UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 29, 2000
--------------
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission file number 0-15385
ONE PRICE CLOTHING STORES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 57-0779028
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(State or other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)
Highway 290, Commerce Park
1875 East Main Street
Duncan, South Carolina 29334
----------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (864) 433-8888
------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares of the registrant's common stock outstanding as of
September 1, 2000 was 10,423,091.
<PAGE>
INDEX
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - July 29, 2000, January
29, 2000 and July 31, 1999
Condensed consolidated statements of operations - Three-month
and six-month periods ended July 29, 2000 and July 31, 1999
Condensed consolidated statements of cash flows - Six-month
periods ended July 29, 2000 and July 31, 1999
Notes to unaudited condensed consolidated financial statements
- July 29, 2000
Independent accountants' report on review of interim financial
information
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
Item I. Financial Statements (Unaudited)
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
One Price Clothing Stores, Inc. and Subsidiaries
<S> <C> <C> <C>
July 29, January 29, July 31,
2000 2000 1999
------------------ ------------------ ----------------
(1)
Assets
CURRENT ASSETS
Cash and cash equivalents $ 2,780,000 $ 2,538,000 $ 2,108,000
Merchandise inventories 54,149,000 44,125,000 46,644,000
Deferred income taxes 1,445,000 1,626,000 788,000
Other current assets 7,642,000 8,775,000 5,912,000
------------------ ------------------ ----------------
TOTAL CURRENT ASSETS 66,016,000 57,064,000 55,452,000
------------------ ------------------ ----------------
PROPERTY AND EQUIPMENT, at cost 67,602,000 67,009,000 63,922,000
Less accumulated depreciation 31,597,000 32,854,000 31,020,000
------------------ ------------------ ----------------
36,005,000 34,155,000 32,902,000
------------------ ------------------ ----------------
OTHER ASSETS 6,607,000 4,736,000 4,700,000
------------------ ------------------ ----------------
$ 108,628,000 $ 95,955,000 $ 93,054,000
================== ================== ================
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable $ 25,905,000 $ 23,390,000 $ 20,182,000
Current portion of long-term debt and revolving credit
facility 14,831,000 11,352,000 6,243,000
Sundry liabilities 7,156,000 6,179,000 10,973,000
------------------ ------------------ ----------------
TOTAL CURRENT LIABILITIES 47,892,000 40,921,000 37,398,000
------------------ ------------------ ----------------
LONG-TERM DEBT 7,325,000 7,582,000 7,668,000
------------------ ------------------ ----------------
OTHER NONCURRENT LIABILITIES 4,035,000 2,851,000 3,000,000
------------------ ------------------ ----------------
SHAREHOLDERS' EQUITY
Preferred stock, par value $0.01 --
authorized and unissued 500,000 shares
Common stock, par value $0.01 --
authorized 35,000,000 shares, issued and outstanding
10,514,091, 10,489,091, and 10,466,291, respectively 105,000 105,000 105,000
Additional paid-in capital 11,692,000 11,625,000 11,539,000
Retained earnings 37,647,000 32,922,000 33,344,000
Less: unearned compensation - restricted stock awards (68,000) (51,000) --
------------------- ------------------- --------------
49,376,000 44,601,000 44,988,000
------------------ ------------------ ----------------
$ 108,628,000 $ 95,955,000 $ 93,054,000
================== ================== ================
</TABLE>
(1) Derived from audited financial statements.
See notes to unaudited condensed consolidated financial statements
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
One Price Clothing Stores, Inc. and Subsidiaries
<S> <C> <C> <C> <C>
Three-Month Period Ended Six-Month Period Ended
------------------------------- -------------------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
-------------- --------------- -------------- --------------
NET SALES $ 102,307,000 $ 97,905,000 $ 191,051,000 $ 185,018,000
Cost of goods sold 65,477,000 62,461,000 121,011,000 117,124,000
-------------- --------------- -------------- --------------
GROSS MARGIN 36,830,000 35,444,000 70,040,000 67,894,000
-------------- --------------- -------------- --------------
Selling, general and administrative expenses 22,555,000 19,747,000 42,664,000 39,032,000
Store rent and related expenses 8,038,000 6,922,000 15,591,000 13,577,000
Depreciation and amortization expense 1,441,000 1,358,000 3,018,000 2,683,000
Interest expense 582,000 450,000 1,124,000 962,000
-------------- --------------- -------------- --------------
32,616,000 28,477,000 62,397,000 56,254,000
-------------- --------------- -------------- --------------
INCOME BEFORE INCOME TAXES 4,214,000 6,967,000 7,643,000 11,640,000
Provision for income taxes 1,605,000 2,570,000 2,918,000 4,144,000
-------------- --------------- -------------- --------------
NET INCOME $ 2,609,000 $ 4,397,000 $ 4,725,000 $ 7,496,000
============== =============== ============== ==============
Net income per common share -- basic $ 0.25 $ 0.42 $ 0.45 $ 0.72
============== =============== ============== ==============
Net income per common share -- diluted $ 0.25 $ 0.41 $ 0.45 $ 0.70
============== =============== ============== ==============
Weighted average number of common shares
outstanding -- basic 10,512,113 10,453,391 10,502,415 10,447,141
============== =============== ============== ==============
Weighted average number of common shares
outstanding -- diluted 10,538,019 10,631,401 10,538,584 10,635,955
============== =============== ============== ==============
</TABLE>
See notes to unaudited condensed consolidated financial statements
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
One Price Clothing Stores, Inc. and Subsidiaries
<S> <C> <C>
Six-Month Period Ended
------------------------------------
July 29, July 31,
2000 1999
------------------ -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,725,000 $ 7,496,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 3,018,000 2,683,000
Provision for supplemental post-retirement benefits 33,000 31,000
Provision for compensation - restricted stock awards 38,000 --
(Increase) decrease in other noncurrent assets (210,000) 29,000
Increase in other noncurrent liabilities 114,000 17,000
Deferred income taxes (36,000) (20,000)
Loss on disposal of property and equipment 247,000 137,000
Changes in operating assets and liabilities (5,832,000) (1,945,000)
---------------- ------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,097,000 8,428,000
---------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (4,581,000) (2,086,000)
Proceeds from sale of property and equipment 147,000 --
Purchases of other noncurrent assets (232,000) (546,000)
----------------- ------------------
NET CASH USED IN INVESTING ACTIVITIES (4,666,000) (2,632,000)
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from (repayment of) revolving credit facility 3,456,000 (5,760,000)
Repayment of long-term debt (235,000) (81,000)
Debt financing costs incurred (91,000) (69,000)
Payment of capital lease obligations (261,000) (194,000)
Decrease in amount due to related parties (70,000) (64,000)
Proceeds from exercise of common stock options 12,000 62,000
----------------- ------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,811,000 (6,106,000)
----------------- ------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 242,000 (310,000)
Cash and cash equivalents at beginning of period 2,538,000 2,418,000
----------------- ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,780,000 $ 2,108,000
------------------ ------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 1,053,000 $ 841,000
Income taxes paid 167,000 101,000
Noncash financing activity - capital leases 1,717,000 405,000
Issuance of restricted stock awards 57,000 --
</TABLE>
See notes to unaudited condensed consolidated financial statements
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
One Price Clothing Stores, Inc. and Subsidiaries
For the six months ended July 29, 2000 and July 31, 1999 (Unaudited)
NOTE A - BASIS OF PRESENTATION AND CERTAIN ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited and
include the accounts of One Price Clothing Stores, Inc. and its subsidiaries,
all of which are wholly-owned (the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and the
instructions of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. Due
to the seasonality of the Company's sales, operating results for the three-month
and six-month periods ended July 29, 2000 are not necessarily indicative of the
results that may be expected for the year ending February 3, 2001. For further
information, refer to the financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended January 29, 2000.
The Company's sales and operating results are seasonal. Sales and operating
results have been the highest in the first quarter (February - April) and second
quarter (May - July) and lowest in the third quarter (August - October) and
fourth quarter (November - January).
Stock Repurchase Program
On August 2, 2000, the Board of Directors authorized the Company to repurchase
up to one million shares of the outstanding common stock at market prices,
effective immediately. The repurchase program authorizes purchases from time to
time in the open market or privately negotiated block transactions and contains
no expiration date. The authorization represents approximately 9.5% of the
outstanding common stock of the Company.
<PAGE>
NOTE B - EARNINGS PER SHARE
Basic earnings per share are computed based upon the weighted average number of
common shares outstanding. Diluted earnings per share are computed based upon
the weighted average number of common and common equivalent shares outstanding.
Common equivalent shares consist solely of shares under option. A reconciliation
of basic and diluted weighted average shares outstanding is presented below:
<TABLE>
<S> <C> <C> <C> <C>
Three-Month Period Ended Six-Month Period Ended
---------------------------------- ----------------------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
---------------- ---------------- ---------------- ----------------
Weighted average number of common
shares outstanding - basic 10,512,113 10,453,391 10,502,415 10,447,141
Net effect of dilutive stock options - based
on the treasury stock method using the
average market price 25,906 178,010 36,169 188,814
---------------- ---------------- ---------------- ----------------
Weighted average number of common
shares outstanding - diluted 10,538,019 10,631,401 10,538,584 10,635,955
=============== =============== =============== ===============
</TABLE>
NOTE C - CREDIT FACILITIES
In June 2000, the Company amended its revolving credit facilty to increase
borrowing availability, lower borrowing rates and other fees, extend the term of
the agreement, and amend certain prohibitive covenants associated with the
facility. As amended, the Company has a revolving credit facility of up to
$37,500,000 (including a letter of credit sub-facility of up to $25,000,000)
with its primary lender through July 2003. Borrowings under the amended credit
agreement with the primary lender are collateralized by all assets owned by the
Company during the term of the agreement (other than the land, buildings,
fixtures and improvements collateralizing the mortgage loan discussed below).
Effective July 1, 2000, under the amended agreement, the borrowings bear
interest, at the Company's option (subject to certain limitations in the
agreement), at the Prime Rate or the Adjusted Eurodollar Rate, as defined, plus
1.5%, provided that the Company meets certain minimum net worth requirements as
set forth in the agreement. Maximum borrowings under the revolving credit
facility and utilization of the letter of credit facility are based on a
borrowing base formula determined with respect to eligible inventory as defined
in the agreement. As a result, availability under the revolving credit facility
fluctuates in accordance with the Company's seasonal variations in inventory
levels. At July 29, 2000, the Company had approximately $22.2 million of excess
availability under the borrowing base formula. The lending formula may be
revised from time to time in response to changes in the composition of the
Company's inventory or other business conditions.
The Company's amended revolving credit agreement contains certain covenants
which, among other things, prohibit the Company from paying dividends, restrict
the ability of the Company to incur other indebtedness or encumber or dispose
of assets, and limit the amount of its own stock the Company can repurchase. The
Company is required to maintain a $5,000,000 minimum level of working capital
and to maintain a $25,000,000 minimum adjusted net worth (both as defined in the
revolving credit agreement).
The Company also has an agreement with a commercial bank to provide a separate
letter of credit facility of up to $8,000,000. This agreement was amended in
June 2000 to extend the term of the agreement through the earlier of June 2001
or termination of the Company's revolving credit facility with its primary
lender. Letters of credit issued under the agreement are collateralized by
inventories purchased using such letters of credit. The agreement requires that
the Company's working capital and minimum net worth requirements be at the same
level as that required by the Company's primary lender under the revolving
credit agreement. The agreement contains certain restrictive covenants which are
substantially the same as those within the Company's revolving credit facility
discussed above.
The Company entered into a twenty-year mortgage agreement with a commercial bank
in June 1997. The agreement, which had an original balance of $8,125,000, is
secured by the Company's real property located at its corporate offices,
including land, buildings, fixtures and improvements. The mortgage loan, which
had a balance of $7,520,000 at July 29, 2000, is payable in 240 consecutive
equal monthly installments (including interest at the rate of 9.125% per annum)
through July 2017. Certain fees may be payable by the Company if the mortgage
loan is repaid prior to June 2014.
NOTE D - EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and
Hedging Activities," which, as amended, is effective for years beginning after
June 15, 2000. This new standard requires recognition of all derivatives,
including certain derivative instruments embedded in other contracts, as either
assets or liabilities in the statement of financial position and measurement of
those instruments at fair value. The Company is in the process of reviewing the
effect, if any, that SFAS 133 will have on the Company's consolidated financial
statements and disclosures.
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Shareholders of
One Price Clothing Stores, Inc.
Duncan, South Carolina
We have reviewed the accompanying condensed consolidated balance sheets of One
Price Clothing Stores, Inc. and subsidiaries (the "Company") as of July 29, 2000
and July 31, 1999, and the related condensed consolidated statements of
operations for the three-month and six-month periods then ended and the
condensed consolidated statements of cash flows for the six-month periods then
ended. These financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of the
Company as of January 29, 2000, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated March 7, 2000, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of January 29, 2000 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
August 14, 2000
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales for the quarter ended July 29, 2000 increased 4.5% to $102,307,000
compared with $97,905,000 for the quarter ended July 31, 1999. Net sales for the
six-month period ended July 29, 2000 increased 3.3% to $191,051,000 compared
with $185,018,000 for the same time period in 1999. Comparable store sales for
the second quarter of fiscal 2000 decreased 4.1% compared with a 3.0% increase
for the same quarter last year. Comparable store sales for the six-month period
ended July 29, 2000 decreased 3.8% compared with a 5.5% increase for the same
time period in 1999. We consider stores that have been open 18 months or more to
be comparable, and there were 595 such stores at July 29, 2000. The decrease in
comparable store sales for the second quarter and the first six months of fiscal
2000 was principally due to dereased sales in our junior, misses and plus-size
separates categories.
During the second quarter of fiscal 2000, we opened 13 stores and expanded the
size of one store. In addition, we relocated one store and closed seven
under-performing stores. At July 29, 2000, we operated 658 stores, 38 greater
than at quarter-end last year. The stores are located in 30 states, the District
of Columbia, Puerto Rico and the U.S. Virgin Islands.
Gross margin as a percentage of net sales remained essentially unchanged at
36.0% in the second quarter of fiscal 2000 compared with 36.2% of net sales in
the second quarter of fiscal 1999. For the first six months of both fiscal 2000
and fiscal 1999, gross margin was 36.7% of net sales.
Selling, general and administrative ("SG&A") expenses were 22.0% of net sales
for the second quarter of fiscal 2000 compared with 20.2% of net sales in the
second quarter of fiscal 1999. SG&A expenses were 22.3% of net sales in the
first six months of fiscal 2000 compared with 21.1% of net sales during the same
time period in fiscal 1999. SG&A expenses in both periods increased as a
percentage of net sales due to an increase in SG&A expense dollars combined with
a decrease in comparable store sales during the corresponding periods. In both
periods presented for fiscal 2000, SG&A expenses increased in dollars compared
with the same time periods in fiscal 1999 primarily due to increased payroll
expense in the stores and other store expenses associated with operating, on
average, more stores year-over-year. Payroll expense in the stores increased due
to a year-over-year increase in the average hourly wage rate which was slightly
offset by a decrease in average store hours.
Store rent and related expenses per average store increased 9.4% in both the
second quarter and the first six months of fiscal 2000 compared with the same
periods last year. The increase in average store rent and related expenses is
primarily due to the Company's store expansion strategy of opening larger,
higher volume stores and thus entering more costly sites with higher rents while
closing older stores with lower average rent costs. Due to the increase in
average store rent, store rent and related expenses were 7.9% of net sales in
the second quarter of fiscal 2000 compared with 7.1% of net sales in the second
quarter of fiscal 1999. Also, store rent and related expenses for the first six
months of fiscal 2000 increased to 8.2% of net sales compared with 7.3% of net
sales during the same time period in fiscal 1999.
Depreciation and amortization expense was 1.4% of net sales in the second
quarter of both fiscal 2000 and fiscal 1999. Depreciation and amortization
expense was 1.6% of net sales in the first six months of fiscal 2000 compared
with 1.5% of net sales during the same time period in fiscal 1999. In both
periods presented for fiscal 2000, depreciation and amortization expense
increased in dollars compared with the same time periods in fiscal 1999
primarily due to investments in new stores and software.
Interest expense was 0.6% of net sales in the second quarter and in the first
six months of fiscal 2000 compared with 0.5% of net sales for the same time
periods in fiscal 1999. In both periods presented for fiscal 2000, interest
expense increased in dollars compared with the same time periods in fiscal 1999
due to higher average interest rates resulting from the year-over-year increase
in the Prime Rate and higher average levels of borrowings by the Company.
The Company's effective income tax rate was approximately 38.2% in the first six
months of fiscal 2000. The effective income tax rate for the year ended January
29, 2000 was 9.4%, which was significantly less than the statutory rate due to
the favorable adjustment of the remaining deferred tax asset valuation allowance
in fiscal 1999.
Outlook
During the remaining portion of fiscal 2000, we currently expect to open 13 new
stores and expand or relocate 10 existing stores. We also plan to continue our
strategy of increasing the size of certain highly productive stores. The Company
is addressing the decrease in comparable store sales by adjusting the product
mix in its stores. The Company is attempting to maximize its strong-performing
product categories during the fall selling season. Despite these product mix
adjustments, the Company's current level of sales remains below the Company's
expectations and, as a result, the Company reiterates its caution in its sales
and earnings expectations for the third and fourth quarters of 2000.
The Company's sales and operating results are seasonal. Sales and operating
results have been the highest in the first quarter (February - April) and second
quarter (May - July) and lowest in the third quarter (August - October) and
fourth quarter (November - January).
Average store rent and related expenses are expected to continue to increase in
fiscal 2000 and beyond due to the location and the increase in average store
square footage of stores that opened in fiscal 2000 and planned future openings,
as well as the closing of older, lower-volume stores. We will seek to leverage
these increases through improved average store sales volume.
Liquidity and Capital Resources
In the first six months of fiscal 2000, net cash provided by a combination of
net income and net borrowings from our revolving credit facility was primarily
used to fund the increase in inventory necessary to operate more stores
year-over-year. In the first six months of fiscal 2000, cash was also used to
open 23 more stores than during the same period in fiscal 1999, and to expand
and remodel certain other stores and to purchase software. Net cash provided by
operating activities in the first six months of 2000 was less than net cash
provided by operating activities in the first six months of 1999 primarily due
to lower year-over-year net income combined with a higher year-over-year
increase in inventory.
In the first six months of fiscal 1999, net cash provided by operating
activities was primarily used to reduce the balance of the revolving credit
facility and to open new stores, expand and remodel certain other stores and to
purchase software.
Merchandise inventories at the end of the second quarter of fiscal 2000
increased 16.1% in total due to the higher year-over-year store count and
increased 9.4% on an average store basis compared with the end of the second
quarter of fiscal 1999. In preparation for the back-to-school and fall selling
seasons, total merchandise inventories at the end of the second quarter of
fiscal 2000 were 16.4% higher on an average store basis than at January 29,
2000, when inventory levels are typically lower. The level and source of
inventories are subject to fluctuations because of our seasonal operations,
opportunistic buying strategy and prevailing business conditions.
As a result of recent foreign purchases to strengthen strong-performing
categories of merchandise for the fall selling season, the level of outstanding
documentary letters of credit increased to $7.6 million on July 29, 2000
compared with $3.3 million on July 31, 1999. Although the Company's level of
outstanding documentary letters of credit increased year-over-year, we currently
expect to continue to pursue opportunistic purchases of merchandise from
primarily domestic sources, but will purchase merchandise from foreign sources
when it is deemed to be in the best interests of the Company.
Total accounts payable and amounts outstanding under the Company's credit
facilities, including long-term portions thereof, increased 41.0% at the end of
the second quarter of fiscal 2000 compared with the second quarter of fiscal
1999. This increase was primarily the result of the year-over-year increase in
merchandise inventories and capital expenditures. The level of accounts payable
and amounts outstanding under the credit facilities are subject to fluctuations
based on our changes in inventory levels and rate of capital expenditures.
Our credit facilities consist of a revolving credit facility to meet short-term
liquidity needs, a mortgage loan collateralized by the Company's corporate
offices and distribution center and letter of credit facilities to accommodate
the Company's needs to purchase merchandise inventories from foreign sources.
Collectively, the credit facilities contain certain financial and non-financial
covenants with which the Company was in compliance at July 29, 2000.
We have a $37,500,000 revolving credit facility (including a $25,000,000 letter
of credit sub-facility) with our primary lender through July 2003. Borrowings
under the agreement are collateralized by all assets owned by the Company during
the term of the agreement (other than land, buildings, fixtures and improvements
collateralizing the mortgage loan discussed below). Maximum borrowings under the
revolving credit facility and utilization of the letter of credit facility are
based upon a borrowing base formula determined with respect to eligible
inventory as defined in the agreement. At July 29, 2000, we had approximately
$22.2 million in excess availability under the borrowing base formula.
We have a twenty-year mortgage loan agreement with a commercial bank payable in
consecutive equal monthly installments through July 2017. At July 29, 2000, the
mortgage loan had an unpaid balance of $7,520,000. The agreement is secured by
the Company's real property located at its corporate offices including land,
buildings, fixtures and improvements.
We have an $8,000,000 letter of credit facility with a commercial bank through
the earlier of June 2001 or termination of the revolving credit facility with
the Company's primary lender. Letters of credit issued under the agreement are
collateralized by inventories purchased using such letters of credit.
On August 2, 2000, the Board of Directors authorized the Company to repurchase
up to one million shares of the outstanding common stock at market prices,
effective immediately. The repurchase program authorizes purchases from time to
time in the open market or privately negotiated block transactions and contains
no expiration date. The authorization represents approximately 9.5% of the
outstanding common stock of the Company.
During fiscal 2000, we currently expect to spend approximately $9.0 million on
capital expenditures, most of which will be used to open new stores, expand and
relocate existing stores and invest in information technology. Our liquidity
requirements in the foreseeable future are expected to be met principally
through net cash provided by operations and the use of our credit facilities. If
we believe it to be in the best interests of the Company, additional long-term
debt, equity, capital leases or other permanent financing may be considered.
Market Risk and Risk Management Policies
We are exposed to market risk from changes in interest rates affecting our
credit arrangements, including a variable-rate revolving credit facility and a
fixed-rate mortgage loan agreement, which may adversely affect our results of
operations and cash flows. We seek to minimize our interest rate risk through
our day-to-day operating and financing activities. We do not engage in
speculative or derivative financial or trading activities.
A hypothetical 100 basis point adverse change (increase) in interest rates
relating to our revolving credit facility would have decreased pre-tax income
for the six months ended July 29, 2000 and July 31, 1999 by approximately
$68,000 and $53,000, respectively.
Effect of New Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and
Hedging Activities," which, as amended, is effective for years beginning after
June 15, 2000. This new standard requires recognition of all derivatives,
including certain derivative instruments embedded in other contracts, as either
assets or liabilities in the statement of financial position and measurement of
those instruments at fair value. The Company is in the process of reviewing the
effect, if any, that SFAS 133 will have on the Company's consolidated financial
statements and disclosures.
Private Securities Litigation Reform Act of 1995
All statements contained in this document as to future expectations and
financial results including, but not limited to, statements containing the words
"believes," "anticipates," "expects," "should," "will" and similar expressions,
should be considered forward-looking statements subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. The Company
cautions readers of this Quarterly Report on Form 10-Q that a number of
important factors could cause the Company's actual results in fiscal 2000 and
beyond to differ materially from those expressed in such forward-looking
statements. These factors include, but are not limited to, general economic
conditions, including the possibility of a slowdown in consumer demand arising
from an increase in interest rates and other economic factors; consumer
preferences; weather patterns; competitive factors; pricing and promotional
activities of competitors; the impact of excess retail capacity and the
availability of desirable store locations on suitable terms; whether or not
offering for sale new categories of merchandise including, but not limited to,
menswear, will increase sales and operating results; the availability, selection
and purchasing of attractive merchandise on favorable terms; credit
availability, including adequate levels of credit support provided to certain of
the Company's vendors by factors and insurance companies; import risks,
including potential disruptions and duties, tariffs and quotas on imported
merchandise; regulatory matters, including legislation affecting wage rates; and
other factors described in the Company's filings with the Securities and
Exchange Commission from time to time. The Company does not undertake to
publicly update or revise its forward-looking statements even if experience or
future changes make it clear that any projected results expressed or implied
therein will not be realized.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See required information contained within Item 2 of this Form
10-Q.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company received proxies representing 95.9% of the 10,499,091 shares
outstanding and eligible to vote at the annual meeting of the Company's
shareholders held on June 7, 2000. The following summarizes the votes thereat:
<TABLE>
<S> <C> <C> <C> <C>
Matter For Against Abstentions Non-Votes
Election of Directors:
Leonard M. Snyder 10,029,608 0 38,625 0
Larry I. Kelley 10,029,608 0 38,625 0
Renee M. Love 10,028,608 0 39,625 0
Laurie M. Shahon 10,029,608 0 38,625 0
Malcolm L. Sherman 10,029,058 0 39,175 0
James M. Shoemaker, Jr. 10,029,058 0 39,175 0
Robert J. Stevenish 10,029,628 0 38,605 0
Allan Tofias 10,022,908 0 45,325 0
</TABLE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
10(a) Amendment Number Six to the Loan and Security Agreement by
and between Congress Financial Corporation (Southern) as
Lender and the Registrant, One Price Clothing Stores, Inc. of
Puerto Rico and One Price Clothing - U.S. Virgin Islands,
Inc. as Borrowers dated June 30, 2000.
10(b) Amendment Number Six to the Continuing Commercial Credit
Agreement by and between Carolina First Bank as Lender and
the Registrant, One Price Clothing of Puerto Rico, Inc. and
One Price Clothing - U.S. Virgin Islands, Inc. as Borrowers
dated June 30, 2000.
15 Acknowledgement of Deloitte & Touche LLP, independent accountants
27 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K
The Company was not required to, and did not, file any report
on Form 8-K for the three-month period ended July 29, 2000.
<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.
ONE PRICE CLOTHING STORES, INC. (Registrant)
Date: September 12, 2000 /s/ Larry I. Kelley
--------------------
Larry I. Kelley
President and Chief Executive Officer
(principal executive officer)
Date: September 12, 2000 /s/ H. Dane Reynolds
---------------------
H. Dane Reynolds
Senior Vice President and Chief
Financial Officer (principal
financial officer and principal
accounting officer)
