19
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 1, 1999 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, 1999, the registrant had 6,075,272 shares of
Common Stock outstanding.
Harold's Stores, Inc. and Subsidiaries
Index to
Quarterly Report on Form 10-Q
For the Period Ended May 1, 1999
Part I. - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets - May 1, 1999 (unaudited)
and
January 30, 1999. 3
Consolidated Statements of Earnings -
Thirteen Weeks ended May 1, 1999 (unaudited) and
May 2, 1998 (unaudited) 5
Consolidated Statements of Cash Flows -
Thirteen Weeks ended May 1, 1999 (unaudited) and
May 2, 1998 (unaudited) 6
Notes to Interim Consolidated Financial Statements -
May 1, 1999 (unaudited) and May 2, 1998
(unaudited) 7
Item 2.Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure about
Market Risk 11
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
May 1, 1999 January 30, 1999
(unaudited)
Current assets:
Cash and cash equivalents $ 1,972 450
Trade accounts receivable, less
allowance for doubtful accounts
of $225 in 2000 and $223 in 1999 6,985 6,335
Other accounts receivable 1,240 1,059
Merchandise inventories 30,391 29,486
Prepaid expenses 2,160 2,428
Deferred income taxes 1,268 1,268
Total current assets 44,016 41,026
Property and equipment, at cost 33,339 31,304
Less accumulated depreciation and
amortization (12,279) (10,671)
Net property and equipment 21,060 20,633
Other receivables, non-current 1,666 1,750
Other assets 267 508
Total assets $ 67,009 63,917
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 1, 1999 January 30, 1999
(unaudited)
Current liabilities:
Current maturities of long-term debt $ 585 549
Accounts payable 4,495 4,460
Redeemable gift certificates 471 782
Accrued bonuses and payroll expenses 1,348 1,533
Accrued rent expense 259 178
Income taxes payable 480
736
Total current liabilities 7,894 7,982
Long-term debt, net of current maturities 18,979 16,330
Deferred income taxes 84 84
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 outstanding 6,073,868 in May and
January 60 60
Additional paid-in capital 34,161 34,161
Retained earnings 5,831 5,300
Total stockholders' equity 40,052 39,521
Total liabilities and stockholders' $ 67,009 63,917
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 Ended 13 Weeks Ended
May 1, 1999 May 2, 1998
(Unaudited)
Sales $ 35,300 33,541
Costs and expenses:
Cost of goods sold
(including occupancy and
central buying expenses,
exclusive of items shown
separately below) 23,220 22,317
Selling, general and
administrative expenses 9,830 9,312
Depreciation and amortization 1,149 918
Interest expense 216 227
34,415 32,774
Earnings before income taxes and
cumulative effect of change in
accounting principle 885 767
Provision for income taxes 354 306
Earnings before cumulative effect of
change in accounting principle 531 461
Cumulative effect of change in
accounting principle - 50
Net earnings $ 531 411
Net earnings per common share
before cumulative effect of
change in accounting principle:
Basic and diluted $ 0.09 0.08
Net earnings per common share:
Basic and diluted $ 0.09 0.07
Weighted average number of common
shares 6,073,868 6,051,020
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 1, 1999 May 2, 1998
(Unaudited)
Cash flows from operating activities:
Net earnings $ 531 411
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 1,149 918
Gain on sale of assets (4) -
Shares issued under employee
incentive plan - 67
Changes in assets and liabilities:
Increase in trade and other
accounts receivable (831) (585)
Decrease (increase) in
merchandise inventories (905) 3,414
Decrease in prepaid income taxes - 284
Decrease in other assets 241 147
Decrease in prepaid expenses 268 372
Increase in accounts payable 35 454
Increase in income taxes payable 256 -
Increase (decrease) in accrued
expenses (415) 32
Net cash provided by operating activities 325 5,514
Cash flows from investing activities:
Acquisition of property and
equipment (1,579) (1,355)
Proceeds from disposal of property
and equipment 7 3
Payment of principal on term loan 84 131
Net cash used in investing activities (1,488) (1,221)
Cash flows from financing activities:
Advances on revolving line of credit 12,175 9,316
Payments on revolving line of credit (9,353) (13,423)
Payments on long-term debt (137) (272)
Net cash provided by (used in)
financing activities 2,685 (4,379)
Net increase (decrease) in cash and
cash equivalents 1,522 (86)
Cash and cash equivalents at beginning
of period 450 130
Cash and cash equivalents at end of period $ 1,972 44
See accompanying notes to interim consolidated financial
statements.
HAROLD'S STORES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
May 1, 1999 and May 2, 1998
(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 1, 1999 and the results of its
operations and cash flows for the thirteen week periods ended
May 1, 1999 and May 2, 1998. The results of operations for the
thirteen weeks ended May 1, 1999 are not necessarily indicative
of the results of operations that may be achieved for the
entire fiscal year ending January 29, 2000.
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 January 30,
1999 through January 29, 2000 has been designated as fiscal
2000.
3. Net Earnings Per Common Share
Basic earnings per common share are based upon the
weighted average number of common shares outstanding during the
period. Diluted earnings per share reflects the potential
dilution that could occur if the Company's outstanding stock
options were exercised (calculated using the treasury stock
method).
13 Weeks 13 Weeks
ended May ended May
1, 1999 2, 1998
(Amounts in thousands,
except per share data)
Net earnings applicable to common
shares,basic and diluted $ 531 411
Weighted average number of common
shares outstanding - basic 6,074 6,051
Dilutive effect of potential common
shares issuable upon exercise of employee
stock options 11 5
Weighted average number of common
shares outstanding - diluted 6,085 6,056
Net earnings per common share:
Basic and Diluted $ 0.09 0.07
Options to purchase 696,010 and 492,416 shares of common
stock at prices ranging from $7.38 to $16.71 and $7.66 to
$16.71 per share were outstanding on May 1, 1999, and May 2,
1998, respectively, but were not included in the computation of
earnings per share because the options' exercise price was
greater than average market price of common shares. The
options expire through the year 2009.
4. Impact of New Accounting Pronouncement
During the thirteen weeks ended May 2, 1998, the Company
elected early adoption of The American Institute of Certified
Public Accountants Statement of Position (SOP) 98-5 "Reporting on
the Costs of Start-Up Activities". This SOP requires that costs
incurred during start-up activities, including organization
costs, be expensed as incurred. The $83,000 effect ($50,000 net
of tax) of this early adoption is reported as the cumulative
effect of a change in accounting principle. Had the Company not
elected early adoption of SOP 98-5, net earnings would have
increased by $12,000.
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. SFAS No. 133 establishes
standards for accounting and reporting for derivative
instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. It requires
that an entity recognizes all derivatives as either assets or
liabilities in the statement of financial position and measure
those instruments at fair value. The accounting for changes in
fair value of a derivative depends on the intended use of the
derivative and the resulting designation. Management is
currently evaluating the impact of this standard and believes
its adoption will not materially affect the Company's
consolidated financial position or results of operations.
5. Commitments and Contingent Liabilities
Pursuant to an employment agreement dated February 1,
1999, the Chairman Emeritus is paid an annual salary of
$125,000 plus an annual performance bonus and deferred annual
compensation of $25,000.
Pursuant to employment agreements dated May 1, 1999, the
Chairman of the Board and Chief Executive Officer is paid an
annual salary of $300,000 plus an annual performance bonus, and
the President is paid an annual salary of $220,000 plus an
annual performance bonus.
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
January 30, 1999 May 1, 1999 May 2, 1998
Sales 100.0% 100.0% 100.0%
Cost of goods sold (65.1) (65.8) (66.5)
Selling, general and (27.6) (27.8) (27.8)
administrative expenses
Depreciation and (3.0) (3.3) (2.7)
amortization
Interest expense (0.6) (0.6) (0.7)
Earnings before income taxes
and cumulative effect of
change in accounting 3.7 2.5 2.3
principle
Provision for income taxes (1.0) (0.9)
(1.5)
Earnings before cumulative
effect of accounting
principle 2.2 1.5 1.4
Cumulative effect of change
in accounting principle - - (0.2)
Net earnings 2.2% 1.5% 1.2%
The following table reflects the sources of the increases
in Company sales for the periods indicated:
13 Weeks 13 Weeks
Ended Ended
May 1, 1999 May 2, 1998
Store sales (000's) $33,154 30,465
Catalog sales (000's) 2,146 3,076
Net sales (000's) $35,300 33,541
Total sales growth 5.2% 18.1%
Growth in comparable store
sales (52 week basis) 2.4% (0.8)%
Growth in catalog sales (30.2%) 10.7%
Store locations:
Existing stores beginning of period 44 41
Stores closed (1) -
New stores opened during period 3 1
Total stores at end of period 46 42
The opening of new stores and the expansion of existing
stores contributed to total sales growth for the first quarters
of fiscal 2000 and 1999. The Company opened stores in Palo Alto,
California (San Francisco metro); Tampa, Florida and Southlake,
Texas (Dallas/Ft. Worth metro) during the first quarter ended May
1, 1999.
Comparable store sales increased during the thirteen-week
period of fiscal 2000. The Company believes that the increase
experienced in comparable store sales during the period was
primarily attributable to improved customer acceptance of
product offerings. The decrease in catalog sales can primarily
be attributed to a strategic initiative to reduce the total
number of catalogs circulated by 25.3% during the period.
The Company's gross margin increased from 33.5% in the
quarter ended May 2, 1998 to 34.2% during the comparable period
in the current fiscal year. The increase in gross margin can be
primarily attributed to focused inventory planning and reduced
markdowns due to higher sales.
The combined total of selling, general and administrative
expenses and advertising expense (including catalog production
costs) was 27.8% of sales in the quarter ended May 2, 1998 and
the comparable period of the current fiscal year respectively.
During the current quarter, an increase in payroll-related
expenses was offset by a similar decrease in advertising and
catalog production costs, in aggregate resulting in no change
to the total selling, general and administrative expenses as a
percentage of sales.
The average balance on total outstanding debt was
$18,019,000 for the quarter ended May 1, 1999 compared to
$18,314,000 for the comparable period in the prior fiscal year.
This decrease in average balances resulted principally from
decreases related to working capital needs. Average interest
rates on the Company's line of credit were lower for the
quarter ended May 1, 1999 compared to 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 1, 1999, net cash provided by operating activities
was $325,000 as compared to net cash provided by operating
activities of $5,514,000 for the same period in fiscal 1999.
The decrease can be primarily attributable to a $905,000
increase in the Company's inventories for the quarter ended May
1, 1999, as compared to a decrease of $3,414,000 during the
first quarter of fiscal 1998. Management expects the dollar
amount of the Company's merchandise inventories 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.
Period to period differences in timing of inventory purchases
and deliveries will affect comparability of cash flows from
operating activities.
In addition, the difference in cash flows from operating
activities is partially due to (i) the timing of cash
disbursements as reflected in an increase in accounts payable
of $35,000 for the quarter ended May 1, 1999 compared to a
increase in accounts payable of $454,000 during the first
quarter of fiscal 1998 and (ii) an increase in trade and other
accounts receivable of $831,000 for the quarter ended May 1,
1999, as compared to an increase of $585,000 during the first
quarter of fiscal 1998.
Cash Flows From Investing Activities. For the quarter
ended May 1, 1999, net cash used in investing activities was
$1,488,000 as compared to $1,221,000 for the first quarter
ended May 2, 1998. Capital expenditures totaled $1,579,000 for
the first quarter ended May 1, 1999 compared to $1,355,000 for
the quarter ended May 2, 1998. Capital expenditures during
such periods were invested in new stores and remodeling and
equipment expenditures in existing operations.
Cash Flows From Financing Activities. During the quarter
ended May 1, 1999, the Company made periodic borrowings under
its revolving long-term line of credit to finance its inventory
purchases, product development and private label programs,
store expansion, remodeling and equipment purchases.
The Company has available a long-term line of credit with
its bank. This line had an average balance of $14,075,000 and
$13,162,000 for the first quarter of fiscal 1999 and 1998,
respectively. During the first quarter ended May 1, 1999 this
line of credit had a high balance of $15,820,000 and a high
balance of $15,292,000 for the first quarter ended May 2, 1998.
The balance outstanding on May 1, 1999 was $15,694,000 compared
to $10,929,000 on May 2, 1998.
Liquidity. The Company considers the following as
measures of liquidity and capital resources as of the dates
indicated.
January 30, May 1, 1999 May 2, 1998
1999
Working capital (000's) $33,044 $36,122 $31,463
Current ratio 5.14:1 5.58:1 4.98:1
Ratio of working capital
to total assets .52:1 .54:1 .52:1
Ratio of total debt to
stockholders' equity .43:1 .49:1 .43:1
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 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.
Year 2000
Many computer systems use only two digits to identify a year
(for example, "99" is used for the year "1999"). As a result,
these systems may be unable to process accurately dates later
than December 31, 1999, since they may recognize "00" as the year
"1900", instead of the year "2000". This anomaly is often
referred to as the "Year 2000 compliance" issue. Since 1997, the
Company has been executing a plan to remediate or replace
affected systems on a timely basis. Equipment and other non-
information technology systems that use microchips or other
embedded technology, such as certain conveyor systems at the
Company's distribution center, are also covered by the Company's
Year 2000 compliance project.
The Company's Year 2000 compliance project includes four
phases: (1) evaluation of the Company's owned or leased systems
and equipment to identify potential Year 2000 compliance issues;
(2) remediation or replacement of Company systems and equipment
determined to be non-compliant (and testing of remediated systems
before returning them to production); (3) inquiry regarding Year
2000 readiness of material business partners and other third
parties on whom the Company's business is dependent; and (4)
development of contingency plans, where feasible, to address
potential third party non-compliance or failure of material
Company systems.
The initial phase of the Company's Year 2000 compliance
project was the evaluation of all software, hardware and
equipment owned, leased or licensed by the Company, and
identification of those systems and equipment requiring Year 2000
remediation. This analysis was completed during fiscal 1999.
All computer hardware in the Company's corporate office and
distribution center that was not Year 2000 compliant has been
remediated or replaced, and all computer hardware in the
Company's retail stores that was not Year 2000 compliant will be
remediated or replaced by the end of the second quarter of fiscal
2000. Of those software systems that were found not to be Year
2000 compliant, approximately 90% of all material systems have
been remediated or replaced by Year 2000 compliant software. The
Company anticipates that all remaining material systems,
including certain operating systems used in the Company's
distribution center, will be remediated or replaced by the end of
the second quarter of fiscal 2000.
Over the past few years, the Company's strategic plan has
included significant investment in and modernization of many of
the Company's computer systems. As a result, much of the costs
and timing for replacement of certain of the Company's systems
that were not Year 2000 compliant were already anticipated as
part of the Company's planned information systems spending and
did not need to be accelerated as a result of the Company's Year
2000 project. The total cost to the Company specifically
associated with addressing the Year 2000 issue with respect to
its systems and equipment has not been, and is not anticipated to
be, material to the Company's financial position or results of
operations in any given year. The Company estimates that the
total additional cost of managing its Year 2000 project,
remediating existing systems and replacing non-compliant
systems, is approximately $2 million, of which approximately
$500,000 is anticipated to be expended in fiscal 2000.
Although the Company believes its Year 2000 compliance
efforts with respect to its systems will be successful, any
failure or delay could result in actual costs and timing
differing materially from that presently contemplated, and in a
disruption of business. The Company is developing a contingency
plan to permit its primary operations to continue if the
Company's modifications and conversions of its systems are not
successfully completed on a timely basis, but the foregoing cost
estimates do not take into account any expenditures arising out
of a response to any such contingencies that materialize. The
Company's cost estimates also do not include time or costs that
may be incurred as a result of third parties' failure to become
Year 2000 compliant on a timely basis.
The Company is communicating with its business partners,
including key manufacturers, vendors, banks and other third
parties with whom it does business, to obtain information
regarding their state of readiness with respect to the Year 2000
issue. Failure of third parties to remediate Year 2000 issues
affecting their respective businesses on a timely basis, or to
implement contingency plans sufficient to permit uninterrupted
continuation of their businesses in the event of a failure of
their systems, could have a material adverse effect on the
Company's business and results of operations. Assessment of
third party Year 2000 readiness is expected to be substantially
completed by the end of the second quarter of fiscal 2000. The
Company will not be able to determine its most reasonably likely
worst case scenarios until assessment of third parties' Year 2000
compliance is completed.
The Company's Year 2000 compliance project also includes
development of a contingency plan designed to support critical
business operations in the event of the occurrence of systems
failures or the occurrence of reasonably likely worst case
scenarios. The Company anticipates that contingency plans will
be substantially developed by the end of the second quarter of
fiscal 2000.
The Company may not be able to compensate adequately for
business interruption caused by certain third parties. Potential
risks include suspension or significant curtailment of service or
significant delays by banks, utilities or common carriers, or at
U.S. ports of entry. The Company's business also could be
materially adversely affected by the failure of governmental
agencies to address Year 2000 issues affecting the Company's
operations. For example, a significant amount of the Company's
merchandise is manufactured outside the United States, and the
Company is dependent upon the issuance by foreign governmental
agencies of export visas for, and upon the U.S. Customs Service
to process and permit entry into the United States of, such
merchandise. If failures in government systems result in the
suspension or delay of these agencies' services, the Company
could experience significant interruption or delays in its
inventory flow.
The costs and timing for management's completion of Year
2000 compliance modification and testing processes are based on
management's best estimates, which were derived utilizing
numerous assumptions of future events, including the continued
availability of certain resources, the success of third parties'
Year 2000 compliance efforts and other factors. There can be no
assurance that these assumptions will be realized or that actual
results will not materially vary.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The primary objective of the following information is to
provide forward-looking quantitative and qualitative
information about the Company's potential exposure to market
risks. The term "market risk" for the Company refers to the
risk of loss arising from adverse changes in interest rates and
various foreign currencies. The disclosures are not meant to
be precise indicators of expected future losses, but rather
indicators of reasonably possible losses. This forward-looking
information provides indicators of how the Company views and
manages its ongoing market risk exposures.
Interest Rate
At May 1, 1999, the Company had long-term debt outstanding
of approximately $19.6 million. Of this amount, $1.4 million
bears interest at a weighted average fixed rate of 8.16%. The
remaining $18.2 million bears interest at variable rates which
averaged approximately 6.2% at May 1, 1999. A 10% increase in
short-term interest rates on the variable rate debt outstanding
at May 1, 1999 would approximate 62 basis points. Such an
increase in interest rates would increase the Company's
interest expense by approximately $85,000 during the remainder
of fiscal 2000 assuming borrowed amounts remain outstanding.
The above sensitivity analysis for interest rate risk
excludes accounts receivable, accounts payable and accrued
liabilities because of the short-term maturity of such
instruments. The analysis does not consider the effect this
movement may have on other variables including changes in sales
volumes that could be indirectly attributed to changes in
interest rates. The actions that management would take in
response to such a change is also not considered. If it were
possible to quantify this impact, the results could well be
different than the sensitivity effects shown above.
Foreign Currency
Substantially all of the Company's purchases are priced in
U.S. dollars. However, some European purchases are denominated
in local currency and, therefore, are subject to the
fluctuation in currency exchange rates. From time to time the
Company utilizes forward exchange contracts to secure firm
pricing related to purchase commitments to be denominated in
foreign currencies. The contracts are of varying short-term
durations and amounts include a window delivery feature, which
provides the Company with an option to enter into a swap
agreement in the event that all of the currency is not utilized
at the end of the contract's delivery term. The Company's
objective in managing its exposure to foreign currency exchange
rate fluctuations is to reduce the impact of adverse
fluctuations in earnings and cash flows associated with foreign
currency exchange rate changes. The principal currency hedged
is the Italian lira. The Company regularly monitors its
foreign exchange exposures to ensure the overall effectiveness
of its foreign currency hedge positions. However, there can be
no assurance the Company's foreign currency hedging activities
will substantially offset the impact of fluctuations in
currency exchange rates on its results of operations and
financial position.
The table below provides information about the Company's
foreign exchange forward contracts as of May 1, 1999 and May 2,
1998, respectively:
May 1, 1999 May 2, 1998
Average Notional Fair Average Notional Fair
Contract Amount of Value Contract Amount of Value
Rate Forward Rate Forward
Contract Contract
in U.S. in U.S.
Dollars Dollars
Foreign Exchange
forward
contracts:
Italian lire 1,766 $1,936,949 $1,895,125 1,764 $30,549 $31,167
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is from time to time involved in routine
litigation incidental to the conduct of its business. As of
this date, the Company is not a party to, nor is any of its
property subject to, any material pending legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The following exhibits are filed as part of this
Form 10-Q:
No. Description
10.24* Employment and Deferred Compensation Agreement dated
May 1, 1999 between Registrant and Rebecca Powell Casey
10.25* Employment and Deferred Compensation Agreement dated
February 1, 1999 between Registrant and Harold G.
Powell
10.26* Employment and Deferred Compensation Agreement dated
May 1, 1999 between Registrant and H. Rainey Powell
27.1 Financial Data Schedule
(b) Reports on Form 8-K; There were no reports on Form
8-K filed by the Company during the fiscal quarter
ended May 1, 1999.
____________________________
* Constitutes a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this report.
INDEX TO EXHIBITS
No. Description
10.24* Employment and Deferred Compensation Agreement dated
May 1, 1999 between Registrant and Rebecca Powell Casey
10.25* Employment and Deferred Compensation Agreement dated
February 1, 1999 between Registrant and Harold G. Powell
10.26* Employment and Deferred Compensation Agreement dated
May 1, 1999 between Registrant and H. Rainey Powell
27.1 Financial Data Schedule
____________________________
* Constitutes a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this report.
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, hereunto duly
authorized.
HAROLD'S STORES, INC.
By: /s/H. Rainey Powell
H. Rainey Powell
President, Chief Operating Officer
By: /s/Jodi L. Taylor
Jodi L. Taylor
Chief Financial Officer
Date: June 15, 1999
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
This FIRST AMENDMENT TO EMPLOYMENT AGREEMENT is made and
entered into this day of May, 1999, to be effective the 1st
day of May, 1999 (the "Effective Date"), by and between HAROLD'S
STORES, INC. (hereinafter referred to as "Harold's") and REBECCA
P. CASEY (hereinafter referred to as "Casey"), for and in
consideration of the mutual covenants hereinafter contained,
agree as follows:
1. Employment Agreement. Harold's and Casey are
parties to an Employment Agreement dated February 1, 1998. The
parties desire to amend the Employment Agreement, as set forth
herein.
2. Amendment. The base salary for Casey set forth
in Section 2.01(a) is hereby increased from $220,000.00 per year
to $300,000.00 per year, as of the Effective Date.
3. Other Provisions. All other provisions of the
Employment Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the day and year first above written.
HAROLD'S STORES, INC.
By:
H. RAINEY POWELL, President
REBECCA POWELL CASEY
HAROLD G. POWELL
EMPLOYMENT AND DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT, made and effective as of the 1st day of
February, 1999, between HAROLD'S STORES, INC. ("Harold's"), and
HAROLD G. POWELL ("Powell"),
WHEREAS, Harold's desires to secure the services of
Powell, and Powell desires to accept such employment.
NOW, THEREFORE, in consideration of the mutual
covenants contained herein, Harold's and Powell agree as follows:
1.01 Employment of Powell. Powell will render
professional services to Harold's in the capacity of Chairman of
the Board Emeritus of Harold's and such other affiliates and
subsidiaries as may be designated by the Board of Directors of
Harold's from time to time. He will at all times, faithfully,
industriously and to the best of his ability, perform all duties
that may be required of him and as established by the Board of
Directors or the Bylaws of Harold's. His duties shall
specifically include attendance at meetings of the Board. Powell
is hereby vested with authority to act on behalf of the Board in
keeping with policies adopted by the Board, as amended from time
to time. In addition, he shall perform in the same manner any
special duties assigned or delegated to him by the Board.
2.01 Compensation. In consideration for the services
which Powell performs as Chairman of the Board, Harold's agrees
to pay him as follows:
2.01(a) Base Salary. Powell shall receive a base
salary of One Hundred Twenty-Five Thousand Dollars
($125,000.00) per year, which shall be paid to him
bi-weekly.
2.01(b) Cash Bonus. Annually, Powell shall be
entitled to consideration for a cash bonus in an
amount approved by Harold's Compensation Committee.
2.01(c) Stock Bonuses. Powell shall be entitled
to participate in any stock bonus program adopted by
the Board of Directors for the benefit of the executive
officers, upon such terms as shall be established by
the Board of Directors.
2.02 Deferred Compensation. In addition, Harold's
agrees to deferred compensation for Powell in an amount of
Twenty-Five Thousand Dollars ($25,000.00) per annum.
2.02(a) Method of Payment. Upon the termination
of the employment of Powell by Harold's for any reason,
the full amount of the deferred compensation then
earned shall be paid out to Powell in such of the
following manners as he may select:
(i) A lump sum distribution;
(ii) Installment payments over a
fixed period of time;
(iii) Installment payments over
the balance of Powell's lifetime based
upon the actuarial assumptions described
below; or
(iv) Such other method of payment
as mutually agreed upon between Powell
and Harold's.
2.02(b) Actuarial and Interest Assumptions. In
computing monthly or other installments, calculations
shall be made based on an assumed rate of interest
equal to the one-year Treasury Bill Rate as of the date
of termination. Actuarial assumptions shall be made by
an actuary chosen by the Board of Harold's in its sole
discretion. Any such actuary shall use the 1998 Unisex
Mortality Tables. The Board shall have the authority
to give the actuary any additional instructions needed
to make necessary calculations.
2.02(c) Disability of Powell. In the event of
the disability of Powell to such an extent that he
should not be able to continue his employment at
Harold's as determined in the sole discretion of the
Board, the deferred compensation benefits
payable under this Agreement shall commence with the
date of the determination by the Board that Powell is
so disabled.
2.02(d) Death of Powell. In the event of the
death of Powell, the amount in the deferred
compensation account of Powell shall be paid to the
Anna M. Powell or as otherwise arranged by Powell with
Harold's in writing.
2.02(e) Source of Funds. Harold's has no
obligation to set aside, earmark or entrust any fund or
money with which to pay its obligations under this
Agreement. Powell is to be and remain simply a
creditor of Harold's in the same manner as any other
creditor having a claim for unpaid compensation.
Harold's reserves the absolute right, at its sole and
exclusive discretion, either to fund or to refrain from
funding its obligations under this Agreement. If
Harold's should choose to fund its obligations with
life insurance or annuity contracts, or both, Harold's
reserves the absolute right, in its sole discretion, to
terminate such life insurance or annuity contract or
contracts at any time. At no time should Powell be
deemed to have any right, title or interest in or to
any specified asset or assets of Harold's, including
any life insurance or annuity contract. Powell does
agree, however, to cooperate with Harold's in the
funding of the obligation of Harold's under this
Agreement in such manner as may be determined to be
appropriate by it and to furnish medical information
and sign appropriate forms and applications at the
direction of Harold's.
3.01 Fringe Benefits. Except as specified below to
indicate minimums, Powell shall receive such fringe benefits,
including life, health, dental, disability and other forms of
insurance, sick leave, vacation, automobile, professional dues,
community, civic and country club memberships as other executive
officers of Harold's receive from time to time.
3.01(a) Vacation. Powell shall be entitled to
four (4) weeks of compensated vacation time annually.
Unused vacation time may not be accumulated.
3.01(b) Meetings. Powell will be permitted to be
absent from Harold's during working days to attend
meetings and to attend to such outside professional
duties in the retailing field as he deems appropriate.
Attendance at such meetings and accomplishment of such
duties shall be fully compensated service time and
shall not be considered vacation time. Harold's shall
reimburse Powell for all expenses incurred by him
incident to attendance at such meetings, and such
entertainment incurred by Powell in furtherance of the
interests of Harold's; provided, however, that such
reimbursement shall be approved by the Board.
3.01(c) Duties and Fees. Harold's agrees to pay
dues and fees to professional associations and
societies and to such community organizations, civic
clubs, country clubs, service organizations and other
organizations of which Powell is, or becomes, a member.
3.01(d) Insurance and Automobile. Harold's also
agrees to:
(i) Insure Powell under its general
liability insurance policy for all acts
done by him in good faith as Chairman of
the Board throughout the term of this
contract;
(ii) Provide, throughout the term
of this contract, a group life insurance
policy, payable to the beneficiary of
his choice;
(iii) Provide disability
insurance for Powell, payable to the
beneficiary of his choice;
(iv) Provide comprehensive health,
major medical and dental insurance for
Powell and his family; and
(v) Continue furnishing to Powell, for the
term hereof, the vehicle which Harold's
currently furnishes to him for business
purposes, and to pay or reimburse him
for expenses of its operation,
including, but not limited to,
insurance.
4.01 Duration. The Agreement shall extend from the
date first above written until January 31, 2000, unless mutually
extended by Powell and Harold's.
4.02 Consulting by Powell. Upon the termination of
this Agreement other than because of the death or disability of
Powell, or as set forth in Sections 4.03 or 4.04 below, Powell
shall act as a general advisor and consultant to the management
of Harold's for a period of ten (10) years. Powell shall devote
such time as shall be necessary to perform his consulting duties,
subject to reasonable vacations compatible with his position, and
with due regard for preservation of his health. Because of the
goodwill attributable to Powell's association with Harold's and
the desire of Harold's to prevent Powell's expertise being
availed of by its competitors, Harold's agrees to pay to Powell
the compensation set forth below, notwithstanding Powell's
disability or other inability to render such services. Harold's
shall pay to Powell the sum of Fifty Thousand Dollars
($50,000.00) per annum for such services.
4.03 Termination. The Board may terminate Powell's
duties as Chairman of the Board Emeritus only for acts involving
willful malfeasance in office as determined in good faith by
majority vote of the entire Board. Such termination shall become
effective when such vote is taken. Written notice shall be given
Powell of such termination, specifying the effective date. After
such termination, all rights, duties and obligations of both
parties shall cease, except that Powell shall be entitled to the
payments provided for in section 2.02 of this Agreement.
4.04 Termination by Powell. Should Powell, in his
discretion, elect to terminate this contract for any other reason
than as stated in Section 4.03 above, he shall give the Board
ninety (90) days written notice of his decision to terminate. At
the end of these ninety (90) days, all rights, duties and
obligations of both parties to the contract shall cease.
5.01 Entire Agreement. This contract constitutes the
entire agreement between the parties, and contains all the
agreements between them with respect to the subject matter
hereof. It also supersedes any and all other agreements or
contracts, either oral or written, between the parties with
respect to the subject matter hereof.
5.02 Amendment. Except as otherwise specifically
provided, the terms and conditions of this contract may be
amended at any time by mutual agreement of the parties, provided
that before any amendment shall be valid or effective, it shall
have been reduced to writing and signed by the President of
Harold's and Powell.
5.03 Separability. The invalidity or unenforceability
of any particular provision of this contract shall not affect its
other provisions, and this contract shall be construed in all
respects as if such invalid or unenforceable provision had been
omitted.
5.04 Successors. This Agreement shall be binding upon
and inure to the benefit of Harold's, its successors and assigns,
and shall be binding upon Powell, his administrators, executors,
legatees, heirs and assigns.
5.05 Applicable Law. This Agreement shall be
construed and enforced under and in accordance with the laws of
the State of Oklahoma without giving effect to its conflicts of
laws provisions.
THIS CONTRACT signed this day of April,
1999.
HAROLD'S STORES, INC.
By:
H. RAINEY POWELL, PRESIDENT
WITNESS:
HAROLD G. POWELL
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
This FIRST AMENDMENT TO EMPLOYMENT AGREEMENT is made and
entered into this day of May, 1999, to be effective the 1st
day of May, 1999 (the "Effective Date"), by and between HAROLD'S
STORES, INC. (hereinafter referred to as "Harold's") and H.
RAINEY POWELL (hereinafter referred to as "Powell"), for and in
consideration of the mutual covenants hereinafter contained,
agree as follows:
1. Employment Agreement. Harold's and Powell are
parties to an Employment Agreement dated February 1, 1998. The
parties desire to amend the Employment Agreement, as set forth
herein.
2. Amendment. The base salary for Powell set forth
in Section 2.01(a) is hereby increased from $180,000.00 per year
to $220,000.00 per year, as of the Effective Date.
3. Other Provisions. All other provisions of the
Employment Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the day and year first above written.
HAROLD'S STORES, INC.
By:
REBECCA P. CASEY,
Chief Executive Officer
H. RAINEY POWELL
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