SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
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Exchange Act of 1934 for the quarterly period ended August 2, 1997 or
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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)
Not Applicable
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(Former name, address and fiscal year, if changed since last report)
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 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 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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As of September 2, 1997, 11,186,397 common shares were outstanding.
1
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INDEX
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - August 3, 1996,
February 1, 1997 and August 2, 1997 3
Consolidated Statements of Operations - For the thirteen
weeks ended August 3, 1996 and August 2, 1997 4
Consolidated Statements of Operations - For the twenty-six
weeks ended August 3, 1996 and August 2, 1997 5
Consolidated Statements of Cash Flows - For the
twenty-six weeks ended August 3, 1996 and August 2, 1997 6
Consolidated Statements of Shareholders' Equity -
For the twenty-six weeks ended August 3, 1996 and August 2, 1997 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
2
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<TABLE><CAPTION>
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(in thousands)
August 3, February 1, August 2,
1996 1997 1997
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 11,920 $ 16,001 $ 25,876
Merchandise inventories 20,700 19,759 23,497
Other receivables 414 861 1,091
Prepaid expenses 1,207 836 1,349
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Total current assets 34,241 37,457 51,813
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Property, fixtures and equipment
Land, building and improvements 5,756 5,787 5,818
Store fixtures and equipment 12,230 14,067 18,674
Leasehold improvements and other 11,755 12,567 13,677
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29,741 32,421 38,169
Less accumulated depreciation and amortization (12,104) (13,315) (14,959)
------------- ------------- -------------
Property, fixtures and equipment, net 17,637 19,106 23,210
Other assets 836 756 70
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$ 52,714 $ 57,319 $ 75,732
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 6,343 $ 8,515 $ 9,876
Compensation and related taxes 858 3,774 95
Income taxes payable 25 37
Other accrued expenses 2,873 3,554 4,296
Current maturities of long-term debt 4,320 120 12
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Total current liabilities 14,419 16,000 15,246
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Long-term debt 12,480 1,930 1,870
Other non-current liabilities 2,562 2,478 2,674
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
10,039, 10,115 and 11,172 respectively 1,750 1,930 17,073
Additional paid-in capital 5,102 9,963 11,362
Retained earnings 16,401 25,018 27,507
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Total shareholders' equity 23,253 36,911 55,942
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$ 52,714 $ 57,319 $ 75,732
============= ============= ==============
See accompanying "Notes To Consolidated Financial Statements".
3
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<TABLE><CAPTION>
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(in thousands, except per share data)
<S> <C> <C>
For the For the
thirteen thirteen
weeks ended weeks ended
August 3, August 2,
1996 1997
-------------- --------------
Net sales $ 36,721 $ 40,920
Cost of sales, including occupancy expenses
exclusive of depreciation 24,161 25,496
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Gross income 12,560 15,424
Selling, general and administrative expenses 11,390 12,771
Depreciation and amortization 766 1,040
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Operating income 404 1,613
Interest expense (income), net 297 (345)
-------------- --------------
Income before income taxes 107 1,958
Provision for income taxes 43 793
-------------- --------------
Net income $ 64 $ 1,165
============== ==============
Net income per common share $ 0.01 $ 0.10
============== ==============
Weighted average number of shares and
share equivalents outstanding 10,516 11,635
============== ==============
See accompanying "Notes To Consolidated Financial Statements".
4
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<TABLE><CAPTION>
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(in thousands, except per share data)
<S> <C> <C>
For the For the
twenty-six twenty-six
weeks ended weeks ended
August 3, August 2,
1996 1997
-------------- --------------
Net sales $ 76,360 $ 84,758
Cost of sales, including occupancy expenses
exclusive of depreciation 50,973 53,512
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Gross income 25,387 31,246
Selling, general and administrative expenses 22,817 25,659
Depreciation and amortization 1,556 1,960
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Operating income 1,014 3,627
Interest expense (income), net 675 (555)
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Income before income taxes 339 4,182
Provision for income taxes 137 1,693
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Net income $ 202 $ 2,489
============== ================
Net income per common share $ 0.02 $ 0.22
============== ================
Weighted average number of shares and
share equivalents outstanding 10,421 11,218
============== ================
See accompanying "Notes To Consolidated Financial Statements".
5
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<TABLE><CAPTION>
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(in thousands)
<S> <C> <C>
For the For the
twenty-six twenty-six
weeks ended weeks ended
August 3, August 2,
1996 1997
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Cash flow from operating activities:
Net income $ 202 $ 2,489
Adjustments to reconcile earnings to cash provided:
Depreciation and amortization 1,556 1,960
Net disposal of assets 234 103
Utilization of net operating loss carryforward 113 1,399
(Increase) decrease in current assets:
Merchandise inventories (3,055) (3,738)
Other receivables 125 (230)
Prepaid expenses (194) (513)
Increase (decrease) in current liabilities:
Accounts payable 331 1,361
Compensation and related taxes 80 (2,820)
Income taxes payable (20) (37)
Other accrued expenses (574) 742
Other 167 317
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Net cash flow from operating activities (1,035) 1,033
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Net cash flow from investing activities:
Additions to fixed assets (1,805) (6,241)
------------------ -----------------
Cash flow from financing activities:
Repayment of long-term debt (5,160) (60)
Sale of common stock 34 15,143
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Net cash flow from financing activities (5,126) 15,083
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$ (7,966) $ 9,875
================== =================
Cash and cash equivalents
At beginning of period $ 19,886 $ 16,001
At end of period 11,920 25,876
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$ (7,966) $ 9,875
================== =================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 1,229 $ 168
================== =================
Cash paid during the period for income taxes $ 44 $ 432
================== =================
See accompanying "Notes To Consolidated Financial Statements".
6
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<TABLE><CAPTION>
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
UNAUDITED
(in thousands)
For the twenty-six For the twenty-six
weeks ended weeks ended
August 3, 1996 August 2, 1997
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
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<S> <C> <C> <C> <C>
PREFERRED STOCK (1,000 AUTHORIZED):
COMMON STOCK (20,000 AUTHORIZED):
Beginning balance 10,019 $ 1,716 10,115 $ 1,930
Stock offerring 995 14,959
Exercise of stock options 20 34 62 184
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Ending balance 10,039 $ 1,750 11,172 $ 17,073
======== ============= ======== =============
ADDITIONAL PAID IN CAPITAL:
Beginning balance $ 4,989 $ 9,963
Benefit of net operating loss carryforward 113 1,399
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Ending balance $ 5,102 $ 11,362
============= =============
RETAINED EARNINGS:
Beginning balance $ 16,199 $ 25,018
Net income 202 2,489
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Ending balance $ 16,401 $ 27,507
============= =============
See accompanying "Notes To Consolidated Financial Statements".
7
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PAUL HARRIS STORES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of Paul Harris Stores, Inc. and subsidiaries (the "Company"). The
Company is a specialty retailer of moderately-priced private-label sportswear
and accessories for women.
The unaudited financial statements of the Company have been prepared in
accordance with instructions to Form 10-Q and Article 10 of Regulation S-X and
accordingly certain information and footnote disclosures have been condensed or
omitted. These condensed financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
February 1, 1997 Annual Report on Form 10-K.
In the opinion of management, all adjustments, which include only normal
recurring adjustments, necessary to present fairly the financial position,
results of operations and cash flows at August 2, 1997 and for all other
periods presented, have been made.
The Company's fiscal year ends on the Saturday closest to January 31. All
references in this report to fiscal years are to the calendar years in which
such fiscal years began. For example, fiscal 1997 refers to the fiscal year
that began on February 2, 1997 and will end on January 31, 1998.
The results of operations for the first and second quarter of fiscal 1997 are
not necessarily indicative of the results to be expected for all of fiscal
1997. The Company has historically produced a majority of its income in the
fourth quarter of the fiscal year due to the stronger sales experienced during
the month of December.
Certain amounts in the prior periods have been reclassified to conform with the
current period presentation.
2. Earnings Per Share
The Company will adopt Statement of Financial Accounting Standards No. 128
(SFAS 128), "Earnings per Share", for fiscal 1997 year-end reporting and
restate its reporting for all prior periods reported as required. The adoption
of SFAS 128 will not have a material impact on earnings per share amounts for
the first or second quarter of fiscal 1997.
3. Bank Revolving Credit Facility
On April 9, 1997, the Company and its lender agreed to modify the secured
revolving credit facility. The revised agreement increased the credit facility
from $20 million to $30 million. The Company may use the entire amount of the
credit facility for letters of credit or direct borrowings.
The term of the credit facility was extended to June 30, 1999. The annual
interest rate on the direct borrowings was decreased from a variable rate equal
to the prime rate of the lender plus one percent to the prime rate plus one
quarter of one percent (.250%). Issuance fees for letters of credit were
reduced to one quarter of one percent (.250%) from three eighths of one percent
(0.375%) of the face amount of each letter of credit. The advance rate on
inventory for the period of August 1 to November 30 was increased from 60% to
70%. The previous agreement contained several covenants relating to
indebtedness, capital expenditures, dividends and cash balances. The new
agreement eliminated many of these covenants for the credit facility and term
loan (mortgage) and modified the remaining covenants related to tangible net
worth and operating cash flow requirements.
8
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4. Shareholder Rights Plan
On April 10, 1997 the Company adopted a shareholder rights plan. The plan is
designed to ensure that the Company's shareholders receive fair treatment in
the event of an unsolicited attempt to acquire control of the Company. Under
the plan, holders of the Company's outstanding common stock on April 25, 1997
received one Right for each share of common stock. Initially each Right
represents the right to purchase one one-hundredth (1/100th) of a share of the
Company's Series A Participating Cumulative Preferred Stock at an exercise
price of $90. The Company may redeem the Rights for $.01 in cash or securities
at any time prior to the acquisition by a person or group of beneficial
ownership of 15% or more of the Company's common stock or the expiration of the
Rights on April 10, 2007. The Rights are not exercisable or transferable apart
from the Company's common stock unless a person or group discloses an intent or
becomes a beneficial owner of 15% or more of the Company's outstanding common
stock. When the Rights become exercisable and transferable, each holder of a
Right (other than the person or group acquiring or attempting to acquire 15% or
more of the Company's common stock) will be entitled to purchase at the Right's
then-current exercise price, shares of the Preferred Stock having a value of
twice the Rights exercise price.
5. Sale of Common Stock
During May 1997 the Company sold a total of 995,000 newly issued shares of
common stock in an underwritten public offering. The Company received
approximately $15.0 million, net of expenses, from the offering. In addition,
a selling shareholder sold 2.8 million shares in the offering.
6. Subsequent Event
In August 1997 the holder of the remaining 213,039 outstanding shares of non-
voting common stock exercised its right to convert such shares to voting common
stock on a share for share basis.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performances or achievements of the Company or the retailing industry to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, local, regional and national economic conditions; extreme or
unseasonable weather conditions; legislation and regulatory matters affecting
payroll costs or other aspects of retailing; the ability to identify and
respond to emerging fashion trends; and governmental actions such as import or
trade restrictions.
Overview
The Company is a specialty retailer of moderately-priced sportswear and
accessories for women sold under the Paul Harris Design, Paul Harris Denim and
PHD brand names. The Company currently operates 235 stores in 27 states and the
District of Columbia with the greatest concentration of stores in the Midwest.
9
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The Company is expanding and remodeling some of its store base. The Company's
stores average 4,100 gross square feet and are located primarily in regional
enclosed shopping malls and, to a lesser extent, strip shopping centers. During
the first half of fiscal 1997, the Company opened sixteen stores and closed six
stores. The Company plans to open up to 52 net new stores in fiscal 1997 and
70 to 80 net new stores in fiscal 1998. In addition, the Company plans to
remodel 30 to 35 stores in fiscal 1997 and intends to remodel 80 to 100 stores
in the three fiscal years thereafter. The Company expects that new stores will
be usually located in the Company's existing markets in order to enhance
recognition of the Paul Harris name, leverage field management, facilitate
targeted marketing efforts and utilize the Company's sales team at its greatest
operational efficiency.
Results of Operations
The following discussion is based upon the unaudited financial statements
appearing elsewhere in this report. The following table sets forth certain
income statement items as a percentage of net sales.
<TABLE><CAPTION>
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS AS A
PERCENTAGE OF NET SALES
AND CERTAIN OPERATING DATA
Thirteen weeks ended Thirteen weeks ended
-------------------- --------------------
August 3, August 2, August 3, August 2,
1996 1997 1996 1997
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, including occupancy
expenses exclusive of depreciation (1) 65.8% 62.3% 66.8% 63.1%
--------- -------- --------- ---------
Gross income 34.2% 37.7% 33.2% 36.9%
Selling, general and administrative expenses (2) 31.0% 31.2% 29.9% 30.3%
Depreciation and amortization 2.1% 2.5% 2.0% 2.3%
--------- -------- --------- ---------
Operating income 1.1% 4.0% 1.3% 4.3%
Interest expense (income), net 0.8% (0.8%) 0.9% (0.7%)
--------- -------- --------- ---------
Income before income taxes 0.3% 4.8% 0.4% 5.0%
Provision for income taxes 0.1% 1.9% 0.2% 2.0%
--------- -------- --------- ---------
Net income 0.2% 2.9% 0.2% 3.0%
========= ======== ========= =========
- ----------------------------------
(1) Occupancy expenses include store level base rent, percentage rent and real estate taxes.
(2) Includes all store level occupancy expenses not included in cost of sales.
10
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<PAGE>
Second quarter of fiscal 1997
The Company's net sales increased to $40.9 million in the second quarter of
fiscal 1997 from $36.7 million in the second quarter of fiscal 1996 an increase
of $4.2 million or 11.4%. The increase in net sales was primarily attributable
to a 9% increase in comparable store sales (stores open at least twelve months)
and an increase in the number of stores open during the second quarter of
fiscal 1997 compared to the second quarter of fiscal 1996. The 9% comparable
store sales increase was due to a positive response by customers to the
Company's overall merchandise selection as reflected by a 33.0% increase in the
average customer transactions per store. The Company operated 233 stores as of
August 2, 1997 compared to 215 stores on August 3, 1996.
Gross income increased to $15.4 million in the second quarter of fiscal 1997
from $12.6 million in the prior year, an increase of $2.8 million or 22.8%.
Gross income, as a percentage of net sales, increased to 37.7% in the second
quarter of fiscal 1997 from 34.2% of net sales in the second quarter of fiscal
1996. Gross income primarily increased due to the increase in net sales.
Gross income, as a percentage of net sales, increased as a result of selling a
higher proportion of lower cost merchandise from overseas sources and growth in
net sales of accessories, which generally have higher gross margins than
apparel.
Selling, general and administrative expenses increased to $12.8 million, or
31.2% of net sales, for the second quarter of fiscal 1997 from $11.4 million,
or 31.0% of net sales, for the second quarter of fiscal 1996. The increase of
$1.4 million was primarily the result of increased payroll costs for stores and
increased overhead needed to support the increase in sales and planned store
growth.
Depreciation and amortization increased to $1.0 million for the second quarter
of fiscal 1997 from $766,000 for the second quarter of fiscal 1996, an increase
of $274,000 or 35.8%. The increase is a result of an approximate $8.4 million
net increase in fixed assets at the end of the second quarter of fiscal 1997
compared to the end of the second quarter of fiscal 1996. In addition, the new
point of sale equipment purchased in the second quarter of fiscal 1997 has a
shorter depreciable life than most other depreciable assets of the Company. As
a percentage of net sales, depreciation and amortization increased to 2.5% in
the second quarter of fiscal 1997 from 2.1% in the second quarter of fiscal
1996.
Operating income increased to $1.6 million in the second quarter of fiscal 1997
from $404,000 for the second quarter of fiscal 1996, an increase of $1.2
million or 299.3%. As a percentage of net sales, operating income increased to
3.9% in the second quarter of fiscal 1997 from 1.1% in the second quarter of
fiscal 1996.
Interest income, net, of $345,000 for the second quarter of fiscal 1997
improved by $642,000 from an interest expense, net, of $297,000 for the second
quarter of fiscal 1996. This improvement was primarily the result of the
repayment during the fourth quarter of fiscal 1996 of the remaining balance of
the $24.0 million aggregate principal amount of 11.375% Notes due January 31,
2000 that the Company had issued in 1992 and the receipt of approximately $15.0
million from the sale of 995,000 shares of common stock in May 1997.
The provision for income taxes, based on statutory rates, was $793,000 for the
second quarter of fiscal 1997 as compared to $43,000 for the second quarter of
fiscal 1996, an increase of $750,000, as a result of the increase in income
before income taxes. The Company's effective tax rate of 40.5% in the second
quarter of fiscal 1997 was slightly higher than the 40.2% in the second quarter
of fiscal 1996. Due to the utilization of tax loss carryforwards the Company
benefited by a reduction of income taxes payable (reflected as a credit to
additional paid-in capital) of $655,000.
As a result of the above factors, the Company's net income increased to $1.2
million for the second quarter of fiscal 1997 from $64,000 for the second
quarter of fiscal 1996, an increase of $1.1 million.
11
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First half of fiscal 1997
The Company's net sales increased to $84.8 million in the first half of fiscal
1997 from $76.4 million in the first half of fiscal 1996 an increase of $8.4
million or 11.0%. The increase in net sales was primarily attributable to a
10% increase in comparable store sales (stores open at least twelve months) and
an increase in the number of stores open during the first half of fiscal 1997
compared to the first half of fiscal 1996. The 10% comparable store sales
increase was due to a positive response by customers to the Company's overall
merchandise selection reflected by a 31.9% increase in customer transactions
per store. The Company operated 233 stores as of August 2, 1997 compared to
215 stores on August 3, 1996.
Gross income increased to $31.2 million in the first half of fiscal 1997 from
$25.4 million in the prior year, an increase of $5.8 million or 23.1%. Gross
income, as a percentage of net sales, increased to 36.9% in the first half of
fiscal 1997 from 33.2% of net sales in the first half of fiscal 1996. Gross
income primarily increased due to the increase in net sales. Gross income, as
a percentage of net sales, increased as a result of selling a higher proportion
of lower cost merchandise from overseas sources and growth in net sales of
accessories, which generally have higher gross margins than apparel.
Selling, general and administrative expenses increased to $25.7 million, or
30.3% of net sales, for the first half of fiscal 1997 from $22.8 million, or
29.9% of net sales, for the first half of fiscal 1996. The increase of $2.9
million was primarily the result of increased payroll costs for stores and
increased overhead needed to support the increase in sales and planned store
growth.
Depreciation and amortization increased to $2.0 million for the first half of
fiscal 1997 from $1.6 million for the first half of fiscal 1996, an increase of
$404,000 or 26.0%. The increase is a result of an approximate $8.4 million
increase in fixed assets at the end of the second quarter of fiscal 1997
compared to the end of the second quarter of fiscal 1996. In addition, the new
point of sale equipment purchased in the first half of fiscal 1997 has a
shorter depreciable life than most other depreciable assets of the Company. As
a percentage of net sales, depreciation and amortization increased to 2.3% in
the first half of fiscal 1997 from 2.0% in the first half of fiscal 1996.
Operating income increased to $3.6 million in the first half of fiscal 1997
from $1.0 million for the first half of fiscal 1996, an increase of 257.7%. As
a percentage of net sales, operating income increased to 4.3% in the first half
of fiscal 1997 from 1.3% in the first half of fiscal 1996.
Interest income, net, of $555,000 for the first half of fiscal 1997 improved by
$1.2 million from an interest expense, net, of $675,000 for the first half of
fiscal 1996. This improvement was primarily the result of the repayment during
the fourth quarter of fiscal 1996 of the remaining balance of the $24.0
million aggregate principal amount of 11.375% Notes due January 31, 2000 that
the Company had issued in 1992 and the receipt of approximately $15.0 million
from the sale of 995,000 shares of common stock in May 1997.
The provision for income taxes, based on statutory rates, was $1.7 million for
the first half of fiscal 1997 as compared to $137,000 for the first half of
fiscal 1996, an increase of $1.6 million, as a result of the increase in income
before income taxes. The Company's effective tax rate of 40.5% in the first
half of fiscal 1997 is slightly higher than the 40.4% in the first half of
fiscal 1996. Due to the utilization of tax loss carryforwards the Company
benefited by a reduction of income taxes payable (reflected as a credit to
additional paid-in capital) of $1.4 million.
As a result of the above factors, the Company's net income increased to $2.5
million for the first half of fiscal 1997 from $202,000 for the first half of
fiscal 1996, an increase of $2.3 million.
12
<PAGE>
Seasonality
The Company's business, like that of most retailers, is subject to seasonal
influences. A significant portion of the Company's net sales and profits are
realized during the Company's fourth fiscal quarter, which includes the holiday
selling season. Results for any quarter are not necessarily indicative of the
results that may be achieved for a full fiscal year. Quarterly results may
fluctuate materially depending upon, among other things, the timing of new
store openings, net sales and profitability contributed by new stores,
increases or decreases in comparable store sales, adverse weather conditions,
shifts in the timing of certain holidays and promotions, and changes in the
Company's merchandise mix.
Liquidity and Capital Resources
The Company's primary sources of working capital consist of internally
generated cash and its $30 million secured, revolving credit facility. While
this credit facility is principally intended for letters of credit for import
merchandise, the Company may make direct borrowings of up to the maximum amount
of the credit facility. The credit facility expires June 30, 1999. The annual
interest rate on borrowings outstanding under the credit facility is a variable
rate equal to the prime rate of the Company's lender plus 0.25%. In addition,
letters of credit carry an initial issuance fee plus a fee of 0.25% of the face
amount of such letters of credit. The credit facility also contains certain
financial covenants which set limits on tangible net worth and cash flow from
operations. The credit facility is secured by a security interest in the
Company's inventory, equipment, fixtures, cash and an assignment of leases. At
August 3, 1997, there were outstanding letters of credit issued in favor of the
Company under the credit facility in an aggregate amount of $10.1 million. On
the same date, there were no outstanding direct borrowings under the credit
facility.
In May 1997 the Company received approximately $15.0 million, net of expenses,
as the proceeds of an underwritten public offering of its common stock. The
net proceeds have been added to the Company's working capital and are available
for general corporate purposes.
The Company made capital expenditures of approximately $6.2 million in the
first half of fiscal 1997, primarily for the Company's new point of sale system
(approximately $3.1 million), for remodeling existing stores (approximately
$1.7 million) and for opening new stores (approximately $1.3 million). The
Company anticipates opening up to 52 net new stores and remodeling 35 to 40
stores during fiscal 1997.
Net cash flow from operating activities was $1.0 million in the first half of
fiscal 1997. Net cash flow from financing activities aggregated $15.1 million
in the first half of fiscal 1997, including the proceeds from the sale of new
common stock and the exercise of common stock options.
Cash and cash equivalents increased to $25.9 million at the end of the first
half of fiscal 1997 from $16.0 million at the beginning of the fiscal 1997, an
increase of $9.9 million or 61.7%.
Management believes that cash on hand and cash generated from operations
together with borrowings available under the Company's credit facility are
sufficient to meet the Company's working capital expenditure needs for the
foreseeable future.
13
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 19, 1997, the Company held its annual meeting of shareholders.
The shareholders elected the following directors by the vote indicated, to
serve until the annual meeting of shareholders as indicated:
TERM
Name of Nominee FOR WITHHELD EXPIRES
---------------------- ---------- -------- -------
John Rau 5,934,247 284,231 1998
Richard A. Feinberg, Ph.D. 5,934,385 290,898 1999
Charlotte G. Fischer 5,927,718 284,287 2000
James T. Morris 5,934,329 284,369 2000
Sally M. Tassani 5,934,435 284,181 2000
There were 0 broker non-votes.
In addition, the following directors continue in office until the annual
meeting of shareholders in the year indicated:
Term
Name Expires
------------------- -------
Robert I. Logan 1998
Gerald Paul 1999
Rudy Greer 1999
The Company's 1996 Stock Option and Incentive Plan was approved by the
following vote:
2,634,231 For 2,401,519 Against 16,910 Abstentions
1,165,956 Broker Non-votes
The Company's Outside Directors Stock Option Plan was approved by the following
vote:
4,422,269 For 805,991 Against 18,430 Abstentions
971,926 Broker Non-votes
Price Waterhouse L.L.P. was approved as auditors for the Company for the fiscal
year 1997 by the following vote:
6,206,995 For 2,469 Against 9,152 Abstentions
0 Broker Non-votes
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: (27) Financial Data Schedule
(b) Reports on Form 8-K : None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Paul Harris Stores, Inc.
------------------------
(Registrant)
Date: September 15, 1997 /s/ John H. Boyers
------------------
John H. Boyers
Senior Vice President - Finance and Treasurer
Signing on behalf of the registrant and as
principal financial officer.
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CAPTION>
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
FORM 10-Q FOR YEAR-TO-DATE ENDED August 2, 1997
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> AUG-02-1997
<CASH> 25,876,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 23,497,000
<CURRENT-ASSETS> 51,813,000
<PP&E> 38,169,000
<DEPRECIATION> (14,959,000)
<TOTAL-ASSETS> 75,732,000
<CURRENT-LIABILITIES> 15,246,000
<BONDS> 1,870,000
<COMMON> 17,073,000
0
0
<OTHER-SE> 38,869,000
<TOTAL-LIABILITY-AND-EQUITY> 75,732,000
<SALES> 84,758,000
<TOTAL-REVENUES> 84,758,000
<CGS> 53,512,000
<TOTAL-COSTS> 53,512,000
<OTHER-EXPENSES> 27,619,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (555,000)
<INCOME-PRETAX> 4,182,000
<INCOME-TAX> 1,693,000
<INCOME-CONTINUING> 2,489,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,489,000
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
