SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended May 2, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ___________ to _____
Commission file number 0-23071
THE CHILDREN'S PLACE RETAIL STORES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 31-1241495
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
ONE DODGE DRIVE
WEST CALDWELL, NEW JERSEY 07006
(Address of Principal Executive Offices) (Zip Code)
(973) 227-8900
(Registrant's Telephone Number, Including Area Code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $0.10 per share, outstanding at June 1, 1998:
24, 768,083 shares
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MAY 2, 1998
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements: Page
Balance Sheets...................................... 1
Statements of Income................................ 2
Statement of Cash Flows............................. 3
Notes to Financial Statements....................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 6
Item 3. Quantitative and Qualitative Disclosures about
Market Risk......................................... 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................... 9
Item 6. Exhibits and Reports on Form 8-K.................... 10
Signatures................................................... 11
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE CHILDREN'S PLACE RETAIL STORES, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MAY 2, 1998 JANUARY 31, 1998
----------- ----------------
ASSETS (UNAUDITED)
Current assets:
<S> <C> <C>
Cash and cash equivalents.............................................. $3,570 $887
Accounts receivable.................................................... 2,940 1,904
Inventories............................................................ 17,977 20,334
Prepaid expenses and other current assets.............................. 5,262 4,612
Deferred income taxes.................................................. 10,653 10,653
--------------- --------------
Total current assets............................................... 40,402 38,390
Property and equipment, net................................................ 35,407 32,121
Deferred income taxes...................................................... 6,533 8,244
Other assets............................................................... 680 598
--------------- --------------
Total assets....................................................... $83,022 $79,353
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities:
Revolving credit facility.............................................. $0 $1,089
Current maturities of obligations under capital leases................. 18 24
Accounts payable....................................................... 9,186 9,471
Accrued expenses, interest and other current liabilities............... 9,522 7,568
--------------- ---------------
Total current liabilities.......................................... 18,726 18,152
Other long-term liabilities................................................ 2,835 2,734
--------------- ---------------
Total liabilities.................................................. 21,561 20,886
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value; 100,000,000 shares authorized;
24,712,195 shares and 24,622,103 shares issued and outstanding,
at May 2, 1998 and January 31, 1998, respectively.......................... 2,471 2,462
Additional paid-in capital................................................. 82,832 82,589
Accumulated deficit........................................................ (23,842) (26,584)
--------------- ----------------
Total stockholders' equity......................................... 61,461 58,467
--------------- ----------------
Total liabilities and stockholders' equity $83,022 $79,353
=============== ================
The accompanying notes to financial statements are an integral part
of these balance sheets.
</TABLE>
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THIRTEEN WEEKS ENDED
--------------------
MAY 2, 1998 MAY 3, 1997
----------- -----------
<S> <C> <C>
Net sales........................................................... $55,999 $39,203
Cost of sales....................................................... 33,866 25,185
----------- --------
Gross profit........................................................ 22,133 14,018
Selling, general and administrative expenses........................ 14,678 9,695
Pre-opening costs................................................... 1,110 472
Depreciation and amortization....................................... 1,663 1,233
-------------- ---------
Operating income.................................................... 4,682 2,618
Interest expense, net............................................... 59 828
Other expense, net.................................................. 0 101
------------- ----------
Income before income taxes.......................................... 4,623 1,689
Provision for income taxes.......................................... 1,881 678
------------- ----------
Net income.......................................................... $2,742 $1,011
============= ==========
Basic net income per common share................................. $0.11 $0.05
Basic weighted average common shares outstanding.................. 24,660 20,421
Diluted net income per common share............................... $0.11 $0.04
Diluted weighted average common shares outstanding................ 25,605 23,804
The accompanying notes to financial statements are an integral part
of these statements.
</TABLE>
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THIRTEEN WEEKS ENDED
--------------------
MAY 2, 1998 MAY 3, 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income.................................................... $2,742 $1,011
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization........................... 1,663 1,233
Deferred financing fee amortization..................... 6 152
Loss on disposals of property and equipment............. 216 10
Deferred taxes.......................................... 1,711 578
Changes in operating assets and liabilities:
Accounts receivable..................................... (1,036) (655)
Inventories............................................. 2,357 (404)
Prepaid expenses and other current assets............... (650) (441)
Other assets............................................ (135) (124)
Accounts payable........................................ (285) (155)
Accrued expenses, interest and other current liabilities 1,985 157
---------------- -----------
Total adjustments..................................... 5,832 351
---------------- -----------
Net cash provided by operating activities..................... 8,574 1,362
---------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment purchases.............................. (5,048) (4,343)
---------------- -------------
Net cash used in investing activities (5,048) (4,343)
---------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options and employee stock purchases........ 252 0
Borrowings under revolving credit facility.................... 11,634 40,946
Repayments under revolving credit facility.................... (12,723) (40,287)
Repayment of long-term debt................................... 0 (150)
Payment of obligations under capital leases................... (6) (185)
----------------- -------------
Net cash (used in) provided by financing activities........... (843) 324
----------------- -------------
Net increase (decrease) in cash and cash equivalents....... 2,683 (2,657)
Cash and cash equivalents, beginning of period............. 887 3,422
----------------- --------------
Cash and cash equivalents, end of period.................. $3,570 $765
================= ==============
OTHER CASH FLOW INFORMATION:
Cash paid during the period for interest...................... $70 $669
Cash paid during the period for income taxes.................. 172 450
The accompanying notes to financial statements are an integral part
of these statements.
</TABLE>
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Certain information and footnote disclosures required by generally
accepted accounting principles 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 flow for the periods indicated, and
have been prepared in a manner consistent with the audited financial statements
as of January 31, 1998. These financial statements should be read in conjunction
with the audited financial statements and footnotes for the fiscal year ended
January 31, 1998 included in the Company's Form 10-K filed with the Securities
and Exchange Commission. Due to the seasonal nature of the Company's business,
the results of operations for the thirteen weeks ended May 2, 1998 are not
necessarily indicative of operating results for a full fiscal year.
2. INITIAL PUBLIC OFFERING
On September 18, 1997, the Company sold 4,000,000 shares of Common
Stock at $14.00 per share in an initial public offering (the "Offering")
pursuant to a registration statement filed on Form S-1 (No. 333-31535) with the
Securities and Exchange Commission and in its prospectus dated September 18,
1997 (the "Prospectus"). The Company used the net proceeds of $50.7 million,
after deducting the underwriters' discount of $3.9 million and estimated
transaction expenses of $1.4 million from the Offering, to (i) pay the
principal amount of, and accrued interest on, the Senior Subordinated Notes (the
"Senior Subordinated Notes") held by Nomura Holding America Inc., (the
"Noteholder") of $20.6 million, (ii) repurchase a warrant held by Nomura Holding
America Inc. (the "Noteholder Warrant") for $20.6 million, (iii) repurchase
two-thirds of a warrant held by Legg Mason Wood Walker Inc. (the "Legg Mason
Warrant") for $5.2 million, and (iv) reduce borrowings outstanding under the
Company's revolving credit facility (the "Foothill Credit Facility") with the
remainder of the net proceeds. The Senior Subordinated Notes, the Noteholder
Warrant and the Legg Mason Warrant were issued in conjunction with a 1996
recapitalization of the Company.
Concurrent with the Offering, the Company effected a 120-for-one stock
split of the Series A Common Stock (the "Stock Split"), converted all
outstanding shares of the Series B Common Stock into 7,659,889 shares of Series
A Common Stock (the "Series B Conversion") and redesignated the Series A Common
Stock as Common Stock (the "Reclassification"). The Company also issued 201,414
shares of Common Stock upon the exercise of one-third of the Legg Mason Warrant.
3. NET INCOME PER COMMON SHARE
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.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
--------------------
MAY 2, 1998 MAY 3, 1997
----------- ----------
<S> <C> <C>
Net income.............................................. $2,742 $1,011
====== ======
Weighted average common shares outstanding - Basic...... 24,660,493 20,420,689
Incremental shares from assumed conversions of options.. 944,322 3,383,496
----------- -----------
Weighted average common shares outstanding - Diluted..... 25,604,815 23,804,185
============ ==========
</TABLE>
4. LITIGATION
CLASS ACTION SUITS
On October 16, 1997, Stephen Brosious and Rudy Pallastrone, who
allegedly purchased shares of the Company's common stock in or after an initial
public offering on or about September 19, 1997 (the "IPO"), filed a lawsuit
against the Company, several of the Company's directors and officers, and the
underwriters of the IPO (the "Defendants") in the United States District Court
for the District of New Jersey (the "Court"). The named plaintiffs purport to
maintain a class action on behalf of all persons, other than the Defendants, who
purchased the Company's common stock issued in connection with the IPO on or
about September 19, 1997 through October 13, 1997. The complaint alleges that
the Defendants violated federal securities laws by making materially false or
misleading statements and/or omissions in connection with the IPO. The
plaintiffs seek monetary damages of an unspecified amount, rescission or
rescissory damages and fees and costs. Since October 16, 1997, fifteen
additional putative class actions making substantially similar allegations and
seeking substantially similar relief have been filed against some or all of the
Defendants. On January 13, 1998, the sixteen putative class actions were
consolidated in the Court and on February 26, 1998 the plaintiffs served and
filed their amended consolidated complaint. No discovery has been taken. The
Company has filed a motion to dismiss this complaint which is currently pending
before the Court. The Company believes that the allegations made in this
complaint are untrue and totally without merit and intends to defend this action
vigorously.
On October 27, 1997, Bulldog Capital Management, L.P., a limited
partnership that serves as a general partner for a series of investment funds
which allegedly purchased shares of the Company's common stock issued in
connection with the IPO, also filed a lawsuit against the Company and several of
the Company's directors and officers in the Superior Court of New Jersey, Essex
County Division. The complaint alleges that by making materially false or
misleading statements and/or omissions in connection with the IPO, the Company
and several of the Company's directors and officers violated provisions of
federal and state law. The plaintiff seeks monetary damages of an unspecified
amount, rescission or rescissory damages and fees and costs. On November 20,
1997, the plaintiff filed its first request for production of documents from the
defendants. No discovery has been taken. This action is presently stayed,
pending resolution of the defendant's motion to dismiss in the federal lawsuit
described above. The Company believes that the allegations made in this
complaint are untrue and totally without merit and intends to defend this action
vigorously.
OTHER LITIGATION
The Company is also involved in various legal proceedings arising in
the normal course of its business. In the opinion of management, any ultimate
liability arising out of such proceedings will not have a material adverse
effect on the Company's financial position or results of operations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF FEDERAL SECURITIES LAWS, WHICH ARE INTENDED TO BE COVERED
BY THE SAFE HARBORS CREATED THEREBY. THOSE STATEMENTS INCLUDE, BUT MAY NOT BE
LIMITED TO, THE DISCUSSIONS OF THE COMPANY'S OPERATING AND GROWTH STRATEGY.
INVESTORS ARE CAUTIONED THAT ALL FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND
UNCERTAINTIES INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH UNDER THE CAPTION
"RISK FACTORS" IN THE BUSINESS SECTION OF THE COMPANY'S ANNUAL REPORT ON FORM
10-K FOR THE YEAR ENDED JANUARY 31, 1998. ALTHOUGH THE COMPANY BELIEVES THAT THE
ASSUMPTIONS UNDERLYING THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE
REASONABLE, ANY OF THE ASSUMPTIONS COULD PROVE TO BE INACCURATE, AND THEREFORE,
THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
QUARTERLY REPORT ON FORM 10-Q WILL PROVE TO BE ACCURATE. IN LIGHT OF THE
SIGNIFICANT UNCERTAINTIES INHERENT IN THE FORWARD-LOOKING STATEMENTS INCLUDED
HEREIN, THE INCLUSION OF SUCH INFORMATION SHOULD NOT BE REGARDED AS A
REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES AND PLANS
OF THE COMPANY WILL BE ACHIEVED. THE COMPANY UNDERTAKES NO OBLIGATION TO
PUBLICLY RELEASE ANY REVISIONS TO ANY FORWARD-LOOKING STATEMENTS CONTAINED
HEREIN TO REFLECT EVENTS AND CIRCUMSTANCES OCCURRING AFTER THE DATE HEREOF OR TO
REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN
THIS QUARTERLY REPORT ON FORM 10-Q AND THE ANNUAL AUDITED FINANCIAL STATEMENTS
AND NOTES THERETO INCLUDED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED JANUARY 31,1998 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
The following table sets forth, for the periods indicated, selected
income statement data expressed as a percentage of net sales:
THIRTEEN WEEKS ENDED
--------------------
MAY 2, 1998 MAY 3, 1997
----------- -----------
<S> <C> <C>
Net sales................................................. 100.0% 100.0%
Cost of sales............................................. 60.5 64.2
------ ------
Gross profit.............................................. 39.5 35.8
Selling, general and administrative expenses.............. 26.2 24.7
Pre-opening costs......................................... 2.0 1.2
Depreciation and amortization............................. 3.0 3.2
--- ---
Operating income.......................................... 8.3 6.7
Interest expense, net..................................... 0.1 2.1
Other expense, net........................................ -- 0.3
----- ------
Income before income taxes................................ 8.2 4.3
Provision for income taxes................................ 3.3 1.7
----- ------
Net income................................................ 4.9% 2.6%
======= ========
Number of stores, end of period........................... 178 119
</TABLE>
THIRTEEN WEEKS ENDED MAY 2, 1998 COMPARED TO THIRTEEN WEEKS ENDED MAY 3, 1997
Net sales increased by $16.8 million, or 43%, to $56.0 million during
the thirteen weeks ended May 2, 1998 (the "First Quarter 1998") from $39.2
million during the thirteen weeks ended May 3, 1997 (the "First Quarter 1997").
Net sales for the 23 new stores opened during the First Quarter 1998, as well as
the stores opened and remodeled during fiscal 1997 and fiscal 1998 that did not
qualify as comparable stores, contributed $14.5 million of the sales increase.
During the First Quarter 1998, the Company opened stores in several new markets,
including its first stores in Atlanta, St. Louis and Kansas City. As of May 2,
1998, the Company operated 178 stores in 24 states, primarily located in
regional shopping malls in the eastern half of the United States. During the
remainder of fiscal 1998, the Company plans to open approximately 27 new stores
in its existing markets and in adjacent states.
The Company's comparable store sales increased 7% and contributed $2.3
million of the net sales increase during the First Quarter 1998. Comparable
store sales increased 5% during the First Quarter 1997. The Company's First
Quarter 1998 comparable store sales increase was attributable to strong customer
acceptance of the merchandise, led by the growth of the newborn department.
Gross profit increased by $8.1 million to $22.1 million during the
First Quarter 1998 from $14.0 million during the First Quarter 1997. As a
percentage of net sales, gross profit increased to 39.5% during the First
Quarter 1998 from 35.8% during the First Quarter 1997. The increase in gross
profit as a percentage of net sales was principally due to higher initial
markups achieved through more effective product sourcing and lower markdowns due
to the strong customer acceptance of the Company's merchandise. As a percentage
of net sales, gross profit was also favorably impacted by the leveraging of
buying and distribution expenses partially offset by increased store occupancy
costs from new stores with higher rents that have not been open long enough to
leverage their rent through an established sales base.
Selling, general and administrative expenses increased $5.0 million to
$14.7 million during the First Quarter 1998 from $9.7 million during the First
Quarter 1997. As a percentage of net sales, selling, general and administrative
expenses increased to 26.2% during the First Quarter 1998 from 24.7% during the
First Quarter 1997. The increase as a percentage of net sales was primarily due
to an increase in the executive and store operations management personnel of the
Company and increased marketing and legal fees, partially offset by the
leveraging of other corporate administrative functions. In addition, store
expenses as a percentage of net sales were also unfavorably impacted by new
stores which have not been open long enough to leverage their expenses through
an established sales base.
During the First Quarter 1998, pre-opening costs were $1.1 million, or
2.0% of net sales, as compared to $0.5 million, or 1.2% of net sales, during the
First Quarter 1997. The increase in pre-opening costs in the First Quarter 1998
reflected the opening of 23 stores and costs incurred for future store openings
as compared to the opening of 11 stores during the First Quarter 1997.
Depreciation and amortization amounted to $1.7 million, or 3.0% of net
sales, during the First Quarter 1998 as compared to $1.2 million, or 3.2% of net
sales, during the First Quarter 1997. The increase in depreciation and
amortization primarily was a result of the increase in the store base.
Interest expense, net, for the First Quarter 1998 was $0.1 million, or
0.1% of net sales, as compared to $0.8 million, or 2.1% of net sales, during the
First Quarter 1997. The decrease in interest expense was primarily due to the
elimination of interest expense on the Senior Subordinated Notes which were
repaid with a portion of the proceeds from the Company's initial public offering
in September 1997.
The Company had no other expense, net, during the First Quarter 1998.
Other expense, net, for the First Quarter 1997 amounted to $0.1 million, or 0.3%
of net sales, and represented anniversary fees under the Foothill Credit
Facility.
The Company recorded income before income taxes of $4.6 million during
the First Quarter 1998 as compared with $1.7 million in the comparable prior
year period. As a percentage of net sales, the Company's income before income
taxes increased to 8.2% during the First Quarter 1998 from 4.3% during the First
Quarter 1997 due to the factors discussed above.
The Company's provision for income taxes for the First Quarter 1998
was $1.9 million, or 3.3% of net sales, as compared with a provision for income
taxes for the First Quarter 1997 of $0.7 million or 1.7% of net sales. Due to
the Company's utilization of its net operating loss ("NOL") carry forwards, the
majority of the Company's tax provision will not be paid in cash, but will
reduce the deferred tax asset on the balance sheet. However, the Company expects
to make cash tax payments for the federal alternative minimum tax, state minimum
taxes and state taxes where the Company is not in an NOL status.
The Company had net income of $2.7 million, or 4.9% of net sales, and
$1.0 million, or 2.6% of net sales, in the First Quarter 1998 and the First
Quarter 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
DEBT SERVICE/LIQUIDITY
The Company's primary uses of cash are to finance new store openings
and provide for working capital, which primarily represents the purchase of
inventory. Since the Offering, the Company has had no long-term debt obligations
other than obligations under capital leases. During the First Quarter 1998, the
Company has been able to meet its cash needs primarily through cash flows from
operations.
As of May 2, 1998, the Company had no borrowings under the Foothill
Credit Facility and had outstanding letters of credit of $6.5 million.
Availability under the Foothill Credit Facility as of May 2, 1998 was $17.2
million. During the First Quarter 1998, the interest rates charged under the
Foothill Credit Facility for reference rate borrowings were 8.5% per annum and
LIBOR borrowings bore interest at 7.188% per annum.
As of May 2, 1998, the Company was in compliance with all of its
covenants under the Foothill Credit Facility. Management believes that the
Company will be able to comply with the financial covenants contained in the
facility and does not believe that compliance with these covenants will
interfere with its business or the implementation of its growth strategy.
CASH FLOWS/CAPITAL EXPENDITURES
Cash flows provided by operating activities were $8.6 million and $1.4
million during the First Quarter 1998 and First Quarter 1997, respectively. In
the First Quarter 1998, cash flows from operating activities increased as a
result of an increase in operating earnings, the sell through of inventory, the
utilization of the Company's net operating loss carry forwards and increases in
current liabilities.
Cash flows used in investing activities were $5.0 million and $4.3
million in the First Quarter 1998 and the First Quarter 1997, respectively.
During the First Quarter 1998 and the First Quarter 1997, cash flows used in
investing activities related primarily to new store openings and remodelings. In
the First Quarter 1998 and the First Quarter 1997, the Company opened 23 and 11
stores and remodeled 2 and 3 stores, respectively. Management anticipates
that total capital expenditures during fiscal 1998 will approximate $22 million.
These expenditures, which primarily relate to the opening of approximately 50
stores and store remodelings, also include ongoing store maintenance programs,
computer and warehouse equipment and capital expenditures related to the
relocation of the distribution center and corporate headquarters facility.
Management plans to fund these capital expenditures primarily from cash flow
from operations.
Cash flows (used in) provided by financing activities were $(0.8) and
$0.3 million in the First Quarter 1998 and the First Quarter 1997, respectively.
During the First Quarter 1998, cash flows used in financing activities reflected
the repayment of borrowings outstanding under the Foothill Credit Facility,
partially offset by funds received from the exercise of employee stock options
and employee stock purchases. During the First Quarter 1997, cash flows provided
by financing activities reflected net borrowings under the Foothill Credit
Facility partially offset by the payment of debt obligations.
The Company's lease for its current distribution center and corporate
headquarters facility is scheduled to expire in March 1999. The Company has
located a site in northern New Jersey for its distribution center and corporate
headquarters facility and is currently in lease negotiations. The Company
anticipates entering into a lease during the second quarter of fiscal 1998 and
expects to move its distribution and corporate headquarters facility during the
first quarter of fiscal 1999.
The Company believes that its current financing arrangements under the
Foothill Credit Facility and its anticipated level of internally generated funds
will be adequate to fund its capital requirements for at least the next 18 to 24
months. The Company's ability to meet these capital requirements, will depend on
its ability to generate cash from operations and successfully implement its
store expansion plans.
YEAR 2000 COMPLIANCE
Although the Company has upgraded certain computer software for Year
2000 compliance, the Company continues to assess the impact of the Year 2000 on
its systems and operations and the costs and programming efforts required to
fully address this issue. Any disruptions of its operations, whether caused by
the Company's computer systems or those of its manufacturers, suppliers and
financial institutions, could have a material adverse effect on the Company's
financial position or results of operation.
The Company continues to utilize its existing management information
systems staff to modify existing computer systems and applications to ensure its
systems are Year 2000 compliant. Management expects its computer systems to be
Year 2000 compliant by the second quarter of 1999. However, there can be no
assurances that the Company will not experience significant cost overruns in
connection with upgrading software or the program changes required to address
this issue.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
(Not applicable)
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Part I, Item 3 in the Company's Annual Report on
Form 10-K for certain class action suit information.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT NO. DESCRIPTION OF DOCUMENT
10.1 Service Agreement, between the Company and AST StockPlan,
Inc. dated June 8, 1998.
11.1 Statement re: computation of per share earnings.
27.1 Financial Data Schedule
(B) REPORTS ON FORM 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE CHILDREN'S PLACE
RETAIL STORES, INC.
Date: June 12, 1998
By: /s/ Ezra Dabah
-----------------
Ezra Dabah
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Date: June 12, 1998 By: /s/ Seth L. Udasin
--------------------
Seth L. Udasin
Vice President &
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.1 Service Agreement, between the Company
and AST StockPlan, Inc. dated June 8, 1998.
11.1 Statement re: computation of per share earnings.
27 Financial Data Schedule.
EXHIBIT 10.1
THE CHILDREN'S PLACE RETAIL STORES, INC.
SERVICE AGREEMENT, BETWEEN THE
COMPANY AND AST STOCKPLAN, INC.
JUNE 8, 1998
<PAGE>
SERVICE AGREEMENT
This SERVICE AGREEMENT ("Agreement") is entered into, as of June 8,
1998, between The Children's Place Retail Stores, Inc. ("the Company") a
corporation, having its principal place of business at One Dodge Drive, West
Caldwell, New Jersey 07006, and AST StockPlan, Inc., ("StockPlan"), a Delaware
corporation, having its principal place of business at 250 Broadway, New York,
New York, 10007. This Agreement is subject to the Company successfully
terminating the Employee Stock Purchase Plan Servicing Agreement and Corporate
Stock Ownership Agreement with Merrill Lynch.
1. STOCKPLAN SERVICE OBLIGATION
A. Stock Administration Services. StockPlan agrees to perform, on
behalf of the Company, the stock administration services described in Exhibit A
hereto ("Services") and such other services as mutually agreed upon from time to
time by StockPlan and the Company.
B. Employee Stock Purchase Plan Services. StockPlan agrees to perform,
on behalf of the Company, the employee stock purchase plan administration
services described in Exhibit B hereto ("Services") and such other services as
mutually agreed upon from time to time by StockPlan and the Company.
C. StockPlan Software. In providing the Services, StockPlan shall
utilize StockPlan proprietary computer software, ("StockPlan Software"),
including any enhancements, modifications or customizations made specifically
for or at the request of the Company.
D. Reports. StockPlan shall produce and deliver to the Company such
reports as are described in Exhibits A and B hereto.
2. FEES FOR SERVICES
The Company shall pay StockPlan for the Services in accordance with
the fees agreed to and described in Exhibit C hereto. Payments shall be due and
payable thirty (30) days following receipt of an invoice from StockPlan. The fee
shall remain fixed for the initial term of this Agreement. Thereafter, StockPlan
may, but not more frequently than once in each twelve (12) month period, amend
or alter the fee schedule, upon consultation with the Company, at least ninety
(90) days prior to the proposed effective date of the fee change.
3. SUPPORT FROM THE COMPANY
At no cost to StockPlan, the Company shall provide StockPlan on a
timely basis with copies of its Plans, stock option grants, vesting schedules
and such other information as may be required by StockPlan to provide the
Services ("Stock Information").
4. INDEMNIFICATION AND INSURANCE
A. StockPlan Indemnity.
(a) Subject to Section 5 below, StockPlan shall indemnify and
hold harmless the Company, its employees, officers, directors and agents from
any and all costs, liabilities and damages (including reasonable attorneys'
fees), finally awarded to any third party by a court of competent jurisdiction,
caused by or arising out of (i) the performance of the Services, or (ii) the
conduct of StockPlan's agents or employees in relation thereto. The foregoing
shall not apply to the extent such claim or cause of action arises out of an
event or occurrence resulting from StockPlan complying with instructions from
the Company or any error, omission, fault or defect in the Stock Information.
(b) StockPlan shall defend or, at its option, settle, any such
claim, suit, or proceeding and have sole control of any such action or
settlement proceeding insofar as it relates to StockPlans' performance of the
Services or the conduct of its employees or agents in relation thereto. The
Company shall notify StockPlan promptly of any such claim, suit, or proceeding
and shall cooperate reasonably with StockPlan in the defense or settlement
thereof.
(c) StockPlan will maintain appropriate business insurance at
all times during the term of this Agreement.
B. Company Indemnity.
(a) The Company shall indemnify and hold harmless StockPlan,
its employees, officers, directors and agents from any and all costs,
liabilities and damages (including reasonable attorneys' fees), finally awarded
to any third party by a court of competent jurisdiction, relating to any claim
or cause of action which arises from or relates to the performance of the
Services and which claim or cause of action results from StockPlan complying
with instructions from the Company or any person acting on its behalf or any
error, omission, fault or defect in the Stock Information.
(b) The Company shall defend or, at its option, settle, any
such claim, suit, or proceeding and have sole control of any such action or
settlement proceeding insofar as it relates to the Company's procedures or Stock
Information. StockPlan shall notify the Company in a timely manner of any such
claim, suit, or proceeding and shall cooperate reasonably with the Company in
the defense or settlement thereof.
5. LIMITATION OF LIABILITY
A. Subject to the provisions of this Section, StockPlan shall only be
liable to the Company, to the extent the Company may be entitled to
indemnification pursuant to Section 4 hereof and for personal injury, damages to
real property or tangible personal property caused by StockPlan's gross
negligence or intentional wrongdoing.
B. Waiver of Consequential Damages. IN NO EVENT WILL EITHER PARTY BE
LIABLE TO THE OTHER OR TO ANY THIRD PARTY FOR ANY LOST PROFIT, LOST TAX BENEFIT,
LOST SAVING, OR OTHER INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGE
RELATED TO OR ARISING OUT OF THIS AGREEMENT OR, EXCEPT PURSUANT TO
INDEMNIFICATION OBLIGATIONS SET FORTH IN SECTION 4 HEREOF, FOR ANY CLAIM BY ANY
OTHER PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT OR BASED ON A WARRANTY,
EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE, ARISING
OUT OF OR IN CONNECTION WITH THE SERVICES PROVIDED HEREUNDER.
C. Limitation of Liability. The Company agrees that regardless of the
claim or the form in which any legal or equitable action may be brought by the
Company, or by any other party, against StockPlan as a result of this Agreement
or any work performed or services rendered by StockPlan, hereunder, including
any machine or human error except as to gross negligence, StockPlan's liability
hereunder shall be limited to compensatory damages only in an amount not to
exceed the amount paid to StockPlan by the Company for the service which gave
rise to the claim asserted.
Should StockPlan fail to furnish the Company with any report or
document pursuant to this Agreement within the time period required, the
exclusive liability or responsibility of StockPlan shall be to furnish such
report or document to the Company as soon as reasonably practicable. StockPlan
shall not be liable or responsible to the Company or any other party for any
loss or damage which any of them may suffer or incur by reason of StockPlan's
failure to furnish such report or document within the time period required.
6. PROPERTY RIGHTS AND CONFIDENTIALITY
A. Property Rights. The Company acknowledges that the StockPlan
Software, and any modification thereto, and all documentation therefore, are
proprietary to StockPlan and StockPlan retains all right, title and interest in
and to such StockPlan Software and documentation. Except as specified in this
Agreement, StockPlan does not grant to the Company any right in or to any
intellectual property related to the StockPlan Software or to any materials
furnished hereunder.
B. Confidential Information. StockPlan acknowledges that by reason of
its relationship to the Company hereunder it may have access to certain
proprietary information concerning the Company business and employment matters,
whether in oral, written, graphic or electronic form ("Confidential
Information"), which is confidential. StockPlan agrees that it will not use in
any way for its own account, except as contemplated in this Agreement, or the
account of any third party, nor disclose to any third party, any such
Confidential Information revealed to it by the Company. StockPlan shall use its
best efforts to protect the confidentiality of such information. In the event of
termination of this Agreement, StockPlan shall not use or disclose any
Confidential Information of the Company and StockPlan shall not market or sell
to a third party any products, algorithm or computer program or software
utilizing any of the Company's Confidential Information. The term "Confidential
Information" shall not be deemed to include information which StockPlan can
demonstrate: (a) is now, or hereafter becomes, through no act or failure to act
on the part of StockPlan, generally known or available; (b) is known by
StockPlan at the time of receiving such information; (c) is hereafter furnished
to StockPlan by a third party, as a matter of right and without restriction on
disclosure; or (d) is the subject of a written permission to disclose provided
by the Company.
7. TERM AND TERMINATION
A. Term. The initial term of this Agreement shall commence on the
signing of this Agreement and end one year one (1) year following the date
hereof, unless terminated earlier under the provisions of this Section. At the
end of the initial term, this Agreement shall be renewed automatically for
successive terms of one (1) year each, unless at least ninety (90) days prior to
the expiration of the initial term or any renewal term, the Agreement is
terminated in writing by either party.
B. Termination for Cause. If either party defaults in the performance
of any material provision of this Agreement, then the non-defaulting party may
give written notice to the defaulting party that if the default is not cured
within thirty (30) days, the Agreement may be terminated. If the non-defaulting
party gives such notice and the default is not cured during the thirty (30) day
period, then the Agreement shall terminate at the option of the non-defaulting
party at the end of that period, provided that any amount owing to StockPlan
shall not be affected by any such termination.
C. Termination for Insolvency. This Agreement shall terminate, without
notice, (i) upon the institution by or against either party of any insolvency,
receivership, or bankruptcy proceeding, (ii) upon the insolvent party's making
an assignment for the benefit of creditors, or (iii) upon insolvent party's
dissolution or ceasing to do business.
D. Return of Information. All of the Company's Confidential
Information of every kind including, without limitation, the Stock Information,
shall remain the property of the Company, subject to the Company not being in
default of any payment obligation hereunder. Within thirty (30) days after the
termination of this Agreement, StockPlan shall return all the Company property
in its possession to the Company. StockPlan shall not make or retain any copies
of any Confidential Information entrusted to it.
E. Survival of Certain Terms. The provisions of Sections 4, 5, 6, 7, 8
and 9 shall survive the termination of this Agreement for any reason. All other
rights and obligations of the parties shall cease upon termination of this
Agreement.
F. Right to Terminate. Upon thirty days written notice.
8. COOPERATION AND GOOD FAITH
Notwithstanding the remedies available under this Agreement to either
party against the other party for any failure or claim as specified in Section 4
and prior to any notice given by the parties pursuant to Section 7.B, the
Company and StockPlan shall cooperate and negotiate in good faith to resolve any
situation giving rise to such failure or claim. However, failure of the parties
to resolve such situation shall not preclude either party from then exercising
its rights and remedies under this Agreement.
StockPlan may rely on written or oral instructions received from any
person it believes in good faith to be an officer, authorized agent or employee
of the Company, unless prior thereto the Company shall have advised StockPlan in
writing of designated officers, authorized agents or employees of the Company.
StockPlan may also rely on advice, opinions, or instructions received from the
Company's legal counsel. StockPlan may also rely on any writing believed by it
to have been furnished by or on behalf of the Company as having actual authority
to the extent of such apparent authority; on the authenticity of any signature
(manual or facsimile) appearing on any writing; and on the conformity to
original of any copy.
9. GENERAL PROVISIONS
A. Governing Law and Jurisdiction. This Agreement shall be governed by
and construed under the laws of the State of New York, without regard to its
conflict of law provisions.
B. Entire Agreement. This Agreement and the exhibits hereto set forth
the entire agreement and understanding of the parties relating to the subject
matter herein and merges all prior discussions between them. No modification of
or amendment to this Agreement, nor any waiver of any rights under this
Agreement, shall be effective unless in writing signed by the party to be
charged.
C. Notices. Any notice required or permitted by this Agreement shall
be in writing and shall be sent by prepaid registered or certified mail, return
receipt requested, addressed to the other party at the address shown at the
beginning of this Agreement or at such other address for which such party gives
notice hereunder. Such notice shall be deemed to have been given three (3) days
after deposit in the mail.
D. Force Majeure. Nonperformance of either party shall be excused to
the extent that performance is rendered impossible by strike, fire, flood,
governmental act or order or restriction, failure of suppliers, or any other
reason where failure to perform is beyond the reasonable control of the
non-performing party.
E. Assignment. Neither party may assign this Agreement or any of its
rights, duties or obligations under this Agreement to any third party without
the other party's prior written consent, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing, either party may assign its rights and
delegate its obligations under this Agreement without the consent of the other
party to a purchaser of all or substantially all of its voting stock or capital
assets or to an entity with which such party merges or is consolidated.
F. Taxes. Each party is solely responsible for all taxes, duties,
tariffs, including, but not limited to, sales, use, transfer or similar tax or
other charges by any governmental authority levied upon the party.
G. Independent Contractors. The relationship of the Company and
StockPlan established by this Agreement is that of independent contractors, and
nothing contained in this Agreement shall be construed to (i) give either party
the power to direct and control the day-to-day activities of the other, (ii)
constitute the parties as partners, joint venturers, co-owners, or other
participants in a joint or common undertaking, or (iii) allow either party to
create or assume any obligation on behalf of the other for any purpose
whatsoever. All financial obligations associated with each party's business are
the sole responsibility of that party.
H. No Third Party Beneficiaries. This Agreement is intended solely for
the benefit of the parties hereto and shall not be construed to create any
benefit for any other person or firm.
I. Severability. Whenever possible, each provision of the Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of the Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of the Agreement.
J. Headings. The section headings appearing in this Agreement are
inserted only as a matter of convenience and in no way define, limit, construe
or describe the scope or intent of any such section nor in any way affect this
Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, including the Exhibits attached hereto and incorporated herein by
reference.
THE CHILDREN'S PLACE RETAIL STORES, INC. AST STOCKPLAN, INC.
Name: STEVEN BALASIANO Name: SHAI STERN
- -------------------------------------- -------------------------------
Title: VICE PRESIDENT, GENERAL COUNSEL Title: SENIOR ACCOUNT EXECUTIVE
AND SECRETARY
Signature: /S/ STEVEN BALASIANO Signature: /S/ SHAI STERN
- --------------------------------------- -------------------------------
<PAGE>
EXHIBIT A
STOCK OPTION PLAN MANAGEMENT SERVICES
The Stock Option Plan Management Services AST StockPlan can provide to your
company cover three major areas:
1) DATA CONVERSION
2) INFORMATION MANAGEMENT
3) PROFESSIONAL CONSULTING
1) DATA CONVERSION
o READ, REVIEW AND UNDERSTAND YOUR PLAN AST StockPlan starts by
reading, reviewing and understanding your plan.
o MEET WITH PROPER CONSTITUENCIES
After reading and reviewing the plan, questions will arise. By
seeking answers from the proper constituencies within your company,
AST StockPlan can tailor its services to meet the specific needs of
your employees, plan and company.
o DATA CONVERSION
Once we have a clear understanding of your plan, AST StockPlan will
enter into its proprietary software each plan's parameters, optionee
information and historical activity.
o BALANCING SHARES
AST StockPlan will reconcile shares outstanding between our records,
your records and the records of the transfer agent. This initial
reconciliation of shares outstanding is crucial to continued
accurate tracking of fully diluted shares outstanding by AST
StockPlan.
o COMPANY CONTACT
After you designate a contact person within your company, AST
StockPlan will work with the liaison to establish procedures for
communicating necessary optionee information regarding new grants,
terminations, address changes, etc. AST StockPlan will also provide
training so the liaison can access your company's plan information
through our on-line computer capability.
o EMPLOYEE "WELCOME" PACKAGES
Once the data conversion process is completed, we will work with
your company to develop a "Welcome" package to introduce AST
StockPlan to your employees, explain the services we will be
providing to them, distribute reports showing the status of their
grants and explain any new forms or procedures.
2) INFORMATION MANAGEMENT
o PROVIDE INFORMATION TO AN IVR SYSTEM ("IVRS") Using upload files,
AST StockPlan supplies the IVRS with current stock option data on a
daily basis (e.g., grants with shares vested and exercisable, grant
dates, exercise cost, etc.) so that employees have 24-hour access to
their grant information.
o PROVIDE PROMPT, FRIENDLY, PROFESSIONAL SERVICE TO YOUR PARTICIPANTS
Our Client Services Department is open between 9:00 a.m. and 7:00
p.m. Eastern Time, every day the stock market is open. Optionees who
call will speak with an AST StockPlan Client Services Representative
who will have instant on-line access to the optionee's stock option
information.
o PROCESS GRANTS
AST StockPlan can enter grant information from hard copy or through
an electronic file. We will send a report to you showing options
granted for final approval and then prepare new grant packages,
either for delivery to your company or for mailing. Once the grant
packages are delivered, we will track the return of completed
agreements.
o MAINTAIN OPTIONEE UPDATES
Using an upload file created by the company, AST StockPlan will
maintain data on all optionees including: name, address, taxpayer
identification number, department, location and tax withholding to
date. Maintaining up-to-date tax withholding information eliminates
over-withholding on an exercise.
o PROCESS EXERCISES (cash, cashless, shares withheld from exercise)
AST StockPlan will work in conjunction with brokers selected by your
company to facilitate a cashless, same-day-sale exercise program. In
order to facilitate the entire exercise process, we recommend that
your company do the following:
- Enter into a formal relationship to establish a cashless,
same-day-sale program with from one to three brokers.
- Implement either AST StockPlan's Standing Letter of Authorization
(SLOA) or the broker's SLOA, thus eliminating the need for
employees to submit an original signed exercise notice each time
they do a cashless, same-day-sale exercise.
o TRACK AND REPORT DISQUALIFYING DISPOSITIONS For ISO grants, AST
StockPlan will track both qualifying and disqualifying dispositions
of cash exercises, as well as calculate and report disqualifying
dispositions resulting from a same-day-sale. The process for
tracking dispositions of cash exercises will involve:
- Your transfer agent or broker reporting to AST StockPlan the first
transfer of the shares;
- AST StockPlan surveying the optionee to determine whether the
transfer was a disqualifying disposition; and
- If the transfer was not a disqualifying disposition, at your
request, AST StockPlan will continue to survey the optionee until
the optionee has disposed of the shares.
2) INFORMATION MANAGEMENT (CONTINUED)
o PROCESS TERMINATIONS
Your company will send to AST StockPlan a terminations upload file
on a regular basis. This file will list all plan terminations and
the reason for termination. AST StockPlan should be notified
separately in writing of any special circumstances. We will prepare,
for optionees with shares vested and exercisable, a termination
package which shows the shares exercisable and the last date to
exercise.
o PREPARE CALENDAR YEAR-END REPORTS FOR EMPLOYEES Calendar year-end can
be a confusing time for optionees. As a result, this is a good time
to summarize their activity during the past year and to advise them
of actions they may want to take in the upcoming year, based on
future vestings and expirations. This is also the time when they
receive W2s from the company and any 1099s from their brokers. AST
StockPlan has designed year-end reports to assist optionees with
their tax preparation. Each calendar year-end, your company can
choose to have optionees receive any or all of the following standard
reports from AST StockPlan:
- Income and Tax Reconciliation. Period Activity.
- Personal Activity Forecast.
- Option Valuation Statement.
o PROVIDE SECURE, 24-HOUR, ON-LINE ACCESS FOR MANAGEMENT Your data will
be securely stored on our system with 24-hour, password-protected
access available to authorized personnel at your company. This
allows your management unlimited access to any reports it might
need. Information can be downloaded for use in spreadsheet
preparation, or reports can easily be printed on your local printer.
o PREPARE MONTH-END REPORTS
Each month, AST StockPlan prepares a set of reports for your company
liaison. In addition to reporting activity during the month, these
reports can assist various departments within your company with their
internal audit and reconciliation procedures. Our standard month-end
package includes the following reports:
- Directors and Officers Period Activity.
- Plan Activity Detail (Grants, Exercises, Cancellations/
Expirations, Repurchases).
- Terminations.
- Tax Withholding.
- Accounts Receivable.
- Fair Market Valuation.
o PREPARE QUARTER-END REPORTS
The process at quarter-end includes the full month-end process with
the addition of the following standard reports:
- Common Stock Equivalent.
- Disqualifying Dispositions.
- Optionee Activity Summary.
2) INFORMATION MANAGEMENT (CONTINUED)
o PREPARE FISCAL YEAR-END REPORTS
For the company's fiscal year-end, AST StockPlan prepares all usual
quarter-end reports, with the addition of standard proxy reports
designed to the SEC's specifications.
o MANAGEMENT REQUESTS AND TROUBLESHOOTING
AST StockPlan will provide the following services on an on-going
basis:
- Audit and reconciliation of monthly, quarterly, and fiscal and
calendar year-end reports.
- Meet with your company liaison.
- Answer inquiries from company personnel.
- Audit of period transactions.
- Reconcile common shares outstanding with your transfer agent.
- Reconcile with your company's accounting, legal and payroll
departments.
- Report stock activity to your company's legal department for
directors and officers subject to Section 16 for Forms 3, 4 & 5
filings.
- Assist your company's outside accounting firm during the annual
audit.
- Assist your company with annual proxy reporting requirements.
3) PROFESSIONAL CONSULTING
o RELEASE OF SHARES EXERCISED PRIOR TO VESTING On the day of the
election, AST StockPlan calculates the taxes due for each participant
and processes each participant's released stock in accordance with
that participant's election. When any early-exercise stock vests, AST
StockPlan verifies that any tax withholding requirement is met and
instructs the transfer agent to remove the restriction and deliver
the participant's vested stock.
o RESTRICTED STOCK PLAN MANAGEMENT
- PROCESS RESTRICTED STOCK AWARDS
AST StockPlan will enter award information manually or through
an electronic file. We will send your company a report showing
restricted stock awarded for final approval and then prepare new
award packages, either for delivery to the company or for
mailing. Once the award packages are delivered, we will track
the return of completed agreements and any payment for the stock
that might be required. AST StockPlan can, if desired, collect a
check from the participant for forwarding to the company.
- PRE-RELEASE OR ELECTION NOTICE Prior to a vesting date, AST
StockPlan sends participants a pre-release or election notice
alerting them of the upcoming vesting and setting out the
available choices to pay for the taxes that will be due. If the
plan is structured so that no election is needed (e.g., if taxes
are automatically withheld from salary), then this pre-release
notice is for "information purposes only" and is strictly
optional. The election notice or pre-release notification will
contain an estimate (based on the current stock price) of the
taxes that will be due on vesting.
- VESTING RELEASE
Whenever restricted stock vests, AST StockPlan is responsible
for making sure that any tax withholding requirement is met and
that the transfer agent is instructed where to send each
participant's vested stock. On the day of the election, we will
calculate the exact taxes due for each participant and process
each participant's released stock in accordance with the
participant's election.
o SPECIAL REQUESTS
AST StockPlan will provide your management with ad hoc reports that
meet your specifications. If you want to evaluate an anticipated
event, we will work with you to prepare a "what if" analysis and
reporting. If necessary, we will prepare special timelines or
procedures to your specifications.
o FAS 123 ANALYSIS AND REPORTING
- Provide consulting to determine parameters for the options' fair
value calculation.
- Provide FAS 123 reporting regarding the fair value calculation.
o SPECIAL PROJECTS
- Prepare and deliver employee education seminars.
- Process stock splits.
- Process grant repricings.
- Convert data for mergers or spin-offs.
o TECHNICAL INFORMATION SYSTEMS SUPPORT
AST StockPlan will provide technical assistance to various
departments within your company (such as human resources, payroll,
accounting, etc.) and/or to outside vendors (such as brokers,
transfer agents, payroll vendors) in the following areas:
- Customize our software to provide you with unique functions and
reports.
- Produce electronic files to feed IVRS and for participant updates,
terminations, tax withholdings and sales of stock.
- Assist your company in preparing upload files to AST StockPlan
specifications and/or correcting files not received to our
specifications.
- Set up an electronic interface to facilitate on-line access for
your management.
o PLAN DESIGN AND REVIEW
Our in-house consultants will assist you in designing new option,
restricted stock or employee stock purchase plans. We can also
review existing plans and make suggestions for improvements and
updates which will help ensure that each plan achieves the goals set
by your company.
<PAGE>
EXHIBIT B
AST STOCKPLAN, INC.
EMPLOYEE STOCK PURCHASE PLAN
ADMINISTRATION SERVICES
250 BROADWAY
NEW YORK, NEW YORK 10007
TEL: (718) 921-8100
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
ADMINISTRATION SERVICES
The Employee Stock Purchase Plan Administration Services AST StockPlan can
provide to your company cover three major areas:
1) INITIAL SET-UP
2) TRANSACTIONAL SERVICES
3) PROFESSIONAL SERVICES
1) INITIAL SET-UP
* READ, REVIEW AND UNDERSTAND YOUR PLAN
AST StockPlan, Inc., starts by reading, reviewing and
understanding your Employee Stock Purchase Plan.
* MEET WITH PROPER CONSTITUENCIES
After reading and reviewing the plan, questions will arise. By
seeking the answers from the proper constituencies within your
company, AST StockPlan can tailor its services to meet the
specific needs both of your employees and your plan. In
particular, the company must decide whether to stress high
participation (which means allowing a quick-sale and encouraging
direct deposit) or stock retention.
* DATA CONVERSION
Once we have a clear understanding of your plan, AST StockPlan
will enter into its proprietary software the plan's parameters,
participant information and historical activity.
* COMPANY LIAISON TRAINING
After you designate a contact person within your company, AST
StockPlan will train the liaison to access information through
our on-line system and to communicate necessary optionee
information regarding new enrollments, withdrawals, address
changes and other data which we will need to properly administer
the plan.
* CONTACTING AND EDUCATING PARTICIPANTS
AST StockPlan will work with you to develop information pamphlets
and enrollment material for each eligible participant.
2) TRANSACTIONAL SERVICES
* PRE-PURCHASE PREPARATION
Approximately 8 WEEKS before a purchase, if your plan is set up
to allow direct-deposit and/or quick-sale, AST StockPlan will
send out Deposit Election Forms to participants who do not yet
have a form on file. This will allow participants to choose
whether to receive certificates, have shares deposited in book
form with the transfer agent, or have their shares deposited
directly with their brokers. We will track the receipt of these
forms and record the participants' choices.
Approximately 4 WEEKS before the purchase, we will process the
file provided by you and return a report showing current
participants for your company to verify.
Approximately 2 WEEKS before the purchase, we will process
another file provided by you and return a report to your company
confirming the planned contributions for final verification. We
will perform any necessary currency conversions for foreign
contributions and run a preliminary purchase report for audit
purposes.
AST StockPlan will then enter any corrections or last-minute
changes and send a complete set of preliminary reports to your
company.
* PROCESS PURCHASE TRANSACTION
On the day of the purchase, as soon as the market closes, AST
StockPlan determines the purchase price. The price is confirmed
with an approved broker, an on-line database and your company. We
then validate the purchase and fax share issuance instructions to
the transfer agent and share deposit/quick-sale instructions to
the approved broker(s). Overnight packages with original
documents are sent to the company, the transfer agent and the
broker(s).
On the following day, we will mail to each participant an
individual Purchase Confirmation Statement.
* DISQUALIFYING DISPOSITION TRACKING
AST StockPlan tracks disqualifying dispositions in the following
ways:
REPORT FROM BROKER OF SALE OR TRANSFER.
We can receive this information in file format or hard copy, and
can either apply the disposition on a first-in, first-out (FIFO)
basis or survey the participant.
REPORT FROM TRANSFER AGENT OF CERTIFICATE CANCELLATION.
Since AST StockPlan can't be certain whether this is a
disposition, as it may simply be a transfer to a brokerage
account or trust, AST StockPlan will survey the participant for
clarification.
PERIODIC SURVEY OF PARTICIPANTS.
We can also send surveys on a periodic basis to all participants,
if your company desires.
* PROVIDE PROMPT, FRIENDLY, PROFESSIONAL SERVICE TO YOUR
PARTICIPANTS
Our Client Services Department is open between 8:00 a.m. and 8:00
p.m., Eastern Time, every day the stock market is open.
Participants who call will speak with an AST StockPlan Client
Services Representative who will have instant on-line access to
participant stock purchase information.
* PROVIDE SECURE, 24-HOUR, ON-LINE ACCESS FOR MANAGEMENT
Your data will be securely stored on our system with 24-hour,
password- protected access available to authorized personnel at
your company. This allows your management unlimited access to any
reports it might need. Reports can easily be printed in your
office.
* PREPARE PURCHASE REPORTS
ESP Plan Activity.
Contribution/Purchase Report.
Payroll Contribution Reconciliation Report.
Employee Stock Purchase Plan Statements.
Transfer Agent Instructions.
Broker Deposit and Quick-sale Elections.
Quarterly Disqualifying Disposition Report.
* PREPARE CALENDAR YEAR-END REPORTS FOR PARTICIPANTS
Year-end can be a confusing time for participants. They are
receiving W2s from the company as well as 1099s from their
brokers. AST StockPlan has designed reports to assist
participants with their tax preparation. Calendar year-end is
also a good time to summarize participants' activity during the
year. Each calendar year-end, participants receive the following
reports from AST StockPlan:
Income and Tax Reconciliation.
Period Activity.
ESPP Historical Summary.
3) PROFESSIONAL SERVICES
* PROVIDE RECONCILING, AUDITING AND INQUIRY SERVICES
AST StockPlan will provide the following services on an on-going
basis:
Audit and reconcile purchase reports.
Meet with your company's liaison.
Answer inquiries from company personnel.
Reconcile with your company's accounting, legal and payroll
departments.
Report stock activity to your company's legal department for
directors and officers subject to Section 16 for Forms 3, 4
& 5 filings.
Assist your company's outside accounting firm during the
annual audit.
Assist your company with annual proxy reporting
requirements.
* TECHNICAL INFORMATION SYSTEMS SUPPORT
AST StockPlan will provide technical assistance to various
departments within your company (such as human resources,
payroll, accounting, etc.) and/or to outside vendors (such as
brokers, transfer agents, payroll vendors) in the following
areas:
Produce electronic files for participant updates,
terminations, payroll contributions and sales of stock by
brokers, etc.
Assist your company in preparing upload files to
AST StockPlan specifications and/or correcting files to AST
StockPlan specifications.
Set up an electronic interface to facilitate on-line access
for your management.
* CUSTOM REPORTING
Customize our software to provide you with the unique functions
and reports you require.
Provide ad-hoc reports to your specifications.
* FAS 123 CONSULTING/REPORTING
Provide consulting to determine volatility numbers for the ESPP
fair value calculation.
Provide FAS 123 reporting regarding the ESPP fair value
calculation.
* PLAN DESIGN AND REVIEW
Our in-house consultants will assist you in designing new option,
restricted stock or employee stock purchase plans. We can also
review existing plans and make suggestions for improvements and
updates which will help ensure that each plan achieves the goals
set by your company.
<PAGE>
EXHIBIT C
SCHEDULE OF FEES
$1,500.00 per month
PLUS
$2,000.00 Set-up Fee
NOTE: "Special Projects" shown on page five (5) of Exhibit A are to be priced
upon appraisal and are not included in services provided under the flat
rate monthly fees shown above.
EXHIBIT 11.1
THE CHILDREN'S PLACE RETAIL STORES, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
(In thousands, except for per share data)
THIRTEEN WEEKS ENDED
--------------------
MAY 2, 1998 MAY 3, 1998
----------- -----------
<S> <C> <C>
Net income............................................. $2,742 $1,011
====== ======
Basic weighted average common shares outstanding (1).... 24,660 20,421
Basic net income per common share....................... $0.11 $0.05
Diluted weighted average common shares outstanding (2).. 25,605 23,804
Diluted net income per common share..................... $0.11 $0.04
(1) Basic weighted average common shares outstanding for the thirteen
weeks ended May 2, 1998 includes 24,622 shares outstanding as of
January 31, 1998 and 38 weighted average shares outstanding issued upon
exercise of employee stock options and employee stock purchases during
the thirteen weeks ended May 2, 1998. Basic net income per common share
for the thirteen weeks ended May 3, 1997 was calculated by dividing net
income by the basic weighted average common shares outstanding as if
the Stock Split, the Series B Conversion and the Reclassification
occurred on the first day of fiscal 1997.
(2) Diluted net income per common share for the thirteen weeks ended
May 3, 1997 was calculated by dividing net income by the diluted
weighted average common shares and common share equivalents outstanding
as if the Stock Split, the Series B Conversion and the Reclassification
occurred on the first day of fiscal 1997. For the thirteen weeks ended
May 3, 1997, common share equivalents included the Noteholder Warrant
and Legg Mason Warrant and management options to purchase common stock
under the 1996 Plan using the treasury stock method. The Offering price
was utilized for the treasury stock calculations due to the lack of a
public market.
</TABLE>
<PAGE>
EXHIBIT 11.1
THE CHILDREN'S PLACE RETAIL STORES, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
CALCULATION OF DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Weighted
Thirteen Weeks Ended May 2, 1998 # of Shares # of Months Average
- -------------------------------- ---------- ------------ ---------
<S> <C> <C> <C>
Outstanding common stock (a)............... 24,660,493 3 24,660,493
1996 Management Options (b)................ 1,407,488 3 929,018
1997 Management Options (c)................ 434,380 3 --
Options issued to a 10% owner (d).......... 99,660 3 --
Management options issued during 1998 (e).. 200,000 3 15,304
----------
25,604,815
==========
(a) Outstanding common stock includes 24,622,103 shares outstanding as of
January 31, 1998 and 38,390 weighted average shares issued upon the exercise
of employee stock options and employee stock purchases during the thirteen
weeks ended May 2, 1998.
(b) Represents the treasury stock calculation of options issued in conjunction
with a 1996 recapitalization of the Company at their exercise price of
$2.677 and the average market price of $8.16 for the thirteen weeks ended
May 2, 1998.
(c) The Company re-priced certain options issued in conjunction with the
Offering to the average market price on March 27, 1998 of $8.70. Options
granted to officers were not re-priced. As of May 2, 1998, these options
were anti-dilutive as their exercise price was greater than the average
market price of $8.16 for the thirteen weeks ended May 2, 1998.
(d) Options issued to a 10% owner have an exercise price of $15.40 and are
anti-dilutive for the thirteen weeks ended May 2, 1998.
(e) Represents the treasury stock calculation of 200,000 shares issued during
fiscal 1998 at an exercise price of $7.3125, and the average market price of
$8.16 for the thirteen weeks ended May 2, 1998.
Weighted
THIRTEEN WEEKS ENDED MAY 3, 1997 # of Shares # of Months Average
- --------------------------------- ----------- ----------- -------
<S> <C> <C> <C>
Outstanding common stock............... 12,760,800 3 12,760,800
Series B conversion to common stock.... 7,659,889 3 7,659,889
Legg Mason Warrant (f)................. 747,096 3 604,240
Noteholder Warrant (f)................. 1,992,252 3 1,611,305
1996 Management Options (f)............ 1,444,080 3 1,167,951
------------
23,804,185
============
(f) Represents the treasury stock calculation of warrants/options issued in
conjunction with a 1996 recapitalization of the Company at their exercise
price of $2.677 and the Offering price of $14.00.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE CHILDREN'S PLACE RETAIL STORES, INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 3,570
<SECURITIES> 0
<RECEIVABLES> 2,940
<ALLOWANCES> 0
<INVENTORY> 17,977
<CURRENT-ASSETS> 40,402
<PP&E> 49,492
<DEPRECIATION> 14,085
<TOTAL-ASSETS> 83,022
<CURRENT-LIABILITIES> 18,726
<BONDS> 0
0
0
<COMMON> 2,471
<OTHER-SE> 58,990
<TOTAL-LIABILITY-AND-EQUITY> 83,022
<SALES> 55,999
<TOTAL-REVENUES> 55,999
<CGS> 33,866
<TOTAL-COSTS> 15,788
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59
<INCOME-PRETAX> 4,623
<INCOME-TAX> 1,881
<INCOME-CONTINUING> 2,742
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,742
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
