SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fifty-two weeks ended January 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
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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)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock.
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
The aggregate market value of voting stock held by non-affiliates was
$178,087,079 at the close of business on April 10, 2000.
Indicate the number of outstanding shares 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 April 10, 2000: 25,756,864 shares.
Documents Incorporated by Reference: None.
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THE CHILDREN'S PLACE RETAIL STORES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FIFTY-TWO WEEKS ENDED JANUARY 29, 2000
TABLE OF CONTENTS
PAGE
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PART I
1. Business ......................................................... 1
2. Properties ....................................................... 10
3. Legal Proceedings ................................................ 10
4. Submissions of Matters to a Vote of Security Holders ............. 11
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters ............................................ 12
6. Selected Financial Data .......................................... 13
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................ 15
7A. Quantitative and Qualitative Disclosures about
Market Risk .................................................... 20
8. Financial Statements and Supplementary Data ...................... 20
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures ........................... 20
PART III
10. Directors and Executive Officers of the Registrant ............... 21
11. Executive Compensation ........................................... 23
12. Security Ownership of Certain Beneficial Owners and Management ... 28
13. Certain Relationships and Related Party Transactions ............. 30
PART IV
14. Exhibits, Financial Statements and Reports on Form 8-K .......... 31
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PART I
ITEM 1. - BUSINESS
This Annual Report on Form 10-K 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." 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 Annual Report on
Form 10-K 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 audited financial statements and notes thereto included elsewhere in
this Annual Report on Form 10-K.
Overview
The Children's Place Retail Stores, Inc. is a growing specialty
retailer of apparel and accessories for children from newborn to twelve years of
age. We design, source and market our products under our proprietary "The
Children's Place" brand name for sale exclusively in our stores. Our
merchandising objective is to provide our customers with high-quality,
fashionable products at prices that represent substantial value relative to our
competitors. We seek to position our stores in areas of high pedestrian traffic
and design them to be very accessible, inviting and easy-to-shop. As of April
10, 2000, we operated 327 stores in 40 states, located primarily in regional
shopping malls. In addition, starting in the fourth quarter of fiscal 1999, we
also began selling our merchandise through our world wide website located at
www.childrensplace.com.
We provide high-quality products that appeal to customers from a
broad range of socioeconomic and demographic profiles. We believe that the
combination of our distinctive approach to merchandising, the inherent value we
offer our customers and the growing strength of our proprietary brand generates
this broad appeal. Our designers interpret current fashion trends and combine
them with a broad color palette to develop a selection of coordinated outfits
specifically designed for children. We believe that our updated merchandise
styling, coordinated, high-quality products and consistent value pricing have
created name recognition and customer loyalty for "The Children's Place" brand.
In fiscal 1996, we began to implement an aggressive store opening
campaign to capitalize on our business strengths and our strong store economics.
During fiscal 1997, fiscal 1998 and fiscal 1999, we opened 47, 54 and 84 new
stores, respectively. Our comparable store sales have increased for each of the
past five fiscal years. This has contributed to our overall growth and yielded
an increase in our net sales per gross square foot from $292 in fiscal 1995 to
$414 in fiscal 1999. Our net sales have increased at a compound annual growth
rate of approximately 36% from $122.1 million in fiscal 1995 to $421.5 million
in fiscal 1999. Over that same period of time, our operating income margin has
increased from 3.3% to 13.7%. During fiscal 2000, we plan to continue our
expansion program and plan to open approximately 100 stores. About half of our
new store openings in fiscal 2000 will be in existing markets and the remainder
will be in new markets, such as on the West Coast of the United States and in
Texas. During fiscal 2001, we plan to open an additional 120 stores.
Our broad merchandise appeal and consistent value pricing result in
a highly portable store concept which can operate profitably in a wide variety
of geographic and demographic regions. In fiscal 1999, our new stores that were
operating for their first full fiscal year generated a cash-on-cash return on
investment of approximately 93%. We believe that we have the opportunity to
significantly increase our domestic store base from the 327 stores we currently
operate as of April 10, 2000.
We believe that the following strengths have contributed to our
success and provide us with a competitive advantage:
Merchandising Strategy. Our merchandising strategy is built on offering a
fashionable collection of interchangeable outfits and accessories to create a
coordinated look distinctive to The Children's Place. We offer a focused
assortment of styles in a variety of colors and patterns, with the aim of
consistently creating a fresh, youthful feel that we believe distinguishes "The
Children's Place" brand. We divide the year into quarterly merchandising
seasons: spring, summer, back-to-school and holiday. To continually generate
freshness in our stores within each season, we typically introduce a new
merchandise line each month. Each season's line is built around a central color
palette which includes a stylish assortment of coordinated fashion basic apparel
with complementary accessories designed to encourage multiple item purchases and
wardrobe building.
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Value Strategy. We offer high-quality clothing and accessories under "The
Children's Place" brand name at prices generally 20% to 30% below most of our
direct mall-based competitors. We employ this consistent value pricing strategy
across our entire merchandise offering, which we believe has enabled us to build
a broad and loyal base of customers. To generate increased customer traffic and
heightened excitement among our customers, we periodically run promotions on
select seasonal merchandise for a limited time.
Strong Brand Image. We believe that we have built a strong brand image for
"The Children's Place" by (1) offering high-quality products, (2) providing a
distinctive collection of coordinated and interchangeable outfits and
accessories, (3) maintaining a consistent merchandise presentation and an
easy-to-shop store layout, (4) emphasizing our distinctive look in our marketing
visuals and (5) selling our merchandise exclusively in our stores. We believe
these factors foster consumer loyalty to "The Children's Place" brand name. In
our continuing efforts to enhance the appeal and recognition of our brand name,
we continue to emphasize our logo merchandise. Our logo merchandise bears our
"Place," "Place Sport," "P," "Place Jeans" and other "Place" logos. Our goal is
to make "The Children's Place" the first name in the minds of consumers when
they think of children's apparel.
Low-Cost Sourcing. We control the design, sourcing and presentation of our
products, all of which are marketed under our proprietary brand name. We believe
that this control is essential in assuring the consistency and quality of our
merchandise and brand image, as well as in our ability to deliver value to our
customers. We have established close, long-standing and mutually beneficial
relationships with numerous manufacturers, buying agents and trading companies.
Through these relationships and our extensive knowledge of manufacturing costs,
we are able to maintain strong gross margin levels while offering our customers
high-quality products at value prices. We further believe that our integrated
merchandise approach, from in-house design to in-store presentation, enables us
to identify and respond to market trends, uphold rigorous product quality
standards, manage the cost of our merchandise and strengthen our brand name. We
opened an office in Hong Kong during fiscal 1999 which we believe enhances our
ability to capitalize on new sourcing and supplier opportunities, increases our
control over product quality and enables us to respond to changing merchandise
trends more effectively and efficiently.
Experienced Management Team. Our 15-member management team is led by Ezra
Dabah who guides the management of The Children's Place using his broad apparel
merchandising and buying expertise, which includes more than 15 years in the
children's segment of the market. Clark Hinkley, who joined The Children's Place
in 1998, further strengthens our management team through his significant
experience developed while he served in various management and merchandising
positions with The Talbot's, Inc. and Dayton Hudson Corporation. In addition,
the other members of our management team have an average of 17 years of retail
or apparel industry experience and an average of nine years with The Children's
Place. The Children's Place is currently in the process of searching for a new
Chief Operating Officer to complete the Company's management team.
Strong Store Economics. During fiscal 2000 and fiscal 2001, we intend to
continue our aggressive store opening campaign and plan to open approximately
100 stores in fiscal 2000 and 120 stores in fiscal 2001. Our store opening
campaign capitalizes on our competitive advantages and strong store economics.
In fiscal 1999, our new stores that were operating for their first full fiscal
year generated a cash-on-cash return on investment of approximately 93%. During
fiscal 2000, we plan to open new stores on the West Coast of the United States
and in Texas, as well as opening new stores in existing markets.
Merchandising
Our merchandising strategy is built on offering a collection of
interchangeable outfits and accessories to create a coordinated look distinctive
to The Children's Place. We offer a focused assortment of styles in a variety of
colors and patterns, with the aim of consistently creating a fresh, youthful
look that we believe distinguishes "The Children's Place" brand. We divide the
year into quarterly merchandising seasons and within each season we introduce a
new merchandise line each month. Approximately 80% of each new line is delivered
to the stores for the introduction of each line and the remainder is reserved
for replenishment throughout the month.
To execute our merchandising strategy, we rely on the coordinated
efforts of our merchandise management, trend, design and planning teams. These
teams, in conjunction with senior management, review our prior season results to
determine the specific styles and numbers of products that we will offer in
upcoming seasons. Merchandise management selects specific styles for production
from the assortment of designs that are created by the design and trend teams.
Then, based upon detail specifications including production quantities
determined by merchandise management and planning, the sourcing and procurement
team arranges for the manufacture of the selected styles.
Our trend and design teams analyze and interpret current and
emerging fashion trends, translating them into a broad selection of children's
clothing and accessories in an array of fashionable colors and patterns that are
appropriate for upcoming seasons. Work on each of our seasonal lines begins
approximately one year before the season, with the gathering of market
intelligence on fashion trends. This process involves extensive European and
domestic market research, the purchase of samples, media, trade shows, fashion
magazines, the services of fashion and color forecast organizations and analysis
of prior season performance. After the trend team presents the fashion themes
for a coming season, the designers translate those themes into an assortment of
fashion basic designs that seek to reflect the fresh and youthful image of "The
Children's Place" brand. These interpretations include variations in fabric and
other materials, product color, decoration and
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age-appropriate silhouette. Potential items are designed using computer aided
design technology, giving us the opportunity to consider a wide range of style
and fashion options. In addition, our Hong Kong office coordinates the
production of product samples which enable our merchandising teams to ensure
that our merchandise will properly reflect our design concepts.
The merchandise management team creates a detailed purchasing plan
for the season covering each department, category and key basic item, based on
historical and current selling trends. The production process takes
approximately six months from order confirmation to receipt of merchandise at
our distribution facility. The planning team monitors current and future
inventory levels on a weekly basis and analyzes sales patterns to predict future
demand for various categories. We regularly monitor sales of each style and
color and maintain some flexibility to adjust merchandise on order for future
seasons or to accelerate delivery of merchandise. The merchandise allocation
team is responsible for planning and allocating merchandise to each store based
on sales volume levels and other factors.
Sourcing and Procurement
We combine management's extensive sourcing experience with a
cost-based buying strategy in order to lower costs and increase margins.
Management believes it has a thorough understanding of the economics of apparel
manufacturing, including costs of materials and components. This knowledge
enables us to determine the most cost-effective country and manufacturer from
which to source each item and obtain low prices. Relying on our supplier
relationships and management's knowledge of manufacturing costs, we believe we
have been able to arrange for the manufacture of high-quality products at low
cost. During fiscal 1999, we opened an office in Hong Kong, which we believe
enables us to obtain more favorable material and manufacturing costs and better
identify and act on new sourcing and supplier opportunities. Our Hong Kong
office also enables us to foster stronger relationships with our suppliers,
manufacturers, agents and trading companies in the Far East.
Our sourcing team makes on-site visits to our independent agents and
various manufacturers to negotiate product costs, finalize technical
specifications of each product and confirm delivery of merchandise manufactured
to our specifications. Our apparel is produced to our specifications by more
than 100 independent manufacturers located primarily in the Far East and
elsewhere in Asia. To support our growing inventory needs and to control
merchandise costs, we continue to pursue global sourcing opportunities and
consider product cost and quality, reliability of the manufacturer, and product
lead times, among other factors.
We have no exclusive or long-term contracts with our manufacturers
and typically transact business on an item-by-item basis under purchase orders
at freight on board cost in U.S. dollars. We are parties to agency agreements
with commissioned independent agents to oversee production, assist in sourcing
and pre-production approval, quality inspection and ensuring timely delivery of
merchandise. We also purchase approximately 35% of our merchandise through a
Hong Kong-based trading company, with which we have no formal written agreement.
This trading company is responsible for most of our procurements from
manufacturers located in Hong Kong, Cambodia, China, the Philippines and Macau.
Although they are not contractually obligated to do so, the Hong Kong-based
trading company, and a commissioned independent agent in Taiwan through which we
purchase approximately 30% of our products, each have exclusive arrangements
with The Children's Place. We have developed long-term, continuous relationships
with key individual manufacturers and material suppliers which have yielded
numerous benefits, including quality control and low costs, and have afforded us
flexible working arrangements and a steady flow of merchandise supply. The
establishment of our Hong Kong office has enabled us to strengthen these
relationships, facilitate the development of new ones and improve quality
control and product costs.
We employ a tracking system that enables us to anticipate potential
delivery delays in our orders and take action to mitigate the impact of such
delays. By using this system together with our purchase order and advanced
shipping notification systems, we and our independent agents actively monitor
the status of each purchase order from order confirmation to merchandise
receipt. We experience occasional shipment delays, but no such delay has had a
material adverse effect on our business.
To ensure quality and promote consumer confidence in our products,
we augment our manufacturers testing requirements with our own, in-house quality
assurance laboratory to test and evaluate fabric, trimming materials and
pre-production samples against a comprehensive range of physical performance
standards before production begins. The quality control personnel of our
independent agents and trading company visit the various manufacturing
facilities to monitor and improve the quality control and production process.
These efforts are augmented by our director of quality control and our Hong Kong
office. With this focus on pre-production quality approval, we are generally
able to detect and correct quality-related problems before bulk production
begins. We do not accept our finished apparel products until each purchase order
receives formal certification of compliance from our agents' inspectors. The
opening of our Hong Kong office has enhanced our quality control by enabling us
to monitor component and manufacturing quality at close range and address
related problems at an early stage.
Company Stores
Existing Stores. As of April 10, 2000, we operated 327 stores in 40
states, primarily located in the eastern half of the United States, with
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49 stores in operation west of the Mississippi River. Most of our stores are
clustered in and around major metropolitan areas. Our stores are concentrated in
major regional malls, with the exception of 27 outlet stores and 29 street and
strip center stores. The following table sets forth the number of stores in each
state as of April 10, 2000:
STATE # OF
- ----- STORES
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Alabama ................................................................. 2
Arkansas ................................................................ 1
California .............................................................. 4
Colorado ................................................................ 4
Connecticut ............................................................. 8
Delaware ................................................................ 3
Florida ................................................................. 9
Georgia ................................................................. 13
Illinois ................................................................ 24
Indiana ................................................................. 7
Iowa .................................................................... 3
Kansas .................................................................. 4
Kentucky ................................................................ 4
Louisiana ............................................................... 3
Maine ................................................................... 3
Maryland ................................................................ 13
Massachusetts ........................................................... 16
Michigan ................................................................ 14
Minnesota ............................................................... 6
Mississippi ............................................................. 1
STATE # OF
- ----- STORES
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Missouri ................................................................ 7
Nebraska ................................................................ 2
New Hampshire ........................................................... 4
New Jersey .............................................................. 25
New York ................................................................ 51
Nevada .................................................................. 1
North Carolina .......................................................... 9
Ohio .................................................................... 14
Oregon .................................................................. 3
Pennsylvania ............................................................ 22
Rhode Island ............................................................ 1
South Carolina .......................................................... 6
South Dakota ............................................................ 1
Tennessee ............................................................... 9
Texas ................................................................... 5
Utah .................................................................... 4
Virginia ................................................................ 14
Washington .............................................................. 3
West Virginia ........................................................... 1
Wisconsin ............................................................... 3
Store Environment. Our prototype store is approximately 4,100 square feet
and features a design that incorporates light wood floors, fixtures and trim.
The store is brightly lit, featuring floor-to-ceiling glass windows that allow
our colorful fashions to attract customers from the outside. A customized grid
system throughout the store's upper perimeter displays featured merchandise,
marketing photographs and key basic item prices. Each merchandise line is
displayed as a separate collection of coordinated fashion basic items, with
matching accessories. We continually refine our merchandise presentation
strategy to improve the shopping experience of our customers. In fiscal 1999, we
installed new fixtures and display tables and implemented a new departmental
structure that allowed us to simplify and facilitate The Children's Place
shopping experience and present our merchandise more clearly. We believe that
our merchandise presentation effectively displays "The Children's Place"
distinctive look and creates a visually attractive selling environment that
maximizes customer convenience and encourages the purchase of multiple items.
To achieve uniform merchandise presentation and to maximize sales of
coordinated items, store management is provided monthly with detailed visual
store plans that specify merchandise placement. Standardization of store design,
merchandise presentation and window displays also promotes effective usage and
productivity of selling space and maximizes customer convenience in merchandise
selection. By seeking a uniform appearance in store design and merchandise
presentation, we believe that we are able to maintain and enhance "The
Children's Place" brand image.
Our outlet stores generally measure in excess of 5,000 square feet
and represent approximately 8% of our store base. Our outlet stores are located
in outlet centers and are strategically placed within each market to serve as a
vehicle to consolidate markdown merchandise from our other stores. Our street
and strip center locations represent approximately 9% of our store base and
provide opportunities for further penetration in established markets and
generate significant customer traffic.
Store Operations. Our store operations are directed by our Vice President
of Store Operations, regional and district managers. Individual stores are
managed by a store manager and up to three co-managers depending on sales
volume. A typical store employs one to two full-time sales associates and
several part-time sales associates. We hire additional part-time associates
based on seasonal needs.
Regional and district managers spend a majority of their work week
on store selling floors, providing direction, motivation, training and support
to store personnel. Store managers are responsible for achieving planned store
sales goals, staff scheduling, training and supervising customer service, store
presentation standards, payroll productivity and inventory shrink. To maximize
selling productivity, we engage in an ongoing process of training management and
sales associates in the areas of customer service, selling skills, merchandise
presentation, procedures and controls, utilizing visual aids, training manuals
and training workshops.
In order to motivate our regional, district and store managers, we
offer an incentive compensation plan. Under the plan, managers of
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our stores who meet planned monthly goals for sales, payroll productivity and
inventory shrink are awarded a bonus based upon the amount by which their
respective stores exceed such targets. District and regional managers receive
bonuses based upon the incentive compensation awarded to their store managers
and management turnover.
Management maintains a high level of communication between our
corporate headquarters and stores. Frequent communication downloads through the
point-of-sale ("POS") registers, biweekly mail packs to each store, voicemail,
electronic mail and regional manager conference calls augment the frequent store
visits by the regional and district managers. In addition, home office and
district manager meetings engender a strong team culture.
Store Expansion Program
In fiscal 1996, we began to implement an aggressive growth strategy
designed to capitalize on our business strengths and strong store economics. In
the last three fiscal years we increased our number of stores from 108 to 293,
opening 47, 54 and 84 stores in fiscal 1997, fiscal 1998 and fiscal 1999,
respectively. In fiscal 1999, new stores for which fiscal 1999 was the first
full year of operations had average net sales of approximately $1.4 million. The
average investment for these stores, including capital expenditures (net of
landlord contribution), initial inventory (net of merchandise payables) and
pre-opening was approximately $379,000. In fiscal 1999, store level operating
cash flow for these stores was approximately $352,000, yielding a cash on cash
return on investment of approximately 93%.
Our expansion strategy focuses primarily on mall-based locations.
The regional malls which we target are typically high volume centers, generally
having at least three department stores or other anchor tenants and various
specialty retailers, as well as several entertainment features (such as
restaurants, a food court and/or movie theaters). We conduct on-site visits and
analyses of potential store sites, taking into account the performance of other
specialty retail tenants, the anchor stores and other stores, the size, type and
average sales per square foot of the mall and the demographics of the
surrounding area. Our most important considerations in evaluating a store
location within a mall are placement of the store relative to mall traffic
patterns and proximity to other children's retailers. In addition, we
continuously evaluate opportunities to add stores in other types of locations,
including street locations and strip and outlet centers.
We intend to continue our store expansion program and currently plan
to open approximately 100 stores in fiscal 2000 and 120 stores in fiscal 2001.
About half of these new store openings will be in existing markets and the
remainder will be in new markets, such as on the West Coast of the United States
and in Texas. During fiscal 2000, The Children's Place will become a national
retailer with stores in operation in more than forty states. As of April 10,
2000, we have opened 34 stores and executed leases on substantially all of the
100 stores we plan to open in fiscal 2000.
Electronic Commerce
During the fourth quarter of fiscal 1999, we began selling our
merchandise through our world wide website located at www.childrensplace.com. To
launch and provide day-to-day management of our website, an electronic commerce
("E-Commerce") department was established in fiscal 1999. Our E-Commerce
strategy is to provide a seamless brick and click shopping experience for our
customers. We use an E-Commerce service provider and third party fulfillment
center to process our website orders. Our E-Commerce service provider hosts our
website, accepts customer orders, routes orders to our third party fulfillment
center and bills the customer's credit card.
Marketing
Advertising and Promotion. We strive to enhance our reputation and image
in the market place and build recognition and equity in "The Children's Place"
brand name by advertising our image, product and value message through in-store
marketing and direct mail. In fiscal 1999, we increased our direct mail
marketing efforts. These mailings were designed to increase sales, promote brand
loyalty and create customer excitement. We plan to further increase our direct
mail efforts in fiscal 2000. In addition, our direct marketing efforts were
supplemented by advertising our image, product and value messages through
in-store photographs, signage and product displays. We are considering the
utilization of broadcast, outdoor advertising and print media during the latter
half of fiscal 2000.
Private Label Credit Card. We view our private label credit card as an
important marketing and communication tool. Pursuant to a merchant services
agreement, private label credit cards are issued to our customers for use
exclusively at our stores and credit is extended to such customers on a
non-recourse basis to The Children's Place. Sales on the private label credit
card accounted for approximately 11% of our fiscal 1999 net sales. We believe
that our private label credit card promotes affinity and loyalty among those
customers who use the card and facilitates communication with such customers
through delivery of coupons and promotional materials. Our average dollar sale
to customers using "The Children's Place" card has been substantially higher
than our overall average dollar sale.
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Management Information Systems
Our management information and electronic data processing systems consist
of a full range of retail, financial and merchandising systems, including
purchase order management, advance shipping notification, inventory planning and
control, inventory distribution, sales reporting and accounts payable. These
systems operate on an IBM mainframe computer and utilize a combination of third
party and proprietary software packages. Management views technology as an
important tool in efficiently supporting our rapid growth and maintaining a
competitive industry position.
Unit and dollar sales information is updated daily in the merchandise
reporting systems by polling each store's POS terminals. Through automated
nightly two-way electronic communication with each store, sales information,
payroll hours and store inventory transfers are uploaded to the host system, and
price changes and other information are downloaded through the POS devices.
Information obtained from such daily polling generally results in automatic
merchandise replenishment in response to the specific SKU requirements of each
store. We evaluate information obtained through daily reporting to identify and
respond to sales trends and to implement merchandising decisions regarding
markdowns and allocation of merchandise.
We are committed to utilizing technology to further enhance our
competitive position. During fiscal 1999, we installed an automated warehouse
management system in connection with the relocation of our distribution center.
We also commenced a rollout of new POS software and hardware and upgraded our
back office software during fiscal 1999 to enhance customer service and
communication between our corporate headquarters and our stores. We completed
our POS rollout in the first quarter of fiscal 2000.
Logistics
In July 1999, we relocated to a 204,000 square foot distribution center
and corporate headquarters facility in Secaucus, New Jersey. In conjunction with
our move, we also implemented a new automated warehouse management system, which
employs radio frequency technology and an automated conveyor system. During
fiscal 2000, we plan to lease a distribution center on the West Coast to support
merchandise distribution for our stores in the western half of the United
States. We expect this new facility to be operational in fiscal 2001.
Competition
The children's apparel retail business is highly competitive. We compete
in substantially all of our markets with GapKids, babyGap and Old Navy (each of
which is a division of The Gap, Inc.), The Gymboree Corporation, Too, Inc., J.C.
Penney Company, Inc., Sears, Roebuck and Co. and other department stores that
sell children's apparel and accessories, as well as certain discount stores such
as Wal-Mart Stores, Inc., Kmart Corporation, Target Corporation and Kids "R" Us
(a division of Toys "R" Us, Inc.). We also compete with a wide variety of
specialty stores, other national and regional retail chains, catalog companies
and internet retailers. One or more of our competitors are present in
substantially all of the malls in which we have stores. Many of our competitors
are larger than The Children's Place or have access to significantly greater
financial, marketing and other resources than we have.
We believe that the principal factors of competition in our marketplace
are perceived value, price, quality, merchandise assortment, brand name
recognition, customer service, and a friendly store environment. We believe that
we have been able to effectively compete in the children's apparel industry
because of our reputation in the marketplace and consistent merchandise offering
of high-quality, coordinated basic and fashion outfits for children at
consistent value prices, sold in a friendly environment.
Trademarks and Service Marks
"The Children's Place," "Baby Place," "Place," "The Place," "TCP" and
certain other marks have been registered as trademarks and/or service marks with
the United States Patent and Trademark Office. The registration of the
trademarks and the service marks may be renewed to extend the original
registration period indefinitely, provided the marks are still in use. We intend
to continue to use and protect our trademarks and service marks and maintain
their registrations. We are taking steps to register our trademarks in certain
foreign countries. We believe our trademarks and service marks have received
broad recognition and are of significant value to our business.
Employees
As of April 10, 2000, we had approximately 1,866 full-time employees, of
whom approximately 467 are based at our distribution center and corporate
headquarters, and approximately 3,907 part-time employees. None of our employees
are covered by a collective bargaining agreement. We believe our relations with
our employees are good.
6
<PAGE>
Risk Factors
Investors in the Company should consider the following risk factors as
well as the other information contained herein.
Inability to Sustain Aggressive Growth Strategy
Our net sales have grown significantly during the past several years,
primarily as a result of the opening of new stores and, to a lesser extent, due
to increases in our comparable store sales. We intend to continue to pursue an
aggressive growth strategy for the foreseeable future, and our future operating
results will depend largely upon our ability to open and operate new stores
successfully and to manage a larger business profitably. We anticipate opening
approximately 100 stores during fiscal 2000 and 120 stores during fiscal 2001.
We are subject to a variety of business risks generally associated with
rapidly growing companies. Our ability to open and operate new stores
successfully depends on many factors, including, among others, the availability
of suitable store locations, the ability to negotiate acceptable lease terms,
the ability to timely complete necessary construction, the ability to
successfully integrate new stores into our existing operations, the ability to
hire and train store personnel and the ability to recognize and respond to
regional and climate-related differences in our customer preferences.
We cannot assure you that we will be able to continue to achieve our
planned expansion on a timely and profitable basis or that we will be able to
achieve results similar to those achieved in existing locations in prior
periods. In addition, as our business grows, we anticipate that we will not be
able to sustain the current annual growth rate of our store base of
approximately 40%. Operating margins may also be adversely affected during
periods in which we have incurred expenses in anticipation of new store
openings. Furthermore, we need to continually evaluate the adequacy of our store
management and our management information and distribution systems to manage our
planned expansion. Any failure to successfully and profitably execute our
expansion plans could have a material adverse effect on our business.
We expect to spend approximately $50 million in fiscal 2000 on capital
expenditures. 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. However, it is
possible that as we continue to grow we may be required to seek additional funds
for our capital and other cash flow needs, and we cannot assure you that we will
be able to obtain such funds.
Potential Disruptions in Receiving and Distribution
Our merchandise is shipped directly from manufacturers through freight
consolidators to our distribution center in Secaucus, New Jersey. Our operating
results depend in large part on the orderly operation of our receiving and
distribution process, which depends on manufacturers' adherence to shipping
schedules and our effective management of our distribution facility. During
fiscal 1999, we experienced certain start-up delays in the shipping of
merchandise to our stores from our new, highly automated distribution system.
Although we have continued to make necessary modifications to improve the
performance of the system and improve the flow of merchandise to our stores, we
cannot assure you that we will not experience shipment delays in the future.
During fiscal 2000, we also plan to lease a distribution center on the West
Coast to support merchandise distribution for our stores in the western half of
the United States. We cannot assure you that we have anticipated, or will be
able to anticipate, all of the changing demands which our expanding operations
will impose on our receiving and distribution systems. We also cannot assure you
that we will not experience start-up delays or other difficulties with our West
Coast distribution center. Furthermore, it is possible that events beyond our
control, such as a strike or other disruption affecting the parcel service that
delivers substantially all of our merchandise to our stores, could result in
delays in delivery of merchandise to our stores. Any such event could have a
material adverse effect on our business.
Need to Anticipate and Respond to Merchandise Trends
Our continued success will depend in part on our ability to anticipate and
respond to fashion trends and consumer preferences. Our design, manufacturing
and distribution process generally takes up to one year, during which time
fashion trends and consumer preferences may change. Failure to anticipate,
identify or respond to future fashion trends, may adversely affect customer
acceptance of our products or require substantial markdowns, which could have a
material adverse effect on our business. In addition, certain public school
districts in various markets in which we have stores are increasingly requiring
that their grade school students wear uniforms, which may have a material
adverse effect on our business.
Reliance on Information Systems
We rely on various information systems to manage our operations and
regularly make investments to upgrade, enhance or replace such systems. Any
delays or difficulties in transitioning to these or other new systems, or in
integrating these systems with our current systems, or any other disruptions
affecting our information systems, could have a material adverse effect on our
business.
7
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Dependence on Unaffiliated Manufacturers and Independent Agents
We do not own or operate any manufacturing facilities and therefore are
dependent upon independent third parties for the manufacture of all of our
products. Our products are currently manufactured to our specifications,
pursuant to purchase orders, by more than 100 independent manufacturers located
primarily in the Far East and elsewhere in Asia. We have no exclusive or
long-term contracts with our manufacturers and compete with other companies for
manufacturing facilities. In addition, we have no formal written agreement with
the Hong Kong-based trading company through which we purchase approximately 35%
of our products. We also purchase approximately 30% of our products from a
single agent in Taiwan, which has an exclusive arrangement with us. Although we
believe that we have established close relationships with our principal
manufacturers and independent agents, the inability to maintain such
relationships or to find additional sources to cover future growth could have a
material adverse effect on our business.
Risks of Using Foreign Manufacturers; Possible Adverse Impact of Unaffiliated
Manufacturers' Failure to Comply with Acceptable Labor Practices
Our business is subject to the risks generally associated with purchasing
from foreign countries. Some of these risks are foreign governmental
regulations, political instability, currency and exchange risks, quotas on the
amounts and types of merchandise which may be imported into the United States
from other countries, disruptions or delays in shipments and changes in economic
conditions in countries in which our manufacturing sources are located. We
cannot predict the effect that such factors will have on our business
arrangements with foreign manufacturing sources. If any of these factors
rendered the conduct of business in a particular country undesirable or
impractical, or if our current foreign manufacturing sources ceased doing
business with us for any reason, our business could be materially adversely
affected. Our business is also subject to the risks associated with changes in
U.S. legislation and regulations relating to imported apparel products,
including quotas, duties, taxes and other charges or restrictions on imported
apparel. We cannot predict whether such changes or other charges or restrictions
will be imposed upon the importation of our products in the future, or the
effect any such event would have on our business. However, if China were to lose
its Most Favored Nation trading status with the United States, that event could
have a material adverse effect on our business.
We require our independent manufacturers to operate in compliance with
applicable laws and regulations and our internal requirements. While our
purchasing guidelines promote ethical business practices, we do not control
these manufacturers or their labor practices. The violation of labor or other
laws by one of the independent manufacturers we use or the divergence of an
independent manufacturer's labor practices from those generally accepted as
ethical in the United States could have a material adverse effect on our
business.
Effect of Fluctuations in Quarterly Results and Seasonality on Income
As is the case with many apparel retailers, we experience seasonal
fluctuations in our net sales and net income. Our net sales and net income are
generally weakest during the first two fiscal quarters, and are lower during the
second fiscal quarter than during the first fiscal quarter. For example, in
fiscal 1999, 22%, 18%, 28% and 32% of our net sales for stores open for the full
fiscal year occurred in the first, second, third and fourth quarters,
respectively. In the past, we have experienced second quarter losses and it is
possible for us to experience second quarter losses in the future. Our first
quarter results are heavily dependent upon sales during the period leading up to
the Easter holiday and weak sales during this period could have a material
adverse effect on our business. Our third quarter results are heavily dependent
upon back-to-school sales and our fourth quarter results are heavily dependent
upon sales during the holiday season. Weak sales during either of these periods
could have a material adverse effect on our business.
Our quarterly results of operations may also fluctuate significantly from
quarter to quarter as a result of a variety of other factors, including the
timing of new store openings and related pre-opening and other start-up costs,
net sales contributed by new stores, increases or decreases in comparable store
sales, weather conditions, shifts in the timing of certain holidays, changes in
our merchandise mix and overall economic conditions. Any failure by us to meet
our business plans for, in particular, the third and fourth quarter of any
fiscal year would have a material adverse effect on our earnings, which in all
likelihood would not be offset by satisfactory results achieved in other
quarters of the same fiscal year. In addition, because our expense levels are
based in part on expectations of future sales levels, a shortfall in expected
sales could result in a disproportionate decrease in our net income.
Changes in Comparable Store Sales Results from Period to Period
Numerous factors affect our comparable store sales results including,
among others, weather conditions, fashion trends, merchandise assortment, the
retail sales environment, economic conditions and our success in executing our
business strategy. Our quarterly comparable store sales results have fluctuated
significantly in the past and we anticipate that our quarterly comparable store
sales will continue to fluctuate in the future. In addition, we do not expect
our comparable store sales to continue to increase at rates similar to those
experienced in fiscal 1999. Moreover, comparable store sales for any particular
period may decrease in the future. Comparable store sales results are often
followed closely by the investment community and significant fluctuations in
such results may affect the price of our Common Stock. Any
8
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such variations in our comparable store sales results could have a material
adverse effect on our business and on the market price of our Common Stock.
Risk of Geographic Expansion
Most of our stores are located in the eastern half of the United States,
with 49 stores, representing 15% of our stores, in operation west of the
Mississippi River as of April 10, 2000. During fiscal 2000, we plan to open
approximately 100 stores, with about half of these stores in existing markets
and the remainder in new markets, such as on the West Coast of the United States
and in Texas. As a result, our growth strategy for fiscal 2000 will increase our
susceptibility to differences in demographic and population characteristics,
regional economic conditions, climate and other weather-related conditions,
consumer preferences and other geographical factors. We cannot assure you that,
as we expand into new regions, we will be able to achieve results comparable to
those we have achieved in prior periods in regions where we already conduct
business.
Sensitivity to Economic, Regional and Other Business Conditions
Our business is sensitive to customers' spending patterns which, in turn,
are subject to prevailing regional and national economic conditions such as
interest rates, taxation and consumer confidence. We are, and will continue to
be, susceptible to changes in regional economic conditions, weather conditions,
demographic and population characteristics, consumer preferences and other
regional factors. We are also dependent upon the continued popularity of malls
as shopping destinations and the ability of mall anchor tenants and other
attractions to generate customer traffic in the malls where our stores are
located. Any economic or other conditions decreasing the retail demand for
apparel or the level of mall traffic could have a material adverse effect on our
business.
Foreign Currency Fluctuations
We conduct our business in U.S. dollars. However, because we purchase
substantially all of our products overseas, the cost of these products may be
affected by changes in the values of the relevant currencies. To date, we have
not considered it necessary to hedge against foreign currency fluctuations.
Although foreign currency fluctuations have had no material adverse effect on
our business in the past, we cannot predict whether such fluctuations will have
such an effect in the future.
Dependence on Key Personnel
The leadership of Ezra Dabah, our Chief Executive Officer and Chairman of
the Board has been instrumental in our success. The loss of the services of Mr.
Dabah could have a material adverse effect on our business. In addition, Clark
Hinkley, who joined the Company in 1998 as our Executive Vice President,
Merchandising, has also been an important member of our senior management team.
The loss of his services could also have a material adverse effect on our
business. We have entered into employment agreements with Messrs. Dabah and
Hinkley, but we cannot assure you that we will be able to retain their services.
The Company is currently in the process of searching for a new Chief Operating
Officer to complete our management team. We cannot assure you that we will be
successful in our search or that the absence of a Chief Operating Officer will
not have a material adverse effect on our business. In addition, other members
of management have substantial experience and expertise in our business and have
made significant contributions to its growth and success. The loss of services
of one or more of these individuals, or the inability to attract additional
qualified managers or other personnel as we grow, could have a material adverse
effect on our business. We are not protected by any key-man or similar life
insurance for any of our executive officers.
Competition
The children's apparel retail business is highly competitive. We compete
in substantially all of our markets with GapKids, babyGap and Old Navy (each of
which is a division of The Gap, Inc.), The Gymboree Corporation, Too, Inc., J.C.
Penney Company, Inc., Sears, Roebuck and Co. and other department stores that
sell children's apparel and accessories, as well as certain discount stores such
as Wal-Mart Stores, Inc., Kmart Corporation, Target Corporation and Kids "R" Us
(a division of Toys "R" Us, Inc.). We also compete with a wide variety of
specialty stores, other national and regional retail chains, catalog companies
and internet retailers. One or more of our competitors are present in
substantially all of the malls in which we have stores. Many of our competitors
are larger than The Children's Place and have access to significantly greater
financial, marketing and other resources than we have. We cannot assure you that
we will be able to compete successfully against existing or future competition.
Control by Certain Stockholders
As of April 10, 2000, Ezra Dabah and certain members of his family
beneficially own 8,830,301 shares of our Common Stock, constituting
approximately 34.2% of the outstanding Common Stock. Two funds managed by
Saunders Karp & Megrue, L.P. ("SKM"), The SK Equity Fund, L.P. and SK Investment
Fund, L.P. (collectively, the "SK Funds"), own 6,704,053 shares or approximately
26.0% of the outstanding Common Stock. Under a stockholders agreement, the SK
Funds and certain other stockholders, who own in the aggregate a majority of the
outstanding Common Stock, have agreed to vote for the election of two nominees
of the SK Funds and three nominees of Ezra
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Dabah to our Board of Directors in any election of directors. As a result, the
SK Funds and Ezra Dabah are, and will continue to be, able to control the
election of our directors. In addition, if the SK Funds and Mr. Dabah were to
vote together, they would be able to determine the outcome of any matter
submitted to a vote of our stockholders for approval.
Uncertainty of Net Operating Loss Carryforwards
We utilized $11.6 million, $8.6 million, $38.4 million and $1.6 million of
our net operating loss carryforwards ("NOLs") to offset taxable income that we
earned in our 1996, 1997, 1998 and 1999 taxable years, respectively. As the
amount and availability of these NOLs are subject to review by the Internal
Revenue Service, we cannot assure you that the NOLs will not be reduced or their
use limited as the result of an audit of our tax returns. If the amount of these
NOLs were reduced or their availability limited, we could be liable for
additional taxes with respect to our 1996 through 1999 taxable years. Any such
reduction or restriction could have a material adverse effect on our business.
Stock Price Volatility
Our Common Stock, which is quoted on the Nasdaq National Market, has
experienced and is likely to experience in the future significant price and
volume fluctuations which could adversely affect the market price of the Common
Stock without regard to our operating performance. In addition, we believe that
factors such as quarterly fluctuations in our financial results, our comparable
store sales results, announcements by other apparel retailers, the overall
economy and the condition of the financial markets could cause the price of our
Common Stock to fluctuate substantially.
Anti-Takeover Provisions of Applicable Delaware Law and Our Certificate of
Incorporation and ByLaws
Certain provisions of our Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") and Amended and Restated
ByLaws (the "ByLaws") may have anti-takeover effects and may discourage, delay
or prevent a takeover attempt that a stockholder might consider in its best
interest. These provisions, among other things, (1) classify our Board of
Directors into three classes, each of which will serve for different three year
periods, (2) provide that only the Chairman of the Board of Directors may call
special meetings of the stockholders, (3) provide that a director may be removed
by stockholders only for cause by a vote of the holders of more than two-thirds
of the shares entitled to vote, (4) provide that all vacancies on our Board of
Directors, including any vacancies resulting from an increase in the number of
directors, may be filled by a majority of the remaining directors, even if the
number is less than a quorum, (5) establish certain advance notice procedures
for nominations of candidates for election as directors and for stockholder
proposals to be considered at stockholders' meetings, and (6) require a vote of
the holders of more than two-thirds of the shares entitled to vote in order to
amend the foregoing provisions and certain other provisions of the Certificate
of Incorporation and ByLaws. In addition, the Board of Directors, without
further action of the stockholders, is permitted to issue and fix the terms of
preferred stock which may have rights senior to those of the Common Stock.
Moreover, we are subject to the provisions of Section 203 of the Delaware
General Corporation Law, as amended (the "DGCL"), which would require a
two-thirds vote of stockholders for any business combination (such as a merger
or sales of all or substantially all of our assets) between The Children's Place
and an "interested stockholder," unless such transaction is approved by a
majority of the disinterested directors or meets certain other requirements. In
certain circumstances, the existence of these provisions which inhibit or
discourage takeover attempts could reduce the market value of our Common Stock.
ITEM 2. - PROPERTIES
During the first half of fiscal 1999, we leased a 90,000 square foot
distribution facility and corporate headquarters in West Caldwell, New Jersey
supplemented by an approximately 35,000 square foot facility in Fairfield, New
Jersey. In July 1999, we relocated to a 204,000 square foot distribution center
and corporate headquarters facility in Secaucus, New Jersey.
All of our existing store locations are leased by us, with lease terms
expiring between 2000 and 2014 and with an average unexpired lease term of 7.6
years. The leases for most of our existing stores are for terms of ten years and
provide for contingent rent based upon a percentage of sales in excess of
specific minimums. Leases for future stores will likely include similar
contingent rent provisions.
ITEM 3. - LEGAL PROCEEDINGS
Stockholder Litigation
The Company has reached an agreement in principle to resolve the federal
securities class action litigation which was filed against the Company and
others in the United States District Court for the District of New Jersey and
the securities litigation filed in Superior Court of New Jersey, Essex County
Division. The proposed settlements provide for the payment of $1.7 million in
the aggregate and would be funded entirely from insurance proceeds. The proposed
federal action settlement requires court approval. The proposed settlements
would
10
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have no material impact on the Company.
Other Litigation
We are also involved in various legal proceedings arising in the normal
course of our business. In the opinion of management, any ultimate liability
arising out of such proceedings will not have a material adverse effect on our
business.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
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PART II
ITEM 5. - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock is listed on the Nasdaq National Market under the symbol
"PLCE." The following table sets forth the range of high and low closing sales
prices on the Nasdaq National Market of our Common Stock for the calendar
periods indicated.
High Low
---- ---
1997
Third Quarter (from September 19, 1997) $ 15.75 $ 14.13
Fourth Quarter ........................ 14.25 4.44
1998
First Quarter ......................... 9.06 5.06
Second Quarter ........................ 11.38 8.13
Third Quarter ......................... 11.00 8.06
Fourth Quarter ........................ 25.13 9.13
1999
First Quarter ......................... 33.25 23.56
Second Quarter ........................ 48.63 27.38
Third Quarter ......................... 52.56 25.63
Fourth Quarter ........................ 32.00 13.69
On April 10, 2000, the last reported sale price of our Common Stock was
$18.13 per share. As of April 10, 2000, there were approximately 4,200 holders
of record of our Common Stock.
We have never paid dividends on our Common Stock and do not anticipate
paying dividends on our Common Stock in the foreseeable future. Our Board of
Directors presently intends to retain any future earnings of The Children's
Place to finance our operations and the expansion of our business. Our working
capital facility prohibits any payment of dividends. Any determination in the
future to pay dividends will depend upon our earnings, financial condition, cash
requirements, future prospects, covenants in our working capital facility and
any future debt instruments and such other factors as the Board of Directors
deems appropriate at the time.
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ITEM 6. - SELECTED FINANCIAL DATA
The following table sets forth certain historical financial and operating
data for The Children's Place. The selected historical financial data is
qualified by reference to, and should be read in conjunction with Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations, and the financial statements and notes thereto included elsewhere in
this report. Certain prior fiscal year balances set forth below have been
reclassified to conform to fiscal 1999 presentation.
<TABLE>
<CAPTION>
Fiscal Year Ended (1)
---------------------
January 29, January 30, January 31, February 1, February 3,
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data (in thousands,
except per share data):
Net sales ............................................... $ 421,496 $ 283,853 $ 192,557 $ 143,838 $ 122,060
Cost of sales ........................................... 241,188 166,449 123,556 90,071 83,434
--------- --------- --------- --------- ---------
Gross profit ............................................ 180,308 117,404 69,001 53,767 38,626
Selling, general and administrative expenses ............ 105,137 70,313 46,451 35,966 30,757
Pre-opening costs ....................................... 3,485 3,030 2,127 982 311
Depreciation and amortization ........................... 13,849 8,607 5,958 4,017 3,496
--------- --------- --------- --------- ---------
Operating income ........................................ 57,837 35,454 14,465 12,802 4,062
Interest expense, net ................................... 346 324 2,647 2,884 1,925
Other expense, net ...................................... 54 110 139 396 447
--------- --------- --------- --------- ---------
Income before income taxes and
extraordinary loss ................................... 57,437 35,020 11,679 9,522 1,690
Provision (benefit) for income taxes (2) ................ 22,388 14,358 4,695 (20,919) 36
--------- --------- --------- --------- ---------
Income before extraordinary loss ........................ 35,049 20,662 6,984 30,441 1,654
Extraordinary loss (3) .................................. 0 0 1,743 0 0
--------- --------- --------- --------- ---------
Net income .............................................. $ 35,049 $ 20,662 $ 5,241 $ 30,441 $ 1,654
========= ========= ========= ========= =========
Diluted income per common share before extraordinary loss $ 1.32 $ 0.80 $ 0.29
--------- --------- ---------
Extraordinary loss ...................................... 0.00 0.00 (0.07)
--------- --------- ---------
Diluted net income per common share (4) ................. $ 1.32 $ 0.80 $ 0.22
========= ========= =========
Diluted weighted average common shares outstanding (4) .. 26,648 25,909 24,358
Selected Operating Data:
Number of stores open at end of period .................. 293 209 155 108 91
Comparable store sales increase (5) (6) ................. 15% 14% 2% 9% 10%
Average net sales per store (in thousands) (6) (7) ...... $ 1,656 $ 1,569 $ 1,487 $ 1,479 $ 1,362
Average square footage per store (8) .................... 4,140 4,055 4,123 4,284 4,528
Average net sales per gross square foot (6) (9) ......... $ 414 $ 382 $ 350 $ 335 $ 292
<CAPTION>
January 29, January 30, January 31, February 1, February 3,
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (in thousands):
Working capital (deficit) ............................... $ 27,340 $ 35,531 $ 20,238 $ 11,951 $ (17,630)
Total assets ............................................ 170,959 110,761 79,353 64,479 32,073
Long-term debt .......................................... 0 2 26 20,504 15,735
Stockholders' equity (deficit) .......................... 120,066 80,607 58,467 27,298 (11,735)
</TABLE>
(footnotes on following page)
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- -----------
(1) All references to our fiscal years refer to the 52- or 53-week year ended
on the Saturday nearest to January 31 of the following year. For example,
references to fiscal 1999 mean the fiscal year ended January 29, 2000.
Fiscal 1995 was a 53-week year.
(2) The provision (benefit) for income taxes for fiscal 1996 reflected the
reversal of a valuation allowance of $21.0 million on a net deferred tax
asset.
(3) The extraordinary loss in fiscal 1997 represented the write-off of
unamortized deferred financing costs and unamortized debt discount as a
result of the repayment of long-term debt in conjunction with our initial
public offering in September 1997.
(4) Diluted net income per common share is calculated by dividing net income
by the diluted weighted average common shares and common share equivalents
outstanding. The weighted average common shares outstanding and common
share equivalents used in computing diluted net income per common share
for fiscal 1997 are based on the number of common shares and common share
equivalents as if our recapitalization at the time of our initial public
offering had occurred on the first day of fiscal 1997. During and prior to
the fiscal year ended February 1, 1997, our Common Stock was not publicly
traded and due to significant changes in our capital structure resulting
from a private placement of our Common Stock in July 1996, earnings per
share for that year and earlier periods is not presented due to a lack of
comparability.
(5) We define comparable store sales as net sales from stores that have been
open for more than 14 full months and that have not been substantially
remodeled during that time.
(6) For purposes of determining the comparable store sales increase, average
net sales per store and average net sales per gross square foot, fiscal
1995 results were recalculated based on a 52-week year.
(7) Represents net sales from stores open throughout the full period divided
by the number of such stores.
(8) Average square footage per store represents the square footage of stores
open on the last day of the period divided by the number of such stores.
(9) Represents net sales from stores open throughout the full period divided
by the gross square footage of such stores.
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ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our audited
financial statements and notes thereto included as Item 14. The following
discussion contains forward-looking statements that reflect our plans, estimates
and beliefs. Our actual results could differ materially from those discussed in
the forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and elsewhere
in this report, particularly in "Risk Factors."
Overview
The Children's Place Retail Stores, Inc. is a specialty retailer of
apparel and accessories for children from newborn to twelve years of age. As of
April 10, 2000, we operated 327 stores in 40 states, located primarily in
regional shopping malls. In addition, starting in the fourth quarter of fiscal
1999, we also began selling our merchandise through our world wide website
located at www.childrensplace.com.
In 1996, we began to implement an aggressive growth strategy designed to
capitalize on our business strengths and strong store economics. During fiscal
1997, fiscal 1998 and fiscal 1999, we opened a total of 47, 54 and 84 new
stores, respectively. We intend to continue our expansion program and currently
plan to open approximately 100 stores in fiscal 2000 and 120 stores in fiscal
2001. During fiscal 2000, approximately half of our new stores will be in
existing markets and the remainder will be in new markets, such as on the West
Coast of the United States and in Texas.
Our net sales have grown significantly during the past several years,
primarily as a result of new store openings and, to a lesser extent, increases
in comparable store sales. We reported comparable store sales growth over prior
years of 2%, 14% and 15% during fiscal 1997, fiscal 1998 and fiscal 1999,
respectively. We believe that these increases were primarily the result of
successful merchandising and operational programs, together with well-positioned
store real estate. We do not expect our comparable store sales to continue to
increase at rates similar to those experienced over the last two years.
In order to support our aggressive growth strategy, we continually assess
and strengthen our administrative infrastructure and our management information
and distribution systems. Over the last three years, we have added resources in
virtually all of our administrative functions to support our present and planned
store growth.
During the second quarter of fiscal 1999, we implemented an automated
warehouse management system in conjunction with our move to a larger
distribution center and corporate headquarters in Secaucus, New Jersey. This
relocation supported our need for additional space for our distribution center
and administrative staff. In adapting to our new highly automated distribution
system, we experienced certain start-up delays in processing merchandise to our
stores. Since the second half of fiscal 1999, we have continued to make
necessary modifications to increase the performance of the system and improve
the flow of merchandise. Despite our start-up delays, our new warehouse
management system has enabled us to ship merchandise more efficiently than our
former manual process. During fiscal 2000, we plan to lease a distribution
center on the West Coast to support merchandise distribution for our stores in
the western half of the United States. We expect this facility to be operational
in fiscal 2001.
During fiscal 1999, we established an electronic commerce ("E-Commerce")
department to launch and manage sales generated from our website,
www.childrensplace.com. Our internal staff is supported by outside web design
consultants, an outsourced E-Commerce service provider and a third party
fulfillment center.
In fiscal 1999, we upgraded the display fixtures and other elements of our
store design in approximately two-thirds of our existing stores, in order to
simplify and enhance the shopping experience of our customers and to increase
our sales productivity. In conjunction with the upgrade of our display fixtures,
we also implemented a new merchandise presentation strategy for our fiscal 1999
back-to-school season. We reduced our merchandise presentation from five major
departments down to three: boys, girls and baby. This new format enabled us to
reduce duplicate stock keeping units ("SKU's") and sizes within each store,
while also providing a clearer merchandise statement and more space for our
customers to shop.
We also opened our Hong Kong office, through a wholly-owned Hong Kong
subsidiary, to enable us to capitalize on new sourcing and supplier
opportunities, increase our quality assurance standards and enable us to respond
to changing merchandise trends more effectively and efficiently. Our Hong Kong
office also co-ordinates the production of samples which helps to ensure our
merchandise properly reflects our design concepts.
In order to promote "The Children's Place" image and brand name, we
increased our direct mail marketing efforts throughout fiscal 1999. These
mailings were designed to increase sales, promote brand loyalty and create
customer excitement. We plan to further increase our direct mail efforts in
fiscal 2000. During the second half of fiscal 2000, we are considering the
utilization of broadcast, outdoor advertising and print media to promote our
image and increase customer brand awareness.
15
<PAGE>
During fiscal 2000, we plan to focus our efforts on the opening of
approximately 100 stores, the implementation of our new West Coast distribution
facility, expanded marketing of our brand, as well as an ongoing assessment of
our administrative infrastructure, management information and distribution
systems to support our growing business.
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>
Fiscal Year Ended
------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net sales ........................................... 100.0% 100.0% 100.0%
Cost of sales ....................................... 57.2 58.6 64.2
----- ----- -----
Gross profit ........................................ 42.8 41.4 35.8
Selling, general and administrative expenses ........ 25.0 24.8 24.1
Pre-opening costs ................................... 0.8 1.1 1.1
Depreciation and amortization ....................... 3.3 3.0 3.1
----- ----- -----
Operating income .................................... 13.7 12.5 7.5
Interest expense, net ............................... 0.1 0.1 1.4
Other expense, net .................................. -- 0.1 0.1
----- ----- -----
Income before income taxes and extraordinary loss ... 13.6 12.3 6.0
Provision for income taxes .......................... 5.3 5.0 2.4
Extraordinary loss .................................. -- -- 0.9
----- ----- -----
Net income .......................................... 8.3% 7.3% 2.7%
===== ===== =====
Number of stores, end of period ..................... 293 209 155
</TABLE>
Year Ended January 29, 2000 Compared to Year Ended January 30, 1999
Net sales increased by $137.6 million, or 48%, to $421.5 million during
fiscal 1999 from $283.9 million during fiscal 1998. Net sales for the 84 new
stores opened, as well as other stores that did not qualify as comparable
stores, contributed $99.0 million of the sales increase. As of January 29, 2000,
The Children's Place operated 293 in 34 states primarily located in regional
shopping malls. Our comparable store sales increased 15% and contributed $38.6
million to the net sales increase during fiscal 1999. Comparable store sales
increased 14% during fiscal 1998. Our fiscal 1999 comparable store sales
increase was experienced across all major merchandise departments.
Gross profit increased by $62.9 million to $180.3 million during fiscal
1999 from $117.4 million in fiscal 1998. As a percentage of net sales, gross
profit increased to 42.8% during fiscal 1999 from 41.4% during fiscal 1998. The
increase in gross profit, as a percentage of net sales, was principally due to
higher initial markups achieved through effective product sourcing and the
leveraging of store occupancy costs over a higher sales base, partially offset
by higher markdowns, higher distribution costs and costs incurred by our new
Hong Kong office. Our higher distribution costs can be attributed to the
implementation of our new warehouse system and increased freight costs, due to
the increased number of stores in operation west of the Mississippi River.
Selling, general and administrative expenses increased $34.8 million to
$105.1 million during fiscal 1999 from $70.3 million during fiscal 1998. As a
percentage of net sales, selling, general and administrative expenses increased
to 25.0% of net sales during fiscal 1999 from 24.8% of net sales during fiscal
1998. During fiscal 1999, selling, general and administrative expenses were
unfavorably impacted by start-up costs and marketing expenses associated with
the launch of our E-Commerce website, www.childrensplace.com during the fourth
quarter of fiscal 1999, and increased marketing expenses. The increase in
selling, general and administrative expenses, as a percentage of net sales, were
partially offset by the leveraging of store and administrative expenses over a
higher sales base.
During fiscal 1999, pre-opening costs were $3.5 million, or 0.8% of net
sales, as compared to $3.0 million, or 1.1% of net sales, during fiscal 1998.
The increase in pre-opening costs in fiscal 1999 reflected the opening of 84
stores, as compared to 54 stores during fiscal 1998, partially offset by the
timing of expenses incurred during fiscal 1998 for approximately 26 stores which
were opened during the first quarter of fiscal 1999.
Depreciation and amortization amounted to $13.8 million, or 3.3% of net
sales, during fiscal 1999 as compared to $8.6 million, or 3.0% of net sales,
during fiscal 1998. The increase in depreciation and amortization primarily was
a result of increases in our store base,
16
<PAGE>
accelerated depreciation taken in conjunction with store re-fixturings and
renovations and the commencement of depreciation for our new distribution center
and corporate headquarters facility in the third quarter of fiscal 1999. These
increases, as a percentage of net sales, were partially offset by the leveraging
of depreciation and amortization expense over a higher sales base.
Our provision for income taxes during fiscal 1999 was $22.4 million, as
compared to a provision for income taxes of $14.4 million during fiscal 1998.
The increase in our provision for income taxes during fiscal 1999 is due to our
increased profitability. Our effective tax rate for fiscal 1999 was 39.0% as
compared to an effective tax rate of 41.0% for fiscal 1998. The decrease in our
effective tax rate in fiscal 1999 is attributable to our Hong Kong subsidiary
and other state tax savings. During fiscal 1999, we utilized the remaining $1.6
million of our net operating loss carryforwards ("NOLs"). We expect to pay for
the remainder of our fiscal 1999 tax provision in cash. During fiscal 1998, the
majority of our tax provision was not paid in cash due to utilization of our
NOLs.
Fiscal 1999 net income increased to $35.0 million from $20.7 million in
fiscal 1998.
Year Ended January 30, 1999 Compared to Year Ended January 31, 1998
Net sales increased by $91.3 million, or 47%, to $283.9 million during
fiscal 1998 from $192.6 million during fiscal 1997. Net sales for the 54 new
stores opened, as well as other stores that did not qualify as comparable
stores, contributed $67.1 million of the sales increase. As of January 30, 1999,
The Children's Place operated 209 stores in 26 states primarily located in
regional shopping malls in the eastern half of the United States. During fiscal
1998, we entered several new markets, including Atlanta, St. Louis and Kansas
City. Our comparable store sales increased 14% and contributed $24.2 million to
the net sales increase during fiscal 1998. Comparable store sales increased 2%
during fiscal 1997. Our fiscal 1998 comparable store sales increase was
experienced across all major merchandise departments.
Gross profit increased by $48.4 million to $117.4 million during fiscal
1998 from $69.0 million during fiscal 1997. As a percentage of net sales, gross
profit increased to 41.4% during fiscal 1998 from 35.8% during fiscal 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 a
stronger dollar, as well as to lower markdowns. As a percentage of net sales,
gross profit was also favorably impacted by a leveraging of store occupancy,
buying and distribution expenses over a higher sales base.
Selling, general and administrative expenses increased $23.8 million to
$70.3 million during fiscal 1998 from $46.5 million during fiscal 1997. As a
percentage of net sales, selling, general and administrative expenses increased
to 24.8% of net sales during fiscal 1998 from 24.1% of net sales during fiscal
1997. The increase was primarily due to increases in our administrative
infrastructure to support our growth and higher marketing expenses to promote
consumer recognition of "The Children's Place" brand. In addition, our incentive
payouts in fiscal 1998 were higher, and higher as a percentage of net sales, as
our increased operating performance for that year resulted in the payment of
higher incentive bonuses than were paid in fiscal 1997. The increase in selling,
general and administrative expenses as a percentage of net sales was partially
offset by the leveraging of store expenses over a higher sales base.
During fiscal 1998, pre-opening costs were $3.0 million, or 1.1% of net
sales, as compared to $2.1 million, or 1.1% of net sales, during fiscal 1997.
The increase in pre-opening costs in fiscal 1998 reflected the opening of 54
stores, as compared to 47 stores during fiscal 1997. Pre-opening expenses for
fiscal 1998 also reflect certain expenses incurred for approximately 26 stores
we opened during the first quarter of fiscal 1999.
Depreciation and amortization amounted to $8.6 million, or 3.0% of net
sales, during fiscal 1998 as compared to $6.0 million, or 3.1% of net sales,
during fiscal 1997. The increase in depreciation and amortization primarily was
a result of the increase in stores. The decrease as a percentage of net sales
during fiscal 1998 reflects the leverage of depreciation and amortization
expense over a higher sales base.
Interest expense, net, for fiscal 1998 was $0.3 million, or 0.1% of net
sales, as compared to $2.6 million, or 1.4% of net sales, during fiscal 1997.
The decrease in interest expense, net, was primarily due to the elimination of
interest expense on our long-term debt, which was repaid with a portion of the
proceeds from our initial public offering, and lower borrowings and effective
interest rates under our working capital facility.
Other expense, net, for fiscal 1998 and fiscal 1997 was $0.1 million and
consisted of anniversary fees related to our working capital facility during
both periods.
During fiscal 1998, a provision for income taxes of $14.4 million was
recorded, as compared to $4.7 million during fiscal 1997. Due to the utilization
of our NOLs, the majority of our fiscal 1998 tax provision was not paid in cash.
However, we made cash payments of approximately $2.6 million for our fiscal 1998
taxes related to the payment of taxes based on the federal alternative minimum
tax, state minimum taxes and state taxes for states in which we did not have
NOLs. We utilized the remaining $1.6 million of our NOLs during fiscal
17
<PAGE>
1999.
As a result of the repayment of our long-term debt with a portion of the
net proceeds from our initial public offering, we recorded a non-cash
extraordinary item of $1.7 million, net of taxes, for fiscal 1997 that
represented the write-off of unamortized deferred financing costs and
unamortized debt discount.
The Children's Place had net income of $20.7 million and $5.2 million in
fiscal 1998 and fiscal 1997, respectively.
Liquidity and Capital Resources
Debt Service/Liquidity
During fiscal 1999, our primary uses of cash were financing new store
openings and providing for working capital, which primarily represented 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 merchandise lines. During fiscal 1999, we also
utilized cash to remodel and furnish our new distribution center and corporate
headquarters facility. We were able to meet our cash needs principally by using
cash flow from operations and borrowings under our working capital facility. As
of January 29, 2000, we had no long-term debt obligations.
We currently have a working capital facility that provides for borrowings
up to $50.0 million (including a sublimit for letters of credit of $40.0
million). The amount that can be borrowed under our working capital facility
depends upon 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, the 30-day LIBOR Rate plus a pre-determined
spread. The LIBOR spread is 1.50% or 2.00%, depending upon our financial
performance from time to time. Borrowings under the facility mature in July 2002
and provide for one year automatic renewal options.
As of January 29, 2000, $6.5 million was borrowed under the working
capital facility and as of January 30, 1999, there were no borrowings under our
working capital facility. In addition, as of January 29, 2000 and January 30,
1999, we had outstanding $16.0 million and $10.6 million, respectively, in
letters of credit under our working capital facility. Availability under the
working capital facility as of January 29, 2000 and January 30, 1999 was $21.4
million and $19.3 million, respectively. As of January 29, 2000 and January 30,
1999 the interest rates charged under the working capital facility were 8.50%
and 7.75% per annum, respectively.
Our working capital facility contains certain financial covenants
including, among others, the maintenance of minimum levels of tangible net
worth, working capital 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. We were in
compliance with all of the financial covenants under our working capital
facility as of January 29, 2000.
In February 2000, we received a commitment letter from Foothill Capital
Corporation to increase our working capital facility to provide for borrowings
up to $75.0 million (including a sublimit for letters of credit of $60.0
million). Consummation of this amendment to the working capital facility is
subject to execution of definitive documentation and other conditions. Foothill
Capital Corporation would act as the agent bank for a syndicated group of
lenders on this facility. The commitment letter 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 this proposed working capital facility would depend on our levels
of inventory and accounts receivable. Amounts outstanding under the facility
would 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 would be
1.25% to 2.50%, depending on our financial performance from time to time.
Borrowings under the facility would mature in July 2003 and provide for one year
automatic renewal options. The proposed working capital facility would contain
certain financial covenants including, among others, the maintenance of minimum
levels of earnings and current ratios and would impose certain limitations on
our annual capital expenditures, as well as a prohibition on the payment of
dividends. Credit extended under the working capital facility would be secured
by a first priority security interest in our present and future assets, as well
as the assets of our subsidiaries.
Cash Flows/Capital Expenditures
Cash flows provided by operating activities were $34.7 million, $35.0
million and $11.3 million in fiscal 1999, fiscal 1998 and fiscal 1997,
respectively. In fiscal 1999, cash flows from operating activities decreased as
a result of cash payment of our tax liabilities, increased inventory to support
our new store growth and earlier receipt of spring 2000 merchandise due to Year
2000 concerns, partially offset by increased operational earnings and increases
in our current liabilities. In fiscal 1998, cash flows from operating activities
increased as a result of an increase in operating earnings, the utilization of
our NOLs and increases in current liabilities, partially offset by an increased
investment in inventory to support our store expansion program.
18
<PAGE>
Cash flows used in investing activities were $58.2 million, $19.8 million
and $17.2 million in fiscal 1999, fiscal 1998 and fiscal 1997, respectively.
Cash flows used in investing activities relate primarily to store openings and
remodelings. In fiscal 1999, fiscal 1998 and fiscal 1997, we opened 84, 54 and
47 stores while remodeling 11, 3 and 10 stores, respectively. During fiscal
1999, cash flows used in investing activities represented capital expenditures
of approximately $36 million for store openings, remodelings and re-fixturings
and approximately $13 million to renovate and furnish our new distribution
center and corporate headquarters facility. The remainder of capital
expenditures were used on our new warehouse management system, our new
point-of-sale ("POS") system and other capital projects.
Cash flows provided by financing activities were $9.3 million, $0.4
million and $3.3 million in fiscal 1999, fiscal 1998 and fiscal 1997,
respectively. In fiscal 1999, 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. In
fiscal 1998, cash flows provided by financing activities reflected funds
received from the exercise of employee stock options and employee stock
purchases partially offset by a net repayment of our working capital facility.
In fiscal 1997, cash flows provided by financing activities resulted from our
initial public offering, offset by the repayment of our long-term debt and the
repurchase of certain warrants.
In a typical new store, capital expenditures (net of landlord
contribution), initial inventory (net of merchandise payables) and pre-opening
costs approximate $0.4 million. We anticipate that total capital expenditures
will approximate $50 million in fiscal 2000. These expenditures will relate
primarily to the opening of approximately 100 stores, the completion of our POS
rollout, store remodelings, ongoing store maintenance programs and ongoing
administrative office, computer and warehouse systems and equipment needs. We
plan to fund these capital expenditures primarily with cash flow from
operations.
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.
Quarterly Results and Seasonality
Our quarterly results of operations have fluctuated and are expected to
continue to fluctuate materially depending on a variety of factors, including
the timing of new store openings and related pre-opening and other startup
costs, net sales contributed by new stores, increases or decreases in comparable
store sales, weather conditions, shifts in timing of certain holidays, changes
in our merchandise mix and overall economic conditions.
Our business is also subject to seasonal influences, with heavier
concentrations of sales during the back-to-school and holiday seasons. As is the
case with many retailers of apparel and related merchandise, we typically
experience lower net sales and net income during the first two fiscal quarters,
and net sales and net income are lower during the second fiscal quarter than
during the first fiscal quarter. Our first quarter results are heavily dependent
upon sales during the period leading up to the Easter holiday. Our third quarter
results are heavily dependent upon back-to-school sales and our fourth quarter
results are heavily dependent upon sales during the holiday season. We have
experienced second quarter losses in the past and may experience second quarter
losses in the future. Because of these fluctuations in net sales and net income
(loss), the results of operations of any quarter are not necessarily indicative
of the results that may be achieved for a full fiscal year or any future
quarter.
The following table sets forth certain statement of operations data and
operating data for each of our last eight fiscal quarters. The quarterly
statement of operations data and selected operating data set forth below were
derived from our unaudited financial statements and reflect, in our opinion, all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the results of operations for these fiscal quarters.
Fiscal 1999
--------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except for store data)
Net sales ...................... $ 92,621 $ 73,920 $119,442 $135,513
Operating income ............... 12,232 2,284 21,713 21,608
Comparable store sales increase 32% 19% 15% 5%
Stores open at end of period ... 239 261 282 293
19
<PAGE>
Fiscal 1998
--------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except for store data)
Net sales ..................... $ 55,999 $ 48,014 $ 82,496 $ 97,344
Operating income (loss) ....... 4,682 (664) 14,619 16,817
Comparable store sales increase 7% 8% 18% 18%
Stores open at end of period .. 178 189 203 209
Year 2000 Compliance
We have not noticed any significant disruptions to our business associated
with the Year 2000. The Year 2000 issue existed because many computer
applications used two-digit date fields to designate a year, instead of four
digits. Although it is still possible for a Year 2000 problem to arise, we
believe that it is unlikely that this will occur or that it could have a
material adverse impact on our business.
We relied primarily on our existing management information systems staff
supplemented by outside consultants to modify, replace and test systems for Year
2000 compliance. To mitigate our risk of dependence on foreign suppliers and
distribution channels, we also accelerated receipt of merchandise for the spring
2000 selling season. To date, we have spent approximately one million dollars to
address the Year 2000 issue. We do not expect the cost of Year 2000 remediation
to have a material adverse effect on our business.
ITEM 7A. -QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 8. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14.
ITEM 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
20
<PAGE>
PART III
ITEM 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists certain information about the current executive
officers and directors of The Children's Place:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Ezra Dabah...................... 46 Chairman of the Board of Directors and Chief Executive Officer
Clark Hinkley................... 58 Executive Vice President, Merchandising
Seth L. Udasin.................. 43 Vice President, Finance, Chief Financial Officer and Treasurer
Steven Balasiano................ 37 Vice President, General Counsel and Corporate Secretary
Jodi Barone..................... 43 Vice President, Marketing
Mario A. Ciampi................. 39 Vice President, Store Development
Edward DeMartino................ 48 Vice President, Management Information Systems
Robert Finkelstein.............. 47 Vice President, Store Planning and Allocation
Nina L. Miner................... 50 Vice President, Trend Development
Salvatore W. Pepitone........... 52 Vice President, Distribution Center
Mark L. Rose.................... 34 Vice President, Sourcing and Production
Christine J. Rudy............... 37 Vice President, Merchandise Planning
Susan F. Schiller............... 39 Vice President, Store Operations
Diane M. Timbanard.............. 54 Vice President, Design and Product Development
Michael Zahn.................... 37 Vice President, General Merchandise Manager
Stanley Silverstein............. 75 Director
John F. Megrue.................. 41 Director
David J. Oddi................... 30 Director
</TABLE>
Ezra Dabah has been Chief Executive Officer since 1991 and Chairman of the
Board and a Director since 1989. Mr. Dabah has more than 25 years of apparel
merchandising and buying experience. From 1972 to 1993, Mr. Dabah was a director
and an executive officer of The Gitano Group, Inc. and its affiliates
(collectively, "Gitano"), a company of which Mr. Dabah and certain members of
his family were principal stockholders and which became a public company in
1988. From 1973 until 1983, Mr. Dabah was in charge of product design,
merchandising and procurement for Gitano. In 1983, Mr. Dabah founded and became
President of a children's apparel importing and manufacturing division for
Gitano which later became an incorporated subsidiary, Eva Joia Incorporated,
("E.J. Gitano"). Mr. Dabah is Stanley Silverstein's son-in-law and Nina Miner's
brother-in-law.
Clark Hinkley has been Executive Vice President, Merchandising since
joining The Children's Place in February 1998. Prior to joining The Children's
Place, Mr. Hinkley was the Executive Vice President and Chief Operating Officer
of The Talbots, Inc., a position he held since 1993. Mr. Hinkley has over 35
years of retailing experience with over 25 years of senior level management and
merchandising experience. Prior to his 10 years with The Talbot's, Inc., Mr.
Hinkley was with Dayton Hudson Corporation and its predecessor company, J.L.
Hudson, for 24 years.
Seth L. Udasin has been Vice President, Finance since 1994 and Chief
Financial Officer and Treasurer since 1996. Since joining The Children's Place
in 1983, Mr. Udasin has held various other positions, including Controller from
1988 to 1994.
Steven Balasiano has been Vice President and General Counsel since joining
The Children's Place in December 1995 and Corporate Secretary since January
1996. Prior to joining The Children's Place, Mr. Balasiano practiced law in the
New York offices of the national law firms of Stroock & Stroock & Lavan LLP from
1992 to 1995 and Kelley Drye & Warren from 1987 to 1992.
Jodi Barone has been Vice President, Marketing since October 1999 and
prior to that served as Director, Marketing since 1993. Since joining The
Children's Place in 1992, Ms. Barone has also held the position of Marketing
Manager.
Mario A. Ciampi has been Vice President, Store Development since joining
The Children's Place in June 1996. Prior to joining The Children's Place, Mr.
Ciampi was a principal of a private consulting firm, specializing in retail and
real estate restructuring, from 1991 to 1996, in which capacity he was retained
as an outside consultant on the Company's real estate activities since 1991.
Edward DeMartino has been Vice President, Management Information Systems
since 1991. Mr. DeMartino began his career with
21
<PAGE>
The Children's Place in 1981 as a System Development Project Manager and was
subsequently promoted to Director MIS in 1989.
Robert Finkelstein joined The Children's Place in 1989 as Vice President,
Store Planning and Allocation. Immediately prior to joining The Children's
Place, Mr. Finkelstein was a Director of Distribution for Payless Shoe Stores.
Nina L. Miner has been Vice President, Trend Development since August
1998, prior to which time she was Vice President, Design and Product Development
since joining The Children's Place in 1990. Before joining The Children's Place,
Ms. Miner held various management positions at E.J. Gitano. Ms. Miner is Stanley
Silverstein's daughter and Ezra Dabah's sister-in-law.
Salvatore W. Pepitone has been Vice President, Distribution Center since
joining The Children's Place in 1991. Prior to joining The Children's Place, Mr.
Pepitone was employed in a similar capacity by E.J. Gitano.
Mark L. Rose has been Vice President, Sourcing and Production since 1992.
Mr. Rose joined The Children's Place in 1990 and was promoted to Senior Product
Buyer that year. Prior to joining The Children's Place, Mr. Rose held various
positions at Macy's.
Christine J. Rudy has been Vice President, Merchandise Planning since
January 2000 and prior to that served as Director of Merchandise Control since
joining The Children's Place in January 1999. Prior to joining The Children's
Place, Ms. Rudy was the Director of Merchandise Planning for Liz Claiborne
Retail (a division of Liz Claiborne, Inc.). From 1991 to 1998, Ms. Rudy held
various positions with Charming Shoppes, Inc.
Susan F. Schiller has been Vice President, Store Operations since 1994.
Ms. Schiller began her career with The Children's Place as an Assistant Store
Manager in 1985 and subsequently served in various positions, including Director
of Store Communications from 1991 to 1993 and Director of Store Operations from
1993 to 1994.
Diane M. Timbanard has been Vice President, Design and Product Development
since August 1998, prior to which time she served as Vice President,
Merchandising Manager since joining The Children's Place in 1991. Prior to
joining The Children's Place, Ms. Timbanard held various merchandising and
management positions, including Vice President of Merchandising for Macy's.
Michael Zahn has been Vice President, General Merchandise Manager since
September 1998. Prior to joining The Children's Place, Mr. Zahn held various
merchandising positions at Ann Taylor from 1995 to 1998. From 1992 to 1995, Mr.
Zahn was a merchandiser with Warner Bros. Retail.
Stanley Silverstein has been a Director of the Company since July 1996.
Mr. Silverstein also serves as Chairman of the Board of Directors of Nina
Footwear, a company he founded with his brother in 1952. Mr. Silverstein is the
father of Nina Miner, Vice President, Trend Development, and Ezra Dabah's
father-in-law.
John F. Megrue has been a Director of The Children's Place since July
1996. Since 1992, Mr. Megrue has been a Partner of Saunders Karp & Megrue
Partners, L.L.C. (or its predecessor), which serves as the general partner of
SKM Partners, L.P., which serves as the general partner of the SK Funds and SKM.
From 1989 to 1992, Mr. Megrue was a Vice President and Principal at Patricof &
Co. and prior thereto he served as a Vice President at C.M. Diker Associates.
Mr. Megrue also serves as Vice Chairman of the Board and Director of Dollar Tree
Stores, Inc. and Chairman of the Board and Director of Hibbett Sporting Goods,
Inc.
David J. Oddi has been a Director of The Children's Place since April
1997. Mr. Oddi joined SKM as an Associate in 1994 and is currently a Partner of
Saunders Karp & Megrue Partners, L.L.C., which serves as the general partner of
SKM Partners, L.P., which serves as the general partner of the SK Funds and SKM.
Prior to joining SKM, Mr. Oddi served in the Leveraged Finance Group at Salomon
Brothers Inc.
Our Board of Directors is comprised of three classes, each of which serves
for three years, with one class being elected each year. The terms of Mr. Oddi
and Mr. Silverstein will expire at the 2001 Annual Meeting of Stockholders. The
terms of Mr. Dabah and Mr. Megrue will expire at the 2002 Annual Meeting of
Stockholders. There currently are no directors in the class whose terms expire
at the 2000 Annual Meeting of Stockholders.
For a description of our stockholders agreement providing for certain
voting arrangements relating to the selection of directors, see Item 12 -
Security Ownership of Certain Beneficial Owners and Management.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's executive officers and directors, and persons who own
more than 10% of the Company's common stock to file reports of ownership and
changes in ownership with the Securities Exchange Commission and Nasdaq Stock
Market. Officers, directors and greater than ten-percent stockholders are
required by
22
<PAGE>
Securities and Exchange Commission regulations to furnish the Company with
copies of all such reports they file.
Based solely on a review of the copies of such reports furnished to the
Company, or written representations that no Form 5 was required, the Company
believes that all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten-percent beneficial owners were complied with
through April 10, 2000.
ITEM 11. - EXECUTIVE COMPENSATION
Summary of Executive Compensation
The following table summarizes the compensation for fiscal 1999, fiscal
1998 and fiscal 1997 for the Company's Chief Executive Officer and each of its
four other most highly compensated executive officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Annual Long-Term All Other
Compensation (1) Compensation Compensation
-------------------------- --------------------- ------------
Fiscal Salary Bonus Securities Underlying
Name and Principal Position Year ($) ($) Options (#) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ezra Dabah........................................... 1999 $ 556,721 $287,500 0 $24,000 (8)
Chairman of the Board and Chief 1998 538,850 551,500 0 24,000 (8)
Executive Officer 1997 528,008 120,648 99,660 (2) 4,000 (9)
- -----------------------------------------------------------------------------------------------------------------------------------
Stanley B. Silver (3)................................ 1999 384,625 160,000 0 16,565 (10)
President and Chief Operating Officer 1998 361,550 300,000 0 15,755 (11)
1997 350,012 63,980 0 15,035 (12)
- -----------------------------------------------------------------------------------------------------------------------------------
Clark Hinkley........................................ 1999 418,833 129,000 25,000 (4) 4,000 (9)
Executive Vice President, Merchandising 1998 406,233 240,000 200,000 (5) 0
- -----------------------------------------------------------------------------------------------------------------------------------
Diane M. Timbanard (13).............................. 1999 270,379 70,000 12,000 (4) 4,000 (9)
Vice President, Design and Product Development 1998 253,075 131,250 25,000 (6) 4,000 (9)
1997 245,000 27,991 0 4,000 (9)
- -----------------------------------------------------------------------------------------------------------------------------------
Michael J. Zahn...................................... 1999 263,141 41,667 15,000 (4) 0
Vice President, General Merchandise 1998 84,615 41,667 50,000 (7) 0
Manager
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) For fiscal 1999 and fiscal 1997, bonuses were earned and paid in the
respective fiscal year. For fiscal 1998 includes bonuses earned in such
fiscal year, portions of which were paid in the following fiscal year.
Other annual compensation did not exceed $50,000 or 10% of the total
salary and bonus for any of the named executive officers.
(2) Mr. Dabah's options become exercisable at the rate of 20% on or after
December 31, 1997 and 20% on or after each of the first, second, third and
fourth anniversaries of the date of the grant.
(3) Mr. Silver resigned from the Company in February 2000.
(4) Each of the options granted becomes exercisable at the rate of 20% on or
after September 18, 2000 and 20% on or after the first, second, third and
fourth anniversaries of September 18, 2000.
(5) Mr. Hinkley's option grant becomes exercisable at the rate of 20% on or
after six months following the date of the grant and 20% on or after the
first, second, third and fourth anniversaries of the date of the grant.
(6) Ms. Timbanard's 1998 option grant becomes exercisable at the rate of
15,000 shares on or after November 1, 1998 with an additional 5,000 shares
exercisable on or after June 28, 1999 and the remaining 5,000 shares
exercisable on or after June 28, 2000.
(7) Mr. Zahn's 1998 option grant becomes exercisable at the rate of 20% on or
after September 18, 1999 and 20% on or after the first, second, third and
fourth anniversaries of September 18, 1999.
23
<PAGE>
(8) Reflects the value of (i) of insurance premiums of $20,000 paid by the
Company with respect to term life insurance for the benefit of Mr. Dabah,
and (ii) Company matching contributions of $4,000 under The Children's
Place 401(k) Savings and Investment Plan.
(9) Amounts shown consist of the Company's matching contributions under The
Children's Place 401(k) Savings and Investment Plan.
(10) Reflects the value (i) of insurance premiums of $12,565 paid by the
Company with respect to term life insurance for the benefit of Mr. Silver,
and (ii) Company matching contributions of $4,000 under The Children's
Place 401(k) Savings and Investment Plan.
(11) Reflects the value of (i) insurance premiums of $11,755 paid by the
Company with respect to term life insurance for the benefit of Mr. Silver,
and (ii) Company matching contributions of $4,000 under The Children Place
401(k) Savings and Investment Plan.
(12) Reflects the value of (i) insurance premiums of $11,035 paid by the
Company with respect to term life insurance for the benefit of Mr. Silver,
and (ii) Company matching contributions of $4,000 under The Children's
Place 401(k) Savings and Investment Plan.
(13) On or about April 15, 2000, the Company made a $400,000 loan to Ms.
Timbanard. This loan matures on April 15, 2001, bears interest at the
prime rate quoted by Chase Manhattan Bank and is secured by Ms.
Timbanard's principal residence.
Stock Options
The following table sets forth certain information concerning options
granted during fiscal 1999 to Clark Hinkley, Diane Timbanard and Michael Zahn.
No options were granted during fiscal 1999 to the other executive officers named
in the Summary Compensation Table.
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Potential Realizable Value at
Assumed Annual Rates of Stock Price
Number of Securities % of Total Appreciation for Option Term (3)
Underlying Granted in Exercise Expiration -----------------------------------
Name Options Granted (1) Fiscal 1999 Price (2) Date 5% 10%
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Clark Hinkley......... 25,000 4.45% $15.9357 12/30/09 $250,575 $635,007
- ---------------------------------------------------------------------------------------------------------------------------------
Diane Timbanard....... 12,000 2.14% 15.9357 12/30/09 120,276 304,803
- ---------------------------------------------------------------------------------------------------------------------------------
Michael Zahn.......... 15,000 2.67% 15.9357 12/30/09 150,345 381,004
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The 1999 option grant becomes exercisable at the rate of 20% on or after
September 18, 2000 and 20% on or after each of the first, second, third
and fourth anniversaries of September 18, 2000.
(2) The exercise price was fixed at the date of the grant and was equal to the
fair market value per share of Common Stock on such date in accordance
with the 1997 Stock Option Plan.
(3) In accordance with the rules of the Securities and Exchange Commission,
the amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5%
and 10% compounded annually from the date the respective options were
granted to their expiration date and do not reflect the Company's
estimates or projections of future Common Stock prices. The gains shown
are net of the option exercise price, but do not include deductions for
taxes or other expenses associated with the exercise. Actual gains, if
any, on stock option exercises will depend on the future performance of
the Common Stock, the option holders' continued employment though the
option period, and the date on which the options are exercised.
The following table sets forth certain information with respect to stock
options exercised by the named executive officers during fiscal 1999, including
the aggregate value of gains on the date of the exercise. In addition, the table
sets forth the number of shares covered by stock options as of fiscal year end,
and the value of "in-the-money" stock options, which represents the positive
spread between the exercise price of a stock option and the year-end market
price of the shares subject to such option at fiscal year end. None of the named
executives hold stock appreciation rights (SARs).
24
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Acquired Options at 1/29/00 at 1/29/00 (1)
on Value ------------------------------- ------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ezra Dabah..................... None -- 59,796 39,864 $ 0 $ 0
- ------------------------------------------------------------------------------------------------------------------------------------
Stanley B. Silver (2).......... 197,420 $4,595,224 1,780 49,800 18,875 528,079
- ------------------------------------------------------------------------------------------------------------------------------------
Clark Hinkley.................. 27,004 907,167 52,996 145,000 316,307 716,220
- ------------------------------------------------------------------------------------------------------------------------------------
Diane M. Timbanard............. 79,680 2,406,177 20,000 36,920 70,760 228,887
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Zahn................ 8,000 109,500 2,000 55,000 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The market value of the Company's stock at the close of business on
January 28, 2000 was $13.281.
(2) Mr. Silver resigned from the Company in February 2000. As a result of Mr.
Silver's resignation, the 49,800 options that were scheduled to vest on
June 28, 2000 were cancelled.
Employment Agreements
The Company is a party to employment agreements with Ezra Dabah and Clark
Hinkley.
Ezra Dabah
Mr. Dabah's employment agreement (the "Dabah Agreement") provides that he
will serve as Chairman and Chief Executive Officer of the Company from June 27,
1996 for successive three year periods, subject to termination in accordance
with the termination provisions of the Dabah Agreement. Mr. Dabah's current
salary is $625,000, subject to annual review. Mr. Dabah is also entitled to
receive a semi-annual bonus in an amount equal to the product of (x) 50% of his
semi-annual base salary multiplied by (y) a pre-determined bonus percentage
fixed by the Board of Directors for any stated six-month period of not less than
20% nor more than 200%, based on the Company's performance during such six-month
period. The Dabah Agreement also provides for certain insurance and other
benefits to be maintained and paid by the Company.
The Dabah Agreement provides that if Mr. Dabah's employment is terminated
by the Company without cause or for disability, or by Mr. Dabah for good reason
or following a change in control (as each such term is defined in the Dabah
Agreement), the Company will be required to pay Mr. Dabah three times his base
salary then in effect, which amount will be payable within 30 days following his
termination. Mr. Dabah also will be entitled to receive any accrued but unpaid
bonus compensation and all outstanding stock options under the Company's stock
option plans will immediately vest. If Mr. Dabah's employment is terminated for
any of the above reasons, the Company also will be required, with certain
exceptions, to continue to maintain life insurance, medical benefits and other
benefits for Mr. Dabah for three years. The Dabah Agreement also provides that
Mr. Dabah will not, with certain exceptions, engage or be engaged in a competing
business for a period of five years following termination of his employment.
Clark Hinkley
Mr. Hinkley's employment agreement (the "Hinkley Agreement") provides that
he will serve as Executive Vice President, Merchandising of The Children's Place
from February 2, 1998, and that such service shall continue unless terminated in
accordance with the termination provisions of the Hinkley Agreement. Mr.
Hinkley's current salary is $455,000 per year, subject to annual review. Mr.
Hinkley also is entitled to receive a semi-annual bonus in an amount equal to
the product of (x) 30% of his semi-annual base salary multiplied by (y) a
pre-determined bonus percentage fixed by the Board of Directors for any stated
six-month period of not more than 200%, based on the Company's performance
during such six-month period.
The Hinkley Agreement provides that if Mr. Hinkley's employment is
terminated by The Children's Place without cause (as such term is defined in the
Hinkley Agreement), the Company will be required to pay Mr. Hinkley an amount
equal to his base salary then in effect for one year, which amount is payable in
equal monthly installments over a one year period following his termination. Mr.
Hinkley will also be entitled to receive any accrued but unpaid bonus
compensation and the Company will be required, with certain exceptions, to
continue to maintain life insurance, medical benefits and other benefits for Mr.
Hinkley for one year. The Hinkley Agreement also provides that Mr. Hinkley will
not, with certain exceptions, engage or be engaged in a competing business for a
period of two years following termination of his employment.
25
<PAGE>
Other Employment Agreements
The Company has also entered into employment agreements with certain of
its other executive officers which provide for the payment of severance equal to
the officer's salary for a period of six to nine months following any
termination without cause.
Severance Agreement
Stanley B. Silver
Mr. Silver resigned from the Company effective February 24, 2000 as
President, Chief Operating Officer and Director of The Children's Place. On
February 24, 2000, the Company and Mr. Silver entered into a severance agreement
and release memorializing Mr. Silver's resignation with the Company. In
accordance with the agreement, Mr. Silver is entitled to receive (i) $738,459
less legally required payroll deductions and deductions for health insurance in
twenty two equal monthly installments; and (ii) health and life insurance
coverage until December 31, 2001. Mr. Silver waived any claim to the 49,800
options which were scheduled to vest on June 28, 2000 and any other compensation
or bonus. The agreement also provided, among other things, that Mr. Silver would
not engage or be engaged in a competing business for a period of two years
following termination of employment.
Report of Compensation Committee on Executive Compensation
Compensation Policy
The Company's employee compensation policy in general is to offer a
package including a competitive salary, an incentive bonus based upon
performance goals, competitive benefits, including a participatory 401(k)
Savings and Investment Plan, and an efficient workplace environment. The Company
also encourages broad-based employee ownership of the Company's Common Stock by
granting stock options to employees at many levels within the Company and
through the Employee Stock Purchase Plan.
The Compensation Committee of the Board of Directors reviews and approves
individual officer salaries, bonus plan and financial performance goals, and
stock option grants. The Compensation Committee also reviews guidelines for
compensation, bonus, and stock option grants for non-officer employees.
Key personnel of the Company are paid salaries in line with their
responsibilities. These salaries are structured to be competitive with salaries
paid by a peer group consisting of similar companies in the retail apparel
industry. Executives participate in the Company's Management Incentive Program,
which offers cash incentives based on the Company's performance. Under the
Company's 1996 and 1997 Stock Option Plans, and at the discretion of the Board
of Directors, the Company also grants executive officers stock options. The
Company's performance and return on equity are of vital importance to the
executive officers due to these equity holdings and cash incentives. Benefits
extended to the executive officers vary by recipient and may include disability
and life insurance, and participation in the Company's 401(k) Savings and
Investment Plan. Salaries for executive officers are adjusted based on
individual job performance and the Company's performance and, in certain cases,
changes in the individual's responsibilities.
Compensation of Chief Executive Officer
The Compensation Committee reviews and approves the compensation of Ezra
Dabah, the Company's Chief Executive Officer. Pursuant to Mr. Dabah's Employment
Agreement and based on the Company's performance in the preceding fiscal year,
Mr. Dabah's base salary for the fiscal year ended January 29, 2000 was $556,721,
an increase of 3.3% from the prior year. In addition, Mr. Dabah is entitled to
receive a bonus based on the Company's earnings. Mr. Dabah's performance bonus
for the fiscal year ended January 29, 2000 was $287,500.
Deductibility of Compensation
Section 162(m) of the Internal Revenue Code imposes a limitation on the
deductibility of nonperformance-based compensation in excess of $1 million paid
to executive officers. The Compensation Committee believes that the Company will
be able to continue to manage its executive compensation program to preserve
federal income tax deductions.
Submitted by the Compensation Committee
Ezra Dabah John F. Megrue
26
<PAGE>
Compensation Committee Interlocks and Insider Participation
Members of the Compensation Committee from September 17, 1997 through the
end of the fiscal year ended January 29, 2000 were Messrs. Dabah and Megrue. Mr.
Dabah is the Chief Executive Officer and Chairman of the Board of Directors of
the Company, and has entered into certain related transactions with the Company
as disclosed below. Mr. Megrue is a general partner of SKM Partners, L.P., which
serves as the general partner of SKM, which has entered into an advisory
agreement with the Company, as disclosed below.
Performance Graph
The following graph compares the cumulative stockholder return on the
Company's common stock with the return on the Total Return Index for the Nasdaq
Stock Market (US) and the Nasdaq Retail Trade Stocks. The graph assumes that
$100 was invested on the date of the Company's initial public offering,
September 18, 1997.
[GRAPH OMITTED]
27
<PAGE>
ITEM 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information at April 10, 2000, with respect
to ownership of Common Stock by (i) each beneficial owner of five percent or
more of the Company's Common Stock known to the Company, (ii) each director of
the Company, (iii) each of the Company's five most highly compensated executive
officers in fiscal 1999 and (iv) all directors and executive officers as a
group. For the purpose of computing the percentage of the shares of Common Stock
owned by each person or group listed in this table, any shares not outstanding
which are subject to options or warrants exercisable within 60 days after April
10, 2000 have been deemed to be outstanding and owned by such person or group,
but have not been deemed to be outstanding for the purpose of computing the
percentage of the shares of Common Stock owned by any other person. Except as
indicated in the footnotes to this table, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
Shares
Beneficially Percent
Name and Address of Beneficial Owner Owned of Class
------------------------------------ ------------ --------
The SK Equity Fund, L.P. (1) (2) .............. 6,704,053 26.0%
SK Investment Fund, L.P. (1) (2) .............. 6,704,053 26.0%
John F. Megrue (1) (2) (3) .................... 6,721,053 26.1%
Allan W. Karp (1) (2) (4) ..................... 6,707,653 26.0%
Thomas A. Saunders III (1) (2) ................ 6,704,053 26.0%
David J. Oddi (1) (5) ......................... 5,500 *
Ezra Dabah (6) (7) ............................ 7,886,801 30.6%
Stanley B. Silver (6) (8) ..................... 574,450 2.2%
Stanley Silverstein (6) (9) ................... 5,674,735 22.0%
Clark Hinkley (6) (10) ........................ 120,000 *
Diane M. Timbanard (6) (11) ................... 99,680 *
Michael J. Zahn (6) (12) ...................... 2,300 *
All Directors and Executive Officers as a Group
(18 persons) (13) (14) ...................... 16,502,540 62.9%
- ------------
* Less than 1%
(1) The address of this person is Two Greenwich Plaza, Suite 100, Greenwich CT
06830.
(2) Includes (i) 6,608,268 shares owned by The SK Equity Fund, L P and (ii)
95,785 shares owned by SK Investment Fund, L P SKM Partners, L P is the
general partner of each of the SK Funds Messrs Karp, Megrue and Saunders
are Partners of Saunders Karp & Megrue, L L C , which is the general
partner of SKM Partners, L P , and therefore may be deemed to have
beneficial ownership of the shares shown as being owned by the SK Funds
Messrs Karp, Megrue and Saunders disclaim beneficial ownership of such
shares, except to the extent that any of them has a limited partnership
interest in SK Investment Fund, L P.
(3) Includes 17,000 shares purchased by Mr Megrue.
(4) Includes 2,000 shares purchased by Mr Karp and 1,600 shares bought for the
benefit of Mr Karp's children and as to which Mr Karp disclaims beneficial
ownership.
(5) Includes 5,500 shares purchased by Mr Oddi and does not include shares
owned by The SK Equity Fund, L P or SK Investment Fund, L P Mr Oddi is a
Partner of Saunders Karp & Megrue, L L C , which is the general partner of
SKM Partners L P , which serves as the general partner of the SKM Funds
and SKM and has a limited partnership interest in SK Investment Fund, L.P.
(6) The address of this person is c/o The Children's Place Retail Stores, Inc,
915 Secaucus Road, Secaucus, New Jersey 07094.
(7) Includes (i) 4,916,755 shares held by trusts or custodial accounts for the
benefit of Mr Dabah's children and certain other family members, of which
Mr Dabah or his wife is a trustee or custodian and as to which Mr. Dabah
or his wife, as the case may be, has voting control, and as to which
shares Mr. Dabah disclaims beneficial ownership, (ii) 2,871,850 shares
held by Mr. Dabah, (iii) 37,600 shares held by Mr. Dabah's wife, (iv) 800
shares held by Mr. Dabah's daughter, and (v) 59,796 shares subject to
options exercisable within 60 days after April 10, 2000. Does not include
(i) 563,680 shares beneficially owned by Stanley Silverstein, Mr.
28
<PAGE>
Dabah's father-in-law, (ii) 7,000 shares held in Mr. Silverstein's profit
sharing account, (iii) 261,300 shares beneficially owned by Raine
Silverstein, Mr. Dabah's mother-in-law and (iv) 39,864 shares subject to
options not yet vested held by Mr. Dabah.
(8) Includes (i) 444,450 shares held by Mr Silver, (ii) 100,000 shares held by
Mr Silver's wife and (iii) 30,000 shares held for the benefit of Mr
Silver's children and as to which Mr Silver's wife is a trustee and as to
which shares Mr Silver disclaims beneficial ownership Mr Silver resigned
from the Company in February 2000.
(9) Includes (i) 4,842,755 shares held by trusts for the benefit of Mr
Silverstein's children and grandchildren, of which Mr Silverstein's wife
is a trustee, and as to which Mrs Silverstein has voting control, and as
to which shares Mr Silverstein disclaims beneficial ownership, (ii)
563,680 shares held by Mr Silverstein, (iii) 7,000 shares held in Mr
Silverstein's profit sharing account and (iv) 261,300 shares held by Mr
Silverstein's wife Does not include (i) 2,871,850 shares beneficially
owned by Ezra Dabah, Mr Silverstein's son-in-law, (ii) 37,600 shares
beneficially owned by Mr Silverstein's daughter, (iii) 800 shares owned by
Mr Silverstein's granddaughter and (iv) 59,796 shares issuable to Mr Dabah
upon exercise of outstanding stock options exercisable within 60 days of
April 10, 2000.
(10) Includes (i) 40,506 shares held by Mr. Hinkley and (ii) 79,494 shares
issuable upon exercise of outstanding stock options exercisable within 60
days of April 10, 2000. Does not include 105,000 shares subject to options
not yet vested.
(11) Includes (i) 89,254 shares held by Ms. Timbanard and (ii) 10,426 shares
issuable upon exercise of outstanding stock options exercisable within 60
days of April 10, 2000. Does not include 36,920 shares subject to options
not yet vested.
(12) Includes (i) 300 shares held by Mr. Zahn and (ii) 2,000 shares issuable
upon exercise of outstanding stock options exercisable within 60 days of
April 10, 2000. Does not include 55,000 shares subject to options not yet
vested.
(13) Reflects shares issuable upon exercise of stock options exercisable within
60 days of April 10, 2000.
(14) Does not include the 574,450 shares beneficially owned by Mr. Silver who
resigned from the Company in February 2000.
As of April 10, 2000, Ezra Dabah and certain members of his family
beneficially own 8,830,301 shares of the Company's Common Stock, constituting
approximately 34.2% of the outstanding Common Stock. The SK Funds own 6,704,053
shares or approximately 26.0% of the outstanding Common Stock. Pursuant to the
Amended Stockholders Agreement described below, Ezra Dabah, the SK Funds and
certain other stockholders, who own in the aggregate a majority of the
outstanding Common Stock, have agreed to vote for the election of two nominees
of the SKM Funds and three nominees of Ezra Dabah to the Company's Board of
Directors. As a result, the SKM Funds and Ezra Dabah are able to control the
election of the Company's directors. In addition, if the SKM Funds and Mr. Dabah
were to vote together, they would be able to determine the outcome of any matter
submitted to a vote of the Company's stockholders for approval.
29
<PAGE>
Stockholders Agreement
The Children's Place and certain of its stockholders, who currently own in
the aggregate a majority of the Common Stock, are parties to a Stockholders
Agreement (the "Stockholders Agreement"). The Stockholders Agreement places
certain limitations upon the transfer in privately negotiated transactions of
shares of Common Stock beneficially owned by Ezra Dabah and the SK Funds. In
addition, the Stockholders Agreement provides that (i) so long as Ezra Dabah,
together with members of his family, beneficially owns shares representing at
least 25% of the shares of Common Stock owned by such parties on the date of the
Stockholders Agreement, the stockholders party to the Stockholders Agreement
will be obligated to vote all shares as to which they have voting rights in a
manner such that the Board will at all times include three directors nominated
by Ezra Dabah and (ii) so long as the SK Funds beneficially own shares
representing at least 25% of the shares of Common Stock owned by such parties on
the date of the Stockholders Agreement, the stockholders party to the
Stockholders Agreement will be obligated to vote all shares as to which they
have voting rights in a manner such that the Board will at all times include two
directors nominated by the SK Funds. Should the number of directors comprising
the Board of Directors be increased, nominees for the remaining director
positions will be designated by the Company's Board of Directors. Pursuant to
the Stockholders Agreement, Ezra Dabah and Stanley Silverstein were designated
as director nominees by Mr. Dabah and were elected to the Board, and John Megrue
and David Oddi were designated as director nominees by the SK Funds and were
elected to the Board.
The Stockholders Agreement provides that the Company will not, without the
affirmative vote of at least one director nominated by the SK Funds, engage in
specified types of transactions with certain of its affiliates (not including
the SK Funds), take action to amend its Bylaws or Certificate of Incorporation
or increase or decrease the size of the entire Board of Directors. The
Stockholders Agreement also provides that certain specified types of corporate
transactions and major corporate actions will require the approval of at least
two-thirds of the members of the Board of Directors.
Under the terms of the Stockholders Agreement, the rights of any party
thereunder will terminate at the time that such party's Common Stock constitutes
less than 25% of the shares of Common Stock owned by such party on the date of
the Stockholders Agreement. All the provisions of the Stockholders Agreement
will terminate when no party to the Stockholders Agreement beneficially owns
shares representing at least 25% of the outstanding Common Stock owned by such
party on the date of the Stockholders Agreement.
ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SKM Financial Advisory Services
In 1996, the Company entered into a management agreement with SKM which
provides for the payment of an annual fee of $150,000, payable quarterly in
advance, in exchange for certain financial advisory services. This management
agreement remains in effect until SKM or any of its affiliates' total ownership
of the Company's Common Stock is less than 10% on a fully diluted basis.
Pursuant to the management agreement, the Company incurred fees and expenses of
approximately $151,000, $151,000 and $153,000 during fiscal 1999, fiscal 1998
and fiscal 1997, respectively.
Stockholders Agreement
For a description of our stockholders agreement, see Item 12 - Security
Ownership of Certain Beneficial Owners and Management.
Merchandise for Re-Sale
During fiscal 1998, the Company purchased approximately $290,000 in bath
products from HBA Technologies, LLC. Haim Dabah, Ezra Dabah's brother, is the
majority owner of HBA Technologies, LLC.
During fiscal 1999, the Company purchased approximately $565,000 in
footwear from Nina Footwear Corporation. Stanley Silverstein, a member of the
Company's Board of Directors and Ezra Dabah's father-in-law, owns Nina Footwear
Corporation with his brother.
Loans to Executive Officers
In addition to the loan made to Ms. Timbanard, as described above, on or
about April 15, 2000, the Company made loans to five other officers in amounts
ranging from $200,000 to $500,000. The aggregate amount of these loans,
including Ms. Timbanard, totaled $2.2 million. The loans mature on April 15,
2001 and bear interest at the prime rate as quoted by Chase Manhattan Bank. The
loans are secured by the principal residences of these executive officers.
30
<PAGE>
PART IV
ITEM 14. - EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following documents are filed as part of this report:
Report of Independent Public Accountants
Consolidated Balance Sheets as of January 29, 2000 and January 30, 1999
Consolidated Statements of Income for each of the three fiscal years ended
January 29, 2000
Consolidated Statements of Changes in Stockholders' Equity for the three
fiscal years ended January 29, 2000
Consolidated Statements of Cash Flows for the three fiscal years ended
January 29, 2000
Notes to Consolidated Financial Statements
31
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED
JANUARY 29, 2000, JANUARY 30, 1999 AND JANUARY 31, 1998
THE CHILDREN'S PLACE RETAIL STORES, INC.
Page:
-----
Report of Independent Public Accountants ................................ 33
Consolidated Balance Sheets ............................................. 34
Consolidated Statements of Income ....................................... 35
Consolidated Statements of Changes in Stockholders' Equity .............. 36
Consolidated Statements of Cash Flows ................................... 37
Notes to Consolidated Financial Statements .............................. 38
32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
The Children's Place Retail Stores, Inc.:
We have audited the accompanying consolidated balance sheets of The
Children's Place Retail Stores, Inc. (a Delaware corporation) and subsidiaries
(the "Company") as of January 29, 2000 and January 30, 1999, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three fiscal years in the period ended January 29, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Children's Place Retail
Stores, Inc. and subsidiaries as of January 29, 2000 and January 30, 1999, and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended January 29, 2000, in conformity with accounting
principles generally accepted in the United States.
Arthur Andersen LLP
New York, New York
February 24, 2000
33
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................. $ 2,204 $ 16,370
Accounts receivable .................................... 5,112 2,742
Inventories ............................................ 56,021 35,339
Prepaid expenses and other current assets .............. 8,527 5,622
Deferred income taxes .................................. 1,720 2,447
--------- ---------
Total current assets ................................... 73,584 62,520
Property and equipment:
Leasehold improvements ................................. 61,235 34,261
Store fixtures and equipment ........................... 50,804 23,825
Construction in progress ............................... 3,009 3,517
--------- ---------
115,048 61,603
Less accumulated depreciation and amortization ............ (27,374) (19,299)
--------- ---------
Property and equipment, net .......................... 87,674 42,304
Deferred income taxes ..................................... 5,051 5,144
Other assets .............................................. 4,650 793
--------- ---------
Total assets ........................................... $ 170,959 $ 110,761
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities:
Revolving credit facility .............................. $ 6,507 $ 0
Accounts payable ....................................... 20,216 13,345
Taxes payable .......................................... 3,495 941
Accrued expenses, interest and other current liabilities 16,026 12,703
--------- ---------
Total current liabilities ............................ 46,244 26,989
Other long-term liabilities ............................... 4,649 3,165
--------- ---------
Total liabilities ...................................... 50,893 30,154
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.10 par value ............................. 2,570 2,497
Additional paid-in capital ................................ 88,376 84,032
Cumulative translation adjustments ........................ (7) 0
Accumulated earnings (deficit) ............................ 29,127 (5,922)
--------- ---------
Total stockholders' equity ............................. 120,066 80,607
--------- ---------
Total liabilities and stockholders' equity ............. $ 170,959 $ 110,761
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
34
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------
January 29, January 30, January 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net sales ............................................... $ 421,496 $ 283,853 $ 192,557
Cost of sales ........................................... 241,188 166,449 123,556
--------- --------- ---------
Gross profit ............................................ 180,308 117,404 69,001
Selling, general and administrative expenses ............ 105,137 70,313 46,451
Pre-opening costs ....................................... 3,485 3,030 2,127
Depreciation and amortization ........................... 13,849 8,607 5,958
--------- --------- ---------
Operating income ........................................ 57,837 35,454 14,465
Interest expense, net ................................... 346 324 2,647
Other expense, net ...................................... 54 110 139
--------- --------- ---------
Income before income taxes and extraordinary item ....... 57,437 35,020 11,679
Provision for income taxes .............................. 22,388 14,358 4,695
--------- --------- ---------
Income before extraordinary item ........................ 35,049 20,662 6,984
Extraordinary loss on extinguishment of debt, net ....... 0 0 1,743
--------- --------- ---------
Net income .............................................. $ 35,049 $ 20,662 $ 5,241
========= ========= =========
Basic income per common share before extraordinary item . $ 1.38 $ 0.83 $ 0.32
Extraordinary item ...................................... 0.00 0.00 (0.08)
--------- --------- ---------
Basic net income per common share ....................... $ 1.38 $ 0.83 $ 0.24
========= ========= =========
Basic weighted average common shares outstanding ........ 25,382 24,788 21,821
Diluted income per common share before extraordinary item $ 1.32 $ 0.80 $ 0.29
Extraordinary item ...................................... 0.00 0.00 (0.07)
--------- --------- ---------
Diluted net income per common share ..................... $ 1.32 $ 0.80 $ 0.22
========= ========= =========
Diluted weighted average common shares outstanding ...... 26,648 25,909 24,358
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
35
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED JANUARY 31, 1998,
JANUARY 30, 1999 AND JANUARY 29, 2000
(In thousands)
<TABLE>
<CAPTION>
Series A Series B
Common Stock Common Stock Common Stock
------------ ------------ ------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, February 1, 1997 ... -- $ -- 12,761 $ 1,276 47 $ 5
Return of funds toward
common stock subscription -- -- -- -- -- --
Series B Common Stock
conversion ............... -- -- 7,660 766 (47) (5)
Series A Common Stock
conversion ............... 20,421 2,042 (20,421) (2,042) -- --
Issuance of Common Stock .... 4,000 400 -- -- -- --
Transaction fees ............ -- -- -- -- -- --
Redemption of Noteholder
Warrant .................. -- -- -- -- -- --
Redemption of two-thirds of
Legg Mason Warrant ....... -- -- -- -- -- --
Exercise of one-third of
Legg Mason Warrant ....... 201 20 -- -- -- --
Net income .................. -- -- -- -- -- --
Comprehensive income ........ -- -- -- -- -- --
====== ========= ======= ========= ====== =========
BALANCE, January 31, 1998 ... 24,622 2,462 -- -- -- --
Exercise of stock options and
employee stock purchases . 351 35 -- -- -- --
Net income .................. -- -- -- -- -- --
Comprehensive income ........ -- -- -- -- -- --
====== ========= ======= ========= ====== =========
BALANCE, January 30, 1999 ... 24,973 2,497 -- -- -- --
Exercise of stock options and
employee stock purchases . 725 73 -- -- -- --
Tax benefit of stock option
exercises ................ -- -- -- -- -- --
Change in cumulative
translation adjustment ... -- -- -- -- -- --
Net income .................. -- -- -- -- -- --
Comprehensive income ........ -- -- -- -- -- --
====== ========= ====== ========= ====== =========
BALANCE, January 29, 2000 ... 25,698 $ 2,570 0 $ 0 0 $ 0
====== ========= ====== ========= ===== =========
<CAPTION>
Additional Accumulated Cumulative Total
Paid-In (Deficit) Translation Stockholders' Comprehensive
Capital Earnings Adjustment Equity Income
------- -------- ---------- ------ ------
<S> <C> <C> <C> <C> <C>
BALANCE, February 1, 1997 ... $ 57,842 $ (31,825) $ -- $ 27,298
Return of funds toward
common stock subscription (488) -- -- (488)
Series B Common Stock
conversion ............... (761) -- -- --
Series A Common Stock
conversion ............... -- -- -- --
Issuance of Common Stock .... 51,680 -- -- 52,080
Transaction fees ............ (1,350) -- -- (1,350)
Redemption of Noteholder
Warrant .................. (20,605) -- -- (20,605)
Redemption of two-thirds of
Legg Mason Warrant ....... (4,269) -- -- (4,269)
Exercise of one-third of
Legg Mason Warrant ....... 540 -- -- 560
Net income .................. -- 5,241 -- 5,241 $ 5,241
---------
Comprehensive income ........ -- -- -- -- $ 5,241
========= ========= ========= ========= =========
BALANCE, January 31, 1998 ... 82,589 (26,584) -- 58,467
Exercise of stock options and
employee stock purchases . 1,443 -- -- 1,478
Net income .................. -- 20,662 -- 20,662 $ 20,662
---------
Comprehensive income ........ -- -- -- -- $ 20,662
========= ========= ========= ========= =========
BALANCE, January 30, 1999 ... 84,032 (5,922) -- 80,607
Exercise of stock options and
employee stock purchases . 2,834 -- -- 2,907
Tax benefit of stock option
exercises ................ 1,510 -- -- 1,510
Change in cumulative
translation adjustment ... -- -- (7) (7) $ (7)
Net income .................. -- 35,049 -- 35,049 35,049
---------
Comprehensive income ........ -- -- -- -- $ 35,042
========= ========= ========= ========= =========
BALANCE, January 29, 2000 ... $ 88,376 $ 29,127 $ (7) $ 120,066
========= ========= ========= =========
</TABLE>
The accompanying notes to consolidated
financial statements are an integral part of these consolidated statements.
36
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................................... $ 35,049 $ 20,662 $ 5,241
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................ 13,849 8,607 5,958
Deferred financing fee amortization .......................................... 35 25 405
Loss on disposals of property and equipment .................................. 346 803 164
Extraordinary loss ........................................................... 0 0 1,743
Deferred taxes ............................................................... 2,726 11,959 4,205
Changes in operating assets and liabilities:
Accounts receivable .......................................................... (2,370) (838) (1,014)
Inventories .................................................................. (20,682) (15,005) (5,909)
Prepaid expenses and other current assets .................................... (2,905) (1,010) (1,449)
Other assets ................................................................. (4,194) (519) (445)
Accounts payable ............................................................. 6,871 3,874 1,149
Accrued expenses, interest and other ......................................... 5,941 6,401 1,299
--------- --------- ---------
Total adjustments ...................................................... (383) 14,297 6,106
--------- --------- ---------
Net cash provided by operating activities ....................................... 34,666 34,959 11,347
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment purchases ................................................ (58,181) (19,841) (17,183)
--------- --------- ---------
Net cash used in investing activities ........................................... (58,181) (19,841) (17,183)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the sale of Common Stock ...................................... 0 0 50,730
Repurchase of Noteholder and Legg Mason Warrants ................................ 0 0 (25,757)
Borrowings under revolving credit facility ...................................... 305,845 143,155 193,210
Repayments under revolving credit facility ...................................... (299,338) (144,244) (192,121)
Repayment of long-term debt ..................................................... 0 0 (21,360)
Payment of obligations under capital leases ..................................... (2) (24) (838)
Return of funds toward common stock subscription ................................ 0 0 (488)
Exercise of stock options and employee stock purchases .......................... 2,907 1,478 0
Deferred financing costs ........................................................ (63) 0 (75)
--------- --------- ---------
Net cash provided by financing activities ................................. 9,349 365 3,301
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ...................... (14,166) 15,483 (2,535)
Cash and cash equivalents, beginning of period ............................ 16,370 887 3,422
--------- --------- ---------
Cash and cash equivalents, end of period ........................................ $ 2,204 $ 16,370 $ 887
========= ========= =========
OTHER CASH FLOW INFORMATION:
Cash paid during the year for interest .......................................... $ 676 $ 439 $ 2,551
Cash paid during the year for income taxes ...................................... 17,065 2,085 607
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
37
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The Company is a specialty retailer of apparel and accessories for
children from newborn to twelve years of age. The Company designs, sources and
markets its products under "The Children's Place" brand name for sale
exclusively in its stores. As of January 29, 2000, the Company operated 293
stores in 34 states, located primarily in regional shopping malls.
Fiscal Year
The Company's fiscal year is a 52-week or 53-week period ending on the
Saturday nearest to January 31. The results for fiscal 1999, fiscal 1998 and
fiscal 1997 represent the 52-week periods ended January 29, 2000, January 30,
1999 and January 31, 1998, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and amounts of revenues and expenses reported during the period.
Actual results could differ from the estimates made by and assumptions used by
management.
Consolidation
The consolidated financial statements include the accounts of The
Children's Place Retail Stores, Inc. and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.
Reclassifications
Certain prior year balances have been reclassified to conform to current
year presentation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Inventories
Inventories, which consist primarily of finished goods, are stated at the
lower of average cost or market, calculated using the retail inventory method.
Cost of Sales
In addition to the cost of inventory sold, the Company includes its
buying, distribution and occupancy expenses in its cost of sales.
Property and Equipment
Property and equipment are stated at cost, except for store fixtures and
equipment under capital leases which are recorded at the present value of the
future lease payments as of lease inception. Property and equipment is
depreciated on a straight-line basis based upon their estimated useful lives,
which range from three to ten years. Amortization of property and equipment
under capital leases and leasehold improvements is computed on a straight-line
basis over the term of the lease or the estimated useful life, whichever is
shorter.
Deferred Financing Costs
The Company capitalizes costs directly associated with acquiring
third-party financing. Deferred financing costs are included in other assets and
are amortized over the term of the indebtedness. As of January 29, 2000,
unamortized deferred financing costs represent the cost of acquiring the
Company's working capital facility and were approximately $138,000 net of
accumulated amortization of $73,000. See Note 2 - Initial Public Offering for a
discussion of the write-off of unamortized deferred financing costs in
conjunction with the Company's initial public offering.
38
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounting for Impairment of Long-Lived Assets
The Company continually evaluates the carrying value and the economic useful
lives of its long-lived assets based on the Company's operating performance and
the expected undiscounted future net cash flows and adjusts the carrying value
of assets which may not be recoverable. The Company does not believe that any
impairment exists as of January 29, 2000 in the recoverability of its long-lived
assets.
Pre-opening Costs
Store pre-opening costs, which consist primarily of payroll, supply and
marketing expenses, are expensed as incurred.
Advertising Costs
The Company expenses the cost of advertising when the advertising is first
run or displayed. Included in selling, general and administrative expenses for
fiscal 1999, fiscal 1998 and fiscal 1997 are advertising costs of approximately
$9,218,000, $3,526,000 and $2,004,000, respectively.
Income Taxes
The Company computes income taxes using the liability method. This
standard requires recognition of deferred tax assets and liabilities, measured
by enacted rates, attributable to temporary differences between financial
statement and income tax basis of assets and liabilities. Temporary differences
result primarily from accelerated depreciation and amortization for tax purposes
and various accruals and reserves being deductible for future tax periods.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Values of Financial Instruments,"
requires entities to disclose the fair value of financial instruments, both
assets and liabilities, recognized and not recognized in the balance sheets, for
which it is practicable to estimate fair value. For purposes of this disclosure,
the fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. Fair value is based on quoted market prices for
the same or similar financial instruments.
As cash and cash equivalents, accounts receivable and payable, and certain
other short-term financial instruments are all short-term in nature, their
carrying amount approximates fair value.
Accounting for Stock Based Compensation
The Company accounts for its 1996 Stock Option Plan (the "1996 Plan"), its
1997 Stock Option Plan (the "1997 Plan") and its Employee Stock Purchase Plan
(the "ESPP") under the provisions of Accounting Principles Bulletin No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Refer to Note 9 - Stock
Option and Purchase Plans for pro forma disclosures required by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123").
Net Income per Common Share
The Company reports its earnings per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share," ("SFAS 128"),
which requires the presentation of both basic and diluted earnings per share on
the statements of income. The Company adopted SFAS 128 during fiscal 1997.
Basic income per common share for fiscal 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 (as discussed in
Note 2 - Initial Public Offering), occurred on the first day of fiscal 1997.
Diluted income per common share for fiscal 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
39
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
day of fiscal 1997. For fiscal 1997, common share equivalents included the
Noteholder Warrant and Legg Mason Warrant (each as discussed in Note 2 - Initial
Public Offering) prior to their exercise and management options to purchase
common stock under the 1996 Plan and the 1997 Plan calculated using the treasury
stock method at an assumed public offering price of $14.00 prior to the initial
public offering and, after the initial public offering, at the average market
price in accordance with SFAS 128.
In accordance with SFAS 128, the following table reconciles income and
share amounts utilized to calculate basic and diluted net income per common
share:
<TABLE>
<CAPTION>
For the Fiscal Year Ended
-------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net income (in thousands) ............ $ 35,049 $ 20,662 $ 5,241
=========== =========== ===========
Basic weighted average common shares . 25,381,694 24,787,698 21,821,160
Dilutive effect of stock options ..... 1,266,416 1,120,901 2,536,495
----------- ----------- -----------
Diluted weighted average common shares 26,648,110 25,908,599 24,357,655
=========== =========== ===========
Antidilutive options ................. 112,075 223,807 183,753
</TABLE>
Antidilutive options consist of the weighted average of stock options for
the respective periods ended January 29, 2000, January 30, 1999 and January 31,
1998 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.
Derivative Instruments
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded on
the balance sheet as either an asset or liability measured at its fair value.
SFAS 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
133 is effective for fiscal years beginning after June 15, 2000 with early
adoption permitted. The Company is currently analyzing the impact of this new
pronouncement on its financial position and results of operations.
Foreign Currency Translation
The Company has determined that the local currency of its Hong Kong
subsidiary is the functional currency. In accordance with Statement of Financial
Accounting Standard No. 52, "Foreign Currency Translation," the assets and
liabilities denominated in foreign currency are translated into U.S. dollars at
the current rate of exchange existing at period-end and revenues and expenses
are translated at average monthly exchange rates. Related translation
adjustments are reported as a separate component of stockholders' equity. The
effect of exchange rate changes on cash is insignificant.
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 transaction expenses of
$1.4 million, from this Offering to (i) pay the principal amount of, and accrued
interest on, the Senior Subordinated Notes held by Nomura Holding America Inc.,
(the "Noteholder") of $20.6 million, (ii) repurchase a warrant held by the
Noteholder (the "Noteholder Warrant"), for $20.6 million, (iii) repurchase
two-thirds of a warrant held by Legg Mason Wood Walker, Incorporated (the "Legg
Mason Warrant") for $5.2 million, and (iv) reduce borrowings outstanding under
the Company's working capital 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.
40
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INITIAL PUBLIC OFFERING (continued)
The Senior Subordinated Notes were prepaid without a prepayment premium since
concurrent with the prepayment the Noteholder was afforded the opportunity to
sell its Noteholder Warrant. The Company has had no long-term debt other than
obligations under capital leases as a result of the Offering.
As a result of the repayment of the Senior Subordinated Notes, the Company
incurred a non-cash, extraordinary charge to earnings during the third quarter
of Fiscal 1997 of $1.7 million, resulting from the write-off of unamortized
deferred financing costs of $1.4 million and unamortized debt discount of $1.5
million, net of a $1.2 million tax benefit.
The repurchase price of the Noteholder Warrant and two-thirds of the Legg
Mason Warrant was equal to the initial public offering price of $14.00 per
share, less the per share underwriting discount and exercise price of $2.677 per
warrant, multiplied by the number of shares covered by the warrant (or portion
thereof) being repurchased. The repurchase in cash of the Noteholder Warrant and
two-thirds of the Legg Mason Warrant was accounted for as a reduction of
additional paid-in capital. The repurchase in cash of two-thirds of the Legg
Mason Warrant was recorded net of deferred tax benefits of $0.9 million.
Concurrent with the Offering, the Company effected a 120-for-one stock
split of the Series A Common Stock (the "Stock Split"), and 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 cashless exercise of one-third of the Legg Mason
Warrant. The cashless exercise of one-third of the Legg Mason Warrant was
recorded net of deferred tax benefits of $0.6 million.
At the time of the Offering, the Company also amended and restated its
certificate of incorporation and bylaws in order to, among other things, (i)
effect the Stock Split, the Series B Conversion and the Reclassification, (ii)
authorize 100,000,000 shares of Common Stock, $0.10 par value per share, (iii)
authorize 1,000,000 shares of Preferred Stock, $1.00 par value per share, and
(iv) provide for certain anti-takeover provisions. The Company also entered into
an amended and restated stockholders agreement with all of its existing
stockholders. In addition, the Company adopted the 1997 Plan and the ESPP.
3. SHORT-TERM BORROWINGS
The Foothill Credit Facility
The Company has a working capital facility (the "Foothill Credit
Facility") with Foothill Capital Corporation ("Foothill Capital"). During fiscal
1999, the Foothill Credit Facility was amended to provide for up to $50 million
in borrowings which included a sublimit of up to $40 million in letters of
credit. As of January 30, 1999, the Foothill Credit Facility provided for up to
$30 million in borrowings which included a sublimit of up to $20 million in
letters of credit. The Foothill Credit Facility expires in July 2002 and
provides for one year automatic renewal options. The Company had $6.5 million
outstanding under the Foothill Credit Facility as of January 29, 2000 and had no
outstanding borrowings as of January 30, 1999. Letters of credit outstanding as
of January 29, 2000 and January 30, 1999 were $16.0 million and $10.6 million,
respectively. Availability as of January 29, 2000 and January 30, 1999 was $21.4
million and $19.3 million, respectively.
The availability of borrowings under the Foothill Credit Facility are
determined as an amount equal to the sum of (i) 90% of eligible accounts
receivable, (ii) 30% of the selling price of eligible inventory (not to exceed
65% of the cost of eligible inventory) and (iii) 30% of the retail selling price
of inventory to be acquired pursuant to the outstanding letters of credit not to
exceed the lower of (a) the face value of the outstanding letters of credit or
(b) 65% of the cost of inventory to be acquired pursuant to the outstanding
letters of credit. The Company's obligations under the Foothill Credit Facility
are secured by a first priority security interest on the Company's present and
future assets.
The Foothill Credit Facility also contains certain financial covenants,
including, among others, the maintenance of minimum levels of tangible net
worth, working capital and current ratios and imposes certain limitations on the
Company's annual capital expenditures, as defined in the Foothill Credit
Facility, as well as a prohibition on the payment of dividends. As of January
29, 2000, the Company was in compliance with all of its covenants under the
Foothill Credit Facility. Noncompliance with these covenants could result in
additional fees or could affect the availability of the facility.
Amounts outstanding under the Foothill Credit Facility bear interest at a
floating rate equal to the prime rate or, at the Company's
41
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SHORT-TERM BORROWINGS (continued)
option, the 30-day LIBOR Rate plus a pre-determined spread. As of January 29,
2000 and January 30, 1999, the interest rate charged under the Foothill Credit
Facility was 8.50% and 7.75%, respectively. In addition, the Company was also
required to pay an anniversary fee of $37,500 and $75,000 during fiscal 1999 and
fiscal 1998, respectively.
Borrowing activity under the Foothill Credit Facility was as follows
(dollars in thousands):
<TABLE>
<CAPTION>
For the Fiscal Year Ended
------------------------
January 29, January 30,
2000 1999
----------- -----------
<S> <C> <C>
Weighted average balances outstanding ................... $ 8,720 $ 4,744
Weighted average interest rate .......................... 7.73% 7.50%
Maximum balance outstanding ............................. $24,185 $15,994
</TABLE>
4. ACCRUED EXPENSES, INTEREST AND OTHER CURRENT LIABILITIES
Accrued expenses, interest and other current liabilities is comprised of
the following (dollars in thousands):
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
----------- -----------
<S> <C> <C>
Accrued salaries and benefits ........................... $ 3,710 $ 3,999
Accrued real estate expenses ............................ 2,588 1,845
Customer liabilities .................................... 2,189 1,497
Other accrued expenses .................................. 7,539 5,362
------- -------
Accrued expenses, interest and other current liabilities $16,026 $12,703
======= =======
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
The Company leases all of its stores and distribution facilities, and
certain office equipment, store fixtures and automobiles, under leases expiring
at various dates through 2014. Certain leases include options to renew. The
leases require fixed minimum annual rental payments plus, under the terms of
certain leases, additional payments for taxes, other expenses and additional
rent based upon sales.
Rent expense is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------
January 29, January 30, January 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Store and distribution facility rent:
Minimum rentals .................... $32,633 $23,022 $16,037
Additional rent based upon sales ... 646 351 242
------- ------- -------
Total rent expense ................. $33,279 $23,373 $16,279
======= ======= =======
</TABLE>
42
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. COMMITMENTS AND CONTINGENCIES (continued)
Future minimum annual lease payments under the Company's operating leases
at January 29, 2000, are as follows (dollars in thousands):
Operating
Leases
---------
Fiscal year
2000 ............................................ $ 47,063
2001 ............................................ 50,646
2002 ............................................ 50,801
2003 ............................................ 49,518
2004 ............................................ 48,943
Thereafter ...................................... 198,021
--------
Total minimum lease payments .................... $444,992
========
6. LITIGATION
Stockholder Litigation
The Company has reached an agreement in principle to resolve the federal
securities class action litigation which was filed against the Company and
others in the United States District Court for the District of New Jersey and
the securities litigation filed in Superior Court of New Jersey, Essex County
Division. The proposed settlements provide for payment of $1.7 million in the
aggregate and would be funded entirely from insurance proceeds. The proposed
federal action settlement requires court approval. The proposed settlements
would have no material impact on the Company.
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.
7. INCOME TAXES
Components of the Company's provision for income taxes consisted of the
following (dollars in thousands):
Fiscal Year Ended
---------------------------------------
January 29, January 30, January 31,
2000 1999 1998
----------- ----------- -----------
Current -
Federal ..................... $14,900 $ 799 $ 158
Foreign...................... 533 0 0
State ....................... 3,500 1,600 332
Deferred -
Federal ..................... 2,574 10,209 3,679
State ....................... 881 1,750 526
------- ------- ---------
Provision for income taxes .. $22,388 $14,358 $ 4,695
======= ======= =======
The deferred portion of the tax provision for the fiscal year ended
January 31, 1998 excludes (i) a tax benefit of $1.2 million recorded against the
extraordinary charge to earnings resulting from the write-off of deferred
financing costs and unamortized debt discount (see Note 2-Initial Public
Offering), and (ii) a tax benefit of $1.4 million resulting from the repurchase
and exercise of the Legg Mason Warrant recorded as paid-in capital.
43
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES (continued)
A reconciliation between the calculated tax provision on income based on
the statutory rates in effect and the effective tax rate follows (dollars in
thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------
January 29, January 30, January 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Calculated income tax provision .................. $ 20,103 $ 12,257 $ 4,088
State income taxes, net of federal benefit ....... 2,848 2,101 583
Foreign tax ...................................... (563) 0 0
Nondeductible expenses ........................... 0 (160) 30
Other ............................................ 0 160 (6)
-------- -------- --------
Tax provision as shown on the statements of income $ 22,388 $ 14,358 $ 4,695
======== ======== ========
</TABLE>
Deferred income taxes reflect the impact of temporary differences between
amounts of assets and liabilities for financial reporting purposes as measured
by tax laws.
Temporary differences and net operating loss carryforwards which give rise
to deferred tax assets and liabilities are as follows (dollars in thousands):
January 29, January 30,
2000 1999
----------- -----------
Current -
Uniform inventory capitalization $1,254 $ 832
Inventory ....................... 411 941
Expenses not currently deductible 55 638
Net operating loss carryforwards 0 36
------ ------
Total current ................ 1,720 2,447
------ ------
Noncurrent -
Depreciation .................... 3,392 2,424
Deferred rent ................... 1,659 1,458
Alternative minimum tax credit .. 0 1,262
------ ------
Total noncurrent ............. 5,051 5,144
------ ------
Total deferred tax asset ..... $6,771 $7,591
====== ======
The majority of the 1998 tax provision was not paid in cash, but reduced
the deferred tax asset on the balance sheet. However, the Company made cash tax
payments of approximately $2.6 million for its fiscal 1998 taxes related to
payments of federal Alternative Minimum Tax ("AMT"), state minimum taxes and
state taxes where the Company was not in an NOL status. The Company utilized its
remaining NOL carryforwards during fiscal 1999. The amount and availability of
these NOLs are subject to review by the Internal Revenue Service.
44
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. STOCKHOLDERS' EQUITY
The Company's stockholders' equity is comprised of the following (dollars
in thousands):
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
----------- -----------
<S> <C> <C>
Common stock:
Authorized number of shares, $0.10 par value 100,000,000 100,000,000
Issued and outstanding number of shares .... 25,698,120 24,972,901
Preferred stock:
Authorized number of shares, $1.00 par value 1,000,000 1,000,000
Issued and outstanding number of shares .... 0 0
</TABLE>
9. STOCK OPTION AND PURCHASE PLANS
Stock Option Plans
Effective February 1, 1997, the Company adopted the provisions of SFAS 123
in accounting for its stock option plans, which are described below.
Accordingly, no compensation expense has been recognized for stock-based
compensation, since the options granted were at prices that equaled or exceeded
their estimated fair market value at the date of grant. If compensation expense
for the Company's stock options issued in fiscal 1999, fiscal 1998 and fiscal
1997 had been determined based on the fair value method of accounting, the
Company's net income would have been reduced to the pro forma amounts indicated
below for the three fiscal years in the period ended January 29, 2000:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
------------- -------------- ---------------
<S> <C> <C> <C>
Net income -
As reported ................................. $ 35,049,000 $ 20,662,000 $ 5,241,000
Pro forma ................................... $ 33,111,000 $ 19,042,000 $ 4,385,000
Pro forma diluted net income per share -
As reported ................................. $ 1.32 $ 0.80 $ 0.22
Pro forma ................................... $ 1.24 $ 0.73 $ 0.18
</TABLE>
The fair value of issued stock options were estimated on the date of
grant using the Black-Scholes option pricing model, incorporating the following
assumptions:
<TABLE>
<CAPTION>
January 29, January 30, January 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Dividend yield.................................. 0% 0% 0%
Volatility factor............................... 57.00% 45.00% 36.56%
Weighted average risk-free interest rate........ 5.89% 5.17% 6.02%
Expected life of options........................ 5 years 5 years 5 years
Weighted average fair value on grant date....... $13.22 per share $3.52 per share $5.82 per share
</TABLE>
On June 28, 1996, the Company approved the adoption of the 1996 Plan,
which authorized the granting of incentive stock options and nonqualified stock
options to key employees of the Company. The 1996 Plan provided for the granting
of options with respect to 1,743,240 shares of Common Stock. On September 17,
1997, the Company approved adoption of the 1997 Plan, which also authorizes the
45
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK OPTION AND PURCHASE PLANS (continued)
granting of incentive stock options and nonqualified stock options to key
employees of the Company with respect to an additional 1,000,000 shares of
Common Stock. On August 3, 1999, the Company further amended the 1997 Plan to
increase by 1,500,000 the number of shares of Common Stock authorized for
issuance in connection with options to be granted to employees, officers and
directors of the Company. As of January 29, 2000, there were 4,500 shares
available for grant under the 1996 Plan and 1,220,030 shares available for grant
under the 1997 Plan.
Both the 1996 Plan and the 1997 Plan are administered by the Board of
Directors. Options granted under the 1996 Plan and the 1997 Plan have exercise
prices established by the Board of Directors provided that the exercise price of
incentive stock options may not be less than the fair market value of the
underlying shares at the date of grant. The 1996 Plan and the 1997 Plan also
contain certain provisions that require the exercise price of incentive stock
options granted to stockholders owning greater than 10% of the Company be at
least 110% of the fair market value of the underlying shares.
The Company issued options to key employees in fiscal 1997 in conjunction
with the Offering. During fiscal 1998, the 931,500 options granted were
comprised of (i) 363,700 options that were canceled and re-granted on March 26,
1998, (ii) 290,000 options that were granted to officers hired during fiscal
1998, (iii) 135,000 options that were granted to existing officers and (iv)
142,800 options that were granted to newly hired or existing key employees. The
Board of Directors authorized the cancellation and re-granting of certain
options, which were originally granted in conjunction with the Offering under
the 1996 Plan and the 1997 Plan, from an exercise price of $14.00 to the average
market price on March 27, 1998 of $8.70 per share. The cancellation and
re-granting re-established these options as an incentive to improve the overall
performance of the Company. Options granted to officers were not repriced.
During fiscal 1999, the 561,700 options granted were comprised of (i) 180,000
options granted for new and existing officers, and (ii) 381,700 options that
were granted to newly hired and existing employees.
The options granted in conjunction with a 1996 recapitalization of the
Company vest at 20% six months from the date of grant and 20% on each of the
first, second, third and fourth anniversaries of the date of the grant. The
options granted in conjunction with the Offering vest 20% on December 31, 1997
and 20% on each of the first, second, third and fourth anniversaries of the date
of the grant. The options canceled and re-granted during fiscal 1998 will vest
in accordance with their original vesting schedule. Unless otherwise specified
by the Board of Directors, options granted during fiscal 1998 and fiscal 1999
vest at 20% a year over a five year period.
Changes in common shares under option for the three fiscal years in the
period ended January 31, 1999 are summarized below:
<TABLE>
<CAPTION>
January 29, 2000 January 30, 1999 January 31, 1998
---------------------------- ------------------------------- ---------------------------
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
-------- --------------- --------- --------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year ........ 2,185,706 $ 6.43 1,981,120 $ 5.82 1,444,080 $ 2.68
Granted .................. 561,700 24.13 931,500 (1) 9.66 551,260 14.25
Exercised ................ (713,560) 3.70 (339,294) 3.41 0 --
Canceled ................. (67,990) 14.70 (387,620)(1) 13.73 (14,220) 14.00
--------- ------ --------- ------ --------- ------
End of year .............. 1,965,856 $12.21 2,185,706 $ 6.43 1,981,120 $ 5.82
========= ====== ========= ====== ========= ======
Exercisable at end of year 600,186 $ 7.83 793,378 $ 4.85 684,576 $ 4.49
</TABLE>
- -----------
(1) Includes 363,700 options that were canceled and re-granted on March 26,
1998.
46
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK OPTION AND PURCHASE PLANS (continued)
The following table summarizes information regarding options outstanding
at January 29, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------------------------- ------------------------------------
Exercise Outstanding at Weighted Average Remaining Weighted Average Exercisable at Weighted Average
Prices January 29, 2000 Contractual Life Exercise Price January 29, 2000 Exercise Price
----------- ---------------- -------------------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$2.68 - 2.68 551,096 6.4 $ 2.68 262,280 $2.68
$7.31 - 10.69 641,116 8.3 8.76 211,156 8.62
$14.00 - 19.06 507,094 9.2 15.67 96,050 14.91
$23.06 - 31.63 101,400 9.2 26.63 30,700 24.19
$36.69 - 40.91 165,150 9.3 37.97 0 --
-------------- --------- --- ----- ------- -----
$2.68 - 40.91 1,965,856 8.1 $12.21 600,186 $7.83
============== ========= === ====== ======= =====
</TABLE>
Stock Purchase Plans
On September 17, 1997, the Company approved the adoption of the ESPP,
which authorized up to 360,000 shares of Common Stock for employee purchase
through payroll deductions at 85% of fair market value. All employees of the
Company, who have completed at least 90 days of employment and attained 21 years
of age, are eligible to participate, except for employees who own Common Stock
or options on such common stock which represents 5% or more of the Company.
During fiscal 1999, fiscal 1998 and fiscal 1997, there were 11,659 shares,
11,504 shares and 0 shares issued under the ESPP.
10. SAVINGS AND INVESTMENT PLAN
The Company has adopted The Children's Place 401(k) Savings and Investment
Plan (the "401(k) Plan"), which is intended to qualify under Section 401(k) of
the Internal Revenue Code of 1986, as amended. The 401(k) Plan is a defined
contribution plan established to provide retirement benefits for all employees
who have completed one year of service with the Company and attained 21 years of
age.
The 401(k) Plan is employee funded up to an elective annual deferral and
also provides an option for the Company to contribute to the 401(k) Plan at the
discretion of the 401(k) Plan's trustees. In January 1997, the 401(k) Plan was
amended whereby the Company will match the lesser of 50% of the participant's
contribution or 2.5% of the participant's compensation. During fiscal 1999,
fiscal 1998 and fiscal 1997, the Company's matching contributions to the 401(k)
Plan were approximately $367,000, $300,000 and $247,000, respectively.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes the quarterly financial data for the
periods indicated (dollars in thousands, except for per share amounts):
<TABLE>
<CAPTION>
Fiscal Year Ended January 29, 2000
----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales ......................... $ 92,621 $ 73,920 $119,442 $135,513
Gross profit ...................... 39,323 26,797 54,507 59,681
Net income ........................ 7,383 1,402 12,734 13,530
Basic net income per common share . $ 0.29 $ 0.06 $ 0.50 $ 0.53
Diluted net income per common share $ 0.28 $ 0.05 $ 0.48 $ 0.51
</TABLE>
46
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. QUARTERLY FINANCIAL DATA (UNAUDITED) (continued)
<TABLE>
<CAPTION>
Fiscal Year Ended January 30, 1999
----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales ................................ $ 55,999 $ 48,014 $ 82,496 $ 97,344
Gross profit ............................. 21,915 15,489 36,126 43,874
Net income (loss) ........................ 2,742 (511) 8,485 9,946
Basic net income (loss) per common share . $ 0.11 $ (0.02) $ 0.34 $ 0.40
Diluted net income (loss) per common share $ 0.11 $ (0.02) $ 0.33 $ 0.38
</TABLE>
12. RELATED PARTY TRANSACTIONS
SKM Financial Advisory Services
In 1996, the Company entered into a management agreement with SKM which
provides for the payment of an annual fee of $150,000, payable quarterly in
advance, in exchange for certain financial advisory services. This management
agreement remains in effect until SKM or any of its affiliates' total ownership
of the Company's Common Stock is less than 10% on a fully diluted basis.
Pursuant to the management agreement, the Company incurred fees and expenses of
approximately $151,000, $151,000 and $153,000 during fiscal 1999, fiscal 1998
and fiscal 1997, respectively.
Stockholders Agreement
The Company and certain of its stockholders, who as of January 29, 2000
own in the aggregate a majority of the Common Stock, are parties to a
Stockholders Agreement (the "Stockholders Agreement"). The Stockholders
Agreement places certain limitations upon the transfer, in privately negotiated
transactions, of shares of Common Stock beneficially owned by Ezra Dabah,
Stanley Silver and the SK Funds. In addition, the Stockholders Agreement
provides that (1) so long as Ezra Dabah, together with members of his family,
beneficially owns shares representing at least 25% of the shares of Common Stock
owned by such parties on the date of the Stockholders Agreement, the
stockholders party to the Stockholders Agreement will be obligated to vote all
shares as to which they have voting rights in a manner such that the Board of
Directors will at all times include three directors nominated by Ezra Dabah and
(2) so long as the SK Funds beneficially own shares representing at least 25% of
the shares of Common Stock owned by such parties on the date of the Stockholders
Agreement, the stockholders party to the Stockholders Agreement will be
obligated to vote all shares as to which they have voting rights in a manner
such that the Board of Directors will at all times include two directors
nominated by the SK Funds. Should the number of directors comprising the Board
of Directors be increased, nominees for the remaining director positions will be
designated by the Board of Directors.
The Stockholders Agreement provides that so long as the SK Funds
beneficially own shares representing at least 25% of the outstanding Common
Stock, will not, without the affirmative vote of at least one director nominated
by the SK Funds, engage in specified types of transactions with certain of our
affiliates (not including the SK Funds), take action to amend the ByLaws or
Certificate of Incorporation or increase or decrease the size of the entire
Board of Directors. The Stockholders Agreement also provides that certain
specified types of corporate transactions and major corporate actions will
require the approval of at least two-thirds of the members of the Board of
Directors.
Under the terms of the Stockholders Agreement, the rights of any party
thereunder will terminate at the time that such party's Common Stock constitutes
less than 25% of the shares of Common Stock owned by such party on the date of
the Stockholders Agreement. All the provisions of the Stockholders Agreement
will terminate when no party to the Stockholders Agreement beneficially owns
shares representing at least 25% of the outstanding Common Stock owned by such
party on the date of the Stockholders Agreement.
Merchandise for Re-Sale
During fiscal 1998, the Company purchased approximately $290,000 in bath
products from HBA Technologies, LLC. Haim Dabah, Ezra Dabah's brother, is the
majority owner of HBA Technologies, LLC.
During fiscal 1999, the Company purchased approximately $565,000 in
footwear from Nina Footwear Corporation. Stanley Silverstein, a member of the
Company's Board of Directors and Ezra Dabah's father-in-law, owns Nina Footwear
Corporation with his brother.
47
<PAGE>
THE CHILDREN'S PLACE RETAIL STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. SUBSEQUENT EVENTS - (UNAUDITED)
Resignation of President
On February 24, 2000, Stanley Silver, the Company's President and Chief
Operating Officer resigned. The Company is currently in the process of searching
for a new Chief Operating Officer to replace Mr. Silver. The Company expects to
record $0.8 million charge in the first quarter of fiscal 2000 for settlement of
Mr. Silver's employment agreement.
Commitment Letter from Foothill Capital Corporation
In February 2000, the Company received a commitment letter from Foothill
Capital Corporation to increase its working capital facility to provide for
borrowings up to $75.0 million (including a sublimit for letters of credit of
$60.0 million). Consummation of this amendment to the working capital facility
is subject to execution of definitive documentation and other conditions.
Foothill Capital Corporation would act as the agent bank for a syndicated group
of lenders on this facility. The commitment letter 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 this proposed working capital facility would depend on the
Company's levels of inventory and accounts receivable. Amounts outstanding under
the facility would bear interest at a floating rate equal to the prime rate or,
at the Company's option, a LIBOR Rate plus a pre-determined spread. The LIBOR
spread would be 1.25% to 2.50%, depending on the Company's financial performance
from time to time. Borrowings under the facility would mature in July 2003 and
provide for one year automatic renewal options. The proposed working capital
facility would contain certain financial covenants including, among others, the
maintenance of minimum levels of earnings and current ratios and would impose
certain limitations on the Company's annual capital expenditures, as well as a
prohibition on the payment of dividends. Credit extended under the working
capital facility would be secured by a first priority security interest in the
Company's present and future assets, as well as the assets of the Company's
subsidiaries.
Executive Officers
On or about April 15, 2000, the Company made loans to six executive
officers in amounts ranging from $200,000 to $500,000. The aggregate amount of
these loans totaled $2.2 million. The loans mature on or about April 15, 2001
and bear interest at the prime rate as quoted by Chase Manhattan Bank. The loans
are secured by the principal residences of these executive officers.
48
<PAGE>
(a) (2) Financial Statement Schedules
Financial statement schedules have been omitted because they are not
required or are not applicable.
(a)(3) Exhibits
3.1* Amended and Restated Certificate of Incorporation of
the Company.
3.2* Amended and Restated ByLaws of the Company.
4.1* Form of Certificate for Common Stock of the Company.
9.1* Amended and Restated Stockholders Agreement, dated as
of September 18, 1997.
10.1* 1996 Stock Option Plan of The Children's Place Retail
Stores, Inc.
10.2* 1997 Stock Option Plan of The Children's Place Retail
Stores, Inc.
10.3* The Children's Place Retail Stores, Inc. 401(k) Plan.
10.4* Form of The Children's Place Retail Stores, Inc.
Employee Stock Purchase Plan.
10.5* The Children's Place Retail Stores, Inc. Management
Incentive Plan.
10.6* Amended and Restated Loan and Security Agreement dated
as of July 31, 1997, between the Company and Foothill
Capital Corporation.
10.7* Merchant Services Agreement dated December 12, 1994
between the Company and Hurley State Bank.
10.8* Employment Agreement dated as of June 27, 1996 between
the Company and Ezra Dabah.
10.10* Form of Indemnification Agreement between the Company
and the members of its Board of Directors.
10.12* Form of Amended and Restated Registration Rights
Agreement, dated as of September 18, 1997.
10.13* Letter Agreement as to employment, dated January 18,
1991, between the Company and Diane M. Timbanard.
10.14* Letter Agreement as to severance pay, dated January 22,
1991, between the Company and Diane M. Timbanard.
10.17* Buying Agency Agreement dated September 17, 1996
between the Company and KS Best International.
10.18* Advisory Agreement dated June 28, 1996 between the
Company and Saunders Karp & Megrue, L.P.
10.19** Amendment as of October 27, 1997 to Merchant Services
Agreement dated December 12, 1994 between the Company
and Hurley State Bank.
10.20*** Employment Agreement dated as of January 30, 1998
between the Company and Clark Hinkley.
10.21**** Service Agreement, between the Company and AST
StockPlan, Inc., dated June 8, 1998.
10.22***** Lease for a distribution center and corporate
headquarters facility between the Company and Hartz
Mountain Associates, dated June 30, 1998.
10.23***** Software Purchase and license agreement between the
Company and Trimax Inc. dated August 14, 1998.
Amendment to a lease for a distribution center and
corporate headquarters facility between the Company and
Hartz Mountain Associates, dated November 20,
10.25****** 1998. Second Amendment effective as of September 1,
1998 to the Merchant Services Agreement dated December
12, 1994 between the Company and Hurley State Bank,
10.26(sigma) as amended as of October 27, 1997.
10.28(sigma) Security Agreement - Stock Pledge dated January 31,
1999 between the Company and Foothill Capital
Corporation. Amendment Number One dated as of February
22, 1999 to Amended and Restated Loan and Security
Agreement between the Company and Foothill Capital
10.29(sigma) Corporation.
10.30(sigma)(sigma) Amendment Number Four dated as of December 10, 1999
between the Company and Foothill Capital Corporation.
10.31 Amendment Number Two dated as of June 15, 1999 between
the Company and Foothill Capital Corporation.
10.32 Amendment Number Five dated as of December 11, 1999
between the Company and Foothill Capital Corporation.
10.33 Amendment Number Six dated as of April 1, 2000 between
the Company and Foothill Capital Corporation.
10.34 Severance Agreement dated February 24, 2000 between the
Company and Stanley Silver.
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule.
* Incorporated by reference to the registrant's Registration Statement on
Form S-1 (No. 333-31535). Exhibit numbers are identical to the exhibit
numbers incorporated by reference to such registration statement.
** Incorporated by reference to the registrant's quarterly report on Form
10-Q for the period ended November 1, 1997. Exhibit 10.19 was filed
previously as Exhibit 10.1 in such quarterly report.
*** Incorporated by reference to the registrant's annual report on Form 10-K
for the fiscal year ended January 31, 1998. Exhibit 10.20 was filed
previously as Exhibit 10.21 in such annual report.
49
<PAGE>
**** Incorporated by reference to the registrant's quarterly report
on Form 10-Q for the period ended May 2, 1998. Exhibit 10.21
was filed previously as Exhibit 10.1 in such quarterly
report.
***** Incorporated by reference to the registrant's quarterly report
on Form 10-Q for the period ended August 1, 1998. Exhibit
10.22 was filed previously as Exhibit 10.2 and Exhibit 10.23
was filed previously as Exhibit 10.3 in such quarterly
report.
****** Incorporated by reference to registrant's quarterly report on
Form 10-Q for the period ended October 31, 1998. Exhibit
10.25 was filed previously as Exhibit 10.5 in such quarterly
report.
(sigma) Incorporated by reference to the registrants' annual report on
Form 10-K for the fiscal year ended January 30, 1999.
(sigma)(sigma) Incorporated by reference to the registrant's quarterly report
on Form 10-Q for the period ended October 30, 1999. Exhibit
10.30 was filed previously as Exhibit 10.1 in such quarterly
report.
(b) Reports on Form 8-K
No reports were filed.
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE CHILDREN'S PLACE RETAIL STORES, INC.
By: /s/ Ezra Dabah
-------------------------
Ezra Dabah
Chairman of the Board and
Chief Executive Officer
April 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ezra Dabah Chairman of the Board of Directors and Chief April 28, 2000
- ---------------------------------- Executive Officer (Principal Executive Officer)
Ezra Dabah
/s/ Seth L. Udasin Vice President and Chief Financial Officer April 28, 2000
- ---------------------------------- (Principal Financial and Accounting Officer)
Seth L. Udasin
/s/ Stanley Silverstein Director April 28, 2000
- ----------------------------------
Stanley Silverstein
/s/ John Megrue Director April 28, 2000
- ----------------------------------
John Megrue
/s/ David J. Oddi Director April 28, 2000
- ----------------------------------
David J. Oddi
</TABLE>
51
EXHIBIT 10.31
AMENDMENT NUMBER TWO DATED AS OF JUNE 15, 1999
BETWEEN THE COMPANY AND FOOTHILL CAPITAL CORPORATION
THIS AMENDMENT NUMBER TWO TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT ("Amendment") is entered into as of June 15, 1999, by and between
FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"), and THE
CHILDREN'S PLACE RETAIL STORES, INC., a Delaware corporation ("Borrower"), in
light of the following:
FACT ONE: Borrower and Foothill have previously entered into that certain
Amended and Restated Loan and Security Agreement, dated as of July 31, 1997, as
amended on February 22, 1999 (the "Agreement").
FACT TWO: Borrower and Foothill desire to further amend the Agreement as
provided for and on the conditions herein.
NOW, THEREFORE, Borrower and Foothill hereby amend and supplement the
Agreement as follows:
1. DEFINITIONS. All initially capitalized terms used in this Amendment
shall have the meanings given to them in the Agreement unless specifically
defined herein.
2. AMENDMENTS.
Section 2.1(c) of the Agreement is amended to read as follows:
"(c) Foothill shall have no obligation to make advances
hereunder to the extent they would cause the outstanding Obligations
to exceed $40,000,000 (the "Maximum Amount"); provided, however,
Borrower shall have the option to increase the Maximum Amount to
$50,000,000 so long as (i) no Event of Default has occurred and is
continuing and (ii) Borrower has EBITDA in excess of $40,000,000 for
the most recent 12 months based upon the financial statements
delivered to Foothill by Borrower pursuant to Section 6.4. Borrower
shall have a period of 30 days from the date of delivery of its
monthly financial statements to notify Foothill in writing of its
decision to increase the Maximum Amount. Foothill shall increase the
Maximum Amount five days after receipt of written notice from
Borrower so long as the conditions set forth in this Section 2.1(c)
have been met. Concurrent with Borrower's election to increase the
Maximum Amount in accordance with this section, Borrower shall pay
Foothill a line increase fee in the amount of $25,000."
The dollar amount in Section 2.2(a)(ii) of the Agreement is
increased to $30,000,000 from $20,000,000, and shall be further
increased to $40,000,000 if Borrower elects to increase the Maximum
Amount to $50,000,000 in accordance with Section 2.1(c) of the
Agreement.
The annual facility fee in Section 2.8 of the Agreement for July 31,
1999, only, shall be an amount equal to 0.125% times $30,000,000.
Section 3.3 of the Agreement is amended to read as follows:
"3.3 Term; Automatic Renewal. This Agreement shall become
effective upon the execution and delivery hereof by Borrower and
Foothill and shall continue in full force and effect for a term
ending on July 31, 2002 (the "Renewal Date") and automatically shall
be renewed for successive one year periods thereafter, unless sooner
terminated pursuant to the terms hereof. Either party may terminate
this Agreement effective on the Renewal Date or on any anniversary
of the Renewal Date by giving the other party at least 90 days prior
written notice by registered or certified mail, return receipt
requested. The foregoing notwithstanding, Foothill shall have the
right to terminate its obligations under this Agreement immediately
and without notice upon the occurrence and during the continuation
of an Event of Default."
Section 6.13 of the Agreement is amended to read as follows:
52
<PAGE>
"6.13 Financial Covenants. Borrower shall maintain:
(a) Current Ratio. A ratio of Consolidated Current Assets
divided by Consolidated Current Liabilities of at least the
following, measured on a fiscal quarter-end basis:
Quarters
Ratio Ending on or About
----- ------------------
1.0-1.0 July 31, 1999 and thereafter
(b) Tangible Net Worth. Tangible Net Worth of not less than
the following, measured on a fiscal quarter-end basis:
Tangible Quarters
Net Worth Ending on or About
--------- ------------------
$45,000,000 April 30, 1999 and
July 31, 1999
57,000,000 October 31, 1999
$64,000,000 January 31, 2000 and thereafter
(c) Working Capital. Working Capital of not less than the
following, measured on a fiscal quarter-end basis:
Quarters
Working Capital Ending on or About
--------------- ------------------
$20,000,000 April 30, 1999
15,000,000 July 31, 1999
20,000,000 October 31, 1999
$25,000,000 January 31, 2000 and thereafter"
Section 7.10 of the Agreement is amended to read as follows:
"7.10 Capital Expenditures. Make any capital expenditure, or
any commitment therefor, where the aggregate amount of such capital
expenditures (other than capital expenditures for the purchase of a
new headquarters and distribution center for Borrower), made or
committed for in each fiscal year ending on or about January 31
commencing with 2000 is in excess of $55,000,000."
Schedule 6.15 to the Agreement is replaced with Schedule 6.15 attached
hereto.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms to Foothill
that all of Borrower's representations and warranties set forth in the Agreement
are true, complete and accurate in all respects as of the date hereof."
4. NO DEFAULTS. Borrower hereby affirms to Foothill that no Event of
Default has occurred and is continuing as of the date hereof.
5. CONDITIONS PRECEDENT. The effectiveness of this Amendment is expressly
conditioned upon: (a) receipt by Foothill of an amendment fee in the amount of
$37,500 and (b) receipt by Foothill of an executed copy of this Amendment.
6. COSTS AND EXPENSES. Borrower shall pay to Foothill all of Foothill's
out-of-pocket costs and expenses (including, without limitation, the fees and
expenses of its counsel, which counsel may include any local counsel deemed
necessary, search fees, filing and recording fees, documentation fees, appraisal
fees, travel expenses, and other fees) arising in connection with the
preparation, execution, and delivery of this Amendment and all related
documents.
53
<PAGE>
7. LIMITED EFFECT. In the event of a conflict between the terms and
provisions of this Amendment and the terms and provisions of the Agreement, the
terms and provisions of this Amendment shall govern. In all other respects, the
Agreement, as amended and supplemented hereby, (including Section 3.5) shall
remain in full force and effect.
8. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which when so executed and delivered shall be deemed to be an original. All
such counterparts, taken together, shall constitute but one and the same
Amendment. This Amendment shall become effective upon the execution of a
counterpart of this Amendment by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ Paul Chao
------------------------------------
Title: Assistant Vice President
---------------------------------
THE CHILDREN'S PLACE RETAIL STORES, INC.,
a Delaware corporation
By: /s/ Seth Udasin
------------------------------------
Title: Vice President & CFO
---------------------------------
54
EXHIBIT 10.32
AMENDMENT NUMBER FIVE DATED AS OF DECEMBER 11, 1999
BETWEEN THE COMPANY AND FOOTHILL CAPITAL CORPORATION
THIS AMENDMENT NUMBER FIVE TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT ("Amendment") is entered into as of December 11, 1999, by and between
FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"), and THE
CHILDREN'S PLACE RETAIL STORES, INC., a Delaware corporation ("Borrower"), in
light of the following:
A. Borrower and Foothill have previously entered into that certain Amended
and Restated Loan and Security Agreement, dated as of July 31, 1997 (as amended,
the "Agreement").
B. When Borrower and Foothill initially entered into the Agreement,
Borrower did not have any foreign Subsidiaries and Foothill did not intend to
take a security interest in any foreign Subsidiary, other than as provided in
the definition of Negotiable Collateral as clarified by this Amendment.
C. Borrower and Foothill desire to clarify the Agreement as provided for
and on the conditions herein.
NOW, THEREFORE, Borrower and Foothill hereby clarify amend and supplement
the Agreement as follows:
1. DEFINITIONS. All initially capitalized terms used in this Amendment
shall have the meanings given to them in the Agreement unless specifically
defined herein.
2. AMENDMENT. The definition of "Negotiable Collateral" in Section 1.1 of
the Agreement is amended to read as follows:
"Negotiable Collateral" means all of Borrower's present and
future letters of credit, notes, drafts, instruments, certificated
and uncertificated securities (including the shares of stock of
subsidiaries of Borrower, but limited to 66% of the outstanding
shares of stock of any foreign subsidiary), investment property,
security entitlements, documents, personal property leases (wherein
Borrower is the lessor), chattel paper, and Borrower's Books
relating to any of the foregoing."
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms to Foothill
that all of Borrower's representations and warranties set forth in the Agreement
are true, complete and accurate in all respects as of the date hereof."
4. NO DEFAULTS. Borrower hereby affirms to Foothill that no Event of
Default has occurred and is continuing as of the date hereof.
5. CONDITION PRECEDENT. The effectiveness of this Amendment is expressly
conditioned upon receipt by Foothill of an executed copy of this Amendment.
6. COSTS AND EXPENSES. Borrower shall pay to Foothill all of Foothill's
out-of-pocket costs and expenses (including, without limitation, the fees and
expenses of its counsel, which counsel may include any local counsel deemed
necessary, search fees, filing and recording fees, documentation fees, appraisal
fees, travel expenses, and other fees) arising in connection with the
preparation, execution, and delivery of this Amendment and all related
documents.
7. LIMITED EFFECT. In the event of a conflict between the terms and
provisions of this Amendment and the terms and provisions of the Agreement, the
terms and provisions of this Amendment shall govern. In all other respects, the
Agreement, as amended and supplemented hereby, (including Section 3.5) shall
remain in full force and effect.
55
<PAGE>
8. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which when so executed and delivered shall be deemed to be an original. All
such counterparts, taken together, shall constitute but one and the same
Amendment. This Amendment shall become effective upon the execution of a
counterpart of this Amendment by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ Todd Colpitts
-------------------------------------------
Title: Vice President
----------------------------------------
THE CHILDREN'S PLACE RETAIL STORES, INC.,
a Delaware corporation
By: /s/ Ezra Dabah
-------------------------------------------
Title: CEO
----------------------------------------
56
EXHIBIT 10.33
AMENDMENT NUMBER SIX DATED AS OF APRIL 1, 2000 BETWEEN
THE COMPANY AND FOOTHILL CAPITAL CORPORATION
THIS AMENDMENT NUMBER SIX TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT ("Amendment") is entered into as of April 1, 2000, by and between
FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"), and THE
CHILDREN'S PLACE RETAIL STORES, INC., a Delaware corporation ("Borrower"), in
light of the following:
A. Borrower and Foothill have previously entered into that certain Amended
and Restated Loan and Security Agreement, dated as of July 31, 1997 (as amended,
the "Agreement").
B. Borrower and Foothill desire to further the Agreement as provided for
and on the conditions herein.
NOW, THEREFORE, Borrower and Foothill hereby amend the Agreement as
follows:
1. DEFINITIONS. All initially capitalized terms used in this Amendment
shall have the meanings given to them in the Agreement unless specifically
defined herein.
2. AMENDMENT. Section 7.14 of the Agreement is amended to read as follows:
"Advances, Investments and Loans. Make any Investment except:
(a) Investments in cash and cash equivalents;
(b) so long as no Event of Default shall have occurred
and be continuing, or would occur as a consequence thereof, Borrower
and its Subsidiaries may (i) make loans and advances to employees
for moving and travel expenses and other similar expenses, in each
case incurred in the ordinary course of business, and (ii) make
other loans and advances to directors, officers and employees so
long as there has been at least $10,000,000 of borrowing
availability pursuant to Section 2.1 for the 90 day period preceding
such loan or advance and on such date after taking into account the
particular loan or advance; and
(c) Investments in existence on the date hereof and so
long as no Event of Default shall have occurred and be continuing,
or would occur as a consequence thereof, extensions, renewals,
modifications, restatements or replacements thereof so long as the
aggregate dollar amount of all such extensions, renewals,
modifications, restatements, or replacements does not exceed the
amount of such Investments in existence on the date hereof."
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms to Foothill
that all of Borrower's representations and warranties set forth in the Agreement
are true, complete and accurate in all respects as of the date hereof."
4. NO DEFAULTS. Borrower hereby affirms to Foothill that no Event of
Default has occurred and is continuing as of the date hereof.
5. CONDITION PRECEDENT. The effectiveness of this Amendment is expressly
conditioned upon receipt by Foothill of an executed copy of this Amendment.
57
<PAGE>
6. COSTS AND EXPENSES. Borrower shall pay to Foothill all of Foothill's
out-of-pocket costs and expenses (including, without limitation, the fees and
expenses of its counsel, which counsel may include any local counsel deemed
necessary, search fees, filing and recording fees, documentation fees, appraisal
fees, travel expenses, and other fees) arising in connection with the
preparation, execution, and delivery of this Amendment and all related
documents.
7. LIMITED EFFECT. In the event of a conflict between the terms and
provisions of this Amendment and the terms and provisions of the Agreement, the
terms and provisions of this Amendment shall govern. In all other respects, the
Agreement, as amended and supplemented hereby, (including Section 3.5) shall
remain in full force and effect.
8. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which when so executed and delivered shall be deemed to be an original. All
such counterparts, taken together, shall constitute but one and the same
Amendment. This Amendment shall become effective upon the execution of a
counterpart of this Amendment by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ Todd Colpitts
----------------------------------------------
Title: Vice President
-------------------------------------------
THE CHILDREN'S PLACE RETAIL STORES, INC.,
a Delaware corporation
By: /s/ Seth Udasin
----------------------------------------------
Title: Vice President & CFO
-------------------------------------------
58
EXHIBIT 10.34
SEVERANCE AGREEMENT DATED FEBRUARY 24, 2000
BETWEEN THE COMPANY AND STANLEY SILVER
This Severance Agreement and Release (the "Agreement") is made as of this
24th day of February 2000, between Stanley Silver (the "Employee") and The
Children's Place Retail Stores, Inc. (the "Employer").
1. Termination of Employment. The parties agree that the Employee's employment
with the Employer shall terminate effective February 24, 2000 (the "Separation
Date"). The termination of employment shall be deemed a voluntary resignation by
the Employee. Employee shall effective the Separation Date resign from the Board
of Directors of the Employer and any subsidiary of the Employer. Attached hereto
as Exhibit A is Employee's resignation.
2. Separation Payment. In addition to salary and benefits earned prior to the
Separation Date, in the event that the Employee signs this Agreement and does
not revoke it within seven (7) days (as permitted in Section 15 of this
Agreement), then the Employee shall receive the following as consideration:
(a) The Employer shall pay to the Employee the sum of Seven Hundred
and Thirty Eight Thousand Four Hundred and Fifty Nine Dollars
($738,459.32), less legally required payroll deductions and
deductions for health insurance in twenty two (22) equal monthly
installments to be received by the last day of each month commencing
March 2000;
(b) The Employer shall continue to carry the Employee on the
Employer's health insurance plan until the earlier of: (i) December
31, 2001; or (ii) Employee is covered by another health insurance
policy, subject to standard employee contributions which shall be
withheld from the separation payments set forth above
(c) The Employer shall continue to pay the premiums on the
Employee's existing life insurance policies for coverage through
December 31, 2001; and
(d) The Employer shall reimburse the Employee for all unreimbursed
business expenses in accordance with the Employer's Standard
Policies and Procedures, incurred by Employee through the Separation
Date upon the delivery to the Employer of receipts for such
expenses.
The Employer represents and warrants, and the Employee acknowledges, that the
consideration paid to the Employee under this Agreement exceeds the amount the
Employee would ordinarily be entitled to upon termination of the Employee's
employment. The Employee acknowledges that other than the consideration paid to
the Employee under Section 2 of this Agreement, Employee is not entitled to and
hereby waives any claim for the 49,800 options which are scheduled to vest on
June 28, 2000, any bonus, commission, stock (other than the stock currently
owned and stock options vested through the date hereof), or any other
compensation including under any contract, agreement or arrangement, including
but not limited to the Employment Agreement dated, as of June 27, 1996, between
Employee and Employer.
3. Other Benefits. Any and all other employment benefits received by the
Employee shall terminate effective as of the Separation Date.
4. Consultation with Counsel and Voluntariness of Agreement. The Employee
acknowledges that the Employer has advised the Employee in writing to consult
with an attorney prior to executing this Agreement. The Employee further
acknowledges that the Employee was given at least twenty-one (21) days from the
date of the Employee's receipt of this Agreement to consider the terms of this
Agreement. The Employee further acknowledges that the Employee has consulted
with the Employee's own independent legal counsel in reviewing this Agreement,
that the Employee has carefully read and fully understands all the provisions of
this Agreement, and that the Employee is voluntarily entering into this
Agreement.
5. Confidentiality of Agreement. The Employee and the Employer agree not to
disclose the terms and conditions of this Agreement to any person or entity,
except (a) to comply with this Agreement; (b) to legal, financial or tax
advisors (all of whom must first agree to be bound by this Section) and to the
Internal Revenue Service or any similar state or local taxation authority; (c)
to the Securities and Exchange Commission; or (d) as otherwise required by law.
59
<PAGE>
6. Mutual Non-Disparagement. The Employee agrees that the Employee will not
publicly or privately disparage the Employer or any of the Employer's products,
services, affiliates, or current or former officers, directors, trustees,
employees, agents, administrators, representatives or fiduciaries. The Employer
agrees that the Employer will not publicly or privately disparage the Employee.
7. Confidential or Proprietary Information. The Employee acknowledges that the
Employee may possess certain confidential information, property or trade secrets
of the Employer which would damage the Employer if disclosed or used by the
Employee. Accordingly, the Employee acknowledges a continuing duty of
confidentiality to the Employer and agrees that the Employee will hold in the
utmost and strictest confidence and will not use or disclose any confidential
information, property or trade secrets. Confidential information, property and
trade secrets shall include, but shall not be limited to, the following: (a)
documentation or data contained in any files or any other records the Employer
may maintain; (b) statements regarding any matters made by any employees,
officers, agents, representatives or attorneys of the Employer at any meeting
attended by the Employee or which the Employee may have heard or obtained
knowledge of which may result in any detriment to the Employer; (c) actions
taken or contemplated by the Employer with respect to any of its operations,
assets or employees; (d) policies, practices, programs or plans contemplated,
initiated or effectuated by the Employer; (e) any other information, records or
data of a private nature to the Employer, provided that such restriction shall
not apply to information which is then in the public domain (so long as the
Employee did not, directly or indirectly, cause or permit such information to
enter the public domain); and (f) any information regarding contractors,
overseas agents and service providers to the Employer. Notwithstanding the
foregoing, nothing contained in this Section shall serve as a restraint or
limitation upon the Employee from exercising the Employee's general knowledge
and expertise in the Employee's field or from earning a livelihood in said
field.
8. Hiring of Other Employees and Interference with Operations. The Employee
agrees that, for a period of two (2) years following the Separation Date, the
Employee will not (i) directly or indirectly employ, solicit or entice away any
person known by the Employee to be a current employee of the Employer; and (ii)
encourage or induce any person known by the Employee to be a current
distributor, source, supplier, customer or contractor of the Employer to sever
or decrease the activity of any relationship with the Employer.
9. Non-Competition. The Employee agrees that for a period of two (2) years
following the Separation Date, Employee will not promote, participate or engage
in any business in the United States on behalf of any Direct Competitor of the
Employer, whether Employee is acting as owner, partner, stockholder, employee,
broker, agent, principal, trustee, corporate officer, director, consultant or in
any other capacity whatsoever; provided, however, that this will not prevent
Employee from holding for investment up to 1% of any class of stock or other
securities quoted or dealt in on a recognized stock exchange or on NASDAQ. For
purposes of this Section, a "Direct Competitor of the Employer" means (i) The
Gap, Inc. or any person or entity under common control with The Gap, Inc., (ii)
The Limited, Inc. or any person or entity under common control with The Limited,
Inc., (iii) Gymboree or Baby Superstore or any person or entity under common
control with Gymboree or Baby Superstore, as the case may be, or (iv) any person
or entity engaged in the sale of children's apparel and who derives more than
fifty percent of its gross revenues from the retail sale of children's apparel.
10. Injunctive Relief. Employee acknowledges that a breach or threatened breach
of any of the terms set forth in section 7, 8 or 9 of this Agreement shall
result in an irreparable and continuing harm to the Employer for which there
shall be no adequate remedy of law. The Employer shall, without posting a bond,
be entitled to obtain injunctive and other equitable relief, in addition to any
other remedies available to the Employer in connection with Section 7, 8 or 9 of
this Agreement.
11. Survival of Terms; Representations. Employee represents and warrants that
Employee is sophisticated in business, and that the restrictions and remedies
set forth in the sections 7, 8 and 9 do not create an undue hardship on Employee
and will not prevent Employee from earning a livelihood. Employee and Employer
agree that the restrictions and remedies contained in the sections 7, 8 and 9
are reasonable and necessary to protect the Employer's legitimate business
interests regardless of the reason for or circumstances giving rise to such
termination and that Employee and the Employer intend that such restrictions and
remedies shall be enforceable to the fullest extent permissible by law. Employee
agrees that given the scope of the Employer's business and the sophistication of
the information highway, any geographic limitation on such remedies and
restrictions within the United States would deny the Employer the protection to
which it is entitled hereunder. If it shall be found by a court of competent
jurisdiction that any such restriction or remedy is unenforceable but would be
enforceable if some part thereof were deleted or modified, then such restriction
or remedy shall apply with such modification as shall be necessary to make it
enforceable to the fullest extent permissible under law.
12. Confirmation of Employment. The Employer shall, if called upon, confirm
the Employee's dates of employment and position with the Employer.
13. Violation of Terms. Should the Employee violate any provision of this
Agreement, then, in addition to all other damages or legal remedies
available to the Employer (including without limitation injunctive
relief), the Employee immediately shall return to the Employer all monies
paid to the Employee pursuant to this Agreement. Should the Employer
violate any provision of this Agreement, then the Employee shall have all
remedies and civil actions available to remedy Employee's damages. The
parties agree that, should either party seek to enforce the terms of this
Agreement through litigation, then the prevailing party, in addition to
all other legal remedies, shall be reimbursed by the other party for all
reasonable attorneys' fees in relation to such litigation.
60
<PAGE>
14. Release. In exchange for the consideration set forth in Section 2, the
Employee, on behalf of the Employee and the Employee's agents, assignees,
attorneys, heirs, executors and administrators, voluntarily and knowingly
releases the Employer, as well as the Employer's successors, assigns, parents,
subsidiaries, divisions, affiliates, officers, directors, shareholders,
employees, agents and representatives, in both their individual and
representative capacities (collectively, the "Released Parties"), from any and
all claims, causes of action, suits, grievances, debts, sums of money,
controversies, agreements, promises, damages, back and front pay, costs,
expenses, attorneys' fees and remedies of any type by reason of any matter,
cause, act or omission arising out of or in connection with the Employee's
employment or separation from employment with the Employer, including but not
limited to any claims based upon common law, any federal, state or local
employment statutes or civil rights laws (such as Title VII of the Civil Rights
Act of 1964, as amended; the Age Discrimination in Employment Act; the Family
and Medical Leave Act; the Americans with Disabilities Act; the Employee
Retirement Income Security Act of 1974; and laws prohibiting discrimination
based upon race, color, religion, creed, national origin, ancestry, family
and/or medical leave, citizenship status, sex, sexual orientation or preference,
marital status, age or disability), wrongful termination, failure to pay wages,
breach of contract (including without limitation under Employee's Employment
Agreement), defamation, invasion of privacy, whistleblowing or infliction of
emotional distress, or any other matter. This release shall apply to all known,
unknown, unsuspected and unanticipated claims, liens, injuries and damages that
have accrued to the Employee as of the date of this Agreement. This release
shall not apply to Employee's right to receive benefits of, and to enforce the
provisions of this Agreement or to receive benefits under the Employer's 401(k)
plan accrued through the Separation Date, in accordance with its terms. It is
understood and agreed that the consideration paid or given in connection with
this release is not to be construed as an admission by the Released Parties of
any liability, error, violation or omission.
Employer, on behalf of the Employer and the Employer's agents,
assignees, attorneys, heirs, executors and administrators, voluntarily and
knowingly releases the Employee, as well as the Employee's successors, assigns,
agents and representatives, in both their individual and representative
capacities, from any and all claims, causes of action, suits, grievances, debts,
sums of money, controversies, agreements, promises, damages, back and front pay,
costs, expenses, attorneys' fees and remedies of any type by reason of any
matter, cause, act or omission arising out of or in connection with the
Employee's employment or separation from employment with the Employer. This
release shall not apply to Employee's obligations under this Agreement.
15. Right to Revoke. The Employee acknowledges that the Employee has been
informed in writing that the Employee has seven (7) calendar days following the
execution of this Agreement to revoke it, and that such revocation must be in
writing, hand delivered or sent via overnight mail and actually received by the
Employer within such period.
16. Waiver of Reinstatement. By entering into this Agreement, the Employee
acknowledges that the Employee waives any claim to reinstatement and/or future
employment with the Employer. The Employee further acknowledges that the
Employee is not and shall not be entitled to any payments, benefits or other
obligations from the Released Parties whatsoever (except as expressly set forth
in this Agreement).
17. Indemnification. Nothing in this Agreement shall affect the Employee's
rights of indemnification under the Employer's by-laws or certificate of
incorporation with respect to any event occurring prior to the Separation Date
or to retain the benefit of all directors and officers liability insurance and
coverage maintained by Employer with respect to acts or omissions which occurred
prior to the Separation Date, in accordance with the terms of such policy.
18. Secondary Expenses. The Employer waives its claim against Employee for the
Employee's pro rata share of the fees and expenses incurred in connection with a
planned secondary offering in 1999 which was withdrawn.
19. Miscellaneous. This Agreement contains the entire understanding between the
parties. There are no other representations, agreements or understandings, oral
or written, between the parties relating to the subject matter of this
Agreement. No amendment to or modification of this Agreement shall be valid
unless made in writing and executed by the parties hereto subsequent to the date
of this Agreement. This Agreement shall be enforced in accordance with the laws
of the State of New Jersey, and the parties agree that any litigation to enforce
this Agreement will take place in New Jersey. This Agreement may be executed in
several counterparts, and all counterparts so executed shall constitute one
Agreement, binding upon the parties hereto.
20. Severability. If any term, provision or part of this Agreement shall be
determined to be in conflict with any applicable federal, state or other
governmental law or regulation, or otherwise shall be invalid or unlawful, such
term, provision or part shall continue in effect to the extent permitted by such
law or regulation. Such invalidity, unenforceability or unlawfulness shall not
affect or impair any other terms, provisions and parts of this Agreement not in
conflict, invalid or unlawful, and such terms, provisions and parts shall
continue in full force and effect and remain binding upon the parties hereto.
IN WITNESS WHEREOF, the parties have each executed this Agreement.
61
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WITNESS: EMPLOYEE:
/s/ Gilda Silver /s/ Stanley Silver
- ----------------------------- ----------------------------------------
Stanley Silver
WITNESS: EMPLOYEE:
The Children's Place Retail Stores, Inc.
/s/ Steven Balasiano /s/ Ezra Dabah
- ----------------------------- ----------------------------------------
By: Ezra Dabah
Its: Chairman-- CEO
62
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EXHIBIT A
STANLEY B. SILVER
7 MANCHESTER COURT
MORRISTOWN
NEW JERSEY 07960
Steve Balasiano
Secretary
The Children's Place
915 Secaucus Road
Secaucus, New Jersey 07094
As of February 24, 2000, please accept my resignation as President and
Chief Operating Officer together with membership of the Board of Directors
and all subsidiaries of The Children's Place.
/s/ Stanley Silver
------------------
Stanley B. Silver
63
EXHIBIT 21.1
THE CHILDREN'S PLACE RETAIL STORES, INC.
SUBSIDIARIES OF THE COMPANY
The Children's Place Retail Stores, Inc. has the following wholly owned
subsidiaries:
TCPIP Holding Company, Inc., a Delaware Corporation.
The Children's Place (Hong Kong) Limited, a Hong Kong Corporation.
64
<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> 12-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JAN-29-2000
<CASH> 2,204
<SECURITIES> 0
<RECEIVABLES> 5,112
<ALLOWANCES> 0
<INVENTORY> 56,021
<CURRENT-ASSETS> 73,584
<PP&E> 115,048
<DEPRECIATION> 27,374
<TOTAL-ASSETS> 170,959
<CURRENT-LIABILITIES> 46,244
<BONDS> 0
0
0
<COMMON> 2,570
<OTHER-SE> 117,496
<TOTAL-LIABILITY-AND-EQUITY> 170,959
<SALES> 421,496
<TOTAL-REVENUES> 421,496
<CGS> 241,188
<TOTAL-COSTS> 108,622
<OTHER-EXPENSES> 54
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 346
<INCOME-PRETAX> 57,437
<INCOME-TAX> 22,388
<INCOME-CONTINUING> 35,049
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,049
<EPS-BASIC> 1.38
<EPS-DILUTED> 1.32
</TABLE>
