct marketing efforts have been successful
in driving traffic to stores and the direct-to-consumer
channels. A large portion of the active Passport and Black Book
customers maintained in the database currently receive an
average of one mailer per month.
During the last six months of fiscal 2007, the Company ran
extensive television advertising in four distinct markets to
support the Soma brand, which resulted in strong same store
sales during and after the time these television commercials
aired. The Company continued to use television advertising in
fiscal 2008 for the Soma brand, but at lower spending levels
than fiscal 2007.
The Company also places additional emphasis on outreach
programs. These outreach programs include, among other
events, VIP parties, fashion shows and wardrobing parties. As
part of these outreach programs, the Company also encourages its
managers and sales associates to become involved in community
projects. The Company believes that these programs, in addition
to helping build and support community and charitable
activities, are also effective marketing vehicles in providing
introductions to new customers. The Company has developed
programs to help its store level associates use these programs.
Management
Information Systems
The Company is committed to an ongoing review and improvement of
its information systems to enable the Company to obtain useful
information on a timely basis and to maintain effective
financial and operational controls. This review includes testing
of new products and systems to assure that the Company is able
to take advantage of technological developments. The Company is
working with SAP, a third party vendor, to implement an
enterprise resource planning system (ERP) to manage its retail
stores. This fully integrated system is expected to support and
coordinate all aspects of product development, merchandising,
finance and accounting and to be fully scalable to accommodate
rapid growth.
On February 4, 2007, the Company completed the first major
phase of its multi-year, planned implementation of the new ERP
system by converting its Soma brand to the new merchandising
system as well as rolling out the new
6
financial systems at the same time. The second major phase
currently anticipates an initial roll out and utilization of
this new system in mid fiscal 2009 and subsequently in early
fiscal 2010. The third major phase contemplates on-going
enhancements and optimization of the new ERP across all three
brands, as well as the deployment of additional functionality
across various other functions within the Company.
Merchandise
Distribution
Distribution for all brands is handled through the
Companys distribution center in Winder, Georgia. New
merchandise is generally received daily at the distribution
center. Merchandise from United States based vendors arrives at
the distribution center by truck, rail, or air, as the
circumstances require. A majority of the merchandise from
foreign vendors arrives in this country via air at various
points of entry and is transported via truck or rail to the
distribution center. The Company has targeted this area as an
opportunity to shift more merchandise from air transportation to
ocean transportation in order to lower in-bound freight costs.
After arrival at the distribution center, merchandise is sorted
and packaged for shipment to individual stores or for transfer
to the direct-to-consumer fulfillment center. Merchandise is
generally pre-ticketed with price and all other tags at the time
of manufacture.
Product
Development/Sourcing
Chicos, WH|BM, and Soma private branded merchandise is
developed through the coordinated efforts of its respective
merchandising, creative and production teams working with its
independent vendors. Style, pattern, color and fabric for
individual items of the Companys private branded clothing
are developed based upon perceived current and future fashion
trends that will appeal to its target customer, anticipated
future sales and historical sales data.
Chicos and Soma have historically purchased most of their
clothing and accessories from companies that manufacture such
merchandise in foreign countries except for the cut and
sew operations described below. WH|BM has historically
purchased a significant amount of its clothing and accessories
from companies that arrange for such items to be manufactured in
foreign countries. The Company does business with all of its
foreign vendors and importers in United States currency.
Except for certain U.S., Mexico and Guatemala based cut
and sew operations, the Company generally does not
directly purchase and supply the raw materials for its clothing,
leaving the responsibility for purchasing raw materials with the
manufacturers. In the cut and sew operations, the
Company buys fabric and trim components and provides the
materials to one intermediary, which then assigns the cut
and sew responsibilities to cut and sew
manufacturers in the United States, Mexico or Guatemala, who
make the specified Chicos brand designs and styles.
Because of certain lower sourcing costs associated with the
Companys vendors in various parts of the world and certain
other long term uncertainties presented by such vendor
relationships, the Company regularly evaluates where best to
manufacture its goods and may continue to pursue new vendor
relationships throughout the world.
Chicos, WH|BM and Soma collaborate on sourcing operations,
including sharing of the vendor base, where appropriate. The
Company believes the sharing of the vendor base could continue
to expand in fiscal 2009. The Company also plans to begin
implementing a metric based supplier scorecard in
fiscal 2009 for its shared vendor base and ultimately its entire
vendor base across all three brands.
In fiscal 2009, the Company plans to continue its
direct-to-manufacturer sourcing opportunities. In addition, the
Company continues to evaluate establishing overseas offices or
relationships in Asia that would provide technical support in
areas such as fit, fabric, color and quality assurance. The
Company believes these initiatives could lead to improved
product cost, quality control, timeliness of deliveries, and
overall speed to market.
In fiscal 2008, China sources accounted for approximately 66% of
the Companys purchases of merchandise while United States
sources (including fabric and cut and sew vendors)
accounted for approximately 10% of merchandise purchases.
Approximately 14% of total purchases in fiscal 2008 were made
from one vendor compared to approximately 7.5% for the same
vendor in fiscal 2007.
7
Competition
The womens retail apparel business is highly competitive
and has become even more so in the past several years. The
retailers that are believed to most directly compete with the
Chicos brand are the mid-to-high end department stores
including Nordstroms, Bloomingdales, Macys and
Saks Fifth Avenue, specialty stores including Gap, Talbots, J.
Jill, Ann Taylor, Ann Taylor Loft, Christopher &
Banks, and Coldwater Creek, direct-to-consumer retailers such as
Lands End and L.L. Bean, as well as local or regional
boutique retailers. The retailers that are believed to most
directly compete with the WH|BM brand are the same mid-to-high
end department stores named above and specialty stores which
include Ann Taylor, Ann Taylor Loft, Banana Republic, J. Crew,
Gap, New York and Co., and Express as well as local or regional
boutiques. Although management believes there is currently
limited direct competition for Soma merchandise largely because
of the distinctive nature of the brands merchandise
designed with the targeted customer age 35 and over in
mind, the retailers that are believed to most directly compete
with Soma stores are the same mid-to-high end department stores
and certain of the specialty stores named above, local
boutiques, and, to a more limited extent, Victorias
Secret. The perceived growth opportunities within the
womens apparel market has encouraged the entry of new
competitors as well as increased competition from existing
competitors. Certain of these competitors have greater name
recognition as well as greater financial, marketing and other
resources than the Company.
The following are several factors that the Company considers
important in competing successfully in the retail apparel
industry: newness and innovation of product styles, breadth of
selection in colors, prints, sizes and styles of merchandise,
product procurement and pricing, ability to address customer
preferences and be in line with fashion trends, reputation,
quality of merchandise, store design and location, visual
presentation, effective use of marketing data, frequent shopper
programs, advertising, and customer service. The Company
believes that its emphasis on personalized service and customer
assistance, the distinctive designs of its clothing and
accessories, which provide a perceived high value, exclusive
availability of the product offerings at its stores, the
locations of its stores, and the effectiveness of the frequent
shopper programs and its other marketing programs, are the
various means by which the Company competes. Although the
Company believes that it is able to compete favorably with other
merchandisers, including department stores and specialty
retailers, with respect to each of these factors, the Company
believes it competes mainly on the basis of its customer service
emphasis and distinctive merchandise selection.
Along with certain retail segment factors noted above, other key
competitive factors for the direct-to-consumer operations
include the success or effectiveness of customer mailing lists,
response rates, catalog presentation, merchandise delivery and
web site design and availability. The direct-to-consumer
operations compete against numerous catalogs and web sites,
which may have greater circulation and web traffic.
Employees
As of January 31, 2009, the Company employed approximately
14,460 people, approximately 40% of whom were full-time
associates and approximately 60% of whom were part-time
associates. The number of part-time associates fluctuates during
peak selling periods. As of the above date, over 90% of the
Companys associates worked in its front-line and outlet
stores.
The Company has no collective bargaining agreements covering any
of its associates, has never experienced any material labor
disruption and is unaware of any efforts or plans to organize
its associates. The Company currently contributes most of the
cost of medical, dental and vision coverage for eligible
associates and also maintains a
401(k), stock incentive and stock purchase plans. All associates
also are eligible to receive substantial discounts on Company
merchandise. The Company considers relations with its associates
to be good.
Trademarks
and Service Marks
The Company, through its subsidiaries, is the owner of certain
registered and common law trademarks and service marks
(collectively referred to as Marks).
The Companys Marks registered in the United States include
but are not limited to: CHICOS, CHICOS PASSPORT,
M.A.P.S., MARKET BY CHICOS, MOST AMAZING PERSONAL SERVICE,
NO TUMMY,
8
PASSPORT, THE WHITE HOUSE, WHITE HOUSE BLACK MARKET, FASHION FOR
BOTH SIDES OF YOU, and SOMA BY CHICOS. The company is
seeking to register SOMA INTIMATES in the United States and has
registered or is seeking to register a number of these Marks in
certain foreign countries as well.
In the opinion of management, the Companys rights in the
Marks are important to the Companys business. Accordingly,
the Company intends to maintain its Marks and the related
registrations and applications. The Company is not aware of any
claims of infringement or other challenges to its rights to use
any registered Marks in the United States or any other
jurisdiction in which the Marks have been registered.
Available
Information
The Companys investor relations website is located at
www.chicosfas.com. Through this website, the Company
makes available free of charge its Securities and Exchange
Commission (SEC) filings including its annual report
on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports, as soon as reasonably
practicable after those reports are electronically filed with
the SEC. The Company also maintains various other data on this
website within the investor relations page, including its recent
press releases, corporate governance information, beneficial
ownership reports, institutional slide show presentations,
quarterly and institutional conference calls and other quarterly
financial data, e.g., historical store square footage, etc. The
Company also operates websites through which it primarily sells
its merchandise, those being www.chicos.com,
www.whitehouseblackmarket.com and www.soma.com,
each of which also provides a convenient link to the
Companys investor relations website,
www.chicosfas.com.
The Company has a Code of Ethics, which is applicable to all
associates of the Company, including the principal executive
officer, the principal financial officer and the Board of
Directors and which is posted on the Companys investor
relations website. The Company intends to post amendments to or
waivers from its Code of Ethics (to the extent applicable to the
Companys chief executive officer, principal financial
officer, principal accounting officer or its Directors) on this
website. Copies of the charters of each of the Companys
Audit Committee, Compensation and Benefits Committee and
Corporate Governance and Nominating Committee as well as the
Companys Corporate Governance Guidelines, Code of Ethics,
Terms of Commitment to Ethical Sourcing, and Stock Ownership
Guidelines are available on this website or in print upon
written request by any shareholder.
The Company has included the CEO and CFO certifications
regarding its public disclosure required by Section 302 of
the Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2 to
this report on
Form 10-K.
Additionally, the Company filed with the New York Stock Exchange
(NYSE) the CEOs certification regarding the
Companys compliance with the NYSEs Corporate
Governance Listing Standards (Listing Standards)
pursuant to Section 303A.12(a) of the Listing Standards,
which was dated July 18, 2008, and indicated that the
former CEO was not aware of any violations of the Listing
Standards by the Company.
Executive
Officers of the Registrant
Set forth below is certain information regarding our executive
officers:
David F. Dyer, 59, is the Companys President and Chief
Executive Officer and a member of the Board of Directors.
Mr. Dyer became President and CEO in January 2009.
Donna M. Colaco, 50, is Brand President White House
| Black Market for the Company. Ms. Colaco joined the
Company in August 2007.
Cynthia S. Murray, 51, is Brand President
Chicos for the Company. Ms. Murray joined the Company
in February 2009.
Charles L. Nesbit, Jr., 53, is Brand President
Soma Intimates for the Company. Mr. Nesbit has been with
the Company since August 2004, first became an executive officer
of the Company in April 2005 and has held his current position
as Brand President Soma Intimates since February
2009.
Manuel O. Jessup, 53, is the Companys Executive Vice
President Chief Human Resources Officer.
Mr. Jessup joined the Company in September 2006 and first
became an executive officer of the Company when he was promoted
to his current position as Executive Vice President
Chief Human Resources in December 2007.
9
Jeffrey A. Jones, 62, is the Companys Executive Vice
President Chief Operating Officer. Mr. Jones
joined the Company in February 2009.
Gary A. King, 51, is the Companys Executive Vice
President Chief Information Officer. Mr. King
joined the Company in October 2004.
Kent A. Kleeberger, 56, is the Companys Executive Vice
President Chief Financial Officer and Treasurer.
Mr. Kleeberger joined the Company in November 2007.
Mori C. MacKenzie, 59, is the Companys Executive Vice
President Chief Stores Officer. Ms. MacKenzie
joined the Company in October 1995, first became an executive
officer in June 1999 and has held her current position as
Executive Vice President Chief Stores Officer since
February 2004.
A. Alexander Rhodes, 50, is the Companys Senior Vice
President General Counsel and Secretary.
Mr. Rhodes joined the Company in January 2003 and first
became an executive officer of the Company when he was promoted
to his current position as Senior Vice President
General Counsel and Secretary in April 2006.
All of the above officers serve at the discretion of our Board
of Directors.
The Company makes forward-looking statements in its filings with
the Securities and Exchange Commission and in other oral or
written communications. Forward-looking statements involve risks
and uncertainties that could cause actual results to be
materially different from those indicated (both favorably and
unfavorably). These risks and uncertainties include (but are not
limited to) the risks described below. The Company undertakes no
obligation to update any forward-looking statements, whether as
a result of new information, future events or otherwise.
Effective Management of Growth Strategy
The Companys growth strategy which includes brand
extensions, square footage expansion, increasing the number of
new stores, and increasing its direct-to-consumer business is
dependent upon a number of factors, including: testing of new
products, locating suitable store sites, negotiating favorable
lease terms, having the infrastructure to address the increased
number and size of its stores and the increased demands of a
direct-to-consumer business, sourcing sufficient levels of
inventory, hiring and training qualified management level and
other associates, generating sufficient operating cash flows to
fund the expansion plans, and integrating new stores and a
larger direct-to-consumer business into its existing operations.
The Company expects to continue to open new stores in future
years, while also remodeling, relocating and expanding a portion
of the existing store base, and closing underperforming stores.
The planned openings and expansions could place increased
demands on operational, managerial and administrative resources.
These increased demands could cause the Company to operate the
business less effectively, which in turn could cause
deterioration in the financial performance of individual stores.
In addition, to the extent that a number of new store openings
are in existing markets, the Company may experience reduced net
sales volumes in previously existing stores in those same
markets. There can be no assurance that the Company will achieve
its planned expansion or that such expansion will be profitable
or that the Company will be able to manage its growth
effectively.
Effective Management of Store Performance
The Company operated 660 Chicos stores, 345 WH|BM stores
and 71 Soma stores as of January 31, 2009, 66 of which
opened within the last thirteen months. The results achieved by
these stores may not be indicative of longer term performance or
the potential market acceptance of stores in other locations.
The Company cannot be assured that any new store that it opens
will have similar operating results to those of prior stores.
New stores commonly take up to two years to reach planned
operating levels due to inefficiencies typically associated with
new stores, including demands on operational, managerial and
administrative resources. The failure of existing or new stores
to perform as predicted could negatively impact the
Companys net sales and results of operations as well as
result in impairment of long-lived assets at Company stores.
10
Strategic Development of New Concepts
A significant portion of the Companys longer term business
strategy involves the strategic acquisition or the organic
development and growth of new concepts and brand extensions
within established brands. The Companys ability to succeed
in new concepts may require significant capital expenditures and
management attention. Additionally, any new concept is subject
to certain risks including customer acceptance, competition,
product differentiation, challenges to economies of scale in
merchandise sourcing and the ability to attract and retain
qualified personnel, including management and designers.
The Company is currently expanding its Soma target customer
audience and continues to invest in development of the brand
through marketing and new product launches in order to create
and maintain brand awareness, which is an integral factor in the
success of the brand. Although the Company believes building
brand awareness will attract new customers, the Company cannot
provide assurance that the marketing activities and new product
launches will result in increased sales or profitability in the
future for the Soma brand. In addition, the Company believes
that eventual profitability is dependent on the ability to open
a critical mass of Soma stores (currently believed to be at
least
100-125
stores) and the continued focus on improving the existing Soma
operations and profitability. Thus, if the Company cannot
successfully execute its growth strategies for development of
the Soma brand, or any other new concepts or brand extensions
for that matter, the Companys financial condition and
results of operations may be adversely impacted.
General Economic Conditions
The recent downturns in the overall economy and the volatility
in the financial markets have adversely impacted the
Companys business and are likely to continue to impact
sales volume and profitability levels of the Company. Certain
economic conditions affect the level of consumer spending on
merchandise offered by the Company, including, among others,
rising unemployment levels, availability of consumer credit,
deteriorating business conditions, inflation, interest rates,
recessionary pressures, energy costs, taxation, uncertainty, and
consumer confidence in future economic conditions. The recent
disruptions in the overall economy and financial markets tend to
reduce consumer confidence in the economy and negatively affect
consumers spending patterns, which could be harmful to the
Companys financial position and results of operations, as
was the case in fiscal 2008, and may cause the Company to decide
to further decelerate the number and timing of new store
openings, relocations, or expansions. Furthermore, declines in
consumer spending patterns due to economic downturns may have a
more negative effect on apparel retailers than some other
retailers, particularly in the Companys competitive space,
and can negatively affect the Companys net sales and
profitability. There can be no assurances that government
responses to the disruptions in the financial markets will
restore consumer confidence, stabilize the markets or increase
liquidity and the availability of credit.
Fluctuations in Comparable Store Sales and Company Operating
Results
The Companys comparable store sales and overall operating
results have fluctuated in the past and are expected to continue
to fluctuate in the future. A variety of factors affect
comparable store sales and Company operating results, including
changes in fashion trends, changes in the Companys
merchandise mix, customer acceptance of merchandise offerings,
timing of catalog mailings, calendar shifts of holiday periods,
actions by competitors, new store openings, weather conditions,
and general economic conditions. Past comparable store sales or
operating results are not an indicator of future results. In
fiscal 2008, the Company experienced negative overall (and
negative Chicos and WH|BM brand) comparable store sales
results, which had a significant negative effect on the
Companys operations and market price of the Companys
common stock. Similarly, the Companys overall and
individual brand comparable store sales results in the future,
both positive and negative, are likely to have a significant
impact on the Companys operations and market price of the
Companys common stock.
Gross Margin Impact of Mix of Sales
The Companys gross margins are impacted by the sales mix
both from the perspective of merchandise sales mix within a
particular brand and relative sales volumes of the different
brands. Certain categories of apparel and accessories tend to
generate somewhat higher margins than others within each brand.
Thus, a shift in sales mix within a brand can often create a
significant impact on the Companys overall gross margins.
On the other hand, the gross margins for the Chicos brand
have been higher than at the WH|BM and Soma brands. As sales at
WH|BM
11
and Soma grow at a faster pace than at the Chicos brand as
planned, the Companys overall gross margin margins may be
negatively impacted which could in turn have an adverse effect
on the Companys overall operating margin and the market
price of the Companys common stock.
Impact on Selling, General and Administrative Expenses from
the Opening of Larger Stores
The average size of the Chicos and WH|BM stores has been
increasing over the last several years. In particular, new
Chicos and WH|BM front-line stores were approximately 30%
larger than the chain average in fiscal 2007. Although these
stores are expected to produce incremental profit dollars that
will be in the range of each respective chains average
anticipated profits, they will likely increase selling, general
and administrative expenses as a percentage of sales due to
their larger size and anticipated initial lower sales per
selling foot. Although it is anticipated that these stores will
eventually achieve profit margins equal to more mature stores,
these stores are likely, to put short-term pressure on the
Companys operating margin by increasing selling, general
and administrative expenses as a percentage of sales. This could
have an adverse effect on the Companys operating margins
and the market price of the Companys common stock.
Risks Associated with Direct-to-Consumer Sales
The Company sells merchandise over the Internet through its
websites, www.chicos.com,
www.whitehouseblackmarket.com, and www.soma.com.
Although the Companys direct-to-consumer operations
encompassed only 4.5% of the Companys total sales for
fiscal 2008, it is anticipated that the percentage will continue
to grow and could grow faster than in the past, due to the
Companys concentrated efforts in the area. The
Companys direct-to-consumer operations are subject to
numerous risks, including unanticipated operating problems,
reliance on third party computer hardware and software
providers, system failures and the need to invest in additional
infrastructure. The direct-to-consumer operations also involve
other risks that could have an impact on the Companys
results of operations including hiring, retention and training
of personnel to conduct the Companys direct-to-consumer
operations, increased postage or printing costs, rapid
technological change, liability for online content, credit card
fraud, risks related to the possible failure of the computer
systems that operate the website and its related support
systems, including computer viruses, telecommunication failures
and electronic break-ins and similar disruptions. Given the
Companys business strategy to target sustained growth in
its direct-to-consumer operations and thus increase sales
penetration, supported by investment in infrastructure, the
risks associated with direct-to-consumer operations are likely
to be of greater significance in fiscal 2009 and future years
than in prior years. There can be no assurance that the
Companys direct-to-consumer operations will be able to
achieve targeted sales and profitability growth or even remain
at their current level.
Privacy and Information Security
The Companys use of individually identifiable data is
regulated at the international, federal and state levels.
Privacy and information security laws and regulation changes,
and compliance with them may result in cost increases due to
necessary system changes and the development of new
administrative processes. If the Company or its associates fail
to comply with these laws and regulations or experience a data
security breach, the Companys reputation could be damaged,
possibly resulting in lost future business, and it could be
subjected to fines, penalties, orders and other legal risk as a
result of non-compliance.
Dependence on Single Distribution Location
The Companys distribution functions for all of its stores
and for its direct-to-consumer sales are handled from two
separate facilities located beside each other in Winder,
Georgia. Any significant interruption in the operation of either
of these distribution facilities due to natural disasters,
accidents, system failures or other unforeseen causes could
delay or impair the Companys ability to distribute
merchandise to its stores
and/or
fulfill direct-to-consumer orders, which could cause sales to
decline. The Company regularly reviews and is developing its
options to mitigate this risk including contingency plans and
back-up
relationships with outside providers of distribution services.
Success and Location of Shopping Centers
In order to generate customer traffic, the Company locates many
of its stores in prominent locations within shopping centers
that have been or are expected to be successful. The Company
cannot control the development of new shopping centers, the
availability or cost of appropriate locations within existing or
new shopping centers, or
12
the success of individual shopping centers. Furthermore, factors
beyond the Companys control impact shopping center
traffic, such as general economic conditions, weather
conditions, consumer acceptance of new or existing shopping
centers, regional demographic shifts, and consumer spending
levels. A slowdown in the U.S. economy, as has been seen in
fiscal 2008 and so far in fiscal 2009, tends to negatively
affect consumer spending and reduce shopping center traffic. The
Companys sales are partly dependent on a high volume of
shopping center traffic and any decline in such shopping center
traffic, whether because of the slowdown in the economy, a
falloff in the popularity of shopping centers among our target
customers, or otherwise, could have a material adverse effect on
our business.
Seasonal Fluctuations
The nature of the Companys business is comprised of two
distinct selling seasons; spring and fall. During the peaks of
these seasons, increased marketing, temporary personnel, and
other expenses may be incurred to prepare and compete for the
anticipated stronger consumer spending. Lower than expected
sales or profit margins during these periods, as was experienced
in fiscal 2008, could materially affect the financial condition
and results of operations.
Merchandising/Fashion Sensitivity
The Companys success is principally dependent upon its
ability to gauge the fashion tastes of its customers and to
provide merchandise that satisfies customer demand in a timely
manner. The Companys failure to anticipate, identify or
react appropriately and in a timely manner to changes in fashion
trends or demands, could lead to lower sales, excess inventories
and more frequent markdowns, which could have a material adverse
impact on the Companys business. Misjudgments or
unanticipated fashion changes could also have a material adverse
impact on the Companys image with its customers. There can
be no assurance that the Companys new products will be met
with the same level of acceptance as in the past or that the
failure of any new products will not have a material adverse
impact on the Companys business, results of operations and
financial condition.
Maintaining Proper Inventory Levels
The Company maintains an inventory of merchandise in its stores
and distribution center, particularly of selected products that
the Company anticipates will be in high demand. Inventory levels
in excess of customer demand may result in inventory write-downs
or the sale of excess inventory at discounted or closeout
prices, such as occurred in fiscal 2007 and fiscal 2008. These
events could significantly harm the Companys operating
results and impair the image of one or more of the
Companys brands. Conversely, if the Company underestimates
consumer demand for its merchandise, particularly higher volume
styles, or if the Companys manufacturers fail to supply
quality products in a timely manner, the Company may experience
inventory shortages, which might result in missed sales,
negatively impact customer relationships, diminish brand loyalty
and result in lost revenues, any of which could harm the
Companys business.
Price, Availability and Quality of its Offerings
Fluctuations in the price, availability and quality of fabrics
and other raw materials used in producing the Companys
products could have a material adverse effect on the
Companys cost of goods or its ability to meet customer
demands. The price and availability of such fabrics, other raw
materials and labor may fluctuate significantly, depending on
many factors, including natural resources, increased freight
costs, increased labor costs, weather conditions and currency
fluctuations. In the future, the Company may not be able to pass
all or a portion of such higher fabric, other raw materials or
labor prices on to its customers.
Competition
The retail apparel and accessory industry is highly competitive.
The Company competes with national, international and local
department stores, specialty and discount store chains,
independent retail stores and Internet and catalog businesses
that market similar lines of merchandise. The Companys
successful performance in recent years has increased the amount
of imitation by other retailers, often at lower price points.
Such imitation has made and will continue to make the retail
environment in which the Company operates more competitive. Many
competitors are significantly larger and have greater financial,
marketing and other resources and enjoy greater national,
regional and local name recognition than the Company. Depth of
selection in sizes, colors and styles of
13
merchandise, merchandise procurement and pricing, the ability to
anticipate fashion trends and consumer preferences, inventory
control, reputation, quality of merchandise, store design and
location, brand recognition and customer service are all
important factors in competing successfully in the retail
industry.
Vendor Relationships
The Company has no material long-term or exclusive contracts
with any apparel or accessory manufacturer or supplier. The
business depends on its network of suppliers and on continued
good relations with its vendor base. A key vendor may become
unable to supply our merchandising needs due to payment terms,
cost of manufacturing, adequacy of manufacturing capacity,
quality control, and timeliness of delivery. If the Company was
unexpectedly required to change vendors or if a key vendor was
unable to supply acceptable merchandise in sufficient quantities
on acceptable terms, the Company could experience a significant
disruption in the supply of merchandise. The Company could also
experience operational difficulties with its manufacturers, such
as reductions in the availability of production capacity, errors
in complying with merchandise specifications, insufficient
quality control, shortages of fabrics or other raw materials,
failures to meet production deadlines or increases in
manufacturing costs. Approximately 14% of total purchases in
fiscal 2008 were made from one vendor compared to approximately
7.5% for the same vendor in fiscal 2007. The Company cannot
guarantee that this relationship will be maintained in the
future or that the vendor will continue to be available to
manufacture merchandise. A significant disruption in the supply
of merchandise from this, or any other key vendor, could have a
material adverse impact on the Companys operations.
Working Capital Requirements of Third-Party Manufacturers
The Company relies on independent manufacturers for producing
its merchandise. Many of these manufacturers rely on working
capital financing to finance their operations. As a result of
recent credit market events, lenders have over the last several
months generally tightened credit standards and terms. To the
extent any of the Companys manufacturers are unable to
obtain adequate credit or their borrowing costs increase, the
Company may experience delays in obtaining merchandise, the
manufacturers may increase their prices or they may modify
payment terms in a manner that is unfavorable to the Company.
Any of the aforementioned could adversely affect the
Companys net sales or gross margin, which could adversely
affect the Companys business, financial condition and
results of operations.
Reliance on Foreign Sources of Production
Although the Company has certain portions of its clothing and
accessories produced within the United States, a majority of the
Companys clothing and accessories are still produced
outside the United States and the percentage has been growing
and this trend may continue. As a result, the Companys
business remains subject to the various risks of doing business
in foreign markets and importing merchandise from abroad, such
as: (i) political instability; (ii) imposition of new
legislation relating to import quotas that may limit the
quantity of goods that may be imported into the United States
from countries in which the Company does business;
(iii) imposition of new or increased duties, taxes, and
other charges on imports; (iv) foreign exchange rate
challenges and pressures presented by implementation of
U.S. monetary policy; (v) local business practice and
political issues, including issues relating to compliance with
the Companys Terms of Commitment to Ethical Sourcing and
domestic or international labor standards;
(vi) transportation disruptions, and (vii) seizure or
detention of goods by Customs authorities.
The Company cannot predict whether any of the foreign countries
in which its clothing and accessories are currently produced or
any of the countries in which the Companys clothing and
accessories may be produced in the future will be subject to
import restrictions by the United States government, including
the likelihood, type or effect of any trade retaliation. Trade
restrictions, including increased tariffs or more restrictive
quotas, or both, applicable to apparel items could affect the
importation of apparel generally and, in that event, could
increase the cost, or reduce the supply, of apparel available to
the Company and adversely affect the Companys business,
financial condition and results of operations. The
Companys merchandise flow and cost may also be adversely
affected by political instability in any of the countries in
which its goods are produced and continuing adverse changes in
foreign exchange rates.
In addition, the laws and customs protecting intellectual
property rights in many foreign countries can be substantially
different and potentially less protective of intellectual
property than those in the United States. The
14
Company has taken numerous steps to protect its intellectual
property overseas, but cannot guarantee that such rights are not
infringed. The intentional or unintentional infringement on the
Companys intellectual property rights by one of its
vendors or any other person or entity, could diminish the
uniqueness of the Companys products, tarnish the
Companys trademarks, or damage the Companys
reputation.
Vendors Compliance with Labor Practices Requirements
Although the Company has adopted its Terms of Commitment to
Ethical Sourcing and seeks to be diligent in its monitoring of
compliance with these terms, the Company does not have absolute
control over the ultimate actions or labor practices of its
independent vendors. The violation of labor or other laws by one
of its key independent vendors or the divergence of an
independent vendors labor practices from those generally
accepted as ethical by the Company could interrupt or otherwise
disrupt the shipment of finished merchandise to the Company or
damage the Companys reputation. Any of these, in turn,
could have a material adverse effect on the Companys
financial condition, results of operations and its stock price.
Changes in Accounting Principles, Interpretations and
Practices
Financial statements are prepared in accordance with
U.S. generally accepted accounting principles. These
accounting principles can be complex for certain aspects of the
Companys business and may involve subjective judgments. A
change from current accounting standards could have a
significant effect on the Companys results of operations.
Internal Control over Financial Reporting
The Companys system of internal controls over financial
reporting is designed to provide reasonable assurance that the
objectives of an effective financial reporting control system
are met. However, any system of internal controls is subject to
inherent limitations and the design of controls will not provide
absolute assurance that all objectives will be met. This
includes the possibility that controls may be inappropriately
circumvented or overridden, that judgments in decision-making
can be faulty and that misstatements due to errors or fraud may
not be prevented or detected. Any failure in the effectiveness
of internal control over financial reporting could have a
material effect on financial reporting or cause the Company to
fail to meet reporting obligations, and could negatively impact
investor perceptions.
Adverse Outcomes of Litigation Matters
The Company is involved from time to time in litigation and
other claims against its business. These issues arise primarily
in the ordinary course of business but could raise complex,
factual and legal issues, which are subject to multiple risks
and uncertainties and could require significant management time.
The Company believes that the Companys current litigation
issues will not have a material adverse effect on the
Companys results of operations or financial condition.
However, the Companys assessment of current litigation
could change in light of the discovery of facts with respect to
legal actions pending against the Company not presently known to
the Company or determinations by judges, juries or other finders
of fact which do not accord with the Companys evaluation
of the possible liability or outcome of such litigation and
additional litigation that is not currently pending could have a
more significant impact on the Company and its operations.
Headquarters Expansion
During the first quarter of fiscal 2006, the Company completed
the purchase of approximately 22 acres of property adjacent
to the Companys current headquarters site in
Fort Myers, Florida to serve as the base for expansion of
the Companys corporate headquarters operations. The
Company anticipates that its cash and marketable securities on
hand and cash from operations will be adequate to cover the
necessary costs of construction for its headquarters expansion.
However, in the event that such cash and marketable securities
on hand and cash from operations is not sufficient to meet the
Companys capital expenditures needs, the Company may need
to draw on its line of credit or seek other financing in order
to fund the costs of expansion of the headquarters campus or
other capital expenditures. In addition, such activities could
potentially result in temporary disruptions of operations or a
diversion of managements attention and resources.
15
Reliance on Key Personnel
The Companys success and ability to properly manage its
growth depends to a significant extent both upon the performance
of its current executive and senior management team and its
ability to attract, hire, motivate, and retain additional
qualified management personnel in the future. The Companys
inability to recruit and retain such additional personnel, or
the loss of the services of any of its executive officers, could
have a material adverse impact on the Companys business,
financial condition and results of operations.
Effects of War, Terrorism or Other Catastrophes
In the event of war, acts of terrorism or any further threat of
terrorist attacks, customer traffic in shopping centers and
consumer spending could significantly decrease. In addition,
local authorities or shopping center management could close in
response to any immediate security concern or weather
catastrophe such as a hurricane or tornado. Similarly, war, acts
of terrorism, threats of terrorist attacks, or a weather
catastrophe could severely and adversely affect the
Companys headquarters or distribution center that, in
turn, could have a material adverse impact on the Companys
business. Any such event could result in decreased sales that
would have a material adverse impact on the Companys
business, financial condition and results of operations.
Goodwill and Intangible Assets
Goodwill and intangible assets with indefinite lives are not
amortized, but rather are tested for impairment annually or more
frequently if impairment indicators arise. In addition to the
annual review, management uses certain indicators to evaluate
whether the carrying value of goodwill and other intangible
assets may not be recoverable, such as (i) the
Companys market capitalization in relation to the book
value of its stockholders equity, (ii) current-period
operating or cash flow declines combined with a history of
operating cash flow declines or a forecast that demonstrates
continuing declines in cash flow or inability to improve
operations to forecasted levels, or (iii) a significant
adverse change in business climate that could affect the value
of reporting units.
The significant estimates and assumptions used by management in
assessing the recoverability of goodwill and other intangible
assets include estimated future cash flows, the discount rate,
and other factors. Any changes in these estimates or assumptions
could result in an impairment charge. The estimates of future
cash flows, based on reasonable and supportable assumptions and
projections, require managements subjective judgment.
Depending on the assumptions and estimates used, the estimated
future cash flows projected in the evaluations of long-lived
assets can vary within a range of outcomes. Nevertheless, the
unprecedented credit crisis including extreme volatility in the
capital markets and the global economic downturn could result in
changes to expectations of future cash flows and key valuation
assumptions and estimates. These events could result in changes
to managements estimates of the fair value of the
Companys reporting units and may result in material
impairments in the future. If the Company determines in the
future that impairments have occurred, the Company would be
required to write off the impaired portion of either
1) goodwill, 2) the WH|BM trademark asset or
3) the Minnesota territorial rights, which could
substantially and negatively impact the Companys results
of operations.
Reliance on Information Technology
The Company relies on various information systems to manage its
operations and regularly makes investments to upgrade, enhance
or replace such systems. The Company is currently implementing a
new enterprise resource planning system (ERP) through SAP, a
third party vendor, to assist in managing its retail stores.
This fully integrated system is expected to support and
coordinate all aspects of product development, merchandising,
finance and accounting and to be fully scalable to accommodate
rapid growth. Any delays or difficulties in transitioning or in
integrating SAP with the Companys current systems, or any
other disruptions affecting the Companys information
systems, could have a material adverse impact on the
Companys business.
Brand Reputation
The Companys ability to protect its brands
reputation is an integral part of its general success strategy.
The Chicos image of high quality and unique styles as well
as the WH|BM image of classic and timeless designs is critical
to the overall value of the brands. Maintaining and positioning
these brands is an on-going investment for the Company in which
it is likely continued investment in customer research and
promotional events will be essential. Although the Company
believes product development investments will help attract new
customers, it cannot
16
provide assurance that they will result in increased revenue and
profitability. Additionally, if the Company fails to maintain
high standards for merchandise quality and integrity, such
failures could jeopardize the brands reputation and have a
negative effect on earnings. Damage to the Companys
reputation as a whole could also cause a loss of consumer and
investor confidence and could have a material effect on the
business.
Protection of Intellectual Property
The Company believes that its trademarks, copyrights, and other
intellectual and proprietary rights are important to its
success. Even though the Company takes action to establish,
register and protect its trademarks, copyrights, and other
intellectual and proprietary rights, there can be no assurance
that the Company will be successful or that others will not
imitate the Companys products or infringe upon the
Companys intellectual property rights. In addition, there
can be no assurance that others will not resist or seek to block
the sale of the Companys products as infringements of
their trademarks, copyrights, or other proprietary rights. If
the Company is required to stop using any of its registered or
non-registered trademarks or copyrights, the Companys
sales could decline and its business and results of operations
could be adversely affected.
Volatility of Stock Price
The market price of the Companys common stock has
fluctuated substantially in the past and there can be no
assurance that the market price of the common stock will not
continue to fluctuate significantly. Future announcements or
management discussions concerning the Company or its
competitors, sales and profitability results, quarterly
variations in operating results or comparable store net sales,
changes in earnings estimates by analysts or changes in
accounting policies, among other factors, could cause the market
price of the common stock to fluctuate substantially. In
addition, stock markets, in general, have experienced extreme
price and volume volatility in recent years. This volatility has
had a substantial effect on the market prices of securities of
many public companies for reasons frequently unrelated to the
operating performance of the specific companies.
List Not Exclusive
The foregoing list of risk factors is not exhaustive. There can
be no assurance that the Company has correctly identified and
appropriately assessed all factors affecting its business
operations or that the publicly available and other information
with respect to these matters is complete and correct.
Additional risks and uncertainties not presently known to the
Company or that it currently believes to be immaterial also may
adversely impact the business. Should any risks or uncertainties
develop into actual events, these developments could have
material adverse effects on the Companys business,
financial condition and results of operations.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
Like other seasoned issuers, the Company, from time to time,
receives written comments from the staff of the SEC regarding
the Companys periodic or current reports under the
Exchange Act. There are no comments that the Company received
not less than 180 days before the end of its 2008 fiscal
year to which this
Form 10-K
relates that remain unresolved.
17
Stores
As a matter of policy, the Company prefers to lease its stores
and all the stores are currently leased. As of January 31,
2009, the Companys 1,076 stores were located in
49 states, the District of Columbia, the U.S. Virgin
Islands and Puerto Rico, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama
|
|
|
15
|
|
|
Louisiana
|
|
|
18
|
|
|
Ohio
|
|
|
27
|
|
Arizona
|
|
|
28
|
|
|
Maine
|
|
|
1
|
|
|
Oklahoma
|
|
|
9
|
|
Arkansas
|
|
|
8
|
|
|
Maryland
|
|
|
31
|
|
|
Oregon
|
|
|
19
|
|
California
|
|
|
126
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|
|
Massachusetts
|
|
|
27
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|
|
Pennsylvania
|
|
|
49
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|
Colorado
|
|
|
21
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|
|
Michigan
|
|
|
25
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|
|
Rhode Island
|
|
|
5
|
|
Connecticut
|
|
|
18
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|
|
Minnesota
|
|
|
17
|
|
|
South Carolina
|
|
|
19
|
|
Delaware
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|
|
4
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|
|
Mississippi
|
|
|
4
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|
|
South Dakota
|
|
|
1
|
|
District of Columbia
|
|
|
4
|
|
|
Missouri
|
|
|
19
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|
|
Tennessee
|
|
|
20
|
|
Florida
|
|
|
104
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|
|
Montana
|
|
|
2
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|
|
Texas
|
|
|
96
|
|
Georgia
|
|
|
41
|
|
|
Nebraska
|
|
|
6
|
|
|
Utah
|
|
|
8
|
|
Hawaii
|
|
|
6
|
|
|
Nevada
|
|
|
15
|
|
|
Vermont
|
|
|
1
|
|
Idaho
|
|
|
2
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|
|
New Hampshire
|
|
|
2
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|
|
Virginia
|
|
|
28
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|
Illinois
|
|
|
44
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|
|
New Jersey
|
|
|
44
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|
|
Washington
|
|
|
20
|
|
Indiana
|
|
|
16
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|
|
New Mexico
|
|
|
8
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|
|
West Virginia
|
|
|
2
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|
Iowa
|
|
|
5
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|
|
New York
|
|
|
41
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|
|
Wisconsin
|
|
|
13
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|
Kansas
|
|
|
9
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|
|
North Carolina
|
|
|
31
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|
|
Wyoming
|
|
|
1
|
|
Kentucky
|
|
|
11
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|
|
North Dakota
|
|
|
1
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|
|
U.S. Virgin Islands
|
|
|
1
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|
|
|
|
|
|
|
|
|
|
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|
|
Puerto Rico
|
|
|
3
|
|
Headquarters
and Distribution Center
The Companys World Headquarters is located on
approximately 57 acres in Fort Myers, Florida and
consists of approximately 347,600 square feet of office
space. During fiscal 2006, the Company completed the purchase of
approximately 22 acres (which is included in the 57 total
acres above) of property, including seven existing buildings
aggregating approximately 200,600 square feet of office
space (which is included in the 347,600 total office space
above) adjacent to the Companys headquarters site for
approximately $26.4 million. This World Headquarters campus
currently consists of its corporate and administrative
headquarters for all of its brands.
In order to facilitate temporary space needs, the Company has
leased approximately 12,500 square feet of off-site space
in the Fort Myers area for its call center and has leased
approximately 21,000 square feet of off-site space for its
finance department, which it plans to vacate by June 2009.
The Company also owns 71 acres of land in Winder, Georgia
for its distribution and fulfillment centers operations. These
facilities consist of 202,000 square feet of distribution
space, 50,000 square feet of fulfillment and call center
space and 31,000 square feet of office space. At the time
of the original acquisition, the Company also secured a
commitment from the local county to permit the addition of up to
another 200,000 square feet of distribution space and
6,000 square feet of office space in the future, subject to
final approval by the local county at the time the Company
petitions the county to add the additional square footage.
The Company is currently evaluating its requirements and the
appropriate timing to make additional distribution center
capacity available particularly in light of its recent decision
to slow its new store growth until improvements in the economy
and the Companys performance are achieved. Even with the
scaled down growth plans, the Companys present goal is to
begin design work to increase capacity in late fiscal 2009. It
is currently anticipated that the Company will require
additional distribution space in fiscal 2010. The Company is
evaluating the expansion of its current distribution center on
the existing adjacent land that is already owned by the Company,
as well as other strategic alternatives.
18
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
The Company was named as defendant in a putative class action
filed in June 2008 in the Superior Court for the State of
California, County of San Diego, Michele L. Massey
Haefner v. Chicos FAS, Inc. The Complaint alleges
that the Company, in violation of California law, requested or
required customers to provide personal information in
conjunction with credit card transactions. The Company filed an
answer denying the material allegations of the Complaint. The
Company believes that the case is wholly without merit and,
thus, does not believe that the case should have any material
adverse effect on the Companys financial condition or
results of operations.
The Company is not a party to any other legal proceedings, other
than various claims and lawsuits arising in the normal course of
business, none of which the Company believes should have a
material adverse effect on its financial condition or results of
operations.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
None.
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
The Companys Common Stock trades on the New York Stock
Exchange (NYSE) under the symbol CHS. On
March 16, 2009, the last reported sale price of the Common
Stock on the NYSE was $4.84 per share.
The following table sets forth, for the periods indicated, the
range of high and low sale prices for the Common Stock, as
reported on the New York Stock Exchange:
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended January 31, 2009
|
|
High
|
|
|
Low
|
|
|
Fourth Quarter (November 2, 2008 - January 31, 2009)
|
|
$
|
4.44
|
|
|
$
|
1.72
|
|
Third Quarter (August 3, 2008 - November 1, 2008)
|
|
|
7.99
|
|
|
|
2.24
|
|
Second Quarter (May 4, 2008 - August 2, 2008)
|
|
|
8.18
|
|
|
|
4.26
|
|
First Quarter (February 3, 2008 - May 3, 2008)
|
|
|
10.72
|
|
|
|
5.42
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended February 2, 2008
|
|
High
|
|
|
Low
|
|
|
Fourth Quarter (November 4, 2007 - February 2, 2008)
|
|
$
|
12.87
|
|
|
$
|
6.70
|
|
Third Quarter (August 5, 2007 - November 3, 2007)
|
|
|
20.12
|
|
|
|
11.90
|
|
Second Quarter (May 6, 2007 - August 4, 2007)
|
|
|
27.70
|
|
|
|
17.98
|
|
First Quarter (February 4, 2007 - May 5, 2007)
|
|
|
27.94
|
|
|
|
20.06
|
|
Although the Company currently does not intend to pay any cash
dividends or repurchase shares over the near term and intends to
retain its earnings for the future operation and expansion of
the Companys business, the Company may reconsider this
intention as the Company monitors its build up of cash reserves.
Any determination to pay dividends or repurchase shares in the
future will be at the discretion of the Companys Board of
Directors and will also be dependent upon the Companys
results of operations, financial condition, contractual
restrictions and other factors deemed relevant by the Board of
Directors.
19
In fiscal 2008, the Company repurchased 60,168 restricted shares
in connection with employee tax withholding obligations under
employee compensation plans, of which 31,494 were repurchased in
the fourth quarter as set forth in the following chart.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Dollar Value
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
of Shares that
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
May Yet Be
|
|
|
|
|
|
|
|
|
|
Purchased as
|
|
|
Purchased
|
|
|
|
|
|
|
|
|
|
Part of
|
|
|
Under the
|
|
|
|
Total Number
|
|
|
Average
|
|
|
Publicly
|
|
|
Publicly
|
|
|
|
of Shares
|
|
|
Price Paid
|
|
|
Announced
|
|
|
Announced
|
|
Period
|
|
Purchased
|
|
|
per Share
|
|
|
Plans
|
|
|
Plans
|
|
|
November 2, 2008 to November 29, 2008
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
November 30, 2008 to January 3, 2009
|
|
|
4,504
|
|
|
$
|
3.28
|
|
|
|
|
|
|
$
|
|
|
January 4, 2009 to January 31, 2009
|
|
|
26,990
|
|
|
$
|
3.73
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
31,494
|
|
|
$
|
3.66
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The approximate number of equity security holders of the Company
is as follows:
|
|
|
|
|
|
|
Number of Record Holders
|
|
Title of Class
|
|
as of March 16, 2009
|
|
|
Common Stock, par value $.01 per share
|
|
|
1,936
|
|
Five Year
Performance Graph
The following graph compares the cumulative total return on the
Companys common stock with the cumulative total return of
the companies in the Standard & Poors 500 Index
and the Standard & Poors 500 Apparel Retail
Index. Cumulative total return for each of the periods shown in
the Performance Graph is measured assuming an initial investment
of $100 on January 31, 2004 and the reinvestment of
dividends.
Comparison
of Cumulative Five Year Total Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/31/2004
|
|
|
1/29/2005
|
|
|
1/28/2006
|
|
|
2/3/2007
|
|
|
2/2/2008
|
|
|
1/31/2009
|
Chicos FAS, Inc.
|
|
|
$
|
100
|
|
|
|
$
|
138
|
|
|
|
$
|
229
|
|
|
|
$
|
119
|
|
|
|
$
|
58
|
|
|
|
$
|
22
|
|
S&P 500 Index
|
|
|
$
|
100
|
|
|
|
$
|
105
|
|
|
|
$
|
118
|
|
|
|
$
|
135
|
|
|
|
$
|
133
|
|
|
|
$
|
81
|
|
S&P 500 Apparel Retail Index
|
|
|
$
|
100
|
|
|
|
$
|
120
|
|
|
|
$
|
111
|
|
|
|
$
|
132
|
|
|
|
$
|
128
|
|
|
|
$
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
Selected Financial Data at the dates and for the periods
indicated should be read in conjunction with, and is qualified
in its entirety by reference to the financial statements and the
notes thereto referenced in this Annual Report on
Form 10-K.
The Companys fiscal years end on the Saturday closest to
January 31 and are designated by the calendar year in which the
fiscal year commences.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January .31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
January 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(52 weeks)
|
|
|
(52 weeks)
|
|
|
(53 weeks)
|
|
|
(52 weeks)
|
|
|
(52 weeks)
|
|
|
|
(In thousands, except per share and selected operating
data)
|
|
|
Operating Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales by Chicos/Soma stores
|
|
$
|
1,074,939
|
|
|
$
|
1,223,217
|
|
|
$
|
1,210,474
|
|
|
$
|
1,095,938
|
|
|
$
|
889,429
|
|
Net sales by WH|BM stores
|
|
|
436,875
|
|
|
|
418,901
|
|
|
|
367,063
|
|
|
|
261,601
|
|
|
|
142,092
|
|
Net sales by
direct-to-consumer
|
|
|
70,591
|
|
|
|
72,093
|
|
|
|
52,959
|
|
|
|
36,151
|
|
|
|
26,831
|
|
Other net sales(1)
|
|
|
|
|
|
|
115
|
|
|
|
10,431
|
|
|
|
10,885
|
|
|
|
8,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
1,582,405
|
|
|
|
1,714,326
|
|
|
|
1,640,927
|
|
|
|
1,404,575
|
|
|
|
1,066,882
|
|
Cost of goods sold(2)
|
|
|
762,913
|
|
|
|
745,265
|
|
|
|
673,742
|
|
|
|
547,532
|
|
|
|
411,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
819,492
|
|
|
|
969,061
|
|
|
|
967,185
|
|
|
|
857,043
|
|
|
|
654,974
|
|
Store operating expenses
|
|
|
645,352
|
|
|
|
633,288
|
|
|
|
525,529
|
|
|
|
416,833
|
|
|
|
328,491
|
|
Marketing
|
|
|
80,326
|
|
|
|
95,717
|
|
|
|
75,121
|
|
|
|
58,164
|
|
|
|
43,441
|
|
Shared services
|
|
|
109,744
|
|
|
|
118,598
|
|
|
|
102,835
|
|
|
|
83,733
|
|
|
|
58,666
|
|
Impairment and restructuring charges
|
|
|
23,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(39,594
|
)
|
|
|
121,458
|
|
|
|
263,700
|
|
|
|
298,313
|
|
|
|
224,376
|
|
Gain on sale of investment
|
|
|
|
|
|
|
6,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
|
7,757
|
|
|
|
10,869
|
|
|
|
10,626
|
|
|
|
8,236
|
|
|
|
2,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(31,837
|
)
|
|
|
139,160
|
|
|
|
274,326
|
|
|
|
306,549
|
|
|
|
226,703
|
|
Income tax provision (benefit)
|
|
|
(12,700
|
)
|
|
|
48,012
|
|
|
|
99,635
|
|
|
|
112,568
|
|
|
|
85,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(19,137
|
)
|
|
|
91,148
|
|
|
|
174,691
|
|
|
|
193,981
|
|
|
|
141,206
|
|
Loss on discontinued operations, net of tax
|
|
|
|
|
|
|
2,273
|
|
|
|
8,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(19,137
|
)
|
|
$
|
88,875
|
|
|
$
|
166,636
|
|
|
$
|
193,981
|
|
|
$
|
141,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations-basic(3)
|
|
$
|
(0.11
|
)
|
|
$
|
0.52
|
|
|
$
|
0.99
|
|
|
$
|
1.07
|
|
|
$
|
0.79
|
|
Loss on discontinued operations-basic(3)
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share(3)
|
|
$
|
(0.11
|
)
|
|
$
|
0.51
|
|
|
$
|
0.94
|
|
|
$
|
1.07
|
|
|
$
|
0.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations-diluted(3)
|
|
$
|
(0.11
|
)
|
|
$
|
0.51
|
|
|
$
|
0.98
|
|
|
$
|
1.06
|
|
|
$
|
0.78
|
|
Loss on discontinued operations-diluted(3)
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share(3)
|
|
$
|
(0.11
|
)
|
|
$
|
0.50
|
|
|
$
|
0.93
|
|
|
$
|
1.06
|
|
|
$
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding-basic(3)
|
|
|
175,861
|
|
|
|
175,574
|
|
|
|
177,273
|
|
|
|
180,465
|
|
|
|
178,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding-diluted(3)
|
|
|
175,861
|
|
|
|
176,355
|
|
|
|
178,452
|
|
|
|
182,408
|
|
|
|
180,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stores at period end
|
|
|
1,076
|
|
|
|
1,038
|
|
|
|
920
|
|
|
|
763
|
|
|
|
657
|
|
Average net sales per Company store:(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicos
|
|
$
|
1,564
|
|
|
$
|
1,929
|
|
|
$
|
2,139
|
|
|
$
|
2,179
|
|
|
$
|
2,010
|
|
WH|BM
|
|
|
1,291
|
|
|
|
1,418
|
|
|
|
1,575
|
|
|
|
1,402
|
|
|
|
995
|
|
Soma
|
|
|
893
|
|
|
|
818
|
|
|
|
1,044
|
|
|
|
1,054
|
|
|
|
|
|
Average net sales per selling square foot at Company stores:(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicos
|
|
$
|
598
|
|
|
$
|
792
|
|
|
$
|
961
|
|
|
$
|
1,028
|
|
|
$
|
988
|
|
WH|BM
|
|
|
656
|
|
|
|
804
|
|
|
|
1,040
|
|
|
|
1,028
|
|
|
|
814
|
|
Soma
|
|
|
469
|
|
|
|
400
|
|
|
|
434
|
|
|
|
460
|
|
|
|
|
|
Percentage (decrease) increase in comparable Company store net
sales
|
|
|
(15.1
|
)%
|
|
|
(8.1
|
)%
|
|
|
2.1
|
%
|
|
|
14.3
|
%
|
|
|
12.9
|
%
|
Balance Sheet Data (at year end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,226,183
|
|
|
$
|
1,250,126
|
|
|
$
|
1,060,627
|
|
|
$
|
999,413
|
|
|
$
|
715,729
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent liabilities
|
|
|
177,251
|
|
|
|
156,417
|
|
|
|
116,860
|
|
|
|
70,318
|
|
|
|
59,546
|
|
Stockholders equity
|
|
|
902,196
|
|
|
|
912,516
|
|
|
|
803,931
|
|
|
|
806,427
|
|
|
|
560,868
|
|
Working capital
|
|
$
|
339,639
|
|
|
$
|
305,540
|
|
|
$
|
334,513
|
|
|
$
|
415,310
|
|
|
$
|
269,252
|
|
|
|
|
(1)
|
|
Includes net sales to franchisees.
|
(2)
|
|
Cost of goods sold includes
distribution, merchandising and product development costs, but
does not include store occupancy cost.
|
(3)
|
|
Restated to give retroactive effect
for the 2 for 1 stock split in February 2005.
|
(4)
|
|
Average net sales per Company store
and average net sales per selling square foot at Company stores
are based on net sales of stores that have been operated by the
Company for the full year. For the year ended February 3,
2007, average net sales per Company store and average net sales
per selling square foot at Company stores have been adjusted to
exclude the effect of the fifty-third week.
|
21
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following discussion and analysis should be read in
conjunction with the Companys consolidated financial
statements and notes thereto.
Key
Events and Recent Developments
Several key events have occurred in early fiscal 2009 and in
fiscal 2008 that did have or could be expected to have a
significant effect on the Companys results of operations,
including:
|
|
|
|
|
On February 25, 2009, the Company announced that it had
named Andrea M. Weiss to its Board of Directors. Ms. Weiss
has extensive specialty retail experience having served in
several senior executive positions with dELiA*s, Inc., The
Limited, Inc., Intimate Brands, Inc., Guess, Inc., and Ann
Taylor Stores, Inc. She is the founder and current Chief
Executive Officer of Retail Consulting, Inc., a boutique
consulting practice focused on product and brand development,
consumer contact strategies, operational improvements, and
turnarounds.
|
|
|
|
On February 24, 2009, the Company announced the naming of
Jeffrey Jones as the Companys Chief Operating Officer and
Charles Nesbit to Brand President Soma Intimates.
Mr. Jones brings substantial retail experience to the
Company including executive positions at such companies as Sears
and Lands End. Mr. Jones responsibilities
include supervising the implementation of the Companys
enterprise systems and continuing to develop the infrastructure
related to the Companys
direct-to-consumer
business. Mr. Nesbit, who was formerly the Companys
Chief Operating Officer, is now able to focus all of his time
and attention to the opportunities presented by the Soma brand.
|
|
|
|
On February 5, 2009, the Company announced that it had
hired Cynthia Cinny Murray as its Brand
President Chicos. Ms. Murray has nearly
30 years of experience in retail including executive
positions with Stage Stores, Inc. and Talbots.
|
|
|
|
On January 28, 2009, the Company announced impairment and
restructuring charges totaling $23.7 million on a pre-tax
basis. Approximately 11% of the Companys headquarters
employee base was eliminated. This action, resulting in a total
of $10.0 million in pre-tax charges, is expected to reduce
payroll and related benefit expenses for the Company by
$15 million in fiscal 2009. In addition, the Company
announced non-cash impairment charges totaling
$13.7 million pre-tax, to write off impaired long-lived
assets at certain underperforming stores across all three brands.
|
|
|
|
On January 8, 2009, the Company announced the retirement
and resignation of its previous President and Chief Executive
Officer and named David F. Dyer as his replacement.
Mr. Dyer, who has been a member of the Companys Board
of Directors since March 2006, brings significant retail
experience to the Company. Mr. Dyer was previously
President and Chief Executive Officer for Tommy Hilfiger and
Lands End.
|
|
|
|
On November 24, 2008, the Company entered into a
$55 million senior secured revolving credit facility with
SunTrust Bank. The credit facility provides for swing advances
of up to $5 million and issuance of letters of credit up to
$10 million and also provides the Company the ability,
subject to satisfaction of certain conditions, to increase the
commitments available under the credit facility up to
$100 million through additional syndication. This credit
facility replaces the Companys previous $45 million
credit facility.
|
Executive
Overview
The Company is a specialty retailer of private branded,
sophisticated,
casual-to-dressy
clothing, intimates, complementary accessories, and other
non-clothing gift items operating under the Chicos, White
House | Black Market (WH|BM), and Soma Intimates
(Soma) brand names. The Company earns revenues and
generates cash through the sale of merchandise in its retail
stores and on its various websites and through its call centers,
which take orders for all brands.
22
Fiscal 2008 was a challenging year for the Company. In fiscal
year 2008, the Company reported net sales, operating loss and
net loss of $1.582 billion, ($39.6) million and
($19.1) million, respectively. Net sales decreased by 7.7%.
The Companys gross margin decreased to 51.8% in fiscal
2008 from 56.5% in fiscal 2007.
The retail industry, in general, has been significantly impacted
by a number of economic developments, such as a deteriorating
macroeconomic environment, combined with the unstable financial
markets. Amidst the current recessionary environment, customers
have, in turn, curtailed their spending in the face of
uncertainty. The Company is not immune to these circumstances.
In addition to the general economic slowdown, the Companys
results were impacted by continuing product issues at its
Chicos brand. The Company believes that the Chicos
brand became too predictable and was straying from its core
competencies including novelty in its assortment and delivering
amazing personal service. The Company is focused on renewing its
emphasis on the customer experience for the Chicos brand,
and improving the Chicos contact strategy to drive
customer traffic into stores, develop new customers and
improving product offerings that will inspire customers to shop.
With regard to its WH|BM brand, the Company believes that this
brands performance stabilized in late fiscal 2008.
Although the WH|BM brand experienced negative comparable store
sales in fiscal 2008, the Company believes that this brand is
poised for operating improvement and growth in fiscal 2009.
Finally, the Companys Soma brand continues to show
improvement. Soma posted increased comparable store sales during
fiscal 2008. The Company continues to believe Soma has the
potential for sustained future growth.
For fiscal 2009, the Company has established several significant
shorter-term goals: 1) improve the performance of the
Chicos brand, 2) continue to invest in the growth
potential of the WH|BM and Soma brands, 3) invest in and
accelerate the growth of the
direct-to-consumer
channel, 4) continue to control expenses and rationalize
the Companys expense structure and 5) improve
controls over inventory investment.
The Company believes its strong balance sheet, which includes
approximately $269 million in cash and marketable
securities and no debt at the end of fiscal 2008, increases its
financial flexibility and further reinforces its ability to
successfully emerge from this economic crisis. For fiscal 2009,
the Company generally expects to continue to generate positive
cash flow to fund its operations and to take advantage of new
growth opportunities.
Additional factors that will be critical to determining the
Companys future success include, among others, managing
its overall growth strategy, including the ability to open and
operate stores effectively, increasing its
direct-to-consumer
business, maximizing efficiencies in the merchandising, product
development and sourcing processes, maintaining high standards
for customer service and assistance, maintaining newness, fit
and comfort in its merchandise offerings, matching merchandise
offerings to customer preferences and needs, customer acceptance
of new store concepts, integrating new or acquired businesses,
developing its newer brands, implementing the process of senior
management succession, initiating and maintaining strategic
alliances with vendors, controlling expenses, and generating
cash to fund the Companys expansion needs. In order to
monitor the Companys success, the Companys senior
management monitors certain key performance indicators,
including:
|
|
|
|
|
Comparable store sales growth In fiscal 2008,
the Companys comparable store sales (sales from stores
open for at least twelve full months, including stores that have
been expanded or relocated within the same general market)
decreased by 15.1%. The comparable store sales performance was
affected by numerous challenges including a difficult
macro-economic environment, declining consumer confidence
resulting in lower than anticipated customer traffic and
particularly cautious consumer spending and merchandise
offerings that failed, at times, to meet customer expectations,
resulting in substantial markdowns and lower realized average
unit retails. The Companys current strategy is to target a
general overall trend to return to comparable store sales
growth; although it recognizes that it continues to be affected
by many of these factors. The Company believes that its ability
to realize such a general overall positive trend in comparable
store sales will prove to be a key factor in determining its
future levels of success.
|
|
|
|
Positive operating cash flow In fiscal 2008,
the Company generated $99 million of cash flow from
operations compared with $209 million in fiscal 2007, which
represents a decrease of approximately 53%. The Company
currently anticipates an increase in its free cash flow (cash
flow from operations net of capital
|
23
|
|
|
|
|
expenditures) in fiscal 2009 compared to fiscal 2008. The
Company believes that historically, a key strength of its
business has been the ability to consistently generate cash flow
from operations.
|
|
|
|
|
|
Store productivity Management consistently
monitors various key performance indicators of store
productivity including sales per square foot, store operating
contribution margin and store cash flow in order to assess the
Companys performance.
|
|
|
|
Inventory turnover Management considers
inventory turnover a significant performance indicator that
assists in the determination of markdowns, in planning future
inventory levels and in assessing the customers response
to the merchandise.
|
|
|
|
Quality and merit of merchandise offerings To
monitor and maintain the acceptance of its merchandise
offerings, the Company monitors sell-through levels, gross
margins and markdown rates on a classification and style level.
Although the Company does not disclose these statistics for
competitive reasons, this analysis helps identify comfort, fit
and newness issues at an early date and helps the Company plan
future product development and buying.
|
|
|
|
Loyalty Clubs and Customer Development
Management believes that a significant indicator of the
Companys success is the extent of the ongoing spending and
future growth of its loyalty programs, the Passport
Club and The Black Book, and support for such
loyalty programs that is provided through its personalized
customer service training programs and its marketing initiatives.
|
Results
of Operations
Net
Sales
The following table shows net sales by Chicos/Soma stores,
net sales by WH|BM stores, net sales by
direct-to-consumer,
and other net sales in dollars and as a percentage of total net
sales for the fiscal years ended January 31, 2009 (fiscal
2008 or current period, which consisted of
52 weeks), February 2, 2008 (fiscal 2007 or
prior period, which consisted of 52 weeks), and
February 3, 2007 (fiscal 2006, which consisted of
53 weeks) (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
%
|
|
|
Fiscal 2007
|
|
|
%
|
|
|
Fiscal 2006
|
|
|
%
|
|
|
Net sales by Chicos/Soma stores
|
|
$
|
1,074,939
|
|
|
|
67.9
|
%
|
|
$
|
1,223,217
|
|
|
|
71.4
|
%
|
|
$
|
1,210,474
|
|
|
|
73.8
|
%
|
Net sales by WH|BM stores
|
|
|
436,875
|
|
|
|
27.6
|
|
|
|
418,901
|
|
|
|
24.4
|
|
|
|
367,063
|
|
|
|
22.4
|
|
Net sales by
direct-to-consumer
|
|
|
70,591
|
|
|
|
4.5
|
|
|
|
72,093
|
|
|
|
4.2
|
|
|
|
52,959
|
|
|
|
3.2
|
|
Other net sales
|
|
|
|
|
|
|
|
|
|
|
115
|
|
|
|
0.0
|
|
|
|
10,431
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,582,405
|
|
|
|
100.0
|
%
|
|
$
|
1,714,326
|
|
|
|
100.0
|
%
|
|
$
|
1,640,927
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales by WH|BM and Soma stores increased in the current
period from the prior period primarily due to new store openings
for the WH|BM brand and improved comparable store sales at the
Soma brand, offset by a decrease in net sales by Chicos
stores and the overall decrease in the Companys comparable
store net sales. A summary of the factors impacting
year-over-year
sales increases is provided in the table below (dollar amounts
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
Fiscal 2007
|
|
|
Fiscal 2006
|
|
|
Comparable store sales (decreases) increases
|
|
$
|
(242,407
|
)
|
|
$
|
(123,096
|
)
|
|
$
|
28,248
|
|
Comparable same store sales %
|
|
|
(15.1
|
)%
|
|
|
(8.1
|
)%
|
|
|
2.1
|
%
|
New store sales increases
|
|
$
|
112,103
|
|
|
$
|
187,677
|
|
|
$
|
191,750
|
|
Number of new Company-owned stores opened, net
|
|
|
38
|
|
|
|
128
|
*
|
|
|
145
|
*
|
|
|
|
* |
|
Does not include Fitigues stores acquired in fiscal 2006 and
closed in fiscal 2007 |
The comparable store sales decrease of 15.1% in fiscal 2008 was
driven partially by a decrease of 7.2% in the Chicos
average unit retail price (the percentage change of which is
believed by management to represent a reasonable approximation
of the percentage change attributable to price changes,
markdowns or mix) as well as
24
from a decrease in the Chicos and WH|BM average number of
transactions per store, offset in part by an increase in the
WH|BM average unit retail price of 4.6%. In fiscal 2008, WH|BM
same store sales represented approximately 27% of the total same
store sales base compared to 23% in fiscal 2007. The
Chicos brand same store sales decreased by approximately
19% and the WH|BM brand same store sales decreased by
approximately 8% when comparing fiscal 2008 to fiscal 2007. Soma
stores sales, which were included in the comparable store sales
calculation beginning in September 2005, increased during fiscal
2008, although the impact on the consolidated comparable store
sales decrease was immaterial.
The comparable store percentage reported above includes 84
stores that were expanded or relocated within the last two
fiscal years by an average of 1,441 selling square feet. If the
stores that were expanded and relocated had been excluded from
the comparable store base, the decrease in comparable store net
sales would have been 15.7% for fiscal 2008 (versus 15.1% as
reported). The Company does not consider the effect to be
material to the overall comparable store sales results and
believes the inclusion of expanded stores in the comparable
store net sales to be an acceptable practice, consistent with
the practice followed by the Company in prior periods and by
some other retailers.
In fiscal 2007, the Company experienced an overall comparable
store sales decrease of 8.1%, which was driven partially by a
decrease of 9.1% in the Chicos average unit retail price
(the percentage change of which is believed by management to
represent a reasonable approximation of the percentage change
attributable to price changes, markdowns or mix) as well as
from a decrease in the Chicos and WH|BM average number of
transactions per store and a decline in the average transaction
dollar amounts. In fact, although the WH|BM brand experienced a
slight increase in its average unit retail price of 0.3%, it was
entirely offset by a decline in the average transaction amount
and the average number of transactions per store.
Net sales by
direct-to-consumer
for fiscal 2008, which included merchandise from the
Chicos, WH|BM, and Soma brands decreased by
$1.5 million, or 2.1%, compared to net sales by
direct-to-consumer
for fiscal 2007. This overall decrease is attributable to sales
of Chicos brand merchandise. In contrast,
direct-to-consumer
sales for the WH|BM and Soma brands increased in fiscal 2008
compared to fiscal 2007. The Company is targeting this entire
direct-to-consumer
channel for future growth and believes that it is currently
under-penetrated. To that end, the Company is continuing its
investment in new hardware, software and personnel to increase
its
direct-to-consumer
(i.e. catalog & Internet) sales penetration.
For fiscal 2007, net sales by
direct-to-consumer
for fiscal 2007, which included merchandise from the
Chicos, WH|BM, and Soma brands increased by
$19.1 million, or 36.1%, compared to net sales by
direct-to-consumer
for fiscal 2006. The Company believes this increase is
attributable to the implementation of the Companys
improvements in its website and call center infrastructure and
its current approach to merchandising on each brands
website.
Cost
of Goods Sold/Gross Margin
The following table shows cost of goods sold and gross margin in
dollars and the related gross margin percentages for fiscal
2008, 2007 and 2006 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
Fiscal 2007
|
|
|
Fiscal 2006
|
|
|
Cost of goods sold
|
|
$
|
762,913
|
|
|
$
|
745,265
|
|
|
$
|
673,742
|
|
Gross margin
|
|
$
|
819,492
|
|
|
$
|
969,061
|
|
|
$
|
967,185
|
|
Gross margin percentage
|
|
|
51.8
|
%
|
|
|
56.5
|
%
|
|
|
58.9
|
%
|
Gross margin percentage decreased by 470 basis points in
fiscal 2008 compared to fiscal 2007 resulting primarily from a
decrease of approximately 360 basis points in the
Chicos brand merchandise margins in the current period
compared to the prior years margins, which decrease was
attributable to lower initial markups and higher markdowns
considered necessary in order to liquidate inventory and bring
inventory levels more in line with the current sales trends. The
gross margin percentage was also negatively impacted by
continued investment in the Companys product development
and merchandising functions, coupled with the deleverage of
these costs arising as a result of the negative same store
sales. The overall decrease in Company gross margin was further
exacerbated by a 320 basis point decline in the brand
merchandise margins at WH|BM, which decrease was also due
primarily to
25
lower initial markups and higher markdowns considered necessary
in order to liquidate inventory and bring inventory levels more
in line with the current sales trends, which resulted in overall
Company gross margins deteriorating further due to the impact of
the mix effect resulting from WH|BM sales becoming a larger
portion of the Companys overall net sales.
Gross margin percentage decreased by 240 basis points in
fiscal 2007 compared to fiscal 2006 resulting primarily from a
180 basis point decrease in merchandise margins at the
Chicos front-line stores primarily due to a higher
markdown rate compared to the prior period and by the
Companys continued investment in its product development
and merchandising functions for each of its three brands. To a
lesser extent, gross margin percentage in fiscal 2007 was
negatively impacted by gross margin decreases in the
direct-to-consumer
and outlet channels due to higher markdown rates as a result of
lower than anticipated sales at the front-line stores, as well
as by the mix effect resulting from the WH|BM and Soma sales
continuing to become a larger portion of the Companys
overall net sales (both WH|BM and Soma brands operate with lower
gross margins than the gross margins experienced by the
Chicos brand).
Store
Operating Expenses
The following table shows store operating expenses in dollars
and as a percentage of total net sales for fiscal 2008, 2007 and
2006 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
Fiscal 2007
|
|
|
Fiscal 2006
|
|
|
Store operating expenses
|
|
$
|
645,352
|
|
|
$
|
633,288
|
|
|
$
|
525,529
|
|
Percentage of total net sales
|
|
|
40.8
|
%
|
|
|
36.9
|
%
|
|
|
32.0
|
%
|
Store operating expenses include all direct expenses, including
such items as personnel, occupancy, depreciation and supplies,
incurred to operate each of the Companys stores. In
addition, store operating expenses include those costs necessary
to support the operation of each of the Companys stores
including district and regional management expenses and other
store support functions. Store operating expenses as a
percentage of net sales increased by 390 basis points due
to increased occupancy costs at the store level, and by
increased personnel costs as a percentage of sales, as selling
payroll did not flex in direct proportion to the decrease in
comparable store sales. The increase was also impacted by the
deleverage arising as a result of the Companys negative
same store sales.
Store operating expenses as a percentage of net sales increased
490 basis points in fiscal 2007 over fiscal 2006 primarily
due to increased personnel and occupancy expenses across all
three brands, attributable mainly to the investment in larger
sized Chicos and WH|BM stores (including both new and
expanded), the Companys planned increased investment in
store payroll to improve service levels, the mix effect of the
WH|BM and Soma stores becoming a larger portion of the
Companys store base (both WH|BM and Soma brands operate
with higher store operating costs as a percentage of sales than
the store operating costs as a percentage of sales experienced
by the Chicos brand) and from the deleverage arising as a
result of the Companys negative same store sales.
Marketing
The following table shows marketing expenses in dollars and as a
percentage of total net sales for fiscal 2008, 2007 and 2006
(dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
Fiscal 2007
|
|
|
Fiscal 2006
|
|
|
Marketing
|
|
$
|
80,326
|
|
|
$
|
95,717
|
|
|
$
|
75,121
|
|
Percentage of total net sales
|
|
|
5.1
|
%
|
|
|
5.6
|
%
|
|
|
4.6
|
%
|
Marketing expenses include expenses related to the
Companys national marketing programs such as direct
marketing efforts (including direct mail and
e-mail),
national advertising expenses and related support costs.
Marketing expenses decreased as a percentage of net sales by
approximately 50 basis points in fiscal 2008 due to the
ongoing cost reduction initiatives and increased efficiencies
implemented by the Company.
26
Marketing expenses increased as a percentage of net sales by
approximately 100 basis points in fiscal 2007 compared to
fiscal 2006. The increase was primarily due to the deleverage
associated with the Companys negative same store sales and
the planned increase in marketing spend in the second half of
fiscal 2007, compared to the second half of fiscal 2006, in an
effort to protect and enhance the Companys market share
and to highlight its Fall and Holiday product offerings.
Shared
Services
The following table shows shared services expenses in dollars
and as a percentage of total net sales for fiscal 2008, 2007 and
2006 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
Fiscal 2007
|
|
|
Fiscal 2006
|
|
|
Shared services
|
|
$
|
109,744
|
|
|
$
|
118,598
|
|
|
$
|
102,835
|
|
Percentage of total net sales
|
|
|
6.9
|
%
|
|
|
6.9
|
%
|
|
|
6.3
|
%
|
Shared services expenses consist of the corporate level
functions including executive management, human resources,
management information systems and finance, among others. Shared
services expenses decreased in dollars mainly due to the ongoing
cost reductions initiatives and increased efficiencies
implemented by the Company yet remained flat as a percentage of
net sales as a result of the Companys negative same store
sales.
Shared services expenses increased as a percentage of net sales
by approximately 60 basis points in fiscal 2007 mainly due
to increased personnel relocation, recruitment, severance and
technology costs, as well as from the deleverage associated with
the Companys negative same store sales. These increases in
shared services expenses as a percentage of net sales were
offset by a reduction in incentive compensation mostly due to
the Companys lower than anticipated fiscal year results
and lower stock-based compensation expense.
Impairment
and Restructuring Charges
The following table shows impairment and restructuring charges
in dollars and as a percentage of total net sales for fiscal
2008 (dollar amounts in thousands):
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
Impairment and restructuring charges
|
|
$
|
23,664
|
|
Percentage of total net sales
|
|
|
1.5
|
%
|
The impairment and restructuring charges recognized in fiscal
2008 consisted of non-cash impairment charges totaling
$13.7 million, related to the write-off of fixed assets at
certain underperforming stores, and severance and workforce
reduction costs totaling $10.0 million, related to the
elimination of approximately 11% of the headquarters employee
base and charges related to the separation agreement with its
former CEO. The Company will begin making payments in early
fiscal 2009. No impairment or restructuring charges were
recognized in either fiscal 2007 or fiscal 2006.
Gain
on Sale of Investment
On July 26, 2007, VF Corporation announced that it had
entered into a definitive agreement to acquire lucy activewear,
inc. (Lucy), a privately held retailer of
womens activewear apparel, in which the Company held a
cost method investment. The transaction was completed during the
third quarter of fiscal 2007 and the Company recorded a pre-tax
gain of approximately $6.8 million, which is reflected as
non-operating income in the accompanying statement of operations.
27
Interest
Income, net
The following table shows interest income, net in dollars and as
a percentage of total net sales for fiscal 2008, 2007 and 2006
(dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
Fiscal 2007
|
|
|
Fiscal 2006
|
|
|
Interest income, net
|
|
$
|
7,757
|
|
|
$
|
10,869
|
|
|
$
|
10,626
|
|
Percentage of total net sales
|
|
|
0.5
|
%
|
|
|
0.6
|
%
|
|
|
0.6
|
%
|
In fiscal 2008, interest income, net, decreased in total dollars
and as a percentage of net sales compared to fiscal 2007
primarily due to a decrease in the average invested balance of
marketable securities,
year-over-year
as well as lower interest rates.
In fiscal 2007, interest income, net, increased slightly in
total dollars compared to fiscal 2006 primarily due to interest
earned on the Companys note receivable from its sale of
land in fiscal 2007 offset by lower interest rates.
Provision
for Income Taxes
The Companys effective tax rate was 39.9%, 34.5% and
36.3%, for fiscal 2008, 2007 and 2006, respectively. The
increase in the effective tax rate for fiscal 2008 from fiscal
2007 was primarily attributable to favorable permanent
differences, mainly charitable inventory contributions and
tax-free interest, offset in part by the impact of a decrease in
deferred compensation plan assets which as a net amount,
represented a considerably higher portion of pre-tax loss in
fiscal 2008 compared to pre-tax income in fiscal 2007. The
decrease in the effective tax rate for fiscal 2007 from fiscal
2006 was primarily attributable to favorable permanent
differences, mainly charitable inventory contributions and
tax-free interest, representing a considerably higher portion of
pre-tax income in fiscal 2007 compared to fiscal 2006.
Liquidity
and Capital Resources
Overview
The Companys ongoing capital requirements have been and
are for funding capital expenditures for new, expanded,
relocated and remodeled stores, for planned expansion of its
headquarters, distribution center and other central support
facilities, to fund stock repurchases under the Companys
previous stock repurchase programs, and for continued
improvement in information technology tools, including the
ongoing conversion that the Company is planning to the SAP
software platform.
The following table shows the Companys capital resources
at the end of fiscal year 2008 and 2007 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
Fiscal 2007
|
|
|
Cash and cash equivalents
|
|
$
|
26,549
|
|
|
$
|
13,801
|
|
Marketable securities
|
|
|
242,153
|
|
|
|
260,469
|
|
Working capital
|
|
|
339,639
|
|
|
|
305,540
|
|
Working capital increased from fiscal 2007 to fiscal 2008
primarily due to the reclassification of the Companys
$25.8 million dollar note receivable from a long-term asset
to a current asset because the due date for the balloon payment
is within one year of the Companys most recently ended
fiscal quarter and to a decrease in current liabilities.
Based on past performance and current expectations, the Company
believes that its cash and cash equivalents, marketable
securities and cash generated from operations will continue to
satisfy the Companys working capital needs, capital
expenditure needs (see New Store Openings and
Infrastructure Investments discussed below), commitments,
and other liquidity requirements associated with the
Companys operations through at least the next
12 months.
28
Operating
Activities
Net cash provided by operating activities in fiscal 2008 was
$99.4 million. The cash provided by operating activities
for fiscal 2008 was due primarily to non-cash charges which
served to offset the net loss from operations and changes in
working capital which include:
|
|
|
|
|
Depreciation and amortization expense;
|
|
|
|
Deferred tax benefits;
|
|
|
|
Stock-based compensation expense and the related income tax
effects thereof;
|
|
|
|
Impairment of long-lived assets;
|
|
|
|
Fluctuations in accounts receivable, inventories, prepaid and
other current assets, accounts payable and accrued and deferred
liabilities.
|
In fiscal 2007, cash from operating activities was
$208.6 million, and was due to the Companys net
income, adjusted for non-cash charges mentioned above, and to
the extent the increase in current liabilities exceeded the
increase in current assets.
Investing
Activities
Net cash used in investing activities was $86.2 million and
$235.1 million for fiscal 2008 and 2007, respectively.
The Companys investment in capital expenditures during
fiscal 2008 was primarily related to the planning and opening of
new, relocated, remodeled and expanded Chicos/Soma and
WH|BM stores ($60.4 million), costs associated with system
upgrades and new software implementations ($23.8 million),
costs associated with the Companys headquarters
expansion ($6.7 million), and other miscellaneous capital
expenditures ($13.7 million) aggregating
$104.6 million compared to capital expenditures aggregating
$202.2 million in the prior year. The decrease in capital
expenditures was primarily due to the Companys decision to
significantly lower and more effectively manage its capital
expenditure spending in fiscal 2008 in response to deteriorating
economic conditions.
The Company had net proceeds of $18.5 million from the sale
of marketable securities in the current year. By contrast, in
the prior period, the Company had net investments of
$22.1 million in marketable securities.
On August 1, 2007, the Company consummated a transaction to
sell a parcel of land south of Fort Myers, Florida for a
sale price totaling approximately $39.7 million consisting
of approximately $13.4 million in cash proceeds, net of
closing costs, and a note receivable with a principal amount of
approximately $25.8 million and secured by a purchase money
mortgage, which is due August 1, 2009.
On July 26, 2007, VF Corporation announced that it had
entered into a definitive agreement to acquire Lucy, a privately
held retailer of womens activewear apparel, in which the
Company held a cost method investment. The transaction was
completed during the third quarter of fiscal 2007 and the
Company received approximately $15.1 million in cash
proceeds. The Company held a receivable of approximately
$2.2 million for the balance of the proceeds. This
additional amount was received in early March 2009.
In addition, during fiscal 2007, the Company acquired all the
territorial franchise rights to the state of Minnesota and the
existing franchise locations in Minnesota for $32.9 million
and acquired a franchise store in Florida for $6.4 million,
while in the prior period, the Company purchased most of the
assets of the Fitigues brand stores for $7.5 million and
repurchased one franchise store for $0.8 million.
Financing
Activities
Net cash used in financing activities was $0.5 million in
fiscal 2008 compared to net cash provided by financing
activities of $3.0 million in fiscal 2007 and net cash used
in financing activities of $191.4 million in fiscal 2006.
29
During fiscal 2008, certain of the Companys current and
former employees exercised an aggregate of 33,800 stock options
at prices between $0.5139 and $8.60. Also, during this period,
the Company sold 16,340 and 29,451 shares of common stock
during the March and September offering periods under its
employee stock purchase plan at prices of $7.91 and $4.88,
respectively. The proceeds from these issuances of stock,
exclusive of the tax benefit realized by the Company, amounted
to approximately $0.3 million.
In fiscal 2008, cash paid for deferred financing costs, related
to the Companys new credit facility with SunTrust, was
$0.6 million.
In March 2006, the Companys Board of Directors (the
Board) approved the repurchase, over a twelve-month
period ending in March 2007, of up to $100 million of the
Companys outstanding common stock. During fiscal 2006, the
Company repurchased 3,081,104 shares of its common stock in
connection with this stock repurchase program, which represented
the entire $100 million.
In May 2006, the Company announced that its Board had approved
the repurchase of an additional $100 million of the
Companys common stock over a twelve month period ending in
May 2007. During fiscal 2006, the Company repurchased
3,591,352 shares of its common stock in connection with
this stock repurchase program, which represented the entire
additional $100 million. In addition, in fiscal 2008,
fiscal 2007 and fiscal 2006, the Company repurchased an
additional 60,168, 54,282 and 7,090 shares, respectively,
of restricted stock in connection with employee tax withholding
obligations under employee compensation plans, which are not
purchases under any publicly announced plan.
New
Store Openings and Infrastructure Investments
The Company expects its overall square footage in fiscal 2009 to
remain flat, reflecting approximately 10 net closures of
Chicos stores, 4 net openings of WH|BM stores,
6 net openings of Soma stores and 13 relocations/expansions
in fiscal 2009. The Company, however, continuously evaluates the
appropriate new store growth rate in light of current economic
conditions and may adjust the growth rate as conditions require
or as opportunities arise.
The Company believes that the liquidity needed for its planned
new stores (including the continued investment associated with
its Soma brand), its continuing store remodel/expansion program,
the investments required for its headquarters and distribution
center future expansions, its continued installation and
upgrading of new and existing software packages, and maintenance
of proper inventory levels associated with this growth will be
funded primarily from cash flow from operations and its existing
cash and marketable securities balances, and, if necessary, the
capacity included in its bank credit facility.
On August 1, 2007, the Company consummated a transaction to
sell a parcel of land with a sales price totaling
$39.7 million consisting of approximately
$13.4 million in cash proceeds, net of closing costs, and a
note receivable with a principal amount of approximately
$25.8 million and secured by a purchase money mortgage.
The Company is working with SAP, a third party vendor, to
implement an enterprise resource planning system (ERP) to assist
in managing its retail stores. This fully integrated system is
expected to support and coordinate all aspects of product
development, merchandising, finance and accounting and to be
fully scalable to accommodate rapid growth. On February 4,
2007, the Company completed the first major phase of its
multi-year, planned implementation of the new ERP system by
converting its Soma brand to the new merchandising system as
well as rolling out the new financial systems at the same time.
The second major phase currently anticipates an initial roll out
and utilization in mid fiscal 2009 and subsequently in early
fiscal 2010. The third major phase contemplates ongoing
enhancements and optimization of the new ERP across all three
brands, as well as the deployment of additional functionality
across various other functions within the Company. The Company
expects that the costs associated with the implementation of the
ERP system will be funded from the Companys existing cash
and marketable securities balances.
Given the Companys existing cash and marketable securities
balances and the capacity included in its bank credit facility,
the Company does not believe that it would need to seek other
sources of financing to conduct its operations or pursue its
expansion plans even if cash flow from operations should prove
to be less than anticipated or if there should arise a need for
additional letter of credit capacity due to establishing new and
expanded sources of supply, or if the Company were to increase
the number of new stores planned to be opened in future periods.
30
Contractual
Obligations
The following table summarizes the Companys contractual
obligations at January 31, 2009 (amounts in thousands):
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Less than
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After
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Total
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1 year
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1-3 years
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4-5 years
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5 years
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Long-term debt
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$
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$
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$
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$
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$
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Short-term borrowings
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Capital lease obligations
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Operating leases
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800,415
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128,332
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234,500
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185,576
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252,007
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Non-cancelable purchase commitments
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213,882
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213,882
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Total
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$
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1,014,297
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$
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342,214
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$
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234,500
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$
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185,576
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$
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252,007
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As of January 31, 2009, the Companys contractual
obligations consisted of amounts outstanding under operating
leases and non-cancelable purchase commitments. Amounts due
under non-cancelable purchase commitments consists of amounts to
be paid under agreements to purchase inventory that are legally
binding and that specify all significant terms, including
commercial letters of credit outstanding. Until formal
resolutions are reached between the Company and the relevant
taxing authorities, the Company is unable to estimate a final
determination related to its uncertain tax positions and
therefore is not including these amounts in the above table.
On November 24, 2008, Chicos FAS, Inc. entered into a
$55 million Senior Secured Revolving Credit Facility (the
Credit Facility) with SunTrust Bank, as
administrative agent (the Agent) and lender and
SunTrust Robinson Humphrey, Inc. as lead arranger. The Credit
Facility replaces the Companys previous $45 million
credit facility with Bank of America.
The Credit Facility provides a $55 million revolving credit
facility that matures on November 24, 2011. The Credit
Facility provides for swing advances of up to $5 million
and issuance of letters of credit up to $10 million. The
Credit Facility also contains a feature that provides the
Company the ability, subject to satisfaction of certain
conditions, to increase the commitments available under the
Credit Facility from $55 million up to $100 million
through additional syndication. The proceeds of any borrowings
under the Credit Facility may be used to fund future permitted
acquisitions, to provide for working capital and to be used for
other general corporate purposes.
At January 31, 2009 and February 2, 2008, the Company
did not have any relationship with unconsolidated entities or
financial partnerships of the type which certain other companies
have established for the purpose of facilitating off-balance
sheet arrangements or for other contractually narrow or limited
purposes. Therefore, the Company is not materially exposed to
any financing, liquidity, market or credit risk that could arise
if the Company had engaged in such relationships.
Critical
Accounting Policies and Estimates
The Companys discussion and analysis of its financial
condition and results of operations are based upon the
Companys consolidated financial statements, which have
been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of consolidated
financial statements requires the Company to make estimates and
judgments that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, the
Company evaluates its estimates, including those related to
customer product returns, inventories, income taxes, insurance
reserves, contingencies and litigation. The Company bases its
estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.
The Company believes the following critical accounting policies
affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.
31
Inventory
Valuation and Shrinkage
The Company identifies potentially excess and slow-moving
inventories by evaluating turn rates and inventory levels in
conjunction with the Companys overall growth rate. Excess
quantities are identified through evaluation of inventory
ageing, review of inventory turns and historical sales
experiences, as well as specific identification based on fashion
trends. Further, exposure to inadequate realization of carrying
value is identified through analysis of gross margins and
markdowns in combination with changes in current business
trends. The Company provides lower of cost or market reserves
for such identified excess and slow-moving inventories. The
Company estimates its expected shrinkage of inventories between
physical inventory counts by applying historical chain-wide
average shrinkage experience rates. The historical rates are
updated on a regular basis to reflect the most recent physical
inventory shrinkage experience.
Revenue
Recognition
Although the Companys recognition of revenue does not
involve significant judgment, revenue recognition represents an
important accounting policy of the Company. Retail sales by
Company stores are recorded at the point of sale and are net of
estimated customer returns, sales discounts under the
Passport Club and The Black Book loyalty
programs and Company issued coupons.
Direct-to-consumer
retail sales are recorded when shipments are made to customers
and are net of estimated customer returns. Under the
Companys current program, gift certificate and gift card
sales do not have expiration dates. The Company accounts for
gift certificates and gift cards by recognizing a liability at
the time a gift certificate or gift card is sold. The liability
is relieved and revenue is recognized for gift certificates and
gift cards upon redemption. In addition, the Company recognizes
revenue on unredeemed gift certificates and gift cards when it
can determine that the likelihood of the gift certificate or
gift card being redeemed is remote and that there is no legal
obligation to remit the unredeemed gift certificates or gift
cards to relevant jurisdictions (commonly referred to as gift
card breakage). The Company recognizes gift card breakage under
the redemptive recognition method. This method records gift card
breakage as revenue on a proportional basis over the redemption
period based on the Companys historical gift card breakage
rate. The Company determines the gift card breakage rate based
on its historical redemption patterns. Once the breakage rate is
determined, it is recognized over a
60-month
period based on historical redemption patterns of gift
certificates and gift cards.
The Companys policy is to honor customer returns in most
instances. Returns after 30 days of the original purchase,
or returns without the original receipt, qualify for store
credit only. The Company will, in certain circumstances, offer
full customer refunds either after 30 days or without a
receipt. The Company estimates its reserve for customer returns
based on the average refund experience in relation to sales for
the related period.
Evaluation
of Long-Lived Assets
Long-lived assets are reviewed periodically for impairment if
events or changes in circumstances indicate that the carrying
amount may not be recoverable. If future undiscounted cash flows
expected to be generated by the asset are less than its carrying
amount, an asset is determined to be impaired, and a loss is
recorded for the amount by which the carrying value of the asset
exceeds its fair value. The Company uses its best judgment based
on the most current facts and circumstances surrounding its
business when applying these impairment rules. Changes in
assumptions used could have a significant impact on the
Companys assessment of recoverability.
The Company evaluates the recoverability of goodwill at least
annually based on a two-step impairment test. The first step
compares the fair value of the Companys reporting unit
with its carrying amount, including goodwill. If the carrying
amount exceeds fair value, then the second step of the
impairment test is performed to measure the amount of any
impairment loss. Fair value is determined based on estimated
future cash flows, discounted at a rate that approximates the
Companys cost of capital. The Company evaluates its other
intangible assets for impairment on an annual basis by comparing
the fair value of the asset with its carrying value. Such
estimates are subject to change and the Company may be required
to recognize impairment losses in the future.
32
Self-Insurance
The Company is self-insured for certain losses relating to
workers compensation, medical and general liability
claims. Self-insurance claims filed and claims incurred but not
reported are accrued based upon managements estimates of
the aggregate liability for uninsured claims incurred using
historical experience. Although management believes it has the
ability to adequately accrue for estimated losses related to
claims, it is possible that actual results could significantly
differ from recorded self-insurance liabilities.
Operating
Leases
The Company accounts for store rent expense in accordance with
SFAS 13, Accounting for Leases.
Accordingly, rent expense under store operating leases is
recognized on a straight-line basis over the term of the leases.
Landlord incentives, rent-free periods, rent
escalation clauses and other rental expenses are also amortized
on a straight-line basis over the terms of the leases, which
includes the construction period and which is generally
60 90 days prior to the store opening date when
the Company generally begins improvements in preparation of
intended use. Tenant improvement allowances are recorded as a
deferred lease credit within deferred liabilities and amortized
as a reduction of rent expense over the term of the lease, which
includes the construction period and one renewal when there is a
significant economic penalty associated with non-renewal.
Income
Taxes
Effective February 4, 2007, the Company adopted the
provisions of FIN 48. FIN 48 prescribes a recognition
threshold and measurement element for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. Due to the substantial amounts
involved and judgment necessary, the Company deems this policy
could be critical to its financial statements.
Interpretations and guidance surrounding income tax laws and
regulations adjust over time. The Company establishes reserves
for uncertain tax positions that management believes are
supportable, but are potentially subject to successful challenge
by the applicable taxing authority. Consequently, changes in our
assumptions and judgments can materially affect amounts
recognized related to income tax uncertainties and may affect
the Companys results of operations or financial position.
See Note 8 to the consolidated financial statements for
further discussion regarding the impact of the Companys
adoption of FIN 48.
Accounting
for Contingencies
From time to time, the Company is subject to various
proceedings, lawsuits, disputes and claims (actions)
arising from its normal business activities. Many of these
actions raise complex, factual and legal issues and are subject
to uncertainties. Accounting for contingencies arising from
these actions requires management to use its best judgment when
estimating an accrual, if any, related to such contingencies.
Management may also consult with outside legal counsel to assist
in the estimating process. However, the ultimate outcome of such
actions could be different than managements estimate, and
adjustments may be required.
Stock-Based
Compensation Expense
Effective January 29, 2006, the Company adopted the
provisions of SFAS 123R using the modified prospective
transition method. Under this transition method, stock-based
compensation expense recognized during fiscal 2008, fiscal 2007
and fiscal 2006 for share-based awards includes:
(a) compensation expense for all stock-based compensation
awards granted prior to, but not yet vested as of,
January 29, 2006, based on the grant date fair value
estimated in accordance with the original provisions of
SFAS 123, and (b) compensation expense for all
stock-based compensation awards granted subsequent to
January 29, 2006, based on the grant date fair value
estimated in accordance with the provisions of SFAS 123R.
The calculation of share-based employee compensation expense
involves estimates that require managements judgments.
These estimates include the fair value of each of the stock
option awards granted, which is estimated on
33
the date of grant using a Black-Scholes option pricing model.
There are two significant inputs into the Black-Scholes option
pricing model: expected volatility and expected term. The
Company estimates expected volatility based on the historical
volatility of the Companys stock over a term equal to the
expected term of the option granted. The expected term of stock
option awards granted is derived from historical exercise
experience under the Companys stock option plans and
represents the period of time that stock option awards granted
are expected to be outstanding. The assumptions used in
calculating the fair value of share-based payment awards
represent managements best estimates, but these estimates
involve inherent uncertainties and the application of management
judgment. As a result, if factors change and the Company uses
different assumptions, stock-based compensation expense could be
materially different in the future. In addition, the Company is
required to estimate the expected forfeiture rate, and only
recognize expense for those shares expected to vest. If the
Companys actual forfeiture rate is materially different
from its estimate, the stock-based compensation expense could be
significantly different from what the Company has recorded in
the current and prior periods. See Note 11 to the
consolidated financial statements for a further discussion on
stock-based compensation.
Recent
Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS 157), which establishes a framework for
measuring fair value in accordance with Generally Accepted
Accounting Principles (GAAP) and expands disclosures
about fair value measurements. This statement is effective for
financial assets and liabilities as well as for any assets and
liabilities that are carried at fair value on a recurring basis
in financial statements as of the beginning of the entitys
first fiscal year that begins after November 15, 2007. In
November 2007, the FASB issued a one-year deferral for
non-financial assets and liabilities to comply with
SFAS 157 which delayed the effective date for these items
to fiscal years beginning after November 15, 2008. The
Company does not expect the adoption of SFAS 157 as it
relates to non-financial assets and liabilities to have a
material effect on its financial position, results of operations
or cash flows.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities including an amendment of
SFAS 115 (SFAS 159).
SFAS 159 allows entities to choose, at specific election
dates, to measure eligible financial assets and liabilities at
fair value that are not otherwise required to be measured at
fair value. If a company elects the fair value option for an
eligible item, changes in that items fair value in
subsequent reporting periods must be recognized in current
earnings. On February 3, 2008, the Company adopted
SFAS 159 and elected not apply the fair value option
provided under SFAS 159.
In April 2008, the FASB issued FASB Staff Position
No. FSP 142-3,
Determining the Useful Life of Intangible
Assets
(FSP 142-3).
FSP 142-3
amends the factors to be considered in determining the useful
life of intangible assets. Its intent is to improve the
consistency between the useful life of an intangible asset and
the period of expected cash flows used to measure its fair
value.
FSP 142-3
is effective for fiscal years beginning after December 15,
2008. The Company does not expect that the adoption of
FSP 142-3
will have a material impact on its consolidated financial
statements.
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles
(SFAS 162). This standard identifies the
sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial
statements of nongovernmental entities that are presented in
conformity with generally accepted accounting principles. The
hierarchy set forth in SFAS 162 is directed to the entity,
rather than the independent auditors, as the entity is the one
responsible for selecting accounting principles for financial
statements that are presented in conformity with generally
accepted accounting principles. This standard is effective
60 days following SEC approval of the Public Company
Accounting Oversight Board amendments to remove the hierarchy of
generally accepted accounting principles from the auditing
standards, with the expectation that this standard will be
effective for the Companys 2009 fiscal year. The Company
does not expect SFAS 162 to have a material impact on its
consolidated financial statements.
Inflation
The Companys operations are influenced by general economic
conditions. Historically, inflation has not had a material
effect on the results of operations.
34
Quarterly
Results and Seasonality
The Companys quarterly results may fluctuate significantly
depending on a number of factors including timing of new store
openings, adverse weather conditions, the spring and fall
fashion lines and shifts in the timing of certain holidays. In
addition, the Companys periodic results can be directly
and significantly impacted by the extent to which the
Companys new merchandise offerings are accepted by its
customers and by the timing of the introduction of such
merchandise.
Certain
Factors That May Affect Future Results
This
Form 10-K
may contain certain forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, which reflect the current
views of the Company with respect to certain events that could
have an effect on the Companys future financial
performance, including but without limitation, statements
regarding future growth rates of the established Company store
concepts and the roll out of the Soma concept. The statements
may address items such as future sales, gross margin
expectations, operating margin expectations, earnings per share
expectations, planned store openings, closings and expansions,
future comparable store sales, future product sourcing plans,
inventory levels, planned marketing expenditures, planned
capital expenditures and future cash needs. In addition, from
time to time, the Company may issue press releases and other
written communications, and representatives of the Company may
make oral statements, which contain forward-looking information.
These statements, including those in this
Form 10-K
and those in press releases or made orally, may include the
words expects, believes, and similar
expressions. Except for historical information, matters
discussed in such oral and written statements, including this
Form 10-K,
are forward-looking statements. These forward-looking statements
are subject to various risks and uncertainties that could cause
actual results to differ materially from historical results or
those currently anticipated. Factors that could cause or
contribute to such differences include, but are not limited to,
those discussed below and in Item 1A, Risk
Factors of the Companys
Form 10-K.
These potential risks and uncertainties include the financial
strength of retailing in particular and the economy in general,
the extent of financial difficulties that may be experienced by
customers, the ability of the Company to secure and maintain
customer acceptance of the Companys styles and store
concepts, the propriety of inventory mix and sizing, the quality
of merchandise received from vendors, the extent and nature of
competition in the markets in which the Company operates, the
extent of the market demand and overall level of spending for
womens private branded clothing and related accessories,
the adequacy and perception of customer service, the ability to
coordinate product development with buying and planning, the
ability of the Companys suppliers to timely produce and
deliver clothing and accessories, the changes in the costs of
manufacturing, labor and advertising, the rate of new store
openings, the buying publics acceptance of any of the
Companys new store concepts, the performance,
implementation and integration of management information
systems, the ability to hire, train, energize and retain
qualified sales associates and other employees, the availability
of quality store sites, the ability to expand headquarters,
distribution center and other support facilities in an efficient
and effective manner, the ability to hire and train qualified
managerial employees, the ability to effectively and efficiently
establish and operate
direct-to-consumer
sales, the ability to secure and protect trademarks and other
intellectual property rights, the ability to effectively and
efficiently operate the Chicos, WH|BM, and Soma
merchandise divisions, risks associated with terrorist
activities, risks associated with natural disasters such as
hurricanes and other risks. In addition, there are potential
risks and uncertainties that are peculiar to the Companys
reliance on sourcing from foreign vendors, including the impact
of work stoppages, transportation delays and other
interruptions, political or civil instability, imposition of and
changes in tariffs and import and export controls such as import
quotas, changes in governmental policies in or towards foreign
countries, currency exchange rates and other similar factors.
The forward-looking statements included herein are only made as
of the date of this Annual Report on
Form 10-K.
The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
35
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ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
The market risk of the Companys financial instruments as
of January 31, 2009 has not significantly changed since
February 2, 2008. The Company is exposed to market risk
from changes in interest rates on any future indebtedness and
its marketable securities.
The Companys exposure to interest rate risk relates in
part to its revolving line of credit with its bank; however, as
of January 31, 2009, the Company did not have any
outstanding borrowings on its line of credit and, given its
current liquidity position, does not expect to utilize its line
of credit in the foreseeable future except for its continuing
use of the letter of credit facility portion thereof.
The Companys investment portfolio is maintained in
accordance with the Companys investment policy which
identifies allowable investments, specifies credit quality
standards and limits the credit exposure of any single issuer.
The Companys investment portfolio currently consists of
cash equivalents and marketable securities, including variable
rate demand notes, which are highly liquid, variable rate
municipal debt securities and municipal bonds. Although the
variable rate municipal debt securities have long-term nominal
maturity dates ranging from 2012 to 2043, the interest rates are
reset either daily, every 7 days or every 28 days.
Despite the long-term nature of the underlying securities of the
variable rate demand notes, the Company has the ability to
quickly liquidate these securities based on various put features
supplemented by standby purchase agreements or by the ability to
draw down against irrevocable letters of credit issued by
various financial institutions thereby creating a short-term
instrument. The municipal bond portion of the portfolio have
average maturity dates approximating 100 days. Accordingly,
the Companys investments are classified as
available-for-sale
securities. As of January 31, 2009, an increase of
100 basis points in interest rates would reduce the fair
value of the Companys marketable securities portfolio by
approximately $0.7 million. Conversely, a reduction of
100 basis points in interest rates would increase the fair
value of the Companys marketable securities portfolio by
approximately $0.9 million.
36
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ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
REPORT OF
INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING
FIRM
The Board of Directors and Shareholders of
Chicos FAS, Inc.
We have audited the accompanying consolidated balance sheets of
Chicos FAS, Inc. and subsidiaries (the Company) as of
January 31, 2009 and February 2, 2008, and the related
consolidated statements of operations, stockholders
equity, and cash flows for each of the three fiscal years in the
period ended January 31, 2009. These financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (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 consolidated
financial position of Chicos FAS, Inc. and subsidiaries at
January 31, 2009 and February 2, 2008, and the
consolidated results of their operations and their cash flows
for each of the three fiscal years in the period ended
January 31, 2009, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Chicos FAS, Inc. and subsidiaries internal control
over financial reporting as of January 31, 2009, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated
March 26, 2009 expressed an unqualified opinion thereon.
Certified Public Accountants
Tampa, Florida
March 26, 2009
37
CHICOS
FAS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
26,549
|
|
|
$
|
13,801
|
|
Marketable securities, at market
|
|
|
242,153
|
|
|
|
260,469
|
|
Receivables
|
|
|
33,993
|
|
|
|
11,924
|
|
Income tax receivable
|
|
|
11,706
|
|
|
|
23,973
|
|
Inventories
|
|
|
132,413
|
|
|
|
144,261
|
|
Prepaid expenses
|
|
|
21,702
|
|
|
|
18,999
|
|
Deferred taxes
|
|
|
17,859
|
|
|
|
13,306
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
486,375
|
|
|
|
486,733
|
|
Property and Equipment:
|
|
|
|
|
|
|
|
|
Land and land improvements
|
|
|
18,627
|
|
|
|
17,867
|
|
Building and building improvements
|
|
|
74,998
|
|
|
|
62,877
|
|
Equipment, furniture and fixtures
|
|
|
376,218
|
|
|
|
347,937
|
|
Leasehold improvements
|
|
|
418,691
|
|
|
|
396,650
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
888,534
|
|
|
|
825,331
|
|
Less accumulated depreciation and amortization
|
|
|
(327,989
|
)
|
|
|
(257,378
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
560,545
|
|
|
|
567,953
|
|
Goodwill
|
|
|
96,774
|
|
|
|
96,774
|
|
Other Intangible Assets
|
|
|
38,930
|
|
|
|
38,930
|
|
Deferred Taxes
|
|
|
38,458
|
|
|
|
22,503
|
|
Other Assets, Net
|
|
|
5,101
|
|
|
|
37,233
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,226,183
|
|
|
$
|
1,250,126
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
56,542
|
|
|
$
|
79,030
|
|
Accrued liabilities
|
|
|
88,446
|
|
|
|
100,726
|
|
Current portion of deferred liabilities
|
|
|
1,748
|
|
|
|
1,437
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
146,736
|
|
|
|
181,193
|
|
Noncurrent Liabilities:
|
|
|
|
|
|
|
|
|
Deferred liabilities
|
|
|
177,251
|
|
|
|
156,417
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent liabilities
|
|
|
177,251
|
|
|
|
156,417
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 400,000 shares
authorized and 177,130 and 176,245 shares issued and
outstanding, respectively
|
|
|
1,771
|
|
|
|
1,762
|
|
Additional paid-in capital
|
|
|
258,312
|
|
|
|
249,639
|
|
Retained earnings
|
|
|
641,978
|
|
|
|
661,115
|
|
Other accumulated comprehensive income
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
902,196
|
|
|
|
912,516
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,226,183
|
|
|
$
|
1,250,126
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated statements.
38
CHICOS
FAS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net sales by Chicos/Soma stores
|
|
$
|
1,074,939
|
|
|
$
|
1,223,217
|
|
|
$
|
1,210,474
|
|
Net sales by WH|BM stores
|
|
|
436,875
|
|
|
|
418,901
|
|
|
|
367,063
|
|
Net sales by
direct-to-consumer
|
|
|
70,591
|
|
|
|
72,093
|
|
|
|
52,959
|
|
Other net sales
|
|
|
|
|
|
|
115
|
|
|
|
10,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
1,582,405
|
|
|
|
1,714,326
|
|
|
|
1,640,927
|
|
Cost of goods sold
|
|
|
762,913
|
|
|
|
745,265
|
|
|
|
673,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
819,492
|
|
|
|
969,061
|
|
|
|
967,185
|
|
Selling, general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Store operating expenses
|
|
|
645,352
|
|
|
|
633,288
|
|
|
|
525,529
|
|
Marketing
|
|
|
80,326
|
|
|
|
95,717
|
|
|
|
75,121
|
|
Shared services
|
|
|
109,744
|
|
|
|
118,598
|
|
|
|
102,835
|
|
Impairment and restructuring charges
|
|
|
23,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general, and administrative expenses
|
|
|
859,086
|
|
|
|
847,603
|
|
|
|
703,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(39,594
|
)
|
|
|
121,458
|
|
|
|
263,700
|
|
Gain on sale of investment
|
|
|
|
|
|
|
6,833
|
|
|
|
|
|
Interest income, net
|
|
|
7,757
|
|
|
|
10,869
|
|
|
|
10,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(31,837
|
)
|
|
|
139,160
|
|
|
|
274,326
|
|
Income tax provision (benefit)
|
|
|
(12,700
|
)
|
|
|
48,012
|
|
|
|
99,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(19,137
|
)
|
|
|
91,148
|
|
|
|
174,691
|
|
Loss on discontinued operations, net of tax
|
|
|
|
|
|
|
2,273
|
|
|
|
8,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(19,137
|
)
|
|
$
|
88,875
|
|
|
$
|
166,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations per common share-basic
|
|
$
|
(0.11
|
)
|
|
$
|
0.52
|
|
|
$
|
0.99
|
|
Loss on discontinued operations per common share-basic
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
( 0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share-basic
|
|
$
|
(0.11
|
)
|
|
$
|
0.51
|
|
|
$
|
0.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations per common &
common equivalent share-diluted
|
|
$
|
(0.11
|
)
|
|
$
|
0.51
|
|
|
$
|
0.98
|
|
Loss on discontinued operations per common & common
equivalent share-diluted
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
( 0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common & common equivalent
share diluted
|
|
$
|
(0.11
|
)
|
|
$
|
0.50
|
|
|
$
|
0.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
175,861
|
|
|
|
175,574
|
|
|
|
177,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common & common equivalent shares
outstanding diluted
|
|
|
175,861
|
|
|
|
176,355
|
|
|
|
178,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated statements.
39
CHICOS
FAS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Par
|
|
|
Paid-in
|
|
|
Unearned
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Compensation
|
|
|
Earnings
|
|
|
(Loss) Income
|
|
|
Total
|
|
|
BALANCE, January 28, 2006
|
|
|
181,726
|
|
|
$
|
1,817
|
|
|
$
|
202,878
|
|
|
$
|
(3,710
|
)
|
|
$
|
605,537
|
|
|
$
|
(95
|
)
|
|
$
|
806,427
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166,636
|
|
|
|
|
|
|
|
166,636
|
|
Unrealized gain on marketable securities, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166,731
|
|
Issuance of common stock
|
|
|
703
|
|
|
|
7
|
|
|
|
6,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,402
|
|
Repurchase of common stock
|
|
|
(6,680
|
)
|
|
|
(67
|
)
|
|
|
(148
|
)
|
|
|
|
|
|
|
(199,933
|
)
|
|
|
|
|
|
|
(200,148
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
21,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,241
|
|
Reversal of unearned compensation upon adoption of SFAS 123R
|
|
|
|
|
|
|
|
|
|
|
(3,710
|
)
|
|
|
3,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit of stock options exercised
|
|
|
|
|
|
|
|
|
|
|
3,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, February 3, 2007
|
|
|
175,749
|
|
|
|
1,757
|
|
|
|
229,934
|
|
|
|
|
|
|
|
572,240
|
|
|
|
|
|
|
|
803,931
|
|
Net income and comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,875
|
|
|
|
|
|
|
|
88,875
|
|
Issuance of common stock
|
|
|
550
|
|
|
|
5
|
|
|
|
3,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,533
|
|
Repurchase of common stock
|
|
|
(54
|
)
|
|
|
|
|
|
|
(694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(694
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
17,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,080
|
|
Adjustment to excess tax benefit from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, February 2, 2008
|
|
|
176,245
|
|
|
|
1,762
|
|
|
|
249,639
|
|
|
|
|
|
|
|
661,115
|
|
|
|
|
|
|
|
912,516
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,137
|
)
|
|
|
|
|
|
|
(19,137
|
)
|
Unrealized gain on marketable securities, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,002
|
)
|
Issuance of common stock
|
|
|
945
|
|
|
|
9
|
|
|
|
297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
306
|
|
Repurchase of common stock
|
|
|
(60
|
)
|
|
|
|
|
|
|
(311
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(311
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
12,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,590
|
|
Adjustment to excess tax benefit from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(3,903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, January 31, 2009
|
|
|
177,130
|
|
|
$
|
1,771
|
|
|
$
|
258,312
|
|
|
$
|
|
|
|
$
|
641,978
|
|
|
$
|
135
|
|
|
$
|
902,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated statements.
40
CHICOS
FAS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(19,137
|
)
|
|
$
|
88,875
|
|
|
$
|
166,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net (loss) income to net cash provided
by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization, cost of goods sold
|
|
|
8,782
|
|
|
|
10,386
|
|
|
|
7,564
|
|
Depreciation and amortization, other
|
|
|
88,790
|
|
|
|
81,593
|
|
|
|
61,840
|
|
Deferred tax benefit
|
|
|
(20,507
|
)
|
|
|
(6,635
|
)
|
|
|
(22,324
|
)
|
Stock-based compensation expense, cost of goods sold
|
|
|
2,769
|
|
|
|
4,909
|
|
|
|
6,004
|
|
Stock-based compensation expense, other
|
|
|
9,821
|
|
|
|
12,171
|
|
|
|
15,237
|
|
Excess tax benefit from stock-based compensation
|
|
|
(100
|
)
|
|
|
(209
|
)
|
|
|
(2,365
|
)
|
Deferred rent expense, net
|
|
|
6,060
|
|
|
|
9,508
|
|
|
|
6,867
|
|
Goodwill impairment
|
|
|
−
|
|
|
|
−
|
|
|
|
6,752
|
|
Gain on sale of investment
|
|
|
−
|
|
|
|
(6,833
|
)
|
|
|
−
|
|
Impairment of long-lived assets
|
|
|
13,691
|
|
|
|
−
|
|
|
|
−
|
|
Loss (gain) on disposal of property and equipment
|
|
|
761
|
|
|
|
(908
|
)
|
|
|
826
|
|
Decrease (increase) in assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net
|
|
|
3,766
|
|
|
|
(18,770
|
)
|
|
|
(4,517
|
)
|
Income tax receivable
|
|
|
12,267
|
|
|
|
−
|
|
|
|
−
|
|
Inventories
|
|
|
11,847
|
|
|
|
(32,388
|
)
|
|
|
(14,696
|
)
|
Prepaid expenses and other
|
|
|
4,224
|
|
|
|
(3,958
|
)
|
|
|
(3,676
|
)
|
(Decrease) increase in liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(22,488
|
)
|
|
|
24,119
|
|
|
|
7,532
|
|
Accrued and other deferred liabilities
|
|
|
(1,100
|
)
|
|
|
46,787
|
|
|
|
57,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
118,583
|
|
|
|
119,772
|
|
|
|
122,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
99,446
|
|
|
|
208,647
|
|
|
|
288,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(569,358
|
)
|
|
|
(1,212,894
|
)
|
|
|
(162,690
|
)
|
Proceeds from sale of marketable securities
|
|
|
587,809
|
|
|
|
1,190,761
|
|
|
|
325,894
|
|
Purchase of Fitigues assets
|
|
|
−
|
|
|
|
−
|
|
|
|
(7,527
|
)
|
Purchase of Minnesota franchise rights and stores
|
|
|
−
|
|
|
|
(32,896
|
)
|
|
|
−
|
|
Acquisition of other franchise stores
|
|
|
−
|
|
|
|
(6,361
|
)
|
|
|
(811
|
)
|
Proceeds from sale of land
|
|
|
−
|
|
|
|
13,426
|
|
|
|
−
|
|
Proceeds from sale of investment
|
|
|
−
|
|
|
|
15,090
|
|
|
|
−
|
|
Purchases of property and equipment
|
|
|
(104,615
|
)
|
|
|
(202,223
|
)
|
|
|
(218,311
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(86,164
|
)
|
|
|
(235,097
|
)
|
|
|
(63,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
306
|
|
|
|
3,533
|
|
|
|
6,402
|
|
Excess tax benefit from stock-based compensation
|
|
|
100
|
|
|
|
209
|
|
|
|
2,365
|
|
Cash paid for deferred financing costs
|
|
|
(629
|
)
|
|
|
−
|
|
|
|
−
|
|
Repurchase of common stock
|
|
|
(311
|
)
|
|
|
(694
|
)
|
|
|
(200,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(534
|
)
|
|
|
3,048
|
|
|
|
(191,381
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
12,748
|
|
|
|
(23,402
|
)
|
|
|
34,168
|
|
CASH AND CASH EQUIVALENTS, Beginning of period
|
|
|
13,801
|
|
|
|
37,203
|
|
|
|
3,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, End of period
|
|
$
|
26,549
|
|
|
$
|
13,801
|
|
|
$
|
37,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
159
|
|
|
$
|
461
|
|
|
$
|
107
|
|
Cash paid for income taxes, net
|
|
$
|
13,591
|
|
|
$
|
74,563
|
|
|
$
|
105,646
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receipt of note receivable for sale of land
|
|
|
−
|
|
|
$
|
25,834
|
|
|
|
−
|
|
Receivable from sale of equity investment
|
|
|
−
|
|
|
$
|
2,161
|
|
|
|
−
|
|
The accompanying notes are an integral part of these
consolidated statements.
41
CHICOS
FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2009
(In thousands, except share and per share amounts and where
otherwise indicated)
|
|
1.
|
Business
Organization and Significant Accounting Policies:
|
Business
Organization
The accompanying consolidated financial statements include the
accounts of Chicos FAS, Inc., a Florida corporation, and
its wholly-owned subsidiaries (the Company). The Company
operates as a specialty retailer of private branded
casual-to-dressy
clothing, intimates and related accessories. The Company
currently sells its products through traditional retail stores,
catalog, and via the Internet at www.chicos.com,
www.whitehouseblackmarket.com, and www.soma.com.
As of January 31, 2009, the Companys retail store
system consisted of 1,076 stores located throughout the United
States, the U.S. Virgin Islands and Puerto Rico.
Fiscal
Year
The Companys fiscal years end on the Saturday closest to
January 31 and are designated by the calendar year in which the
fiscal year commences. The periods presented in these financial
statements are the fiscal years ended January 31, 2009
(fiscal 2008), February 2, 2008 (fiscal 2007) and
February 3, 2007 (fiscal 2006). Fiscal 2008 and 2007
contained 52 weeks while fiscal 2006 contained
53 weeks.
Franchise
Operations
In early fiscal 2007, the Company completed the acquisition of
all outstanding franchise rights which included 12 Minnesota
stores and 1 Florida store. With these acquisitions completed,
the Company now has no franchise stores remaining and does not
intend to pursue, at this time, any franchises or to enter into
any additional franchise territory development agreements for
any of its brands in the territories in which it currently does
business.
Principles
of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Segment
Information
The Companys brands, Chicos, WH|BM, and Soma
Intimates, have been aggregated into one reportable segment due
to the similarities of the economic and operating
characteristics of the operations represented by the
Companys brands.
Management
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
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. Significant estimates and
assumptions made by management primarily impact the following
key financial areas:
Inventory
Valuation and Shrinkage
The Company identifies potentially excess and slow-moving
inventories by evaluating turn rates and inventory levels in
conjunction with the Companys overall growth rate. Excess
quantities are identified through evaluation of inventory
ageing, review of inventory turns and historical sales
experiences, as well as specific identification based on fashion
trends. Further, exposure to inadequate realization of carrying
value is
42
CHICOS
FAS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
identified through analysis of gross margins and markdowns in
combination with changes in current business trends. The Company
provides lower of cost or market reserves for such identified
excess and slow-moving inventories. The Company estimates its
expected shrinkage of inventories between physical inventory
counts by applying historical chain-wide average shrinkage
experience rates. The historical rates are updated on a regular
basis to reflect the most recent physical inventory shrinkage
experience.
Sales
Returns
The Companys policy is to honor customer returns in most
instances. Returns after 30 days of the original purchase,
or returns without the original receipt, qualify for store
credit only. The Company will, in certain circumstances, offer
full customer refunds either after 30 days or without a
receipt. The Company estimates its reserve for customer returns
based on the average refund experience in relation to sales for
the related period.
Self-Insurance
The Company is self-insured for certain losses relating to
workers compensation, medical and general liability
claims. Self-insurance claims filed and claims incurred but not
reported are accrued based upon managements estimates of
the aggregate liability for uninsured claims incurred based on
historical experience. Although management believes it has the
ability to adequately accrue for estimated losses related to
claims, it is possible that actual results could significantly
differ from recorded self-insurance liabilities.
Reclassifications
Reclassifications of certain prior year balances were made in
order to conform to the current year presentation.
Cash and
Cash Equivalents
Cash and cash equivalents includes cash on hand and in banks and
short-term highly liquid investments with original maturities of
three months or less.
Sales
Taxes
The Companys policy towards taxes assessed by a government
authority directly imposed on revenue producing transactions
between a seller and a customer is, and has been, to exclude all
such taxes from revenue.
Marketable
Securities
Marketable securities generally represent variable rate demand
notes, which are highly liquid, variable rate municipal debt
securities and municipal bonds. Although the variable rate
municipal debt securities have long-term nominal maturity dates
ranging from 2012 to 2043, the interest rates are reset either
daily, every 7 days, or every 28 days. Despite the
long-term nature of the underlying securities of the variable
rate demand notes, the Company has the ability to quickly
liquidate these securities based on the Companys cash
needs, thereby creating a short-term instrument. The municipal
bond portion of the portfolio have average maturity dates
approximating 100 days.
Marketable securities are classified as
available-for-sale
and are carried at market value, with the unrealized holding
gains and losses, net of income taxes, reflected as a separate
component of stockholders equity until realized. For the
purposes of computing realized and unrealized gains and losses,
cost is determined on a specific identification basis.
Inventories
The Company uses the weighted average cost method to determine
the cost of merchandise inventories. Purchasing, merchandising,
distribution and product development costs are expensed as
incurred, and are included in the accompanying consolidated
statements of operations as a component of cost of goods sold.
43
CHICOS
FAS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Property
and Equipment
Property and equipment is stated at cost. Depreciation of
property and equipment is provided on a straight-line basis over
the estimated useful lives of the assets. Leasehold improvements
are amortized over the shorter of their estimated useful lives
(generally 10 years or less) or the related lease term plus
one anticipated renewal when there is an economic penalty
associated with non-renewal. The Companys property and
equipment is depreciated using the following estimated useful
lives:
|
|
|
|
|
Estimated Useful Lives
|
|
Land improvements
|
|
35 years
|
Building and building improvements
|
|
20 - 35 years
|
Equipment, furniture and fixtures
|
|
2 - 10 years
|
Leasehold improvements
|
|
5 - 10 years or term of lease, if shorter
|
Maintenance and repairs of property and equipment are expensed
as incurred, and major improvements are capitalized. Upon
retirement, sale or other disposition of property and equipment,
the cost and accumulated depreciation or amortization are
eliminated from the accounts, and any gain or loss is charged to
operations.
Land Held
for Sale
During the third quarter of fiscal 2006, the Company
reclassified a parcel of land located south of Fort Myers,
Florida with a book value of $38.1 million from a long-term
asset to a current asset that was being held for sale. On
August 1, 2007, the Company consummated a transaction to
sell the land with a sales price totaling $39.7 million
consisting of approximately $13.4 million in cash proceeds,
net of closing costs, and a note receivable with a principal
amount of approximately $25.8 million and secured by a
purchase money mortgage. The note, which accrues interest at a
fixed rate of 6.0% annually with interest payable quarterly and
the principal amount payable in a balloon payment on
August 1, 2009, was included within other assets on the
Companys consolidated balance sheet in fiscal 2007. As the
due date for the balloon payment is within one year of the
Companys most recently ended fiscal year, the Company has
reclassified the $25.8 million note receivable from a
long-term asset to a current asset within receivables on the
Companys consolidated balance sheet.
Operating
Leases
The Company leases retail stores and office space under
operating leases. The majority of the Companys lease
agreements provide for tenant improvement allowances, rent
escalation clauses
and/or
contingent rent provisions.
Tenant improvement allowances are recorded as a deferred lease
credit within deferred liabilities and amortized as a reduction
of rent expense over the term of the lease, which includes the
construction period and one renewal when there is a significant
economic penalty associated with non-renewal.
Landlord incentives, rent-free periods, rent
escalation clauses and other rental expenses are amortized on a
straight-line basis over the terms of the leases, which includes
the construction period, and which is generally
60-90 days
prior to the store opening date when the Company generally
begins improvements in preparation of intended use.
Certain leases provide for contingent rents, in addition to a
basic fixed rent, which are determined as a percentage of gross
sales in excess of specified levels. The Company records a
contingent rent liability in Accrued liabilities on
the consolidated balance sheets and the corresponding rent
expense when specified levels have been achieved or when
management determines that achieving the specified levels during
the fiscal year is probable.
Goodwill
and Other Intangible Assets
The Company accounts for its goodwill and intangible assets in
accordance with Statement of Financial Accounting Standard
No. 142, Goodwill and Other Intangible
Assets (SFAS 142). Goodwill and
intangible
44
CHICOS
FAS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
assets acquired in a purchase business combination and
determined to have an indefinite useful life are not amortized,
but instead are tested for impairment at least annually in
accordance with the provisions of SFAS 142. In fiscal 2007,
the Company completed the acquisition of all outstanding
franchise rights and recorded goodwill and territorial franchise
rights as an intangible asset. During fiscal 2003, in connection
with the acquisition of The White House, Inc., the Company
recorded goodwill and a trademark intangible asset.
Goodwill represents the excess of the purchase price over the
fair value of identifiable tangible and intangible assets
acquired and liabilities assumed in a business combination. In
accordance with the provisions of SFAS 142, the Company is
not amortizing the goodwill. Impairment testing for goodwill is
done at a reporting unit level. Under SFAS 142, reporting
units are defined as an operating segment or one level below an
operating segment, called a component. Using these criteria, the
Company identified its reporting units and further concluded
that the goodwill related to the territorial franchise rights
for the state of Minnesota should be allocated to the
Chicos reporting unit and that the WH|BM acquisition
should be assigned to the WH|BM reporting unit.
During the third quarter of fiscal 2008, management considered
the decline in the Companys market capitalization since
its annual review for impairment in fiscal 2007 as well as the
decline in the business climate during fiscal 2008 and
determined that an interim goodwill impairment test was
appropriate. Accordingly, the Company performed an interim
goodwill impairment test on the Companys then-current
projections of future operating results and concluded that its
goodwill was not impaired as of November 1, 2008.
During the fourth quarter of fiscal 2008, the Company completed
its annual test for goodwill impairment and again determined
that its goodwill was not impaired. However, throughout the
fourth quarter, there was continued deterioration in the
financial and credit markets, which significantly impacted
consumer confidence and caused the Companys market
capitalization to decrease even further. Given these
circumstances, the Company performed another interim goodwill
impairment test during the latter part of the fourth quarter of
fiscal 2008.
To complete this interim goodwill impairment test, the Company
determined the fair values of each of its reporting units based
on a discounted cash flow model that incorporates assumptions
including managements best estimate of projected revenue
and earnings growth to calculate future cash flows which are
discounted using an estimate of the Companys weighted
average cost of capital. The Company then compared the
calculated fair value of each of its reporting units to their
respective book values as well as reconciled the fair value of
its reporting units to its market capitalization and concluded
that goodwill was not impaired as of January 31, 2009.
As of January 31, 2009, the total value of intangible
assets of $38.9 million related to the acquired WH|BM
trademark and the acquired territorial franchise rights. The
value of the trademark intangible asset was determined using a
discounted cash flow method, based on the estimated future
benefit to be received from the trademark. The value of the
acquired territorial franchise rights was determined using a
discounted cash flow method, based on a relief from royalty
concept. The Company is not amortizing its intangible assets, as
each has an indefinite useful life. In the fourth quarter of
fiscal 2008, the Company performed an analysis to compare the
implied fair values of each of its intangible assets, using a
discounted cash flow method, to each of their respective
carrying values and concluded that the intangible assets were
not impaired.
Accounting
for the Impairment of Long-lived Assets
Long-lived assets are reviewed periodically for impairment if
events or changes in circumstances indicate that the carrying
amount may not be recoverable. If future undiscounted cash flows
expected to be generated by the asset are less than its carrying
amount, an asset is determined to be impaired, and a loss is
recorded for the amount by which the carrying value of the asset
exceeds its fair value. See Note 2 for a discussion of
impairment charges for long-lived assets recorded in fiscal 2008.
45
CHICOS
FAS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Gain on
Sale of Investment
On July 26, 2007, VF Corporation announced that it had
entered into a definitive agreement to acquire lucy activewear,
inc. (Lucy), a privately held retailer of
womens activewear apparel, in which the Company held a
cost method investment totaling $10.4 million. Consummating
the sale was completed during the third quarter of fiscal 2007
and the Company recorded a pre-tax gain of approximately
$6.8 million, which is reflected as non-operating income
during fiscal 2007 in the accompanying statement of operations.
Income
Taxes
Effective February 4, 2007, the Company adopted the
provisions of Financial Accounting Standards Board
(FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48). FIN 48 prescribes a
comprehensive model of how a company should recognize, measure,
present and disclose in its financial statements uncertain tax
positions that the company has taken or expects to take on a tax
return. FIN 48 states that a tax benefit from an
uncertain tax position may be recognized if it is more
likely than not that the position is sustainable, based
upon its technical merits. The tax benefit of a qualifying
position is the largest amount of tax benefit that has greater
than a 50% likelihood of being realized upon the ultimate
settlement with a taxing authority having full knowledge of all
relevant information.
Fair
Value of Financial Instruments
The Companys financial instruments consist of cash and
cash equivalents, marketable securities, trade receivables and
payables. The carrying values of cash and cash equivalents,
marketable securities, trade receivables and trade payables
approximate current fair value due to the short-term nature of
the instruments.
Effective February 3, 2008, the Company adopted
SFAS 157, except as it applies to FASB Staff Position
No. FAS 157-2
Effective Date of FASB Statement No. 157
(FSP
SFAS 157-2).
FSP
SFAS 157-2
allows entities to defer the effective date of SFAS 157 for
one year for certain non-financial assets and non-financial
liabilities, except those that are recognized or disclosed at
fair value in the financial statements on a recurring basis
(i.e. as least annually).
SFAS 157 defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value
measurements. This statement does not require any new fair value
measurements; rather, it applies to other accounting
pronouncements that require or permit fair value measurements.
Fair value is defined under SFAS 157 as the price that
would be received to sell an asset or paid to transfer a
liability in the principal or most advantageous market in an
orderly transaction between market participants on the
measurement date. SFAS 157 also establishes a three-level
hierarchy, which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs
when measuring fair value.
The valuation hierarchy is based upon the transparency of inputs
to the valuation of an asset or liability on the measurement
date. The three levels are defined as follows:
Level 1 Unadjusted quoted prices in active
markets for identical assets or liabilities
Level 2 Unadjusted quoted prices in active
markets for similar assets or liabilities, or; Unadjusted quoted
prices for identical or similar assets or liabilities in markets
that are not active, or; Inputs other than quoted prices that
are observable for the asset or liability
Level 3 Unobservable inputs for the asset or
liability.
The Company measures certain financial assets at fair value on a
recurring basis, including its marketable securities, which are
classified as
available-for-sale
securities, certain cash equivalents, specifically its money
market accounts, and assets held in the Companys deferred
compensation plan. The Companys money market funds are
valued based on quoted market prices in active markets. The
types of instruments valued based on other
46
CHICOS
FAS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
observable inputs include variable rate demand notes and
municipal bonds. The Companys investments in its
non-qualified Deferred Compensation Plan (the Plan)
are valued using quoted market prices multiplied by the number
of units held in the Plan and are included in other assets on
the Companys consolidated balance sheets. In accordance
with SFAS 157, the Company categorized these financial
assets based on the priority of the inputs to the valuation
technique for the instruments, as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31, 2009
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market accounts
|
|
$
|
25,103
|
|
|
$
|
25,103
|
|
|
$
|
|
|
|
$
|
|
|
Marketable Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate demand notes
|
|
$
|
186,805
|
|
|
|
|
|
|
|
186,805
|
|
|
|
|
|
Municipal bonds
|
|
$
|
55,348
|
|
|
|
|
|
|
|
55,348
|
|
|
|
|
|
Non Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan assets
|
|
$
|
4,023
|
|
|
$
|
4,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
271,279
|
|
|
$
|
29,126
|
|
|
$
|
242,153
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Recognition
Retail sales by Company stores are recorded at the point of sale
and are net of estimated customer returns, sales discounts under
the Passport Club and The Black Book
loyalty programs and Company issued coupons.
Direct-to-consumer
retail sales are recorded when shipments are made to customers
and are net of estimated customer returns. Under the
Companys current program, gift certificate and gift card
sales do not have expiration dates. The Company accounts for
gift certificates and gift cards by recognizing a liability at
the time a gift certificate or gift card is sold. The liability
is relieved and revenue is recognized for gift certificates and
gift cards upon redemption. In addition, the Company recognizes
revenue on unredeemed gift certificates and gift cards when it
can determine that the likelihood of the gift certificate or
gift card being redeemed is remote and that there is no legal
obligation to remit the unredeemed gift certificates or gift
cards to relevant jurisdictions (commonly referred to as gift
card breakage). The Company recognizes gift card breakage under
the redemptive recognition method. This method records gift card
breakage as revenue on a proportional basis over the redemption
period based on the Companys historical gift card breakage
rate. The Company determines the gift card breakage rate based
on its historical redemption patterns. Once the breakage rate is
determined, it is recognized over a
60-month
period based on historical redemption patterns of gift
certificates and gift cards.
Vendor
Allowances
From time to time, the Company receives allowances
and/or
credits from certain of its vendors. The aggregate amount of
such allowances and credits is immaterial to the Companys
results of operations.
Shipping
and Handling Costs
Shipping and handling costs to transport goods between stores or
directly to customers, net of amounts paid to the Company by
customers, amounted to $11.0 million, $9.5 million,
and $8.3 million in fiscal 2008, 2007 and 2006,
respectively, do not represent a significant portion of the
Companys operations and are included in store operating
expenses in the accompanying consolidated statements of
operations. Amounts paid by customers to cover shipping and
handling costs are considered insignificant.
47
CHICOS
FAS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Store
Pre-opening Costs
Operating costs (including store
set-up, rent
and training expenses) incurred prior to the opening of new
stores are expensed as incurred and are included in store
operating expenses in the accompanying consolidated statements
of operations.
Advertising
Costs
Costs associated with advertising are charged to expense as
incurred except for catalogs, which are amortized over the life
of the catalog (typically less than six weeks). For fiscal 2008,
2007 and 2006, advertising costs were approximately
$67.5 million, $82.7 million, and $66.5 million,
respectively, and are reflected as marketing expenses in the
accompanying consolidated statements of operations.
Stock-Based
Compensation
Effective January 29, 2006, the Company adopted the
provisions of SFAS No. 123R, Share-Based
Payment (SFAS 123R) using the
modified prospective transition method. Under this transition
method, stock-based compensation expense recognized for
share-based awards, including stock options and restricted
stock, consists of: (a) compensation expense for all
stock-based compensation awards granted prior to, but not yet
vested as of, January 29, 2006, based on the grant date
fair value estimated in accordance with the original provisions
of SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123), and
(b) compensation expense for all stock-based compensation
awards granted subsequent to January 29, 2006, based on the
grant date fair value estimated in accordance with the
provisions of SFAS 123R. In addition, upon adoption, the
Company calculated its pool of income tax benefits that were
previously recorded in additional paid-in capital and are
available to absorb future income tax benefit deficiencies that
can result from the exercise of stock options or vesting of
restricted stock awards. The Company has elected to calculate
this pool under the alternative transition method provided for
in FASB Staff Position No. 123(R)-3, Transition
Election Related to Accounting for the Tax Effects of
Share-Based Payment Awards. See Note 11 for a
further discussion on stock-based compensation.
Net
Income per Common and Common Equivalent Share
SFAS No. 128, Earnings per Share
(SFAS 128), requires companies with complex
capital structures that have publicly held common stock or
common stock equivalents to present both basic and diluted
earnings per share (EPS) on the face of the statement of
operations. As provided by SFAS 128, basic EPS is computed
by dividing net income by the weighted-average number of common
shares outstanding. Restricted stock grants to employees and
directors are not included in the computation of basic EPS until
the securities vest. Diluted EPS reflects the dilutive effect of
potential common shares from securities such as stock options
and unvested restricted stock.
The following is a reconciliation of the denominators of the
basic and diluted EPS computations shown on the face of the
accompanying consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Weighted average common shares outstanding basic
|
|
|
175,861,224
|
|
|
|
175,574,116
|
|
|
|
177,273,138
|
|
Dilutive effect of stock options and unvested restricted stock
outstanding
|
|
|
|
|
|
|
780,991
|
|
|
|
1,178,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and common equivalent shares
outstanding diluted
|
|
|
175,861,224
|
|
|
|
176,355,107
|
|
|
|
178,451,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
CHICOS
FAS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In fiscal 2008, 2007 and 2006, 6,697,722, 4,299,725 and 851,945
potential shares of common stock, respectively were excluded
from the diluted per share calculation relating to stock option
and restricted stock awards, because the effect of including
these potential shares was antidilutive.
Newly
Issued Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS 157), which establishes a framework for
measuring fair value in accordance with Generally Accepted
Accounting Principles (GAAP) and expands disclosures
about fair value measurements. This statement is effective for
financial assets and liabilities as well as for any assets and
liabilities that are carried at fair value on a recurring basis
in financial statements as of the beginning of the entitys
first fiscal year that begins after November 15, 2007. In
November 2007, the FASB issued a one-year deferral for
non-financial assets and liabilities to comply with
SFAS 157 which delayed the effective date for these items
to fiscal years beginning after November 15, 2008. The
Company does not expect the adoption of SFAS 157 as it
relates to non-financial assets and liabilities to have a
material effect on its financial position, results of operations
or cash flows.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities including an amendment of
SFAS 115 (SFAS 159).
SFAS 159 allows entities to choose, at specific election
dates, to measure eligible financial assets and liabilities at
fair value that are not otherwise required to be measured at
fair value. If a company elects the fair value option for an
eligible item, changes in that items fair value in
subsequent reporting periods must be recognized in current
earnings. On February 3, 2008, the Company adopted
SFAS 159 and elected not apply the fair value option
provided under SFAS 159.
In April 2008, the FASB issued FASB Staff Position
No. FSP 142-3,
Determining the Useful Life of Intangible
Assets
(FSP 142-3).
FSP 142-3
amends the factors to be considered in determining the useful
life of intangible assets. Its intent is to improve the
consistency between the useful life of an intangible asset and
the period of expected cash flows used to measure its fair
value.
FSP 142-3
is effective for fiscal years beginning after December 15,
2008. The Company does not expect that the adoption of
FSP 142-3
will have a material impact on its consolidated financial
statements.
In May 2008, the FASB issued SFAS No. 162,
The Hierarchy of Generally Accepted Accounting
Principles (SFAS 162). This standard
identifies the sources of accounting principles and the
framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities
that are presented in conformity with generally accepted
accounting principles. The hierarchy set forth in SFAS 162
is directed to the entity, rather than the independent auditors,
as the entity is the one responsible for selecting accounting
principles for financial statements that are presented in
conformity with generally accepted accounting principles. The
standard is effective 60 days following SEC approval of the
Public Company Accounting Oversight Board amendments to remove
the hierarchy of generally accepted accounting principles from
the auditing standards, with the expectation that the standard
will be effective for the Companys 2009 fiscal year. The
Company does not expect SFAS 162 to have a material impact
on its consolidated financial statements.
|
|
2.
|
Impairment
and Restructuring Charges:
|
During the fourth quarter of fiscal 2008, the Company incurred
certain expense items that materially affected earnings results
for the fourth quarter and for fiscal year 2008. These charges
were composed of write-offs of fixed assets for certain
underperforming stores, and severance and workforce reductions,
which are included in selling,
49
CHICOS
FAS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
general and administrative expenses under impairment and
restructuring charges in the accompanying statement of
operations. A summary of the charges are presented in the table
below (amounts in thousands):
|
|
|
|
|
|
|
Fiscal
|
|
|
|
2008
|
|
|
Impairment of long-lived assets related to Company stores
|
|
$
|
13,691
|
|
Severance and workforce reduction charges
|
|
|
9,973
|
|
|
|
|
|
|
Total pre-tax impairment and restructuring charges
|
|
$
|
23,664
|
|
|
|
|
|
|
Asset Impairments: It is the Companys
practice to review long-lived assets periodically for impairment
if events or changes in circumstances, such as worsening
macro-economic conditions in fiscal 2008, indicate that the
carrying amount may not be recoverable. If future undiscounted
cash flows expected to be generated by the asset are less than
its carrying amount, an asset is determined to be impaired, and
a loss is recorded for the amount by which the carrying value of
the asset exceeds its fair value. In accordance with Statement
of Financial Accounting Standard No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144), the Company
conducted an internal review of its long-lived assets at the
store level and determined that the carrying value of certain
assets exceeded their future undiscounted cash flows. The
Company then determined the fair value of the identified
long-lived assets by discounting their future cash flows using a
rate approximating the Companys cost of capital, which
resulted in an impairment charge of $13.7 million.
Severance and Workforce Reductions: During the
fourth quarter of fiscal 2008, in an effort to reduce costs and
enhance efficiencies, the Company announced a workforce
reduction that included the elimination of approximately 180
positions, or approximately 11% of the headquarters employee
base. In addition, the Company incurred charges related to the
separation agreement with its former Chief Executive Officer.
These charges were accounted for in accordance with Statement of
Financial Accounting Standard No. 146, Accounting
for Costs Associated with Exit or Disposal Activities.
In connection with these actions, the Company recorded
approximately $10.0 million of personnel separation costs.
The Company will begin making payments in early 2009. The
following table summarizes the severance and workforce reduction
charges incurred in fiscal 2008 as well as amounts remaining to
be paid (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
|
Beginning
|
|
|
|
|
|
Non-Cash
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Charges
|
|
|
Expense
|
|
|
Balance
|
|
|
Severance and workforce reduction charges
|
|
$
|
|
|
|
$
|
9,973
|
|
|
$
|
(1,275
|
)
|
|
$
|
8,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
|
Acquisitions
of Chicos Franchised Stores:
|
On February 4, 2007, the Company completed its asset
purchase of Intraco, Inc. (Intraco) pursuant to
which the Company acquired the franchise rights for the state of
Minnesota and purchased a substantial portion of the assets of
Intraco. Intraco, which held territorial franchise rights to the
entire state of Minnesota for the Chicos brand, operated
12 Chicos brand store locations in Minnesota at that time.
The acquisition included all of the existing retail store
locations together with the reacquisition of the territorial
franchise rights to the state of Minnesota. The total purchase
price for the acquisition of the 12 stores was approximately
$32.9 million. The Companys allocation of the
purchase price to the tangible and intangible assets acquired
and liabilities assumed in the acquisition at their estimated
fair values with the remainder allocated to goodwill was as
follows: $0.9 million to current assets, $1.4 million
to fixed assets, $4.9 million to intangible assets, which
represents the fair value of re-acquired territory rights,
$27.7 million to goodwill, net of $2.0 million to
current liabilities. The Companys consolidated statements
of operations include the results of operations for these twelve
stores from and after February 4, 2007, the date of
acquisition of such stores.
In addition, on March 4, 2007, the Company completed its
asset purchase of a franchise store from its last franchisee in
Florida. The Companys consolidated statements of
operations include the results of operations for
50
CHICOS
FAS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
this particular store from and after March 4, 2007, the
date of acquisition of such store. With this acquisition
completed, the Company now has no franchise stores remaining and
does not intend to pursue, at this time, any franchises or to
enter into any additional franchise territory development
agreements for any of its brands.
|
|
4.
|
Discontinued
Operations:
|
In early fiscal 2006, the Company acquired most of the assets of
Fitigues consisting primarily of 12 retail stores. During the
fourth quarter of fiscal 2006, the Company completed its
evaluation of the Fitigues brand and decided it would close down
operations of the Fitigues brand. In connection with this
conclusion, in the fourth quarter of fiscal 2006, the Company
recorded an aggregate $8.6 million impairment charge. The
charge consisted of a loss on impairment of goodwill totaling
$6.8 million, accelerated depreciation totaling
approximately $1.2 million, and other impairment charges,
mainly for inventory, totaling approximately $0.6 million.
As of the end of fiscal 2007, the operations of the Fitigues
brand have ceased and the Company does not expect to incur any
further material costs associated with the closing down of this
brand.
In accordance with SFAS 144, the Company has segregated the
operating results of Fitigues from continuing operations and
classified the results as discontinued operations in the
consolidated statements of operations for all periods presented
as shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
Net sales
|
|
$
|
1,688
|
|
|
$
|
5,555
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
3,470
|
|
|
|
12,647
|
|
Income tax benefit
|
|
|
1,197
|
|
|
|
4,592
|
|
|
|
|
|
|
|
|
|
|
Net loss on discontinued operations
|
|
$
|
2,273
|
|
|
$
|
8,055
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Marketable
Securities:
|
The following tables summarize the Companys investments in
marketable securities at January 31, 2009 and
February 2, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2009
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Total marketable securities
|
|
$
|
242,018
|
|
|
$
|
135
|
|
|
$
|
|
|
|
$
|
242,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2008
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Total marketable securities
|
|
$
|
260,469
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
260,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no marketable securities in an unrealized loss
position at January 31, 2009 or February 2, 2008.
51
CHICOS
FAS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Receivables consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
Tenant improvement advances
|
|
$
|
1,254
|
|
|
$
|
6,497
|
|
Note receivable
|
|
|
25,834
|
|
|
|
|
|
Other
|
|
|
6,905
|
|
|
|
5,427
|
|
|
|
|
|
|
|
|
|
|
Total receivables
|
|
$
|
33,993
|
|
|
$
|
11,924
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
Allowance for estimated customer returns, gift cards and store
credits outstanding
|
|
$
|
36,411
|
|
|
$
|
41,809
|
|
Accrued payroll and benefits, bonuses and severance costs
|
|
|
34,505
|
|
|
|
23,607
|
|
Accrued sales taxes
|
|
|
5,225
|
|
|
|
3,967
|
|
Allowance for construction in progress
|
|
|
1,908
|
|
|
|
8,407
|
|
Accrued marketing costs
|
|
|
1,467
|
|
|
|
9,104
|
|
Other
|
|
|
8,930
|
|
|
|
13,832
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
88,446
|
|
|
$
|
100,726
|
|
|
|
|
|
|
|
|
|
|
The Companys income tax provision (benefit) consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
4,562
|
|
|
$
|
49,854
|
|
|
$
|
105,172
|
|
State
|
|
|
5,924
|
|
|
|
7,648
|
|
|
|
14,199
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(18,992
|
)
|
|
|
(8,218
|
)
|
|
|
(19,119
|
)
|
State
|
|
|
(4,194
|
)
|
|
|
(1,272
|
)
|
|
|
(617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision (benefit)
|
|
$
|
(12,700
|
)
|
|
$
|
48,012
|
|
|
$
|
99,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
CHICOS
FAS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation between the statutory federal income tax rate
and the effective income tax rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Federal income tax rate
|
|
|
(35.0
|
)%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income tax, net of federal tax benefit
|
|
|
5.6
|
|
|
|
2.9
|
|
|
|
2.8
|
|
Municipal interest income
|
|
|
(6.4
|
)
|
|
|
(2.2
|
)
|
|
|
(1.2
|
)
|
Enhanced charitable contribution
|
|
|
(6.8
|
)
|
|
|
(2.5
|
)
|
|
|
(1.0
|
)
|
Decrease in deferred compensation plan assets
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
Other items, net
|
|
|
(1.5
|
)
|
|
|
1.3
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(39.9
|
)%
|
|
|
34.5
|
%
|
|
|
36.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets and liabilities are recorded due to
different carrying amounts for financial and income tax
reporting purposes arising from cumulative temporary
differences. These differences consist of the following as of
January 31, 2009 and February 2, 2008:
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
Current deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued liabilities and allowances
|
|
$
|
12,152
|
|
|
$
|
9,060
|
|
Inventories
|
|
|
2,804
|
|
|
|
1,380
|
|
Other, net
|
|
|
2,903
|
|
|
|
2,866
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,859
|
|
|
$
|
13,306
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax assets:
|
|
|
|
|
|
|
|
|
Property related, net
|
|
$
|
16,647
|
|
|
$
|
6,935
|
|
Accrued liabilities and allowances
|
|
|
4,658
|
|
|
|
2,527
|
|
Accrued straight-line rent
|
|
|
15,239
|
|
|
|
13,019
|
|
SFAS 123R compensation
|
|
|
13,003
|
|
|
|
12,878
|
|
Other, net
|
|
|
4,632
|
|
|
|
1,551
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
54,179
|
|
|
$
|
36,910
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Other intangible assets
|
|
|
(15,721
|
)
|
|
|
(14,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(15,721
|
)
|
|
$
|
(14,407
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets at January 31, 2009 and
February 2, 2008 totaled $72.0 million and
$50.2 million, respectively. Deferred tax liabilities at
January 31, 2009 and February 2, 2008 totaled
$15.7 million and $14.4 million, respectively.
53
CHICOS
FAS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Effective February 4, 2007, the Company adopted the
provisions of FIN 48, which did not result in any
adjustment to retained earnings of the Company. A reconciliation
of the Companys beginning and ending amounts of
unrecognized tax benefit for each of fiscal 2007 and fiscal 2008
is as follows:
|
|
|
|
|
Balance at February 4, 2007
|
|
$
|
7,971
|
|
Additions for tax positions of prior year
|
|
|
329
|
|
Reductions for tax positions of prior year
|
|
|
(549
|
)
|
Additions for tax positions of current year
|
|
|
981
|
|
Reductions for tax positions of current year
|
|
|
|
|
Settlements with tax authorities
|
|
|
(1,873
|
)
|
Reductions due to lapse of applicable statutes of limitation
|
|
|
(492
|
)
|
|
|
|
|
|
Balance at February 2, 2008
|
|
$
|
6,367
|
|
|
|
|
|
|
Additions for tax positions of prior year
|
|
|
5,675
|
|
Reductions for tax positions of prior year
|
|
|
(642
|
)
|
Additions for tax positions of current year
|
|
|
|
|
Reductions for tax positions of current year
|
|
|
(200
|
)
|
Settlements with tax authorities
|
|
|
(285
|
)
|
Reductions due to lapse of applicable statutes of limitation
|
|
|
(348
|
)
|
|
|
|
|
|
Balance at January 31, 2009
|
|
$
|
10,567
|
|
|
|
|
|
|
Included in the January 31, 2009 and February 2, 2008
balances are $6.9 million and $4.1 million,
respectively, of unrecognized tax benefits that, if recognized,
would favorably impact the Companys effective tax rate in
future periods.
The Companys continuing practice is to recognize potential
accrued interest and penalties relating to unrecognized tax
benefits in income tax expense. During the fiscal years ended
January 31, 2009 and February 2, 2008, the Company
accrued $2.2 million and $0.6 million, respectively,
for interest and penalties. The Company had approximately
$3.5 million and $1.4 million for the payment of
interest and penalties accrued at January 31, 2009 and
February 2, 2008, respectively. The amounts included in the
reconciliation of unrecognized tax benefits do not include
accruals for interest and penalties.
The Company began participating in the IRSs real time
audit program, Compliance Assurance Process (CAP),
beginning in fiscal 2006. Under the CAP program, material tax
issues and initiatives are disclosed to the IRS throughout the
year with the objective of reaching agreement as to the proper
reporting treatment when the federal return is filed. As such,
the Companys federal return has been examined through the
fiscal 2007 year.
With few exceptions, the Company is no longer subject to state
and local examinations for years before fiscal 2005. Various
state examinations are currently underway for fiscal periods
spanning from 1999 through 2005; however, the Company does not
expect any significant change to its unrecognized tax benefits
within the next year.
54
CHICOS
FAS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred rent
|
|
$
|
39,276
|
|
|
$
|
33,215
|
|
Deferred lease credits and other
|
|
|
139,723
|
|
|
|
124,639
|
|
|
|
|
|
|
|
|
|
|
Total deferred liabilities
|
|
|
178,999
|
|
|
|
157,854
|
|
Less current portion
|
|
|
(1,748
|
)
|
|
|
(1,437
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred liabilities
|
|
$
|
177,251
|
|
|
$
|
156,417
|
|
|
|
|
|
|
|
|
|
|
Deferred rent represents the difference between operating lease
obligations currently due and operating lease expense, which is
recorded by the Company on a straight-line basis over the terms
of its leases.
Deferred lease credits represent construction allowances
received from landlords and are amortized as a reduction of rent
expense over the appropriate respective terms of the related
leases.
|
|
10.
|
Commitments
and Contingencies:
|
Leases
The Company leases retail store space, office space and various
office equipment under operating leases expiring in various
years through the fiscal year ending 2019. Certain of the leases
provide that the Company may cancel the lease if the
Companys retail sales at that location fall below an
established level, and certain leases provide for additional
rent payments to be made when sales exceed a base amount.
Certain operating leases provide for renewal options for periods
from three to five years at their fair rental value at the time
of renewal. In the normal course of business, operating leases
are generally renewed or replaced by other leases.
Minimum future rental payments under noncancellable operating
leases (including leases with certain minimum sales cancellation
clauses described below and exclusive of common area maintenance
charges
and/or
contingent rental payments based on sales) as of
January 31, 2009, are approximately as follows:
|
|
|
|
|
FISCAL YEAR ENDING:
|
|
|
|
|
January 30, 2010
|
|
$
|
128,332
|
|
January 29, 2011
|
|
|
121,909
|
|
January 28, 2012
|
|
|
112,591
|
|
February 3, 2013
|
|
|
99,742
|
|
February 2, 2014
|
|
|
85,834
|
|
Thereafter
|
|
|
252,007
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
800,415
|
|
|
|
|
|
|
A majority of the Companys new store operating leases
contain cancellation clauses that allow the leases to be
terminated at the Companys discretion, if certain minimum
sales levels are not met within the first few years of the lease
term. The Company has not historically exercised many or met
these cancellation clauses and, therefore, has included
commitments for the full lease terms of such leases in the above
table. For fiscal 2008, 2007 and 2006, total rent expense under
the Companys operating leases was approximately
$154.8 million, $140.4 million, and
$113.3 million, respectively, including common area
maintenance charges of approximately $23.6 million,
$19.0 million, and $15.0 million, respectively, other
rental charges of approximately $21.4 million,
$18.8 million, and $14.0 million, respectively, and
contingent rental expense of approximately $5.1 million,
$8.2 million, and $10.5 million, respectively, based
on sales.
55
CHICOS
FAS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Credit
Facility
On November 24, 2008, Chicos FAS, Inc. entered into a
$55 million Senior Secured Revolving Credit Facility (the
Credit Facility) with SunTrust Bank, as
administrative agent (the Agent) and lender and
SunTrust Robinson Humphrey, Inc. as lead arranger. The Credit
Facility replaces the Companys previous $45 million
credit facility with Bank of America.
The Credit Facility provides a $55 million revolving credit
facility that matures on November 24, 2011. The Credit
Facility provides for swing advances of up to $5 million
and issuance of letters of credit up to $10 million. The
Credit Facility also contains a feature that provides the
Company the ability, subject to satisfaction of certain
conditions, to increase the commitments available under the
Credit Facility from $55 million up to $100 million
through additional syndication. The proceeds of any borrowings
under the Credit Facility may be used to fund future permitted
acquisitions, to provide for working capital and to be used for
other general corporate purposes.
The interest on revolving loans under the Credit Facility will
accrue, at the Companys election, at either (i) a
Base Rate plus the Applicable Margin or (ii) a Eurodollar
Rate tied to LIBOR for the selected interest rate period plus
the Applicable Margin. Base Rate shall mean the highest of
(i) the per annum rate which SunTrust publicly announces as
its prime lending rate, (ii) the Federal Funds rate plus
one-half of one percent
(1/2%)
per annum and (iii) the Eurodollar Rate tied to the
one-month LIBOR rate determined on a daily basis. The Applicable
Margin is based upon a pricing grid depending on the total
unused availability under the Credit Facility. Loans under the
swingline subfacility shall bear interest at a rate agreed upon
from time to time by the Agent and the Company. The Credit
Facility also requires the payment of monthly fees based on the
average daily unused portion of the Credit Facility, in an
amount equal to 0.50% per annum.
The amount that is available to be borrowed from time to time
under the Credit Facility is limited based upon a percentage of
eligible receivables and a separate percentage of eligible
inventory and, until certain conditions are satisfied, may be
further limited based upon an overall availability block. The
Credit Facility also contains various covenants including a
fixed charge coverage ratio (as defined in the Credit Facility).
The obligations under the Credit Facility are secured by
(i) all credit card accounts and receivables for goods sold
or services rendered and (ii) all inventory of any kind
wherever located of Chicos FAS, Inc. and its subsidiaries.
The Credit Facility contains customary terms and conditions for
credit facilities of this type, including certain restrictions
on the Companys ability to incur additional indebtedness,
create liens, enter into transactions with affiliates, transfer
assets, pay dividends, repurchase stock or make distributions on
junior capital, consolidate or merge with other entities, or
suffer a change in control.
The Credit Facility contains customary events of default. If a
default occurs and is not cured within any applicable cure
period or is not waived, the Companys obligations under
the Credit Facility may be accelerated.
At January 31, 2009, no borrowings are outstanding under
the Credit Facility other than approximately $1.1 million
in commercial letters of credit outstanding, which arose in the
normal course of business
Other
At January 31, 2009 and February 2, 2008, the Company
had approximately $213.8 million and $211.8 million,
respectively, due under non-cancelable purchase commitments
consisting of amounts to be paid under agreements to purchase
inventory that are legally binding and that specify all
significant terms.
The Company was named as defendant in a putative class action
filed in June 2008 in the Superior Court for the State of
California, County of San Diego, Michele L. Massey
Haefner v. Chicos FAS, Inc. The Complaint alleges
that the Company, in violation of California law, requested or
required customers to provide personal information in
conjunction with credit card transactions. The Company filed an
answer denying the material allegations of the
56
CHICOS
FAS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Complaint. The Company believes that the case is wholly without
merit and, thus, does not believe that the case should have any
material adverse effect on the Companys financial
condition or results of operations.
The Company is not a party to any other legal proceedings, other
than various claims and lawsuits arising in the normal course of
business, none of which the Company believes should have a
material adverse effect on its financial condition or results of
operations.
|
|
11.
|
Stock
Compensation Plans and Capital Stock Transactions:
|
General
At January 31, 2009, the Company had stock-based
compensation plans described below. The total compensation
expense related to stock-based awards granted under these plans
during fiscal 2008, 2007 and 2006, in accordance with
SFAS 123R, was $12.6 million, $17.1 million and
$21.2 million, respectively. Effective January 29,
2006 and subsequent thereto, the Company recognizes stock-based
compensation costs net of a forfeiture rate for only those
shares expected to vest and on a straight-line basis over the
requisite service period of the award. The Company estimated the
forfeiture rate for fiscal years 2008, 2007 and fiscal 2006
based on its historical experience during the preceding four
fiscal years.
In addition to stock options, the Company has historically
issued restricted stock awards under its stock-based
compensation plans, pursuant to restricted stock agreements. A
restricted stock award is an award of common shares that is
subject to certain restrictions during a specified period.
Restricted stock awards are independent of option grants and are
generally subject to forfeiture if employment terminates prior
to the release of the restrictions. The Company holds the
certificates for such shares in safekeeping during the vesting
period, and the grantee cannot transfer the shares before the
respective shares vest. Shares of nonvested restricted stock
have the same voting rights as common stock, are entitled to
receive dividends and other distributions thereon and are
considered to be currently issued and outstanding. Substantially
all outstanding restricted stock vests pro-rata over a period of
three years from the date of grant, except for the restricted
stock awarded to independent directors in fiscal 2008 which
vests one year from the date of grant. The Company expenses the
cost of the restricted stock awards, which is determined to be
the fair market value of the shares at the date of grant,
straight-line over the period during which the restrictions
lapse. For these purposes, the fair market value of the
restricted stock is determined based on the closing price of the
Companys common stock on the grant date.
Stock
Option Plans
1993
Stock Option Plan
During fiscal year 1993, the Board approved a stock option plan,
as amended in fiscal 1999 (the 1993 Plan) for eligible employees
of the Company. The per share exercise price of each stock
option is not less than the fair market value of the stock on
the date of grant or, in the case of an employee owning more
than 10 percent of the outstanding stock of the Company and
to the extent incentive stock options, as opposed to
nonqualified stock options, are issued, the price is not less
than 110 percent of such fair market value. Also, the
aggregate fair market value of the stock with respect to which
incentive stock options are exercisable for the first time by an
employee in any calendar year may not exceed $100,000 per IRS
regulations. Options granted under the terms of the 1993 Plan
generally vest evenly over three years and have a
10-year
term. As of January 31, 2009, approximately 402,000
nonqualified options remain outstanding under the 1993 Plan.
Independent
Directors Plan
In October 1998, the Board approved a stock option plan (the
Independent Directors Plan) for eligible independent
directors of the Company. Options granted under the terms of the
Independent Directors Plan vest after six months and have
a 10-year
term. From the date of the adoption of the Independent
Directors Plan and until the 2002 Omnibus Stock and
Incentive Plan was adopted, 507,500 options were granted under
the Independent Directors Plan. As of January 31,
2009, approximately 120,000 options under the Independent
Directors Plan remain outstanding.
57
CHICOS
FAS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Omnibus
Stock and Incentive Plan
In April 2002, the Board approved the Chicos FAS, Inc.
2002 Omnibus Stock and Incentive Plan, which initially reserved
9,710,280 shares of common stock for future issuance. In
fiscal 2008, the Companys shareholders approved the
Amended and Restated Chicos FAS, Inc. 2002 Omnibus Stock
and Incentive Plan (the Omnibus Plan), effective as of
June 26, 2008. In particular, the amendments included:
(i) increasing the total number of shares of Common Stock
of the Company with respect to which awards may be granted under
the plan by an additional 10,000,000 shares,
(ii) expanding the permissible types of awards to include
stock-based and cash-based Stock Appreciation Rights (SARs) and
Performance Awards, and (iii) eliminating the automatic
grants of stock options for both new and continuing non-employee
directors. The Companys executive officers and directors
are eligible to receive awards under the Omnibus Plan, including
stock options, restricted stock, restricted stock units, SARs
and Performance Awards, in accordance with the terms and
conditions of the Omnibus Plan. No new grants can be made under
the Companys existing 1993 Plan or Independent
Directors Plan, and such existing plans remain in effect
only for purposes of administering options that are outstanding.
Under the Omnibus Plan, the per share exercise price of each
stock option cannot be less than the fair market value of the
stock on the date of grant or, in the case of an employee owning
more than 10 percent of the outstanding stock of the
Company and to the extent incentive stock options, as opposed to
nonqualified stock options, are issued, the price cannot be less
than 110 percent of such fair market value. Options granted
under the terms of the Omnibus Plan generally vest evenly over
three years and have a
10-year
term. In accordance with the terms of the Omnibus Plan, shares
of common stock that are represented by options granted under
the Companys previously existing plans which are
forfeited, expire or are cancelled without delivery of shares of
common stock are added to the amounts reserved for issuance
under the Omnibus Plan. As of January 31, 2009,
approximately 7,240,000 nonqualified stock options are
outstanding under the Omnibus Plan.
Employee
Stock Purchase Plan
The Company sponsors an employee stock purchase plan (the
ESPP) under which substantially all full-time
employees are given the right to purchase up to 400 shares
of the Companys common stock during each of the two
specified offering periods each fiscal year, for a total of up
to 800 shares in any given fiscal year, at a price equal to
85 percent of the value of the stock immediately prior to
the beginning of each offering period. During fiscal 2008, 2007
and 2006, approximately 46,000, 53,000, and 92,000 shares,
respectively, were purchased under the ESPP. In accordance with
the provisions of SFAS 123R, the Company recognizes
compensation expense based on the 15% discount at purchase. For
fiscal 2008, 2007 and 2006, ESPP compensation expense was less
than $0.1 million, $0.2 million, and
$0.3 million, respectively.
Methodology
Assumptions
The Company uses the Black-Scholes option-pricing model to value
the Companys stock options. Using this option-pricing
model, the fair value of each stock option award is estimated on
the date of grant. The fair value of the Companys stock
option awards, which are subject to pro-rata vesting generally
over 3 years, is expensed on a straight-line basis over the
vesting period of the stock options. The expected volatility
assumption is based on the historical volatility of the
Companys stock over a term equal to the expected term of
the option granted. The expected term of stock option awards
granted is derived from historical exercise experience under the
Companys stock option plans and represents the period of
time that stock option awards granted are expected to be
outstanding. The expected term assumption incorporates the
contractual term of an option grant, which is ten years, as well
as the vesting period of an award, which is generally pro-rata
vesting over three years. The risk-free interest rate is based
on the implied yield on a U.S. Treasury constant maturity
with a remaining term equal to the expected term of the option
granted.
58
CHICOS
FAS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The weighted average assumptions relating to the valuation of
the Companys stock options for fiscal 2008, 2007 and 2006
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
Fiscal 2007
|
|
|
Fiscal 2006
|
|
|
Weighted average fair value of grants
|
|
$
|
1.69
|
|
|
$
|
7.46
|
|
|
$
|
15.12
|
|
Expected volatility
|
|
|
54
|
%
|
|
|
43
|
%
|
|
|
46
|
%
|
Expected term (years)
|
|
|
4.5 years
|
|
|
|
4.5 years
|
|
|
|
4.5 years
|
|
Risk-free interest rate
|
|
|
2.0
|
%
|
|
|
4.2
|
%
|
|
|
4.6
|
%
|
Expected dividend yield
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Aggregate
Stock Option Activity
As of January 31, 2009, 7,763,161 nonqualified options are
outstanding at a weighted average exercise price of $14.10 per
share, and 8,239,432 shares remain available for future
grants of either stock options, restricted stock, restricted
stock units, SARs, or performance awards. Of the options
outstanding, 4,502,765 options are exercisable as of
January 31, 2009.
Stock option activity for fiscal 2008 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining
|
|
|
Value
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
(in thousands)
|
|
|
Outstanding, beginning of period
|
|
|
5,488,489
|
|
|
$
|
19.94
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,123,550
|
|
|
|
3.79
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(33,800
|
)
|
|
|
0.99
|
|
|
|
|
|
|
|
|
|
Canceled or expired
|
|
|
(815,078
|
)
|
|
|
14.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period
|
|
|
7,763,161
|
|
|
|
14.10
|
|
|
|
6.38 years
|
|
|
$
|
2,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at January 31, 2009
|
|
|
7,090,072
|
|
|
|
14.75
|
|
|
|
6.09 years
|
|
|
$
|
2,175
|
|
Exercisable at January 31, 2009
|
|
|
4,502,765
|
|
|
|
19.80
|
|
|
|
4.15 years
|
|
|
$
|
62
|
|
The aggregate intrinsic value in the table above represents the
total pretax intrinsic value (the excess if any, of the
Companys closing stock price on the last trading day of
fiscal 2008 and the exercise price, multiplied by the number of
such
in-the-money
options) that would have been received by the option holders had
all option holders exercised their options on January 31,
2009. This amount changes based on the fair market value of the
Companys common stock. Total intrinsic value of options
exercised during fiscal 2008 (based on the difference between
the Companys stock price on the respective exercise date
and the respective exercise price, multiplied by the number of
respective options exercised) was $0.3 million.
As of January 31, 2009, there was $6.6 million of
total unrecognized compensation expense related to unvested
stock options granted under the Companys share-based
compensation plans. That expense is expected to be recognized
over a weighted average period of 2.0 years.
Cash received from option exercises and purchases under the ESPP
for fiscal 2008 was an aggregate of $0.3 million. The
actual tax benefit realized for the tax deduction from option
exercises of stock option awards totaled $0.1 million for
fiscal 2008.
59
CHICOS
FAS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted stock awards as of January 31, 2009 and changes
during fiscal 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Nonvested, beginning of period
|
|
|
504,671
|
|
|
$
|
21.21
|
|
Granted
|
|
|
1,048,928
|
|
|
|
3.87
|
|
Vested
|
|
|
(258,433
|
)
|
|
|
23.00
|
|
Canceled
|
|
|
(183,162
|
)
|
|
|
9.81
|
|
|
|
|
|
|
|
|
|
|
Nonvested, end of period
|
|
|
1,112,004
|
|
|
$
|
6.31
|
|
|
|
|
|
|
|
|
|
|
Total fair value of shares of restricted stock that vested
during fiscal 2008 was $1.0 million. As of January 31,
2009, there was $5.0 million of unrecognized stock-based
compensation expense related to nonvested restricted stock
awards. That cost is expected to be recognized over a weighted
average period of 2.0 years.
For fiscal 2008, 2007 and 2006, stock-based compensation expense
was allocated as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cost of goods sold
|
|
$
|
2,769
|
|
|
$
|
4,909
|
|
|
$
|
6,004
|
|
Selling, general and administrative expenses
|
|
|
9,821
|
|
|
|
12,171
|
|
|
|
15,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense before income taxes
|
|
$
|
12,590
|
|
|
$
|
17,080
|
|
|
$
|
21,241
|
|
Income tax benefit
|
|
|
4,755
|
|
|
|
5,836
|
|
|
|
7,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense after income taxes
|
|
$
|
7,835
|
|
|
$
|
11,244
|
|
|
$
|
13,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Repurchase Programs
In March 2006, the Companys Board of Directors (the
Board) approved the repurchase, over a twelve-month
period ending in March 2007, of up to $100 million of the
Companys outstanding common stock. During fiscal 2006, the
Company repurchased and retired 3,081,104 shares of its
common stock in connection with this stock repurchase program,
which represented the entire $100 million.
In May 2006, the Company announced that its Board had approved
the repurchase of an additional $100 million of the
Companys common stock over the next following twelve
months ending in May 2007. During fiscal 2006, the Company
repurchased and retired an additional 3,591,352 shares of
its common stock in connection with this stock repurchase
program, which represented the entire additional
$100 million.
During fiscal 2008, 2007 and 2006, the Company repurchased and
retired 60,168, 54,282 and 7,090 shares, respectively, of
restricted stock in connection with employee tax withholding
obligations under employee compensation plans, which are not
purchases under any publicly announced plan.
The Company has a 401(k) defined contribution employee benefit
plan (the Plan) covering substantially all employees.
Employees rights to Company-contributed benefits vest
fully upon completing five years of service, with incremental
vesting starting in service year two. Under the Plan, employees
may contribute up to 100 percent of their annual
compensation, subject to certain statutory limitations. The
Company has elected to match employee contributions at
50 percent on the first 6 percent of the
employees contributions and can elect to make additional
contributions over and above the mandatory match. For fiscal
2008, 2007 and 2006, the Companys costs under the Plan
were approximately $2.3 million, $2.4 million, and
$2.1 million, respectively.
60
CHICOS
FAS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In April 2002, the Company adopted the Chicos FAS, Inc.
Deferred Compensation Plan (the Deferred Plan) to provide
supplemental retirement income benefits for a select group of
management employees. Eligible participants may elect to defer
up to 80 percent of their salary and 100 percent of
their bonuses pursuant to the terms and conditions of the
Deferred Plan. The Deferred Plan generally provides for payments
upon retirement, death or termination of employment. In
addition, the Company may make employer contributions to
participants under the Deferred Plan. To date, no Company
contributions have been made under the Deferred Plan. The amount
of the deferred compensation liability payable to the
participants is included in deferred liabilities in
the consolidated balance sheet. A portion of these obligations
are funded through the establishment of trust accounts held by
the Company on behalf of the management group participating in
the plan. The trust accounts are reflected in other
assets in the accompanying consolidated balance sheet.
|
|
13.
|
Quarterly
Results of Operations (Unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
Common and
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Per
|
|
|
Common
|
|
|
|
Net
|
|
|
Gross
|
|
|
Income
|
|
|
Common Share
|
|
|
Equivalent Share
|
|
|
|
Sales
|
|
|
Margin
|
|
|
(Loss)
|
|
|
Basic
|
|
|
Diluted
|
|
|
Fiscal year ended January 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
409,564
|
|
|
$
|
228,802
|
|
|
$
|
12,732
|
|
|
$
|
0.07
|
|
|
$
|
0.07
|
|
Second quarter
|
|
|
405,218
|
|
|
|
213,361
|
|
|
|
6,680
|
|
|
|
0.04
|
|
|
|
0.04
|
|
Third quarter
|
|
|
394,243
|
|
|
|
211,373
|
|
|
|
1,995
|
|
|
|
0.01
|
|
|
|
0.01
|
|
Fourth quarter
|
|
|
373,379
|
|
|
|
165,956
|
|
|
|
(40,544
|
)
|
|
|
(0.23
|
)
|
|
|
(0.23
|
)
|
Fiscal year ended February 2, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
453,088
|
|
|
$
|
279,765
|
|
|
$
|
47,158
|
|
|
$
|
0.27
|
|
|
$
|
0.27
|
|
Second quarter
|
|
|
436,029
|
|
|
|
251,729
|
|
|
|
38,683
|
|
|
|
0.22
|
|
|
|
0.22
|
|
Third quarter
|
|
|
415,913
|
|
|
|
242,464
|
|
|
|
23,570
|
|
|
|
0.13
|
|
|
|
0.13
|
|
Fourth quarter
|
|
|
409,297
|
|
|
|
195,104
|
|
|
|
(20,537
|
)
|
|
|
(0.12
|
)
|
|
|
(0.12
|
)
|
61
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Controls
and Procedures
As of the end of the period covered by this report, an
evaluation was carried out under the supervision and with the
participation of the Companys management, including its
Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Companys
disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities and Exchange Act of 1934, as amended).
Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that, as of the end of such
period, the Companys disclosure controls and procedures
were effective in timely alerting them to material information
relating to the Company (including its consolidated
subsidiaries) required to be included in the Companys
periodic SEC filings. Disclosure controls and procedures
include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the Company
in reports filed under the Exchange Act is accumulated and
communicated to the Companys management, including the
principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely
decisions regarding required disclosure. There were no
significant changes in the Companys internal controls or
in other factors that could significantly affect these controls
subsequent to the date of their evaluation.
There was no change in the Companys internal control over
financial reporting during the Companys fourth fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over
financial reporting.
Managements
Report on Internal Control over Financial
Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in
Rule 13a-15(f)
of the Securities Exchange Act of 1934. Under the supervision
and with the participation of the Companys management,
including its Chief Executive Officer and Chief Financial
Officer, the Company conducted an evaluation of the
effectiveness of the Companys internal control over
financial reporting as of January 31, 2009 as required by
the Securities Exchange Act of 1934
Rule 13a-15(c).
In making this assessment, the Company used the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated
Framework. Based on its evaluation, management concluded
that its internal control over financial reporting was effective
as of January 31, 2009.
No system of controls, no matter how well designed and operated,
can provide absolute assurance that the objectives of the system
of controls are met, and no evaluation of controls can provide
absolute assurance that the system of controls has operated
effectively in all cases. Therefore, even those systems
determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and
presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies and
procedures may deteriorate.
The effectiveness of the Companys internal control over
financial reporting as of January 31, 2009 has been audited
by Ernst & Young LLP, an independent registered
certified public accounting firm, as stated in their report
which appears below.
62
Report of
Independent Registered Certified Public Accounting
Firm
The Board of Directors and Shareholders of Chicos FAS,
Inc.
We have audited Chicos FAS Inc. and
subsidiaries internal control over financial reporting as
of January 31, 2009, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Chicos FAS Inc.s
management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Managements Report on
Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Chicos FAS Inc. and subsidiaries
maintained, in all material respects, effective internal control
over financial reporting as of January 31, 2009, based on
the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
fiscal 2008 consolidated financial statements of Chicos
FAS Inc. and subsidiaries and our report dated
March 26, 2009 expressed an unqualified opinion thereon.
Certified Public Accountants
Tampa, Florida
March 26, 2009
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
63
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Information about directors and nominees for director,
procedures by which security holders may recommend director
nominees, the code of ethics, the audit committee, audit
committee membership and audit committee financial expert of the
Company and Section 16(a) beneficial ownership reporting
compliance in the Companys 2009 Annual Meeting proxy
statement is incorporated herein by reference. Information about
executive officers of the Company is included in Part I of
this Annual Report on
Form 10-K.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
Information about executive compensation and compensation
committee interlocks and the Compensation and Benefits Committee
report in the Companys 2009 Annual Meeting proxy statement
is incorporated herein by reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
The information required by this Item is included in the
Companys 2009 Annual Meeting proxy statement and is
incorporated herein by reference.
Equity
Compensation Plan Information
The following table shows information concerning the
Companys equity compensation plans as of the end of the
fiscal year ended January 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
Number of
|
|
|
|
|
|
Remaining Available
|
|
|
|
Securities to be
|
|
|
|
|
|
for Future Issuance
|
|
|
|
Issued Upon
|
|
|
Weighted-Average
|
|
|
Under Equity
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Compensation Plans
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
(Excluding
|
|
|
|
Options, Warrants
|
|
|
Options, Warrants
|
|
|
Securities
|
|
Plan category
|
|
and Rights
|
|
|
and Rights ($)
|
|
|
Reflected in Column (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved by security holders(1)
|
|
|
7,763,161
|
|
|
$
|
14.10
|
|
|
|
8,239,432
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,763,161
|
|
|
$
|
14.10
|
|
|
|
8,239,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes shares authorized for issuance under the Companys
1993 Stock Option Plan, Independent Directors Plan, and
Amended and Restated 2002 Omnibus Stock and Incentive Plan. |
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The information required by this Item is included in the
Companys 2009 Annual Meeting proxy statement and is
incorporated herein by reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required by this Item is included in the
Companys 2009 Annual Meeting proxy statement and is
incorporated herein by reference.
64
PART IV
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ITEM 15.
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EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
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(a) Documents filed as part of this Report.
(1) The following financial statements are contained in
Item 8:
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Financial Statements
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Page in this Report
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Report of Ernst & Young LLP, independent registered
certified public accounting firm
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37
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Consolidated Balance Sheets as of January 31, 2009 and
February 2, 2008
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38
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Consolidated Statements of Operations for the fiscal years ended
January 31, 2009, February 2, 2008, and
February 3, 2007
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39
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Consolidated Statements of Stockholders Equity for the
fiscal years ended January 31, 2009, February 2, 2008, and
February 3, 2007
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40
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Consolidated Statements of Cash Flows for the fiscal years ended
January 31, 2009, February 2, 2008, and
February 3, 2007
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41
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Notes to Consolidated Financial Statements
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42
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(2) The following Financial Statement Schedules are
included herein:
Schedules are not submitted because they are not applicable or
not required or because the required information is included in
the financial statements or the notes thereto.
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(3)
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The following exhibits are filed as part of this report
(exhibits marked with an asterisk have been previously filed
with the Commission as indicated and are incorporated herein by
this reference):
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3
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.1*
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Articles of Restatement of the Articles of Incorporation,
effective as of June 21, 2005 (Filed as Exhibit 3.1 to
the Companys
Form 8-K
as filed with the Commission on June 24, 2005)
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3
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.2*
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Amended and Restated By-laws of Chicos FAS, Inc. (Filed as
Exhibit 3.2 to the Companys
Form 8-K/A,
as filed with the Commission on May 2, 2006)
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3
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.3*
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Amendment to Amended and Restated By-laws of Chicos FAS
(Filed as Exhibit 3.3 to the Companys
Form 8-K,
as filed with the Commission on December 20, 2007)
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4
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.1*
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Articles of Restatement of the Articles of Incorporation,
effective as of June 21, 2005 (Filed as Exhibit 3.1 to
the Companys
Form 8-K
as filed with the Commission on June 24, 2005)
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4
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.2*
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Amended and Restated By-laws of Chicos FAS, Inc. (Filed as
Exhibit 3.2 to the Companys
Form 8-K/A,
as filed with the Commission on May 2, 2006)
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4
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.3*
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Amendment to Amended and Restated By-laws of Chicos FAS
(Filed as Exhibit 4.3 to the Companys
Form 8-K,
as filed with the Commission on December 20, 2007)
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4
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.4*
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Form of specimen Common Stock Certificate (Filed as
Exhibit 4.9 to the Companys
Form 10-K
for the year ended January 29, 2005, as filed with the
Commission on April 8, 2005)
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10
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.1*
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Employment Agreement between the Company and Scott A. Edmonds,
effective as of September 3, 2003 (Filed as
Exhibit 10.13 to the Companys
Form 10-K
for the year ended January 31, 2004, as filed with the
Commission on April 9, 2004)
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10
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.2*
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Amendment No. 1 to Employment Agreement between the Company
and Scott A. Edmonds, effective as of June 22, 2004 (Filed
as Exhibit 10.1 to the Companys
Form 10-Q
for the quarter ended July 31, 2004, as filed with the
Commission on August 26, 2004)
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10
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.3*
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Amendment No. 2 to Employment Agreement between the Company
and Scott A. Edmonds, dated December 18, 2008 and effective
as of January 1, 2005 (Filed as Exhibit 10.1 to the
Companys
Form 8-K,
as filed with the Commission on December 19, 2008)
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10
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.4*
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Separation letter agreement and release between Chicos
FAS, Inc. and Scott A. Edmonds, dated as of January 7, 2009
(Filed as Exhibit 10.1 to the Companys
Form 8-K,
as filed with the Commission on January 8, 2009)
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65
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10
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.5*
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Employment Agreement for Mori C. MacKenzie (Filed as
Exhibit 10.4 to the Companys
Form 10-Q
for the quarter ended October 1, 1995, as filed with the
Commission on November 13, 1995)
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10
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.6*
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Amendment No. 1 to Employment Agreement between the Company
and Mori C. MacKenzie, effective as of August 21, 2000
(Filed as Exhibit 10.3 to the Companys
Form 10-Q
for the quarter ended October 28, 2000, as filed with the
Commission on December 8, 2000)
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10
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.7*
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Amendment No. 2 to Employment Agreement between the Company
and Mori C. MacKenzie, dated December 18, 2008 and
effective as of January 1, 2005 (Filed as Exhibit 10.3
to the Companys
Form 8-K,
as filed with the Commission on December 19, 2008)
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10
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.8*
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Employment Agreement between the Company and Charles L. Nesbit,
Jr., effective as of August 4, 2004 (Filed as
Exhibit 10.1 to the Companys
Form 10-Q
as filed with the Commission on May 26, 2005)
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10
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.9*
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Amendment No. 1 to Employment Agreement between the Company
and Charles L. Nesbit, Jr., dated December 18, 2008 and
effective as of January 1, 2005 (Filed as Exhibit 10.2
to the Companys Form
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8-K, as
filed with the Commission on December 19, 2008)
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10
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.10*
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Employment letter agreement between the Company and Michele M.
Cloutier, with employment commencing on September 12, 2006
(Filed as Exhibit 10.1 to the Companys
Form 8-K,
as filed with the Commission on September 13, 2006)
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10
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.11*
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Employment letter agreement between the Company and Donna Noce
Colaco, with employment commencing on August 6, 2007 (Filed
as Exhibit 10.1 to the Companys
Form 10-Q
for the quarter ended August 4, 2007, as filed with the
Commission on August 29, 2007)
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10
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.12*
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Employment letter agreement between the Company and Kent A.
Kleeberger, with employment commencing on November 1, 2007
(Filed as Exhibit 10.1 to the Companys
Form 8-K,
as filed with the Commission on October 23, 2007)
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10
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.13*
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Employment letter agreement between the Company and David F.
Dyer, dated as of January 7, 2009 (Filed as
Exhibit 10.2 to the Companys
Form 8-K,
as filed with the Commission on January 8, 2009)
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10
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.14*
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Amendment No. 1 to employment letter agreement between the
Company and David F. Dyer, dated March 5, 2009 (Filed as
Exhibit 10.1 to the Companys
Form 8-K,
as filed with the Commission on March 12, 2009)
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10
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.15*
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Employment letter agreement between the Company and Jeffrey A.
Jones, dated as of February 11, 2009 (Filed as
Exhibit 10.1 to the Companys
Form 8-K,
as filed with the Commission on February 27, 2009)
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10
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.16
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Employment letter agreement between the Company and Cynthia S.
Murray, dated as of January 29, 2009
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10
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.17*
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1993 Stock Option Plan (Filed as Exhibit 10.14 to the
Companys
Form 10-K
for the year ended January 2, 1994, as filed with the
Commission on April 1, 1994)
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10
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.18*
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First Amendment to 1993 Stock Option Plan (Filed as
Exhibit 10.9 to the Companys
Form 10-K
for the year ended January 30, 1999, as filed with the
Commission on April 28, 1999)
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10
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.19*
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Second Amendment to 1993 Stock Option Plan (Filed as
Exhibit 10.21 to the Companys
Form 10-K
for the year ended February 2, 2002, as filed with the
Commission on April 24, 2002)
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10
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.20*
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2002 Omnibus Stock and Incentive Plan (Filed as
Exhibit 10.22 to the Companys
Form 10-K
for the year ended February 2, 2002, as filed with the
Commission on April 24, 2002)
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10
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.21*
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First Amendment to Chicos FAS, Inc. 2002 Omnibus Stock and
Incentive Plan, effective as of June 20, 2006 (Filed as
Exhibit 10.1 to the Companys
Form 8-K,
as filed with the Commission on June 22, 2006)
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10
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.22*
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Amended and Restated 2002 Omnibus Stock and Incentive Plan
(Filed as Exhibit 10.1 to the Companys
Form 8-K,
as filed with the Commission on July 2, 2008)
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10
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.23*
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Form of 2002 Omnibus Stock and Incentive Plan Stock Option
Certificate for Employees (Filed as Exhibit 10.1 to the
Companys
Form 8-K,
as filed with the Commission on February 3, 2005)
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10
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.24*
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Form of 2002 Omnibus Stock and Incentive Plan Stock Option
Certificate for Non-Management Directors (Filed as
Exhibit 10.2 to the Companys
Form 8-K,
as filed with the Commission on February 3, 2005)
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10
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.25*
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Form of 2002 Omnibus Stock and Incentive Plan Restricted Stock
Agreement for Employees (Filed as Exhibit 10.3 to the
Companys
Form 8-K,
as filed with the Commission on February 3, 2005)
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10
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.26*
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Revised Form of 2002 Omnibus Stock and Incentive Plan Restricted
Stock Agreement for Employees (Filed as Exhibit 10.25 to
the Companys
Form 10-K
for the year ended February 2, 2008, as filed with the
Commission on March 28, 2008)
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66
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10
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.27*
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Form of 2002 Omnibus Stock and Incentive Plan Restricted Stock
Agreement for Non-Management Directors (Filed as
Exhibit 10.4 to the Companys
Form 8-K,
as filed with the Commission on February 3, 2005)
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10
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.28
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Revised Form of 2002 Omnibus Stock and Incentive Plan Restricted
Stock Agreement for Non-Management Directors
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10
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.29*
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Chicos FAS, Inc. Amended and Restated 2002 Employee Stock
Purchase Plan (Filed as Exhibit 10.29 to the Companys
Form 10-K,
as filed with the Commission on April 9, 2004)
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10
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.30*
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2005 Cash Bonus Incentive Plan (Filed as Exhibit 10.5 to
the Companys
Form 8-K,
as filed with the Commission on February 3, 2005)
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10
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.31*
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First Amendment to 2005 Cash Bonus Incentive Plan (Filed as
Exhibit 10.1 to the Companys
Form 8-K,
as filed with the Commission on April 5, 2006)
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10
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.32*
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Second Amendment to 2005 Cash Bonus Incentive Plan (Filed as
Exhibit 10.1 to the Companys
Form 8-K,
as filed with the Commission on April 13, 2007)
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10
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.33*
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Chicos FAS, Inc. Executive Severance Plan effective
October 1, 2007 (Filed as Exhibit 10.1 to the
Companys
Form 8-K,
as filed with the Commission on September 27, 2007)
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10
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.34*
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Chicos Amended and Restated Executive Severance Plan
(Filed as Exhibit 10.32 to the Companys
Form 10-K
for the year ended February 2, 2008, as filed with the
Commission on March 28, 2008)
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10
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.35
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Amendment No. 1 to Chicos FAS, Inc. Executive
Severance Plan
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10
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.36*
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Chicos FAS, Inc. Vice President Severance Plan (Filed as
Exhibit 10.32 to the Companys
Form 10-K
for the year ended February 2, 2008, as filed with the
Commission on March 28, 2008)
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10
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.37
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Amendment No. 1 to Chicos FAS, Inc. Vice President
Severance Plan
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10
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.38*
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Participation Agreement with Scott A. Edmonds (Filed as
Exhibit 10.1 to the Companys
Form 8-K,
as filed with the Commission on March 6, 2008)
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10
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.39*
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Participation Agreement with Kent A. Kleeberger (Filed as
Exhibit 10.2 to the Companys
Form 8-K,
as filed with the Commission on March 6, 2008)
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10
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.40*
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Indemnification Agreement with Scott A. Edmonds (Filed as
Exhibit 10.2 to the Companys
Form 10-Q
for the quarter ended July 2, 1995, as filed with the
Commission on August 14, 1995)
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10
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.41*
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Indemnification Agreement with David F. Walker (Filed as
Exhibit 10.1 to the Companys
Form 10-Q
for the quarter ended October 29, 2005, as filed with the
Commission on November 29, 2005)
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10
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.42*
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Indemnification Agreements with Betsy S. Atkins, John W.
Burden, III, Verna K. Gibson, and Ross E. Roeder (Filed as
Exhibits 10.1-10.3
and 10.8 to the Companys
Form 8-K
as filed with the Commission on December 9, 2005)
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10
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.43*
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Indemnification Agreements with Charles L. Nesbit, Jr. and A.
Alexander Rhodes (Filed as
Exhibits 10.1-10.2
to the Companys
Form 8-K
as filed with the Commission on May 2, 2006)
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10
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.44*
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Indemnification Agreements with John J. Mahoney and David F.
Dyer (Filed as
Exhibits 10.1-10.2
to the Companys
Form 8-K
as filed with the Commission on July 25, 2008)
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10
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.45*
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Credit Agreement by and among SunTrust Bank, the Company and the
subsidiaries of the Company dated as of November 24, 2008
(Filed as Exhibit 10.1 to the Companys
Form 8-K
as filed with the Commission on December 1, 2008)
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10
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.46*
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Non-Employee Directors Stock Option Plan (Filed as
Exhibit 10.49 to the Companys
Form 10-K
for the year ended January 30, 1999, as filed with the
Commission on April 28, 1999)
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10
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.47*
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First Amendment to Chicos FAS, Inc. Non-Employee Directors
Stock Option Plan (Filed as Exhibit 10.51 to the
Companys
Form 10-K
for the year ended January 29, 2000, as filed with the
Commission on April 25, 2000)
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10
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.48*
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Chicos FAS, Inc. Deferred Compensation Plan effective
April 1, 2002 (Filed as Exhibit 10.53 to the
Companys
Form 10-K
for the year ended February 2, 2002, as filed with the
Commission on April 24, 2002)
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10
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.49*
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Chicos FAS, Inc. 2005 Deferred Compensation Plan effective
January 1, 2005 (amended and restated January 1, 2008)
(Filed as Exhibit 10.1 to the Companys
Form 10-Q
for the quarter ended November 1, 2008, as filed with the
Commission on December 9, 2008)
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67
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10
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.50*
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Lease Agreement between Joint Development Authority of
Winder-Barrow County and Chicos Real Estate, LLC dated as
of March 25, 2002 (Filed as Exhibit 10.54 to the
Companys
Form 10-K
for the year ended February 2, 2002, as filed with the
Commission on April 24, 2002)
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10
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.51*
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Letter Agreement by and among Chicos FAS, Inc. and
Spotlight Capital Partners, L.P. and its affiliates, effective
February 24, 2009 (Filed as Exhibit 10.1 to the
Companys
Form 8-K
as filed with the Commission on February 25, 2009)
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21
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Subsidiaries of the Registrant
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23
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Consent of Ernst & Young LLP
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31
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.1
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Chicos FAS, Inc. and Subsidiaries Certification Pursuant
to Section 302 of the Sarbanes-Oxley Act of
2002 Chief Executive Officer
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31
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.2
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Chicos FAS, Inc. and Subsidiaries Certification Pursuant
to Section 302 of the Sarbanes-Oxley Act of
2002 Chief Financial Officer
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32
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.1
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Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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32
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.2
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Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Chicos Fas, Inc.
David F. Dyer
President, Chief Executive Officer and Director
Date: March 27, 2009
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.
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Signature
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Title
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Date
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/s/ David
F. Dyer
David
F. Dyer
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President, Chief Executive Officer, and Director (Principal
Executive Officer)
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March 27, 2009
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/s/ Kent
A. Kleeberger
Kent
A. Kleeberger
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Executive Vice President Finance,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
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March 27, 2009
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/s/ Ross
E. Roeder
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