<PAGE>
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 July 29, 2000
/ / 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)
915 SECAUCUS ROAD
SECAUCUS, NEW JERSEY 07094
(Address of Principal Executive Offices) (Zip Code)
(201) 558-2400
(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 September
1, 2000: 25,878,642 shares.
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JULY 29, 2000
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements: PAGE
----
Consolidated Balance Sheets............................. 1
Consolidated Statements of Income....................... 2
Consolidated Statements of Cash Flows................... 3
Notes to Consolidated Financial Statements.............. 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .......... 5
Item 3. Quantitative and Qualitative Disclosures
about Market Risks ..................................... 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ...................................... 9
Item 6. Exhibits and Reports on Form 8-K ....................... 9
Signatures...................................................... 10
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
THE CHILDREN'S PLACE RETAIL STORES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 29, 2000 JANUARY 29, 2000
------------- ----------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 4,769 $ 2,204
Accounts receivable............................... 14,368 5,112
Inventories....................................... 62,914 56,021
Prepaid expenses and other current assets......... 14,773 8,527
Deferred income taxes............................. 1,720 1,720
---------- ---------
Total current assets............................ 98,544 73,584
Property and equipment, net....................... 110,264 87,674
Deferred income taxes............................. 5,051 5,051
Other assets...................................... 4,922 4,650
---------- ---------
Total assets.................................... $ 218,781 $ 170,959
========== =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
LIABILITIES:
Current liabilities:
Revolving credit facility......................... $ 28,968 $ 6,507
Accounts payable.................................. 27,272 20,216
Taxes payable..................................... 4,376 3,495
Accrued expenses, interest and other current
liabilities .................................... 20,656 16,026
--------- ---------
Total current liabilities....................... 81,272 46,244
Other long-term liabilities.......................... 5,506 4,649
--------- ---------
Total liabilities............................... 86,778 50,893
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.10 par value; 100,000,000 shares
authorized; 25,820,525 shares and 25,698,120
shares issued and outstanding, at July 29, 2000
and January 29, 2000, respectively................ 2,582 2,570
Additional paid-in capital........................... 89,416 88,376
Translation adjustments.............................. (14) (7)
Retained earnings.................................... 40,019 29,127
---------- ---------
Total stockholders' equity...................... 132,003 120,066
---------- ---------
Total liabilities and stockholders' equity...... $ 218,781 $ 170,959
========== =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.
1
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THIRTEEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
--------------------- ----------------------
JULY 29, 2000 JULY 31, 1999 JULY 29, 2000 JULY 31, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales............................ $107,690 $ 73,920 $237,772 $166,541
Cost of sales........................ 67,160 47,123 140,384 100,421
-------- --------- -------- --------
Gross profit......................... 40,530 26,797 97,388 66,120
Selling, general and administrative
expenses 30,952 20,855 65,128 43,449
Pre-opening costs.................... 1,586 767 4,269 1,968
Depreciation and amortization........ 5,054 2,891 9,525 6,187
-------- --------- -------- --------
Operating income..................... 2,938 2,284 18,466 14,516
Interest expense (income), net....... 277 (39) 458 (189)
Other expense, net................... 124 40 127 45
-------- --------- -------- --------
Income before income taxes........... 2,537 2,283 17,881 14,660
Provision for income taxes........... 1,021 881 6,991 5,875
-------- --------- -------- --------
Net income .......................... $ 1,516 $ 1,402 $ 10,890 $ 8,785
======== ========= ======== ========
Basic net income per common share.... $0.06 $0.06 $0.42 $0.35
Basic weighted average common
shares outstanding ................ 25,796 25,246 25,767 25,180
Diluted net income per common share.. $0.06 $0.05 $0.41 $0.33
Diluted weighted average common
shares outstanding ................ 26,662 26,742 26,511 26,681
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
2
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
----------------------
JULY 29, 2000 JULY 31, 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $10,890 $ 8,785
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 9,525 6,187
Deferred financing fee amortization........ 26 12
Loss on disposals of property and equipment 251 272
Deferred taxes............................. 203 1,187
Changes in operating assets and liabilities:
Accounts receivable........................ (9,256) (2,321)
Inventories................................ (6,893) (11,099)
Prepaid expenses and other current assets.. (6,246) (8,958)
Other assets............................... (814) (1,668)
Accounts payable........................... 7,057 4,832
Accrued expenses, interest and other
current liabilities 4,734 2,513
------- -------
Total adjustments........................ (1,413) (9,043)
------- -------
Net cash provided by (used in) operating activities 9,477 (258)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment purchases................ (30,096) (32,329)
------- -------
Net cash used in investing activities........... (30,096) (32,329)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options and employee
stock purchases 845 1,454
Borrowings under revolving credit facility...... 270,590 44,101
Repayments under revolving credit facility...... (248,129) (27,552)
Payment of obligations under capital leases..... 0 (2)
Deferred financing costs........................ (122) (62)
-------- --------
Net cash provided by financing activities....... 23,184 17,939
-------- --------
Net increase (decrease) in cash and
cash equivalents......................... 2,565 (14,648)
Cash and cash equivalents, beginning
of period ............................... 2,204 16,370
------- -------
Cash and cash equivalents, end of period........ $4,769 $1,722
======== ========
OTHER CASH FLOW INFORMATION:
Cash paid during the period for interest........ $721 $141
Cash paid during the period for income taxes.... 11,058 10,238
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
3
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated 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 29, 2000. These financial statements
should be read in conjunction with the audited financial statements and
footnotes for the fiscal year ended January 29, 2000 included in the Company's
Annual Report on Form 10-K for the year ended January 29, 2000 filed with the
Securities and Exchange Commission. Due to the seasonal nature of the Company's
business, the results of operations for the twenty-six weeks ended July 29, 2000
are not necessarily indicative of operating results for a full fiscal year.
2. 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 TWENTY-SIX WEEKS ENDED
-------------------- ----------------------
JULY 29, 2000 JULY 31, 1999 JULY 29, 2000 JULY 31, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (in thousands) ........ $1,516 $1,402 $10,890 $8,785
====== ====== ======= ======
Basic shares ..................... 25,796,490 25,245,919 25,767,162 25,180,103
Dilutive effect of stock options . 865,443 1,496,376 744,129 1,500,968
---------- ---------- ---------- ----------
Dilutive shares................... 26,661,933 26,742,295 26,511,291 26,681,071
========== ========== ========== ==========
Antidilutive options.............. 257,950 0 478,630 7,000
</TABLE>
Antidilutive options consist of the weighted average of stock options for
the respective periods ended July 29, 2000 and July 31, 1999 that had an
exercise price greater than the average market price during the period. Such
options are therefore excluded from the computation of diluted shares.
3. LITIGATION
The Company is 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.
4
<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 29, 2000. 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 29, 2000 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected income
statement data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-------------------- ----------------------
JULY 29, 2000 JULY 31, 1999 JULY 29, 2000 JULY 31, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales......................... 100.0% 100.0% 100.0% 100.0%
Cost of sales..................... 62.4 63.7 59.0 60.3
-------- -------- -------- --------
Gross profit...................... 37.6 36.3 41.0 39.7
Selling, general and
administrative expenses ........ 28.7 28.2 27.4 26.1
Pre-opening costs................. 1.5 1.1 1.8 1.2
Depreciation and amortization..... 4.7 3.9 4.0 3.7
-------- -------- -------- --------
Operating income.................. 2.7 3.1 7.8 8.7
Interest expense (income), net.... 0.3 (0.1) 0.2 (0.1)
Other expense, net................ 0.1 0.1 0.1 --
-------- -------- -------- --------
Income before income taxes........ 2.3 3.1 7.5 8.8
Provision for income taxes........ 0.9 1.2 2.9 3.5
-------- -------- -------- --------
Net income........................ 1.4% 1.9% 4.6% 5.3%
======== ======== ======== ========
Number of stores, end of period... 371 261 371 261
</TABLE>
THIRTEEN WEEKS ENDED JULY 29, 2000 (THE "SECOND QUARTER 2000") COMPARED TO
THIRTEEN WEEKS ENDED JULY 31, 1999 (THE "SECOND QUARTER 1999")
Net sales increased by $33.8 million, or 46%, to $107.7 million during the
Second Quarter 2000 from $73.9 million during the Second Quarter 1999. During
the Second Quarter 2000, we opened 36 new stores. Net sales for the 36 new
stores, as well as the other stores that did not qualify as comparable stores,
contributed $29.7 million of the net sales increase. As of July 29, 2000, we
operated 371 stores in 42 states, primarily located in regional shopping malls.
Our comparable store sales increased 7% and contributed $4.1 million of our net
sales increase during the Second Quarter 2000. Comparable store sales increased
19% during the Second Quarter 1999.
5
<PAGE>
Gross profit increased by $13.7 million to $40.5 million during the
Second Quarter 2000 from $26.8 million during the Second Quarter 1999. As a
percentage of net sales, gross profit increased to 37.6% during the Second
Quarter 2000 from 36.3% during the Second Quarter 1999. The increase in gross
profit, as a percentage of net sales, was principally due to higher initial
markups achieved through effective product sourcing, partially offset by
higher distribution costs.
Selling, general and administrative expenses increased $10.1 million to
$31.0 million during the Second Quarter 2000 from $20.9 million during the
Second Quarter 1999. Selling, general and administrative expenses were 28.7%
of net sales during the Second Quarter 2000 as compared with 28.2% during the
Second Quarter 1999. The increase, as a percentage of net sales, was
primarily due to higher store payroll wage rates, and costs associated with
our E-Commerce website which was not operational in the Second Quarter 1999,
as well as increased marketing and advertising costs associated with our
direct mail and credit card efforts. These increases, as a percentage of net
sales, were partially offset by the leveraging of our corporate
administrative functions.
During the Second Quarter 2000, pre-opening costs were $1.6 million, or
1.5% of net sales, as compared to $0.8 million, or 1.1% of net sales, during the
Second Quarter 1999. We opened 36 stores and 22 stores, during the Second
Quarter 2000 and the Second Quarter 1999, respectively. During the Second
Quarter 2000, pre-opening costs were unfavorably impacted by increased
marketing costs to introduce The Children's Place brand in our new markets,
as well as increased travel and freight costs to open stores on the West Coast.
During the Second Quarter 1999, pre-opening costs were favorably impacted by
the timing of pre-opening costs which were expensed as incurred.
Depreciation and amortization amounted to $5.1 million, or 4.7% of net
sales, during the Second Quarter 2000, as compared to $2.9 million, or 3.9% of
net sales, during the Second Quarter 1999. The increase in depreciation and
amortization primarily was a result of increases to our store base, depreciation
recorded for our new distribution center and corporate headquarters facility,
which opened at the end of the Second Quarter 1999 and amortization of our
E-Commerce assets.
During the Second Quarter 2000, we recorded interest expense of $0.3
million, or 0.3% of net sales, due to borrowings under our working capital
facility. During the Second Quarter 1999, we recorded interest income of
$39,000, or 0.1% of net sales, due to our net cash investment position. Other
expense, net, for the Second Quarter 2000 and the Second Quarter 1999 primarily
consisted of anniversary fees related to our working capital facility.
Our provision for income taxes for the Second Quarter 2000 was $1.0
million, as compared to a $0.9 million provision for income taxes during the
Second Quarter 1999. The increase in our provision for income taxes during the
Second Quarter 2000 is due to our increased profitability.
We recorded net income of $1.5 million and $1.4 million during the Second
Quarter 2000 and the Second Quarter 1999, respectively.
TWENTY-SIX WEEKS ENDED JULY 29, 2000 COMPARED TO TWENTY-SIX WEEKS ENDED
JULY 31, 1999
Net sales increased $71.3 million, or 43%, to $237.8 million during the
twenty-six weeks ended July 29, 2000 from $166.5 million during the twenty-six
weeks ended July 31, 1999. Net sales for the 79 stores opened during the
twenty-six weeks ended July 29, 2000, as well as the other stores that did not
qualify as comparable stores, contributed $63.2 million of the net sales
increase. During the twenty-six weeks ended July 29, 2000 we entered several new
markets in the Pacific Northwest, California and Texas. Our comparable store
sales increased 6% and contributed $8.1 million of our net sales increase during
the twenty-six weeks ended July 29, 2000. Comparable store sales increased 26%
during the twenty-six weeks ended July 31, 1999.
Gross profit increased $31.3 million to $97.4 million during the
twenty-six weeks ended July 29, 2000 from $66.1 million during the twenty-six
weeks ended July 31, 1999. As a percentage of net sales, gross profit increased
to 41.0% during the twenty-six weeks ended July 29, 2000 from 39.7% during the
twenty-six weeks ended July 31, 1999. The increase in gross profit, as a
percentage of net sales, was principally due to higher initial markups achieved
through effective product sourcing and lower markdowns partially offset by
higher distribution costs.
Selling, general and administrative expenses increased $21.7 million to
$65.1 million during the twenty-six weeks ended July 29, 2000 from $43.4 million
during the twenty-six weeks ended July 31, 1999. Selling, general and
administrative expenses were 27.4% of net sales during the twenty-six weeks
ended July 29, 2000 as compared with 26.1% during the twenty-six weeks ended
July 31, 1999. The increase, as a percentage of net sales, was due primarily due
to higher store payroll wage rates, costs associated with our E-Commerce website
which was not operational in the comparable prior year period, increased
marketing costs and the settlement of an employment agreement for our former
President and Chief Operating Officer, who resigned in February 2000.
6
<PAGE>
During the twenty-six weeks ended July 29, 2000, pre-opening costs were
$4.3 million or 1.8% of net sales, as compared with $2.0 million, or 1.2% of net
sales, during the twenty-six weeks ended July 31, 1999. We opened 79 stores and
52 stores during the twenty-six weeks ended July 29, 2000 and the twenty-six
weeks ended July 31, 1999, respectively. During the twenty-six weeks ended July
29, 2000, we incurred higher pre-opening expenses due to increased marketing
costs to introduce The Children's Place brand in our new markets, as well as
increased travel and freight costs to open our first stores on the West Coast.
Depreciation and amortization amounted to $9.5 million, or 4.0% of net
sales, during the twenty-six weeks ended July 29, 2000, as compared with $6.2
million, or 3.7% of net sales, during the twenty-six weeks ended July 31, 1999.
The increase in depreciation and amortization primarily was a result of
increases to our store base, depreciation recorded for our new distribution
center and corporate headquarters facility and amortization of our E-Commerce
assets. These increases, as a percentage of net sales, were partially offset by
the leveraging of depreciation and amortization expense over a higher sales
base. During the twenty-six weeks ended July 31, 1999, we accelerated
depreciation expense by $1.8 million, or 1.1% of net sales, in conjunction with
a store re-fixturing and renovation program.
During the twenty-six weeks ended July 29, 2000, we recorded interest
expense of $0.5 million, or 0.2% of net sales, due to borrowings under our
working capital facility. During the twenty-six weeks ended July 31, 1999, we
recorded interest income of $0.2 million, or 0.1% of net sales, due to a net
cash investment position during most of the period.
Our provision for income taxes during the twenty-six weeks ended July 29,
2000 was $7.0 million, as compared with $5.9 million during the twenty-six weeks
ended July 31, 1999. Our effective tax rate for the twenty-six weeks ended July
29, 2000 was 39.1% as compared to an effective rate of 40.0% during the
twenty-six weeks ended July 31, 1999. The decrease in our effective tax rate is
attributable to our foreign subsidiary and other state tax savings.
We recorded net income of $10.9 million and $8.8 million during the
twenty-six weeks ended July 29, 2000 and the twenty-six weeks ended July 31,
1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
DEBT SERVICE/LIQUIDITY
Our primary uses of cash are financing new store openings and providing
for working capital, which principally represents the purchase of inventory.
Our working capital needs follow a seasonal pattern, peaking during the
second and third quarters when inventory is purchased for the back to school
and holiday seasons. We have been able to meet our cash needs principally by
using cash flows from operations and seasonal borrowings under our working
capital facility. As of July 29, 2000, we had no long-term debt obligations.
In July 2000, we amended our working capital facility with Foothill
Capital Corporation to provide for borrowings up to $75 million (including a
sublimit for letters of credit of $60 million). Foothill Capital Corporation
acts as our agent bank for a syndicated group of lenders on this facility. This
working capital facility also contains provisions to increase borrowings up to
$100 million (including a sublimit for letters of credit of $80 million),
subject to sufficient collateralization and the syndication of the incremental
line of borrowing. The amount that may be borrowed under the working capital
facility depends on our levels of inventory and accounts receivable. Amounts
outstanding under the facility bear interest at a floating rate equal to the
prime rate or, at our option, a LIBOR Rate plus a pre-determined spread. The
LIBOR spread is 1.25% to 2.50%, depending on our financial performance from time
to time. Borrowings under the facility mature in July 2003 and provide for one
year automatic renewal options. The working capital facility contains certain
financial covenants including, among others, the maintenance of minimum levels
of earnings and current ratios and imposes certain limitations on our annual
capital expenditures, as well as a prohibition on the payment of dividends.
Credit extended under the working capital facility is secured by a first
priority security interest in our present and future assets.
As of July 29, 2000, we had $29.0 million in borrowings under our working
capital facility and had outstanding letters of credit of $26.6 million.
Availability under our working capital facility was $5.5 million. During the
Second Quarter 2000, the interest rate charged under our working capital
facility for reference rate borrowings was 9.4% per annum and LIBOR borrowings
bore interest at 8.1% per annum. As of July 29, 2000, we were in compliance with
all of our covenants under our working capital facility.
7
<PAGE>
CASH FLOWS/CAPITAL EXPENDITURES
Cash flows provided by operating activities were $9.5 million during the
twenty-six weeks ended July 29, 2000 as compared to cash flows used in operating
activities of $0.3 million during the twenty-six weeks ended July 31, 1999.
During the twenty-six weeks ended July 29, 2000, cash flows provided by
operating activities increased primarily as a result of improved operating
earnings, a slower build-up of seasonal inventory and increases in our current
liabilities, partially offset by increases in our accounts receivable due to
increases in our construction allowance and credit card receivables.
Cash flows used in investing activities were $30.1 million and $32.3
million in the twenty-six weeks ended July 29, 2000 and the twenty-six weeks
ended July 31, 1999, respectively. During the twenty-six weeks ended July 29,
2000, cash flows used in investing activities represented capital expenditures
primarily for new store openings and remodelings. In the twenty-six weeks ended
July 31, 1999, cash flows used in investing activities represented capital
expenditures of approximately $20 million for new stores, remodelings and
re-fixturings with the majority of the remainder of capital expenditures spent
on our new distribution center and corporate headquarters facility, as well as
our warehouse management system and equipment.
In the twenty-six weeks ended July 29, 2000 and the twenty-six weeks ended
July 31, 1999, we opened 79 and 52 stores and remodeled 9 and 7 stores,
respectively. During fiscal 2000, we plan to open a total of 105 stores and
remodel 14 stores. We anticipate that total capital expenditures during fiscal
2000 will approximate $55 million, the majority of which we plan to fund with
cash flows from operations.
Cash flows provided by financing activities were $23.2 million during the
twenty-six weeks ended July 29, 2000 as compared to $17.9 million provided by
financing activities in the twenty-six weeks ended July 31, 1999. During the
twenty-six weeks ended July 29, 2000, cash flows provided by financing
activities reflected net borrowings under our working capital facility and funds
received from the exercise of employee stock options and employee stock
purchases.
We believe that cash generated from operations and funds available under
our working capital facility will be sufficient to fund our capital and other
cash flow requirements for at least the next 12 months. In addition, as we
continue our store expansion program we will consider additional sources of
financing to fund our long-term growth.
Our ability to meet our capital requirements will depend on our ability to
generate cash from operations and successfully implement our store expansion
plans.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
(Not applicable)
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
------- -----------------------
10.1 Second Amended and Restated Loan and Security Agreement
between the Company and Foothill Capital Corporation dated
July 5, 2000.
27.1 Financial Data Schedule.
(B) REPORTS ON FORM 8-K
None
9
<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: September 12, 2000
By: /s/ Ezra Dabah
-----------------------------
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: September 12, 2000 By: /s/ Seth L. Udasin
-----------------------------
Vice President and
Chief Financial Officer
(Principal Financial Officer)
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