SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission File No. 1-
May 3, 1997 10892
HAROLD'S STORES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1308796
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification
No.)
765 Asp Norman, Oklahoma 73069 (405) 329-4045
(Address of principal executive (Registrant's
offices) telephone number,
(Zip Code) including area
code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes X . No .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
As of June 9, 1997, the registrant had 5,724,917 shares of
Common Stock outstanding.
Harold's Stores, Inc. & Subsidiaries
Index to
Quarterly Report on Form 10-Q
For the Period Ended May 3, 1997
Part I. - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets - May 3, 1997 (unaudited)
and February 1, 1997. 3
Consolidated Statements of Earnings -
Thirteen Weeks ended May 3, 1997 (unaudited) and
May 4, 1996 (unaudited) 5
Consolidated Statements of Stockholders' Equity -
Thirteen Weeks ended May 3, 1997 (unaudited) and
May 4, 1996 (unaudited) 6
Consolidated Statements of Cash Flows -
Thirteen Weeks ended May 3, 1997 (unaudited) and
May 4, 1996 (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K:
There were no reports on Form 8-K for the quarter ended
May 3, 1997
Signature 13
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
May 3, 1997 February
1, 1997
(unaudited)
Current assets:
Cash $454 433
Trade accounts receivable, less
allowance 6,322 5,476
for doubtful accounts of $220 in
1998 and $215 in 1997
Other accounts receivable 629 673
Merchandise inventories 29,347 28,544
Prepaid expenses 2,558 2,174
Deferred income taxes 1,615 1,615
Total current assets 40,925 38,915
Property and equipment, at cost 27,103 25,001
Less accumulated depreciation and (8,584) (7,897)
amortization
Net property and equipment 18,519 17,104
Other receivables, non-current 2,475 2,603
Other assets 619 986
Total assets $62,538 59,608
See accompanying notes to interim consolidated financial
statements.
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(In Thousands Except Share Data)
May 3, 1997 February
1, 1997
(unaudited)
Current liabilities:
Current maturities of long-term debt $ 110
245
Accounts payable 4,487 6,668
Redeemable gift certificates 730 923
Accrued bonuses and payroll expenses 1,345 1,958
Accrued rent expense 126 298
Income taxes payable 490 942
Total current liabilities 7,423 10,899
Long-term debt, net of current maturities 18,714 12,528
Deferred income taxes 146 146
Stockholders' equity:
Preferred stock of $.01 par value
Authorized 1,000,000 shares; none - -
issued
Common stock of $.01 par value
Authorized 25,000,000 shares; issued
and 57 57
outstanding 5,720,760 in May;
5,713,526 in February
Additional paid-in capital 31,641 31,548
Retained earnings 4,557 4,430
Total stockholders' equity 36,255 36,035
Total liabilities and stockholders' $62,538 59,608
equity
See accompanying notes to interim consolidated financial
statements.
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands Except Share Data)
13 Weeks 13 Weeks
Ended Ended
May 3, May 4,
1997 1996
(Unaudited)
Sales $28,408 24,522
Costs and expenses:
Cost of goods sold 18,746 16,030
(including occupancy and
central buying expenses,
exclusive of items shown
separately below)
Selling, general and 5,634 4,715
administrative expenses
Advertising (includes catalog 2,818 1,976
production costs)
Depreciation and Amortization 838 665
Interest expense 161 126
28,197 23,512
Earnings before income taxes 211 1,010
Provision for income taxes 84 404
Net earnings $ 127 606
Earnings per common share $ .02 .11
Weighted average number of common
shares 5,817,493 5,288,460
outstanding
See accompanying notes to interim consolidated financial
statements.
HAROLD'S STORES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
13 Weeks 13 Weeks
Ended Ended
May 3, 1997 May 4, 1996
(Unaudited)
Common stock:
Balance, beginning and end of $ 57 50
period
Additional paid-in capital:
Balance, beginning of period $ 31,548 20,572
Employee Stock Purchase Plan 101
93
Balance, end of period $ 31,641 20,673
Retained earnings:
Balance, beginning of period $ 4,430 4,677
Net earnings 127 606
Balance, end of period $4,557 5,283
See accompanying notes to interim consolidated financial
statements.
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
13 Weeks 13 Weeks
Ended Ended
May 3, 1997 May 4, 1996
(Unaudited)
Cash flows from operating activities:
Net earnings $ 127 606
Adjustments to reconcile net earnings
to net cash
provided by operating activities:
Depreciation and amortization 838 665
Loss (gain) on sale of assets - (1)
Shares issued under employee 93 101
incentive plan
Changes is assets and liabilities:
Increase in trade and other (720) (449)
accounts receivable
Increase (decrease) in merchandise (803) 1,016
inventories
Decrease in other assets 367 231
Increase (decrease) in prepaid (384) 484
expenses
Decrease in accounts payable (2,181) (221)
Decrease (increase) in income taxes (452) 104
payable
Decrease in accrued expenses (978) (141)
Net cash (used in) provided by (4,093) 2,395
operating activities
Cash flows from investing activities:
Acquisition of property and (2,253) (2,111)
equipment
Proceeds from disposal of property -
and equipment 85
Payment of principal from term loan
to others 46 -
Net cash used in investing activities (2,207) (2,026)
Cash flows from financing activities:
Advances on debt 14,831 6,537
Payments of debt (8,460) (6,640)
Payments of long-term debt (50)
(19)
Net cash provided by (used in) 6,321
financing activities (122)
Net increase in cash and cash 21 247
equivalents
Cash and cash equivalents at beginning
of period 433 2
Cash and cash equivalents at end of $
period 454 249
See accompanying notes to interim consolidated financial
statements.
HAROLD'S STORES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
May 3, 1997 and May 4, 1996
(Unaudited)
1. Unaudited Interim Periods
In the opinion of the Company's management, all
adjustments (all of which are normal and recurring) have been
made which are necessary to fairly state the financial position
of the Company as of May 3, 1997 and the results of its
operations and cash flows for the thirteen week periods ended
May 3, 1997 and May 4, 1996. The results of operations for the
thirteen weeks ended May 3, 1997 and May 4, 1996 are not
necessarily indicative of the results of operations that may be
achieved for the entire fiscal year.
2. Definition of Fiscal Year
The Company has a 52-53 week fiscal year which ends on the
Saturday closest to January 31. The period from February 2,
1997 through January 31, 1998, has been designated as fiscal
1998.
3. Reclassifications
Certain comparative prior year amounts in the consolidated
financial statements have been reclassified to conform with the
current year presentation.
4. Net Earnings Per Common Share
Net earnings per common share are based upon the weighted
average number of common shares outstanding during the period
restated for the five percent stock dividend in fiscal 1997 and
includes common stock equivalents of 100,760 and 139,212 in
fiscal 1998, and fiscal 1997, respectively.
5. Long-term Debt
On April 24, 1997, the Company increased its long-term
line of credit with its bank from $15 million to $17 million,
maturing on June 30, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth, for the periods indicated,
the percentage of sales represented by items in the Company's
statement of earnings.
52 Weeks 13 Weeks 13 Weeks
Ended Ended Ended
February 1, May 3, 1997 May 4, 1996
1997
Sales 100.0% 100.0% 100.0%
Cost of goods sold (64.2) (66.0) (65.4)
(including occupancy
and central buying
expenses, exclusive of
items shown
separately below)
Selling, general and 20.1) (19.8) (19.2)
administrative expenses
Advertising expense (7.4) (9.9) (8.1)
(includes catalog
production costs)
Depreciation and (2.6) (2.9) (2.7)
amortization
Interest expense (0.6) (0.5)
(0.3)
Earnings before income 5.4 0.8 4.1
taxes
Provision for income taxes (2.1) (0.3) (1.6)
Net earnings 3.3% 0.5% 2.5%
The following table reflects the sources of the increases
in Company sales for the periods indicated.
13 Weeks 13 Weeks
Ended Ended
May 3, 1997 May 4, 1996
Store sales (000's) $25,629 $ 21,990
Catalog sales (000's) 2,779 2,532
Net sales (000's) 28,408 $ 24,522
Total sales growth 15.8% 15.0%
Growth in comparable store (3.7)% 3.8%
sales (52 week basis)
Growth in catalog sales 9.8% -
Store locations:
Existing stores beginning of 36 29
period
New stores opened during 1 2
period
Total stores at end of 37 31
period
The opening of new stores, the expansion of existing
stores, as well as an increase in catalog sales contributed to
total sales growth for the first quarters of fiscal 1998 and
1997. Comparable store sales declined during the first quarter
of fiscal 1998 as compared to the first quarter of fiscal 1997.
The opening of second stores in each of the market areas of
Norman, OK; Memphis, TN; Houston, TX and Washington, D.C. , in
the opinion of management, resulted in a decline in comparable
store sales due in part to a temporary shift of sales from the
existing store to the new store. In other locations,
management attributes variance in comparable store sales to
market conditions and personnel changes.
New stores opened during the prior twelve months, include
a 5,205 square foot full-line men's and ladies' store opened in
Raleigh, North Carolina in June 1996 (second quarter); a 5,083
square foot full-line men's and ladies' store opened in McLean,
Virginia (Washington, D.C. metro) in August, 1996 (third
quarter); a 5,496 square foot full-line men's and ladies' store
opened in Littleton, Colorado (Denver metro) in October, 1996
(third quarter); a 5,857 square foot full-line men's and
ladies' store, known as Harold Powell opened in Houston, Texas
in November 1996 (third quarter); a 15,521 square foot outlet
store opened in Norman, Oklahoma in January, 1997 (fourth
quarter); and a 6,300 square foot full-line men's and ladies'
store opened in Cordova, Tennessee (Memphis metro) in March
1997 (first quarter).
The Company's gross margin decreased during the quarter
ended May 3, 1997 compared to the Company's gross margin for
the comparable period in the prior fiscal year. Among the
principal factors contributing to the decrease was an increase
in aggregate merchandise markdowns due to higher inventory
levels in the Company's stores. The Company has recently hired
a new Vice President of Planning to improve planning and
control of the Company's inventory.
The increase in selling, general and administrative
expenses is primarily the result of an increase in store
selling expenses. The Company has recently restructured store
level management and has added to its district management team
to improve the control of these expenses. Advertising expense
includes catalog production costs. Management anticipates
incremental monetary increases in selling, general and
administrative expenses as a result of the Company's continuing
expansion plans.
The average balance on total outstanding debt was
$15,473,000 for the quarter ended May 3, 1997 compared to
$9,942,000 for the comparable period in the prior fiscal year.
This increase in outstanding debt was due primarily to
borrowings under the Company's line of credit to finance
inventory purchases, store expansion, remodeling expenses and
equipment purchases. Average interest rates on the Company's
line of credit were approximately the same for the quarter
ended May 3, 1997 and the comparable quarter in the prior
fiscal year. As the Company's growth continues, cash flow may
require additional borrowed funds which may cause an increase
in interest expense.
Capital Expenditures, Capital Resources and Liquidity
Cash Flows From Operating Activities. For the quarter
ended May 3, 1997, net cash used in operating activities was
$4,093,000 as compared to net cash provided by operating
activities of $2,395,000 for the same period in fiscal 1997.
The significant decrease in cash flows from operating
activities is partially attributable to an increase of $803,000
in the Company's merchandise inventories for the quarter ended
May 3, 1997, as compared to the first quarter of fiscal 1997,
during which inventories decreased by $1,016,000. Management
expects the dollar amount of the Company's merchandise
inventories to continue to increase with the expansion of its
product development programs, private label merchandise and
chain of retail stores, with related increases in trade
accounts receivable and accounts payable. In addition, the
difference in cash flows from operating activities is partially
due to the timing of cash disbursements as reflected in a
decrease in accounts payable of $2,181,000 for the quarter
ended May 3, 1997, as compared to a decrease in accounts
payable of $221,000 for first quarter of fiscal 1997. Period-
to-period differences in timing of inventory purchases and
deliveries will affect comparability of cash flows from
operating activities.
In order to conform with the current year presentation of
certain costs associated with new store openings, comparative
fiscal 1997 amounts were reclassified from prepaid expenses to
capital assets-construction in progress. This change resulted
in an increase to both Cash Flows From Operating Activities and
Cash Flows Used In Investing Activities in the aggregate amount
of $887,000 for fiscal 1997.
Cash Flows From Investing Activities. For fiscal 1997,
net cash used in investing activities was $9,705,000 as
compared to $5,385,000 for fiscal 1996. For the quarter ended
May 3, 1997, net cash used in investing activities was
$2,207,000 as compared to $2,026,000 for the first quarter
ended May 4, 1996. Capital expenditures totaled $7,102,000 for
fiscal 1997 compared to $5,687,000 for fiscal 1996 and
$2,253,000 for the quarter ended May 3, 1997 compared to
$2,111,000 for the quarter ended May 4, 1996. Capital
expenditures during such periods were invested principally in
new stores and in remodeling expenses and equipment
expenditures at existing facilities.
Cash Flows From Financing Activities. During the quarter
ended May 3, 1997, the Company made periodic borrowings under
its revolving long-term line of credit (described below) to
finance its inventory purchases, store expansion, remodeling
expenses and equipment purchases.
The Company has available a long term line of credit with
its bank (maturing on June 30, 1998), which was increased from
$15 million to a $17 million effective April 24, 1997. This
line had an average balance of $13,403,000 and $9,357,000 for
the first quarter of fiscal 1998 and 1997, respectively.
During the first quarter ended May 3, 1997, this line of credit
had a high balance of $16,532,000 and a high balance of
$10,473,000 for the first quarter ended May 4, 1996. The
balance outstanding on May 3, 1997 was $16,532,000 compared to
$8,918,000 on May 4, 1996.
Liquidity. The Company considers the following as
measures of liquidity and capital resources as of the dates
indicated.
February May 3, May 4,
1, 1997 1997 1996
Working capital (000's) $28,016 $33,502 $21,283
Current ratio 3.57:1 5.51:1 3.92:1
Ratio of working capital .47:1 .54:1 .50:1
to total assets
Ratio of total debt to .35:1 .52:1 .37:1
stockholders' equity
The Company's primary needs for liquidity are to finance
its inventories and revolving charge accounts and to invest in
new stores, remodeling, fixtures and equipment. Cash flow from
operations and proceeds from credit facilities represent the
Company's principal sources of liquidity. Management
anticipates these sources of liquidity to be sufficient in the
foreseeable future.
Seasonality
The Company's business is subject to seasonal influences,
with the major portion of sales realized during the fall season
(third and fourth quarters) of each fiscal year, which includes
the back-to-school and holiday selling season. In light of
this pattern, selling, general and administrative expenses are
typically higher as a percentage of sales during the spring
season (first and second quarters) of each fiscal year.
Inflation
Inflation affects the costs incurred by the Company in its
purchase of merchandise and in certain components of its
selling, general and administrative expenses. The Company
attempts to offset the effects of inflation through price
increases and control of expenses, although the Company's
ability to increase prices is limited by competitive factors in
its markets. Inflation has had no meaningful effect on the
other assets of the Company.
PART II
ITEM 1. LEGAL PROCEEDINGS
NONE
SIGNATURE
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, hereunto duly
authorized.
HAROLD'S STORES, INC.
By: /s/H. Rainey Powell
H. Rainey Powell
Chief Financial Officer
Date: June 17, 1997
THIRD AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT
AGREEMENT (this "Amendment") is made and entered into effective
the 24th day of April, 1997, by and between HAROLD'S STORES,
INC., an Oklahoma corporation (the "Borrower"), and BOATMEN'S
NATIONAL BANK OF OKLAHOMA, formerly Boatmen's First National Bank
of Oklahoma ("Lender").
W I T N E S S E T H:
WHEREAS, the Borrower and Lender have entered into that
certain Second Amended and Restated Credit Agreement dated
February 28, 1996, as amended by a First Amendment dated June 28,
1996 and a Second Amendment dated November 6, 1996 (as amended,
the "Agreement");
WHEREAS, the Borrower has requested that the Agreement be
amended to permit Borrower to increase the Revolving Loan from a
maximum amount of Fifteen Million Dollars ($15,000,000.00) to
Seventeen Million Dollars ($17,000,000.00) up until June 30,
1997, at which time the maximum amount of the Revolving Loan
would reduce to $15,000,000.00; and
WHEREAS, Lender is willing to amend the Agreement to provide
for such increase and reduction in the maximum amount of the
Revolving Loan upon the terms and conditions set forth in this
Amendment.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements set forth herein, the parties agree as follows:
1. Definitions. The definition of "Corporate Base Rate"
in the Agreement is hereby deleted and the definitions of
"Agreement," "Borrowing Base," "LIBOR Rate," "Maximum Revolving
Facility" and "Revolving Loan Note" in the Agreement are hereby
amended in their entirety as follows:
"Agreement" shall mean that certain Second Amended and
Restated Credit Agreement dated February 28, 1996 between
Borrower and Lender as amended by the First Amendment dated
June 28, 1996, the Second Amendment dated November 6, 1996
and the Third Amendment dated April 24, 1997.
"Borrowing Base" shall mean an amount equal to the sum
of (i) eighty percent (80%) of Eligible Accounts, and (ii)
fifty percent (50%) of Eligible Inventory not to exceed
$17,000,000.00 up until June 30, 1997, and not to exceed
$15,000,000.00 thereafter, as reflected in the most current
Monthly Report less all Letters of Credit.
"LIBOR Rate" shall mean the London Interbank Offered
Rates for either (i) one (1) month or (ii) three (3) months,
as published in The Wall Street Journal indicating the
average of interbank offered rates for dollar deposits in
the London market based on the quotation at five major banks.
If the date of the rate change falls on a date when The Wall
Street Journal is not published, then the one (1) month or three
(3) month LIBOR Rate published in the following issue of The Wall
Street Journal shall be the applicable LIBOR Rate used.
"Maximum Revolving Facility" shall mean the maximum
aggregate amount which Lender has agreed to consider as a
ceiling on the outstanding principal balance of loans to be
made to the Borrower and Letters of Credit issued pursuant
to Section 2. The Maximum Revolving Facility shall be
Seventeen Million Dollars ($17,000,000.00) up until June 30,
1997 and Fifteen Million Dollars ($15,000,000.00) thereafter.
"Revolving Loan Note" shall mean that certain Ninth
Amended and Restated Reducing Revolving Note executed by the
Borrower substantially in the form of Exhibit "A" attached to
the Third Amendment to this Agreement, dated the effective date
of such Third Amendment, as same may be extended, renewed,
amended or modified from time to time pursuant to the terms of
this Agreement.
2. Interest. Section 2.4 of the Agreement is hereby
amended in its entirety as follows:
2.4 Interest. The Borrower shall pay to Lender
interest on the average daily outstanding balance of the
Liabilities at a rate per annum equal to, at the option of the
Borrower, one and five-eighths of one percent (1.625%) plus
either the one (1) or three (3) month LIBOR Rate as designated
in writing by the Borrower. The Borrower may make this
selection at any time during the term of this Agreement,
provided, however, if a LIBOR Rate is selected no changes
may be made until the applicable LIBOR Rate time period has
expired.
3. Notices. Section 9.12 of the Agreement is hereby
amended in its entirety as follows:
3.1 Notices. Except as otherwise expressly provided
herein, any notice required or desired to be served, given or
delivered hereunder shall be in writing, shall be addressed
to the Person to be notified as follows (or to such other
address or addresses as may hereafter be furnished in writing
by the Person to be notified):
(i) If to the Lender at:
Boatmen's National Bank of Oklahoma
211 North Robinson Avenue
P. O. Box 25189
Oklahoma City, Oklahoma 73102-0189
Attention: Beverly B. Perri, Vice President
with a copy to
Phillips McFall McCaffrey McVay & Murrah
12th Floor, One Leadership Square
211 North Robinson
Oklahoma City, Oklahoma 73102
Attention: J. Mark Lovelace
(ii) If to the Borrower at:
Harold's Stores, Inc.
765 Asp
P. O. Box 2970
Norman, Oklahoma 73070
Attention: H. Rainey Powell, President
and Chief Operating Officer
4. Definitions. Except as specifically defined in this
Amendment, capitalized terms used in this Amendment shall have
the same meanings ascribed to them in the Agreement.
5. No Default, Event of Default or Claims. No event has
occurred which constitutes a Default or Event of Default and the
Borrower has no and waives any claims, rights, setoff or defense
against the Lender under the Agreement, as amended by this
Amendment, or the other Financing Agreements.
6. Miscellaneous.
6.1 Effect of Amendment. The Agreement, as amended,
modified and supplemented by this Amendment, shall continue in
full force and effect in accordance with its covenants and
terms and is hereby ratified, restated and reaffirmed in
every respect by the Borrower and the Lender, including any
security interests granted pursuant thereto, as of the date
hereof. Each of the Borrower's representations and warranties
contained in the Agreement and other Financing Agreements are
true and correct as of the date hereof and with the same force
and effect. To the extent the terms of this Amendment are
inconsistent with the terms of the Agreement, this Amendment
shall control and the Agreement shall be amended, modified or
supplemented so as to give full effect to the transaction
contemplated by this Amendment.
6.2 Descriptive Headings. The descriptive headings of
the sections of this Amendment are inserted for convenience only
and shall not be used in the construction or the content of
this Amendment.
6.3 Multiple Counterparts. This Amendment may be
executed in one or more counterparts, each of which shall, for
all purposes of this Amendment, be deemed an original, but
all of which shall constitute one and the same agreement.
IN WITNESS WHEREOF, Borrower and the Lender have caused this
Amendment to be duly executed effective the date and year first
above written.
"BORROWER": HAROLD'S STORES, INC., an Oklahoma
corporation
By:
____________________________________
H. Rainey Powell, President and
Chief Operating Officer
"LENDER": BOATMEN'S NATIONAL BANK OF OKLAHOMA,
formerly Boatmen's First National Bank
of Oklahoma
By:
____________________________________
Beverly B. Perri, Vice President
