UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|x| Annual Report Pursuant To Section 13 or 15(d) of The Securities Exchange
Act of 1934 (No Fee Required) For the fiscal year ended February 2, 2002
OR
| | Transition Report Pursuant To Section 13 or 15(d) of The Securities Exchange
Act of 1934 (No Fee Required) For the transition period from
Commission file number 0-15385
-------
ONE PRICE CLOTHING STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 57-0779028
- ------------------------------- ---------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of organization)
1875 East Main Street
Highway 290, Commerce Park
Duncan, South Carolina 29334
------------------------------------------- ----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (864) 433-8888
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No ___
-----
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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of April 22, 2002:
Common Stock, $0.01 Par Value - $6,195,552
The number of shares outstanding of the issuer's classes of common stock as of
April 22, 2002: Common Stock, $0.01 Par Value - 3,004,519 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement to be filed with respect to the annual
shareholders meeting to be held June 12, 2002 are incorporated by reference into
Part III.
PART I
ITEM 1. BUSINESS
General
One Price Clothing Stores, Inc. (the "Registrant" or the "Company") operates a
chain of off-price specialty retail stores offering a wide variety of first
quality, fashionable, in-season apparel and accessories for women and children.
The Company purchases merchandise at heavily discounted prices in large
quantities from a broad mix of manufacturers, importers and other suppliers. The
Company is able to acquire such merchandise at heavily discounted prices because
of imbalances between supply and demand, vendor needs for liquidity and
favorable prices from sources outside the United States of America. The Company
is able to take advantage of these circumstances because of its willingness to
purchase large quantities and to buy goods later in the season than many other
retailers. This purchasing strategy allows the Company to obtain favorable
prices and to react quickly to seasonal fashion preferences and weather
conditions affecting consumer spending. It is the Company's policy to offer only
first quality apparel; the Company does not purchase "seconds" or irregular
merchandise from its suppliers.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest January 31. The Company's
fiscal calendar is comparable with other retail companies. The period ended
February 2, 2002 ("fiscal 2001") consists of 52 weeks. The period presented for
fiscal 2000 consist of 53 weeks. The Company's tax year, however, ends on the
Saturday nearest December 31.
Company History and Organization
The Company opened its first store in August 1984. On February 9, 1994, a
wholly-owned subsidiary of the Company, One Price Clothing of Puerto Rico, Inc.,
was incorporated in Puerto Rico. It commenced operations on May 28, 1994. On
January 31, 1997, a wholly-owned subsidiary of the Company, One Price Clothing
- -- U.S. Virgin Islands, Inc. was incorporated in the U. S. Virgin Islands. It
commenced operations on March 20, 1997. On June 11, 1997, a wholly-owned
subsidiary, One Price Realty, Inc., was incorporated in South Carolina, to own
the Company's corporate offices and distribution center facilities in Duncan,
South Carolina. On October 31, 2000, a wholly-owned subsidiary, BestPrice!
Southwest, LLC, was formed. As used herein, unless the context otherwise
indicates, the "Company" refers to (i) One Price Clothing Stores, Inc., a
Delaware corporation, (ii) the immediate predecessor of One Price Clothing
Stores, Inc., a South Carolina corporation of the same name, (iii) the South
Carolina corporation's predecessor, a North Carolina corporation organized in
1984 under the name J. K. Apparel, Inc., (iv) One Price Clothing of Puerto Rico,
Inc., (v) One Price Clothing - U.S. Virgin Islands, Inc., (vi) One Price Realty,
Inc., and (vii) BestPrice! Southwest, LLC.
Industry Segments
The Company operates in only one industry segment. All of the Company's assets
and significant revenues and pre-tax operating results relate to retail sales of
apparel and accessories to the general public through Company-operated stores.
Other than operations in Puerto Rico and the U.S. Virgin Islands, the Company
had no operations outside the continental United States at February 2, 2002 and
no export sales. Reference is hereby made to the consolidated financial
statements included in Part II for information about the Company's assets, net
sales and operating results.
Operations
The Company operates a chain of off-price specialty retail stores offering a
wide variety of first quality, fashionable, in-season apparel and accessories
for women and children. The Company currently offers most of its apparel at
prices ranging between $7 and $15 and offers certain additional categories and
styles priced higher than $15 when the Company believes that such merchandise is
clearly desired by the Company's customers. Such higher priced merchandise --
including denim, coordinated sets and heavier jackets -- is
offered within the $16 to $25 price range. In addition, the Company currently
offers men's apparel in approximately 76 stores.
In response to lower than expected operating results in fiscal 2000, the Company
adopted a restructuring plan during the fourth quarter of fiscal 2000. The plan
included initiatives designed to improve the Company's results of operations by
lowering operating costs, re-deploying assets and curtailing the number of new
store openings until the Company realized improved performance in its existing
stores. The plan called for the closing of 42 low-volume, under-performing
stores and elimination of 90 positions. As of February 2, 2002, the Company had
closed 40 of the stores described in the plan and, in light of improved
operating results, removed the two remaining stores and their associated
liability from the restructuring plan. The Company recorded a pre-tax charge of
$1,017,000 during the fourth quarter of fiscal 2000 to cover the costs
associated with the plan. See Note I of Item 8 of this report.
The Company registered the trademark "One Price" with the United States Patent
and Trademark Office in June 1990 for a ten-year period with the option to renew
prior to expiration. The Company renewed this trademark in 2000. This trademark
was accorded incontestable status by the United States Patent and Trademark
Office. The Company registered the trademark "OPC Fashions" with the United
States Patent and Trademark Office in January 1999 for a ten-year period with
the option to renew prior to expiration. The Company considers the "One Price"
and "OPC Fashions" trademarks to be valuable and significant to the conduct of
its business. The Company has also registered "Ropa de Ninos a un Precio" and
"OPC" in the United States. The Company has also applied for registration of the
"OPC BestPrice!," "BestPrice!," "BestPrice! Fashions," "BestPrice! Plus," and
"BestPrice! Kids" trademarks.
The One Price Store. The Company's typical store has approximately 3,400 square
feet, of which approximately 2,700 square feet is devoted to selling space. The
Company's current strategy is to open stores with a somewhat larger selling area
than this average and the Company expects to continue this approach. All of the
Company's stores are located in leased facilities with convenient access to
adequate parking or public transportation. At February 2, 2002, approximately
83% of the Company's stores were located in strip shopping centers and the
remaining stores were located in central business districts or malls. The
Company does not franchise its stores.
The Company's stores are typically located in communities with populations of at
least 40,000 people, as well as in large metropolitan areas. Most of the
Company's stores are open seven days a week and typical hours of operation are
from 10:00 a.m. until 7:00 p.m. or 9:00 p.m., Monday through Saturday, with
shorter hours on Sunday. While a typical store employs a full-time manager, one
or two full-time assistant managers and up to ten additional part-time sales
associates, this configuration can vary widely depending on store size and
location, among other factors.
The Company's stores are designed for customer convenience and for attractive
presentation of merchandise. All apparel is displayed on hangers and is
organized by classification, style and color, with in-store signage and graphics
that promote a pleasant shopping environment and customer convenience.
The Company's store operations department is headed by a Senior Vice President
of Store Operations who is assisted by regional and district sales managers.
Each of the six regional sales managers is responsible for approximately nine
districts. Each district sales manager is responsible for approximately 12
stores. The policy of the Company is for its district sales managers to visit
each store in his or her district on a regular basis to provide assistance in
promoting sales, training, store layout and merchandise presentation, and to
monitor adherence to the Company's key operational and management policies.
Store Locations and Expansion. At February 2, 2002, the Company operated 623
stores in 30 states, the District of Columbia, Puerto Rico and the U.S. Virgin
Islands. The Company opened 6 stores, relocated or expanded 9 stores and closed
24 under-performing stores, including 16 of the stores identified for closing in
the fiscal 2000 restructuring plan, in fiscal 2001. The Company anticipates that
it will open approximately 6 new stores in fiscal 2002.
Purchasing. The Company's practice is to offer value to its customers by selling
desirable, first quality apparel and accessories at considerably lower prices
than generally would be available from department stores and other specialty
retailers. The Company purchases its merchandise at heavily discounted prices
and on favorable terms from manufacturers, importers and other vendors.
The Company typically is able to purchase merchandise from vendors at
substantially discounted prices primarily due to manufacturers' need to utilize
excess capacity or import quota or need for liquidity and, to a lesser degree,
to the following circumstances: over-production by manufacturers, cancellation
of orders by conventional retail stores, and the inability of a manufacturer or
importer to dispose of merchandise through regular channels. The Company's
ability and willingness to purchase in large quantities and its reputation for
reliability in the industry provide the Company with purchasing advantages. The
Company generally purchases merchandise closer to and during each selling
season, later than department stores and other specialty retailers. This
purchasing strategy permits the Company to react to fashion trends and
opportunistic developments during a selling season.
During fiscal 2001, the Company purchased merchandise from approximately 560
vendors, including manufacturers, importers and other vendors. No vendor
accounted for more than 10% of the Company's total purchases for the fiscal
year. The number of vendors in any particular fiscal year fluctuates due to the
Company's opportunistic buying strategy.
Although there can be no assurance that the Company will be able to continue to
acquire sufficient quantities of first quality merchandise at such low prices
and on favorable terms, the Company continues to add new vendors and believes
that adequate sources of first quality merchandise are available at appropriate
price levels. The Company does not maintain long-term or exclusive purchase
commitments or arrangements with any vendor.
Corporate Offices and Distribution Center. The Company's corporate offices and
distribution center are located in Duncan, South Carolina. With the exception of
functions performed by certain merchandise buyers (including those based in the
Company's New York City office), regional directors of real estate, district and
regional sales managers, loss prevention investigators and field audit personnel
and certain administrative functions performed in Puerto Rico, substantially all
purchasing, accounting and other administrative functions are centralized at the
corporate offices.
Merchandising. The Company's merchandising strategy emphasizes fashionable,
in-season apparel and accessories for juniors, misses, plus-sized women and
children. The Company also currently offers men's apparel in approximately 76
stores. The Company's target customers are value- and fashion-conscious women,
primarily in lower- and middle-income brackets. The Company offers only first
quality merchandise and emphasizes the value of its merchandise compared with
similar merchandise sold elsewhere at higher prices. Women's apparel sold by the
Company includes fashionable sportswear such as knit tops, blouses, shirts,
pants, shorts, skirts, dresses, sweaters and blazers as well as fashionable
career-oriented related separates and an array of intimate apparel. During early
fiscal 2001, management decided to eliminate or de-emphasize several categories
of merchandise including gifts and home furnishings, children's accessories,
uniforms and men's apparel. These categories had comprised approximately 5% of
net sales during fiscal 2000. The proportions of categories of merchandise the
Company has sold, as a percentage of net sales, are as follows (individual
percentages may not add to 100 due to rounding individual categories of
merchandise):
FISCAL YEAR ENDED
------------------------------------------------------------------
February 2, 2002 February 3, 2001 January 29, 2000
---------------- ---------------- ----------------
PERCENTAGE OF NET SALES:
Junior and misses women's apparel 56% 56% 57%
Plus-size women's apparel 23% 22% 21%
Children's apparel 10% 8% 8%
Women's accessories 9% 9% 9%
Children's accessories and uniforms -% 1% 1%
Men's apparel 2% 3% 2%
Gifts and home furnishings 1% 2% 2%
----- ----- -----
100% 100% 100%
----- ----- -----
Inventory Monitoring. The Company's management information systems, featuring
point-of-sale cash registers and a computerized inventory management system,
permit management to review each store's sales and inventory on a daily and
weekly basis, thereby enabling the Company to tailor its purchasing strategies
and merchandise shipments to stores based on customer demand.
Distribution Systems. Substantially all merchandise is shipped directly from
vendors to the Company's distribution center where the goods are inspected,
processed and sent to the Company's stores. Substantially all shipments to
stores are made by common carriers.
Seasonality
The Company has historically produced higher sales and operating results in the
first quarter (February - April) and second quarter (May - July) compared with
the third quarter (August - October) and fourth quarter (November - January).
Management is unable to predict if this trend will continue in the future.
However, management's strategy of emphasizing its core women's and children's
apparel and women's accessories categories as well as its promotional and
advertising strategies are designed to increase sales volume in the third and
fourth quarters.
Working Capital Requirements
The Company has a $37,500,000 revolving credit agreement (including a
$25,000,000 letter of credit sub-facility) and $4,000,000 term loan with its
primary lender through July 2003. Borrowings under the agreement are
collateralized by all assets owned by the Company during the term of the
agreement (other than the land, buildings, fixtures and improvements
collateralizing the mortgage loan). The Company's twenty-year mortgage agreement
with a commercial bank at the original amount of $8,125,000 is secured by the
land, buildings, fixtures and improvements located at the Company's Duncan,
South Carolina corporate offices and distribution center. The Company also has
an agreement, as amended, with a commercial bank to provide a separate letter of
credit facility of up to $8,000,000 which expires on the earlier of June 2002 or
termination of the Company's revolving credit facility with its primary lender.
These lending agreements contain certain covenants and terms described in Items
7 and 8 of this report.
Merchandise inventories are typically purchased on credit or, for certain
merchandise inventories from foreign suppliers, by the use of letters of credit.
All such purchases are paid in United States dollars; thus, the Company is not
subject to foreign currency risks. As a result of the Company's opportunistic
buying strategy and to ensure that an adequate supply of merchandise is
available for shipment to its stores, the Company invests a significant amount
of its working capital in merchandise inventories.
Customers
No material part of the business of the Company is dependent upon a single
customer or a few customers.
Competition
The retail apparel industry is highly competitive. In order to compete
effectively, the Company is dependent upon its ability to purchase merchandise
at substantial discounts. The Company competes with department stores, specialty
stores, discount stores, and other off-price retailers, many of which are owned
by large national or regional chains with substantially greater resources than
the Company. There can be no assurance that other retailers with substantially
greater financial resources than the Company will not adopt a purchasing and
marketing concept similar to that of the Company. Management believes that the
primary competitive factors in the retail apparel industry are price, quality,
fashion content, variety of merchandise, site selection and cost of operation.
The Company believes that it is well positioned to compete in its markets.
Environmental Factors
The Company is not aware of any federal, state or local environmental
regulations that will materially affect its operations or competitive position
or require material capital expenditures.
Employees
At February 2, 2002, the Company had approximately 4,200 employees, of which
approximately 34% were full-time employees. The Company, like other retailers,
experiences a high turnover rate of full-time and part-time store employees but
has not experienced excessive difficulty in hiring qualified personnel. None of
the Company's employees are covered by a collective bargaining agreement and
management believes that the Company's relationship with its employees is good.
Private Securities Litigation Reform Act of 1995
See "Private Securities Litigation Reform Act of 1995" in Item 7 of this report.
ITEM 2. PROPERTIES
The Company leases all of its store locations. At February 2, 2002, the Company
had 623 stores operating in 30 states, the District of Columbia, Puerto Rico and
the U. S. Virgin Islands. The Company leases its stores under operating leases
generally with initial terms of five years and with one to two renewal option
periods of five years each. Leases typically contain kickout provisions based on
an individual store's annual sales volume and/or the shopping center's
occupancy. The leases generally provide for increased rents resulting from
increases in operating costs and property taxes. Certain of the leases provide
contingent or percentage rentals based upon sales volume, and other stores are
leased on a month-to-month basis. To date, the Company has not experienced
difficulty in obtaining leases for suitable locations for its stores on
satisfactory terms. Approximately 184 existing store leases expire, or have
initial lease terms containing lessee renewal options that may be exercised,
during fiscal 2002. Management believes that the Company will not experience a
significant increase in lease expense as a result of exercising renewal options
or negotiating additional lease terms for such locations.
The following is a list of store locations as of February 2, 2002:
NUMBER OF
STATE STORES
----- -----------
Alabama.............................................................. 12
Arizona.............................................................. 10
Arkansas............................................................. 5
California........................................................... 61
Connecticut ......................................................... 3
Florida.............................................................. 67
Georgia.............................................................. 38
Illinois............................................................. 31
Indiana.............................................................. 11
Kansas............................................................... 3
Kentucky............................................................. 4
Louisiana............................................................ 15
Maryland............................................................. 17
Massachusetts........................................................ 7
Michigan............................................................. 15
Mississippi.......................................................... 9
Missouri............................................................. 13
Nevada............................................................... 2
North Carolina....................................................... 28
New Jersey........................................................... 8
New Mexico........................................................... 5
New York............................................................. 13
Ohio................................................................. 12
Oklahoma............................................................. 6
Pennsylvania......................................................... 18
Puerto Rico.......................................................... 36
South Carolina....................................................... 30
Tennessee............................................................ 18
Texas................................................................ 96
U.S. Virgin Islands.................................................. 2
Virginia............................................................. 21
Washington, DC....................................................... 4
Wisconsin............................................................ 3
TOTAL STORES......................................................... 623
The Company's corporate offices and distribution center, occupying approximately
500,000 square feet, are located in Duncan, South Carolina on approximately 75
acres which are owned by the Company. The Company's facilities are expected to
be able to support the Company's planned growth over the next several years. The
Company's borrowings under its mortgage loan facility are secured by the
Company's real property located at its corporate offices including land,
buildings, fixtures and improvements. Borrowings under the credit agreement with
its primary lender are collateralized by all assets owned by the Company during
the term of the agreement other than the land, buildings, fixtures and
improvements collateralizing the mortgage loan.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is a defendant in legal actions involving claims
arising in the normal course of its business. The Company believes that, as a
result of its legal defenses and insurance arrangements, any such actions
currently capable of assessment and presently pending, even if decided
adversely, would not have a material adverse effect on its financial position,
results of operations or cash flows.
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 Company's fiscal year.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The Company's common stock is traded under the symbol ONPR in the National
Market System of NASDAQ. As of April 23, 2002, there were approximately 400
shareholders of record.
In April 2001, the Company received notification from NASDAQ that the Company's
stock price was not in compliance with NASDAQ's one dollar per share minimum
closing bid price rule required for continued listing. In response, the
Company's board of directors recommended a reverse split of the Company's
outstanding common stock to its shareholders. A substantial majority of the
Company's shareholders approved the reverse split and the Company effected a
1-for-3.5 split of its common stock effective as of the close of business on
September 4, 2001. As a requirement for continued listing on the NASDAQ National
Market System, the Company's common stock was required to be in compliance with
the one dollar minimum closing bid price rule for at least ten consecutive
trading days beginning on or before September 10, 2001. The Company met its
minimum bid price requirement on each of the ten consecutive trading days for
which the NASDAQ was open beginning September 5, 2001.
Since its inception, the Company has never paid cash dividends. The Company's
credit agreement contains covenants which, among other things, prohibit the
Company from paying dividends. Currently, the board of directors intends to
continue its policy of retaining earnings for operations, debt repayment and
expansion of the business.
The quarterly high and low sales prices of the Company's common stock as quoted
by NASDAQ are shown below. All sales prices reflect the Company's 1-for-3.5
reverse stock split effected on September 4, 2001:
Fiscal Year Ended Fiscal Year Ended
February 2, 2002 February 3, 2001
--------------------------- ----------------------------
High Low High Low
First $ 3.500 $ 2.406 $ 12.688 $ 8.312
Second 3.325 1.925 11.375 5.250
Third 4.600 0.950 8.313 2.625
Fourth 4.400 1.500 4.813 1.750
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data for the
Company for each of the five fiscal years ended January 31, 1998 through
February 2, 2002. The selected consolidated financial data as of February 2,
2002 and February 3, 2001 and for the fiscal years ended February 2, 2002,
February 3, 2001 and January 29, 2000, are extracted from the Company's audited
consolidated financial statements and should be read in conjunction with the
consolidated financial statements and the notes thereto included under Item 8 of
this Form 10-K and Management's Discussion and Analysis of Financial Condition
and Results of Operations included under Item 7 of this Form 10-K. Selected
consolidated financial data as of and for all other periods were derived from
audited consolidated financial statements not contained within this Form 10-K.
Fiscal Year Ended
--------------------------------------------------------------
February 2, February 3, January 29, January 30, January 31,
2002 2001 2000 1999 1998
------------ ------------ ----------- ------------ -----------
Dollars in thousands except per share amounts
1 Net sales $ 340,430 355,624 336,847 328,059 302,285
2 Restructuring charge (credit) $ -- 1,017 -- (385) 2,265
3 (Loss) income before income taxes $ (15,372) (9,130) 7,809 5,497 (13,493)
4 Net (loss) income $ (19,712) (5,366) 7,074 4,383 (11,320)
5 Diluted net (loss) income per common $ (6.70) (1.80) 2.34 1.46 (3.80)
share
6 Weighted average number of common
shares (000) - diluted # 2,943 2,976 3,023 2,998 2,982
7 Number of common shares outstanding at
period-end (000) # 2,944 2,941 2,997 2,983 2,982
8 Cash dividends declared per common $ -- -- -- -- --
share
9 Current assets $ 66,627 57,428 57,064 55,387 48,331
10 Long-term assets $ 43,175 49,206 38,891 37,440 39,781
11 Total assets $ 109,802 106,634 95,955 92,827 88,112
12 Current liabilities $ 76,114 56,594 40,921 44,741 44,080
13 Long-term debt (including capital $ 11,835 8,764 7,879 8,057 8,359
leases)
14 Deferred income tax liability $ -- -- 42 -- --
15 Other noncurrent liabilities $ 2,548 2,395 2,512 2,612 2,651
16 Shareholders' equity $ 19,305 38,881 44,601 37,417 33,022
17 Adjusted net worth (1) $ 29,396 38,881 44,601 37,417 33,022
18 Stores (closed) opened during the # (18) 5 18 (42) 15
period, net
19 Stores operating at period-end # 623 641 636 618 660
20 Number of full and part-time employees
at period-end # 4,200 4,200 4,300 3,900 4,269
21 Number of weeks per fiscal year # 52 53 52 52 52
(1) Under its credit agreements, the Company is required to maintain a minimum
adjusted net worth of $25,000,000. The Company's revolving credit agreement
defines adjusted net worth, in general terms, as the difference between total
assets and total liabilities. Effective with an amendment during December 2001,
adjusted net worth was defined in the Company's revolving credit agreement as
the difference between total assets and total liabilities, excluding the
valuation allowance against the Company's deferred tax assets. The amount of
such valuation allowance at February 2, 2002 was $10,091,000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL SUMMARY
The following table sets forth, for the three most recent fiscal years, certain
financial statement elements expressed as a percentage of net sales:
Fiscal Year Ended
------------------------------------------------------------------
February 2, 2002 February 3, 2001 January 29, 2000
(52 weeks) (53 weeks) (52 weeks)
--------------------- ---------------------- ---------------------
PERCENTAGE OF NET SALES
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 65.7% 65.9% 64.0%
----- ----- -----
Gross margin 34.3% 34.1% 36.0%
----- ----- -----
Selling, general and administrative expenses 26.0% 24.8% 23.3%
Store rent and related expenses 9.8% 9.1% 8.2%
Depreciation and amortization expense 2.0% 1.7% 1.6%
Restructuring charge 0.0% 0.3% 0.0%
Interest expense 1.0% 0.8% 0.6%
----- ----- -----
38.8% 36.7% 33.7%
----- ----- -----
(Loss) income before income taxes (4.5%) (2.6%) 2.3%
Provision for (benefit from) income taxes 1.3% (1.1%) 0.2%
------ ------ -----
Net (loss) income (5.8%) (1.5%) 2.1%
====== ====== =====
Stores in operation at period-end 623 641 636
====== ====== =====
CRITICAL ACCOUNTING POLICIES
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Management considers its most critical accounting policies to be related to
inventory markdown and shrink reserves, the accrual for self-insured workers'
compensation claims, impairment of long-lived assets, and the valuation
allowance for deferred tax assets. These critical accounting policies can
significantly affect the Company's reported amounts of assets, liabilities,
revenues and expenses. The following factors could cause the Company's estimates
used in each of its critical accounting policies to significantly vary from the
Company's actual results:
o Inventory markdowns and shrink reserves. The Company's inventories are
stated at the lower of cost or market; cost is determined under the retail
method. The anticipated sales value of inventory items is generally higher
than the related cost. Periodically, the Company identifies certain
merchandise inventory to be marked down to facilitate its sale.
Occasionally, markdowns may result in an item being sold for less than its
original cost. The Company provides a reserve for the difference between
original cost and the expected selling price of all inventory items
expected to be sold below cost. The Company conducts a company-wide
physical inventory count during the first and third quarters of each fiscal
year and adjusts its accounting records to reflect the results of the
actual inventory counts. The Company records an inventory shrink reserve
based primarily on recent actual shrink experience.
o Accrual for self-insured workers' compensation claims. The Company is
self-insured for workers' compensation up to an established stop-loss
amount beyond which claims are insured by a third party. The Company's
self-insurance accruals are based upon actuarially determined calculations
of future claims.
o Impairment of long-lived assets. The Company periodically evaluates whether
long-lived assets, primarily store leasehold improvements and fixtures and
equipment, have been impaired. The Company compares the carrying value of
the asset to its estimated undiscounted future cash flows. If an individual
store's estimated future cash flows as determined in this analysis are less
than the carrying amount of the asset, impairment is indicated. For stores
which are determined to be impaired, leasehold improvements and fixtures
and equipment are written down to their fair values based upon management's
estimate of recoverability. Charges for impairment are recorded as a
component of selling, general and administrative ("SG&A") expenses.
o Deferred income taxes and valuation allowance. Deferred income tax assets
and liabilities represent the future income tax effect of temporary
differences between the book and tax bases of the Company's assets and
liabilities, assuming they will be realized and settled at the amount
reported in the Company's financial statements. Deferred tax assets also
arise from unused net operating losses and unused tax credits. Management
assesses the likelihood that future tax deductions and credits which give
rise to deferred tax assets will be used based on their expirations and the
level of taxable income that the Company is expected to generate before the
expiration of these tax credits. Based on this assessment, management
establishes a valuation allowance to reduce all or part of these deferred
tax assets. If the Company's future taxable income were to be less than
expected, the Company would have to record additional income tax expense
and increase its valuation allowance for deferred tax assets; if the
Company's future taxable income were to be greater than expected, the
Company may be able to reduce its valuation allowance for deferred tax
assets.
YEAR ENDED FEBRUARY 2, 2002 (FISCAL 2001) (52 WEEKS) COMPARED WITH YEAR ENDED
FEBRUARY 3, 2001 (FISCAL 2000) (53 WEEKS)
- -----------------------------------------
During fiscal 2001, the Company implemented a strategy of eliminating its less
profitable categories of merchandise, including gifts, home furnishings and
children's accessories and de-emphasizing uniforms and men's apparel in an
effort to focus its resources on its core merchandise categories of women's and
children's apparel and women's accessories. The Company experienced comparable
store sales increases on these continuing categories of women's and children's
apparel and women's accessories of 5.8% for the last three months of fiscal
2001, 7.6% for the last six months of fiscal 2001 and 0.8% for fiscal 2001.
Net sales in fiscal 2001 decreased 4.3% to $340.4 million compared with $355.6
million in fiscal 2000. The decrease in net sales is primarily due to operating,
on average, 23 fewer stores in fiscal 2001 than in fiscal 2000. Additionally,
fiscal 2001 contained 52 weeks while fiscal 2000 contained 53 weeks. In fiscal
2001, comparable store sales decreased 1.9% for the year compared with fiscal
2000. The decrease in comparable store sales for the 52-week period is primarily
due to the elimination of certain slow-turning and lower margin categories.
Comparable stores are those stores in operation at least 18 months and there
were 606 such stores at February 2, 2002.
During fiscal 2001, the Company opened 6 stores, relocated or expanded 9 stores
and closed 24 under- performing stores. During fiscal 2000, the Company opened
44 stores, relocated or expanded 19 stores and closed 39 under-performing
stores.
In response to lower than expected operating results in fiscal 2000, the Company
adopted a restructuring plan during the fourth quarter of fiscal 2000. The plan
included initiatives designed to improve the Company's results of operations by
lowering operating costs, re-deploying assets and curtailing the number of new
store openings until the Company realized improved performance in its existing
stores. The plan called for the closing of 42 low-volume, under-performing
stores and elimination of 90 positions. As of February 2, 2002, the Company had
closed 40 of the stores described in the plan and, in light of improved
operating results, removed the two remaining stores and their associated
liability from the restructuring plan. The Company recorded a pre-tax charge of
$1,017,000 during the fourth quarter of fiscal 2000 to cover the costs
associated with the plan. See Note I of Item 8 of this report.
Gross margin as a percentage of net sales was 34.3% in fiscal 2001 compared with
34.1% in fiscal 2000. This increase in gross margin as a percentage of net sales
primarily resulted from the Company's strategy of eliminating its less
profitable categories of apparel and accessories.
SG&A expenses increased to 26.0% as a percentage of net sales in fiscal 2001
from 24.8% in fiscal 2000. SG&A expenses as a percentage of net sales increased
year-over-year primarily as a result of increases in payroll and utility costs
in the Company's stores. Average payroll in the Company's stores increased 2.4%
in fiscal 2001 compared with fiscal 2000. An increase in average payroll rates
was almost completely offset by fewer payroll hours on average. The Company has
and continues to mitigate the effect of increasing payroll rates by managing
store hours used and by seeking to improve sales in its existing stores. Utility
costs increased 8.7% per average store year-over-year due to sharp increases in
prices of natural gas and electricity, particularly during the first six months
of the year.
Store rent and related expenses increased to 9.8% of net sales in fiscal 2001
compared with 9.1% of net sales in fiscal 2000 due to an increase in the
Company's average store rent and related expenses coupled with a decrease in
comparable store sales. Average store rent and related expenses increased by
7.4% in fiscal 2001 compared with fiscal 2000. The increase in average store
rent and related expenses was primarily due to the Company's store strategy
during fiscal 2000 which resulted in the opening of larger stores in more
expensive markets with higher rents while closing older stores with lower
average rent cost. Management seeks to minimize increases in store rent expense
through renegotiating lease terms, relocating stores, and leveraging rent
increases through strategies of increased sales including focusing on key
categories and reformatting stores where necessary.
Depreciation and amortization expense increased to 2.0% of net sales in fiscal
2001 compared with 1.7% of net sales in fiscal 2000. Depreciation and
amortization expense increased primarily due to the 75 total stores the Company
opened in fiscal 2000 and fiscal 1999 and to capital leases entered into for new
investment in information technology in the Company's stores, which resulted in
higher amortization costs.
Interest expense increased to 1.0% of net sales in fiscal 2001 compared with
0.8% of net sales in fiscal 2000. Interest expense in dollars also increased in
fiscal 2001 when compared with fiscal 2000 primarily due to the higher average
levels of borrowings on the revolving credit facility as a result of the
Company's losses in fiscal 2001 and fiscal 2000, as well as increases in
amortization of debt issue costs in fiscal 2001 due to amendments made to the
Company's credit agreements during fiscal 2001.
The Company's effective income tax rate of 28.2% in fiscal 2001 as compared with
(41.2%) in fiscal 2000 was primarily attributable to recording non-cash
valuation allowances of $10.1 million against the Company's deferred income tax
assets during fiscal 2001. Because management cannot be assured that certain net
operating loss carryforwards, credit carryforwards and net cumulative temporary
differences for U.S. Federal and state income tax purposes will be fully
utilized or realized prior to their expirations, a valuation allowance has been
provided against the related net deferred income tax assets. Management will
continue to assess the adequacy of or the need for the valuation allowance based
upon future operations.
YEAR ENDED FEBRUARY 3, 2001 (FISCAL 2000) (53 WEEKS) COMPARED WITH YEAR ENDED
JANUARY 29, 2000 (FISCAL 1999) (52 WEEKS)
- -----------------------------------------
Net sales in fiscal 2000 increased 5.6% to $355.6 million compared with $336.8
million in fiscal 1999. The increase in net sales is primarily due to operating,
on average, 31 more stores in fiscal 2000 than in fiscal 1999. Additionally,
fiscal 2000 contained 53 weeks while fiscal 1999 contained 52 weeks. In fiscal
2000, comparable store sales decreased 3.5% for the year compared with fiscal
1999 due to transitioning merchandise between seasons too slowly combined with
comparable sales decreases in certain of the Company's separates apparel
categories. The Company operated 574 comparable stores at February 3, 2001.
During fiscal 2000, the Company opened 44 stores, relocated or expanded 19
stores and closed 39 under-performing stores. During fiscal 1999, the Company
opened 31 stores, relocated or expanded 20 stores and closed 13 under-performing
stores.
Gross margin as a percentage of net sales was 34.1% in fiscal 2000 compared with
36.0% in fiscal 1999. This decrease in gross margin as a percentage of net sales
primarily resulted from increased markdowns, which resulted from the slow
transition of merchandise between seasons followed by the sell-off of this
remaining inventory, and the merchandise mix which contained a higher proportion
of merchandise carrying lower margins than in fiscal 1999.
SG&A expenses increased to 24.8% as a percentage of net sales in fiscal 2000
from 23.3% in fiscal 1999. Total SG&A expenses increased as a percentage of net
sales due to operating a higher proportion of new stores with higher average
sales expectations than were realized and higher average operating costs. Total
SG&A expenses in dollars increased year-over-year primarily due to operating, on
average, 31 more stores in fiscal 2000 than in fiscal 1999. Additionally, fiscal
2000 contained 53 weeks while fiscal 1999 contained 52 weeks. Salaries and wages
in the Company's stores increased in dollars year-over-year due to an increase
in the average hourly wage rate.
Store rent and related expenses increased to 9.1% of net sales in fiscal 2000
compared with 8.2% of net sales in fiscal 1999 due to an increase in the
Company's average store rent and related expenses coupled with a decrease in
comparable store sales. Average store rent and related expenses increased by
10.8% in fiscal 2000 compared with fiscal 1999. The increase in average store
rent and related expenses is primarily due to the Company's store expansion
strategy of opening larger, higher volume stores (which typically are more
costly sites with higher rents) while closing older, under-performing stores
which generally have lower average rent costs.
Depreciation and amortization expense was 1.7% of net sales in fiscal 2000
compared with 1.6% of net sales in fiscal 1999. Depreciation and amortization
expense in dollars increased in fiscal 2000 when compared with fiscal 1999 due
primarily to the year-over-year increase in capital expenditures.
Interest expense increased to 0.8% of net sales in fiscal 2000 compared with
0.6% of net sales in fiscal 1999. Interest expense in dollars also increased in
fiscal 2000 when compared with fiscal 1999 primarily due to the higher average
levels of borrowings on the revolving credit facility in fiscal 2000 versus
fiscal 1999.
The effective income tax rate for fiscal 2000 was (41.2%) compared with 9.4% in
fiscal 1999, which was unusually low due to the favorable adjustment of the
remaining deferred tax asset valuation allowance in fiscal 1999 which had been
recorded in fiscal 1997.
INFLATION
During its three most recent fiscal years, the Company believes that the impact
of inflation has not been material to its financial condition or results of
operations. Occasionally, the Company may experience slight increases in the
average purchase price per unit of merchandise; however, such increases also
reflect the impact of an increase in the quality of goods purchased in addition
to minimal inflationary factors.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary needs for liquidity and capital have been to
fund its new store expansion and the related growth in merchandise inventories.
The Company historically has relied upon cash provided by operations and
borrowed funds from its revolving credit facility to meet its liquidity needs.
During the two most recent fiscal years, the Company has primarily relied upon
its credit facilities to offset cash used in operations and cash used to open
stores. Because of its relatively fixed cost structure and existing levels of
debt, management considers its primary risk to liquidity to be its ability to
generate adequate levels of net sales and gross margin while effectively
controlling operating expenses. The Company relies on its planned net sales and
gross margin to provide enough cash flow to meet its financial obligations. When
net sales and gross margin levels have not met plan in the past, the Company has
drawn funds under its credit facilities and/or negotiated with its lenders to
provide additional availability to meet its liquidity needs. These credit
facilities, together with cash provided by operations, are expected to meet the
Company's liquidity and capital needs during the period of the agreements.
The Company's credit facilities consist of a revolving credit agreement and term
loan to meet the Company's short-term liquidity needs, a mortgage loan
collateralized by the Company's corporate offices and distribution center and
letter of credit facilities to accommodate the Company's needs to purchase
merchandise inventories from foreign sources. Collectively, the Company's credit
facilities contain certain financial and non-financial covenants with
which the Company was in compliance at February 2, 2002. A summary of the
Company's credit facilities appears below. Please refer to Note B to the
Consolidated Financial Statements.
The Company's credit facilities require that these financial covenants be
measured on a monthly basis. The Company was in compliance with these covenants
as of February 2, 2002. Management believes that the Company will be in
compliance with all financial covenants during 2002 based upon achieving its
planned operating results. However, these planned operating results are
dependent upon the Company meeting certain improved fiscal 2002 targets of net
sales, gross margin and operating expenses and, as a result, involve some degree
of uncertainty. If the Company does not achieve its planned operating results,
it is possible that the adjusted minimum net worth covenant may not be met
during the second half of fiscal 2002. The Company successfully obtained an
amendment to its adjusted net worth covenant in December 2001 and, if necessary,
will seek additional amendments to this covenant during fiscal 2002.
The Company has a $37,500,000 revolving credit agreement (including a
$25,000,000 letter of credit sub-facility) and $4,000,000 term loan with its
primary lender through July 2003. Borrowings under the revolving credit
agreement are collateralized by all assets owned by the Company during the term
of the agreement (other than land, buildings, fixtures and improvements
collateralizing the mortgage loan discussed below). Maximum borrowings under the
revolving credit facility and utilization of the letter of credit facility are
based on a borrowing base formula determined with respect to eligible inventory
as defined in the agreement. Borrowings under the revolving credit agreement
bear interest, at the Company's option (subject to certain limitations in the
agreement), at the Prime Rate or the adjusted Eurodollar Rate, as defined, plus
1.5% provided that the Company meets certain minimum net worth requirements as
set forth in agreement. Borrowings under the term loan bear interest at 15.0%
per annum. At February 2, 2002, the Company had approximately $3.9 million of
excess availability under the borrowing base formula.
The maximum and average amounts outstanding during fiscal 2001 and fiscal 2000
and amounts outstanding at the end of such periods for the revolving credit
facility are disclosed in Note B to the Consolidated Financial Statements in
Item 8 of this document.
The Company entered into a twenty-year mortgage agreement with a commercial bank
in June 1997. The agreement, which had an original balance of $8,125,000, is
secured by the Company's real property located at its corporate offices
including land, buildings, fixtures and improvements. The mortgage agreement,
which had a balance of $7,203,000 at February 2, 2002, is payable in 240
consecutive equal monthly installments (including interest at the rate of 9.125%
per annum) through July 2017. Certain fees may be payable by the Company if the
mortgage loan is repaid prior to June 2014.
The Company also has an agreement with a commercial bank to provide a separate
letter of credit facility of up to $8,000,000 which expires on the earlier of
June 30, 2002 or termination of the Company's revolving credit agreement with
its primary lender. Letters of credit issued under the agreement are
collateralized by inventories purchased using such letters of credit. The
agreement contains the same working capital and minimum net worth requirements
as required by the Company's primary lender under the revolving credit
agreement. The agreement contains certain restrictive covenants which are
substantially the same as those within the Company's revolving credit facility
discussed above.
The Company's weighted average interest rate for all borrowings was 6.9% and
8.7% in fiscal 2001 and fiscal 2000, respectively. The Company had outstanding
letters of credit for the purchase of merchandise inventories totaling
approximately $7,644,000 and $4,808,000 at February 2, 2002 and February 3,
2001, respectively.
Net cash used in operating activities for fiscal 2001 and 2000 was $4,353,000
and $4,693,000, respectively. Net cash used in operating activities in fiscal
2001 was primarily the result of the loss from operations and increases in
inventories and was partially offset by increases in accounts payable and other
liabilities. Net cash used in operating activities in fiscal 2000 was primarily
the result of the loss from operations and changes in income tax accounts. Net
cash provided by operating activities for fiscal 1999 was $8,477,000. The net
cash provided by operating activities in fiscal 1999 was primarily the result of
positive results of operations and a decrease in merchandise inventories.
At February 2, 2002, total merchandise inventories increased 23% to $54,131,000
compared with $43,894,000 at February 3, 2001. The increase in total merchandise
inventories was primarily attributable to a higher level of merchandise
in-transit to the Company's stores as a result of 1) increasing its levels of
imported merchandise compared with fiscal 2000, and 2) changing inventory
ownership from F.O.B. consolidator at February 3, 2001 to F.O.B. shipping point
at February 2, 2002. In fiscal 2001, import purchases (including freight and
duty) were 10% of total purchases compared with 8% in fiscal 2000. The Company
purchases its merchandise inventories principally from domestic vendors. The
level and source of inventories are subject to fluctuations because of the
Company's buying strategy and prevailing business conditions.
Net cash used in investing activities for fiscal 2001, 2000 and 1999 was
$3,181,000, $9,416,000 and $6,981,000, respectively, and was primarily used for
leasehold improvements and equipment for new stores opened each year, as well as
information technology expenditures including software and hardware upgrades.
The amounts of cash used in investing activities varied year to year as a result
of the Company's opening 6 stores in fiscal 2001, 44 stores in fiscal 2000 and
31 stores in fiscal 1999.
Net cash of $5,691,000 was provided by financing activities in fiscal 2001
primarily as a result of net borrowings from the Company's revolving credit
facility and other long-term debt, which provided the Company with cash to open
stores and to fund fiscal 2001 operations. Net cash of $15,691,000 was provided
by financing activities in fiscal 2000 primarily as a result of net borrowings
from the Company's revolving credit facility, which provided the Company with
cash to open stores and to fund fiscal 2000 operations. Net cash of $1,376,000
was used in financing activities in fiscal 1999 primarily as a result of the net
repayments of the revolving credit facility and the mortgage loan facility, as
well as the payment of capital lease obligations.
On August 2, 2000, the Board of Directors authorized the Company to repurchase
up to 285,715 shares of its outstanding common stock at market prices. The
repurchase program authorizes purchases of the Company's common stock from time
to time in the open market or privately negotiated block transactions and
contains no expiration date. The authorization represented approximately 9.5% of
the outstanding common stock of the Company as of August 2, 2000. As of February
2, 2002, the Company had repurchased 67,400 shares of its outstanding common
stock for an aggregate purchase price of $392,000 (average of $5.82 per share).
In fiscal 2002, the Company plans to spend approximately $3.5 million on capital
expenditures, most of which will be used to open approximately six new stores,
and to remodel, re-fixture, expand and relocate existing stores, and invest in
information technology. The Company's liquidity requirements in the foreseeable
future are expected to be met principally through the use of its credit
facilities and through cash provided by operations. In addition, the Company
plans to reduce working capital needs by, among other things, reducing expenses
and by minimizing its capital expenditures. If deemed by management to be in the
best interest of the Company, additional long-term debt, equity, capital leases,
or other permanent financing may be considered.
RISK FACTORS
Terrorism and the Uncertainty of War May Affect the Company's Business
- ----------------------------------------------------------------------
Terrorist attacks, such as the attacks that occurred in New York and Washington
D.C. on September 11, 2001, the response by the United States initiated on
October 7, 2001 and other acts of violence or war may affect the market on which
the Company's common stock trades, the markets in which the Company operates and
the Company's operations and profitability. Since the September 11 attacks, the
Company has experienced sluggish demand for apparel in its stores located in the
United States along the border with Mexico and in other areas whose local
economies are heavily dependent upon tourism. Management can provide no
assurance that demand in these areas will improve during fiscal 2002. The
potential near-term and long-term effects that any future terrorist attacks may
have for the Company's customers, the market for its common stock, the markets
for its products and the United States economy are uncertain. The consequences
of any terrorist attack, or any armed conflicts which may result, are
unpredictable, and management is unable to foresee events that could have an
adverse effect on the Company's markets or its business.
The Company Faces Significant Competition
- -----------------------------------------
The Company operates in a highly competitive marketplace. The Company competes
with large discount retail chains such as Wal-Mart, Kmart, and Target, and with
off-price chains, such as TJ Maxx, AJ Wright, Ross Stores, Factory-2-U Stores
and Marshall's, some of which have substantially greater resources than its own.
The Company also competes with independent and small chain retailers which serve
the same low- and middle-income market. In the future, new companies may also
enter the deep-discount retail industry. Although management believes that the
Company is well positioned to compete in its markets, management cannot assure
that the Company will be able to compete successfully against its current and
future competitors.
In fiscal 2001, the Company experienced one of the toughest promotional
environments in recent history. The Company competes in the discount retail
merchandise business, which is a highly competitive environment that subjects it
to the risk of reduced profitability resulting from lower net sales and reduced
margins. Management expects that competition will continue and increase in the
future. The Company has started new merchandise strategies, including
concentrating on its core apparel and accessories categories, better execution
of its core businesses and broader methods of marketing its business; all
designed to improve gross margin, customer frequency and attract new customers.
However, management can make no assurances that these merchandising and
marketing strategies and other actions taken will improve results or be adequate
to minimize the Company's exposure to any negative impacts due to competition.
The Company's Improvement in Operating Results Depends on Improvement in Net
Sales and Gross Margin
- ----------------------
The Company's improvement in operating results depends largely on its ability to
improve net sales and gross margin. To that end, during fiscal 2002, the Company
will seek to focus its resources on its core merchandise categories of women's
and children's apparel and women's accessories. Within these core merchandise
categories, management believes that plus-size women's apparel, children's
apparel and women's accessories offer the most potential to increase net sales
and gross margin. To achieve this, the Company has increased the square footage
devoted to these categories in many of its stores. The Company will seek to
improve its gross margin in existing stores by focusing its resources on higher
margin, faster-turning apparel categories and by increasing, as proportions of
its total merchandise offerings, accessories and its own brands of merchandise.
Opening New Stores, Expanding Existing Stores and Relocating Existing Stores
Affects the Company's Business
- ------------------------------
The Company reduced the number of new store
openings during fiscal 2001 as compared with prior years, and anticipates
opening approximately six new stores during fiscal 2002. The reduced number of
new store openings is designed to allow management to increase its focus on the
management of existing stores, including concentrating on opportunities to
expand and relocate existing stores in proven locations. The Company plans to
relocate or expand approximately 16 stores during fiscal 2002.
The Company continues to increase the number of its "BestPrice! Kids" stores,
which it has tested, by converting suitable existing stores into the "BestPrice!
Kids" concept and by creating its "BestPrice! Kids" concept in a selected number
of its larger stores. The Company has also developed a "BestPrice! Plus" store
concept which provides a wide assortment of plus-size apparel and accessories.
The Company experienced encouraging early indicators while testing this concept
in several of its larger stores and this concept will be a part of the Company's
new "Tri-Box" store concept, opening this spring. These "Tri-Box" stores will be
approximately 9,000 to 11,000 square feet, will be located in densely populated
areas and will contain three separate stores within a single store. The center
of "Tri-Box" stores will include a wide assortment of the Company's misses and
junior sizes of women's apparel as well as accessories. The other sections of
the "Tri-Box" stores will be merchandised as "BestPrice! Kids" and "BestPrice!
Plus" stores.
There can be no assurance that the Company's store development efforts will
result in operating improvement in the Company's existing store base.
The Company's store development strategy depends on many factors, including its
ability to identify suitable markets and sites for new, expanded and relocated
stores; negotiate leases with acceptable terms; appropriately upgrade its
financial and management information systems and controls and manage its
operating expenses. In addition, the Company must be able to continue to hire,
train, motivate and retain competent managers and store personnel. Many of these
factors are beyond the Company's control. As a result, management cannot assure
that the Company will be able to achieve its future store development goals. Any
failure by the Company to achieve its store development goals on a timely basis,
continue to enjoy acceptance in its current markets, attract and retain
management and other qualified personnel, appropriately upgrade its financial
and management information systems and control or manage operating expenses
could adversely affect its future operating results and its ability to execute
its store development strategy.
Management also cannot assure that the Company's store development strategy will
improve its results of operations. A variety of factors are critical to the
success of the Company's new, expanded and relocated stores and such factors
include but are not limited to store sales, store location, store size, lease
terms, initial advertising effectiveness and brand recognition. Assuming that
its store development strategy occurs as anticipated, the Company's store base
will include a number of large stores (including new, expanded and relocated
locations) with relatively short operating histories. Management cannot assure
that such large stores will achieve the sales per selling square foot and store
contributions currently achieved in the Company's existing store base. If the
Company's large stores on average fail to achieve its minimum operational
performance criteria, its store development strategy could produce a decrease in
its overall sales per selling square foot and store contributions. Increases in
advertising and pre-opening expenses associated with the opening of new stores
could also contribute to a decrease in the Company's operating results.
Planned Changes to and Disruptions in Distribution of Merchandise Could Impact
the Company's Business
- ----------------------
The Company's success depends upon whether its receiving and shipping schedules
for merchandise are well organized and managed. The Company is planning for an
increased level of purchases of pre-ticketed and pre-packaged merchandise from
vendors which it believes will reduce the handling costs associated with
distributing merchandise to its stores. However, management can make no
assurances that these plans will provide the Company with the planned
efficiencies.
In addition, the Company may face unexpected demands on its distribution
operations that could cause delays in delivery of merchandise from its
distribution center to its stores. A fire, earthquake or other disaster at the
Company's distribution center could hurt its business, financial condition and
results of operations. The Company maintains commercial property, business
interruption, earthquake and flood insurance to minimize the potential financial
impact of these risks.
Relationships with the Company's Vendors and the Availability of In-Season
Merchandise Affect Its Business
- -------------------------------
The Company's success depends in large part on
its ability to locate and purchase quality merchandise at attractive prices on
acceptable terms. Management cannot be certain that such merchandise will
continue to be available in the future on acceptable terms. Further, the Company
may not be able to find and purchase merchandise in quantities necessary to
accommodate its planned growth. Although management believes that the Company's
relationships with its vendors are good, the Company does not have long-term
agreements with any vendor. As a result, the Company must continuously seek out
buying opportunities from its existing suppliers and from new sources. The
Company competes for these opportunities with other retailers, discount and
deep-discount chains and mass merchandisers. Although the Company does not
depend on any single vendor or group of vendors and believes it can successfully
compete in seeking out new vendors, a disruption in the availability of
merchandise at attractive prices and acceptable terms could impair its business.
The Company's Business is Subject to Seasonality
- ------------------------------------------------
The Company has historically realized its highest levels of sales and income
during the first and second quarters of its fiscal year (the quarters ending in
April and July) because of heavy sales associated with the Easter and Mother's
Day holidays. Any adverse events during the first and second quarter could
therefore affect the Company's financial performance. Historically, the Company
has realized a significant portion of its net sales and net income during these
two quarters. In anticipation of the Easter and Mother's Day holidays, the
Company may purchase substantial amounts of seasonal merchandise. If for any
reason the Company's net sales during these seasons were to fall below seasonal
norms and/or its expectations, a seasonal merchandise inventory imbalance could
result. If such an imbalance were to occur, markdowns might be required to clear
excess inventory. The Company's profitability and operating results could be
adversely affected by higher than expected markdowns.
The Company's Business is Vulnerable to Economic Factors Beyond Its Control
- ---------------------------------------------------------------------------
The Company's ability to provide quality merchandise at everyday low prices
could be hindered by certain economic factors beyond its control, including but
not limited to:
o increases in inflation;
o increases in operating costs;
o increases in employee health care and workers' compensation costs;
o increases in prevailing wage levels;
o increases in the minimum wage rate, both at the Federal and state
levels; and
o decreases in consumer confidence levels.
The Market Price of the Company's Common Stock has Experienced Substantial
Fluctuation
- -----------
The market price of the Company's common stock has fluctuated substantially over
the last several years. Trading prices for its common stock could fluctuate
significantly due to many factors, including:
o the depth of the market for the Company's common stock;
o changes in expectations of the Company's future financial performance,
including financial estimates by securities analysts and investors;
o variations in the Company's operating results;
o conditions or trends in the Company's industry;
o additions or departures of key personnel; and
o future sales of the Company's common stock.
Among the Company's contractual obligations are operating leases for its stores
which typically contain five-year terms with options to renew for additional
five-year periods. The Company also has operating leases for automobiles,
trucks, trailers and certain computer and other equipment with one to ten year
terms. In addition, the Company has certain capital leases for certain office
equipment and computer software. The Company's credit facilities contain a term
loan and mortgage loan with required payment provisions.
Future minimum commitments as of February 2, 2002 are as follows:
Other
operating
Fiscal Year Store leases leases Capital leases Term loan Mortgage loan Total
----------- ------------ ------ -------------- --------- ------------- -----
2002 $ 22,814,000 $1,978,000 $1,371,000 $ 850,000 $ 227,000 $ 27,240,000
2003 17,475,000 1,057,000 927,000 3,150,000 249,000 22,858,000
2004 13,353,000 600,000 538,000 - 271,000 14,762,000
2005 8,383,000 330,000 151,000 - 299,000 9,163,000
2006 4,242,000 11,000 5,000 - 328,000 4,586,000
Thereafter 9,176,000 - - - 5,829,000 15,005,000
----------------- ---------------- ---------------- ----------------- ---------------- ----------------
Total $ 75,443,000 $3,976,000 $2,992,000 $4,000,000 $7,203,000 $ 93,614,000
================= ================ ================ ================= ================ ================
The Company also has a revolving credit agreement which expires in July 2003
with an outstanding balance of $32,084,000 and outstanding letters of credit for
the purchase of merchandise inventories totaling approximately $7,644,000 at
February 2, 2002.
MARKET RISK AND RISK MANAGEMENT POLICIES
The Company is exposed to market risk from changes in interest rates affecting
its credit arrangements, including a variable-rate revolving credit agreement, a
fixed-rate term loan and a fixed-rate mortgage loan agreement, which may
adversely affect its results of operations and cash flows. The Company seeks to
minimize its interest rate risk through its day-to-day operating and financing
activities. The Company does not engage in speculative or derivative financial
or trading activities.
A hypothetical 100 basis point adverse change (increase) in interest rates
relating to the Company's revolving credit agreement for fiscal 2001 and fiscal
2000 would have increased pre-tax loss by approximately $275,000 and $187,000
for the respective time periods. Due to the fixed-rate nature of the term loan
agreement, a hypothetical 100 basis point adverse change (decrease) in interest
rates would have increased the estimated fair value of the Company's term loan
agreement by approximately $48,000 at February 2, 2002, but would have had no
effect on the Company's results of operations or cash flows for fiscal 2001. The
Company had no term loan at February 3, 2001. Due to the fixed-rate nature of
the mortgage loan agreement, a hypothetical 100 basis point adverse change
(decrease) in interest rates would have increased the estimated fair value of
the Company's mortgage loan agreement by approximately $664,000 and $506,000 at
February 2, 2002 and February 3, 2001, respectively, but would have had no
effect on the Company's results of operations or cash flows for fiscal 2001 and
fiscal 2000.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and
Hedging Activities," which, as amended, was effective for the Company's fiscal
year beginning February 4, 2001. This new standard requires recognition of all
derivatives, including certain derivative instruments embedded in other
contracts, as either assets or liabilities in the statement of financial
position and measurement of those instruments at fair value. The adoption of
SFAS 133 on February 4, 2001 had no material effect on the Company's
consolidated financial statements.
The Financial Accounting Standards Board issued SFAS 144, "Accounting for the
Impairment of Long-Lived Assets," which is effective for the Company's fiscal
year beginning February 3, 2002. The Company is evaluating the effect of the
adoption of SFAS 144, effective on February 3, 2002, and has not yet determined
the effect, if any, that the adoption will have on the Company's consolidated
financial statements.
Private Securities Litigation Reform Act of 1995
All statements contained in this Annual Report on Form 10-K as to future
expectations and financial results including, but not limited to, statements
containing the words "believes," "anticipates," "expects," "projects," "should,"
"will" and similar expressions, should be considered forward-looking statements
subject to the safe harbor created by the Private Securities Litigation Reform
Act of 1995. The Company cautions readers of this Annual Report on Form 10-K
that a number of important factors could cause the Company's actual results in
fiscal 2002 and beyond to differ materially from those expressed in such
forward-looking statements. These factors include, but are not limited to,
general economic conditions; fluctuations in interest rates and other economic
factors; consumer preferences; weather patterns; competitive factors; pricing
and promotional activities of competitors; the impact of excess retail capacity
and the availability of desirable store locations on suitable terms; the
availability, selection and purchasing of attractive merchandise on favorable
terms; credit availability, including adequate levels of credit support provided
to certain of the Company's vendors by factors and insurance companies; import
risks, including potential disruptions and duties, tariffs and quotas on
imported merchandise; regulatory matters, including legislation affecting wage
rates; and other factors described in the Company's filings with the Securities
and Exchange Commission from time to time. The Company does not undertake to
publicly update or revise its forward-looking statements even if experience or
future changes make it clear that any projected results expressed or implied
therein will not be realized.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Market Risk and Risk Management Policy" in Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
One Price Clothing Stores, Inc.
Duncan, South Carolina
We have audited the accompanying consolidated balance sheets of One Price
Clothing Stores, Inc. and subsidiaries (the "Company") as of February 2, 2002
and February 3, 2001, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three fiscal years in the
period ended February 2, 2002. Our audits also included the financial statement
schedule listed in the Index at Item 14. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of February 2, 2002
and February 3, 2001, and the results of its operations and its cash flows for
each of the three fiscal years in the period ended February 2, 2002, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such 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.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
March 13, 2002
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 2, February 3,
2002 2001
------------------ -------------------
Assets
CURRENT ASSETS
Cash and cash equivalents $ 2,277,000 $ 4,120,000
Miscellaneous receivables, net of allowance for doubtful accounts
of $128,000 and $76,000, respectively 3,791,000 2,245,000
Merchandise inventories 54,131,000 43,894,000
Federal and state income taxes receivable - 1,192,000
Prepaid expenses 6,428,000 5,583,000
Deferred income taxes - 394,000
------------------ -------------------
TOTAL CURRENT ASSETS 66,627,000 57,428,000
PROPERTY AND EQUIPMENT, net 35,615,000 38,610,000
DEFERRED INCOME TAXES, net of valuation allowance of $10,091,000
at February 2, 2002 2,825,000 6,114,000
OTHER ASSETS 4,735,000 4,482,000
------------------ -------------------
$ 109,802,000 $ 106,634,000
================== ===================
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable $ 35,656,000 $ 20,231,000
Current portion of long-term debt and revolving credit agreement 34,341,000 29,570,000
Accrued salaries and wages 1,915,000 2,085,000
Accrued employee benefits 1,559,000 1,741,000
Income taxes payable 503,000 938,000
Other accrued and sundry liabilities 2,140,000 2,029,000
------------------ -------------------
TOTAL CURRENT LIABILITIES 76,114,000 56,594,000
------------------ -------------------
LONG-TERM DEBT 11,835,000 8,764,000
------------------ -------------------
OTHER NONCURRENT LIABILITIES 2,548,000 2,395,000
------------------ -------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, par value $0.01 - authorized
unissued 500,000 shares
Common stock, par value $0.01 - authorized 35,000,000 shares;
issued and outstanding 2,943,769 and 2,940,912 shares, respectively 29,000 29,000
Additional paid-in capital 11,822,000 11,686,000
Retained earnings 7,844,000 27,556,000
Less: treasury stock - 67,400 shares at cost (390,000) (390,000)
------------------ -------------------
19,305,000 38,881,000
------------------ -------------------
$ 109,802,000 $ 106,634,000
================== ===================
See notes to consolidated financial statements
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Year Ended
--------------------------------------------------------------
February 2, February 3, January 29,
2002 2001 2000
(52 weeks) (53 weeks) (52 weeks)
----------------- ------------------ -----------------
NET SALES $ 340,430,000 $ 355,624,000 $ 336,847,000
Cost of goods sold 223,789,000 234,270,000 215,731,000
----------------- ------------------ -----------------
GROSS MARGIN 116,641,000 121,354,000 121,116,000
Selling, general and administrative expenses 88,378,000 88,280,000 78,361,000
Store rent and related expenses 33,394,000 32,235,000 27,711,000
Depreciation and amortization expense 6,783,000 6,215,000 5,340,000
Restructuring charge -- 1,017,000 --
Interest expense 3,458,000 2,737,000 1,895,000
----------------- ------------------ -----------------
132,013,000 130,484,000 113,307,000
----------------- ------------------ -----------------
(LOSS) INCOME BEFORE INCOME TAXES (15,372,000) (9,130,000) 7,809,000
Provision for (benefit from) income taxes 4,340,000 (3,764,000) 735,000
----------------- ------------------ -----------------
NET (LOSS) INCOME $ (19,712,000) $ (5,366,000) $ 7,074,000
================= ================== =================
NET (LOSS) INCOME PER COMMON SHARE -
BASIC $ (6.70) $ (1.80) $ 2.37
================= ================== =================
NET (LOSS) INCOME PER COMMON SHARE -
DILUTED $ (6.70) $ (1.80) $ 2.34
================= ================== =================
Weighted average number of common shares
outstanding - basic 2,942,788 2,976,317 2,989,121
================= ================== =================
Weighted average number of common shares
outstanding - diluted 2,942,788 2,976,317 3,022,814
================= ================== =================
See notes to consolidated financial statements
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Restricted
Common Stock Additional Stock Awards-
-------------------- Paid-in Retained Treasury Unearned
Shares Amount Capital Earnings Stock Compensation Total
-------------- --------- ------------- -------------- -------------- ----------- ---------------
Balance at January 30, 1999 2,982,723 $30,000 $11,539,000 $25,848,000 $ -- $ -- $ 37,417,000
Stock options exercised 8,446 -- 81,000 -- -- -- 81,000
Tax effect of options exercised -- -- 20,000 -- -- -- 20,000
Net restricted stock activity 5,714 -- 60,000 -- -- (51,000) 9,000
Net income -- -- -- 7,074,000 -- -- 7,074,000
-------------- --------- ------------- -------------- -------------- ----------- ---------------
Balance at January 29, 2000 2,996,883 30,000 11,700,000 32,922,000 -- (51,000) 44,601,000
Stock options exercised 1,429 -- 12,000 -- -- -- 12,000
Repurchase of treasury stock (67,400) (1,000) -- -- (390,000) -- (391,000)
Net restricted stock activity 10,000 -- (4,000) -- -- 29,000 25,000
Net loss -- -- -- (5,366,000) -- -- (5,366,000)
-------------- --------- ------------- -------------- -------------- ----------- ---------------
Balance at February 3, 2001 2,940,912 29,000 11,708,000 27,556,000 (390,000) (22,000) 38,881,000
Net restricted stock activity 2,857 -- 8,000 -- -- 22,000 30,000
Net stock warrant activity -- -- 106,000 -- -- -- 106,000
Net loss -- -- -- (19,712,000) -- -- (19,712,000)
-------------- --------- ------------- -------------- -------------- ----------- ---------------
Balance at February 2, 2002 2,943,769 $29,000 $11,822,000 $ 7,844,000 $ (390,000) $ -- $ 19,305,000
============== ========= ============= ============== ============== =========== ===============
See notes to consolidated financial statements
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
---------------------------------------------------
February 2, February 3, January 29,
2002 2001 2000
(52 weeks) (53 weeks) (52 weeks)
--------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (19,712,000) $ (5,366,000) $ 7,074,000
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Depreciation and amortization 6,783,000 6,215,000 5,340,000
Provision for compensation - restricted stock awards 30,000 26,000 --
Provision for supplemental post-retirement benefits -- -- 109,000
Deferred income taxes 3,807,000 (4,924,000) (816,000)
Provision for impairment of and losses on disposal of property
and equipment 805,000 1,884,000 547,000
Changes in operating assets and liabilities:
Increase in miscellaneous receivables and prepaid expenses (2,214,000) (1,288,000) (1,281,000)
(Increase) decrease in merchandise inventories receivable (10,237,000) 231,000 1,514,000
Decrease (increase) in federal and state income taxes 757,000 1,910,000 (841,000)
Increase (decrease) in accounts payable and other liabilities 15,088,000 (3,240,000) (3,218,000)
Decrease (increase) in other noncurrent assets 207,000 (181,000) 59,000
Increase (decrease) in other noncurrent liabilities 333,000 40,000 (10,000)
--------------- -------------- --------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (4,353,000) (4,693,000) 8,477,000
--------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,616,000) (9,041,000) (5,981,000)
Proceeds from sale of property and equipment -- 552,000 --
Purchases of other noncurrent assets (primarily software) (530,000) (997,000) (930,000)
(Issuance of) repayment of related party loans (35,000) 70,000 (70,000)
--------------- -------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (3,181,000) (9,416,000) (6,981,000)
--------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from (repayment of) revolving credit agreement 3,531,000 17,374,000 (659,000)
Proceeds from long-term debt 4,150,000 -- --
Repayment of long-term debt (192,000) (344,000) (160,000)
Payment of capital lease obligations (1,163,000) (692,000) (382,000)
Debt financing costs incurred (478,000) (124,000) (78,000)
Decrease in amount due to related parties (157,000) (143,000) (178,000)
Purchase of treasury stock -- (392,000) --
Proceeds from exercise of stock options -- 12,000 81,000
--------------- -------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 5,691,000 15,691,000 (1,376,000)
--------------- -------------- --------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,843,000) 1,582,000 120,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF FISCAL YEAR 4,120,000 2,538,000 2,418,000
--------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF FISCAL YEAR $ 2,277,000 $ 4,120,000 $ 2,538,000
=============== ============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 3,053,000 $ 2,765,000 $ 1,758,000
Income taxes paid 1,126,000 310,000 2,388,000
Non-cash investing and financing activities:
Capital leases 1,594,000 2,390,000 506,000
Issuance of restricted stock awards 8,000 99,000 60,000
Issuance of stock warrants 106,000 -- --
See notes to consolidated financial statements
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - Operations and Summary of Significant Accounting Policies
Business: One Price Clothing Stores, Inc. and subsidiaries (the "Company")
operates a chain of off-price specialty retail stores offering a wide variety of
first quality, fashionable, in-season apparel and accessories for women and
children. Accordingly, the Company operates in one business segment. The Company
currently offers most of its apparel prices ranging between $7 and $15 and
offers certain additional categories and styles at prices higher than $15 when
such merchandise is clearly desired by the Company's customers. Such higher
priced merchandise is currently offered at prices up to $25. At February 2,
2002, the Company operated 623 stores in 30 states, the District of Columbia,
Puerto Rico and the U.S. Virgin Islands.
Operations and Strategies: The Company has incurred operating losses during the
two most recent fiscal years. In response to these operating losses, the
Company:
o initiated a restructuring plan during the fourth quarter of fiscal
2000 which was completed during fiscal 2001 (See Note I).
o improved its liquidity by amending its credit facilities to obtain a term
loan of $4 million (which matures in fiscal 2003)(See Note B).
o implemented a revised merchandising strategy which focuses resources on
higher margin, faster-turning women's and children's apparel and women's
accessories categories and eliminates and/or de-emphasizes low-margin,
slow-turning categories of merchandise (including gifts, home furnishings,
children's accessories, uniforms and men's apparel). The Company plans to
continue this focused merchandising approach during fiscal 2002.
o reduced the number of new store openings while focusing on relocating and
expanding existing stores in proven locations, including several large
stores. The Company plans to continue this store development approach
during fiscal 2002, including the opening or reconfiguration of
approximately ten large stores which will offer the Company's "BestPrice!
Kids" and "BestPrice! Plus" concepts as separate "stores within a store."
o implemented a marketing and advertising strategy involving targeted
programs for specific regions, including direct mail, newspaper inserts,
in-store collateral and electronic media. The Company plans to expand its
marketing and advertising efforts during fiscal 2002.
Management expects that these strategies will contribute to improved
profitability and financial condition during fiscal 2002. However, because there
are certain risks and uncertainties related to achieving these results, there
can be no assurance that these strategies will lead to the expected level of
improvement.
Fiscal Year: The Company's fiscal year ends on the Saturday nearest January 31.
The years ended February 2, 2002 ("fiscal 2001") and January 29, 2000 ("fiscal
1999") consist of 52 weeks. The year ended February 3, 2001 ("fiscal 2000")
consists of 53 weeks.
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Accounting Estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Significant estimates and assumptions made in the
preparation of these financial statements include the Company's reserves for
inventory, accrual for workers' compensation, impaired store reserves, and
valuation allowance for deferred tax assets.
Fair Value of Financial Instruments: The estimated fair values of the Company's
financial instruments, including primarily cash and cash equivalents, accounts
receivable, accounts payable and the Company's revolving credit facility,
approximate their carrying values at February 2, 2002 and February 3, 2001, due
to their short-term nature or variable interest rates. The fair values of the
Company's mortgage loan and term loan (see Note B) at
February 2, 2002 and February 3, 2001 are calculated based on discounted cash
flows using the estimated currently available borrowing rate.
Cash and Cash Equivalents: The Company considers all highly liquid investments
with an original maturity of three months or less when purchased to be cash
equivalents.
Merchandise Inventories: Merchandise inventories are stated at the lower of cost
(computed using the first-in, first-out (FIFO)
retail method) or market.
Property and Equipment: Property and equipment is recorded at cost less
accumulated depreciation. Depreciation is computed by the straight-line method,
based on estimated useful lives of 10 years for land improvements, 33 to 40
years for buildings, 5 to 10 years for leasehold improvements and 3 to 15 years
for fixtures and equipment.
Income Taxes: Deferred income tax assets and liabilities represent the future
income tax effect of unused net operating losses and tax credits, as well as
other temporary differences between the book and tax bases of the Company's
assets and liabilities, assuming they will be realized and settled at the amount
reported in the Company's financial statements. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
Purchased and Internally Developed Software: Purchased and internally developed
software are included in other assets and are amortized over their estimated
useful life of 5 years using the straight-line method. The gross amount of such
software was $4,417,000 and $3,896,000 at February 2, 2002 and February 3, 2001,
respectively. Accumulated amortization of such software was $2,233,000 and
$1,594,000 at February 2, 2002 and February 3, 2001, respectively.
Store Closing and Impairment Costs: The Company evaluates whether assets,
largely store leasehold improvements and fixtures and equipment, may be impaired
based on store lease termination and renewal decisions and estimated
undiscounted future cash flows of the individual stores. For stores, which are
determined to be impaired, leasehold improvements and fixtures and equipment are
written down based upon management's estimate of recoverability. Charges for
impairment are recorded as a component of selling, general and administrative
("SG&A") expenses. At the time management commits to close a store, a provision
is made for any remaining store lease obligation after closing and penalties, if
any, to cancel the lease obligation.
Revenue Recognition: Revenues from retail sales are recognized at the time of
the sale. An estimate for merchandise returns is recorded in the period that
the merchandise is sold.
Store Pre-opening Costs: Costs associated with the opening of new stores are
expensed as incurred.
Advertising and Promotional Costs: Advertising and promotional costs are
expensed when incurred. Such expenses were $1,500,000, $1,573,000 and $887,000
in fiscal 2001, 2000 and 1999, respectively.
Earnings Per Common Share: Basic earnings per common share are computed by
dividing earnings by the weighted average number of shares of common stock.
Diluted earnings per common share are computed by dividing earnings by the
weighted average number of shares of common stock and dilutive common stock
equivalent shares for stock options and warrants outstanding, unless
antidilutive, during the period. On September 4, 2001, the Company effected a
1-for-3.5 reverse stock split. All amounts presented in the consolidated
financial statements and related notes have been retroactively adjusted to
reflect this split. See Note H.
Stock Repurchase Program: On August 2, 2000, the Board of Directors authorized
the Company to repurchase up to 285,715 shares of its outstanding common stock
at market prices. The repurchase program authorizes purchases from time to time
in the open market or privately negotiated block transactions and contains no
expiration date. The authorization represented approximately 9.5% of the
outstanding common stock of the Company as of August 2, 2000. As of February 2,
2002 the Company had repurchased 67,400 shares of its outstanding common stock
for an aggregate purchase price of $392,000 (average of $5.82 per share).
Reclassifications: Certain amounts included in prior periods' financial
statements have been reclassified to conform to the fiscal 2001 presentation.
Effect of New Accounting Pronouncements: The Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("SFAS") 133,
"Accounting for Derivative Instruments and Hedging Activities," which, as
amended, was effective for the Company's fiscal year beginning February 4, 2001.
This new standard requires recognition of all derivatives, including certain
derivative instruments embedded in other contracts, as either assets or
liabilities in the statement of financial position and measurement of those
instruments at fair value. The adoption of SFAS 133 on February 4, 2001 had no
material effect on the Company's consolidated financial statements.
The Financial Accounting Standards Board issued SFAS 144, "Accounting for the
Impairment of Long-Lived Assets," which is effective for the Company's fiscal
year beginning February 3, 2002. The Company is evaluating the effect of the
adoption of SFAS 144, effective on February 3, 2002, and has not yet determined
the effect, if any, that the adoption will have on the Company's consolidated
financial statements.
NOTE B - Credit Facilities
The Company has a revolving credit agreement of up to $37,500,000 (including a
letter of credit sub-facility of up to $25,000,000) with its primary lender
through July 2003. Borrowings under the Company's revolving credit agreement
with its primary lender are collateralized by all assets owned by the Company
during the term of the agreement (other than the land, buildings, fixtures and
improvements collateralizing the mortgage loan discussed below). Under the
agreement, the borrowings bear interest, at the Company's option (subject to
certain limitations in the agreement), at the Prime Rate or the Adjusted
Eurodollar Rate, as defined, plus 1.5% provided that the Company meets certain
minimum net worth requirements as set forth in the agreement.
Maximum borrowings under the revolving credit agreement and utilization of the
letter of credit facility are based on a borrowing base formula determined with
respect to eligible inventory as defined in the agreement. As a result,
availability under the revolving credit facility fluctuates in accordance with
the Company's seasonal variations in inventory levels. The lending formula may
be revised from time to time in response to changes in the composition of the
Company's inventory or other business conditions. At February 2, 2002, the
Company had approximately $3.9 million of excess availability under the
borrowing base formula. The Company is charged a commitment fee of 0.25% per
annum on the unused portion of the revolving credit facility.
In September 2001 and January 2002, the Company amended its revolving credit
agreement with its primary lender. The combined effect of these amendments
resulted in the Company executing an additional $4.0 million term loan in
addition to the $37.5 million available under its revolving credit agreement
described above. The term loan expires in July 2003. Borrowings under the term
loan agreement are collateralized by all assets owned by the Company during the
term of the agreement (other than the land, buildings, fixtures and improvements
collateralizing the mortgage loan discussed below). Under the term loan
agreement, the borrowings bear interest at the rate of 15.0% per annum. In
addition, the term loan agreement guarantees certain minimum payments to the
lender if the term loan is fully repaid prior to January 2003.
The Company's amended revolving credit agreement contains certain covenants
which, among other things, prohibit the Company from paying dividends, restrict
the ability of the Company to incur other indebtedness or encumber or dispose of
assets, limit the amount of its own stock the Company can repurchase, and
require the Company to maintain a minimum level of excess availability of
$1,500,000. Under this agreement, the Company is required to maintain a
$5,000,000 minimum level of working capital (excluding amounts outstanding under
the revolving credit agreement) and to maintain a $25,000,000 minimum adjusted
net worth (excluding valuation reserves against the Company's deferred income
tax assets). Adjusted net worth at February 2, 2002 was $29,396,000.
The Company's credit facilities require that these financial covenants be
measured on a monthly basis. The Company was in compliance with these covenants
as of February 2, 2002. Management believes that the Company will be in
compliance with all financial covenants during 2002 based upon achieving its
planned operating results. However, these planned operating results are
dependent upon the Company meeting certain improved fiscal 2002 targets of net
sales, gross margin and operating expenses and, as a result, involve some degree
of uncertainty. If the Company does not achieve its planned operating results,
it is possible that the adjusted minimum net worth covenant may not be met
during the second half of fiscal 2002. The Company successfully obtained an
amendment to its adjusted net worth covenant in December 2001 and, if necessary,
would seek additional amendments to this covenant during fiscal 2002.
The maximum and average amounts outstanding during fiscal 2001 and 2000 and
amounts outstanding at the end of such periods for the revolving credit
agreement are presented as follows:
Fiscal Year Ended
----------------------------------
February 2, February 3,
2002 2001
-------------- ----------------
Revolving credit agreement:
Maximum amounts outstanding $33,447,000 $31,647,000
Average amounts outstanding 27,547,000 18,656,000
Outstanding at period end 32,084,000 28,553,000
The Company also has an agreement with a commercial bank to provide a separate
letter of credit facility of up to $8,000,000 which expires on the earlier of
June 30, 2002 or termination of the Company's revolving credit agreement with
its primary lender. Letters of credit issued under the agreement are
collateralized by inventories purchased using such letters of credit. The
agreement contains the same working capital and minimum net worth requirements
as required by the Company's primary lender under the revolving credit
agreement. The agreement contains certain restrictive covenants which are
substantially the same as those within the Company's revolving credit agreement
discussed above. The Company had outstanding letters of credit for the purchase
of merchandise inventories totaling approximately $7,644,000 and $4,808,000 at
February 2, 2002 and February 3, 2001, respectively.
The Company entered into a twenty-year mortgage agreement with a commercial bank
in June 1997. The agreement, which had an original balance of $8,125,000, is
secured by the Company's real property located at its corporate offices
including land, buildings, fixtures and improvements. The mortgage agreement,
which had a balance of $7,203,000 at February 2, 2002, is payable in 240
consecutive equal monthly installments (including interest at the rate of 9.125%
per annum) through July 2017. Certain fees may be payable by the Company if the
mortgage loan is repaid prior to June 2014.
Annual maturities of the Company's term loan and mortgage loan are as follows:
Fiscal Year Term Loan Mortgage Loan
----------- ---------- -------------
2002 $ 850,000 $ 227,000
2003 3,150,000 249,000
2004 - 271,000
2005 - 299,000
2006 - 328,000
Thereafter - 5,829,000
----------- -------------
Total $4,000,000 $7,203,000
=========== =============
The fair value of the Company's outstanding term loan at February 2, 2002 was
$4,082,000. The Company had no term loan balance at February 3, 2001. The fair
value of the Company's outstanding mortgage obligation at February 2, 2002 and
February 3, 2001 was $9,475,000 and $7,704,000, respectively. Fair value is
determined based on discounted cash flows using the Company's estimated
currently available borrowing rate.
The Company's weighted average interest rate for all borrowings was 6.9% and
8.7% in fiscal 2001 and fiscal 2000, respectively.
The Company's capital leases for certain office equipment and computer software
were calculated using interest rates appropriate at the inception of each lease.
Future minimum lease payments for capitalized lease obligations as of February
2, 2002 were as follows:
Fiscal Year:
2002 $ 1,371,000
2003 927,000
2004 538,000
2005 151,000
2006 5,000
-------------
Total minimum obligations 2,992,000
Less interest (335,000)
-------------
Present value of net minimum obligations 2,657,000
Less current portion (1,175,000)
-------------
Long-term obligation at February 2, 2002 $ 1,482,000
=============
The current portion of the capital lease obligation is included in current
portion of long-term debt and revolving credit agreement, and the long-term
obligation is included in long-term debt on the Consolidated Balance Sheets.
NOTE C - Property and Equipment
February 2, February 3,
2002 2001
--------------- ----------------
Land $ 878,000 $ 878,000
Land improvements 494,000 494,000
Buildings 16,061,000 16,061,000
Leasehold improvements 20,103,000 20,027,000
Fixtures and equipment 36,071,000 33,930,000
--------------- ----------------
73,607,000 71,390,000
Less: accumulated depreciation and amortization (37,992,000) (32,780,000)
--------------- ----------------
$ 35,615,000 $ 38,610,000
=============== ================
Gross amounts of capital lease assets, included in the amounts presented above,
were $5,071,000 and $3,775,000 at February 2, 2002 and February 3, 2001,
respectively. Accumulated amortization of such assets was $2,065,000 and
$1,178,000 at February 2, 2002 and February 3, 2001, respectively.
NOTE D - Income Taxes
The provision for (benefit from) income taxes consists of the following:
Fiscal Year Ended
---------------------------------------------------
February 2, February 3, January 29,
2002 2001 2000
--------------- --------------- -----------------
Current:
Federal $ - $ (48,000) $ 1,107,000
State and local - 29,000 283,000
-
Puerto Rico 294,000 956,000 -
Virgin Islands 239,000 223,000 161,000
Deferred:
Federal 3,350,000 (4,343,000) 66,000
State and local 457,000 (638,000) (825,000)
Puerto Rico - 57,000 (57,000)
--------------- --------------- -----------------
Total provision for (benefit from) income taxes $ 4,340,000 $ (3,764,000) $ 735,000
=============== =============== =================
A reconciliation of the statutory federal income tax (benefit) rate to the
annual effective income tax (benefit) rate follows:
Fiscal Year Ended
---------------------------------------------------------
February 2, February 3, January 29,
2002 2001 2000
----------------- ---------------- -----------------
Federal income tax (benefit) at statutory rate (35.0)% (35.0)% 35.0 %
State and local income tax (benefit), net of federal tax (1.1) (4.3) 2.7
Higher Puerto Rico / Virgin Islands tax rates 0.3 1.9 1.7
Tax benefit from federal jobs credits (1.7) (3.4) (2.3)
Change in valuation allowance 65.7 - (28.0)
Other, net - (0.4) 0.3
----------------- ---------------- -----------------
Effective income tax (benefit) rate 28.2 % (41.2)% 9.4 %
================= ================ =================
Presented below are the elements which comprise deferred income tax assets and
liabilities:
February 2, February 3,
2002 2001
---------------- ---------------
Gross deferred income tax assets:
Accrued employee benefits deductible for tax purposes when paid $ 629,000 $ 664,000
Accrued retirement benefits deductible for tax purposes when paid 315,000 481,000
Accrued store closing and restructuring costs deductible
for purposes when paid 527,000 515,000
Federal, state and local net operating loss and credit carryforwards 12,121,000 5,485,000
Other 300,000 274,000
---------------- ---------------
13,892,000 7,419,000
Valuation allowance (10,091,000) -
---------------- ---------------
Gross deferred income tax assets, net of valuation allowance 3,801,000 7,419,000
Gross deferred income tax liabilities:
Excess of financial statement over tax basis of property and equipment (231,000) (749,000)
Excess of financial statement over tax basis of inventory (869,000) (162,000)
---------------- ---------------
Gross deferred income tax liabilities (1,100,000) (911,000)
---------------- ---------------
Net deferred income tax asset $ 2,701,000 $ 6,508,000
================ ===============
The net deferred income tax assets at February 2, 2002 and February 3, 2001,
respectively, are recorded in the accompanying Consolidated Balance Sheets as
follows:
February 2, February 3,
2002 2001
------------- ------------
Current deferred income tax (liability) asset $ (124,000) $ 394,000
Noncurrent deferred income tax asset 2,825,000 6,114,000
------------- ------------
Net deferred income tax asset $ 2,701,000 $ 6,508,000
============= ============
At February 2, 2002, the Company had gross Federal net operating loss
carryforwards aggregating approximately $25,900,000, state net operating loss
carryforwards of $29,812,000 and tax credits of $1,865,000. These are available
to reduce Federal, state and local income tax by approximately $12,121,000 (net
operating losses of $10,256,000 and tax credits of $1,865,000). These net
operating losses and credit carryforwards expire between 2002 and 2022 with the
substantial portion of these expiring after 2019. Management cannot be assured
that certain deferred income tax assets related to these carryforwards will be
fully utilized or realized. Accordingly, a valuation allowance has been provided
for a substantial portion of the net deferred income tax asset. An allowance has
not been recorded on the remaining net deferred income tax asset as the Company
has the ability to implement a tax planning strategy that would result in the
realization of such remaining deferred income tax asset.
NOTE E - Commitments and Contingencies
Litigation
From time to time, the Company is a defendant in legal actions involving claims
arising in the normal course of its business. The Company believes that, as a
result of its legal defenses and insurance arrangements, none of these actions
presently pending, even if decided adversely, would have a material adverse
effect on its financial position, results of operations or cash flows.
Leases
The Company leases its stores under operating leases with initial terms of
typically five years with one to two renewal option periods of five years each.
The leases generally provide for increased payments resulting from increases in
operating costs, common area maintenance costs and property taxes. Substantially
all store leases also provide the Company with an option to terminate the
agreement without penalty if certain conditions are present. Certain of the
leases provide for contingent or percentage rentals based upon sales volume and
others are leased on a month-to-month basis.
In addition, the Company has operating leases for automobiles, trucks, trailers
and certain computer and other equipment with one to ten year terms.
Future minimum rental commitments as of February 2, 2002 for noncancelable
leases (excluding contingent rentals, but including those which may qualify for
early termination) are approximately as follows:
Fiscal Year Stores Other Total
----------- -------------- ------------- -------------
2002 $22,814,000 $1,978,000 $24,792,000
2003 17,475,000 1,057,000 18,532,000
2004 13,353,000 600,000 13,953,000
2005 8,383,000 330,000 8,713,000
2006 4,242,000 11,000 4,253,000
Thereafter 9,176,000 - 9,176,000
-------------- ------------- -------------
Total $75,443,000 $3,976,000 $79,419,000
============== ============= =============
Total rental expense for operating leases was as follows:
Fiscal Year Ended
------------------------------------------------------------
February 2, February 3, January 29,
2002 2001 2000
------------- -------------- -------------
Minimum rentals $28,077,000 $27,336,000 $23,936,000
Contingent rentals 6,882,000 6,348,000 5,540,000
------------- ------------- -------------
$34,959,000 $33,684,000 $29,476,000
============= ============= =============
NOTE F - Employee Benefits, Shareholders' Rights and Warrants
Reverse Stock Split: On September 4, 2001, the Company effected a 1-for-3.5
reverse stock split. All amounts presented below have been retroactively
adjusted to reflect this split.
Stock Option Plans: The Company has three stock option plans (the "1991 Plan,"
the "1988 Plan" and the "1987 Plan") which provide for grants to certain
officers and key employees of options to purchase shares of common stock of the
Company. Options granted under the three stock option plans expire ten years
from the date of grant and have been granted at prices not less than the fair
market value at the date of grant. Options are no longer available for grant
under the 1987 Plan and 1988 Plan. Options canceled under the 1991 Plan are
available for reissuance. The 1991 Plan also provides for a reserve of up to
14,000 shares of restricted stock to be awarded from the total number of shares
issuable under the 1991 Plan. At February 2, 2002, a total of 65,000 shares of
common stock were reserved for issuance under the 1991 Plan.
The Company has adopted a Non-Employee Director Stock Option Plan (the "1995
Plan") which provides for annual grants to non-employee members of the Board of
Directors. Such grants are immediately exercisable on the date of grant and
expire ten years from the date of grant. The 1995 Plan also provides for a
reserve of up to 21,000 shares of restricted stock from the total number of
shares issuable under the plan. At February 2, 2002, 5,000 shares of common
stock were reserved for issuance under the 1995 Plan.
Effective April 1998, the Company's Board of Directors approved a special stock
option grant for 23,000 shares at the exercise price of $6.20 per share (fair
market value at the time of grant) to its present Chairman of the Board of
Directors and Chief Executive Officer. One third of such grant was immediately
exercisable on the date of the grant with the remaining shares vesting ratably
over two years. The options expire ten years from the date of the grant.
Effective April 1999, the Company's Board of Directors approved a special stock
option grant for 11,000 shares at the exercise price of $15.65 per share (fair
market value at the time of grant) to its Senior Vice President and Chief
Financial Officer. The shares vest ratably over four years. The options expire
ten years from the date of the grant.
Effective October 2000, the Company's Board of Directors approved a special
stock option grant for 14,000 shares at the exercise price of $3.50 per share
(fair market value at the time of grant) to its Senior Vice President and
General Merchandise Manager. One fifth of such grant was immediately exercisable
on the date of the grant with the remaining shares vesting ratably over four
years. The options expire ten years from the date of the grant.
A summary of the activity in the Company's stock options is presented below:
Fiscal 2001 Fiscal 2000 Fiscal 1999
----------------------------------------------------------------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
------- -------- ------- -------- ------- --------
Outstanding at beginning of period 432,171 $13.45 376,404 $15.26 318,621 $15.23
Options granted 65,092 $ 3.13 120,940 $ 8.93 85,729 $14.70
Options exercised -- $ -- (1,429) $ 8.54 (8,089) $ 9.31
Options cancelled (146,213) $15.24 (63,744) $15.68 (19,857) $13.16
-------- -------- --------
Outstanding at end of period 351,050 $10.79 432,171 $13.45 376,404 $15.26
======== ======== ========
Exercisable at end of period 180,317 244,930 198,567
======== ======== ========
Weighted average fair value of
options granted during the period
(see below) $ 2.00 $ 6.76 $ 6.90
The following table summarizes information about stock options outstanding at
February 2, 2002:
Options Outstanding Options Exercisable
----------------------------------------------- -----------------------------
Weighted
Number Average Weighted Weighted
Range of of Remaining Average Number Average
Exercise Shares Contractual Exercise of Exercise
Prices Outstanding Life (Years) Price Shares Price
----------------------- ----------- ------------ ------------ --------- -------------
$ 2.15 to $ 3.15 93,872 9.2 $ 3.06 20,655 $ 3.04
$ 3.18 to $10.06 62,698 7.1 $ 7.20 45,044 $ 7.55
$ 10.28 to $12.47 81,618 7.6 $11.79 29,551 $11.98
$ 12.58 to $15.64 84,750 6.5 $14.53 57,869 $14.28
$ 15.75 to $60.38 28,112 4.3 $27.91 27,198 $28.26
----------- --------
351,050 7.4 $10.79 180,317 $12.57
=========== ========
The Company applies the principles of Accounting Principles Board ("APB")
Opinion 25 in accounting for employee stock option plans. Accordingly, no
compensation cost has been recognized in the Company's financial statements. Had
compensation cost been determined on the basis of SFAS 123, "Accounting for
Stock-Based Compensation," compensation expense would have been recorded based
on the estimated fair value of stock options granted during the fiscal years
presented. The total fair value of stock options granted was estimated at
$436,000, $815,000 and $592,000 for the fiscal years ended February 2, 2002,
February 3, 2001 and January 29, 2000, respectively, based upon the
Black-Scholes option pricing model. The following assumptions were used in the
Black-Scholes option pricing model for stock options granted: risk-free interest
rates of approximately 3.4%, 6.1% and 5.2% for fiscal 2001, 2000 and 1999,
respectively; an expected life of approximately one year from the vest date for
fiscal 2001, 2000 and 1999; 110%, 125% and 65% expected volatility for fiscal
2001, 2000 and 1999, respectively; and no payment of dividends for fiscal 2001,
2000 and 1999, respectively. The expected life of the stock options granted and
the stock price volatility during the expected life of the options were
estimated based upon historical experience and management's expectations.
Had compensation cost for the Company's stock option plans been determined based
on the estimated fair value at the grant dates for awards under those plans
consistent with the method of SFAS 123, the Company's net (loss) income and net
(loss) income per common share would have been impacted as indicated in the
proforma amounts below:
Fiscal Year Ended
--------------------------------------------------------------------------------
February 3, January 29, January 30,
2001 2000 1999
-------------- --------------- --------------
Net (loss) income Actual $ (19,712,000) $ (5,366,000) $ 7,074,000
============== =============== ==============
Proforma $ (20,148,000) $ (5,622,000) $ 6,793,000
============== =============== ==============
Net (loss) income per common share - diluted Actual $ (6.70) $ (1.80) $ 2.34
============== =============== ==============
Proforma $ (6.85) $ (1.89) $ 2.25
============== =============== ==============
Restricted Stock Plans: The 1991 Plan provides for a reserve of up to 14,000
shares of restricted stock to be awarded from the total number of shares
available under the plan. During the year ended February 2, 2002, the Company
awarded 2,857 shares of common stock which had a fair value at the date of the
grant of $8,000. Sale of the stock awarded is restricted for three months from
the date of grant contingent upon continuity of service. Net compensation of
$2,000 was charged to earnings in both fiscal 2001 and fiscal 1999. Forfeiture
of certain shares of restricted stock resulted in a credit to earnings of $2,000
in fiscal 2000.
The 1995 Plan provides for a reserve of up to 21,000 shares of restricted stock
to be awarded from the total number of shares issuable under the 1995 Plan. For
the year ended February 2, 2002, the Company awarded no shares of common stock
under the 1995 Plan. Compensation for 16,000 previously awarded shares under the
plan amounted to $28,000 in fiscal 2001, $28,000 in fiscal 2000 and none in
fiscal 1999. At February 2, 2002, 15,000 shares were available for issuance.
Retirement Plan: The Company has a 401(k) and profit-sharing plan, the One Price
Clothing Stores, Inc. Retirement Plan (the "Plan"). All employees in the United
States who are 21 years of age or older with at least one year of service are
eligible to participate in the Plan. The Company currently matches 50% of each
participant's contribution with a maximum match of 2.5% of the participant's
base compensation. In addition, the Company may make an annual discretionary
contribution on behalf of the participants; no such discretionary contributions
have been made by the Company. Employer matches (approximately $289,000,
$348,000 and $321,000 in fiscal 2001, 2000 and 1999, respectively) vest ratably
over five years.
Deferred Compensation Plans: The Company has a Deferred Compensation Plan for
employees that allows eligible participants, as defined by the Plan, to enhance
their retirement security by deferring compensation in order to receive benefits
at retirement, death, separation of service, or as otherwise provided by the
Plan. Eligible participants may elect to defer an amount of up to 15% of the
participant's compensation less the participant's 401(k) contributions. The
Company currently matches 50% of each participant's contribution with a maximum
match of 2.5% of the participant's base compensation, less amounts matched under
the 401(k) plan. Employer matches (approximately $51,000 and $30,000 in fiscal
2001 and 2000, respectively and none in fiscal 1999) vest ratably over five
years.
The Company has a Deferred Compensation Plan for Non-Employee Directors that
allows eligible Directors, as defined by the Plan, to enhance their retirement
security by deferring compensation in order to receive benefits at cessation of
membership on the Company's Board of Directors, death, or as otherwise provided
by the Plan. Eligible Directors may each elect to defer any percentage or amount
of their Director's compensation not exceeding $30,000 in any given year.
Stock Purchase Plan: The Company has an employee Stock Purchase Plan that allows
participating employees to purchase, through payroll deductions, shares of the
Company's common stock at prevailing market prices. All full-time associates who
are 18 years of age or older with at least six months of service are eligible to
participate in the Stock Purchase Plan. The plan custodian purchases common
stock of the Company at prevailing market prices and distributes the shares
purchased to the participants upon request.
Shareholders' Rights Plan: The Company adopted a Shareholders' Rights Plan which
expires in November 2004. Each shareholder is entitled to one Right (as defined)
for each share of common stock held in order to provide enhanced dilution. The
Rights become exercisable only upon the occurrence of certain conditions set
forth in the Shareholders' Rights Plan relating to, among other things, the
acquisition of 15% or more of the outstanding shares of common stock. There were
no rights issued or outstanding under the Shareholders' Rights Plan in fiscal
2001, 2000 and 1999, respectively.
Warrants: For the year ended February 2, 2002, the Company issued 60,000
warrants to purchase its common stock to a participant in the Company's
revolving credit agreement. As a result, the Company recorded expense of
$106,000 for the year ended February 2, 2002, based upon the Black-Scholes
option pricing model. The following assumptions were used in the Black-Scholes
option pricing model for warrants issued: risk-free interest rate of
approximately 3.4%; an expected life of approximately one year from the vest
date; 110% expected volatility; and no payment of dividends. The expected life
of the warrants issued and the stock price volatility during the expected life
of the warrants were estimated based upon historical experience and management's
expectations.
NOTE G - Related Party Transactions
During fiscal 2001, the Company entered into a loan agreement with its Senior
Vice President and Chief Financial Officer. Approximately $35,000 was included
in accounts receivable at February 2, 2002 under this agreement.
The Company has a deferred compensation agreement with its former Chairman of
the Board of Directors. The agreement provides for 120 consecutive monthly
payments of $13,750 (including interest) beginning upon the earlier of the date
of retirement or death. Approximately $76,000, $84,000 and $91,000 was charged
to interest expense in fiscal 2001, fiscal 2000 and fiscal 1999, respectively.
Approximately $97,000 and $697,000 is included in current liabilities and other
noncurrent liabilities, respectively, at February 2, 2002 for this deferred
compensation liability. Approximately $89,000 and $794,000 was included in
current liabilities and other noncurrent liabilities, respectively, at February
3, 2001.
In addition, the Company has a deferred compensation agreement with a former
executive officer who also served as a member of the Company's Board of
Directors through June 1999. The agreement provides for monthly payments of
$6,250 (including interest) through July 2002. Approximately $7,000, $13,000 and
$18,000 was charged to interest expense in fiscal 2001, fiscal 2000 and fiscal
1999, respectively. Approximately $37,000 is included in current liabilities, at
February 2, 2002 for this deferred compensation liability. Approximately $68,000
and $37,000 was included in current liabilities and other noncurrent
liabilities, respectively, at February 3, 2001.
NOTE H - Earnings per Share
Basic earnings per share are computed based upon the weighted average number of
common shares outstanding. Diluted earnings per share are computed based upon
the weighted average number of common and common equivalent shares outstanding.
Common equivalent shares outstanding consist of shares under option and,
beginning in fiscal 2001, warrants.
A reconciliation of basic and diluted weighted average number of common shares
outstanding is presented below:
Fiscal Year Ended
---------------------------------------------------
February 2, February 3, January 29,
2002 2001 2000
--------------- --------------- --------------
Weighted average number of common shares outstanding -- basic 2,942,788 2,976,317 2,989,121
Net effect of dilutive stock options based on the treasury
stock method using the average market price -- -- --
-- -- 33,693
--------------- --------------- --------------
Weighted average number of common shares outstanding -- diluted 2,942,788 2,976,317 3,022,814
=============== =============== ==============
Common stock equivalents of 392,338, 400,648 and 204,294 for the fiscal years
ended February 2, 2002, February 3, 2001 and January 29, 2000, respectively,
were excluded because such common stock equivalents were anti-dilutive.
NOTE I - Effect of Restructuring
In response to lower than expected operating results in fiscal 2000, the
Company adopted a restructuring plan during the fourth quarter of fiscal 2000.
The plan included initiatives designed to improve the Company's results of
operations by lowering operating costs, re-deploying assets and curtailing the
number of new store openings until the Company realized improved performance
in its existing stores. The plan called for the closing of 42 low-volume,
under-performing stores and elimination of 90 positions. As of February 2,
2002, the Company had closed 40 of the stores described in the plan and, in
light of improved operating results, removed the two remaining stores and
their associated liability from the restructuring plan. The Company recorded a
pre-tax charge of $1,017,000 during the fourth quarter of fiscal 2000 to cover
the costs associated with the plan. As of February 2, 2002 there was no
balance remaining associated with the restructure liability.
NOTE J - Quarterly Results (Unaudited)
The following is a summary of quarterly results for the fiscal years ended
February 2, 2002 and February 3, 2001 (in thousands except per share data).
Fiscal 2001 Quarters Ended
------------------------------------------------------------------------
May 5, August 4, November 3, February 2,
2001 2001 2001 2002
------------------------------------------------------------------------
Net sales $90,962 $93,269 $72,957 $83,242
Gross margin 33,307 34,103 21,039 28,192
Net income (loss) 260 (1,221) (10,937) (7,814)
Net income (loss) per common share - diluted 0.09 (0.41) (3.72) (2.65)
Fiscal 2000 Quarters Ended
------------------------------------------------------------------------
April 29, July 29, October 28, February 3,
2000 2000 2000 2001
------------------------------------------------------------------------
Net sales $88,744 $102,307 $73,986 $90,587
Gross margin 33,210 36,830 20,997 30,317
Net income (loss) 2,116 2,609 (7,191) (2,900)
Net income (loss) per common share - diluted 0.70 0.87 (2.42) (0.95)
Pre-tax income in the fourth quarter of fiscal 2000 was decreased by
$1,017,000 or $0.21 per diluted share after income taxes, due to the
restructuring charge disclosed in Note I.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
--------------------
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required under this item is incorporated herein by reference
to the sections entitled "Election of Directors" and "Executive Officers of
the Company" and "Section 16(a) Beneficial Ownership Reporting Compliance" of
the Company's definitive Proxy Statement (the "Proxy Statement") filed with
the Securities and Exchange Commission in connection with the Annual Meeting
of Shareholders scheduled to be held June 12, 2002.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by reference
to the sections entitled "Compensation Committee Interlocks and Interested
Party Transactions," "Compensation of Executive Officers," "Employment
Contracts and Deferred Compensation Arrangements," "Compensation Committee
Report on Executive Compensation," "Comparison of Five-Year Cumulative Total
Return" and "Election of Directors - Directors' Fees" of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item is incorporated herein by reference
to the sections entitled "Security Ownership of Certain Beneficial Owners,"
"Election of Directors" and "Security Ownership of Management" of the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in this item is incorporated herein by reference to
the sections entitled "Compensation Committee Interlocks and Interested Party
Transactions" and "Employment Contracts and Deferred Compensation
Arrangements" of the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following financial statements of One Price Clothing Stores, Inc.
are included in Part II, Item 8:
Independent Auditors' Report
Consolidated Balance Sheets as of February 2, 2002 and
February 3, 2001
Consolidated Statements of Operations for the fiscal years
ended February 2, 2002, February 3, 2001 and
January 29, 2000
Consolidated Statements of Shareholders' Equity for the
fiscal years ended February 2, 2002, February 3, 2001 and
January 29, 2000
Consolidated Statements of Cash Flows for the fiscal years
ended February 2, 2002, February 3, 2001 and
January 29, 2000
Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedule
The following financial statement schedule of One Price Clothing
Stores, Inc. is included in Item 14(d):
Schedule II -- Valuation and Qualifying Accounts.
Schedules not listed above have been omitted because they
are not applicable or the information is included in the
financial statements or notes thereto.
(a) 3. Exhibits, including those incorporated by reference
(in accordance with Item 601 of Regulation S-K)
Incorporated herein by reference to the list of Exhibits contained in
the Exhibit Index which begins on Page 41 of this Report.
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.
ONE PRICE CLOTHING STORES, INC.
Date: April 30, 2002 /s/ Leonard M. Snyder
----------------------------------
Leonard M. Snyder
Chairman of the Board of Directors
and Chief Executive Officer
(principal executive officer)
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 and on the dates indicated.
Date: April 30, 2002 /s/ H. Dane Reynolds
----------------------------------
H. Dane Reynolds
Senior Vice President and Chief
Financial Officer (principal
financial officer and principal
accounting officer)
Date: April 30, 2002 /s/ Laurie M. Shahon
----------------------------------
Laurie M. Shahon
Director
Date: April 30, 2002 /s/ Malcolm L. Sherman
----------------------------------
Malcolm L. Sherman
Director
Date: April 30, 2002 /s/ James M. Shoemaker, Jr.
----------------------------------
James M. Shoemaker, Jr.
Director
Date: April 30, 2002 /s/ Allan Tofias
----------------------------------
Allan Tofias
Director
Date: April 30, 2002 /s/ Renee M. Love
----------------------------------
Renee M. Love
Director
Date: April 30, 2002 /s/ Robert J. Stevenish
----------------------------------
Robert J. Stevenish
Director
ONE PRICE CLOTHING STORES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
------------------------- ---------------------- ------------------------------------------ ------------------- --------------
COL. A COL. B COL. C COL. D COL. E
------------------------- ---------------------- ------------------------------------------ ------------------- --------------
ADDITIONS
Balance at Charged to Charged Deduction - Balance
Beginning of Cost & to Other- Describe (1) at End of
DESCRIPTION Period Expenses Describe Period
------------------------- ---------------------- ------------------------------------------ ------------------- --------------
FISCAL YEAR ENDED
FEBRUARY 2, 2002
Allowance for
doubtful accounts $ 76,000 $ 456,000 $ 404,000 $ 128,000
========== =========== ========== ===========
FISCAL YEAR ENDED
FEBRUARY 3, 2001
Allowance for
doubtful accounts $ 94,000 $ 228,000 $ 246,000 $ 76,000
========== =========== ========== ==========
FISCAL YEAR ENDED
JANUARY 29, 2000
Allowance for
doubtful accounts $ 80,000 $ 248,000 $ 234,000 $ 94,000
========== =========== ========== ==========
(1) Deductions pertain to write-offs charged against the allowance for
returned customer checks.
ONE PRICE CLOTHING STORES, INC.
EXHIBIT INDEX
Exhibit
Number Description
3(a) Certificate of Incorporation of the Registrant, as amended through April
1987: Incorporated by reference to exhibit of the same number to
Registrant's Registration Statement on Form S-1, filed April 10, 1987 (File
No. 33-13321) ("the S-1").
3(a)(1) Certificate of Amendment of Certificate of Incorporation of the
Registrant: Incorporated by reference to exhibit of the same number to the
Registrant's Annual Report on Form 10-K for the year ended January 1, 1994
(File No. 0-15385).
3(a)(2) Certificate of Amendment dated September 4, 2001 of the Certificate of
Incorporation of the Registrant: Incorporated by reference to Exhibit 10(e)
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
August 4, 2001 (File No. 0-15385) ("the July 2001 Form 10-Q").
3(b) Restated By-Laws of the Registrant, as of July 22, 1992 and amended as of
July 20, 1994, March 14, 1996 and April 29, 1998: Incorporated by reference
to Exhibit 10(h) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended May 2, 1998 (File No. 0-15385) ("the April 1998 Form 10-Q").
4(a) See Exhibits 3(a), 3(a)(1), 3(a)(2) and 3(b).
4(b) Specimen of Certificate of the Registrant's Common stock: Incorporated by
reference to Exhibit 1 to the Registrant's Registration Statement on Form
8-A filed with the Securities and Exchange Commission on June 23, 1987
(File No. 0-15385).
4(c) Shareholder Rights Agreement by and between the Registrant and Wachovia
Bank of North Carolina, N. A. as Rights Agent dated November 3, 1994:
Incorporated by reference to Exhibit 2 to the Registrant's Form 8-K filed
November 10, 1994 (File No. 0-15385).
4(c)(1) Amended and Restated Shareholder Rights Agreement by and between the
Registrant and Continental Stock Transfer and Trust Company as rights agent
dated as of October 25, 2000: Incorporated by reference to Exhibit 10(b) to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
October 28, 2000 (File No. 0-15385) ("the October 2000 Form 10-Q").
4(d) Loan and Security Agreement by and between Congress Financial Corporation
(Southern) as Lender and the Registrant and One Price Clothing of Puerto
Rico, Inc. as Borrowers dated March 25, 1996: Incorporated by reference to
exhibit of same number to the Registrant's Annual Report on Form 10-K for
the year ended December 30, 1995 (File No. 0-15385).
4(d)(1) Amendment Number One to the Loan and Security Agreement by and between
Congress Financial Corporation (Southern) as Lender and the Registrant, One
Price Clothing of Puerto Rico, Inc. and One Price Clothing - U.S. Virgin
Islands, Inc. as Borrowers dated May 16, 1997: Incorporated by reference to
Exhibit 10(a) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended May 3, 1997 (File No. 0-15385) ("the April 1997 Form 10-Q").
4(d)(2) Amendment Number Two to the Loan and Security Agreement by and between
Congress Financial Corporation (Southern) as Lender and the Registrant, One
Price Clothing of Puerto Rico, Inc. and One Price Clothing - U.S. Virgin
Islands, Inc. as Borrowers dated June 17, 1997: Incorporated by reference
to Exhibit 10(c) to the Registrant's Quarterly report on Form 10-Q for the
quarter ended August 2, 1997 (File No. 0-15385) ("the July 1997 Form
10-Q").
4(d)(3) Amendment Number Three to the Loan and Security Agreement by and between
Congress Financial Corporation (Southern) as Lender and the Registrant, One
Price Clothing of Puerto Rico, Inc. and One Price Clothing - U.S. Virgin
Islands, Inc. as Borrowers dated February 19, 1998: Incorporated by
reference to exhibit of the same number to the Registrant's Annual Report
on Form 10-K for the year ended January 31, 1998 (File No. 0-15385) ("the
1997 Form 10-K").
4(d)(4) Amendment Number Four to the Loan and Security Agreement by and between
Congress Financial Corporation (Southern) as Lender and the Registrant, One
Price Clothing Stores, Inc. of Puerto Rico and One Price Clothing Stores -
U.S. Virgin Islands, Inc. as Borrowers dated January 31, 1999: Incorporated
by reference to exhibit of the same number to the Registrant's Annual
Report on Form 10-K for the year ended January 30, 1999 (File No. 0-15385)
("the 1998 Form 10-K").
4(d)(5) Amendment Number Five to the Loan and Security Agreement by and between
Congress Financial Corporation (Southern) as Lender and the Registrant, One
Price Clothing Stores, Inc. of Puerto Rico and One Price Clothing - U.S.
Virgin Islands, Inc. as Borrowers dated February 23, 2000: Incorporated by
reference to exhibit of the same number to the Registrant's Annual Report
on Form 10-K for the year ended January 29, 2000 (File No. 0-15385) ("the
1999 Form 10-K").
4(d)(6) Amendment Number Six to the Loan and Security Agreement by and between
Congress Financial Corporation (Southern) as Lender and the Registrant, One
Price Clothing Stores, Inc. of Puerto Rico and One Price Clothing - U.S.
Virgin Islands, Inc. as Borrowers dated June 30, 2000: Incorporated by
reference to exhibit 10(a) to the Registrant's Quarterly report on Form
10-Q for the quarter ended July 29, 2000 (File No. 0-15385) ("the July 2000
Form 10-Q").
4(d)(7) Amendment Number Seven to the Loan and Security Agreement by and between
Congress Financial Corporation (Southern) as Lender and the Registrant, One
Price Clothing Stores, Inc. of Puerto Rico and One Price Clothing - U.S.
Virgin Islands, Inc. as Borrowers dated February 9, 2001. : Incorporated by
reference to Exhibit 4(d)(7) to the Registrant's Annual Report on Form 10-K
for the year ended February 3, 2001 (File No. 0-15385) ("the 2000 Form
10-K").
4(d)(8) Amendment Number Eight to the Loan and Security Agreement by and between
Congress Financial Corporation (Southern) as Lender and the Registrant and
One Price Clothing of Puerto Rico, Inc. as Borrowers dated September 13,
2001.: Incorporated by reference to exhibit 10(c) to the July 2001 Form
10-Q.
4(d)(9) Amendment Number Nine the Loan and Security Agreement by and between
Congress Financial Corporation (Southern) as Lender and the Registrant and
One Price Clothing of Puerto Rico, Inc. as Borrowers dated November 12,
2001.: Incorporated by reference to exhibit 10(a) to the Registrant's
Quarterly report on Form 10-Q for the quarter ended November 3, 2001 (File
No. 0-15385) ("the October 2001 Form 10-Q").
4(d)(10) Amendment Number Ten to the Loan and Security Agreement by and between
Congress Financial Corporation (Southern) as Lender and the Registrant and
One Price Clothing of Puerto Rico, Inc. as Borrowers dated December 12,
2001. : Incorporated by reference to exhibit 10(b) the October 2001 Form
10-Q.
4(d)(11)+ Amendment Number Eleven to the Loan and Security Agreement by and
between Congress Financial Corporation (Southern) as Lender and the
Registrant and One Price Clothing of Puerto Rico, Inc. as Borrowers dated
January 31, 2002.
4(e) Mortgage and Security Agreement by and between First Union National Bank,
as Mortgagee and One Price Realty, Inc. as Mortgagor dated June 17, 1997:
Incorporated by reference to Exhibit 10(d) to the July 1997 Form 10-Q.
4(f) Promissory Note by and between First Union National Bank and One Price
Realty, Inc. dated June 17, 1997: Incorporated by reference to Exhibit
10(e) to the July 1997 Form 10-Q.
4(g) Continuing Commercial Credit Agreement by and between Carolina First Bank
as Lender and the Registrant, One Price Clothing of Puerto Rico, Inc. and
One Price Clothing - U.S. Virgin Islands, Inc. as Borrowers dated May 16,
1997: Incorporated by reference to Exhibit 10(b) to the April 1997 Form
10-Q.
4(g)(1) Amendment Number One to the Continuing Commercial Credit Agreement by
and between Carolina First Bank as Lender and the Registrant, One Price
Clothing of Puerto Rico, Inc. and One Price Clothing - U.S. Virgin Islands,
Inc. as Borrowers dated March 20, 1998: Incorporated by reference to
exhibit of the same number to the 1997 Form 10-K.
4(g)(2) Amendment Number Two to the Continuing Commercial Credit Agreement by
and between Carolina First Bank as Lender and the Registrant, One Price
Clothing of Puerto Rico, Inc. and One Price Clothing - U.S. Virgin Islands,
Inc. as Borrowers dated April 21, 1998: Incorporated by reference to
exhibit of the same number to the 1997 Form 10-K.
4(g)(3) Amendment Number Three to the Continuing Commercial Credit Agreement by
and between Carolina First Bank as Lender and the Registrant, One Price
Clothing of Puerto Rico, Inc. and One Price Clothing - U.S. Virgin Islands,
Inc. as Borrowers dated November 5, 1998: Incorporated by reference to
Exhibit 10(c) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended October 31, 1998 (File No. 0-15385).
4(g)(4) Amendment Number Four to the Continuing Commercial Credit Agreement by
and between Carolina First Bank as Lender and the Registrant, One Price
Clothing of Puerto Rico, Inc. and One Price Clothing - U.S. Virgin Islands,
Inc. as Borrowers dated March 31, 1999: Incorporated by reference to
exhibit of the same number to the 1998 Form 10-K.
4(g)(5) Amendment Number Five to the Continuing Commercial Credit Agreement by
and between Carolina First Bank as Lender and the Registrant, One Price
Clothing of Puerto Rico, Inc. and One Price Clothing - U.S. Virgin Islands,
Inc. as Borrowers dated February 23, 2000: Incorporated by reference to
exhibit of the same number to the 1999 Form 10-K.
4(g)(6) Amendment Number Six to the Continuing Commercial Credit Agreement by
and between Carolina First Bank as Lender and the Registrant, One Price
Clothing of Puerto Rico, Inc. and One Price Clothing - U.S. Virgin Islands,
Inc. as Borrowers dated June 30, 2000: Incorporated by reference to exhibit
10(b) to the July 2000 Form 10-Q.
4(g)(7) Amendment Number Seven to the Continuing Commercial Credit Agreement by
and between Carolina First Bank as Lender and the Registrant, One Price
Clothing of Puerto Rico, Inc. and One Price Clothing - U.S. Virgin Islands,
Inc. as Borrowers dated June 29, 2001: Incorporated by reference to exhibit
10(a) to the July 2001 Form 10Q.
4(h) The Company hereby agrees to furnish to the Commission upon request of the
Commission a copy of any instrument with respect to long-term debt not
being registered in a principal amount less than 10% of the total assets of
the Company and its subsidiaries on a consolidated basis.
Material Contracts -- Executive Compensation Plans and Arrangements:
10(a)* Stock Option Plan of the Registrant dated February 20, 1987 and related
forms of Incentive and Non-qualified Stock Option Agreements: Incorporated
by reference to Exhibit 10(d) to the S-1.
10(b)* Stock Option Plan of the Registrant dated December 12, 1988 and related
forms of Incentive and Non-qualified Stock Option Agreements: Incorporated
by reference to Exhibit 10(a) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1998 (File No. 0-15385) ("the 1988
Form 10-K").
10(c)* One Price Clothing Stores, Inc. 1991 Stock Option Plan: Incorporated by
reference to Exhibit 10(b) to the Registrant's Annual Report on Form 10-K
for the year ended December 28, 1991 (File No. 0-15385). 10(c)(1)*
Amendment Number One to One Price Clothing Stores, Inc. 1991 Stock Option
Plan dated June 9, 1999: Incorporated by reference to Exhibit 10(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended July 31,
1999 (File No. 0-15385) ("the July 1999 Form 10-Q").
10(d)* Summary of Incentive Compensation Plan: Incorporated by reference to
exhibit of the same number to the 1998 Form 10-K.
10(e)* Form of Employment Agreement between Registrant and Henry D. Jacobs, Jr.:
Incorporated by reference to Exhibit 10(j) to the 1988 Form 10-K.
10(f)* Addendum to Employment Agreement dated March 6, 1997 between the
Registrant and Henry D. Jacobs, Jr.: Incorporated by reference to Exhibit
10(p) to the Registrant's Annual Report on Form 10-K for the year ended
February 1, 1997 (File No. 0-15385) ("the 1996 Form 10-K").
10(g)* Agreement dated June 24, 1992 between the Registrant and Raymond S.
Waters: Incorporated by reference to Exhibit 10(l) to the Registrant's
Annual Report on Form 10-K for the year ended January 2, 1993 (File No.
0-15385).
10(h)* Directors' Stock Option Plan effective April 19, 1995: Incorporated by
reference to Exhibit 10(m) in to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994 (File No. 0-15385).
10(h)(1)* Amendment Number One dated March 14, 1996 to One Price Clothing
Stores, Inc. Director Stock Option Plan: Incorporated by reference to
Exhibit 10(a) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended May 4, 1996 (File No. 0-15385).
10(h)(2)* Amendment Number Two dated June 9, 1999 to One Price Clothing Stores,
Inc. Director Stock Option Plan: Incorporated by reference to Exhibit 10(b)
to the July 1999 Form 10-Q.
10(i)* Agreement dated March 25, 1997 between the Registrant and Henry D.
Jacobs, Jr.: Incorporated by reference to Exhibit 10(n) to the 1996 Form
10-K.
10(j)* Letter of Understanding regarding Non-Executive Chairman of the Board
position and Consulting Agreement dated April 16, 1998 and Amendments to
Letter of Understanding and Consulting Agreement dated December 22, 1998
and October 8, 1999 between the Registrant and Leonard M. Snyder:
Incorporated by reference to Exhibit 10 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended October 30, 1999 (File No.
0-15385).
10(j)(1)* Amendment to Letter of Understanding regarding Non-Executive Chairman
of the Board position and Consulting Agreement dated February 7, 2001
between the Registrant and Leonard M. Snyder. :Incorporated by reference to
Exhibit 10(k)(1) to the 2000 Form 10-K.
10(j)(2)*+ Amendment to Letter of Understanding regarding Non-Executive Chairman
of the Board position and Consulting Agreement dated February 3, 2002
between the Registrant and Leonard M. Snyder.
10(k)* Employment Agreement dated January 15, 2001 between the Registrant and
Leonard M. Snyder. : Incorporated by reference to Exhibit 10(l) to the 2000
Form 10-K.
10(k)(1)* Amendment Number One dated August 6, 2001 to the Employment Agreement
by and between the Registrant and Leonard M. Snyder: Incorporated by
reference to Exhibit 10(b) to the July 2001 Form 10-Q.
10(k)(2)*+ Amendment Number Two dated February 3, 2002 to the Employment
Agreement by and between the Registrant and Leonard M. Snyder.
10(l)* Stock Option Agreement dated April 16, 1998 between the Registrant and
Leonard Snyder: Incorporated by reference to Exhibit 10(g) to the April
1998 Form 10-Q.
10(m)* Employment Agreement dated March 26, 1997 and Amendment to Employment
Agreement dated December 22, 1998 between the Registrant and Larry I.
Kelley: Incorporated by reference to Exhibit 10(n) to the 1998 Form 10-K.
10(n)* Employment Agreement dated March 30, 1992 and Amendment to Employment
Agreement dated February 4, 1997 and amended December 28, 1998 between the
Registrant and Ronald Swedin: Incorporated by reference to Exhibit 10(o) to
the 1998 Form 10-K.
10(o)* Employment Agreement dated April 12, 1999 between the Registrant and H.
Dane Reynolds: Incorporated by reference to Exhibit 10(r) to the 1998 Form
10-K.
10(p)* Employment Agreement dated October 20, 2000 between the Registrant and
Thomas R. Kelly: Incorporated by reference to Exhibit 10(a) to the
Registrant's October 2000 Form 10-Q.
10(q)* One Price Clothing Stores, Inc. Deferred Compensation Plan effective
January 1, 2000 and the related Trust Agreement effective January 27, 2000,
between Carolina First Bank as Trustee and the Registrant: Incorporated by
reference to Exhibit 10(q) to the 1999 Form 10-K.
10(r)* One Price Clothing Stores, Inc. Deferred Compensation Plan for
Non-Employee Directors effective January 1, 2000 and the related Trust
Agreement effective January 27, 2000, between Carolina First Bank as
Trustee and the Registrant: Incorporated by reference to Exhibit 10(r) to
the 1999 Form 10-K.
10(s)Lease Agreement by and between One Price Clothing Stores, Inc. as Tenant
and One Price Realty, Inc. as Landlord dated June 17, 1997: Incorporated by
reference to Exhibit 10(f) to the July 1997 Form 10-Q.
10(t)(1)+ Common Stock Warrant Agreement dated February 21, 2001 and Amendment
Number One to Common Stock Warrant Agreement dated January 31, 2002 by and
between the Registrant and GB Retail Funding, LLC.
10(t)(2) Common Stock Warrant Agreement dated September 13, 2001 by and between
the Registrant and Enhanced Retail Funding, LLC: Incorporated by reference
to Exhibit 10(d) to the July 2001 Form 10-Q.
10(t)(3)+ Amendment Number One dated January 31, 2002 to Common Stock Warrant
Agreement dated September 13, 2001 by and between the Registrant and
Enhanced Retail Funding, LLC.
10(t)(4)+ Common Stock Warrant Agreement dated January 31, 2002 by and between
the Registrant and Enhanced Retail Funding, LLC.
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
---------------------------------------
* Denotes a management contract or compensatory plan or agreement.
+ Filed herewith.
(b) Reports on Form 8-K.
No reports on Form 8-K were required to be filed during the last
quarter of the period covered by this report.
(c) Exhibits.
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules.
The response to this portion of Item 14 is submitted as a separate
section of this report.