25
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended January Commission File No. 1-
29, 2000 10892
HAROLD'S STORES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1308796
(State or other jurisdiction of (I.R.S. 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)
Securities registered pursuant to
Section 12(b) of the Act : Name of each
exchange
Title of each class on which registered
Common Stock, $0.01 Par Value American Stock
Exchange
Securities registered pursuant to Section 12(g) of the Act : None
Indicate by check mark whether the registrant (1) has filed all reports
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 .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]
At March 13, 2000 the aggregate market value of the Registrant's Common
Stock held by non-affiliates was $11,159,839 based on a value of $3.375 per
share, the closing price of Common Stock as quoted by the American Stock
Exchange on that date.
On March 13, 2000 the registrant had 6,075,272 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended January 29, 2000 ("Annual Report") are incorporated by reference
into Part II.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held June 22, 2000 ("Proxy Statement") are incorporated
by reference into Part III.
Harold's Stores, Inc. & Subsidiaries
Index to
Annual Report on Form 10-K
For the Period Ended January 29, 2000
Part
I.
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 10
Part II.
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 10
Item 6. Selected Consolidated Financial Data 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 7a.Quantitative and Qualitative Disclosure about Market Risk 15
Item 8. Consolidated Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accoutants on Accounting
and Consolidated Financial Disclosure 16
Part III.
Item 10.Directors and Executive Officers of the Registrant 16
Item 11.Executive Compensation 16
Item 12.Security Ownership of Certain Beneficial Owners and
Management 16
Item 13.Certain Relationships and Related Transactions 16
Part IV.
Item 14.Exhibits, Consolidated Financial Statement Schedule
and Reports on Form 8-K 17
Signatures 18
PART I.
ITEM 1. BUSINESS
General
Harold's Stores, Inc. and its wholly-owned subsidiaries (collectively
"Harold's" or the "Company"), through a 51-store location chain of women's and
men's specialty apparel stores in 22 states, offers high-quality, classically
inspired apparel to the upscale, quality-conscious consumer primarily in the
20 to 50 year old age group. The stores typically are strategically located
in shopping centers and malls with other upscale specialty retailers and are
enhanced by an eclectic mix of antiques, together with specially designed
fixtures and visual props, to create an appealing stage for presentation of
the Company's distinctive women's and men's apparel and accessories. More
than 90% of sales consists of the Company's designs controlled by Harold's own
stylists and designers and resourced by Harold's buyers from domestic,
European and Asian manufacturers. The remainder consists of branded
merchandise selected to complement Harold's merchandise presentation. See
"Business- Product Development and Sourcing Programs."
The Company's 51 stores are comprised of 30 full-line women's and men's
apparel stores, six stores which have a product line principally of ladies'
apparel with a limited presentation of men's sportswear featuring the
Company's Old School Clothing brand, nine stores featuring women's apparel
only and six outlet stores to clear markdowns and slow-moving merchandise, in
addition to some merchandise produced specifically for the outlets. In
addition to the stores, the Company has a direct response "mail order" catalog
business and also sells merchandise online at www.harolds.com. Store
occupancy costs include base and percentage rent, common area maintenance
expense, utilities and depreciation of leasehold improvements.
There was a decline in comparable store sales of 3.1% for fiscal 2000,
compared to a decline of 1.3% for fiscal 1999. The Company believes that the
declines experienced in comparable store sales during fiscal 2000 were
primarily attributable to disappointing sales in our fall and holiday
merchandise combined with winter storms that severely impacted our January
business. The Company's average sales per square foot for stores open during
the entire fiscal year were $481 and $506 for fiscal 2000 and fiscal 1999,
respectively. The Company believes sales per square foot are higher than
industry averages for most similar stores.
The Company believes that its future success will be achieved by
expanding the number of its women's and men's apparel stores and increasing
sales momentum at existing stores. The Company is engaged in an aggressive
expansion program, adding in the aggregate 13 retail stores during fiscal 1999
and fiscal 2000.
The Company's expansion program will continue to focus primarily on
markets currently served by the Company and in new markets that represent a
geographical progression from existing markets. Thus far during fiscal 2001,
the Company has opened a new store in Dawsonville, Georgia and anticipates
opening a total of two stores during the fiscal year plus one relocation of an
existing store. See Management's Discussion and Analysis - Liquidity and Note
5 to the consolidated financial statements for further information.
The Company operates on a 52-53 week fiscal year, which ends on the
Saturday closest to January 31. References herein to fiscal 2001, fiscal 2000,
fiscal 1999, and fiscal 1998 refer to the fiscal years ended February 3, 2001,
January 29, 2000, January 30, 1999, and January 31, 1998, respectively.
Retail Merchandising
The Company's merchandise mix in women's apparel includes coordinated
sportswear, dresses, outerwear, shoes and accessories, in updated classic
styles. A fundamental feature of the Company's marketing strategy is the
development of original exclusive and semi-exclusive apparel items. The
Company estimates that more than 90% of its women's apparel sales are
attributable to the Company's product development and proprietary label
programs. In fiscal 2000, women's apparel accounted for approximately 78% of
sales as compared to 79% for fiscal 1999.
The men's apparel product line includes tailored clothing, furnishings,
sportswear, and shoes. The style is principally what is known in the apparel
trade as "updated traditional," classic styling with a contemporary influence.
The young executive and college markets account for a substantial portion of
the Company's men's store sales. In fiscal 2000, the Company's proprietary
label apparel accounted for more than 95% of total men's sales. The majority
of the men's proprietary label sales are in the Company's Old School Company
and Harold Powell Clothing lines. In fiscal 2000, men's apparel accounted for
approximately 22% of sales as compared to 21% for fiscal 1999.
The following table sets forth the approximate percentage of sales
attributable to the various merchandise categories offered by the Company in
the past three fiscal years:
Fiscal 2000 Fiscal 1999 Fiscal 1998
(Dollar amounts in thousands)
Women's Merchandise
Sportswear and
Accessories $96,694 71.0% $91,678 70.9% $82,031 68.4%
Handbags and Belts 3,242 2.3 3,583 2.8 4,204 3.5
Shoes 6,512 4.8 6,243 4.8 5,899 4.9
Men's Merchandise
Suits, Sportcoats,
Slacks and Furnishings 11,936 8.8 11,552 8.9 10,762 9.0
Sportswear and 15,982 11.7 14,309 11.1 14,894 12.4
Accessories
Shoes 1,267 0.9 1,149 0.9 1,218 1.0
Other 629 0.5 710 0.6 911 0.8
Total: $136,262 100.0% $129,224 100.0% $119,919 100.0%
Company Stores
The Company's 51 stores range in size from 2,100 to 15,000 square feet,
with the typical store ranging from 4,000 to 6,000 square feet. The Company's
stores generally are open seven days per week and evenings. The following
table lists Harold's store locations as of January 29, 2000, with selected
information for each location. Product lines in the table are defined as
follows:
W/M Stores with the Company's full-line women's
and men's apparel.
W/OS Stores with the Company's full-line women's
apparel and also featuring the Company's "Old
School Clothing Company" concept.
W Stores featuring women's apparel only.
Metropolitan Product Square
Area Location Type of Location Lines Footage
Atlanta, GA Lenox Square Regional W/M 6,861
Shopping Center
Atlanta, GA Park Place Specialty Center W 3,413
Austin, TX Arboretum Market Specialty Center W/OS 3,800
Place
Austin, TX(1) 8611 N. Mopac Free Standing W/M 13,200
Expressway
Baton Rouge, Citiplace Market Specialty Center W/M 5,200
LA Center
Birmingham, The Summit Specialty Center W/M 5,500
AL Shopping Center
Buford, GA Mall of Georgia Regional W/M 6,000
(Atlanta metro) Shopping Center
Charlotte, NC Shops on the Specialty Center W 4,000
Park
Columbus, OH The Mall at Regional W/M 6,000
Tuttle Crossing Shopping Center
Cordova, TN Wolfchase Regional W/M 6,302
(Memphis Metro) Galleria Shopping Center
Dallas, TX Dallas Galleria Regional W/M 7,058
Shopping Center
Dallas, TX Highland Park Specialty Center W/M 7,503
Village
Ft. Worth, TX University Park Specialty Center W/M 6,000
Village
Greenville, SC Greenville Mall Regional W/OS 5,076
Shopping Center
Hillsboro, Hillsboro Outlet Outlet Center W/M 5,160
TX(1) Mall
Houston, TX Highland Village Specialty Center W/M 6,189
Houston, TX Town and Country Specialty Center W/M 5,883
Village
Houston, TX Champions Forest Specialty Center W/M 5,500
Plaza
Indianapolis, Keystone Fashion Regional W/M 4,000
IN Mall Shopping Center
Jackson, MS The Rogue Free Standing W 2,100
Compound
Kansas City, Country Club Regional W 4,155
MO Plaza Shopping Center
Katy, TX(1) Katy Mills Regional Outlet W/M 10,278
(Houston metro) Outlet Center
Leawood, KS Town Center Regional W/M 5,000
(Kansas Plaza Shopping Center
City metro)
Littleton, CO Park Meadows Regional W/M 5,465
(Denver metro) Mall Shopping Center
Louisville, Mall St. Regional W/OS 4,292
KY Matthews Shopping Center
Lubbock, TX 8201 Quaker Specialty Center W/M 3,897
Avenue
Marietta, GA The Avenue East Specialty Center W/M 5,000
(Atlanta metro) Cobb
McLean, VA Tyson's Galleria Regional W/M 5,083
Shopping Center
Memphis, TN Poplar Avenue Regional W/M 5,781
Shopping Center
Nashville, TN The Mall at Regional W/M 5,975
Greenhills Shopping Center
Norman, OK Campus Corner Specialty Center W/M 7,588
Center
Norman, OK(1) 575 S. Free Standing W/M 15,421
University Blvd.
Oakbrook, IL Oakbrook Center Specialty Center W 4,860
(Chicago Metro)
Oklahoma 50 Penn Place Specialty Center W/M 14,240
City, OK
Omaha, NE One Pacific Specialty Center W 3,272
Place
Palo Alto, CA Stanford Regional W 4,275
(San Francisco Shopping Center Shopping Center
Metro)
Phoenix, AZ Biltmore Fashion Regional W/OS 5,033
Park Shopping Center
Phoenix, AZ(1) Prime Outlets at Outlet Center W/M 7,452
New River
Plano, TX Park and Preston Free Standing W/M 5,525
(Dallas metro)
Raleigh, NC Crabtree Valley Regional W/M 5,205
Mall Shopping Center
Richmond, VA River Road Specialty Center W/M 5,000
Shopping Center
Salt Lake Trolley Square Specialty Center W 5,716
City, UT Center
San Antonio, Alamo Quarry Specialty Center W/M 5,500
TX Market
Skokie, IL Old Orchard Specialty Center W 5,454
(Chicago Center
Metro)
Southlake, TX Southlake Town Specialty Center W/M 5,462
(Dallas metro) Square
St. Louis, MO Plaza Frontenac Regional W/OS 4,221
Shopping Center
Tampa, FL Citrus Park Town Specialty Center W/OS 5,500
Center
Tulsa, OK Farm Shopping Specialty Center W/M 3,888
Center
Tulsa, OK Utica Square Regional W/M 7,686
Shopping Center
Wichita, KS The Bradley Fair Specialty Center W/M 5,500
Center
Williamsburg, Prime Outlets at Outlet Center W/M 5,180
VA(1) Williamsburg
(1) Outlet store
The employee population of a typical full-line Harold's store consists of
a store manager, two assistant managers (women's and men's), one or two desk
associates, and five to seven sales associates, most of whom work on a flex-
time basis (20-25 hours per week). Sales associates are paid a commission
against a draw. Commissions range from 7% to 10% based on the type of
product sold and the scale of the associate. Store managers are paid a salary
plus a performance bonus based on attainment of sales goals and expense
control.
Product Development and Sourcing Programs
The Company's product development and sourcing programs enable it to
offer exclusive and semi-exclusive items not available in competing stores or
catalogs. More than 90% of sales is merchandise where the Company has created
or controlled the design, demonstrating the Company's commitment to a unique
product mix. The Company believes that this unique product mix enables it to
compete with, and differentiates it from, larger apparel chains by offering
customers an exclusive garment at a price below designers and similar open
market merchandise. Direct creation and control of merchandise also enables
the Company to improve its initial mark up. The Company's private label
merchandise consists of items developed by the Company and manufactured
exclusively for the Company and items developed by the Company and
manufactured on a semi-exclusive basis for the Company.
An important component of the Company's product development programs is
market research of styles and fabrics. The Company's buyers shop European and
domestic markets for emerging fashion trends, for new vendors, and for fabric,
artwork and samples for new garment designs. Through sophisticated, computer-
aided design technologies, the product development staff adapts and develops
fabric designs and garment models. These design models assist the Company in
sourcing and in negotiations with mills and vendors. The Company's product
development programs allow it to participate directly in the design and
manufacturing of an exclusive product without investing in costly
manufacturing equipment. The Company's development program is complemented by
association with independent buying offices in New York and Florence, Italy.
The Company's product development programs enable it to offer new styles,
often before similar merchandise is available at other specialty or department
stores or catalogs. The Company imports a significant portion of its
merchandise directly from the United Kingdom, Italy, and through domestic
importers from the Far East.
The Company's merchandisers travel to Europe, including popular fashion
meccas such as Paris and Milan, six to eight times each year, searching out
new styles and collecting vintage fabrics and antique wallpaper, and original
art for pattern development. In addition to purchasing original artwork
created for pattern development, merchandisers have ongoing contact with
several art studios in Europe where artists hand paint intricate patterns and
prints exclusively for the Company. The European development work helps the
Company spot emerging trends among fashion forward Europeans for development
into the Company's classically inspired merchandise.
The Company's merchandisers review the collected material, analyze
fashion directions and select the best pieces to convert into prints and
patterns for the next season. Once the new patterns are selected, the team
then "specs" out various styles - detailing a garment's cut, fit, fabric,
color and trim. An advanced textile computer-aided design system makes
designing new pieces much easier by providing color "proofs" which allow the
Company to correct inaccuracies in a design before a working sample is made.
This process reduces costs and contributes to the inherent value of each
item. After the specs have been finalized, the piece goods - materials for
making the product - are ordered from domestic and international fabric mills.
The finished fabric is then shipped to manufacturers who cut, sew and trim the
completed design.
The Company's line of leather goods is made by European craftsmen,
primarily in Italy. Shoes, belts, handbags, wallets and other leather
products are co-designed by the Company's merchandisers and Italian artisans.
Italian-made leather goods are marketed under a variety of Company-owned
labels and are featured in all of the Company's stores, in its catalog, and on-
line at www.harolds.com.
During fiscal 1995, the Company entered into an arrangement with its
largest apparel vendor, CMT Enterprises, Inc. ("CMT"). Previously, Harold's
controlled the design process and paid CMT for finished goods when produced
and manufactured. Under this arrangement, the process has become more
verticalized. CMT acts as the Company's agent in the purchase of raw
materials (i.e. fabrics, linings, buttons, etc.) and supervises the
manufacturing process of the Company's merchandise with manufacturing
contractors. The Company purchases raw materials directly from suppliers and
pays for the manufacturing process as costs are incurred. Under this 1995
agreement, CMT was paid a commission based on actual cutting, sewing and trim
costs of the finished goods.
On February 18, 2000, the Company entered into a stock purchase agreement
pursuant to which the Company purchased all of the issued and outstanding
shares of CMT. The Company issued a promissory note to Franklin I. Bober, the
sole stockholder of CMT, in the amount of $2.54 million, payable with interest
in thirty (30) monthly installments, and assumed long-term debt of CMT,
payable to the Company, in the amount of $1.385 million. The net book value
of CMT assets received by the Company is approximately $400,000, and to the
extent that the net book value of such assets is less than $400,000, the
amount of the promissory note shall be reduced on a dollar-for-dollar basis.
In addition, the Company entered into a consulting agreement with PrimaTech
Corporation, an entity wholly owned by Franklin I. Bober, which will provide
consulting services to the Company for two years at a fee of $405,000 per
year, plus potential incentive payments.
The Company believes the acquisition of CMT permits the Company to
control the quality and cost of the Company's inventory purchases. A
substantial portion of the Company's merchandise purchases is concentrated
among a small number of vendors. The Company believes that fewer vendor
relationships advance the Company's product development objectives by
increasing control over the design and manufacturing process. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations and - Capital Resources, Capital
Expenditures and Liquidity and note 11 to Consolidated Financial Statements."
Merchandise Inventory, Replenishment and Distribution
The specialty retail apparel business fluctuates according to changes in
customer preferences dictated by fashion and season. These fluctuations
affect the inventory owned by apparel retailers, since merchandise usually
must be ordered well in advance of the season and sometimes before fashion
trends are evidenced by customer purchases. The Company's policy of carrying
basic merchandise items in full assortments of sizes and colors requires it to
carry a significant amount of inventory. The Company must enter into
contracts for the purchase and manufacture of proprietary label apparel well
in advance of its selling seasons.
The Company continually reviews its inventory levels in order to identify
slow-moving merchandise and broken assortments (items no longer in stock in a
sufficient range of styles, colors and sizes) and may use markdowns to clear
this merchandise. Markdowns also may be used if inventory exceeds customer
demand for reasons of style, seasonal adaptation, changes in customer
preference, or if it is determined that the inventory in stock will not sell
at its currently marked price. Such markdowns may have an adverse impact on
earnings, depending on their extent and the amount of inventory affected. The
Company utilizes its seven outlet stores to dispose of prior season or slow
moving merchandise as well as merchandise developed specifically for the
outlet division. In addition, in lieu of utilizing outside liquidation
resources ("jobbers"), slow moving merchandise is periodically cleared through
regional off-site discount sales which are promoted under the name "Harold's
Warehouse Sale".
The Company operates an 85,000 square foot distribution facility in
Norman, Oklahoma capable of processing merchandise for 74 stores. With a
modest additional investment, the facility will have the capability of
processing merchandise for 138 stores. All of the Company's merchandise is
routed through the distribution center from various manufacturers. Each item
is examined, sorted, tagged with bar coded tickets which track the merchandise
for analysis by multiple parameters, including, vendor lot number, color and
size. An increasing amount of merchandise is currently arriving at the
distribution center with tags previously placed by the vendor. The
merchandise is then boxed for shipment by company trucks or common carrier to
the Company's 51 stores and catalog operation. This process is done in a
time sensitive manner in a substantially paperless environment, utilizing
computers, bar codes and scanners.
Seasonality
The Company's business follows a seasonal pattern, peaking twice a year
during the late summer (August through early September) and holiday
(Thanksgiving through Christmas) periods. During fiscal 2000, approximately
52% of the Company's sales occurred and substantially all of the Company's net
loss was incurred during the third and fourth quarters.
Competition
The Company's business is highly competitive. The Company's stores
compete with national and local department stores, specialty and discount
store chains, catalogers and independent retail stores which offer similar
lines of specialty apparel. Many of these competitors have significantly
larger sales volumes and assets than the Company.
Depth of selection in sizes and colors and styles of merchandise,
merchandise procurement and pricing, ability to anticipate fashion trends and
customer preferences, inventory control, reputation, quality of private-label
merchandise, store design and location, advertising and customer service are
all important factors in competing successfully in the retail industry. Given
the large number of companies in the retail industry, the Company cannot
estimate the number of its competitors or its relative competitive position.
In addition, the success of the Company's operations depends upon a
number of factors relating to economic conditions and general consumer
spending. If current economic conditions worsen and consumer spending is
restricted, the Company's growth and profitability will be negatively
impacted.
Customer Credit
The Company's stores accept the proprietary "Harold's" credit card, and
Visa, MasterCard, Discover and the American Express credit cards. The
Company's catalog operation accepts VISA, MasterCard, Discover and the
Company's credit card. Credit card sales were 76% in fiscal 1998, 77% in
fiscal 1999 and 70% in fiscal 2000. In fiscal 2000, 19% of sales were made
with the Harold's credit card and 51% were made with third-party credit cards.
The Company maintains a credit department for customer service, credit
authorizations, credit investigation, billing and collections. As of January
29, 2000, the allowance for bad debts from Company credit card sales was
approximately 0.8% of Harold's proprietary credit card sales for fiscal 2000.
Harold's has offered customers its proprietary credit card since 1974.
The Company believes that providing its own credit card enhances customer
loyalty while providing customers with additional credit at costs to the
Company significantly lower than those charged by outside credit card
companies (i.e. Visa, MasterCard, Discover and American Express). At January
29, 2000, the Company had approximately 21,561 active credit accounts and the
average cardholder had a line of $1,100 and an outstanding balance of $317.
Charges by holders of the Company's credit card during fiscal 2000 totaled
approximately $25,500,000.
Advertising
The Company maintains an in-house advertising department, which has won
numerous Addy awards at the local, district and national levels. The
advertising department staff produces in-house print advertising for daily and
weekly newspapers and other print media, and designs the Company's direct
response catalogs and other direct mail pieces. In fiscal 2000, the Company
spent approximately $7,900,000 (5.8% of sales) on advertising and catalog
production costs as compared to approximately $7,800,000 (6.0% of sales) in
fiscal 1999. This expenditure includes the production and mailing costs
associated with the Company's direct response catalog. The advertising
department is also involved in the production of annual reports to the
Company's stockholders, sales training materials, internal marketing
materials, and all corporate logos and labeling.
Management Information Systems
The Company places great emphasis on upgrading and integrating its
management information systems ("MIS"). The Company believes these upgrades
will enable it to maintain more efficient control of its operations and
facilitate faster and more informed responses to potential opportunities and
problems. The Company maintains an MIS team to oversee these management
information systems, which include credit, catalog, sales reporting, accounts
payable, and merchandise control, reporting and distribution.
The Company uses an integrated point-of-sale ("POS") inventory and
management system to control merchandising and sales activities. This system
automatically polls each location every 24 hours and provides a detailed
report by merchandise category the next morning. Management evaluates this
information daily and implements merchandising controls and strategies as
needed. The Company's POS system has been updated to allow additional
functions to be programmed into the system. The POS system provides personnel
scheduling and time keeping capabilities, as well as, a customer profile
function to better identify and track consumer demographics.
The Company continues to implement newer and better inventory control
systems. The Company routinely conducts its own inventory using a
sophisticated scanning system. POS scanning devices record and track SKU bar
codes, which are assigned, to every piece of merchandise. This information is
downloaded into the Company's IBM AS400r computer, which generates a detailed
report within 24 hours of the physical inventory.
The Company has also implemented ARTHURr, a computerized merchandise
planning system, which interacts with the Company's AS400r and Island Pacific
Systemsr software. ARTHURr facilitates seasonal planning by department and
store, and provides certain data for financial planning. The Company plans to
implement the allocation product offered by Comshare during fiscal 2001.
Trademarks, Service Marks, and Copyrights
"Harold's", "Harold Powell", "Old School Clothing Company", "OSCC
Bespoke" and other trademarks either have been registered, or have trademark
applications pending, with the United States Patent and Trademark Office and
with the registries of various foreign countries. The Company files U.S.
copyright registration on the original design and artwork purchased or
developed by the Company.
The Company's three Houston stores and the Katy, Texas outlet bear the
name "Harold Powell" rather than "Harold's" to avoid confusion with an
existing local men's apparel store which operates in Houston under the name
"Harold's" with prior usage in this market predating the Company's federal
registration.
Employees
On March 15, 2000, the Company had approximately 690 full-time and 900
part-time employees. Additionally, the Company hires temporary employees
during the peak late summer and holiday seasons. None of the Company's
employees belong to any labor union and the Company believes it has good
relations with its employees.
ITEM 2. PROPERTIES
Store Leases
At January 29, 2000, the Company owned the Austin outlet store and leased
50 stores. The Company believes rent payable under its store leases is a key
factor in determining the sales volume at which a store can be profitably
operated. The leases typically provide for an initial term of 12 years. In
most cases, the Company pays a base rent plus a contingent rent based on the
store's net sales in excess of a certain threshold, typically four to five
percent of net sales in excess of the applicable threshold. Among current
store leases, two store leases have percentage rent only. All other store
leases provide for a base rent with percentage rent payable above specified
minimum net sales. Nineteen of the leased stores open during all of fiscal
2000 operated at sales volumes above the breakpoint (the sales volume below
which only base rent is payable). Based on the Company's current level of
sales per square foot, the Company believes that some of the risk from any
decline in future sales volume in these stores is reduced because a
corresponding decline in occupancy expense would occur.
Substantially all of the leases require the Company to pay property
taxes, insurance, utilities and common area maintenance charges. The current
terms of the Company's leases, including automatic renewal options, expire as
follows:
Fiscal Number
Years of
Leases Stores
Expire
2001 1
2002-2003 4
2004-2006 8
2007 and 37
later
The Company generally has been successful in renewing its store leases as
they expire.
During fiscal 2000, the Company entered into new leases for stores in
Southlake, Texas (Dallas metro); Indianapolis, Indiana; Marietta, Georgia
(Atlanta metro); Buford, Georgia (Atlanta metro); Memphis, Tennessee (store
relocation); Phoenix, Arizona outlet; Williamsburg, Virginia outlet; Katy,
Texas outlet (Houston metro- store relocation); Dawsonville, Georgia outlet
(Atlanta metro); San Marcos, Texas outlet and Atlanta, Georgia (store
relocation). Management believes the terms of these leases are comparable
with other similar national retailers in these locations. Base rent (minimum
rent under terms of lease) in current leases ranges from $6 per square foot to
$60 per square foot annually over the terms of the leases. Total base rent
has continued to increase based on new store leases. Occupancy costs have
increased slightly as the Company has entered new markets. The following
table sets forth the fixed and variable components of the Company's rent
expense for the fiscal years indicated:
2000 1999 1998
Base rent $6,438,000 4,350,000 3,702,000
Additional rents
computed as a
percentage of
sales 1,365,000 1,041,000 1,206,000
Total $7,803,000 5,391,000 4,908,000
Corporate Headquarters and Central Fulfillment Center
The Company owns a complex of contiguous buildings in Norman, Oklahoma
comprised of approximately 36,500 square feet, with 22,000 square feet of this
space being utilized by the Company for its executive offices, administrative
functions and central fulfillment center. The remainder of this complex is
currently leased to other parties and could be used for future expansion of
the central fulfillment center and other Company needs.
Merchandise Buying Office, and Distribution Center
The Company leases a 50,000 square foot building used primarily as a
men's and ladies' buying office in Dallas, Texas (the "Dallas Buying Office
II"), a 10,000 square foot building ("The Dallas Buying Office I") and an
85,000 square foot warehouse distribution center facility located in Norman,
Oklahoma.
The lessor of the Dallas locations and the distribution center is a
limited partnership whose partners include Rebecca Powell Casey, Michael T.
Casey, H. Rainey Powell and Lisa Powell Hunt, all of whom are stockholders and
directors of the Company. The term of the Dallas Buying Office I lease
expires March 2012, with annual rent payments of $158,000 plus insurance,
utilities and property taxes until April, 2000, at which time the annual rent
will be $180,000, plus insurance, utilities and property taxes, increasing
$2,500 each year thereafter until expiration of the lease. This facility has
been sublet by the Company under favorable terms.
The term of the Dallas Buying Office II lease expires September, 2010
with annual rent payments of $453,204 plus insurance and property taxes until
August, 2001 at which time the annual rent will be $478,382, plus insurance,
utilities and property taxes until August, 2004 at which time the annual rent
will be $503,560, plus insurance, utilities and property taxes until August,
2007 at which time annual rent will be $528,728, plus insurance, utilities and
property taxes until expiration of the lease.
The term of the distribution center lease expires in June 2012, with
annual rental payments of $338,438 plus insurance, utilities and property
taxes until July, 2001, at which time the annual rent will increase annually
on a fixed scale up to a maximum of $419,951 during the final year of the
lease.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
At March 15, 2000, there were 673 record holders of the Company's common
stock, ("Common Stock"). The Company's Common Stock is listed on the American
Stock Exchange under the symbol "HLD". The table below presents the range of
the high and low sales prices, for the periods indicated. There were no stock
dividends issued in fiscal 2000.
Quarterly Common Stock Price
Ranges
Fiscal 2000 High Low
1st Quarter $8.25 $5.81
2nd Quarter $7.50 $6.38
3rd Quarter $7.81 $5.38
4th Quarter $6.13 $3.38
Fiscal 1999 High Low
1st Quarter $7.94 $6.19
2nd Quarter $8.38 $6.50
3rd Quarter $7.00 $5.31
4th Quarter $8.00 $6.75
Dividend Policy
The Company has never declared or paid cash dividends on its Common Stock
and presently intends to retain all earnings for the operation and expansion
of its business for the foreseeable future. Any future determination as to
the payment of cash dividends will depend on the Company's earnings, capital
requirements, financial condition and other factors as the Board of Directors
may deem relevant.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial information is derived from
the audited consolidated financial statements of the Company and should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and the notes thereto, appearing elsewhere herein.
Fiscal Year
2000 1999 1998 1997 1996
(Dollar amounts in thousands, except per
share data)
Statements of Earnings
Data:
Sales $136,262 129,224 119,919 108,257 94,264
Percentage increase 5.4% 7.8% 10.8% 14.8% 24.4%
Gross profit on sales(1) $ 41,125 45,128 38,149 38,717 33,819
Percentage of sales 30.2% 34.9% 31.8% 35.8% 35.9%
Earnings before income
taxes $(4,103) 4,785 74 5,880 4,645
Percentage of sales (3.0)% 3.7% 0.0% 5.4% 4.9%
Net earnings $(2,462) 2,841 44 3,528 2,787
Percentage of sales (1.8)% 2.2% 0.0% 3.3% 3.0%
Net earnings per common
share (2):
Basic $(0.41) 0.47 0.01 0.61 0.51
Diluted $(0.41) 0.47 0.01 0.59 0.51
Other Operating Data:
Stores open at end of
period 51 44 41 36 29
Growth in comparable
store sales
(52-53 week basis) (3.1%) (1.3%) (5.4%) (0.5%) 8.7%
Balance Sheet Data:
Working capital $42,454 33,044 35,430 28,016 21,301
Total assets 73,879 63,917 63,929 59,608 42,909
Long-term debt,
net of current
maturities (3) 27,063 16,330 19,708 12,528 9,540
Stockholders' equity 37,068 39,521 36,466 36,035 25,299
Net book value per share
(4) $6.10 6.51 6.03 6.01 4.63
(1) In accordance with retail industry practice, gross profit from
sales is calculated by subtracting cost of goods sold (including
occupancy and central buying expenses) from sales.
(2) Net earnings per common share for each period have been restated
for the 5% stock dividends in fiscal 1998, fiscal 1997 and fiscal
1996.
(3) In fiscal 1996, the Company renewed its line of credit to be
payable at a fixed maturity rather than on demand, which required
the loan to be reclassified as long-term debt.
(4) Net book value per share is based on the number of shares of
Common Stock outstanding at the end of each fiscal year restated
for the 5% stock dividends in fiscal 1998, fiscal 1997 and fiscal
1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table reflects items in the Company's statements of
operations as a percentage of sales for the periods indicated:
Fiscal Year
52 Weeks
2000 1999 1998
Sales 100.0% 100.0 100.0
Cost of goods sold (69.8) (65.1) (68.2)
Selling, general and
administrative expenses (29.1) (27.6) (28.2)
Depreciation and amortization (3.3) (3.0) (2.9)
Interest expense (0.8) (0.6) (0.7)
Earnings before income taxes (3.0) 3.7 0.0
Provision for income taxes (1.2) (1.5) 0.0
Earnings before cumulative
effect of change in accounting
principle (1.8) 2.2 0.0
Cumulative effect of change in
accounting principle - 0.0 -
Net earnings (loss) (1.8)% 2.2% 0.0%
The following table reflects the sources of the increases in Company
sales for the periods indicated:
Fiscal Year
52 Weeks
2000 1999 1998
Sales (000's) $136,262 129,224 119,919
Total sales growth 5.4% 7.8% 10.8%
Growth in comparable store
sales (52-53 week basis) (3.1) (1.3) (5.4)
Store locations:
Existing stores beginning of
period 44 41 36
Stores closed (2) (1) (1)
New stores opened during
period 9 4 6
Total stores at end of
period 51 44 41
Total Company sales increased 5.4% in fiscal 2000 as compared to 7.8% in
fiscal 1999 and 10.8% in fiscal 1998. The Company believes that such
increases were primarily due to the continued store expansion program. The
Company opened seven stores and two outlets during fiscal 2000 and closed two
stores. Stores were opened in Palo Alto, California; Southlake and Houston,
Texas; Tampa, Florida; Indianapolis, Indiana; and Marietta and Buford, Georgia
(near Atlanta). The two new outlets are located in Phoenix, Arizona and
Williamsburg, Virginia. The two stores that were closed were in Birmingham,
Alabama and downtown Oklahoma City, Oklahoma.
Total Company sales increased 7.8% in fiscal 1999 as compared to 10.8% in
fiscal 1998. The Company believes that such increases were primarily due to
the continued store expansion program. The Company opened four stores during
fiscal 1999 and closed one store. Stores were opened in Oakbrook and Skokie,
Illinois; San Antonio, Texas (Alamo Quarry Market) and Salt Lake City, Utah.
A store was closed in San Antonio, Texas (Broadway and Austin Highway). The
Company opened five stores and one outlet during fiscal 1998 and closed one
store. Stores were opened in: Cordova, Tennessee (Memphis metro); Wichita,
Kansas; Columbus, Ohio; Richmond, Virginia; Birmingham, Alabama; and an outlet
in Sealy, Texas. A store was closed in Kensington, MD (Washington, DC metro).
Comparable store sales declined 3.1% during fiscal 2000, compared to a
decline of 1.3% in fiscal 1999. The Company believes that the declines
experienced in comparable store sales during fiscal 2000 were primarily
attributable to disappointing sales in fall and holiday merchandise combined
with winter storms that severely impacted January business. The declines
experienced in comparable store sales during fiscal 1999 were primarily
attributable to the opening of second stores in several key markets,
including: Birmingham, Alabama; Memphis, Tennessee; Dallas, Houston, and San
Antonio, Texas; and Washington, DC.
The Company's gross margin decreased to 30.2% in fiscal 2000 from 34.9%
in fiscal 1999. The decrease is a result of markdowns taken during the period
to avoid perpetuating the Company's merchandise issues related to lower than
expected sales of fall and holiday merchandise. In addition, higher occupancy
costs that did not leverage due to lower sales negatively impacted the gross
margin. The Company's gross margin increased from 31.8% in fiscal 1998 to
34.9% in fiscal 1999. The increase in gross margin can be primarily
attributed to improved inventory planning and customer acceptance of product
offerings, resulting in lower inventory levels and reduced markdowns.
Selling, general and administrative expenses increased by 1.5% of sales
in fiscal 2000 compared to a decrease of 0.6% of sales in fiscal 1999. The
increase in selling, general and administrative expenses as a percentage of
sales in fiscal 2000 was primarily due to new store opening costs and the
inability to leverage non-occupancy fixed costs due to the comparable store
sales decline. The decrease in selling, general and administrative expenses
as a percentage of sales in fiscal 1999 was primarily due to reduced
advertising and catalog production costs, offset by increased payroll related
expenses. In fiscal 1999, the Company initiated a 27.1% reduction in the
total number of catalogs circulated to reduce costs, while attempting to
minimize the reduction in sales. The result was a $2,100,000, or 35%, decline
in production costs and an $800,000, or 8.8%, decline in catalog sales.
During fiscal 2000, the total interest costs increased $255,000 compared
to fiscal 1999 due to higher outstanding debt balances. The average balance on
total outstanding debt was $23,275,000 in fiscal 2000, compared to
$17,217,000 in fiscal 1999. The increase in average debt balances resulted
principally from new store construction, lower sales than expected and higher
inventory levels. As the Company's growth continues, cash flow may require
additional borrowed funds, which may cause further increases in interest
expense. During fiscal 1999, interest costs (including capitalized interest)
decreased $174,000 as compared to fiscal 1998 due to lower outstanding debt
balances due to lower inventory levels.
The Company's income tax rate was 40% in fiscal 2000, fiscal 1999 and
fiscal 1998.
Capital Expenditures, Capital Resources and Liquidity
Cash Flows From Operating Activities. For fiscal 2000, net cash used in
operating activities was $6,597,000 as compared to $9,638,000 net cash provided
by operating activities for fiscal 1999. The decrease in cash flows can be
partially attributed to (i) net loss of $2,462,000 for fiscal 2000, compared to
net earnings of $2,841,000 for fiscal 1999, a decrease in net earnings of
$5,303,000, and (ii) an increase in merchandise inventories of $7,871,000 in
fiscal 2000, compared to a decrease merchandise inventories of $1,954,000 in
fiscal 1999.
The Company's merchandise inventories increased $7,871,000 in fiscal 2000
compared to a decrease of $1,954,000 for fiscal 1999 as a result of the
Company's disappointing sales in the fourth quarter. Over the next year,
management expects a reduction in the dollar amount of the Company's merchandise
inventories due to improved inventory planning and editing of the assortment
offerings.
Cash Flows From Investing Activities. For fiscal 2000, net cash used in
investing activities was $3,946,000, as compared to $5,755,000 for fiscal 1999.
Capital expenditures totaled $5,644,000, compared to $6,280,000 for fiscal 1999.
Capital expenditures during such periods were invested principally in new
stores, and remodeling and equipment expenditures in existing operations. On
November 6, 1996, the Company made a term loan to CMT Enterprises, Inc. in the
principal amount of $2,750,000, to be used by CMT to refinance its existing
revolving line of credit and for working capital purposes. At March 15, 2000,
the outstanding balance of the loan was zero due to the Company's acquisition of
CMT subsequent to year end. CMT is a major independent contractor whose
assistance is instrumental in the Company's design and manufacturing process.
See note 3 to Consolidated Financial Statements.
Cash Flows From Financing Activities. During fiscal 2000, the Company
made periodic borrowings under its revolving credit facility to finance its
inventory purchases, product development and private label programs, store
expansion, remodeling and equipment purchases for the fiscal year (see
"Liquidity").
The Company has available a line of credit with its bank. This line had
average balances of $19,550,000 and $12,813,000 for the fiscal years 2000 and
1999, respectively. During 2000, this line of credit had a high balance of
$28,159,000 and a balance of $23,395,000 as of January 29, 2000. The balance
at March 15, 2000 was $24,963,000.
Liquidity
The Company considers the following as measures of liquidity and capital
resources as of the dates indicated (dollars in thousands).
Fiscal Year
2000 1999 1998
Working capital (000's) $42,454 33,044 35,430
Current ratio 5.36:1 5.14:1 5.63:1
Ratio of working capital
to total assets .57:1 .52:1 .55:1
Ratio of long-term debt
(including current
maturities) to
stockholders' equity .75:1 .43:1 .56:1
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. The Company's capital expenditures budget for fiscal 2001 is
approximately $2,500,000.
See Note 5 to the consolidated financial statements for information about
restrictions and covenants under the Company's revolving line of credit.
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
seasons. In light of this pattern, selling, general and administrative
expenses are typically higher as a percentage of sales during the spring
seasons (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 sales or net earnings of
the Company.
Impact of New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and for Hedging Activities", with an effective date for
periods beginning after June 15, 1999. In July 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133". Adoption of SFAS No. 133 is
now required for financial statements for periods beginning after June 15,
2000. 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
recognize 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. The Company will adopt
this new standard effective February 1, 2001, and management believes the
adoption of this new standard will not have a material impact on its
consolidated financial position or results of operations.
The Year 2000 Issue
The Year 2000 Issue (the inability for certain computer systems to
recognize "00" as the year 2000 instead of the year 1900) was a source of much
concern for many companies including Harold's Stores, Inc. If this issue had
not been addressed, it could have resulted in serious business interruptions
for the Company. In anticipation of this event, the Company expended a great
deal of energy preparing its systems to ensure that its computer systems would
be compliant and that the risk of system failure would be eliminated or
mitigated to the extent possible. The Company's diligence was rewarded
because the Year 2000 issue was a non-event.
The Company's Year 2000 compliance project included 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, distribution
center and retail stores that was not Year 2000 compliant was remediated or
replaced by the end of the 1999 calendar year. Of those software systems that
were found not to be Year 2000 compliant, all material systems were remediated
or replaced by Year 2000 compliant software.
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 was approximately $2 million. This approximately $2 million of
costs principally related to the purchase of new capitalizable software and
hardware investments.
The Company communicated 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. The Company did not experience any business
interruptions from any of its business partners related to the Year 2000
compliance issue.
The Company's Year 2000 compliance project also included 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. It was not necessary for the Company to employ any of its
contingency plans as no system failures or other unexpected events occurred.
ITEM 7a. 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 January 29, 2000, the Company had long-term debt outstanding of
approximately $27.7 million. Of this amount, $2.0 million bears interest at a
weighted average fixed rate of 8.30%. The remaining $25.7 million bears
interest at variable rates which averaged approximately 6.72% during fiscal
year 2000. A 10% increase in short-term interest rates on the variable rate
debt outstanding at January 29, 2000 would approximate 67 basis points. Such
an increase in interest rates would increase the Company's interest expense by
approximately $173,000 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 Company had no foreign exchange instruments outstanding at January
29, 2000; therefore, a sensitivity analysis would result in no impact to
earnings. Anticipated transactions, firm commitments, and accounts payable
denominated in foreign currencies would be excluded from the sensitivity
analysis. Additionally, as the Company utilizes foreign currency instruments
for hedging anticipated and firmly committed transactions, a loss in fair
value for those instruments is generally offset by increases in the value of
the underlying exposure. Foreign currency fluctuations did not have a
material impact on the Company during fiscal years 2000, 1999 and 1998.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and related
information described below are set forth in the Company's Annual Report to
Stockholders for the fiscal year ended January 29, 2000 (on pages 10-30) and
are incorporated herein by reference.
(a) Independent Auditors' Reports.
(b) Consolidated Balance Sheets as of the Fifty-Two Weeks Ended January 29,
2000 and January 30, 1999.
(c) Consolidated Statements of Operations for the Fifty-Two Weeks Ended January
29, 2000, January 30, 1999 and January 31, 1998.
(d) Consolidated Statements of Stockholders' Equity for the Fifty-Two Weeks
Ended January 29, 2000, January 30, 1999 and January 31, 1998.
(e) Consolidated Statements of Cash Flows for the Fifty-Two Weeks Ended January
29, 2000, January 30, 1999 and January 31, 1998.
(f) Notes to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND CONSOLIDATED FINANCIAL DISCLOSURE
Information regarding a change in Harold's Stores, Inc.'s accountants was
previously reported in Forms 8-K and 8-K/A filed with the Commission on
October 1, 1999 and October 8, 1999, respectively.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required under Item 10 will be contained in the
definitive Proxy Statement of the Company for its 2000 Annual Meeting of
Stockholders (the "Proxy Statement") under the headings "Election of
Directors", "Officer Compensation and Other Information" and "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" and is incorporated
herein by reference. The Proxy Statement will be filed pursuant to Regulation
14A with the Securities and Exchange Commission not later than 120 days after
January 29, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information required under Item 11 will be contained in the Proxy
Statement under the heading "Officer Compensation and Other Information" and
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under Item 12 will be contained in the Proxy
Statement under the heading "Security Ownership of Certain Beneficial Owners
and Management" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under Item 13 will be contained in the Proxy
Statement under the headings "Related Party Transactions" and "Officer
Compensation and Other Information-Compensation Committee Interlocks and
Insider Participation" and is incorporated herein by reference.
PART IV.
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this Report:
(1) Consolidated Financial Statements: The response to this portion of
Item 14 is set forth in Item 8 of Part II of this Report.
(2) Financial Statement Schedules: Schedule II - Harold's Stores, Inc.
and Subsidiaries Valuation Account and Independent Auditors' Report of
Consolidated Financial Statement Schedule (see pages 19-21) of this
report. All other schedules have been omitted because they are
inapplicable, not required, or the information is included elsewhere
in the financial statements or notes thereto.
(3) Exhibits: See accompanying Index to Exhibits. The Company will
furnish to any stockholder, upon written request, any exhibit listed
in the accompanying Index to Exhibits upon payment by such stockholder
of the Company's reasonable expenses in furnishing any such exhibit.
(b) Reports on Form 8-K: There were no reports on Form 8-K for the quarter
ended January 29, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
HAROLD'S STORES, INC.
Date: April 28, /s/ H. Rainey Powell
2000
H. Rainey Powell
President
Pursuant to the requirements of the Securities Exchange Act of 1934 this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities shown, and on the dates indicated.
Signature Title Date
/s/ Harold G. Chairman Emeritus and April
Powell Director 28, 2000
Harold G. Powell
/s/ Rebecca P. Chairman of the Board April
Casey 28, 2000
Rebecca P. Casey Chief Executive
Officer and Director
/s/ H. Rainey President and Director April
Powell 28, 2000
H. Rainey Powell
/s/ Jodi L. Taylor Chief Financial April
Officer 28, 2000
Jodi L. Taylor
/s/ Lisa P. Hunt Director April
28, 2000
Lisa P. Hunt
/s/ Kenneth C. Row Executive Vice April
President and Director 28, 2000
Kenneth C. Row
/s/ Michael T. Director April
Casey 28, 2000
Michael T. Casey
/s/ Gary C. Director April
Rawlinson 28, 2000
Gary C. Rawlinson
/s/ William F. Director April
Weitzel 28, 2000
William F. Weitzel
/s/ W. Howard Director April
Lester 28, 2000
W. Howard Lester
/s/ Robert Brooks Director April
Cullum 28, 2000
Robert Brooks
Cullum
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Harold's Stores, Inc.:
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements included in Harold's
Stores, Inc.'s Annual Report to Stockholders for the fiscal year ended January
29, 2000, incorporated by reference in this Form 10-K, and have issued our
report thereon dated March 13, 2000. Our report on the consolidated financial
statements includes an explanatory paragraph with respect to the change in
accounting for computer software costs as discussed in Note 1 to the
consolidated financial statements. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed on
Page 21 Item 14 (a) 2. for the 52 week period ended January 29, 2000, is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected
to the auditing procedures applied in the audit of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole for the 52 week period ended
January 29, 2000.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma
March 13, 2000
INDEPENDENT AUDITORS' REPORT ON CONSOLIDATED FINANCIAL
STATEMENT SCHEDULE
The Board of Directors and Stockholders
Harold's Stores, Inc.:
Under date of March 15, 1999, we reported on the consolidated balance
sheet of Harold's Stores, Inc. and subsidiaries as of January 30, 1999 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the 52 week periods ended January 30, 1999 and January 31, 1998,
which are included in the annual report on Form 10-K for the 52 week period
ended January 29, 2000. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related
consolidated financial statement schedule listed in Item 14(a)(2) for the 52
week periods ended January 30, 1999 and January 31, 1998. This consolidated
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this consolidated
financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein for the 52 week periods ended January 30, 1999 and January 31, 1998.
KPMG LLP
Oklahoma City, Oklahoma
March 15, 1999
Schedule II
HAROLD'S STORES, INC. AND SUBSIDIARIES
VALUATION ACCOUNT
(In Thousands)
Additions-
Balance at Additions- Recoveries Deductions- Balance at
Beginning Charged to of Accounts Write-off of End of
Description of Period Expense Written off Accounts Period
52 Weeks ended
January 29, 2000:
Allowance for
doubtful accounts $223 54 59 136 $200
52 Weeks ended
January 30, 1999:
Allowance for
doubtful accounts $228 105 63 173 $223
52 Weeks ended
January 31, 1998:
Allowance for
doubtful accounts $215 168 79 234 $228
INDEX TO EXHIBITS
No. Description
3.1 Certificate of Incorporation of Registrant (Incorporated by
reference to Exhibit 3.1 to Form 8-B Registration Statements,
Registration No. 1-10892).
3.2 By-laws of Registrant (Incorporated by reference to Exhibit 3.2
to Form 8-B Registration Statement, Registration No. 1-10892).
4.1 Specimen Certificate for Common Stock (Incorporated by
reference to Exhibit 4.1 to Form S-1 Registration Statement,
Registration No. 33-15753).
9.1 Stockholders' Agreement Among Certain Stockholders of
Registrant dated August 20, 1987 (Incorporated by reference to
Exhibit 9.1 to Form S-1 Registration Statement, Registration
No. 33-15753).
9.2 First Amended and Restated Stockholders' Agreement Among
Certain Stockholders of Registrant dated June 15, 1998.
(Incorporated by reference to Exhibit 10.2 to Form 10-Q for the
quarter ended August 1, 1998).
10.1 Lease Agreement dated May 1, 1987 by and between Harold's of
Norman, Inc. and Powell Properties, Inc. (Norman, Oklahoma
Store) (Incorporated by reference to Exhibit 10.1 to Form S-1
Registration Statement, Registration No. 33-15753).
10.2 Lease Agreement dated May 1, 1987 by and between Harold's of
Norman, Inc. and Ruby K. Powell (Norman, Oklahoma Store)
(Incorporated by Reference to Exhibit 10.2 to Form S-1
Registration Statement, Registration No. 33-15753).
10.3 Lease Agreement dated October 31, 1985 by and between Harold's
Men's Apparel, Inc. predecessor to Harold's of Norman, Inc. and
Highland Park Shopping Village (Incorporated by Reference to
Exhibit 10.9 to Form S-1 Registration Statement, Registration
No. 33-15753) and Amendment to Lease dated June 15, 1988.
(Incorporated by reference to Exhibit 10.8 to Form 10-K for the
year ended January 31, 1989).
10.4 Lease Agreement dated November 1, 1990, by and between
Registrant and Michael T. Casey, Trustee (329 Partners-I
Limited Partnership). (Dallas Buying Office, Dallas, Texas)
(Incorporated by reference to Exhibit 10.29 to Form 10-K for
the year ended February 2, 1991).
10.5 Amended and Restated Lease Agreement dated April 1, 1996, by
and between Registrant and 329 Partners-II Limited
Partnership. (Dallas Buying Office, Dallas, Texas).
(Incorporated by reference to Exhibit 10.22 to Form 10-K for
the year ended February 1, 1992).
10.6 Lease Agreement dated October 4, 1991, by and between
Registrant and 329 Partners-II Limited Partnership. (East
Lindsey Warehouse facility, Norman, Oklahoma). (Incorporated
by Reference to Exhibit 10.22 to Form 10-K for the year ended
February 1, 1992).
10.7 Lease Agreement effective May 1, 1996 between Registrant and
Carousel Properties, Inc. (Campus Corner Store, Norman,
Oklahoma) (Incorporated by reference to Exhibit 10.7 to Form S-
2 Registration Statement, Registration No. 333-04117) and
amendment to Lease Agreement dated June 28, 1996.
(Incorporated by reference to Exhibit 10.1 to Form 10-Q for
the quarter ended November 2, 1996).
10.8 Agreement effective June 1, 1994 between Registrant and CMT
Enterprises, Inc. (Incorporated by reference to Exhibit 10.8
to Form S-2 Registration Statement, Registration No. 333-
04117).
10.9* Employment and Deferred Compensation Agreement dated February
1, 1999 between Registrant and Harold G. Powell (Incorporated
by reference to Exhibit 10.25 to Form 10-Q for quarter ended
May 1, 1999).
10.10* Employment and Deferred Compensation Agreement dated May 1,
1999 between Registrant and Rebecca Powell Casey, (Incorporated
by reference to Exhibit 10.24 to Form 10-Q for quarter ended
May 1, 1999).
10.11* Employment and Deferred Compensation Agreement dated May 1,
1999 between Registrant and H. Rainey Powell, (Incorporated by
reference to Exhibit 10.26 to Form 10-Q for quarter ended May
1, 1999).
10.12 Form of Indemnification Agreement between Registrant and
members of its Board of Directors (Incorporated by reference to
Exhibit 10.12 to Form S-2 Registration Statement, Registration
No. 333-04117).
10.13 Amended and Restated Lease Agreement dated as of June 3, 1996
between Registrant and 329 Partners II Limited Partnership
(East Lindsey Warehouse Facility, Norman, Oklahoma)
(Incorporated by reference to Exhibit 10.13 to Amendment No. 1
to Form S-2 Registration Statement, Registration No. 333-
04117).
10.14 Lease Agreement dated as of May 31, 1996 between Registrant
and 329 Partners II Limited Partnership (Outlet Store, Norman,
Oklahoma) (Incorporated by reference to Exhibit 10.14 to
Amendment No. 1 to Form S-2 Registration Statement,
Registration No. 333-04117).
10.15 Amended and Restated Lease Agreement dated as of December 30,
1997 between Registrant and 329 Partners II Limited
Partnership (Outlet Store, Norman, Oklahoma).
10.16 Lease Agreement dated June 30, 1998 by and between Registrant
and 329 Partners-II Limited Partnership. (Dallas Buying
Office, 5919 Maple, Dallas, Texas) (Incorporated by reference
to Exhibit 10.3 to Form 10-Q for the quarter ended August 1,
1998).
10.17 Second Amended and Restated Credit Agreement dated February
28, 1996 between Registrant and Boatmen's First National Bank
of Oklahoma (Incorporated by reference to Exhibit 10.15 to
Amendment No. 1 to Form S-2 Registration Statement,
Registration No. 333-04117).
10.18 Third Amendment to Second Amended and Restated Credit
Agreement dated April 24, 1997 between Registrant and
NationsBank formerly Boatmen's First National Bank of Oklahoma
(Incorporated by reference to Exhibit 10.1 to Form 10-Q for
the quarter ended August 2, 1997).
10.19 Fourth Amendment to Second Amended and Restated Credit
Agreement dated June 25, 1997 between Registrant and
NationsBank formerly Boatmen's First National Bank of Oklahoma
(Incorporated by reference to Exhibit 10.2 to Form 10-Q for
the quarter ended August 2, 1997).
10.20 Fifth Amendment to Second Amended and Restated Credit
Agreement dated July 10, 1997 between Registrant and
NationsBank formerly Boatmen's First National Bank of Oklahoma
(Incorporated by reference to Exhibit 10.3 to Form 10-Q for
the quarter ended August 2, 1997).
10.21 Sixth Amendment to Second Amended and Restated Credit
Agreement dated July 31, 1997 between Registrant and
NationsBank (Incorporated by reference to Exhibit 10.4 to Form
10-Q for quarter ended August 2, 1997).
10.22 Seventh Amendment to Second Amended and Restated Credit
Agreement dated September 30, 1997 between Registrant and
NationsBank (Incorporated by reference to Exhibit 10.5 to Form
10-Q for the quarter ended November 1, 1997).
10.23 Third Amended and Restated Credit Agreement dated November 10,
1997 between Registrant and NationsBank (Incorporated by
reference to Exhibit 10.6 to Form 10-Q for the quarter ended
November 1, 1997).
10.24 First Amendment to the Third Amended and Restated Credit
Agreement dated June 10, 1998 between Registrant and
NationsBank (Incorporated by reference to Exhibit 10.1 to Form
10-Q for the quarter ended August 1, 1998).
10.25 Amended and Restated Term Loan and Security Agreement dated as
of November 6, 1996 among CMT Enterprises, Inc. (as borrower),
Franklin I. Bober (as Guarantor) and the Company (as lender).
(Incorporated by reference to Exhibit 10.2 to Form 10-Q for
the quarter ended November 2, 1996).
10.26 Second Amendment to the Third Amended and Restated Credit
Agreement dated August 31, 1998 between Registrant and
NationsBank.
10.27 Third Amendment to the Third Amended and Restated Credit
Agreement dated June 30, 1999 between Registrant and
NationsBank (Incorporated by reference to Exhibit 10.1 to Form
10-Q for the quarter ended July 31, 1999).
10.28 Fourth Amendment to the Third Amended and Restated Credit
Agreement dated November 24, 1999 between Registrant and Bank
of America, N.A.
10.29 Stock Purchase Agreement, dated February 18, 2000, by and
between Harold's Stores, Inc. and Franklin I. Bober
(Incorporated by reference to Exhibit 10.1 to Form 8-K dated
February 18, 2000).
10.30 Consulting Agreement, dated as of January 31, 2000, by and
between Harold's Stores, Inc. and PrimaTech Corporation
(Incorporated by reference to Exhibit 10.2 to Form 8-K dated
February 18, 2000).
13.1 The portion of the Registrant's Annual Report to Stockholders
for the fiscal year ended January 29, 2000 consisting of the
consolidated financial statements and notes thereto and
independent auditors report set forth in pages 10-30 of the
Annual Report to Stockholders.
22.1 Subsidiaries of the Registrant (Incorporated by Reference to
Exhibit 22.1 to Form 8-B Registration Statements, Registration
No. 1-10892).
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of KPMG LLP.
27.1 Financial Data Schedule.
___________________________
* Constitutes a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this report.
Exhibit 13.1 Selected Portions of Annual Report to Stockholders
The following consists of the portion of the Company's Annual Report to
Stockholders for the fiscal year ended January 29, 2000 containing the
consolidated financial statements of the Company and notes thereto and
independent auditors' reports set forth in pages 10-30 of the Annual Report to
Stockholders. Such information is incorporated by reference in Item 8 of the
Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2000
and is filed as an exhibit thereto in accordance with General Instruction G to
Form 10-K.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Harold's Stores, Inc. has the responsibility for preparing
the accompanying consolidated financial statements and for their integrity and
objectivity. The statements were prepared in accordance with generally
accepted accounting principles and include amounts that are based on
management's best estimates and judgment where necessary. Management believes
that all representations made to our external auditors during their
examination of the financial statements were valid and appropriate.
To meet its responsibility, management has established and maintains a
comprehensive system of internal control that provides reasonable assurance as
to the integrity and reliability of the consolidated financial statements,
that assets are safeguarded, and that transactions are properly executed and
reported. This system can provide only reasonable, not absolute, assurance
that errors and irregularities can be prevented or detected. The concept of
reasonable assurance is based on the recognition that the cost of a system of
internal control is subject to close scrutiny by management and is revised as
considered necessary.
The Board of Directors of Harold's Stores, Inc. has engaged Arthur Andersen
LLP, independent public accountants, to conduct an audit of the fiscal 2000
consolidated financial statements. Their report is included on the following
page.
/s/H. Rainey Powell
President
/s/Jodi L. Taylor
Jodi L. Taylor
Chief Financial Officer
April 24, 2000
Report of Independent Public Accountants
To the Board of Directors and Stockholders of
Harold's Stores, Inc.:
We have audited the accompanying consolidated balance sheet of Harold's
Stores, Inc. (an Oklahoma corporation) and subsidiaries as of January 29,
2000, and the related consolidated statements of operations, stockholders'
equity and cash flows for the 52 week period then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Harold's
Stores, Inc. and subsidiaries as of January 29, 2000, and the results of their
operations and their cash flows for the 52 week period then ended in
conformity with accounting principles generally accepted in the United States.
As explained in Note 1 to the consolidated financial statements, effective
January 31, 1999, the Company adopted Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use."
This pronouncement required the Company to capitalize certain internal costs
that were previously expensed.
Arthur Andersen LLP
Oklahoma City, Oklahoma,
March 13, 2000
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Harold's Stores, Inc.:
We have audited the accompanying consolidated balance sheet of Harold's
Stores, Inc. and subsidiaries (the Company) as of January 30, 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the 52-week periods ended January 30, 1999, and January 31, 1998.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Harold's
Stores, Inc. and subsidiaries as of January 30, 1999, and the results of their
operations and their cash flows for the 52-week periods ended January 30, 1999
and January 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Oklahoma City, Oklahoma
March 15, 1999
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
January 29, January 30,
2000 1999
Current assets:
Cash and cash equivalents $721 450
Trade accounts receivable, less
allowance for doubtful
accounts of $200 in 2000 and
$223 in 1999 6,413 6,335
Note and other receivables 2,247 1,059
Merchandise inventories 37,357 29,486
Prepaid expenses 2,514 2,849
Prepaid income taxes 1,368 -
Deferred income taxes 1,582 1,268
Total current assets 52,202 41,447
Property and equipment, at cost 33,983 31,304
Less accumulated depreciation and
amortization (12,665) (10,671)
Net property and equipment 21,318 20,633
Note receivable, noncurrent - 1,750
Deferred income taxes, noncurrent 232 -
Other assets 127 87
Total assets $73,879 63,917
The accompanying notes are an integral part of these balance sheets.
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(In Thousands Except Share Data)
January 29, January 30,
2000 1999
Current liabilities:
Accounts payable $6,329 4,460
Redeemable gift certificates 966 798
Accrued bonuses and payroll expenses 1,294 1,533
Accrued rent expense 529 162
Income taxes payable - 480
Current maturities of long-term debt 630 549
Total current liabilities 9,748 7,982
Long-term debt, net of current
maturities 27,063 16,330
Deferred income taxes - 84
Commitments and contingent
liabilities (notes 10 and 12)
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
6,075,182 in 2000 and 6,073,868
in 1999 60 60
Additional paid-in capital 34,170 34,161
Retained earnings 2,838 5,300
Total stockholders' equity 37,068 39,521
Total liabilities and stockholders'
equity $73,879 63,917
The accompanying notes are an integral part of these balance sheets.
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Data)
52 Weeks Ended
January 29, January 30, January 31,
2000 1999 1998
Sales $136,262 129,224 119,919
Costs and expenses:
Cost of goods sold (including
occupancy, central buying
expenses and product
development interest,
exclusive of items shown
separately below) 95,137 84,096 81,770
Selling, general and
administrative expenses 39,663 35,686 33,725
Depreciation and amortization 4,451 3,860 3,535
Interest expense 1,114 797 815
140,365 124,439 119,845
Earnings (loss) before income
taxes and cumulative effect
of change in accounting
principle (4,103) 4,785 74
Provision (benefit) for
income taxes (1,641) 1,894 30
Earnings (loss) before
cumulative effect of change
in accounting principle (2,462) 2,891 44
Cumulative effect of change in
accounting principle, net of
income taxes - 50 -
Net earnings (loss) $(2,462) 2,841 44
Net earnings (loss) per common
share before cumulative
effect of change in
accounting principle:
Basic $(0.41) 0.48 0.01
Diluted $(0.41) 0.48 0.01
Net earnings (loss) per
common share:
Basic $(0.41) 0.47 0.01
Diluted $(0.41) 0.47 0.01
Weighted average number of
common shares
(Basic) 6,074,886 6,065,418 6,020,936
The accompanying notes are an integral part of these consolidated financial
statements.
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
52 Weeks Ended
January 29, January 30, January 31,
2000 1999 1998
Common stock:
Balance, beginning of year $60 60 57
Stock dividend (5 percent) in
1998 of 287,528 shares - - 3
Stock bonuses, 1,314 shares in
2000, 1,857 shares in 1999, 2,306
shares in 1998 - - -
Employee Stock Purchase Plan
issued no shares in 2000, 27,996
shares in 1999, and 40,745 shares
in 1998 - - -
Balance, end of year $60 60 60
Additional paid-in capital:
Balance, beginning of year $34,161 33,947 31,548
Stock dividend (5 percent) in
1998 - - 2,010
Stock bonuses 9 14 22
Employee stock purchase plan - 200 367
Balance, end of year $34,170 34,161 33,947
Retained earnings:
Balance, beginning of year $5,300 2,459 4,430
Net earnings (loss) (2,462) 2,841 44
Stock dividend (5 percent) in
1998 - - (2,015)
Balance, end of year $2,838 5,300 2,459
The accompanying notes are an integral part of these consolidated financial
statements.
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
52 Weeks Ended
January 29, January 30, January 31,
2000 1999 1998
Cash flows from operating
activities:
Net earnings (loss) $(2,462) 2,841 44
Adjustments to reconcile net
earnings (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization 4,451 3,860 3,535
Deferred income tax expense
(benefit) (630) (134) 419
(Gain) loss on sale of assets (393) 44 (44)
Shares issued under employee
incentive plans 9 214 389
Changes in assets and
liabilities:
Increase in trade and other
receivables (313) (798) (209)
Decrease (increase) in
merchandise inventories (7,871) 1,954 (2,896)
Decrease (increase) in prepaid
expenses 335 (161) (514)
Decrease (increase) in prepaid
income taxes (1,368) 961 (961)
Decrease (increase) in other
assets (41) 341 558
(Decrease) increase in accounts
payable 1,869 (329) (1,879)
(Decrease) increase in accrued
expenses 297 365 (1,051)
(Decrease) increase in income
taxes payable (480) 480 (942)
Net cash provided by (used in)
operating activities (6,597) 9,638 (3,551)
Cash flows from investing
activities:
Acquisition of property and
equipment (5,644) (6,280) (4,760)
Proceeds from disposal of
property and equipment 901 79 37
Payments received for note
receivable 797 446 169
Net cash used in investing
activities (3,946) (5,755) (4,554)
Cash flows from financing
activities:
Borrowings on long-term debt 1,593 - 4,364
Payments of long-term debt (1,302) (1,399) (411)
Advances on revolving line of
credit 52,034 45,696 46,834
Payments of revolving line of
credit (41,511) (47,860) (42,983)
Payments of fractional shares
issued with stock dividend - - (2)
Net cash provided by (used in)
financing activities 10,814 (3,563) 7,802
Net increase (decrease) in cash
and cash equivalents 271 320 (303)
Cash and cash equivalents at
beginning of year 450 130 433
Cash and cash equivalents at
end of year $721 450 130
Supplemental disclosure of cash
flow information:
Cash paid during the year for:
Income taxes $853 1,294 756
Interest $1,568 1,313 1,487
The accompanying notes are an integral part of these consolidated financial
statements.
HAROLD'S STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 29, 2000, January 30, 1999, and January 31, 1998
1. Summary of Significant Accounting Policies
Nature of Entity
Harold's Stores, Inc., an Oklahoma corporation (the Company), operates a
chain of "updated traditional", classic styled ladies and men's specialty
apparel stores. The Company offers its merchandise in 51 stores primarily
across the South and Southwest. The Company creates the majority of its
product assortment through its private label program. The product development
and private label programs provide an exclusive selection of upscale
merchandise to the consumer.
In addition to the stores, the Company has a direct response "mail order"
catalog business and also sells merchandise online at www.harolds.com.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany accounts and transactions have been eliminated.
Definition of Fiscal Year
The Company has a 52-53 week fiscal year, which ends on the Saturday
closest to January 31. Fiscal years 2000, 1999, and 1998 ended January 29,
2000, January 30, 1999, and January 31, 1998, respectively, each of which
comprised a 52 week year.
Reclassifications
Certain comparative prior year amounts in the consolidated financial
statements have been reclassified to conform with the current year
presentation.
Cash and Cash Equivalents
Cash and cash equivalents include overnight investments and credit card
receivables collected within three business days.
Accounts Receivable and Finance Charges
Trade accounts receivable primarily represents the Company's credit card
receivables from customers. These customers are primarily residents of
Oklahoma and Texas. Finance charges on these revolving receivables are
imposed at various annual rates in accordance with the state laws in which the
Company operates, and are recognized in income when billed to the customers.
Minimum monthly payments are required generally equal to ten percent of the
outstanding balance. The average liquidation rate at January 29, 2000 was
approximately 3.7 months. Finance charge revenue is netted against selling,
general and administrative expenses and was approximately $1,052,000,
$1,003,000, and $985,000, in fiscal years 2000, 1999, and 1998, respectively.
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market using
the retail method of accounting. Inventories of raw materials and work-in-
process are valued at the lower of cost (first-in, first-out method) or
market, and approximate $9,076,000 and $7,355,000 in fiscal years 2000 and
1999, respectively.
Capitalization of Interest
During fiscal year 2000, the Company began capitalizing interest related
to construction of new store locations. Interest attributed to funds used to
finance construction projects is capitalized as an additional cost of the
related assets. Capitalization of interest ceases when the related projects
are substantially complete. The Company has capitalized approximately $56,000.
These costs are included in leasehold improvements in the accompanying balance
sheets. For the year ended January 29, 2000, the Company also capitalized
approximately $34,000 of interest related to computer software costs. See
discussion of computer software costs below.
Derivatives
The Company uses forward exchange contracts to reduce exposure to foreign
currency fluctuations related to certain purchase commitments. Unrealized
gains or losses related to hedges of firm commitments are deferred and
included in the basis of the transaction when completed.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and for Hedging Activities", with an effective date for
periods beginning after June 15, 1999. In July 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133". Adoption of SFAS No. 133 is
now required for financial statements for periods beginning after June 15,
2000. 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
recognize 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. The Company will adopt
this new standard effective February 1, 2001, and management believes the
adoption of this new standard will not have a material impact on its
consolidated financial position or results of operations.
Stock Options
The Company follows the intrinsic value method of accounting for common
stock options granted to employees, in accordance with the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations.
Revenue Recognition
Sales from store locations represent approximately 96.1% of the Company's
total sales. These sales are recognized at the time of the customer's
purchase. Catalog and website sales represent approximately 3.9% of total
sales. These sales are recognized at the time the order is shipped to the
customer.
Preopening Expenses and Catalog Costs
The Company elected early adoption in fiscal 1999 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.
The Company expenses all non-direct advertising as incurred and defers
the direct costs of producing its mail order catalogs. These costs are
amortized over the estimated sales period of the catalogs, generally three to
four months. Approximately $218,000 and $421,000, of deferred catalog costs
were included in prepaid expenses at January 29, 2000 and January 30, 1999,
respectively. The Company incurred approximately $7,942,000, $7,849,000, and
$10,002,000, in advertising expenses, of which approximately $4,207,000,
$3,940,000, and $6,028,000, were related to the mail order catalogs during
fiscal years 2000, 1999, and 1998, respectively.
Depreciation, Amortization and Maintenance and Repairs
Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets. Leasehold improvements are
amortized over the shorter of the life of the respective leases or the
expected life of the improvements. The following are the estimated useful
lives used to compute depreciation and amortization:
Buildings 30 years
Leasehold improvements 5-10 years
Furniture and equipment 4-7 years
Software and related costs 3 years
Maintenance and repairs are charged directly to expense as incurred,
while betterments and renewals are generally capitalized in the property
accounts. When an item is retired or otherwise disposed of, the cost and
applicable accumulated depreciation are removed from the respective accounts
and the resulting gain or loss is recognized.
Computer Software Costs
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 (SOP 98-1) "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 is
effective for fiscal years beginning after December 15, 1998. The Company
adopted SOP 98-1 during fiscal year 2000. The net increase to earnings for
fiscal year 2000 was approximately $168,000.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
Net Earnings Per Common Share
Basic earnings per share is computed by dividing net earnings (loss)
applicable to common stock by the weighted average number of common shares
outstanding for the period. The weighted average number of common shares
outstanding was restated for the five (5%) percent stock dividend in fiscal
1998. Diluted earnings per share reflect the potential dilution that could
occur if the Company's outstanding stock options were exercised (calculated
using the treasury stock method).
The following table reconciles the net income (loss) applicable to common
shares and weighted average common shares outstanding used in the calculation
of basic and diluted earnings per common share for the periods indicated:
Fiscal Year
2000 1999 1998
(Amounts in thousands,
except per share data)
Net earnings (loss) applicable to
common shares, basic and diluted $(2,462) 2,841 44
Weighted average number of common
shares outstanding - basic 6,075 6,065 6,021
Dilutive effect of potential common
shares issuable upon
exercise of employee stock options 4 5 11
Weighted average number of common 6,079 6,070
shares outstanding - diluted 6,079 6,070 6,032
Earnings (loss) per share:
Basic $(0.41) 0.47 0.01
Diluted $(0.41) 0.47 0.01
Options to purchase 644,520 shares of common stock at prices ranging from
$6.38 to $16.71 per share were outstanding during 2000, but were not included
in the computation of earnings per share because the options' exercise price
was greater than the average market price of common shares. The options
expire through the year 2009.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets.
Comprehensive Income
In fiscal 1999, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
display of "comprehensive income" and its components in a set of financial
statements. It requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements. The Company currently does not have any components of
comprehensive income that are not included in net earnings. Therefore no
separate statement is presented.
2. Fair Value of Financial Instruments
Balance Sheet: Cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses approximate fair value because of the short
maturity of these financial instruments. Note receivable and substantially
all of the debt are at variable interest rates, therefore, fair value
approximates book value.
Off balance sheet: There were no outstanding notional principal amounts
of forward exchange contract commitments at January 29, 2000 or at January 30,
1999.
3. Note Receivable
On November 6, 1996, the Company made a term loan to CMT Enterprises,
Inc., "CMT", in the principal amount of $2,750,000 to be used by CMT to
refinance its existing revolving line of credit and for working capital
purposes. CMT is a major independent contractor whose assistance is
instrumental in the Company's design and manufacturing process.
The loan is governed by a loan agreement containing terms and conditions
customary to financing of this type. The Company recognized $260,000,
$220,000 and $204,000 of interest income during fiscal 2000, 1999, and 1998
respectively.
On February 18, 2000, the Company entered into a stock purchase agreement
pursuant to which the Company purchased all of the issued and outstanding
shares of CMT. See note 14 for additional information.
4. Property and Equipment
Property and equipment at January 29, 2000 and January 30, 1999 consisted
of the following:
Fiscal Year
2000 1999
(in thousands)
Land $665 665
Buildings 2,970 2,967
Leasehold improvements 12,321 9,660
Furniture and
equipment 18,027 17,020
Construction in
progress - 992
$33,983 31,304
5. Long-term Debt
Long-term debt at January 29, 2000 and January 30, 1999 consisted of the
following:
Fiscal Year
2000 1999
(in thousands)
Borrowings under line of credit with
a maximum line of $30,000,000,
bearing interest at a variable rate
(7.2% and 6.6% at January 29, 2000
and January 30, 1999, respectively)
payable monthly, $2,000,000 and
$28,000,000 principal due February,
2000 and June, 2001, respectively. $23,395 12,872
Note payable to financial
institution, secured by the
assignment of substantially all
assets of CMT, certain security
documents, and promissory note of
CMT, bearing interest at a variable
rate (7.2% and 6.5% at January 29,
2000 and January 30, 1999,
respectively), due in monthly
installments of principal and
interest of approximately $34,000,
with final payment due June, 2001. 1,335 2,029
Note payable to financial
institution, secured by building and
land, bearing interest at a variable
rate (8.0% at January 30, 1999), due
in monthly installments of principal
of approximately $6,000, plus
accrued interest. This note was
paid in full during fiscal 2000
through a refinancing arrangement. - 369
Note payable to financial
institution, secured by building and
land, bearing interest at a fixed
rate (8.3%), due in monthly
installments of principal and
interest of approximately $9,000,
with final payment due June, 2011. 819 861
Note payable to financial
institution, secured by certain
equipment, bearing interest at a
fixed rate (8.0%), due in monthly
installments of principal and
interest of approximately $18,000,
with final payment due March, 2003. 587 748
Note payable to financial
institution, secured by certain
equipment, bearing interest at a
fixed rate (8.1%), due in monthly
installments of principal and
interest of approximately $12,000,
with final payment due November,
2004. 569 -
Note payable to financial
institution, secured by building and
land, bearing interest at a variable
rate (8.5% at January 29, 2000), due
in monthly installments of principal
and interest of approximately
$11,000, with final payment due
December, 2005. 988 -
Total long-term debt 27,693 16,879
Less current maturities of long-
term debt 630 549
Long-term debt, net of current
maturities $27,693 16,330
The borrowing base under the Company's primary line of credit is limited
to $30 million through February 22, 2000, $28 million thereafter, and is based
upon certain percentages of eligible receivables and inventory as defined in
the credit agreement. The entire $30 million, less amounts outstanding, was
available at January 29, 2000. The line of credit contains various financial
and nonfinancial covenants which limit the Company's ability to incur
indebtedness, merge, consolidate, acquire or sell assets; requires the Company
to maintain a minimum tangible net worth of $34 million; restricts the number
of new stores the Company may open and requires bank approval prior to
executing new store leases, excluding relocations of existing stores; and
requires the Company to satisfy certain financial ratios. The Company had
obtained a waiver for the one covenant it exceeded during fiscal 2000. The
Company was in compliance with all other covenants at January 29, 2000.
The annual maturities of the above long-term debt as of January 29, 2000 are
as follows (in thousands):
Fiscal year
ending
2001 $ 630
2002 24,841
2003 436
2004 288
2005 249
2006 and
subsequent 1,249
Total $27,693
6. Income Taxes
Income tax expense (benefit), excluding $33,000 in 1999 related to the
cumulative effect, for the years ended January 29, 2000, January 30, 1999, and
January 31, 1998, consisted of the following (in thousands):
Fiscal Year
2000 1999 1998
(in thousands)
Current:
Federal $(859) 1,659 (318)
State (152) 369 (71)
(1,011) 2,028 (389)
Deferred:
Federal (535) (112) 349
State (95) (22) 70
(630) (134) 419
Total $(1,641) 1,894 30
Income tax expense differs from the normal tax rate as follows:
Fiscal Year
2000 1999 1998
(in thousands)
Statutory tax rate 34% 34% 34%
Increase in income
taxes caused by:
State income taxes 6 6 6
Effective tax rate 40% 40% 40%
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at January
29, 2000 and January 30, 1999 are presented below (in thousands):
Fiscal Year
2000 1999
(in thousands)
Deferred tax assets -
current:
Allowance for
doubtful accounts $80 $177
Accrued expenses 342 -
Merchandise
inventories 1,115 1,037
Deferred
compensation 45 54
$1,582 $1,268
Deferred tax assets -
noncurrent:
Property and
equipment $232 -
Deferred tax liability
- noncurrent:
Property and
equipment $- $84
The net deferred tax asset relates solely to future deductible temporary
differences and there is no valuation allowance. Management believes that it
is more likely than not that the Company will fully realize the gross deferred
tax assets; however, there can be no assurances that the Company will generate
the necessary adjusted taxable income in any future periods.
7. Stockholders' Equity and Stock Options
The Company has authorized 1,000,000 shares of preferred stock, par value
$.01 per share. This preferred stock may be issued in one or more series and
the terms and rights of such stock will be determined by the Board of
Directors. No preferred shares were issued or outstanding at January 29, 2000
or January 30, 1999.
The Company has reserved 1,000,000 shares of its common stock for
issuance to key employees under its current stock option and equity incentive
plan, which was adopted in April 1993 and amended in June 1995. The plan has
a term of ten years. The Compensation Committee of the Board of Directors may
grant incentive or non-qualified stock options, restricted stock, stock
appreciation rights and other stock-based and cash awards under the provisions
of the plan. The exercise price of incentive stock options is the fair market
value of the stock at the date of the grant, plus ten percent if the employee
possesses more than ten percent of the total combined voting power of all
classes of the Company's stock. Options granted may have a term of up to ten
years, except that incentive stock options granted to stockholders who have
more than ten percent of the Company's voting stock at the time of the grant
may have a term of up to five years. Any unexercised portion of the options
will automatically and without notice terminate upon the applicable
anniversary of the issuance date or termination of employment. A summary of
the status of the Company's stock option plan, and activity for the periods
indicated, is presented as follows:
Options Options
Outstanding Exercisable
Weighted Weighted
Avg. Avg.
Exercise Exercise
Shares Price Shares Price
Balance of options
outstanding, fiscal 1997 415,378 $9.05 207,470 $8.76
Granted 94,500 8.98
Terminated (12,682) 7.61
Balance of options
outstanding, fiscal 1998 497,196 9.07 294,056 $8.95
Granted 129,500 6.84
Terminated (5,173) 8.36
Balance of options
outstanding, fiscal 1999 621,523 8.62 395,433 $8.90
Granted 183,499 5.98
Terminated (83,624) 7.80
Balance of options
outstanding, fiscal 2000 721,398 $8.04 455,602 $8.61
At January 29, 2000, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $4.06 - $16.71, and 6.6
years, respectively. The following table summarizes information about the
Company's stock options, which were outstanding, and those, which were
exercisable as of January 29, 2000:
Options Outstanding Options Exercisable
Range of Weighted Weighted Weighted
Exercise Number Average Average Number Average
Prices Outstanding Remaining Life Exercise Price Exercisable Exercisa Price
$4.06-7.66 483,043 7.0 $6.76 252,495 $7.06
$7.66-16.71 238,355 5.9 $10.63 203,107 $10.54
The number of shares and exercise prices has been restated to reflect the
five- percent stock dividends in fiscal 1998.
Additionally, as of January 29, 2000, restricted stock awards for up to
$3,500 market value of common stock were outstanding under the plan. These
awards may be exercised over the remaining two-year vesting period in equal
annual installments at the fair market value of common stock on such
installment vesting date. After giving effect to the outstanding and
exercised awards, and based upon the price of common stock on January 29,
2000, the Company may award 277,727 shares or options under the plan.
The weighted average fair values of options granted under the non-
qualified plan during fiscal 2000, 1999 and 1998 were $3.13, $4.35, and $5.71,
respectively.
No options were granted during fiscal years 2000, 1999 or 1998 under the
incentive plan. The fair value of each non-qualified and incentive option
granted was estimated using the Black-Scholes Option Pricing Model with the
following assumptions for fiscal 2000, 1999, and 1998: risk-free interest
rate of 5.69% for fiscal 2000, 4.75% for fiscal 1999, and 5.5% for fiscal
1998; expected dividend yield of 0% for all periods; expected lives of
approximately 7 years for fiscal 2000 and 9 years for fiscal 1999 and 1998;
and volatility of the price of the underlying common stock of 41.0% for fiscal
2000, 45.4% for fiscal 1999, and 43.4% for fiscal 1998.
Had the Company elected to recognize compensation expense based on the
fair value of the stock options granted as of their grant date, the Company's
fiscal 2000, 1999, and 1998 pro forma net earnings and pro forma net earnings
per share would have differed from the amounts actually reported as shown in
the table below. The pro forma amounts shown reflect only options granted in
fiscal 1996 through 2000. Therefore, the full impact of calculating
compensation cost for stock options based on their fair value is not reflected
in the pro forma net income amounts presented because compensation cost is
reflected over the options' vesting period of up to 10 years and compensation
cost for options granted prior to January 29, 1995 is not considered.
Fiscal Years
2000 1999 1998
Net earnings (loss) As reported $(2,462) 2,841 44
(in thousands) Pro Forma $(2,746) 2,540 (195)
Earnings (loss) As reported $(0.41) 0.47 0.01
per share - basic Pro Forma $(0.45) 0.42 (0.03)
8. Retirement and Benefit Plans
The Company has a profit sharing retirement plan with a 401(k)
provision that allows participants to contribute up to 15 percent of their
compensation before income taxes. Eligible participants are employees at
least 21 years of age with one year of service. The Company's Board of
Directors will designate annually the amount of the profit sharing
contribution as well as the percentage of participants' compensation that it
will match as 401(k) contributions. For the years ended January 29, 2000,
January 30, 1999, and January 31, 1998, the Company contributed approximately
$248,000, $121,000, and $124,000, respectively, to the 401(k) plan.
The Company has reserved 200,000 shares of common stock for employees
under its stock purchase plan which covers all employees who meet minimum age
and service requirements. The Company's management will determine from time
to time the amount of any matching contribution as well as the percentage of
participants' compensation that it will match as purchase contributions. The
purchase price of shares covered under the plan is fair market value as of the
date of purchase in the case of newly issued shares and the actual price paid
in the case of open market purchases. The plan was implemented in January
1994. For the years ended January 29, 2000, January 30, 1999, and January 31,
1998, the Company's matching contributions were approximately $56,000,
$60,000, and $74,000, and approximately 28,000, and 41,000, shares were newly
issued shares in fiscal 1999 and 1998, respectively. No new shares were
issued in fiscal 2000. Approximately 41,000 and 15,000 shares were purchased
on the open market in fiscal 2000 and 1999, respectively. No shares were
purchased on the open market in fiscal 1998.
9. Related Party Transactions
Rent on the Norman, Oklahoma store and certain related facilities is paid
to a corporation controlled by the Company's Chairman Emeritus. The store
lease terms in 2000, 1999, and 1998, provided for payment of percentage rent
equal to four percent of sales plus certain ancillary costs. During the years
ended January 29, 2000, January 30, 1999, and January 31, 1998, the total of
such rent for the store and certain related facilities was approximately
$73,000, $108,000, and $131,000, respectively.
The Company leases some of its office space, a distribution center
facility and some retail space from a limited partnership whose partners are
stockholders and directors of the Company. The term of the office space lease
is sixteen years commencing April 1, 1996, with annual rent payments of
$158,000 plus insurance, utilities, and property taxes until April, 2000, at
which time the rent will be $180,000 plus insurance, utilities and property
taxes, increasing $2,500 per year until expiration of the lease. The Company
relocated its office space during fiscal 1999 to a new facility owned by the
same limited partnership. This former facility has been sublet by the Company
under favorable terms. The new office space lease expires September, 2010
with annual rent payments of $453,204 plus insurance and property taxes until
August, 2001 at which time the annual rent will be $478,382, plus insurance,
utilities and property taxes until August, 2004 at which time the annual rent
will be $503,560, plus insurance, utilities and property taxes until August,
2007 at which time annual rent will be $528,728, plus insurance, utilities and
property taxes until expiration of the lease. The term of the distribution
center lease is sixteen years commencing July 1, 1996, with annual rental
payments of $338,438 plus insurance, utilities and property taxes until July,
2001, at which time the annual rent will increase annually on a fixed scale up
to a maximum of $419,951 during the final year of the lease. The term of the
retail space lease is twelve years commencing June 4, 1996, with annual rental
payments of $84,106 plus percentage rent equal to four percent of sales plus
insurance, utilities, and property taxes.
See note 12 for information concerning the employment contracts with the
Company's Chairman Emeritus, Chairman of the Board and Chief Executive
Officer, and President.
10. Facility Leases
The Company conducts a majority of its retail operations from leased
store premises under leases that will expire within the next ten years. In
addition to minimum rental payments, certain leases provide for payment of
taxes, maintenance, and percentage rentals based upon sales in excess of
stipulated amounts.
Minimum rental commitments (excluding renewal options) for store,
distribution premises, office space and equipment under noncancelable
operating leases having a term of more than one year as of January 29, 2000
were as follows (in thousands):
Fiscal year
ending:
2001 $7,661
2002 7,584
2003 7,492
2004 7,240
2005 6,802
2006 and
subsequent 32,439
Total $69,218
Total rental expense for the years ended January 29, 2000, January 30, 1999,
and January 31, 1998, was as follows (in thousands):
Fiscal Year
2000 1999 1998
(in thousands)
Base rent $6,438 4,350 3,702
Additional rents
computed as percentage
of sales 1,365 1,041 1,206
Total $7,803 5,391 4,908
11. Business Concentrations
More than 90% of the ladies' apparel sales were attributable to the
Company's product development and private label programs during fiscal 2000,
1999 and 1998. The breakdown of total sales between ladies' and men's apparel
was approximately 78% and 22% for fiscal 2000, 79% and 21% for fiscal 1999,
and 77% and 23% for fiscal 1998.
The product development programs result in a substantial portion of the
Company's purchases of raw materials being concentrated among a small group of
vendors, of which some are located outside of the United States. CMT acts as
the Company's agent in the purchase of the raw materials, including fabrics,
linings, buttons, etc., and supervises the manufacturing process for a
substantial portion of the Company's ladies merchandise with manufacturing
contractors. In the event of the termination of the CMT relationship or other
of the Company's vendors, management believes that in most instances more than
one new vendor would be required to replace the loss of a principal vendor.
Although management believes that replacement vendors could be located, if any
buying relationship is terminated and until replacement vendors are located,
the operating results of the Company could be materially adversely affected.
The Company's sales are directly impacted by regional and local economics
and consumer confidence. The amount of disposable income available to
consumers, as well as their perception of the current and future direction of
the economy, impacts their level of purchases. The consumer demand for the
Company's apparel fluctuates according to changes in customer preferences
dictated by fashion and season. In addition, the Company's sales are subject
to seasonal influences, with the major portion of sales being realized during
the fall season, which includes the back-to-school and holiday selling
seasons. Such fluctuations could affect sales and the valuation of inventory,
since the merchandise is placed in the production process, or ordered, well in
advance of the season and sometimes before fashion trends are evidenced by
consumer purchases.
See Note 14 for information concerning the purchase of CMT by the
Company.
12. Commitments and Contingent Liabilities
The Company issues letters of credit which are used principally in
overseas buying, cooperative buying programs, and for other contract
purchases. At January 29, 2000, the Company had outstanding approximately
$83,000 in letters of credit to secure orders of merchandise from various
domestic and international vendors.
During fiscal 2000, the Company entered into 17 forward exchange
contracts with a major financial institution. The Company had no forward
exchange contracts outstanding at January 29, 2000. The forward exchange
contracts require the Company to exchange US dollars for foreign currencies at
maturity, at rates agreed to at inception of the contracts. The amount of any
gain or loss on these contracts in fiscal 2000 was immaterial. The contracts
are of varying short-term duration and 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. A swap allows the Company to sell the unused currency, at the
contract's maturity, to the counterparty at the current market rate and then
buy back the same amount for the time period to which the Company wants to
extend. The counterparty to the derivative transactions is a major financial
institution. The credit risk is generally limited to the unrealized gains or
losses in such contracts should this counterparty fail to perform as
contracted. The Company considers the risk of counterparty default to be
minimal.
Pursuant to an employment agreement dated February 1, 1998, 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 each dated February 1, 1998 and amended
May 1, 1999, the Chairman of the Board and the 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.
The Company is involved in various claims, administrative agency
proceedings and litigation arising out of the normal conduct of its business.
Although the ultimate outcome of such litigation cannot be predicted, the
management of the Company, after discussions with counsel, believes that
resulting liability, if any, will not have a material effect upon the
Company's financial position or results of operations.
13. Business Segments
The Company manages its operations on an individual store basis.
Financial information is maintained for each store and provided to the
Company's management for review and as a basis for decision-making. The
Company fully allocates all expenses down to a pre-tax level and monitors each
store's performance accordingly. Given the economic characteristics of the
store formats, the similar nature of the products sold, the type of customer
and method of distribution, the operations of the Company are aggregated into
one reportable segment. While the catalog and other miscellaneous operations
qualify as operating segments, they are not considered material to the
consolidated financial statements for the purpose of making operating
decisions and do not meet the threshold for disclosure under Statement of
Financial Accounting Standards (SFAS) No. 131 "Disclosure About Segments of an
Enterprise and Related Information."
14. Subsequent Event
On February 18, 2000, the Company entered into a stock purchase agreement
pursuant to which the Company purchased all of the issued and outstanding
shares of CMT Enterprises, Inc., a New York corporation. CMT is a company
exclusively devoted to product design, development and sourcing of the
Company's clothing (see Note 11). The Company issued a promissory note to
Franklin I. Bober, the sole stockholder of CMT, in the amount of $2.54
million, payable with interest at a monthly rate of .466% in thirty (30)
monthly installments, and assumed long-term debt of CMT, payable to the
Company, in the amount of $1.385 million. The net book value of CMT assets
received by the Company is approximately $400,000, and to the extent that the
net book value of such assets is less than $400,000, the amount of the
promissory note shall be reduced on a dollar-for-dollar basis. In addition,
the Company entered into a consulting agreement with PrimaTech Corporation, an
entity wholly owned by Franklin I. Bober, which will provide consulting
services to the Company for two years at a fee of $405,000 per year, plus
potential incentive payments.
SUPPLEMENTARY DATA
Summarized unaudited quarterly financial results are as follows (in thousands,
except per share data):
First Second Third Fourth
52 Weeks Ended
January 29, 2000
Sales $35,300 29,828 32,814 38,320
Gross profit on sales 12,080 10,518 10,341 8,186
Net earnings (loss) 531 94 (465) (2,622)
Net earnings (loss)
per common share:
Basic $0.09 0.02 (0.08) (0.44)
Diluted $0.09 0.02 (0.08) (0.44)
52 Weeks Ended
January 30, 1999
Sales $33,541 27,714 32,220 35,749
Gross profit on sales 11,224 9,488 11,385 13,031
Net earnings 411 273 829 1,328
Net earnings per
common share:
Basic $0.07 0.05 0.14 0.22
Diluted $0.07 0.05 0.14 0.22
52 Weeks Ended
January 31, 1998
Sales $28,408 26,826 31,979 32,706
Gross profit on sales 9,662 8,316 9,539 10,632
Net earnings (loss) 127 (577) 164 330
Net earnings (loss)
per common share:
Basic $0.02 (0.10) 0.03 0.06
Diluted $0.02 (0.10) 0.03 0.06
The first quarter of fiscal 1999 includes the cumulative effect of a
change in accounting principle of $50,000. The net effect of this change was
a decrease to earnings per share of $0.01.
Exhibit 10.26
SECOND AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment") is made effective August 31, 1998, by and between HAROLD'S STORES,
INC., an Oklahoma corporation ("Borrower"), and NATIONSBANK, N.A. ("Lender").
W I T N E S S E T H:
WHEREAS, Borrower and Lender have entered into a Third Amended and Restated
Credit Agreement dated November 10, 1997 as amended by a First Amendment dated
effective June 30, 1998 (as amended, the "Agreement"); and
WHEREAS, Borrower and Lender have agreed to further amend the Agreement as
provided in this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth herein, the parties agree as follows:
1. Agreement Definitions. The definitions of "EBITDAR", "Fixed Charges"
and "Second Amendment are hereby added to the Agreement as follows:
2.
"EBITDAR" shall mean, for any period, Borrower's earnings before
interest, taxes, depreciation, amortization and rent.
"Fixed Charges" shall mean fixed charges of interest, taxes, dividends
and current maturities payable by Borrower for the applicable time period.
"Second Amendment" shall mean that certain Second Amendment to Third
Amended and Restated Credit Agreement dated effective August 31, 1998.
1. Section 3.1 of the Agreement is hereby deleted in its entirety
and replaced with the following:
2.
3.1 Monthly Reports. Borrower shall submit to Lender, not later than
the twenty-fifth (25th) day following the end of each month, a monthly
report ("Monthly Report"), accompanied by a Borrowing Base certificate in
the form attached as Exhibit "A" to the Second Amendment and a written
summary of all outstanding Letters of Credit, which shall be signed by the
President, Chief Financial Officer or other authorized officer of Borrower.
Each Monthly Report shall include, as of the closing day for the preceding
month: (i) a summary aged trial balance of Accounts for Borrower
("Accounts Trial Balance"); (ii) calculation of the current Borrowing Base;
(iii) the amount of the outstanding principal balance of the Liabilities;
and (iv) a representation by Borrower that no Default or Event of Default
occurred during such month or, if a Default or Event of Default has
occurred during such month, a description of such Default or Event of
Default and of the actions Borrower has taken or intends to take to cure
the same. Upon Lender's request therefor, Borrower shall furnish with such
specificity as is satisfactory to Lender, concerning matters included,
described or referred to in the Monthly Report and any other documents in
connection therewith requested by Lender including, without limitation, but
only if specifically requested by Lender, copies of all invoices prepared
in connection with the Accounts. The Monthly Report shall contain such
additional information as Lender may reasonably require.
1. Section 3.2 of the Agreement is hereby deleted in its entirety
and replaced with the following:
2.
3.2 Quarterly Reports. Borrower shall submit to Lender not later
than the forty-fifth (45th) day following the end of each fiscal quarter a
Quarterly Report which shall be accompanied by a Quarterly Borrowing Base
and Compliance Certificate (the "Quarterly Reports") in the form attached
as Exhibit "B" to the Second Amendment and a written summary of all
outstanding Letters of Credit. Each Quarterly Report shall include, as
of the closing day of the preceding fiscal quarter: (i) calculations of
the current Borrowing Base; (ii) the quarterly itemization of Inventory
described in Section 3.7; and (iii) evidence satisfactory to Lender that
each of the covenants set forth in Section 7.9 has been complied with
during such quarter, including calculations thereof.
1. Section 7.9 of the Agreement is hereby amended by the addition of a
new Section 7.9(C), as follows:
2.
(C) EBITDAR to Fixed Charges Plus Rent Ratio. Borrower shall
maintain an EBITDAR to Fixed Charges plus rent ratio of no less than 1.20
to 1 at all times on a rolling four (4) quarter basis. The EBITDAR to
Fixed Charges plus rent ration shall be tested within forty-five (45)
calendar days of the end of each fiscal quarter, based upon the results of
such quarter and the three (3) preceding quarters.
1. 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.
2.
3. 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 Loan Documents.
4.
5. Miscellaneous.
6.
1. 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 Loan Documents 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.
1.1 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.
1.1 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, the parties have executed this Amendment effective the
date shown above.
"BORROWER": HAROLD'S STORES, INC., an
Oklahoma corporation
By:
H. Rainey Powell, President and
Chief Operating Officer
"LENDER": NATIONSBANK, N.A.
By:
Kelly H. Sachs, Vice President
Exhibit 10.28
FOURTH AMENDMENT TO THIRD AMENDED
AND RESTATED CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment") is made effective November 24, 1999, by and between HAROLD'S
STORES, INC., an Oklahoma corporation ("Borrower"), and BANK OF AMERICA, N.A., a
national banking association, formerly NationsBank, N.A. ("Lender").
W I T N E S S E T H:
WHEREAS, Borrower and Lender have entered into a Third Amended and Restated
Credit Agreement dated November 10, 1997, as amended by a First Amendment to
Third Amended and Restated Credit Agreement dated effective June 30, 1998, a
Second Amendment to Third Amended and Restated Credit Agreement dated effective
August 31, 1998, and a Third Amendment to Third Amended and Restated Credit
Agreement dated effective June 30, 1999 (collectively the "Agreement"); and
WHEREAS, Borrower has requested that the Agreement be amended to permit
Borrower to borrow an additional amount of $2,000,000.00 and to otherwise amend
the terms of the Agreement; and
WHEREAS, Lender is willing to amend the Agreement as described above 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. Amended Definitions. The definitions of "Notes", "Revolving Loan
Borrowing Base", and "Revolving Loan Maximum Revolving Facility", in the
Agreement are hereby deleted in their entirety and replaced with the following:
"Notes" shall mean collectively the Revolving Note, the
Additional Revolving Note, the Term Note and any other notes entered
into under the Loan Documents and any extensions, renewals,
amendments, replacements or modifications of the foregoing.
"Revolving Loan Borrowing Base" shall mean an amount equal to the
sum of (i) eighty percent (80%) of Eligible Accounts, plus (ii) fifty
percent (50%) of Eligible Inventory for the first and second fiscal
quarters, or sixty-five percent (65%) of Eligible Inventory for the
third and fourth fiscal quarters, as applicable, plus (iii) fifty
percent (50%) of outstanding commercial Letters of Credit for the
first and second fiscal quarters, or sixty-five percent (65%) of
commercial Letters of Credit for the third and fourth fiscal quarters,
as applicable, plus (iv) one hundred percent (100%) of amounts due
from landlords for the unreimbursed costs of tenant finish, minus (v)
one hundred percent (100%) of all outstanding commercial Letters of
Credit, minus (vi) one hundred percent (100%) of all issued stand-by
Letters of Credit. This amount shall not exceed $30,000,000.00 as
reflected in the most recent Monthly Report.
"Revolving Loan Maximum Revolving Facility" shall mean the
maximum aggregate amount which Lender has agreed to consider as a
ceiling on the aggregate outstanding principal balance of the
Revolving Loan and the Additional Revolving Loan to be made to the
Borrower. The Revolving Loan Maximum Revolving Facility shall be
$30,000,000.00, which shall include the amount of the Letter of Credit
Facility.
2. Agreement Definitions. The following definitions are hereby added to
the Agreement which shall read as follows:
"Additional Revolving Loan" shall have the meaning assigned to
that term in Section 2.1(A).
"Additional Revolving Note" shall mean that certain Revolving
Note in the principal amount of $2,000,000.00 dated even date herewith
executed by the Borrower substantially in the form of Exhibit "A" to
the Fourth Amendment, as the same may be extended, renewed, amended or
modified from time to time pursuant to the terms of this Agreement.
"Fourth Amendment" shall mean that certain Fourth Amendment to
Third Amended and Restated Credit Agreement date effective November
24, 1999.
3. Revolving Loan.
3.1 Section 2.1 of the Agreement is hereby deleted in its entirety and
replaced by the following:
"2.1 Revolving Loan
2.1.1 Borrowing Base. Borrower may, as long as otherwise in
compliance with the terms of this Agreement, borrow, repay without
penalty or premium and reborrow hereunder, the lesser of (i) the
Revolving Loan Maximum Revolving Facility, or (ii) the Revolving Loan
Borrowing Base.
2.1.2 Advances. Each request for advance under either the
Revolving Loan or the Additional Revolving Loan may be made by
telephone by the authorized representative of Borrower no later than
2:00 p.m. on the date on which the advance is to be made. Each
advance to Borrower shall be in immediately available funds and
deposited in Borrower's demand deposit accounts with Lender.
2.1.3 Maximum Principal Balance. Borrower agrees that if at
any time the aggregate outstanding principal balance of the Revolving
Loan and the Additional Revolving Loan shall exceed an amount equal to
the lesser of (i) the Revolving Loan Maximum Revolving Facility, or
(ii) the Revolving Loan Borrowing Base, Borrower shall promptly pay to
Lender the amount necessary to eliminate such excess.
2.1.4 Interest. Prior to Default, Borrower shall pay to
Lender interest on the aggregate average daily outstanding balance of
the Liabilities under the Revolving Loan and the Additional Revolving
Loan at a rate per annum equal to the following rates: (a) prior to
maturity, at a rate equal to the LIBOR Rate plus the following amount,
determined according to the current calculation of Cash Flow Leverage:
Cash Flow Leverage Interest Rate
> 4.50 x LIBOR Rate plus 1.375%
4.49 x to 3.51 x LIBOR Rate plus 1.250%
< 3.50 x LIBOR Rate plus 1.125%;
and (b) after maturity of any installment, whether by acceleration or
otherwise, until paid at a rate of (i) five percent (5%) plus (ii) the
then applicable annual rate in effect.
2.1.5 Payment. The unpaid principal balance of the Revolving
Loan shall be due and payable on June 30, 2001 or upon the occurrence
of a Default, and the unpaid principal balance of the Additional
Revolving Loan shall be due and payable on the earlier of February 22,
2000 or upon the occurrence of a Default. Accrued interest on both
loans shall be payable monthly in arrears beginning December 31, 1999
and on the last day of each month thereafter, upon the date of any
prepayment and at maturity. All interest shall be computed on the
basis of a year of 360 days, and the actual number of days elapsed in
the period in which it accrues. Following the occurrence of a
Default, Borrower shall pay to the Lender interest from the date of
such Default at the per annum rate of five percent (5%) plus the then
applicable annual rate in effect on the outstanding principal balance
of the Liabilities under the Revolving Loan and the Additional
Revolving Loan.
2.1.6 Term. The Revolving Loan will mature on June 30, 2001,
at which time all principal and accrued interest shall be immediately
due and payable. The Additional Revolving Loan will mature on
February 22, 2000, at which time all principal and accrued interest
shall be immediately due and payable. All of Lender's rights and
remedies under this Agreement shall survive such maturity until all of
the Liabilities under this Agreement and the other Loan Documents have
been paid in full. In addition, this Agreement may be terminated as
set forth in Section 8.
2.1.7 Funded Line Maximum. During each year of the Revolving
Loan ending on each June 30, Borrower shall cause the outstanding
principal balance of the Revolving Loan to be equal to or less than
the Funded Line Maximum for a period of thirty (30) consecutive days."
4. Financial Covenants.
4.1 Section 7.9 (B) of the Agreement is hereby deleted in its entirety and
replaced by the following:
"(B) EBITDAR to Fixed Charges Plus Rent Ratio. Borrower shall
maintain an EBITDAR to Fixed Charges plus rent ratio of no less than
1.30 to 1 at all times on a rolling four (4) quarter basis. The
EBITDAR to Fixed Charges plus rent ratio shall be tested within sixty
(60) calendar days of the end of each fiscal quarter, based upon the
results of such quarter and the three (3) preceding quarters."
5. Negative Covenants.
5.1 Section 8.10 of the Agreement is hereby deleted in its entirety and
replaced by the following:
"8.10 New Outlets or Stores. Borrower covenants and agrees
that without the prior written consent of Lender, neither it nor any
Harold's Subsidiary will execute a Lease Agreement for more than four
(4) new retail outlets or Harold's stores (to include anticipated
relocations) to open in the remaining fiscal year 2000 and for all of
fiscal year 2001."
6. Notices.
6.1 Section 10.13(i) of the Agreement is hereby deleted in its entirety
and replaced by the following:
"(i) If to Lender at:
Bank of America, N.A.
211 North Robinson Avenue
P. O. Box 25189
Oklahoma City, Oklahoma 73102-0189
Attention: Robert Dudley, Senior Vice President
Fax: (405) 230-4089"
7. Fee. As a condition to this Fourth Amendment, Borrower shall pay to
the Lender an origination fee of $5,000.00 representing one quarter of one
percent (0.25%) of the Additional Revolving Loan amount of $2,000,000.00.
8. 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.
9. 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 and all) claims, rights, setoffs or defenses against the Lender under the
Agreement, as amended by this Amendment or the other Loan Documents.
10. Miscellaneous.
10.1 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 Loan Documents 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.
10.2 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.
10.3 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, the parties have executed this Amendment effective the
date shown above.
"BORROWER" HAROLD'S STORES, INC., an Oklahoma
corporation
By: _________________________________
H. Rainey Powell,
President and Chief Operating Officer
"LENDER" BANK OF AMERICA, N.A., a national
banking association, formerly
NationsBank, N.A.
By: _________________________________
Robert Dudley,
Senior Vice President
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated March 13, 2000, included in and incorporated by reference in this
Form 10-K, into the Company's previously filed Form S-8 Registration Statement
No. 33-68604 and Form S-8 Registration Statement No. 33-63773.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma
April 26, 2000
Exhibit 23.2
Independent Auditors' Consent
The Board of Directors
Harold's Stores, Inc.:
We consent to incorporation by reference in the registration statements (Nos. 33
- -68604 and 33-63773) on Form S-8 of Harold's Stores, Inc. of our reports
dated March 15, 1999, relating to the consolidated balance sheet of Harold's
Stores, Inc. and subsidiaries as of January 30, 1999 and the related
consolidated statements of operations, stockholders' equity and cash flows, and
the related financial statement schedule for the 52 week periods ended January
30, 1999 and January 31, 1998, which reports appear in the January 29, 2000
Annual Report on Form 10-K of Harold's Stores, Inc.
KPMG LLP
Oklahoma City, Oklahoma
April 26, 2000
