As filed with the Securities and Exchange Commission on January 23, 2004
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED DECEMBER 27, 2003
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
COMMISSION FILE NUMBER 0-27677
CHARLOTTE RUSSE HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
| DELAWARE | 33-0724325 | |
| (State or Other Jurisdiction of Incorporation) | (I.R.S. Employer Identification No.) |
4645 MORENA BOULEVARD
SAN DIEGO, CA 92117
(Address, including Zip Code, of Registrant’s Principal Executive Offices)
(858) 587-1500
(Registrant’s Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Each Class)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark if the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act): Yes x No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
The number of shares of common stock outstanding as of January 21, 2004 was approximately 21,508,000.
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | ||||
| Page | ||||
| ITEM 1. |
CONSOLIDATED FINANCIAL STATEMENTS |
|||
| Consolidated Balance Sheets as of December 27, 2003 (unaudited) and September 27, 2003 (audited) |
2 | |||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
8 | ||
| ITEM 3. |
12 | |||
| ITEM 4. |
12 | |||
| PART II. OTHER INFORMATION | ||||
| ITEM 1. |
13 | |||
| ITEM 2. |
13 | |||
| ITEM 3. |
13 | |||
| ITEM 4. |
13 | |||
| ITEM 5. |
13 | |||
| ITEM 6. |
14 | |||
1
CONSOLIDATED BALANCE SHEETS
| December 27, 2003 |
September 27, 2003 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 39,906,387 | $ | 22,967,317 | ||||
| Inventories |
34,210,248 | 34,506,912 | ||||||
| Other current assets |
4,703,179 | 5,410,123 | ||||||
| Deferred tax assets |
5,300,000 | 5,300,000 | ||||||
| Total current assets |
84,119,814 | 68,184,352 | ||||||
| Fixed assets, net |
102,950,109 | 100,018,536 | ||||||
| Goodwill |
28,790,000 | 28,790,000 | ||||||
| Other assets |
1,315,831 | 1,371,894 | ||||||
| Total assets |
$ | 217,175,754 | $ | 198,364,782 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable, trade |
$ | 19,976,997 | $ | 20,928,264 | ||||
| Accounts payable, other |
5,383,317 | 6,457,132 | ||||||
| Accrued payroll and related expense |
5,922,947 | 2,526,756 | ||||||
| Income and sales taxes payable |
7,259,817 | 2,320,337 | ||||||
| Other current liabilities |
14,215,779 | 9,886,267 | ||||||
| Total current liabilities |
52,758,857 | 42,118,756 | ||||||
| Deferred rent |
10,338,604 | 9,946,860 | ||||||
| Other liabilities |
317,777 | 312,777 | ||||||
| Deferred tax liabilities |
5,600,000 | 5,600,000 | ||||||
| Total liabilities |
69,015,238 | 57,978,393 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred Stock $0.01 par value, 3,000,000 shares authorized, none issued and outstanding |
— | — | ||||||
| Common Stock $0.01 par value, 100,000,000 shares authorized, issued and outstanding shares – 21,496,882 and 21,290,182 at December 27, 2003 and September 27, 2003, respectively |
214,969 | 212,902 | ||||||
| Additional paid-in capital |
45,673,871 | 44,498,540 | ||||||
| Deferred compensation |
(36,000 | ) | (63,000 | ) | ||||
| Retained earnings |
102,307,676 | 95,737,947 | ||||||
| Total stockholders’ equity |
148,160,516 | 140,386,389 | ||||||
| Total liabilities and stockholders’ equity |
$ | 217,175,754 | $ | 198,364,782 | ||||
See accompanying notes.
2
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| Three Months Ended |
||||||||
| December 27, 2003 |
December 28, 2002 |
|||||||
| Net sales |
$ | 149,290,638 | $ | 133,328,636 | ||||
| Cost of goods sold, including buying, distribution and occupancy costs |
110,116,571 | 96,736,973 | ||||||
| Gross profit |
39,174,067 | 36,591,663 | ||||||
| Selling, general and administrative expenses |
28,365,840 | 24,332,307 | ||||||
| Operating income |
10,808,227 | 12,259,356 | ||||||
| Other income (expense): |
||||||||
| Interest income, net |
37,457 | 8,807 | ||||||
| Other charges, net |
(75,636 | ) | (62,499 | ) | ||||
| Total other expense |
(38,179 | ) | (53,692 | ) | ||||
| Income before income taxes |
10,770,048 | 12,205,664 | ||||||
| Income taxes |
4,200,319 | 4,760,209 | ||||||
| Net income |
$ | 6,569,729 | $ | 7,445,455 | ||||
| Earnings per share: |
||||||||
| Basic |
$0.31 | $0.35 | ||||||
| Diluted |
$0.28 | $0.32 | ||||||
| Weighted average shares outstanding: |
||||||||
| Basic |
21,364,041 | 21,215,219 | ||||||
| Diluted |
23,752,905 | 23,513,112 | ||||||
See accompanying notes.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended |
||||||||
| December 27, 2003 |
December 28, 2002 |
|||||||
| Operating Activities |
||||||||
| Net income |
$ | 6,569,729 | $ | 7,445,455 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
4,678,255 | 3,900,720 | ||||||
| Deferred rent |
391,744 | 509,745 | ||||||
| Amortization of deferred compensation |
27,000 | 27,000 | ||||||
| Loss on disposal of assets |
78,533 | 163,660 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Inventories |
296,664 | 8,140,697 | ||||||
| Other current assets |
706,944 | (1,858,030 | ) | |||||
| Accounts payable, trade |
(951,267 | ) | (5,047,602 | ) | ||||
| Accounts payable, other |
(1,073,815 | ) | (1,585,050 | ) | ||||
| Accrued payroll and related expense |
3,396,191 | 1,987,514 | ||||||
| Income and sales taxes payable |
5,139,711 | 6,216,162 | ||||||
| Other current liabilities |
4,329,512 | 3,816,268 | ||||||
| Other liabilities |
5,000 | 15,000 | ||||||
| Net cash provided by operating activities |
23,594,201 | 23,731,539 | ||||||
| Investing Activities |
||||||||
| Purchases of fixed assets |
(7,666,230 | ) | (4,468,682 | ) | ||||
| Other assets |
33,932 | 59,238 | ||||||
| Net cash used in investing activities |
(7,632,298 | ) | (4,409,444 | ) | ||||
| Financing Activities |
||||||||
| Proceeds from issuance of common stock |
977,167 | 32,500 | ||||||
| Net cash provided by financing activities |
977,167 | 32,500 | ||||||
| Net increase in cash and cash equivalents |
16,939,070 | 19,354,595 | ||||||
| Cash and cash equivalents at beginning of the period |
22,967,317 | 13,553,480 | ||||||
| Cash and cash equivalents at end of the period |
$ | 39,906,387 | $ | 32,908,075 | ||||
See accompanying notes.
4
Notes to Consolidated Financial Statements
(Unaudited)
1. Interim Financial Statements
The accompanying unaudited consolidated financial statements of Charlotte Russe Holding, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying unaudited financial statements contain all material adjustments, consisting of normal recurring accruals, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods indicated, and have been prepared in a manner consistent with the audited financial statements for the fiscal year ended September 27, 2003.
Due to the seasonal nature of the Company’s business, the results of operations for the three month period ended December 27, 2003 are not necessarily indicative of the results of a full fiscal year.
These financial statements should be read in conjunction with the audited financial statements and the footnotes for the fiscal year ended September 27, 2003 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 19, 2003.
2. Stock Based Compensation
The Company accounts for the issuance of stock option grants in accordance with Accounting Principles Board Opinion (APB) No. 25 and related interpretations in accounting for stock options. SFAS No. 123, “Accounting for Stock-Based Compensation,” encourages, but does not require the Company to record compensation cost for stock-based employee compensation plans at fair value. The Company has adopted the disclosure-only provision of Statement of Financial Accounting Standards (“SFAS”) No. 123. Accordingly, compensation expense has only been recognized for stock options granted to employees when the exercise price was below fair market value on the date of grant. Had compensation expense been recorded for options granted in the three months ended December 27, 2003 and December 28, 2002 using the fair value method under SFAS No. 123, the Company’s net income and basic and diluted earnings per share would have been decreased to the following proforma amounts:
| Three Months Ended | ||||||
| December 27, 2003 |
December 28, 2002 | |||||
| Net income as reported |
$ | 6,569,729 | $ | 7,445,455 | ||
| SFAS 123 expense |
268,400 | 275,110 | ||||
| Pro forma net income |
$ | 6,301,329 | $ | 7,170,345 | ||
| Net income per share basic as reported |
$0.31 | $0.35 | ||||
| Pro forma |
$0.29 | $0.34 | ||||
| Net income per share diluted as reported |
$0.28 | $0.32 | ||||
| Pro forma |
$0.27 | $0.30 | ||||
5
CHARLOTTE RUSSE HOLDING, INC.
Notes to Consolidated Financial Statements
(Unaudited)
2. Stock Based Compensation — Continued
Pro forma information regarding net income is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. For options granted through October 18, 1999, the fair value of options granted were estimated at the date of grant using the minimum value option pricing model. Following the Company’s initial public offering, the fair value of the options granted was estimated at the date of grant using the Black-Scholes option-pricing model. The following weighted average assumptions were used for those periods:
| Three Months Ended |
||||||
| December 27, 2003 |
December 28, 2002 |
|||||
| Risk free interest rate |
3.20 | % | 2.75 | % | ||
| Dividend yield |
0 | % | 0 | % | ||
| Expected volatility |
66 | % | 65 | % | ||
| Weighted average expected life |
4 years | 4 years | ||||
The minimum value option-pricing model is similar to the Black-Scholes option-pricing model except that it excludes the factor of volatility. In addition, option valuation models require the input of highly subjective assumptions. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
3. Net Income Per Common Share
Basic earnings per share is calculated based on the weighted average outstanding common shares. Diluted earnings per share is calculated based on the weighted average outstanding shares and potentially dilutive stock options and warrants. In accordance with Statement of Financial Accounting Standards No. 128, “Earnings Per Share,” the following table reconciles income and share amounts utilized to calculate basic and diluted net income per common share.
| Three Months Ended |
||||||||
| December 27, 2003 |
December 28, 2002 |
|||||||
| Net income |
$ | 6,569,729 | ||||||