SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - K
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
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Exchange Act of 1934.
For the fiscal year ended February 3, 1996 or
----------------
Transition report pursuant to Section 13 or 15(d) of the Securities
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Exchange Act of 1934.
For the transition period from to
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Commission File Number 0-7264
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PAUL HARRIS STORES, INC.
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(Exact name of registrant as specified in its charter)
Indiana 35-0907402
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6003 Guion Rd., Indianapolis, IN 46254
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(Address of principal executive offices) (Zip Code)
(317) 293-3900
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(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 without Par Value
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(Title of Class)
Indicate by check mark 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 periods 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
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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 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. [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12,13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
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Consists of 31 Pages
Exhibit Index Appears on Page 29 Cover Page 1 of 2
<PAGE>
As of April 26, 1996, 10,023,949 common shares were outstanding (including
2,850,912 shares of non-voting common stock). The aggregate market value of the
common shares held by non-affiliates (based upon the closing price on April 26,
1996 on the NASDAQ) of $4.00 per share was approximately $38,162,000. For the
purposes of such calculation, all outstanding shares of common stock have been
considered held by non-affiliates, other than the 483,451 shares owned by
directors and executive officers of the registrant. In making such calculation
the registrant does not determine the affiliate or non-affiliate status of any
shares for any other purpose.
The information required by Part III (Items 10, 11, 12, and 13) is incorporated
herein by reference from the registrant's definitive Proxy Statement for the
Annual Meeting of the Shareholders to be filed with the Commission pursuant to
Regulation 14A within 120 days after February 3, 1996. The Compensation
Committee report and performance graph included in such Proxy Statement shall
not be deemed incorporated herein by reference.
Consists of 31 Pages
Exhibit Index Appears on Page 29 Cover Page 2 of 2
<PAGE>
PART I
ITEM 1. BUSINESS
Paul Harris Stores, Inc. (the "Company"), incorporated under the laws of
Indiana in 1952, is a specialty retailer which offers moderately priced casual
attire for fashion conscious women. At February 3, 1996 the Company operated
235 stores in 26 states and the District of Columbia.
Company Operations
The Company operated retail stores in the following states on the dates
indicated:
<TABLE><CAPTION>
Number of Stores as of Number of Stores as of
February 3, January 28, February 3, January 28,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <S> <C> <C>
Arkansas 2 2 Missouri 6 6
Delaware 1 1 Nebraska 2 2
District of Columbia 1 1 New Jersey 5 5
Florida 5 6 New York 2 2
Georgia 8 8 North Carolina 12 11
Illinois 27 30 Ohio 32 33
Indiana 44 51 Pennsylvania 23 19
Iowa 7 6 Rhode Island 0 1
Kentucky 7 8 South Carolina 5 5
Louisiana 3 3 South Dakota 1 1
Maryland 8 4 Tennessee 11 11
Massachusetts 1 2 Texas 7 8
Michigan 2 1 Virginia 8 6
Mississippi 2 2 Wisconsin 3 4
---- ----
235 239
==== ====
</TABLE>
Of the Company's 235 stores at February 3, 1996, 217 are fashion division
stores located principally in regional enclosed shopping malls. The remaining
18 stores are The $5-$10-$15-$20 Place (The $5-$20) division stores of which
the majority are located in strip shopping centers. As of the end of fiscal
year 1995 the buying, operations and management of The $5-$20 division stores
were consolidated into the fashion division.
The fashion division sells quality merchandise and emphasizes casual clothing
coordinated by color, style and fabric. Approximately 92% of all products in
the fashion division consists of apparel with the balance being accessories.
The $5-$20 stores market Paul Harris, Pasta, off-priced apparel, close-out
merchandise and regular market goods at highly competitive prices.
3
<PAGE>
Merchandise is available from a large number of domestic and foreign suppliers
under a variety of trade terms and conditions. During fiscal year 1995, no
supplier provided more than 5% of the Company's merchandise. A majority of the
Company's domestic merchandise is purchased in the New York and Los Angeles
areas, and approximately 47% of all merchandise was purchased directly from
foreign suppliers in fiscal year 1995. Virtually all merchandise purchased
directly for the fashion division stores is private brand merchandise which is
manufactured specifically for the Company. Importing operations are subject to
normal merchandise quota restrictions imposed by the country of origin, but the
Company anticipates no events which would significantly limit its supply of
imported merchandise in the near future. All merchandise is distributed to the
Company's retail stores from its distribution center in Indianapolis.
The Company stresses testing of styles, colors and pricing to better identify
consumer demand and typically contracts for manufacture of products to respond
to such consumer demand.
The $5-$20 stores buy primarily domestic, regular market and off price
merchandise. During fiscal year 1995, the Company converted 15 of The $5-$20
division stores to fashion division stores and closed 13, ending the year with
only 18 stores in this division. The Company plans to close or convert
substantially all the remaining The $5-$20 stores in fiscal year 1996.
The Company uses various trademarks such as "Paul Harris", "Paul Harris
Design", "PHD", "The $5-$10-$15-$20 Place", "Pasta" (a trademark used on 8
fashion division stores and a line of sportswear) and other trademarks of
lesser importance. The Company has no patents, licenses, franchises or other
concessions which are considered important to its operations.
Characteristic of the women's retail apparel industry, the Company realizes its
highest sales during the month of December. This sales pattern requires higher
inventory levels during the fourth quarter of the fiscal year. Various
promotional efforts, including markdowns, are used to promote rapid turnover of
inventory. In line with the characteristics of the industry, no single
customer or group of customers significantly affects the Company's business,
and there are no backorders.
The Company accepts major national credit cards as an incentive to increase
sales. Credit card sales are converted to cash on a daily basis. A Paul Harris
private label credit card was introduced in all fashion division stores
effective August 1994 and accounted for approximately 8% of the total Company
sales during fiscal year 1995. The private label credit card customer averages
approximately 91% higher sales dollars per transaction than the overall
company's average sales dollars per transaction. As with the other credit
cards, the Company assumes no credit risk for its private label credit card but
pays a percentage of sales as a service fee to an independent third party. In
fiscal year 1995 approximately 52% of the Company's sales were for cash
(including checks).
The retail sale of women's apparel is a highly competitive business. The
Company competes with other women's fashion apparel chain stores, department
stores, individual stores and discount stores. The manner of competition
relates to style, selection, quality, display and price of merchandise, as well
as customer service, store design and location. Many of the Company's
competitors have much greater financial resources and sales than the Company.
The Company is unable to rank itself with regards to number of stores and gross
sales, but believes it is one of many similar moderate-sized competitors in an
industry which includes a small number of better known larger competitors.
The Company had 2,200 permanent employees (full and part-time) as of February
3,1996. During the 1995 holiday peak shopping season, the Company hired
approximately 900 temporary employees.
4
<PAGE>
ITEM 2. PROPERTIES
The Company owns its home office and distribution center in Indianapolis,
Indiana. Situated on 19.5 acres of land, the home office and distribution
center have a total area of 435,000 square feet of space. The Company utilizes
approximately 65% of this facility and a part of the remaining space is leased
to an unaffiliated party for an initial term to expire in 1997. In addition
there is one four year option, the term of which would end in 2001, which
either party to the aforementioned lease may terminate with six months notice
to the other prior to the end of the initial term. The Company believes the
remaining space is sufficient to accommodate planned future business volume.
The property is subject to a term loan (mortgage) described in " Note 2. Long-
Term Debt and Credit Arrangements" of the "Notes To Consolidated Financial
Statements".
The Company leases all of its stores. In general, the store leases have an
initial term of 5 to 15 years, with some having one or more 5-year options to
extend. Some leases have incorporated a "kick-out" clause if sales have not
reached an acceptable level after a certain number years of operation, which
normally permits either party to terminate if the appropriate sales levels are
not achieved.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of fiscal year 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
Officers are elected by the Board of Directors and serve at the discretion of
the Board. The following sets forth the name, age, positions and business
experience of the executive officers of the Company.
Name Age Title
Charlotte G. Fischer 46 Chairman of the Board, President
and Chief Executive Officer
Eloise Paul 39 Senior Vice President of
Merchandising
John H. Boyers 51 Senior Vice President -
Finance and Treasurer
Ms. Fischer became Chairman of the Board, President and CEO on January 29, 1995
(the beginning of the Company's fiscal year 1995). Prior to that she was Vice
Chairman and CEO - Designate since April 1994. From October 1991 to 1994, she
was a retail consultant. Since November 1992, she was founder and Chairman of
C.G.F., Inc., a retail specialty company. From 1986 to 1991, she was employed
by Claire's Boutiques, Inc., a specialty retailer of costume jewelry, serving
as President and C.E.O. from 1989, and President and Chief Operating Officer
since 1986, and was on the Board of Directors of Claire's Stores, Inc., the
parent company. Ms. Fischer is a director of Trans World Entertainment Corp.,
Inc.
5
<PAGE>
Ms. Paul has served as Senior Vice President of Merchandising since March 1993.
Ms. Paul has been a Vice President since 1988. She served as the General
Merchandise Manager from March 1992 to March 1993 and prior to that Ms. Paul
was Divisional Product Manager of the Sportswear and Pasta Divisions.
Mr. Boyers was named Senior Vice President - Finance and Treasurer in March
1995. Since January 1995, he was a consultant for Paul Harris Stores, Inc. Mr.
Boyers was self-employed for the period of July 1994 to January 1995. From 1990
through July 1994 he was Director of Financial Reporting for The Wackenhut
Corporation, a provider of security personnel, in Coral Gables, Florida. In
addition, during this period, Mr. Boyers served as Controller of Wackenhut
Corrections Corporation, a subsidiary of The Wackenhut Corporation. From 1982
to 1987 Mr. Boyers was Vice President and Chief Financial Officer of Claire's
Stores, Inc., the parent of Claire's Boutiques, Inc., a specialty retailer of
costume jewelry.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National Market System. The
following table sets forth for the past eight fiscal quarters, the range of
high and low closing sales prices for the Company's common stock as reported by
NASDAQ. The prices in the table do not include retail markups, markdowns or
commissions.
Market Price of Common Stock
____________________________
Fiscal 1995 Quarters Fiscal 1994 Quarters
____________________ ____________________
1st 2nd 3rd 4th 1st 2nd 3rd 4th
___ ___ ___ ___ ___ ___ ___ ___
High $3.13 $2.63 $2.38 $2.13 $7.25 $6.38 $5.75 $3.88
Low $1.25 $1.42 $1.31 $1.06 $5.50 $4.75 $3.79 $2.50
There were approximately 1,508 registered holders of record of voting common
stock at February 3, 1996 and 1 holder of non-voting common stock. There is no
market for the non-voting common stock. The shares of non-voting common stock
are convertible to common stock upon sale or certain other conditions described
in the Company's Amended and Restated Articles of Incorporation.
The Company has declared no cash dividends for the last two fiscal years. The
Company has no plans to pay cash dividends in the foreseeable future and would
be restricted from paying dividends under the revolving bank line of credit
facility and the Notes as described in "Note 2. Long-Term Debt and Credit
Arrangements" of the "Notes To Consolidated Financial Statements".
6
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(in thousands, except per share data)
<CAPTION>
(A) | (A)
For the | For the
twenty-six | twenty-six
Fiscal Fiscal Fiscal weeks ended | weeks ended Fiscal
1995 1994 1993 Jan. 30, 1993 | Aug. 2, 1992 1991
-----------------------------------------------------|---------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 167,523 $ 167,778 $ 154,309 $ 84,968 | $ 60,606 $ 197,216
|
Income(loss) before taxes, |
reorganization items and |
extraordinary items $ 2,639 $ 4,973 $ 9,301 $ 9,122 | $ (201) $ (4,391)
|
Reorganization items $ --- $ --- $ --- $ --- | $ 507 $ (17,976)
|
Extraordinary items $ --- $ --- $ --- $ --- | $ 6,484 $ ---
|
Net income(loss) $ 1,629 $ 3,078 $ 5,771 $ 5,721 | $ 6,790 $ (22,367)
|
|
Earnings per share data (B): |
Net income per share $ 0.16 $ 0.31 $ 0.59 $ 0.61 | $ --- $ ---
|
Share data (B): |
Weighted average common |
and common equivalent |
shares outstanding 10,067 9,981 9,822 9,445 | --- ---
Shares outstanding at |
year-end 10,019 9,998 9,662 9,350 | --- ---
|
Other data: |
Total assets $ 57,850 $ 63,454 $ 58,553 $ 53,684 | $ 67,000 $ 66,725
|
Long-term debt $ 17,640 $ 21,970 $ 26,290 $ 27,025 | $ 29,670 $ 3,225
|
Liabilities subject to |
compromise $ --- $ --- $ --- $ --- | $ --- $ 55,250
<FN>
(A) From February 1991 until the third quarter of fiscal year 1992, the Company operated under Chapter 11
of the Bankruptcy Code. The Company emerged from bankruptcy upon the confirmation of it's Plan of
Reorganization (the "Plan"). In accordance with the AICPA guidelines, the Company restated its balance sheet
with the adoption of "fresh start" reporting to reflect the impact of the Plan as of August 2, 1992.
A "black line" has been drawn between the pre- and post-emergence financial information delineating their
non-comparability.
(B) Earnings per share and share data are not disclosed for the periods prior to the twenty-six weeks ended
January 30, 1993 due to significant changes in the capital structure as part of the Plan.
</FN>
7
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, as percentages of net sales, for the periods
indicated, certain items included in the "Consolidated Statements of Income".
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - SELECTED DATA:
Fiscal 1995 Fiscal 1994 Fiscal 1993
___________ ___________ ___________
Net sales 100.0% 100.0% 100.0%
Cost of sales, including occupancy
expenses exclusive of depreciation 67.0 66.4 64.5
_________ _________ _________
Gross income 33.0 33.6 35.5
Selling, general and
administrative expenses 28.1 27.1 25.2
Depreciation and amortization 2.1 2.0 2.3
Interest expense, net 1.2 1.5 2.0
_________ _________ _________
Income before income taxes 1.6 3.0 6.0
Provision for income taxes 0.6 1.2 2.3
_________ __________ _________
Net income 1.0 % 1.8% 3.7%
========== ========== =========
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
The Company's net sales decreased to $167,523,000 in fiscal year 1995 from
$167,778,000 in fiscal year 1994, a decrease of $255,000 or less than 1%. The
decrease in net sales was primarily attributable to a decline of 7% in
comparable store sales which was partially offset by an increase in the average
number of stores opened during fiscal year 1995. The Company operated 235
stores on February 3, 1996, compared to 239 stores on January 28, 1995. During
fiscal year 1995, the Company opened 19 stores and closed 23 stores. The
fashion division experienced a 6% decline in comparable store sales in fiscal
year 1995 as a result of fewer customers, units sold per transaction and a
decline in the price per unit sold. The $5-$20 division experienced a decline
of 18% in comparable store sales during fiscal year 1995 as a result of fewer
customers and price per unit sold, partially offset by an increase in units
sold per transaction. While comparable store sales were down for the year, the
last five months of fiscal year 1995 experienced only a 3.5% decrease (January
1996 accounted for 75.6% of the decrease). During the all-important month of
December, the Company reported a 3% positive comparable store sales increase.
The fashion division experienced a 5% positive comparable store sales increase
in December 1995.
8
<PAGE>
During fiscal year 1995 the fashion division and The $5-$20 division accounted
for approximately 90% and 10%, respectively, of the Company's revenue and
approximately 98% and 2%, respectively, of the Company's operating income
before home office overhead. Assets identifiable to the fashion division
represented approximately 96% of the Company's assets at February 3, 1996, as
compared to approximately 4% for The $5-$20 division. During fiscal year 1995,
the Company converted 15 of The $5-$20 division stores to fashion division
stores and closed 13, ending the year with only 18 stores in this division. The
$5-$20 division experiences a lower gross margin than the fashion division and,
as noted above, had significantly higher negative comparable store sales. The
Company plans to close or convert substantially all the remaining The $5-$20
stores in fiscal year 1996.
Cost of sales, including occupancy expenses exclusive of depreciation,
increased $900,000 from $111,397,000 in fiscal year 1994 to $112,297,000 in
fiscal year 1995. As a percentage of sales, cost of sales increased from 66.4%
in fiscal year 1994 to 67.0% in fiscal year 1995; however, in the third and
all-important fourth quarters the cost of sales decreased in the second half of
fiscal year 1995 to 65.4% as a percent of sales compared to 66.5% as a percent
of sales in the second half of fiscal year 1994.
Selling, general, and administrative expenses increased $1,542,000 from
$45,539,000 in fiscal year 1994 to $47,081,000 in fiscal year 1995. This
increase was primarily due to higher store rental expenses related to common
area maintenance and utility charges as well as the pension plan curtailment
that reduced prior fiscal year selling, general and administrative expense
which did not reoccur in fiscal year 1995. On an average per store basis,
selling, general, and administrative expenses decreased by approximately 4%.
Depreciation and amortization increased $142,000 from $3,330,000 in fiscal year
1994 to $3,472,000 in fiscal year 1995. As a percentage of sales, depreciation
increased slightly from 2.0% in fiscal year 1994 to 2.1% in fiscal year 1995.
Interest expense, net, decreased by $505,000 from $2,539,000 in fiscal year
1994 to $2,034,000 in fiscal year 1995. Interest expense, net, as a percentage
of sales decreased from 1.5% in fiscal year 1994 to 1.2% in fiscal year 1995.
The decrease resulted primarily from a reduction in the principal amount of
long-term debt ($4,330,000 repaid in fiscal year 1995) and the interest earned
on higher cash balances during fiscal year 1995.
Provision for income taxes decreased $885,000 from $1,895,000 in fiscal year
1994 to $1,010,000 in fiscal year 1995 primarily because of the decrease in
income before taxes. The effective tax rate for both years remained at
approximately 38%. The Company has approximately $18,244,000 of federal tax
loss carryforwards remaining available after the provision for taxes for fiscal
year 1995. Due to the utilization of federal tax loss carryforwards and
recognition of prior and current years' state tax loss carryforwards, the
Company benefited by a credit to additional paid-in capital of $1,353,000 (this
includes $440,000 for recognition of current and prior years state tax loss
carryforwards). The Company expects to pay, in cash, only minimal income taxes
for fiscal year 1995 and fiscal year 1996.
As a result of all the above factors, the Company had net income of $1,629,000
for fiscal year 1995 compared to net income of $3,078,000 in fiscal year 1994.
9
<PAGE>
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
The Company's net sales increased to $167,778,000 in fiscal year 1994 from
$154,309,000 in fiscal year 1993, an increase of $13,469,000 or 9%. The
increase in net sales was attributable to the net addition of twenty-eight
stores (forty stores were opened and twelve stores were closed). The Company
operated 239 stores on January 28, 1995, compared to 211 stores on January 29,
1994. While the fashion division experienced a minimal comparable store sales
increase in fiscal year 1994, The $5-$20 division experienced a decline of 3%
in comparable store sales during fiscal year 1994 as a result of fewer
customers and units sold per customer transaction which was partially offset by
an increase in the price per unit sold. Comparable store sales for the Company,
during fiscal year 1994, were basically flat.
During fiscal year 1994 the fashion division and The $5-$20 division accounted
for approximately 84% and 16%, respectively, of the Company's revenue and
approximately 91% and 9%, respectively, of the Company's operating income
before home office overhead. Assets identifiable to the fashion division
represented approximately 90% of the Company's assets at January 28, 1995, as
compared to approximately 10% for The $5-$20 division.
Cost of sales, including occupancy expenses exclusive of depreciation,
increased $11,841,000 from $99,556,000 in fiscal year 1993 to $111,397,000 in
fiscal year 1994. As a percentage of sales, cost of sales increased from 64.5%
in fiscal year 1993 to 66.4% in fiscal year 1994, primarily due to markdowns in
the second half of fiscal year 1994.
Selling, general, and administrative expenses increased $6,634,000 from
$38,905,000 in fiscal year 1993 to $45,539,000 in fiscal year 1994. As a
percentage of sales, selling, general and administrative expenses increased
from 25.2% in fiscal year 1993 to 27.1% in fiscal year 1994. The increase was
primarily the result of higher store payroll expense and, to a lesser extent,
the costs and expenses associated with the private label credit card that was
introduced in fiscal year 1994, which were partially offset by a gain
recognized from the curtailment of the pension plan.
Depreciation and amortization decreased $166,000 from $3,496,000 in fiscal year
1993 to $3,330,000 in fiscal year 1994. As a percentage of sales, depreciation
decreased from 2.3% in fiscal year 1993 to 2.0% in fiscal year 1994.
Interest expense, net, decreased by $512,000 from $3,051,000 in fiscal year
1993 to $2,539,000 in fiscal year 1994. Interest expense, net, as a percentage
of sales decreased from 2% in fiscal year 1993 to 1.5% in fiscal year 1994.
The decrease resulted primarily from a reduction in the principal balance and
interest rate of the term loan (mortgage) which was refinanced in the beginning
of fiscal year 1994.
Provision for income taxes decreased $1,635,000 from $3,530,000 in fiscal year
1993 to $1,895,000 in fiscal year 1994 primarily because of the decrease in
income before taxes. The effective tax rate for both years remained at
approximately 38%. The Company has approximately $20,926,000 of tax loss
carryforwards remaining available after the provision for taxes for fiscal year
1994. Due to the utilization of tax loss carryforwards, the Company benefited
by a credit to additional paid-in capital of $1,629,000 of the total $1,895,000
provision for income taxes for fiscal year 1994.
As a result of all the above factors, the Company had net income of $3,078,000
or 1.8% of net sales for fiscal year 1994 compared to net income of $5,771,000
or 3.7% of net sales in fiscal year 1993.
10
<PAGE>
INFLATION
The effect of changing prices had minimal impact on sales and cost of sales
during the past three years. Occupancy costs and certain selling, general, and
administrative costs have been affected by inflation during the period. In
general, these increases have been modest and reflect current trends.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $1,463,000 from $21,349,000 as of January
28, 1995, to $19,886,000 at February 3, 1996. The total effect of net income,
depreciation and amortization, and the benefit of the net operating loss
carryforwards generated $6,454,000 of cash flow for fiscal year 1995. The
increased use of cash for fiscal year 1995 was due to the payment of accrued
interest of $1,345,000 as a result of the timing of fiscal year 1994 year
ending date compared to the fiscal year 1995 year ending date. The Company also
began making principal payments on the Company's $24,000,000 principal amount
of 11.375% Notes on July 31, 1995. A total of $4,200,000 in principal payments
was made during fiscal year 1995. The Company also paid $10,000 a month in
principal repayments on a term loan (mortgage). The ratio of long-term debt to
shareholders' equity improved to .77:1 in fiscal year 1995 compared to 1.1:1 in
fiscal year 1994.
Merchandise inventories decreased to $17,645,000 from $19,567,000. On a per
store basis, inventory decreased 8.3% in fiscal year 1995 compared to fiscal
year 1994 and 17% in fiscal year 1995 compared to fiscal year 1993. This was
the result of a diligent effort to conserve cash and reduce inventory levels.
Also, in fiscal year 1995 accounts payable was reduced by $1,595,000. The
Company's inventory turn, at cost, increased approximately 2.2% in fiscal year
1995 when compared to fiscal year 1994.
The Company's primary source of working capital consists of internally
generated cash and a $15,000,000 revolving bank line of credit facility. While
this revolving credit facility is principally intended for letters of credit
for import merchandise from overseas, the Company may make direct borrowings of
up to $3.5 million. The Company anticipates extending the present revolving
bank line of credit facility, which expires June 30, 1996, for an additional
year and on terms comparable to the existing agreement.
Capital spending by the Company for fiscal year 1995 totaled $2,247,000 which
was primarily for leasehold improvements and fixtures for new stores and the
remodeling of existing stores. The Company anticipates opening between 10-15
stores and closing between 10-15 stores in fiscal year 1996. The Company's
anticipated capital expenditures for fiscal year 1996 will be approximately $4
million.
During fiscal year 1995, the Company repaid $4,330,000 of long-term debt which
consisted of two semi-annual principal payments of $2,100,000 on January and
July 31 and 13 monthly payments on a term loan (mortgage) at the rate of
$10,000 per month. During the current fiscal year 1996, the Company is
required to make two semi-annual payments of $2.1 million each, at the end of
July 1996 and January 1997, as well as payments of $120,000 on the term loan
(mortgage).
Sales levels, to date, during the first quarter of fiscal year 1996 have been
favorable. Unexpectedly harsh weather during the 1996 December holiday season
or a severe economic down-turn could negatively impact earnings and cash flow;
however, the Company anticipates it will be able to satisfy its ongoing cash
requirements for its operations and capital spending, including debt service
payments, primarily with cash flows from operations supplemented by the present
and anticipated extension of the revolving bank line of credit facility.
11
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The information required by this item is presented under Item 14 of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information required by this Part III (Items 10, 11, 12, and 13) is
incorporated herein by reference from the registrant's definitive Proxy
Statement for the Annual Meeting of the Shareholders to be filed with the
Commission pursuant to Regulation 14A within 120 days after February 3, 1996.
PART IV
ITEM 14. FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, EXHIBITS AND
REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS
The following consolidated financial statements of Paul Harris Stores,
Inc., and Subsidiaries are included on pages 16 to 28.
Consolidated Balance Sheets -- As of February 3, 1996 and January 28,
1995.
Consolidated Statements of Income -- for Fiscal Year 1995, Fiscal Year
1994 and Fiscal Year 1993.
Consolidated Statements of Cash Flows -- for Fiscal Year 1995, Fiscal
Year 1994 and Fiscal Year 1993.
Consolidated Statements of Shareholders' Equity -- for Fiscal Year 1995,
Fiscal Year 1994 and Fiscal Year 1993.
Notes to Financial Statements
Report of Independent Accountants
(A) (2) NOT APPLICABLE
12
<PAGE>
(A) (3) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
(3) (a) Articles of Amendment and Restatement of The Articles of
Incorporation of Registrant dated September 8, 1992 (incorporated
herein by reference from Form 8-A dated September 17, 1992).
(b) Restated Bylaws of the Registrant (incorporated herein by reference
from Form 8-A dated September 17, 1992).
(4) (a) Indenture dated as of September 15, 1992 between the Registrant and
IBJ Schroder Bank & Trust Company, as trustee, relating to the
Company's 11.375% Notes due 2000 (the "Indenture") (incorporated
herein by reference from Form 8-K dated August 31, 1992).
(b) First Supplemental Indenture as of October 25, 1993 between the
Registrant and IBJ Schroder Bank & Trust Company, as trustee,
relating to the Company's 11.375% Notes due 2000 (the "Indenture")
incorporated herein by reference from Form 10-Q dated October 30,
1993).
(c) Secured Credit Agreement dated as of October 28, 1993 by and between
Paul Harris Stores, Inc. and LaSalle National Bank (incorporated
herein by reference from Form 10-Q dated October 30, 1993).
(d) Amended and Restated Secured Credit Agreement dated as of January
20, 1994 by and between Paul Harris Stores, Inc. and LaSalle
National Bank (incorporated herein by reference from Form 10-Q dated
April 30, 1994).
(e) First Modification of Secured Credit Agreement, Notes, Mortgage and
Other Loan Documents dated as of October 31, 1994 by and between
Paul Harris Stores, Inc. and LaSalle National Bank (incorporated
herein by reference from Form 10-K dated January 28, 1995).
(f) Second Modification of Secured Credit Agreement, Notes, Mortgage and
Other Loan Documents dated as of January 31, 1995 by and between
Paul Harris Stores, Inc. and LaSalle National Bank (incorporated
herein by reference from Form 10-K dated January 28, 1995).
(g) Third Modification of Secured Credit Agreement, Notes, Mortgage and
Other Loan Documents dated as of September 28, 1995 by and between
Paul Harris Stores, Inc. and LaSalle National Bank (incorporated
herein by reference from Form 10-Q dated October 28, 1995).
13
<PAGE>
(10) (a) The Registrant's 1992 Non-Qualified Stock Option Plan (incorporated
herein by reference from Form 10-K dated January 30, 1993).
(b) Amended and Restated Employment Agreement and settlement of the
Deferred Compensation Agreement both dated August 31, 1992 between
the Company and Gerald Paul (incorporated herein by reference from
Form 10-K dated January 30, 1993).
(c) Stock Transfer Agreement with Gerald Paul dated September 2, 1981
(incorporated herein by reference from Form 10-K dated January 30,
1993).
(d) The Registrant's 1992 Stock Grant Undertaking regarding Management
Stock Interests (incorporated herein by reference from Form 8-K
dated August 31, 1992).
(e) Supplement to the Amended and Restated Employment Agreement
between the Company and Gerald Paul dated March 21, 1994
(incorporated herein by reference from Form 10-K dated January 29,
1994).
(f) Employment Agreement between the Company and Charlotte G. Fischer
dated April 28, 1994 (incorporated herein by reference from Form
10-Q dated April 30, 1994).
(g) Stock Option Agreement dated as of April 29, 1994, between
Registrant and Charlotte Fischer (incorporated herein by reference
from Form 10-K dated January 28, 1995).
(h) Letter dated March 2, 1995 to John H. Boyers describing proposed
terms of employment.
(27) Financial Data Schedule.
(B) EXHIBITS AND REPORTS ON FORM 8-K
None
14
<PAGE>
SIGNATURE
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.
PAUL HARRIS STORES, INC.
------------------------
Registrant
April 26, 1996 /s/ Charlotte G. Fischer
Charlotte G. Fischer, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
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.
April 26, 1996 /s/ Charlotte G. Fischer
Charlotte G. Fischer, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
April 26, 1996 /s/ John H. Boyers
John H. Boyers, Senior Vice President -
Finance and Treasurer
(Principal Financial Officer)
April 26, 1996 /s/ Keith L. Himmel, Jr.
Keith L. Himmel, Jr., Vice President -
Finance, Controller and Corporate Secretary
(Principal Accounting Officer)
Roger D. Blackwell, Director
April 26, 1996 /s/ Rudy Greer
Rudy Greer, Director
April 26, 1996 /s/ Stig A. Kry
Stig A. Kry, Director
April 26, 1996 /s/ Robert Logan
Robert Logan, Director
April 26, 1996 /s/ Gerald Paul
Gerald Paul, Director and
Chairman Emeritus of the Board
April 26, 1996 /s/ Sally Tassani
Sally Tassani, Director
15
<PAGE>
<TABLE>
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
February 3, January 28,
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 19,886 $ 21,349
Merchandise inventories 17,645 19,567
Other receivables 539 949
Prepaid expenses 1,013 1,016
------------- -------------
Total current assets 39,083 42,881
------------- -------------
Property, fixtures and equipment
Land, building and improvements 5,715 5,693
Store fixtures and equipment 11,575 10,617
Leasehold improvements and other 11,389 10,524
------------- -------------
28,679 26,834
Less accumulated depreciation and amortization (10,785) (7,507)
------------- -------------
Property, fixtures and equipment, net 17,894 19,327
Other assets 873 1,246
------------- -------------
$ 57,850 $ 63,454
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable 6,012 7,607
Compensation and related taxes 778 1,382
Income taxes payable 45 416
Other accrued expenses 3,447 4,710
Current maturities of long-term debt 4,320 4,320
------------- -------------
Total current liabilities 14,602 18,435
------------- -------------
Long-term debt 17,640 21,970
Other non-current liabilities 2,704 3,159
Commitments and contingent liabilities (see Note 5) --- ---
Shareholders' equity
Preferred stock (no par value)
Authorized 1,000 shares; none issued
Common stock (no par value)
Authorized 20,000 shares; issued and outstanding
10,019 and 9,998 respectively 1,716 1,684
Additional paid-in capital 4,989 3,636
Retained earnings 16,199 14,570
------------- -------------
Total shareholders' equity 22,904 19,890
------------- -------------
$ 57,850 $ 63,454
============= =============
See accompanying "Notes To Consolidated Financial Statements"
16
</TABLE>
<PAGE>
<TABLE>
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<CAPTION>
Fiscal Fiscal Fiscal
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 167,523 $ 167,778 $ 154,309
Cost of sales, including occupancy expenses
exclusive of depreciation 112,297 111,397 99,556
------------- ------------- -------------
Gross income 55,226 56,381 54,753
Selling, general and administrative expenses 47,081 45,539 38,905
Depreciation and amortization 3,472 3,330 3,496
Interest expense, net 2,034 2,539 3,051
------------- ------------- -------------
Income before income taxes 2,639 4,973 9,301
Provision for income taxes 1,010 1,895 3,530
------------- ------------- -------------
Net income $ 1,629 $ 3,078 $ 5,771
============= ============= =============
Net income per common share $ .16 $ .31 .59
============= ============= =============
Weighted average number of shares and
share equivalents outstanding 10,067 9,981 9,822
============= ============= =============
See accompanying "Notes To Consolidated Financial Statements"
17
</TABLE>
<PAGE
<TABLE>
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Fiscal Fiscal Fiscal
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 1,629 $ 3,078 $ 5,771
Adjustments to reconcile earnings to cash provided:
Depreciation and amortization 3,472 3,330 3,496
Net loss (gain) from disposal of assets 346 362 (130)
Utilization of net operating loss carryforward 1,353 1,629 2,007
(Increase) decrease in current assets:
Merchandise inventories 1,922 (530) (3,958)
Other receivables 410 350 36
Prepaid expenses 3 (41) (38)
Increase (decrease) in current liabilities:
Accounts payable (1,595) 1,653 62
Compensation and related taxes (604) (33) (1)
Income taxes payable (371) 25 (172)
Other accrued expenses (1,137) (263) 834
Decrease (increase) in other assets 235 (456) (31)
Decrease in reorganization value in excess
of identifiable assets --- --- 1,178
(Decrease) increase in other non-current
liabilities (455) (86) 487
----------- ----------- -----------
Net cash flow from operating activities 5,208 9,018 9,541
----------- ----------- -----------
Net cash flow from investing activities:
Additions to fixed assets (2,247) (3,781) (3,212)
----------- ----------- -----------
Cash flow from financing activities:
Repayment of long-term debt (4,330) (737) (2,605)
Proceeds from issuance of common stock
under stock option plan 32 87 21
Proceeds from the issuance of long-term debt --- --- 2,400
----------- ----------- -----------
Net cash flow from financing activities (4,298) (650) (184)
----------- ----------- -----------
Cash flow effect of reorganization activities:
Payment of accrued reorganization expense (126) (451) (3,490)
----------- ----------- -----------
$ (1,463) $ 4,136 $ 2,655
=========== =========== ===========
Cash and cash equivalents
At beginning of period $ 21,349 $ 17,213 $ 14,558
At end of period 19,886 21,349 17,213
----------- ----------- -----------
$ (1,463) $ 4,136 $ 2,655
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 4,321 $ 3,122 $ 2,115
=========== =========== ===========
Cash paid during the period for income taxes $ 11 $ 119 $ 41
=========== =========== ===========
See accompanying "Notes To Consolidated Financial Statements"
18
</TABLE>
<PAGE>
<TABLE>
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<CAPTION>
Common Stock Additional
-------------------- Paid-in Retained
Shares Amount Capital Earnings
-------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Balance as of January 30, 1993 9,350 $ 1,576 $ 0 $ 5,721
Issuance of stock grants 304 --- --- ---
Exercise of stock options 8 21 --- ---
Benefit of net operating loss carryforward --- --- 2,007 ---
Net income for fiscal year 1993 --- --- --- 5,771
-------- --------- ------------ ------------
Balance as of January 29, 1994 9,662 1,597 2,007 11,492
Issuance of stock grants 301 --- --- ---
Exercise of stock options 35 87 --- ---
Benefit of net operating loss carryforward --- --- 1,629 ---
Net income for fiscal year 1994 --- --- --- 3,078
-------- --------- ------------ ------------
Balance as of January 28, 1995 9,998 1,684 3,636 14,570
Exercise of stock options 21 32 --- ---
Benefit of net operating loss carryforward --- --- 1,353 ---
Net income for fiscal year 1995 --- --- --- 1,629
-------- --------- ------------ ------------
Balance as of February 3, 1996 10,019 $ 1,716 $ 4,989 $ 16,199
======== ========= ============ ============
See accompanying "Notes To Consolidated Financial Statements"
19
</TABLE>
<PAGE>
PAUL HARRIS STORES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Paul Harris Stores, Inc. (the "Company") is a specialty retailer which offers
casual attire for fashion conscious women. Stores are principally in regional
enclosed shopping malls and predominately located in the midwest states.
DEFINITION OF FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to the last day of
January. Fiscal year 1995 included 53 weeks. Fiscal years 1994 and 1993 were 52
weeks each.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Paul Harris
Stores, Inc. and its wholly-owned subsidiaries. All significant intercompany
balances and transactions are eliminated in consolidation. Certain amounts in
the prior year have been reclassified to conform to the current fiscal year
presentation.
MANAGEMENT'S 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 and the disclosure
of contingent assets and liabilities at the date of the financial statements
and reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management has estimated that the carrying value of cash and cash equivalents,
accounts receivable, prepaid expenses and trade accounts payable approximates
their fair value due to the relatively short period of time until expected
realization. Management has estimated the fair value of long-term debt using
discounted cash flow analyses, based on the Company's current expected
borrowing rates for similar types of borrowing arrangements.
PROPERTY, FIXTURES AND EQUIPMENT
Property, fixtures and equipment are recorded at cost. Leasehold improvements,
store fixtures and equipment net of accumulated depreciation are completely
written off for closed stores. Depreciation is computed using the straight-
line method over the estimated useful lives of the assets which are as follows:
Years
Buildings and improvements 15-40
Store fixtures and equipment 3-10
Leasehold improvements 1-15
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid investments with a maturity of less than
three months (primarily money market funds). Investment income is recognized
when earned.
20
<PAGE>
MERCHANDISE INVENTORIES
Inventories of merchandise on hand are valued at the lower of cost or market as
determined by the first-in, first-out ("FIFO") retail inventory method, which
approximates FIFO cost.
NET INCOME PER SHARE
Net income per share of common stock is based on the weighted average number of
common and dilutive common equivalent shares outstanding.
INCOME TAXES
Income taxes have been provided in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes". SFAS
109 is an asset and liability approach which requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences, based on current tax rates, between the financial
reporting basis and tax basis of assets and liabilities.
NOTE 2. LONG-TERM DEBT AND CREDIT ARRANGEMENTS
The Company has entered into an agreement with a financial institution for a
$13.5 million revolving bank line of credit facility. This agreement was
modified as of September 28, 1995 to increase the line of credit facility to
$15 million and extend the term from January 31, 1996 to June 30, 1996. The
financial institution has agreed to make revolving loans and to issue letters
of credit in amounts not to exceed $15 million, provided that the direct
borrowings shall be limited to $3.5 million. The Company made no direct
borrowings during fiscal year 1995. Letters of credit outstanding as of
February 3, 1996 were $6.4 million. The interest rate on the direct borrowings
is equal to the prime rate of the bank plus 1 percent. The letters of credit
carry an initial issuance fee plus negotiation fees of three eighths of a
percent (0.375%) of the face amount of each letter of credit. Also during
January 1994 the Company entered into a term loan (mortgage) with the same
financial institution for $2.4 million with monthly principal payments of
$10,000 plus interest at 7.84% per annum. The balance of this term loan
(mortgage) is due in full February 1999 and is secured by the land and
buildings of the Company. The revolving bank line of credit facility and term
loan (mortgage) contain several covenants which set limits on indebtedness,
tangible net worth, cash balances, cash flow from operations, capital
expenditures, liquid assets and also restrict dividends. The Company is also
required to maintain all of its primary operating accounts with this
institution. The line of credit is secured by the Company's inventory,
equipment, fixtures, cash and assignment of leases, and the term loan
(mortgage ) by the land and buildings.
On September 15, 1992 the Company issued notes in an aggregate amount of $24
million which bear simple interest at the rate of 11.375% per annum, payable
semi-annually. The interest began accruing on September 15, 1992. The
principal amount of these notes is being partially redeemed pro rata in eight
equal installments of $2.1 million payable on each January 31 and July 31
commencing with July 31, 1995 and ending with January 31, 1999 and the final
two installments of $3.6 million on July 31, 1999 and January 31, 2000. These
notes provide that on June 20 of each calendar year commencing with June 20,
1995, the Company will redeem, if any, on a pro rata basis, an aggregate
principal amount of all outstanding notes equal to 25% of the excess cash flow
(as defined in the Indenture Agreement) for the immediately preceding fiscal
year. Any such mandatory redemption will reduce the last scheduled mandatory
payment on the Company's obligation. The indenture for these notes has several
covenants concerning certain operational and financial requirements.
21
<PAGE>
Long-term debt, exclusive of amounts maturing in one year, is summarized below:
February 3, January 28,
1996 1995
___________ ___________
Notes payable in semi-annual payments from
July 31, 1995 through January 31, 2000
plus interest payable at the rate of
11.375% per annum $15,600,000 $19,800,000
Term loan (mortgage) on land and
buildings payable in monthly payments
through February 1999 including interest
at the fixed rate of 7.84% per year 2,040,000 2,170,000
___________ ___________
Total long-term debt $17,640,000 $21,970,000
=========== ===========
The term loan (mortgage) has covenants restricting indebtedness, tangible net
worth, cash balances, cash flow from operations, capital expenditures, liquid
assets and also restricts dividends. The book value of assets subject to this
lien as of February 3, 1996 was $4,706,000.
Scheduled maturities of long-term debt over the next four fiscal years are:
$4,320,000 in each of fiscal years 1996, 1997, 1998 and $9,000,000 in fiscal
year 1999.
The fair market value of the Notes is estimated at $15,897,000 and the term
loan (mortgage) is estimated at $2,012,000.
NOTE 3. SHAREHOLDERS' EQUITY
All outstanding shares are shares of voting common stock with the exception of
one holder of 2,851,000 shares of non-voting common stock.
The Company and a major shareholder are parties to a stock transfer agreement
whereby under specific guidelines, at the option of the shareholder's estate,
the Company must repurchase shares of the Company's stock from the immediate
family of the shareholder upon death to the extent that the Company receives
net proceeds from life insurance policies held by the Company on the life of
the major shareholder. As of February 3, 1996, the Company owns and is the
beneficiary of approximately $1,935,000 in face amount of life insurance on the
life of the shareholder.
NOTE 4. INCOME TAXES
The provision for income taxes was as follows:
Fiscal 1995 Fiscal 1994 Fiscal 1993
___________ ___________ ___________
Current tax expense:
Federal $ 72,000 $ 80,000 $ 200,000
State 25,000 67,000 94,000
Deferred tax expense:
Federal 780,000 1,519,000 2,986,000
State 133,000 229,000 250,000
___________ ___________ ___________
Income tax provision $ 1,010,000 $ 1,895,000 $ 3,530,000
=========== ============ ===========
22
<PAGE>
The provision for income taxes differs from the amount of income tax determined
by applying the U.S. statutory Federal income tax rate to pretax income from
continuing operations as a result of the following differences:
Fiscal 1995 Fiscal 1994 Fiscal 1993
___________ ____________ ___________
Statutory U.S. taxes $ 897,000 $ 1,703,000 $ 3,162,000
State and local taxes, net
of federal benefit 104,000 196,000 431,000
Other 9,000 ( 4,000) ( 63,000)
____________ _____________ _____________
$ 1,010,000 $ 1,895,000 $ 3,530,000
============ ============= =============
Deferred tax assets (liabilities) are comprised of the following:
February 3, 1996 January 28, 1995
________________ ________________
Deferred rent $ 887,000 $ 1,079,000
Deferred compensation --- 125,000
Minimum tax credit 671,000 607,000
Other 98,000 102,000
Loss carryforwards 7,011,000 7,944,000
______________ _____________
Gross deferred tax assets 8,667,000 9,857,000
Depreciation $ --- $ (250,000)
Deferred Compensation (71,000) ---
Other (173,000) (230,000)
_______________ ______________
Gross deferred tax liabilities (244,000) (480,000)
Valuation allowance (8,423,000) ( 9,377,000)
_______________ _____________
Net deferred taxes $ --- $ ---
=============== =============
With the adoption of SFAS 109, deferred tax assets were established giving
recognition to prior loss carryforwards. The valuation allowance relates
primarily to these loss carryforwards. Going forward, utilization of the net
operating loss carryforwards, if any, will result in an increase in additional
paid-in capital as required by SOP 90-7 ($1,353,000 of such utilization
occurred during fiscal year 1995 which includes $440,000 of current and prior
years state tax loss carryforwards recognized). Approximately $18,244,000 of
the Company's loss carryforwards remain at February 3, 1996 which, if unused,
will expire in fiscal years 2006 and 2007.
23
<PAGE>
NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES
All stores are leased under operating leases which expire on various dates
through fiscal year 2006. Approximately 68% of the store leases contain rent
escalation clauses. Expense related to these leases is recorded on a straight-
line basis. The Company also leases automobiles under operating leases with
terms of 24 to 36 months. Following is a summary of future minimum rental
payments required by operating leases at February 3, 1996:
Payable in Minimum Rental Payments
Fiscal Year Stores and Other
___________ _______________________
1996 $ 12,560,000
1997 11,291,000
1998 9,354,000
1999 7,726,000
2000 6,784,000
Later Years 19,841,000
____________
Total $ 67,556,000
============
In addition to minimum lease payments, the Company may be obligated to pay
other contingent amounts: (1) Some store leases provide for additional rentals
if sales exceed specified amounts. Additional rentals approximated 1% of
rental expense for fiscal year 1995, 1% for fiscal year 1994, and 2% for fiscal
year 1993; (2) the Company has a number of leases which are paid based on a
percentage of monthly sales dollars. Such leases accounted for 10% of rental
expense in fiscal year 1995, 6% for fiscal year 1994 and 4% for fiscal year
1993; (3) Under certain store leases, additional payments are required of the
Company for real estate taxes, utilities and other expenses. Rental expense
under store leases aggregated $14,904,000 for fiscal year 1995, $13,026,000 for
fiscal year 1994 and $11,120,000 for fiscal year 1993.
In December 1993 the Company contracted with a local printing company to
provide the Company with printing services and has agreed to purchase annual
print volume of $500,000 per year for a period of five (5) years.
NOTE 6. RETIREMENT PLAN
The Company has a non-contributory defined benefit pension plan covering
substantially all full-time employees. The benefits are based on years of
service and the average annual compensation for the employee's five highest
consecutive years of employment with the Company. Until December 31, 1994 the
Company's funding policy was to contribute annually the maximum amount that can
be deducted for federal income tax purposes. Contributions were intended to
provide for current service and for any unfunded projected future benefit
obligation over a reasonable period.
The Company ceased benefit accrual under the defined benefit plan effective
December 31, 1994. No new employees will be able to enter into the plan.
Participants will maintain benefits accrued through December 31, 1994, but will
not accrue any benefit for service or compensation in future years. As a result
of freezing the accrued benefits, a curtailment as described under Statement of
Accounting Financial Standards No. 88 (SFAS 88) " Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits" has occurred. The curtailment gain of $572,000 is
included in the Company's results of operations for fiscal year 1994, net of
fiscal year 1994 pension expense of $144,000.
24
<PAGE>
Net pension expense (income) for fiscal years 1995, 1994 and 1993 includes the
following components:
Fiscal Fiscal Fiscal
1995 1994 1993
______ ______ ______
Service expense - benefits earned
during the year $ --- $ 211,000 $ 173,000
Interest expense on projected
benefit obligation 106,000 156,000 150,000
Actual loss (gain) on plan assets (332,000) 266,000 (35,000)
Net amortization and deferral 210,000 (489,000) (288,000)
__________ __________ __________
Net pension expense (income) $( 16,000) $ 144,000 $ ---
========== ========== ==========
The funded status of the plan is as follows:
February 3, January 28,
1996 1995
___________ ___________
Vested $ 1,201,000 $ 1,254,000
Nonvested 63,000 76,000
___________ ___________
Accumulated benefit obligation 1,264,000 1,330,000
Projected impact of future salary increases --- ---
___________ ___________
Projected benefit obligation 1,264,000 1,330,000
Market value of plan assets
available for benefits 1,825,000 1,747,000
___________ ___________
Funded position $ 561,000 $ 417,000
=========== ===========
Consisting of:
Unamortized initial net assets $ --- $ 230,000
Unrecognized loss (gain) on assets 107,000 (241,000)
Prepaid asset 454,000 428,000
___________ ____________
Funded position $ 561,000 $ 417,000
=========== ============
The assets of the plan, comprised almost entirely of U.S. Government
obligations and high grade stocks and bonds, included 6,363 shares of the
Company's common stock as of February 3, 1996, January 28, 1995, and January
29, 1994.
The weighted-average discount rates used in determining the actuarial present
value of the projected benefit obligations were 7% and 8% for fiscal years 1995
and 1994, respectively. The expected long-term rate of return on assets was 8%
in fiscal year 1995 and 7% in fiscal year 1994.
25
<PAGE>
NOTE 7. EMPLOYEE BENEFIT PLANS
STOCK OPTION PLAN
The purpose of the Stock Option Plan is to provide additional incentive to key
employees of the Company and to provide incentives to persons who are not
employees of the Company but whose efforts are expected to be of substantial
benefit to the Company. The Stock Option Plan provides that a committee,
appointed by the Board of Directors, may from time to time grant to employees
of the Company and to persons who are not employees of the Company, stock
options to purchase shares of common stock of the Company. The Committee is
authorized to issue options to purchase up to 900,000 shares of common stock of
the Company. Unexercised options for 554,000 shares are outstanding as of
February 3, 1996 at an exercise price ranging from $1.31 to $6.38 per share.
Options may be granted under the plan at any time prior to the tenth
anniversary of the effective date. The price of the options may be tendered in
cash or in shares of common stock valued at fair market value on the date of
exercise. The Stock Option Plan may be terminated at any time by resolution of
the Board of Directors.
The Stock Option Plan provides for the automatic grant of options to each
individual who becomes a non-employee member of the Board of Directors through
the end of fiscal year 1994. Each such non-employee director received, on
September 15, 1992, 1993 and 1994 options to purchase 6,000 shares of the
Company's common stock. As of February 3, 1996, options for 81,000 shares have
been granted at an exercise price of $1.50, $4.75 and $5.438 per share and are
included in the amount granted as discussed above.
Pursuant to an employment agreement by and between the Company and Ms. Fischer
the compensation committee granted a non-transferable option to purchase
350,000 shares of the common stock of the Company at an exercise price of $5.68
per share. This grant was ratified at the annual meeting of shareholders on
July 6, 1994.
The following table summarizes options outstanding and available under these
plans:
Price Range Unexercised Aggregate Shares
per share Options Amounts Available
___________ ___________ _________ _________
Outstanding at
January 30, 1993 $1.50-$3.75 279,000 $ 642,000 321,000
Options Exercised $1.50-$3.75 (8,000) (21,000) ---
Options Terminated $1.50-$3.75 (10,000) (24,000) 10,000
Options Granted $4.12-$5.13 292,000 1,404,000 (292,000)
__________ ___________ _________
Outstanding at
January 29, 1994 $1.50-$5.13 553,000 $2,001,000 39,000
Additional Options authorized in fiscal year 1994 650,000
Options Exercised $1.50-$3.37 (35,000) (87,000) ---
Options Terminated $3.12-$5.25 (207,000) (793,000) 207,000
Options Granted $3.12-$6.38 572,000 3,040,000 (572,000)
__________ ___________ _________
Outstanding at
January 28, 1995 $1.50-$6.38 883,000 4,161,000 324,000
Options Exercised $1.50 (21,000) (32,000) ---
Options Terminated $3.12-$5.25 (343,000) (1,377,000) 343,000
Options Granted $1.31-$2.34 385,000 545,000 (385,000)
___________ ___________ _________
Outstanding at
February 3, 1996 $1.31-$6.38 904,000 $3,297,000 282,000
=========== ========== =========
26
<PAGE>
THRIFT/PROFIT-SHARING PLAN
The Company has established a thrift/profit-sharing plan for substantially all
employees which allows participating employees to authorize payroll deductions
from their earnings for contribution to the plan. The Company contributes
amounts as a set percentage of employees deductions as defined in the plan.
Additionally, the Company may contribute amounts to the plan as determined
annually by the Board of Directors from Company profits.
NOTE 8. QUARTERLY INFORMATION (UNAUDITED)
(in thousands, except per share data)
Fiscal Year 1995 Quarters
_________________________________________
1st 2nd 3rd 4th
-------- -------- --------- --------
Net sales $ 34,801 $ 36,509 $ 36,880 $ 59,333
Gross income 10,184 11,717 11,634 21,691
Income (loss) before
income taxes (1,982) (1,283) (996) 6,900
Net income (loss) $ (1,215) $ (780) $ (612) $ 4,236
========= ========= ========= ========
Net income (loss)
per share $ (0.12) $ (0.08) $ (0.06) $ 0.42
========= ========= ========= ========
Fiscal Year 1994 Quarters
_________________________________________
1st 2nd 3rd 4th
--------- --------- --------- --------
Net sales $ 34,083 $ 36,256 $ 38,743 $ 58,696
Gross income 11,707 11,992 11,446 21,236
Income (loss) before
income taxes 202 23 (1,835) 6,583
Net income (loss) $ 125 $ 13 $ (1,135) $ 4,075
========= ========= ========= ========
Net income (loss)
per share $ .01 $ .00 $ (.11) $ .41
========= ========= ========= ========
27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Paul Harris Stores, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a) (1) on page 12 present fairly, in all material
respects, the financial position of Paul Harris Stores, Inc. and its
subsidiaries at February 3, 1996 and January 28, 1995, and the results of their
operations and their cash flows for the three years in the period ended
February 3, 1996, in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Indianapolis, Indiana
March 6, 1996
28
<PAGE>
EXHIBIT INDEX
Paul Harris Stores, Inc.
Annual Report on Form 10-K for the year ended
February 3, 1996
Page 30
10 (h) Letter dated March 2, 1995 to John H. Boyers describing proposed terms
of employment.
Page 31
27 Financial Data Schedule.
29
PAUL HARRIS
March 2, 1995
Mr. John H. Boyers
7410 Brackenwood Circle
Indianapolis, Indiana 46260
Dear John:
On behalf of Paul Harris Stores, Inc., I am pleased to extend the following
offer of employment:
Position: Senior Vice President - Finance & Treasurer
Base Salary: $120,000 per annum
Bonus: Participation in Officer Bonus Programs with
a guaranteed minimum bonus of $15,000 at 1995
fiscal year end
Stock Options: Minimum of 50,000 shares
Closing Costs: Up to $15,000 of closing (settlement) costs
Severance Agreement: In the event your employment with Paul Harris
Stores, Inc. is terminated without cause, you
will be entitled to severance pay equal to
six months pay paid to you in the normal
biweekly installments; the payment by the
Company of all costs to continue medical and
dental benefits for the same six month
period; and the reasonable costs of
transportation and moving relocations costs
to move back to Florida
Sincerely,
/s/ Charlotte G. Fischer
Charlotte G. Fischer
Chairman of the Board, President & CEO
6003 Guion Road-P.O. Box 68162-Indianapolis, Indiana 46268-317-293-3900
30
<TABLE> <S> <C>
<ARTICLE> 5
<CAPTION>
FINANCIAL DATA SCHEDULE - EXHIBIT 27
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
FORM 10-K FOR THE YEAR ENDED FEBRUARY 3, 1996
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-END> FEB-03-1996
<CASH> 19,886,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 17,645,000
<CURRENT-ASSETS> 39,083,000
<PP&E> 28,679,000
<DEPRECIATION> (10,785,000)
<TOTAL-ASSETS> 57,850,000
<CURRENT-LIABILITIES> 14,602,000
<BONDS> 17,640,000
<COMMON> 1,716,000
0
0
<OTHER-SE> 21,188,000
<TOTAL-LIABILITY-AND-EQUITY> 57,850,000
<SALES> 167,523,000
<TOTAL-REVENUES> 167,523,000
<CGS> 112,297,000
<TOTAL-COSTS> 112,297,000
<OTHER-EXPENSES> 50,553,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,034,000
<INCOME-PRETAX> 2,639,000
<INCOME-TAX> 1,010,000
<INCOME-CONTINUING> 1,629,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,629,000
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
