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 1, 2003.
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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Act).
Yes No x
----- -----
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of the last business day of the registrant's second quarter of
fiscal 2002, August 2, 2002: Common Stock, $0.01 Par Value - $2,430,126.
The number of shares outstanding of the issuer's classes of common stock as of
May 19, 2003: Common Stock, $0.01 Par Value - 3,006,019 shares.
DOCUMENTS INCORPORATED BY REFERENCE - None
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 react 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 apparel retail companies. The periods
ended February 1, 2003 ("fiscal 2002") and February 2, 2002 ("fiscal 2001") and
the period ending January 31, 2003 ("fiscal 2003") consist of 52 weeks. The
period ended February 3, 2001 ("fiscal 2000") consists of 53 weeks. The
Company's income 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. 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., and (vi) One Price Realty, Inc.
Recent Operating Results
The Company has incurred operating losses for the past three fiscal years and
had a deficiency in working capital as of February 1, 2003. These factors, as
well as the uncertain retail environment in which the Company operates, have
raised substantial doubt about the Company's ability to continue as a going
concern. The Company has developed a plan to address these issues, which is
detailed in the "Outlook and Business Strategy" section in Item 7 herein.
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 1, 2003 and
no export sales. Reference is hereby made to the consolidated financial
statements included in Item 8 of this report for information about the Company's
assets, net sales and operating results.
Description of 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.
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 the trademarks, "Ropa de Ninos a
un Precio" and "OPC" in the United States. The Company has also applied for
registration of the "BestPrice!" and "BestPrice! Fashions" trademarks. The
"BestPrice! Fashions" registration has been approved for publication.
The One Price Store. The Company's typical store has approximately 3,700 square
feet, of which approximately 2,900 square feet is devoted to selling space. The
Company's current strategy is to open stores generally between 7,000 and 11,000
square feet which offer the Company's "BestPrice! Kids" and "BestPrice! Plus"
concepts as separate "stores within a store." The Company calls these larger
stores, "tri-box" stores and the Company expects to continue to increase the
proportion of tri-box stores to its total stores. All of the Company's stores
are located in leased facilities with access to adequate parking and/or public
transportation. At February 1, 2003, 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,
location, sales volume and time of year, 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 eight
districts. Each district sales manager is responsible for an average of
approximately 13 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 1, 2003, the Company operated 597
stores in 30 states, the District of Columbia, Puerto Rico and the U.S. Virgin
Islands. The Company opened seven stores, relocated or expanded 17 stores and
closed 33 under-performing stores in fiscal 2002. The Company anticipates that
it will open approximately one new tri-box store in fiscal 2003 and relocate or
expand 12 stores, eight of which will be tri-box stores.
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, which is 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.
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.
During fiscal 2002, the Company purchased merchandise from approximately 377
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.
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. 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 1, 2003 February 2, 2002 February 3, 2001
---------------- ---------------- ----------------
PERCENTAGE OF NET SALES:
Junior and misses women's apparel 54% 56% 56%
Plus-size women's apparel 24% 23% 22%
Children's apparel 10% 10% 8%
Women's accessories 10% 9% 9%
Children's accessories and uniforms --% --% 1%
Men's apparel 1% 2% 3%
Gifts and home furnishings 1% 1% 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 and its promotional and advertising
strategies are designed to increase sales volume in the third and fourth
quarters.
Working Capital Requirements
The Company has a $40,000,000 revolving credit agreement (including a
$25,000,000 letter of credit sub-facility) and $3,150,000 term loan with its
primary lender. The $40,000,000 revolving credit agreement expires in July 2005
and the $3,150,000 term loan expires in July 2004. Maximum borrowings under the
revolving credit agreement are based on a borrowing base formula determined with
respect to eligible inventory as defined in such agreement. 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 2003 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 depends 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. Other retailers with substantially greater financial resources than
the Company may 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 1, 2003, the Company had approximately 3,900 employees, of which
approximately 48% 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.
ITEM 2. PROPERTIES
The Company leases all of its store locations. At February 1, 2003, the Company
had 597 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 lessor 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 105 existing store leases expire, or have
initial lease terms containing lessee renewal options that may be exercised,
during fiscal 2003. Management believes that the Company will be successful in
renewing the locations it desires, and in a manner that will not result in
significant increases in lease expense during fiscal 2003.
The following is a list of store locations as of February 1, 2003:
NUMBER OF
STATE STORES
----- ----------
Alabama.............................................................. 12
Arizona.............................................................. 10
Arkansas............................................................. 5
California........................................................... 57
Connecticut ......................................................... 4
Florida.............................................................. 63
Georgia.............................................................. 36
Illinois............................................................. 28
Indiana.............................................................. 11
Kansas............................................................... 3
Kentucky............................................................. 1
Louisiana............................................................ 14
Maryland............................................................. 16
Massachusetts........................................................ 7
Michigan............................................................. 15
Mississippi.......................................................... 9
Missouri............................................................. 11
Nevada............................................................... 2
North Carolina....................................................... 26
New Jersey........................................................... 8
New Mexico........................................................... 5
New York............................................................. 11
Ohio................................................................. 10
Oklahoma............................................................. 6
Pennsylvania......................................................... 18
Puerto Rico.......................................................... 40
South Carolina....................................................... 29
Tennessee............................................................ 16
Texas................................................................ 94
U.S. Virgin Islands.................................................. 2
Virginia............................................................. 20
Washington, DC....................................................... 4
Wisconsin............................................................ 4
-----
TOTAL STORES......................................................... 597
=====
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 party to legal actions involving claims
arising in the normal course of its business. The Company believes that 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 SmallCap
Market System of NASDAQ. As of May 10, 2003, there were approximately 400
shareholders of record.
On October 25, 2002, the Company received notification from NASDAQ that its
common stock would be de-listed from the NASDAQ National Market because the
value of publicly-held shares of the Company's common stock did not meet the
required minimum of $5 million. The Company subsequently applied to have its
common stock listed on the NASDAQ SmallCap Market. As of January 15, 2003, the
Company's listing for its outstanding common shares transferred from the NASDAQ
National Market System to the NASDAQ SmallCap Market.
On January 22, 2003, the Company received notification from NASDAQ that its
common stock did not meet the $1.00 minimum bid price required by the NASDAQ
SmallCap Market. As a result, the Company has a 180-day grace period through
July 21, 2003 in which to come into compliance with the minimum bid price
requirement for at least ten consecutive trading days or its common stock will
be de-listed.
On April 14, 2003, the Company received notification from NASDAQ that its common
stock did not meet the $1,000,000 minimum market value of publicly-held shares
required by the NASDAQ SmallCap Market. As a result, the Company has a
three-month grace period through July 14, 2003 in which to come into compliance
with the minimum market value of publicly-held shares requirement for at least
ten consecutive trading days or its common stock will be de-listed.
Although the Company's common stock currently meets all other qualifications for
the NASDAQ SmallCap Market, the Company is considering whether to discontinue
its NASDAQ SmallCap Market listing and to apply to list its common stock on the
OTC Bulletin Board.
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.
Fiscal Year Ended Fiscal Year Ended
February 1, 2003 February 2, 2002
------------------------------ ------------------------------
High Low High Low
First Quarter $ 3.110 $ 1.750 $ 3.500 $ 2.406
Second Quarter 2.510 1.000 3.325 1.925
Third Quarter 1.650 0.720 4.600 0.950
Fourth Quarter 1.090 0.350 4.400 1.500
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 30, 1999 through
February 1, 2003. The selected consolidated financial data as of February 1,
2003 and February 2, 2002 and for the fiscal years ended February 1, 2003,
February 2, 2002 and February 3, 2001, 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 1, February 2, February 3, January 29, January 30,
2003 2002 2001 2000 1999
------------ ------------ ------------ ------------- ------------
Dollars in thousands except per share amounts
1 Net sales $ 331,771 340,430 355,624 336,847 328,059
2 Restructuring charge (credit) $ -- -- 1,017 -- (385)
3 (Loss) income before income taxes $ (12,614) (15,372) (9,130) 7,809 5,497
4 Net (loss) income $ (15,294) (19,712) (5,366) 7,074 4,383
5 Diluted net (loss) income per common
share $ (5.10) (6.70) (1.80) 2.34 1.46
6 Weighted average number of common
shares (000) - diluted # 3,001 2,943 2,976 3,023 2,998
7 Number of common shares outstanding at
period-end (000) # 3,006 2,944 2,941 2,997 2,983
8 Cash dividends declared per common
share $ -- -- -- -- --
9 Current assets $ 58,384 66,627 57,428 57,064 55,387
10 Long-term assets $ 38,955 43,175 49,206 38,891 37,440
11 Total assets $ 97,339 109,802 106,634 95,955 92,827
12 Current liabilities $ 79,617 76,114 56,594 40,921 44,741
13 Long-term debt (including capital
leases) $ 10,371 11,835 8,764 7,879 8,057
14 Deferred income tax liability $ -- -- -- 42 --
15 Other noncurrent liabilities $ 3,231 2,548 2,395 2,512 2,612
16 Shareholders' equity $ 4,120 19,305 38,881 44,601 37,417
17 Stores (closed) opened during the
period, net # (26) (18) 5 18 (42)
18 Stores operating at period-end # 597 623 641 636 618
19 Number of full and part-time employees
at period-end # 3,900 4,200 4,200 4,300 3,900
20 Number of weeks per fiscal year # 52 52 53 52 52
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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," "plans" 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 statements may address items such as
potential equity investments, future sales, earnings expectations, planned store
openings, closings and expansions, future comparable store sales, future product
sourcing plans, inventory levels, planned capital expenditures and future cash
needs. In addition, the Company may issue press releases and other written
communications, and representatives of the Company may make oral statements
which contain forward-looking information. There are a number of important
factors that could cause the Company's actual results in fiscal 2003 and beyond
to differ materially from those expressed in such forward-looking statements.
These factors include, but are not limited to, changes in the current policies,
practices or rules of NASDAQ with respect to continued listing criteria; general
economic conditions; fluctuations in interest rates and other economic factors;
the war in Iraq and its effect on consumer spending; 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; access to additional debt or equity
financing; the effect of litigation resulting from the Company's operations;
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 and in "Certain Considerations,"
contained herein. In addition, there is no guarantee that the pending investment
of new equity in the Company described herein will be completed within the next
thirty days or at all. 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.
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 1, 2003 February 2, 2002 February 3, 2001
(52 weeks) (52 weeks) (53 weeks)
--------------------- ---------------------- ---------------------
PERCENTAGE OF NET SALES
Net sales 100.0% 100.0% 100.0%
Cost of goods sold, exclusive of depreciation and
amortization shown separately below 64.0% 65.7% 65.9%
------- ------- -------
Gross margin 36.0% 34.3% 34.1%
------- ------- -------
Selling, general and administrative expenses 26.5% 26.0% 24.8%
Store rent and related expenses 10.2% 9.8% 9.1%
Depreciation and amortization expense 2.0% 2.0% 1.7%
Restructuring charge 0.0% 0.0% 0.3%
Interest expense 1.0% 1.0% 0.8%
------- ------- -------
39.8% 38.8% 36.7%
------- ------- -------
Loss before income taxes (3.8%) (4.5%) (2.6%)
Provision for (benefit from) income taxes 0.8% 1.3% (1.1%)
------- ------- -------
Net loss (4.6%) (5.8%) (1.5%)
======= ======= =======
Stores in operation at period-end 597 623 641
======= ======= =======
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 reflected in recent
physical inventories.
o Accrual for self-insured workers' compensation claims. The Company is
self-insured for workers' compensation up to established stop-loss
amounts (on both a per claim basis and aggregate per policy period
basis) 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
net carrying value of the asset group that includes the primary asset
being evaluated, to its estimated undiscounted future cash flows. If
the estimated undiscounted future cash flows as determined in this
analysis are less than the carrying amount of the related asset group,
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. As of February 1,
2003, the Company had established a valuation allowance for the entire
amount of its net deferred tax assets. As the Company generates future
taxable income, the Company may be able to reduce its valuation
allowance for deferred tax assets.
YEAR ENDED FEBRUARY 1, 2003 (2002) (52 WEEKS) COMPARED WITH YEAR ENDED
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FEBRUARY 2, 2002 (2001) (52 WEEKS)
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Net sales in the 52-week period ended February 1, 2003 ("2002") decreased 2.5%
compared with the 52-week period ended February 2, 2002 ("2001"). The decrease
in net sales is due to a combination of a decrease in comparable store sales,
operating in a difficult overall retail environment and operating, on average,
15 fewer stores in 2002 than in 2001. In 2002, comparable store sales decreased
2.0% for the year compared with 2001. 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 (see further discussion below). Comparable stores
are those stores in operation at least 18 months. There were 590 such stores at
February 1, 2003.
During 2002, the Company opened 7 stores, relocated or expanded 17 stores,
closed 33 under-performing stores and ended the year with 597 stores in
operation. Eight of the stores the Company either opened, relocated, expanded or
converted were tri-box stores. During 2001, the Company opened 6 stores,
relocated or expanded 9 stores and closed 24 under-performing stores.
The year-over-year increase in gross margin as a percentage of net sales
resulted from a more profitable mix of merchandise sold, driven by the
elimination of slow-turning and lower-margin categories of apparel and
accessories and a reallocation of the associated working capital to the
Company's core women's and children's apparel categories, as well as from
efficiencies achieved in the Company's distribution system.
Selling, general and administrative expenses as a percentage of net sales
increased year over year due primarily to higher insurance costs and to an
increase in store payroll driven by an increase in the average hourly wage rate,
the effects of which were offset partially by initiatives to reduce operating
expenses in the Company's corporate offices.
Store rent and related expenses increased as a percentage of net sales in 2002
compared with 2001 due to an increase in the Company's average store rent.
Average store rent and related expenses increased by 4.3% in 2002 compared with
2001. The increase in average store rent and related expenses was primarily due
to the Company's continuing store expansion strategy of opening of larger stores
with higher rents while closing older stores with lower average rent costs.
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.
Year-over-year interest expense remained at 1.0% of net sales in both 2002 and
2001 due to lower average interest rates in 2002, offset by higher average
levels of borrowings on the revolving credit facility as a result of the
Company's losses in 2002 and 2001.
The Company's effective income tax rate of (21.3)% in 2002, as compared with
(28.2%) in 2001, was primarily attributable to recording non-cash valuation
allowances of $7.9 million against the Company's deferred income tax assets
during 2002, as compared with $10.1 million of valuation allowances recorded
during 2001. The increase to the valuation allowance in 2002 includes $2.4
million related to previously recorded deferred tax assets. 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 need for the
valuation allowance based upon future operations.
YEAR ENDED FEBRUARY 2, 2002 (2001) (52 WEEKS) COMPARED WITH YEAR ENDED
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FEBRUARY 3, 2001 (2000) (53 WEEKS)
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During 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 2001, 7.6%
for the last six months of 2001 and 0.8% for 2001.
Net sales in 2001 decreased 4.3% compared with $355.6 million in the 53-week
period ended February 3, 2001 ("2000"). The decrease in net sales is primarily
due to operating, on average, 23 fewer stores in 2001 than in 2000.
Additionally, 2001 contained one fewer week than 2000. In 2001, comparable store
sales decreased 1.9% for the year compared with 2000. The decrease in comparable
store sales for 2001 is primarily due to the elimination of certain slow-turning
and lower margin categories. There were 606 comparable stores at February 2,
2002.
During 2001, the Company opened 6 stores, relocated or expanded 9 stores and
closed 24 under-performing stores. During 2000, the Company opened 44 stores,
relocated or expanded 19 stores, closed 39 under-performing stores, and ended
the year with 623 stores in operation.
In response to lower than expected operating results in 2000, the Company
adopted a restructuring plan during the fourth quarter of 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. 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 2000 to cover the costs
associated with the plan. See Note I to the consolidated financial statements
included in Item 8 of this report.
Gross margin as a percentage of net sales increased year-over-year primarily
from the Company's strategy of eliminating its less profitable categories of
apparel and accessories.
Selling, general and administrative expenses increased as a percentage of net
sales year-over-year to 26.0% in 2001 from 24.8% in 2000, 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 2001 compared with 2000. An
increase in average payroll rates was almost completely offset by fewer payroll
hours on average. The Company has mitigated 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 2001.
Store rent and related expenses increased as a percentage of net sales
year-over-year 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 2001 compared with 2000.
The increase in average store rent and related expenses was primarily due to the
Company's store strategy during 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 as a percentage of net sales increased in
2001 compared with 2000, primarily due to the total of 75 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 as a percentage of net sales increased in 2001 compared with
2000. Interest expense in absolute terms also increased in 2001 compared with
2000, primarily due to the higher average levels of borrowings on the revolving
credit facility as a result of the Company's losses in 2001 and 2000, as well as
increases in amortization of debt issue costs resulting from amendments made to
the Company's credit agreements during 2001.
The Company's effective income tax rate of (28.2%) in 2001, as compared with
41.2% in 2000, was primarily attributable to recording non-cash valuation
allowances of $10.1 million against the Company's deferred income tax assets
during 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 was
provided against the related net deferred income tax assets.
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.
OUTLOOK AND BUSINESS STRATEGY
Pending Equity Investment.
As part of its plan to improve its overall liquidity and capital resources, as
more fully discussed below, the Company has recently entered into an exclusive
non-binding letter of intent with an investment firm for a substantial
investment of new equity in the Company. The equity investment envisioned in the
non-binding letter of intent is subject to a number of conditions, including
final approval by the Board of Directors of the Company. The Company and
investor have completed a substantial portion of the due diligence required to
complete the pending investment and expect that such investment will be
finalized within 30 days of this report. However, there can be no assurance that
this investment will be completed.
Operations and Strategies.
The Company has incurred operating losses for the past three fiscal years, and
had a deficiency in working capital as of February 1, 2003. Since the end of
fiscal 2002, the Company has experienced a negative sales trend as compared with
the same period in the prior fiscal year, even after adjusting for the decrease
in the number of stores the Company operates. The Company's net sales for the
first quarter of fiscal 2003 were 11.6% below those for the same quarter of
fiscal 2002 which was well below the level of sales that the Company had
expected. Comparable store sales for the first quarter of fiscal 2003 decreased
10.0% as compared with the same period in fiscal 2002. This difficult sales
trend occurred in one of the historically strongest net sales quarters of the
Company's fiscal year.
The Company believes that there are several reasons for this recent decrease in
net sales, including unusually cool and rainy weather in many of the geographic
markets in which the Company operates, some imbalances in inventory in select
merchandise categories, economic uncertainty and general decreases in consumer
spending in connection with the recent war in Iraq and its impact on apparel
spending by the Company's target customers.
The current sales trend has negatively affected the Company's liquidity and
capital resources in the first quarter of fiscal 2003. If this sales trend
continues in the second quarter of fiscal 2003, historically the largest sales
volume and most profitable quarter of the Company's fiscal year, the Company may
not continue to be in compliance with certain of its covenants under its credit
facility with its primary lender. This credit facility subjects the Company to
certain covenants requiring a minimum level of earnings before interest, taxes,
depreciation and amortization ("EBITDA"), a minimum gross profit percentage and
certain sales and inventory levels that are measured monthly. There can be no
assurance that the Company's primary lender would waive any instances of
non-compliance with certain financial covenants or amend the credit agreement to
adjust such financial covenants (see "Liquidity and Capital Resources" herein).
As a result, if the trend of declining net sales continues, the Company's
results of operations and its liquidity and capital resources could continue to
be negatively affected because funds may not be available under its revolving
credit facility and its cash flow may not be sufficient to meet the Company's
cash needs to operate its business.
The Company has developed a plan to address these issues. This plan is designed
to provide for additional equity being invested in the Company (see "Pending
Equity Investment" herein), restructure current financing arrangements, and
continuing its merchandising, expense reduction and tri-box store development
strategies as further outlined below. The Company's ability to meet all
obligations as they come due for fiscal 2003, including planned capital
expenditures, is dependent upon the success in achieving the objectives of this
plan. However, because there is no assurance as to the Company's ability to be
successful in achieving its objectives as outlined below, substantial doubt
exists as to the Company's ability to continue as a going concern.
To address the potential cash flow issues that a continued negative net sales
trend would create, the Company has been seeking various financing alternatives
including potential sales of equity and/or debt securities of the Company (see
"Pending Equity Investment" herein) and refinancing of certain indebtedness.
There can be no assurance that the Company will be successful in its efforts to
improve its liquidity and capital resources through such securities sales,
refinancing its existing credit facilities or otherwise.
The Company plans to continue to focus its merchandising efforts to reverse the
current trend in net sales by, among other things, continuing to focus on its
higher-margin core apparel merchandise categories of women's and children's
apparel and women's accessories. However, the general decreases in consumer
spending in recent months have impacted the pricing at which merchandise must be
offered and this has had a negative impact on gross margin which could continue.
Given the continuing economic uncertainty and lower demand for apparel,
management intends to maintain conservative inventory levels. In addition, the
Company plans to continue to focus its efforts on maintaining its tight expense
controls. In fact, since the end of fiscal 2002, the Company has reduced its
corporate office and field management workforce by approximately ten percent.
The Company plans to continue to focus its store development efforts and
business strategy in the remainder of fiscal 2003 on its self-described tri-box
store concept which consists of stores ranging from approximately 7,000 to
11,000 square feet, offering the Company's "BestPrice! Kids" and "BestPrice!
Plus" concepts along with substantially the same junior/misses apparel and
accessories found in the Company's "BestPrice! Fashions" stores. To date, the
Company has opened eleven new tri-box stores and has converted three existing
stores to the tri-box concept. Sales volumes in each of these stores have
exceeded the Company's standard "BestPrice! Fashions" store. In fact, based on
results to date, management projects that these stores, on average, will
generate substantially more annual sales volume and significantly more net store
contribution than the Company's traditional stores. Management expects to
realize improved leverage of its fixed overhead and operations as the Company
focuses its store development on these tri-box stores. However, there can be no
assurance that the initial success of the tri-box stores will continue. In
addition, the Company's initiatives to improve sales and operating results
through its focus on the tri-box concept are designed to improve the Company's
operating performance in the long term and are unlikely to result in immediate
improvement in operating results. There are other factors, many of which are
beyond the Company's control, that could affect the Company's sales and
operating results. See "Certain Considerations," herein.
As a part of the Company's focus on the tri-box concept, the Company may, over a
period of time, attempt to sell certain smaller square-footage stores that do
not fit strategically with the Company's tri-box focus. In addition, the Company
will continue to close or sell certain smaller square footage under-performing
stores. Management believes that this strategy of opening new tri-box stores,
while at the same time closing or selling under-performing and/or smaller
square-footage stores, will contribute to improved cash flow, results of
operations and financial condition of the Company in the future. However, there
are a number of risks and uncertainties related to this strategy. See "Certain
Considerations," herein.
There can be no assurance that the Company's plans as outlined above will be
successful in increasing its net sales and operating results.
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 Company's most recent fiscal years, the Company has primarily relied
upon its credit facilities to offset cash used in operations and to expand,
relocate and open new 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 net sales and
resultant gross margin to provide sufficient cash flow to meet its financial
obligations. When net sales and gross margin levels have not been sufficient 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.
The operating issues outlined above (see "Operations and Strategies" herein)
have created additional needs for liquidity. The Company has developed a plan to
address these issues. This plan is designed to provide for additional equity
being invested in the Company (see "Pending Equity Investment" contained
herein), restructure current financing arrangements, continue focusing
merchandising efforts on its higher-margin, core apparel items, reduce operating
expenses, and continue its investment in its tri-box store concept while
identifying under-performing stores for closure. The Company's ability to meet
all obligations as they come due for fiscal 2003, including planned capital
expenditures, is dependent upon the success in achieving the objectives of this
plan. Additionally, achieving the results contained within the fiscal 2003
business plan will require a reversal of the current negative sales trend. If
the current negative sales trend being experienced is not reversed, or if the
Company is not successful in obtaining new equity investments in amounts and
terms acceptable to the Company, meeting obligations as they come due will
require additional cash generated from operations from increases in outstanding
amounts of trade accounts payable. There can be no assurance that should this be
necessary, the Company will be successful in extending the balance in trade
accounts payable and still procure inventory in the quantities and mix required
to achieve its forecasted level of sales. There also can be no assurance that
the Company will be successful in achieving the objectives of its plan as
outlined above, its forecasted results of operations and financial condition,
and in meeting its obligations as they come due.
The Company's credit facilities consist of a revolving credit agreement and term
loan with its primary lender, a mortgage loan collateralized by the Company's
corporate offices and distribution center and letter of credit facilities. The
Company's revolving credit agreement expires in July 2005 and is classified in
current liabilities in the accompanying balance sheet. Collectively, the credit
facilities contain certain financial and non-financial covenants, with which the
Company was in compliance at February 1, 2003. The Company amended these
covenants in January, April andMay 2003. A summary of the Company's credit
facilities appears below.
The Company's amended credit agreement with its primary lender contains
financial covenants, measured monthly, that require the Company to meet certain
required levels of sales and establishes minimum levels of inventory purchases.
In addition, beginning in the second quarter of fiscal 2003, the Company will be
subject to certain covenants, which will be measured quarterly, requiring a
minimum level of earnings before interest, taxes, depreciation and amortization
(EBITDA) and a minimum gross profit percentage. Achieving results of operations
and financial condition for fiscal 2003 at levels that result in the Company
complying with all financial covenants depends upon the Company meeting certain
targets of net sales, gross margin and operating expenses. If the Company is not
successful in achieving these targets, the Company may not satisfy certain
financial covenants during fiscal 2003. The Company has been successful in
obtaining amendments to its credit agreement with its primary lender in the past
and, if necessary, would seek additional amendments or waivers to the
requirements of current covenants. There can be no assurance that the Company
would be successful in obtaining an amendment or waiver from its primary lender
should it not be in compliance with a financial covenant during fiscal 2003.
The Company has a $40,000,000 revolving credit agreement (including a
$25,000,000 letter of credit sub-facility) and $3,150,000 term loan with its
primary lender. The $40,000,000 revolving credit agreement expires in July 2005
and the $3,150,000 term loan expires in July 2004. 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 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 plus 0.5% or the adjusted Eurodollar Rate, as
defined in such agreement, plus 2.25%, provided that the Company meets certain
requirements as set forth in the agreement. Borrowings under the term loan bear
interest at 15.0% per annum. As of February 1, 2003, the Company had
approximately $2.6 million of excess availability under the borrowing base
formula.
The maximum and average amounts outstanding during 2002 and 2001 and amounts
outstanding at the end of such periods for the revolving credit agreement are
disclosed in Note C to the consolidated financial statements included in Item 8
of this report.
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 $6,993,000 at February 1, 2003, 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's weighted average interest rate for all borrowings was 5.8% and
6.9% in 2002 and 2001, respectively.
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, 2003 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 certain restrictive covenants which are substantially the
same as those within the Company's revolving credit facility discussed above.
The Company had outstanding letters of credit for the purchase of merchandise
inventories totaling approximately $7,301,000 and $7,644,000 at February 1, 2003
and February 2, 2002, respectively.
Net cash provided by operating activities in 2002 was $6,615,000, compared with
cash used in operating activities of $4,353,000 in 2001. This increase in cash
provided from operations of $10,968,000 resulted from an increase in cash used
in operating activities from net loss adjusted for non-cash operating items
totaling $3,330,000, and an increase in cash provided from changes in operating
assets and liabilities of $7,638,000. This increase in cash provided from
changes in operating assets and liabilities primarily resulted from a decrease
in merchandise inventories of $4,854,000 and an increase in accounts payable and
other liabilities of $2,608,000.
At February 1, 2003, total merchandise inventories decreased 9.0% to
$49,277,000, compared with total merchandise inventories of $54,131,000 at
February 2, 2002. The decrease in total merchandise inventories was primarily
attributable to a lower level of merchandise in-transit to the Company's stores
as a result of decreasing its levels of imported merchandise compared with 2001,
and decreasing the amount of time required to process and distribute merchandise
to the stores. In 2002, import purchases (including freight and duty) were 10%
of total purchases, compared with 10% in 2001. 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 in 2002 was $4,866,000, as compared with
$3,181,000 in 2001. Net cash used in investing activities was primarily used for
leasehold improvements and equipment for new stores opened during each year
presented, as well as information technology expenditures including software and
hardware upgrades. Net cash used in investing activities in 2002 excludes
$623,000 of store construction allowances from landlords of the Company's
stores. Net of these allowances received, net cash used in investing activities
would have been $4,243,000 in 2002 and net cash used to purchase property and
equipment would have been $3,538,000 in 2002. The following schedule summarizes
the changes to the Company's store portfolio which resulted in increases in
capital expenditures over the Company's three most recent fiscal years:
2002 2001 2000
---- ---- ----
New store openings 7 6 44
Store relocations or expansions 17 9 19
Net cash used in financing activities in 2002 was $1,992,000, as compared with
net cash provided by financing activities in 2001 of $5,691,000. This increase
in cash used in financing activities was primarily a result of the net
repayments of the mortgage loan facility, as well as the payment of capital
lease obligations. Net cash was provided by financing activities in 2001 and
2000 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 operations.
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 1,
2003, the Company had repurchased 67,400 shares for an aggregate purchase price
of $392,000 (average of $5.82 per share) and awarded 60,250 shares of these
shares to its employees, leaving 7,150 shares for a net purchase price of
$41,000.
CAPITAL EXPENDITURES
In fiscal 2003, the Company plans to spend approximately $3.5 million on capital
expenditures, $0.9 million of which is expected to be funded by construction
allowances from landlords. Most of this amount allocated to capital expenditures
will be used to open one new store, to remodel, re-fixture, expand and relocate
approximately 12 existing stores, eight of which will be tri-box stores, and to
invest in information technology.
SUMMARY
The Company's ability to meet its forecast of capital expenditures and also meet
all other obligations as they come due for fiscal 2003 is dependent upon
realizing the levels of forecasted sales and operating results contained in its
fiscal 2003 business plan and/or raising additional liquidity through the sales
of equity securities (see "Pending Equity Investment" herein), sales of
non-strategic store locations and/or refinancing of certain indebtedness.
Achieving the results contained within the fiscal 2003 business plan will
require a reversal of the current negative sales trend. If the current negative
sales trend being experienced is not reversed, or if the Company is not
successful in obtaining new equity investments in amounts and terms acceptable
to the Company, meeting obligations as they come due will require additional
cash generated from operations from increases in outstanding amounts of trade
accounts payable. There can be no assurances that should this be necessary, the
Company will be successful in extending the balance in trade accounts payable
and still procure inventory in the quantities and mix required to achieve its
forecasted level of sales. Therefore, there also can be no assurance that the
Company will be successful in achieving the objectives of its plan as outlined
above, its forecasted results of operations and financial condition, and in
meeting its obligations as they come due.
CERTAIN CONSIDERATIONS
Terrorism and the uncertainty of war may affect the Company's business.
The possibility of terrorist attacks, such as the attacks that occurred in New
York and near Washington, D.C. on September 11, 2001, and the impact of the war
with Iraq have negatively affected and may continue to affect the markets in
which the Company operates and the Company's operations. Immediately following
the September 11 attacks, the Company experienced sluggish demand for apparel in
its stores located along the border with Mexico and in areas whose local
economies are heavily dependent upon tourism. The potential near-term and
long-term effects that any future terrorist attacks may have for the Company's
customers, the markets for its products and the United States economy are
uncertain.
The Company faces significant competition.
The Company operates in the highly competitive discount retail merchandise
business. 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, most of which have substantially
greater capital and other resources than the Company's. 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. As a result of depressed retail sales resulting
from the currently lackluster demand for apparel, the Company now faces
significant competition from discount retail chains and traditional department
stores which are heavily discounting prices of apparel and, as a result, more
directly competing with the Company's price points. Although management believes
that the Company is well-positioned to compete in its markets, there is no
guarantee that the Company will be able to compete successfully against its
current and future competitors.
As a result of competition, the Company is subject 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. To counteract
such competitive pressures, the Company has implemented certain 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 not guarantee that these
merchandising and marketing strategies and other actions taken will improve
results of operations 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, in the future, 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 continuing to focus 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.
The Company's tri-box store development efforts may not result in the improved
operating results expected by management.
The Company's improvement in operating results also depends on its ability to
improve net sales and gross margin through its tri-box store strategy. This
tri-box strategy involves expanding, converting or relocating existing stores
and/or opening new stores of 7,000 to 11,000 square feet which offer the
Company's "BestPrice! Kids" and "BestPrice! Plus" concepts as separate "stores
within a store." The Company's tri-box store development strategy depends on
many factors, including its ability to identify suitable markets and sites for
tri-box stores, negotiate leases with acceptable terms, appropriately upgrade
its financial and management information systems and controls to support the
tri-box strategy, 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, the Company may not be able to achieve its future store development
goals. Any failure by the Company to achieve its tri-box 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, or control or manage operating
expenses could adversely affect its future operating results and its ability to
execute its tri-box store development strategy.
There is no guarantee that the Company's tri-box store development strategy will
improve the Company's results of operations as expected by management or that
the trend of increased sales in tri-box stores, as compared with the Company's
traditional stores, will continue. A variety of factors are critical to the
success of the Company's tri-box stores and such factors include, but are not
limited to, store sales, store location, store size, lease terms, initial
advertising effectiveness and brand recognition. Management cannot assure that
such large stores will achieve the sales per selling square foot and store
contributions achieved in the Company's current tri-box stores.
Planned changes to and disruptions in distribution of merchandise could impact
the Company's business.
The Company's success depends in part upon whether its receiving and shipping
schedules for merchandise are well organized and managed. The Company
anticipates a continued increase in the level of purchases of pre-ticketed and
pre-packaged merchandise from vendors, which it believes will continue to reduce
the handling costs associated with distributing merchandise to its stores.
However, there is no guarantee that these plans will provide the Company with
the efficiencies anticipated.
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 harm 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 first-quality merchandise at attractive prices and acceptable credit
terms. Management cannot be certain that such merchandise will continue to be
available in the future, or that its credit terms will remain acceptable.
Further, the Company may not be able to find and purchase such first-quality
merchandise in quantities necessary to accommodate its operations. 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 operating
results 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 negatively 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 below seasonal norms or its expectations, a seasonal merchandise inventory
imbalance could result. If such an imbalance occurred, 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 capital requirements may impact its operating results.
Historically, the Company's capital needs have been to maintain and expand its
stores and inventories. In the future, the Company may require additional
capital in order to successfully implement its tri-box store strategy. If the
current negative sales trend continues and the Company is unable to generate
sufficient cash flow from its operations, enter into acceptable debt financing
arrangements, sell additional equity and/or generate sufficient cash flow from
the potential sale of non-strategic assets, it may be forced to limit the number
of tri-box stores that it can open, which could adversely affect the Company's
financial condition and the financial success of this strategy.
The Company may need additional financing to meet its future capital
requirements.
The Company has incurred operating losses for the past three fiscal years and
had a deficiency in working capital as of February 1, 2003. These factors, as
well as the uncertain retail environment in which the Company operates, have
raised substantial doubt about the Company's ability to continue as a going
concern. The Company has developed a plan to address these issues, which is
detailed in the "Outlook and Business Strategy" section above. The Company's
financial resources are limited and the amount of funding that the Company will
require in the future is uncertain (see "Outlook and Business Strategy" and
"Liquidity and Capital Resources" herein). If the Company's results of
operations and/or proceeds from its pending sale of equity securities, sales of
non-strategic assets and/or refinancings of certain indebtedness fall short of
management's expectations, the Company's ability to fund its tri-box store
development strategy, take advantage of opportunities, and/or respond to
competitive pressures may be affected.
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. In the future, 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;
o continued listing criteria; and
o future sales of the Company's common stock.
OFF-BALANCE SHEET FINANCING
The Company uses letters of credit to purchase inventory from foreign sources
(see Note C to the consolidated financial statements included in Item 8 of this
report for details). The balance of outstanding letters of credit for purchasing
inventory was $7,301,000 and $7,644,000 at February 1, 2003 and February 2,
2002, respectively.
COMMITMENTS AND CONTINGENCIES
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 1, 2003 are as follows:
Other
operating
Fiscal Year Store leases leases Capital leases Term loan Mortgage loan Total
----------- ------------ ------ -------------- --------- ------------- -----
2003 $ 26,151,000 $ 959,000 $ 826,000 $ 300,000 $ 249,000 $ 28,485,000
2004 22,111,000 307,000 538,000 2,850,000 271,000 26,077,000
2005 16,250,000 57,000 151,000 - 299,000 16,757,000
2006 11,753,000 5,000 5,000 - 328,000 12,091,000
2007 8,977,000 - - - 359,000 9,336,000
Thereafter 12,867,000 - - - 5,487,000 18,354,000
----------------- ---------------- ---------------- ----------------- ---------------- -----------------
Total $ 98,109,000 $ 1,328,000 $ 1,520,000 $ 3,150,000 $ 6,993,000 $111,100,000
The Company also has a revolving credit agreement which expires in July 2005
with an outstanding balance of $32,863,000 and outstanding letters of credit for
the purchase of merchandise inventories totaling approximately $7,301,000 at
February 1, 2003.
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 2002 and fiscal
2001 would have increased pre-tax loss by approximately $309,000 and $275,000
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 $41,000 and $48,000 at February 1, 2003 and February
2, 2002, but would have had no effect on the Company's results of operations or
cash flows for fiscal 2002. 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 $595,000 and $664,000 at February 1, 2003 and
February 2, 2002, respectively, but would have had no effect on the Company's
results of operations or cash flows for fiscal 2002 and fiscal 2001.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") 144, "Accounting for the Impairment of
Long-Lived Assets," which supercedes SFAS 121 and the accounting and reporting
provisions of APB 30 related to the disposal of a segment of a business. The
Company's adoption of SFAS 144 on February 3, 2002 had no material effect on the
Company's consolidated financial statements.
The FASB has issued SFAS 146, "Accounting for Costs Associated with Exit or
Disposal Activities," which nullifies the accounting and reporting provisions of
Emerging Issues Task Force ("EITF") 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (Including
Certain Costs in a Restructuring)." This statement is effective for exit or
disposal activities that are initiated after December 31, 2002, with earlier
adoption encouraged. The Company's adoption of SFAS 146 did not have a material
effect on the Company's results of operations or financial position.
In November 2002, the EITF reached a consensus on issues raised in EITF 02-16,
"Accounting by a Reseller for Cash Consideration Received from a Vendor." This
EITF issue addresses the timing of recognition for rebates that are earned by
resellers based on specified levels of purchases or over specified periods of
time. This guidance related to timing of recognition is to be applied
prospectively to new rebate arrangements entered into in fiscal periods
beginning after December 15, 2002. This EITF issue also addresses the
classification of cash consideration received from vendors in a reseller's
statement of operations. The guidance related to income statement classification
is to be applied in annual and interim financial statements for periods
beginning after December 15, 2002. The application of EITF 02-16 on February 3,
2002 had no material effect on the Company's results of operations or financial
position.
In November 2002, FASB Interpretation No. (`FIN 45") "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" was issued which, among other things, expands guarantor
financial statement disclosures about its obligations under certain guarantees
and requires the guarantor to recognize a liability for the fair value of an
obligation assumed under a guarantee. FIN 45 clarifies the requirements of SFAS
No. 5 "Accounting for Contingencies" relating to guarantees and its initial
recognition and measurement provisions are applied on a prospective basis to
guarantees issued or modified after December 31, 2002. FIN 45 does not
significantly impact the Company's financial statements or disclosures, nor is
it expected to significantly impact future results of operations or financial
position.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123." SFAS 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition, SAFS 148 amends the disclosure requirements of SFAS
123, "Accounting for Stock-Based Compensation," to require more prominent
disclosure in both interim and annual financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The transition guidance and annual disclosure
provisions of SFAS 148 are effective for fiscal years ending after December 15,
2002. The interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after December 15,
2002. The Company has applied the disclosure provisions of SFAS 148 in the notes
to the consolidated financial statements for the year ended February 1, 2003.
In January 2003, FASB interpretation No. 46 ("FIN 46"), "Consolidation of
Variable Interest Entities" was issued which, among other things, provides
guidance on identifying variable interest entities ("VIE") and determining when
assets, liabilities, non-controlling interest, and operating results of a VIE
should be included in a company's consolidated financial statements, and also
requires additional disclosures by primary beneficiaries and other significant
variable interest holders. Certain disclosure requirements of FIN 46, if
applicable, are required for financial statements initially issued after January
31, 2003. Companies with variable interest in variable interest entities created
after January 31, 2003 shall apply the provisions of FIN 46 immediately. Public
entities with a variable interest in a variable interest entity shall apply the
provisions of FIN 46 no later than the first interim or annual reporting period
beginning after June 15, 2003. FIN 46 is not expected to significantly impact
the Company's financial statements or future results of operations.
In April 2003, SFAS No. 149 "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities" was issued which amends and clarifies the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities under SFAS No. 133. It
requires, among other things, that contracts with comparable characteristics be
accounted for similarly and clarifies under what circumstances a contract with
an initial net investment meets the characteristic of a derivative and when a
derivative contains a financing component that warrants special reporting in the
statement of cash flows. SFAS No. 149 is effective generally for contracts
entered into and modified after June 30, 2003. Because the Company presently has
no derivative instruments, adoption is expected to have no effect on its
financial statements or disclosures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Market Risk and Risk Management Policies" 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 1, 2003
and February 2, 2002, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three fiscal years in the
period ended February 1, 2003. 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 1, 2003
and February 2, 2002, and the results of its operations and its cash flows for
each of the three fiscal years in the period ended February 1, 2003, 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.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B to the
financial statements, the Company's recurring losses from operations, its
deficiency in working capital, and an uncertain retail environment raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note B. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
May 16, 2003
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 1, February 2,
2003 2002
------------------ -------------------
Assets
CURRENT ASSETS
Cash and cash equivalents $ 2,034,000 $ 2,277,000
Miscellaneous receivables, net of allowance for doubtful accounts
of $112,000 and $128,000, respectively 3,437,000 3,791,000
Merchandise inventories 49,277,000 54,131,000
Prepaid expenses 3,636,000 6,428,000
------------------ -------------------
TOTAL CURRENT ASSETS 58,384,000 66,627,000
PROPERTY AND EQUIPMENT, net 32,981,000 35,615,000
DEFERRED INCOME TAXES 1,007,000 2,825,000
OTHER ASSETS 4,967,000 4,735,000
------------------ -------------------
$ 97,339,000 $ 109,802,000
================== ===================
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable $ 38,183,000 $ 35,656,000
Current portion of long-term debt and revolving credit agreement 34,352,000 34,341,000
Accrued salaries and wages 1,740,000 1,915,000
Accrued employee benefits 1,423,000 1,559,000
Income taxes payable 433,000 503,000
Other accrued and sundry liabilities 3,486,000 2,140,000
------------------ -------------------
TOTAL CURRENT LIABILITIES 79,617,000 76,114,000
------------------ -------------------
LONG-TERM DEBT 10,371,000 11,835,000
------------------ -------------------
OTHER NON-CURRENT LIABILITIES 3,231,000 2,548,000
------------------ -------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, par value $0.01 - authorized
unissued 500,000 shares
Common stock, par value $0.01 - authorized 10,000,000 shares;
issued and outstanding 3,006,019 and 2,943,769 shares, respectively 30,000 29,000
Additional paid-in capital 11,581,000 11,822,000
(Accumulated deficit) retained earnings (7,450,000) 7,844,000
Less: treasury stock - 7,150 and 67,400 shares at cost, respectively (41,000) (390,000)
------------------ -------------------
4,120,000 19,305,000
------------------ -------------------
$ 97,339,000 $ 109,802,000
================== ===================
See notes to consolidated financial statements
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Year Ended
--------------------------------------------------------------
February 1, February 2, February 3,
2003 2002 2001
(52 weeks) (52 weeks) (53 weeks)
----------------- ------------------ -----------------
NET SALES $ 331,771,000 $ 340,430,000 $ 355,624,000
Cost of goods sold, exclusive of depreciation
and amortization shown separately below 212,282,000 223,789,000 234,270,000
----------------- ------------------ -----------------
GROSS MARGIN 119,489,000 116,641,000 121,354,000
Selling, general and administrative expenses 87,911,000 88,378,000 88,280,000
Store rent and related expenses 33,964,000 33,394,000 32,235,000
Depreciation and amortization expense 6,797,000 6,783,000 6,215,000
Restructuring charge -- -- 1,017,000
Interest expense 3,431,000 3,458,000 2,737,000
----------------- ------------------ -----------------
132,103,000 132,013,000 130,484,000
----------------- ------------------ -----------------
LOSS BEFORE INCOME TAXES (12,614,000) (15,372,000) (9,130,000)
Provision for (benefit from) income taxes 2,680,000 4,340,000 (3,764,000)
----------------- ------------------ -----------------
NET LOSS $ (15,294,000) $ (19,712,000) $ (5,366,000)
================= ================== =================
NET LOSS PER COMMON SHARE - BASIC
AND DILUTED $ (5.10) $ (6.70) $ (1.80)
================= ================== =================
Weighted average number of common shares
outstanding - basic and diluted 3,001,163 2,942,788 2,976,317
================= ================== =================
See notes to consolidated financial statements
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Retained Restricted
Common Stock Additional Earnings Stock Awards-
-------------------- Paid-in (Accumulated Treasury Unearned
Shares Amount Capital Deficit) Stock Compensation Total
------------- --------- -------------- -------------- -------------- -------------- --------------
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
Net restricted stock activity 2,000 -- 3,000 -- -- -- 3,000
Net awards of treasury stock 60,250 1,000 (244,000) -- 349,000 -- 106,000
Net loss -- -- -- (15,294,000) -- -- (15,294,000)
------------- --------- -------------- -------------- -------------- -------------- --------------
Balance at February 1, 2003 3,006,019 $30,000 $11,581,000 $ (7,450,000) $ (41,000) $ -- $ 4,120,000
============= ========= ============== ============== ============== ============== ==============
See notes to consolidated financial statements
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
-------------------------------------------------
February 1, February 2, February 3,
2003 2002 2001
(52 weeks) (52 weeks) (53 weeks)
--------------- ---------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (15,294,000) $ (19,712,000) $ (5,366,000)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 6,797,000 6,783,000 6,215,000
Provision for compensation - stock awards 110,000 30,000 26,000
Deferred income taxes 2,701,000 3,807,000 (4,924,000)
Provision for impairment of and losses on disposal of property
and equipment 729,000 805,000 1,884,000
Changes in operating assets and liabilities:
Decrease (increase) in miscellaneous receivables and prepaid
expenses 3,124,000 (2,214,000) (1,288,000)
Decrease (increase) in merchandise inventories 4,854,000 (10,237,000) 231,000
(Decrease) increase in Federal and state income taxes payable (70,000) 757,000 1,910,000
Increase (decrease) in accounts payable and other liabilities 2,608,000 15,088,000 (3,240,000)
Decrease (increase) in other non-current assets 293,000 207,000 (181,000)
Increase in other non-current liabilities 763,000 333,000 40,000
--------------- ---------------- --------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 6,615,000 (4,353,000) (4,693,000)
--------------- ---------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (4,161,000) (2,616,000) (9,041,000)
Proceeds from sale of property and equipment -- -- 552,000
Purchases of other non-current assets (primarily software) (740,000) (530,000) (997,000)
Issuance of related party loans (25,000) (35,000) --
Repayment of related party loans 60,000 -- 70,000
--------------- ---------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (4,866,000) (3,181,000) (9,416,000)
--------------- ---------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from revolving credit agreement 779,000 3,531,000 17,374,000
Proceeds from long-term debt -- 4,150,000 --
Repayment of long-term debt (889,000) (192,000) (344,000)
Payment of capital lease obligations (1,281,000) (1,163,000) (692,000)
Debt financing costs incurred (481,000) (478,000) (124,000)
Decrease in amount due to related parties (120,000) (157,000) (143,000)
Purchase of treasury stock -- -- (392,000)
Proceeds from exercise of stock options -- -- 12,000
--------------- ---------------- --------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (1,992,000) 5,691,000 15,691,000
--------------- ---------------- --------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (243,000) (1,843,000) 1,582,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF FISCAL YEAR 2,277,000 4,120,000 2,538,000
--------------- ---------------- --------------
CASH AND CASH EQUIVALENTS AT END OF FISCAL YEAR $ 2,034,000 $ 2,277,000 $ 4,120,000
=============== ================ ==============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 3,046,000 $ 3,053,000 $ 2,765,000
Income taxes paid 151,000 1,126,000 310,000
Non-cash investing and financing activities:
Capital leases -- 1,594,000 2,390,000
Issuance of restricted stock awards 108,000 8,000 99,000
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 - Description of Business 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, primarily 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 up to $25 when
such merchandise is clearly desired by the Company's customers. At February 1,
2003, the Company operated 597 stores in 30 states, the District of Columbia,
Puerto Rico and the U.S. Virgin Islands.
Fiscal Year: The Company's fiscal year ends on the Saturday nearest January 31.
The years ended February 1, 2003 ("fiscal 2002") and February 2, 2002 ("fiscal
2001") 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 1, 2003 and February 2, 2002, 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 1, 2003 and
February 2, 2002 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 $5,151,000 and $4,417,000 at February 1, 2003 and February 2, 2002,
respectively. Accumulated amortization of such software was $2,912,000 and
$2,233,000 at February 1, 2003 and February 2, 2002, 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. Through December 31, 2002, at the time management commited to
close a store, a provision was made for any remaining store lease obligation
after closing and penalties, if any, to cancel the lease obligation. Since
January 1, 2003, the Company applies the provisions of Statement of Financial
Accounting Standards ("SFAS") 146 (see below).
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 to SG&A when incurred and the Company receives allowances from certain
of its vendors to use to advertise certain vendor merchandise. Such expenses,
net of these allowances, were $1,706,000, $1,500,000 and $1,573,000 in fiscal
2002, 2001 and 2000, 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 discussion below.
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 1,
2003 the Company had repurchased 67,400 shares for an aggregate purchase of
$392,000 (average of $5.82 per share) and awarded 60,250 shares of these shares
to its employees, leaving 7,150 shares for a net purchase price of $41,000.
Reclassifications: Certain amounts included in prior periods' financial
statements have been reclassified to conform to the fiscal 2002 presentation.
Effect of New Accounting Pronouncements:
The FASB has issued SFAS 144, "Accounting for the Impairment of Long-Lived
Assets," which supercedes SFAS 121 and the accounting and reporting provisions
of APB 30 related to the disposal of a segment of a business. The adoption of
SFAS 144 on February 3, 2002 had no material effect on the Company's
consolidated financial statements.
The FASB has issued SFAS 146, "Accounting for Costs Associated with Exit or
Disposal Activities," which nullifies the accounting and reporting provisions of
Emerging Issues Task Force ("EITF") 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (Including
Certain Costs in a Restructuring)." This statement is effective for exit or
disposal activities that are initiated after December 31, 2002, with earlier
adoption encouraged. The adoption of SFAS 146 did not have a material effect on
the Company's results of operations or financial position.
In November 2002, the EITF reached a consensus on issues raised in EITF 02-16,
"Accounting by a Reseller for Cash Consideration Received from a Vendor." This
EITF issue addresses the timing of recognition for rebates that are earned by
resellers based on specified levels of purchases or over specified periods of
time. This guidance related to timing of recognition is to be applied
prospectively to new rebate arrangements entered into in fiscal periods
beginning after December 15, 2002. This EITF issue also addresses the
classification of cash consideration received from vendors in a reseller's
statement of operations. The guidance related to income statement classification
is to be applied in annual and interim financial statements for periods
beginning after December 15, 2002. The application of EITF 02-16 on February 3,
2002 had no material effect on the Company's results of operations or financial
position.
In November 2002, FASB Interpretation No. (`FIN 45") "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" was issued which, among other things, expands guarantor
financial statement disclosures about its obligations under certain guarantees
and requires the guarantor to recognize a liability for the fair value of an
obligation assumed under a guarantee. FIN 45 clarifies the requirements of SFAS
No. 5 "Accounting for Contingencies" relating to guarantees and its initial
recognition and measurement provisions are applied on a prospective basis to
guarantees issued or modified after December 31, 2002. FIN 45 does not
significantly impact the Company's financial statements or disclosures, nor is
it expected to significantly impact future results of operations or financial
position.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123." SFAS 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition, SAFS 148 amends the disclosure requirements of SFAS
123, "Accounting for Stock-Based Compensation," to require more prominent
disclosure in both interim and annual financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The transition guidance and annual disclosure
provisions of SFAS 148 are effective for fiscal years ending after December 15,
2002. The interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after December 15,
2002. The Company has applied the disclosure provisions of SFAS 148 in the notes
to the consolidated financial statements for the year ended February 1, 2003.
In January 2003, FASB interpretation No. 46 ("FIN 46"), "Consolidation of
Variable Interest Entities" was issued which, among other things, provides
guidance on identifying variable interest entities ("VIE") and determining when
assets, liabilities, non-controlling interest, and operating results of a VIE
should be included in a company's consolidated financial statements, and also
requires additional disclosures by primary beneficiaries and other significant
variable interest holders. Certain disclosure requirements of FIN 46, if
applicable, are required for financial statements initially issued after January
31, 2003. Companies with variable interest in variable interest entities created
after January 31, 2003 shall apply the provisions of FIN 46 immediately. Public
entities with a variable interest in a variable interest entity shall apply the
provisions of FIN 46 no later than the first interim or annual reporting period
beginning after June 15, 2003. FIN 46 is not expected to significantly impact
the Company's financial statements or future results of operations.
In April 2003, SFAS No. 149 "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities" was issued which amends and clarifies the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities under SFAS No. 133. It
requires, among other things, that contracts with comparable characteristics be
accounted for similarly and clarifies under what circumstances a contract with
an initial net investment meets the characteristic of a derivative and when a
derivative contains a financing component that warrants special reporting in the
statement of cash flows. SFAS No. 149 is effective generally for contracts
entered into and modified after June 30, 2003. Because the Company presently has
no derivative instruments, adoption is expected to have no effect on its
financial statements or disclosures.
Stock-Based Compensation: The Company applies the principles of Accounting
Principles Board ("APB") Opinion 25 in accounting for employee stock option
plans (the intrinsic value method). Accordingly, no compensation cost has been
recognized in the Company's financial statements for the fiscal years ended
February 1, 2003 and February 3, 2001. The Company recorded $106,000 of
compensation cost related to the issue of warrants to non-employees during the
year ended February 2, 2002. 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 $79,000, $436,000, and $256,000 for the fiscal years
ended February 1, 2003, February 2, 2002, and February 3, 2001, 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:
Fiscal Year Ended
-------------------------------------------------------
February 1, 2003 February 2, 2002 February 3, 2001
---------------- ---------------- ----------------
Risk-free interest rate 2.5% 3.4% 6.1%
Expected life from vest date 1 year 1 year 1 year
Expected volatility 140% 110% 125%
Dividend yield -0-% -0-% -0-%
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 (as amended), the Company's compensation
cost (net of tax), net loss and net loss per common share, basic and diluted,
would have been affected as indicated in the pro-forma amounts below:
Fiscal Year Ended
--------------------------------------------------------
February 1, February 2, February 3,
2003 2002 2001
---------------- ----------------- -------------------
Compensation costs recognized using APB Opinion 25 $ -- $ 106,000 $ --
Compensation costs if recognized under SFAS 123,
net of income taxes of $0, $0 and $167,000 $ 79,000 $ 542,000 $ 256,000
Net loss Actual $(15,294,000) $ (19,712,000) $ (5,366,000)
Pro-forma $(15,373,000) $ (20,148,000) $ (5,622,000)
Net loss per share - basic Actual $ (5.10) $ (6.70) $ (1.80)
Pro-forma $ (5.12) $ (6.85) $ (1.89)
Net loss per share - diluted Actual $ (5.10) $ (6.70) $ (1.80)
Pro-forma $ (5.12) $ (6.85) $ (1.89)
NOTE B - Financial Results and Liquidity
Pending Equity Investment
As part of its plan to improve its overall liquidity and capital resources, as
more fully discussed below, the Company has recently entered into an exclusive
non-binding letter of intent with an investment firm for a substantial
investment of new equity in the Company. The equity investment envisioned in the
non-binding letter of intent is subject to a number of conditions, including
final approval by the Board of Directors of the Company. The Company and
investor have completed a substantial portion of the due diligence required to
complete the pending investment and expect that such investment will be
finalized within 30 days of this report. However, there can be no assurance that
this investment will be completed.
Operations and Strategies
The Company has incurred operating losses for the past three fiscal years, and
as of February 1, 2003, the Company had a substantial working capital deficit.
These recent losses have been exacerbated by difficult economic conditions
existing in the retail market within which the Company operates. The Company
responded to this recurring loss situation by:
o initiating a restructuring plan during the fourth quarter of fiscal 2000
which was completed during fiscal 2001 (See Note J).
o amending its credit facilities to obtain a term loan of $4 million (which
matures in fiscal 2004) (See Note C). At February 1, 2003, a balance of
$3,150,000 remained on this term loan, of which $300,000 is classified in
current liabilities in the Consolidated Balance Sheet and $2,850,000 is
classified in long-term debt in the Consolidated Balance Sheet.
o increasing the borrowing limit in its revolving credit agreement to
$40,000,000 and extended its term through July 2005 (See Note C).
o implementing 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 2003.
o refocusing its store development strategy by reducing 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 2003, including the
opening or reconfiguration of approximately eight large stores which will
offer the Company's "BestPrice! Kids" and "BestPrice! Plus" concepts as
separate "stores within a store."
o implementing a marketing and advertising strategy involving targeted
programs for specific regions, including direct mail, newspaper inserts,
in-store collateral and electronic media.
o implementing changes in its distribution system to increase efficiencies
including increasing the amount of floor-ready merchandise and thereby
reducing processing costs.
o initiating efforts to reduce selling, general and administrative expense.
Since the end of fiscal 2002, the Company has experienced a negative sales trend
as compared with the same period in prior fiscal years, even after adjusting for
the decrease in the number of stores the Company operates. The Company's net
sales for the first quarter of fiscal 2003 were 11.6% below those for the same
quarter of fiscal 2002 which is well below the level of sales assumed in the
Company's fiscal 2003 business plan. Comparable store sales for the first
quarter of fiscal 2003 decreased 10.0% as compared with the same period in
fiscal 2002. This difficult sales trend occurred in one of the historically
strongest net sales quarters of the Company's fiscal year.
The current sales trend has negatively affected the Company's liquidity and
capital resources in the first quarter of 2003. If this sales trend continues in
the second quarter of 2003, historically the largest sales volume and most
profitable quarter of the Company's fiscal year, the Company may not continue to
be in compliance with its covenants under its credit facility with its primary
lender. This credit facility subjects the Company to certain covenants requiring
a minimum level of earnings before interest, taxes, depreciation and
amortization (EBITDA), a minimum gross profit percentage and certain sales and
inventory levels that are measured monthly. There can be no assurance that the
Company's primary lender would waive any instances of non-compliance with
financial covenants or amend the credit agreement to adjust such financial
covenants. As a result, if the trend of declining net sales continues, the
Company's results of operations and its liquidity and capital resources could
continue to be negatively affected as funds may not be available under its
revolving credit facility and its cash flow may not be sufficient to meet the
Company's cash needs to operate its business.
The Company has developed a plan to address these issues. This plan is designed
to provide for additional equity being invested in the Company (see "Pending
Equity Investment" above), restructure current financing arrangements, continue
focusing merchandising efforts on its higher-margin, core apparel items, reduce
operating expenses, and continue its investment in its tri-box store concept
while identifying under-performing stores for closure. The Company's ability to
meet all obligations as they come due for fiscal 2003, including planned capital
expenditures, is dependent upon the success in achieving the objectives of this
plan. Additionally, achieving the results contained within the fiscal 2003
business plan will require a reversal of the current negative sales trend. If
the current negative sales trend being experienced is not reversed, or if the
Company is not successful in obtaining new equity investments in amounts and
terms acceptable to the Company, meeting obligations as they come due will
require additional cash generated from operations, including increases in
outstanding amounts of trade accounts payable. There can be no assurance that
should this be necessary, the Company will be successful in extending the
balance in trade accounts payable and still procure inventory in the quantities
and mix required to achieve its forecasted level of sales. There also can be no
assurance that the Company will be successful in achieving the objectives of its
plan as outlined above, its forecasted results of operations and financial
condition, and in meeting its obligations as they come due. The existence of the
uncertainies as to the Company's ability to achieve these objectives, raises
substantial doubt as to the Company's ability to continue as a going concern.
NOTE C - Credit Facilities
The Company has a credit facility with its primary lender that includes a
revolving credit agreement of up to $40,000,000 (including a letter of credit
sub-facility of up to $25,000,000) through July 2005. 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). Amounts outstanding under the revolving credit agreement of
$32,863,000 and $32,084,000 as of February 1, 2003 and February 2, 2002,
respectively, are classified as current liabilities in the accompanying
consolidated balance sheets. Under the revolving credit agreement, the
borrowings bear interest, at the Company's option (subject to certain
limitations in the agreement), at the Prime Rate plus 0.5% or the Adjusted
Eurodollar Rate, as defined in such agreement, plus 2.25%. The agreement was
amended in September 2002 for the purpose of increasing the maximum credit
permitted under the facility from $37,500,000 to $40,000,000. The credit
facility also includes a $4,000,000 term loan. At February 1, 2003, a balance of
$3,150,000 remained on this term loan, of which $300,000 is classified in
current liabilities and $2,850,000 is classified in long-term debt in the
consolidated balance sheet. A final principal payment on the term loan of
$2,150,000 is due in July 2004.
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 such 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 1, 2003, the
Company had approximately $2.6 million of excess availability under the
borrowing base formula (see also the related debt covenant discussed below). The
Company is charged a commitment fee of 0.25% per annum on the unused portion of
the revolving credit agreement. Under the term loan portion of the revolving
credit agreement, the borrowings bear interest at the rate of 15.0% per annum.
The Company's revolving credit agreement contains certain financial and
non-financial covenants, which the Company amended in April and May 2003.
Among other things, these covenants prohibit the Company from paying dividends,
restrict the ability of the Company to incur additional 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.
The Company's amended credit agreement with its primary lender contains
financial covenants, measured monthly, that require the Company to meet certain
required levels of sales and establishes minimum levels of inventory purchases.
In addition, beginning in the second quarter of fiscal 2003, the Company will be
subject to certain covenants, which will be measured quarterly, requiring a
minimum level of earnings before interest, taxes, depreciation and amortization
(EBITDA) and a minimum gross profit percentage. Achieving results of operations
and financial condition for fiscal 2003 at levels that result in the Company
complying with all financial covenants depends upon the Company meeting certain
targets of net sales, gross margin and operating expenses. If the Company is not
successful in achieving these targets, the Company may not satisfy certain
financial covenants during fiscal 2003. The Company has been successful in
obtaining amendments to its credit agreement with its primary lender in the past
and, if necessary, would seek additional amendments or waivers to the
requirements of current covenants. There can be no assurance that the Company
would be successful in obtaining an amendment or waiver from its primary lender
should it not be in compliance with a financial covenant during fiscal 2003.
The maximum and average amounts outstanding during fiscal 2002 and 2001 and
amounts outstanding at the end of such periods for the revolving credit
agreement are presented as follows:
Fiscal Year Ended
---------------------------------
February 1, February 2,
2003 2002
--------------- ----------------
Revolving credit agreement:
Maximum amounts outstanding $34,234,000 $33,447,000
Average amounts outstanding 30,862,000 27,547,000
Outstanding at period end 32,863,000 32,084,000
The Company also has an agreement with a commercial bank to provide a separate
letter of credit facility of up to $8,000,000. The Company had outstanding
letters of credit for the purchase of merchandise inventories totaling
approximately $7,301,000 and $7,644,000 at February 1, 2003 and February 2,
2002, respectively. This agreement expires on the earlier of June 30, 2003 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. Under this agreement, which was amended
in January and April 2003, the Company is required to maintain a $5,000,000
minimum level of adjusted working capital.
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 principal balance outstanding of $6,993,000 at February 1, 2003, 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
----------- ---------- -------------
2003 $ 300,000 $ 249,000
2004 2,850,000 271,000
2005 - 299,000
2006 - 328,000
2007 - 359,000
Thereafter - 5,487,000
---------- ----------
Total $3,150,000 $6,993,000
========== ==========
The fair value of the Company's outstanding term loan at February 1, 2003 and
February 2, 2002 was $3,219,000 and $4,082,000, respectively. The fair value of
the Company's outstanding mortgage obligation at February 1, 2003 and February
2, 2002 was $9,042,000 and $9,475,000, respectively. Fair value is determined
based on discounted cash flows using the Company's estimated currently available
borrowing rate.
Collectively, the credit facilities contain certain financial and non-financial
covenants, with which the Company was in compliance at February 1, 2003.
The Company's weighted average interest rate for all borrowings was 5.8%, 6.9%
and 8.7% in fiscal 2002, 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
1, 2003 were as follows:
Fiscal Year:
2003 $ 826,000
2004 538,000
2005 151,000
2006 5,000
2007 --
-----------------
Total minimum obligations 1,520,000
Less: interest (140,000)
-----------------
Present value of net minimum obligations 1,380,000
Less: current portion (786,000)
-----------------
Long-term obligation at February 1, 2003 $ 594,000
=================
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 D - Property and Equipment
February 1, February 2,
2003 2002
----------------- ----------------
Land $ 878,000 $ 878,000
Land improvements 494,000 494,000
Buildings 16,061,000 16,061,000
Leasehold improvements 21,093,000 20,103,000
Fixtures and equipment 36,931,000 36,071,000
--------------- ---------------
75,457,000 73,607,000
Less: accumulated depreciation and amortization (42,476,000) (37,992,000)
--------------- ---------------
$ 32,981,000 $ 35,615,000
=============== ===============
Gross amounts of capital lease assets, included in the amounts presented above,
were $4,501,000 and $5,071,000 at February 1, 2003 and February 2, 2002,
respectively. Accumulated amortization of such assets was $2,579,000 and
$2,065,000 at February 1, 2003 and February 2, 2002, respectively.
NOTE E - Income Taxes
The provision for (benefit from) income taxes consists of the following:
Fiscal Year Ended
---------------------------------------------------
February 1, February 2, February 3,
2003 2002 2001
--------------- --------------- -----------------
Current:
Federal $ (110,000) $ - $ (48,000)
State and local - - 29,000
Puerto Rico 84,000 294,000 956,000
Virgin Islands 5,000 239,000 223,000
Deferred:
Federal 2,377,000 3,350,000 (4,343,000)
State and local 324,000 457,000 (638,000)
Puerto Rico - - 57,000
--------------- --------------- -----------------
Total provision for (benefit from) income taxes $2,680,000 $4,340,000 $ (3,764,000)
=============== =============== =================
A reconciliation of the statutory federal income tax (benefit) rate to the
annual effective income tax (benefit) rate follows:
Fiscal Year Ended
---------------------------------------------------------
February 1, February 2, February 3,
2003 2002 2001
----------------- ---------------- -----------------
Federal income tax (benefit) at statutory rate (35.0)% (35.0)% (35.0)%
State and local income tax (benefit), net of federal tax (5.1) (1.1) (4.3)
Foreign tax rate differential (0.1) 0.3 1.9
Tax benefit from federal jobs credits (0.8) (1.7) (3.4)
Change in valuation allowance 62.7 65.7 -
Other, net (0.4) - (0.4)
----------------- ---------------- -----------------
Effective income tax (benefit) rate 21.3% 28.2% (41.2)%
================= ================ =================
Presented below are the elements which comprise deferred income tax assets and
liabilities:
February 1, February 2,
2003 2002
---------------- ----------------
Gross deferred income tax assets:
Accrued employee benefits deductible for tax purposes when paid $ 601,000 $ 629,000
Accrued retirement benefits deductible for tax purposes when paid 276,000 315,000
Accrued store closing and restructuring costs deductible for tax
purposes when paid 528,000 527,000
Federal, state and local net operating loss and credit carryforwards 17,272,000 12,121,000
Accrued rent 515,000 -
Other 425,000 300,000
---------------- ----------------
19,617,000 13,892,000
Valuation allowance (17,995,000) (10,091,000)
---------------- ----------------
Gross deferred income tax assets, net of valuation allowance 1,622,000 3,801,000
Gross deferred income tax liabilities:
Excess of financial statement over tax basis of property and equipment (133,000) (231,000)
Excess of financial statement over tax basis of inventory (1,483,000) (869,000)
Other (6,000) -
---------------- ----------------
Gross deferred income tax liabilities (1,622,000) (1,100,000)
---------------- ----------------
Net deferred income tax asset $ - $ 2,701,000
================ ================
The net deferred income tax assets at February 1, 2003 and February 2, 2002,
respectively, are recorded in the accompanying Consolidated Balance Sheet as
follows:
February 1, February 2,
2003 2002
------------- -------------
Current deferred income tax liability $ (1,007,000) $ (124,000)
Non-current deferred income tax asset 1,007,000 2,825,000
------------- -------------
Net deferred income tax asset $ - $ 2,701,000
============= =============
On March 9, 2002, President Bush signed into law, H.R. 3090, the Job Creation
and Worker Assistance Act of 2002 (the "Act"). The Act allowed the Company to
carry back alternative minimum tax ("AMT") net operating losses ("NOL")
generated in 2001 which will result in a cash refund of AMT tax paid of
approximately $110,000 in 2003. The Company has recorded a current receivable
for this refund.
At February 1, 2003, the Company had gross Federal net operating loss
carryforwards aggregating approximately $38,722,000, state net operating loss
carryforwards of $44,740,000 and tax credits of $1,907,000. These net operating
losses and credit carryforwards are available to reduce Federal, state and local
income tax by approximately $17,272,000 (net operating losses of $15,365,000 and
tax credits of $1,907,000). These net operating losses and credit carryforwards
expire between 2002 and 2022 with the substantial portion of these expiring
after 2019. In addition, at February 1, 2003, temporary differences of
$2,813,000 existed representing future income tax deductions. Management cannot
be assured that the deferred income tax assets related to these temporary
differences and carryforwards will be fully utilized or realized. Accordingly, a
valuation allowance of $17,995,000 has been provided against the net deferred
income tax asset as of February 1, 2003. This balance represents a change to
lower the net deferred income tax asset by $7,904,000 between February 2, 2002
and February 1, 2003. During fiscal 2002 and 2001, this valuation allowance was
increased by $7,904,000 and $10,091,000, respectively. The increase to the
valuation allowance in 2002 includes $2,400,000 related to previously recorded
deferred tax assets.
NOTE F - 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 1, 2003 for non-cancelable
leases (excluding contingent rentals, but including those which may qualify for
early termination) are approximately as follows:
Fiscal Year Stores Other Total
----------- ----------- ------------ -----------
2003 $26,151,000 $ 959,000 $27,110,000
2004 22,111,000 307,000 22,418,000
2005 16,250,000 57,000 16,307,000
2006 11,753,000 5,000 11,758,000
2007 8,977,000 - 8,977,000
Thereafter 12,867,000 - 12,867,000
----------- ------------ -----------
Total $98,109,000 $ 1,328,000 $99,437,000
=========== ============ ===========
Total rental expense for operating leases was as follows:
Fiscal Year Ended
----------------------------------------------------------
February 1, February 2, February 3,
2003 2002 2001
----------- ----------- -----------
Minimum rentals $29,115,000 $28,077,000 $27,336,000
Contingent rentals 7,434,000 6,882,000 6,348,000
----------- ----------- -----------
$36,549,000 $34,959,000 $33,684,000
=========== =========== ===========
NOTE G - Employee Benefits, Shareholders' Rights and Warrants
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 1, 2003, a total of 107,000 shares of
common stock were reserved for issuance under the 1991 Plan.
The Company has a Non-Employee Director Stock Option Plan (the "1995 Plan")
which provides for annual grants to non-employee members of the Company's 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 1, 2003, 1,000 shares of common
stock were reserved for issuance under the 1995 Plan.
In October 2002, the Company adopted deminimis stock option plans which provide
for grants to employee executives (the "deminimis management plan") and to
non-employee members of the Company's Board of Directors (the "deminimis
directors plan"). To date, no options have been awarded from these plans. At
February 1, 2003, 17,000 shares and 8,000 shares of common stock were reserved
for issuance under the deminimis management plan and deminimis directors plan,
respectively.
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 2002 Fiscal 2001 Fiscal 2000
----------------------------------------------------------------------------------
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 year 351,050 $10.79 432,171 $13.45 376,404 $15.26
Options granted 40,145 $ 1.74 65,092 $ 3.13 120,940 $ 8.93
Options exercised -- $ -- -- $ -- (1,429) $ 8.54
Options cancelled (83,052) $14.61 (146,213) $15.24 (63,744) $15.68
-------- --------- --------
Outstanding at end of year 308,143 $ 7.58 351,050 $10.79 432,171 $13.45
========= ========= =========
Exercisable at end of year 206,547 180,317 244,930
========= ========= =========
Weighted average fair value of
options granted during the year (see
below) $ 1.23 $ 2.00 $ 6.76
The following table summarizes information about stock options outstanding at
February 1, 2003:
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
----------------------- ----------- ------------ ------------ --------- -------------
$ 0.41 to $ 2.34 38,145 6.3 $ 1.98 -0- $ 2.18
$ 2.65 to $ 3.15 71,138 7.2 $ 3.06 47,817 $ 3.04
$ 3.18 to $11.49 88,932 6.4 $ 8.17 65,121 $ 7.81
$ 11.92 to $15.31 82,961 5.5 $ 13.73 69,841 $ 13.65
$ 15.64 to $52.21 26,967 4.7 $ 18.32 23,768 $ 18.67
----------- ----------
308,143 6.3 $ 7.58 206,547 $ 8.24
=========== ==========
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 1, 2003, the Company
awarded 2,000 shares of common stock which had a fair value at the date of the
grant of $3,000. 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 $3,000 and
$2,000 was charged to earnings in fiscal 2002 and 2001, respectively. Forfeiture
of certain shares of restricted stock resulted in a credit to earnings of $2,000
in fiscal 2000. At February 1, 2003, 12,000 shares were available for issuance.
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 years ended February 1, 2003 and 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 each in fiscal 2002, 2001 and
fiscal 2000. At February 1, 2003, 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 $252,000,
$289,000 and $348,000 in fiscal 2002, 2001 and 2000, 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 $54,000, $51,000 and $30,000 in
fiscal 2002, 2001 and 2000, respectively) 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
2002, 2001 and 2000, respectively.
Warrants: During 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. The Company issued no warrants in fiscal 2002 or fiscal 2000.
NOTE H - Related Party Transactions
During fiscal 2001 and May 2002, the Company entered into loan agreements with
its Senior Vice President and Chief Financial Officer totaling $60,000. During
fiscal 2002, the full amount of the principal and interest owed to the Company
under these loan agreements were repaid. As a result, no amounts receivable
remained on the Consolidated Balance Sheet at February 1, 2003 under these
agreements.
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) through May 2008. Approximately
$68,000, $76,000 and $84,000 was charged to interest expense in fiscal 2002,
fiscal 2001 and fiscal 2000, respectively. Approximately $107,000 and $604,000
is included in current liabilities and other noncurrent liabilities,
respectively, at February 1, 2003 for this deferred compensation liability.
Approximately $97,000 and $697,000 was included in current liabilities and other
noncurrent liabilities, respectively, at February 2, 2002.
In addition, the Company had 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 provided for monthly payments of
$6,250 (including interest) through July 2002. Approximately $1,000, $7,000 and
$13,000 was charged to interest expense in fiscal 2002, fiscal 2001 and fiscal
2000, respectively. Because the agreement expired in fiscal 2002, no amounts
were remaining on the Consolidated Balance Sheet at February 1, 2003.
Approximately $37,000 was included in current liabilities, at February 2, 2002
for this deferred compensation liability.
NOTE I - 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. In each of the Company's three fiscal years
presented, there were no dilutive common stock equivalents and, as a result, the
basic average number of shares equals the diluted number of shares in each
period presented.
Common stock equivalents of 418,731, 392,338 and 400,648 for the fiscal years
ended February 1, 2003, February 2, 2002 and February 3, 2001, respectively,
were excluded from the computation of diluted earnings per share because such
common stock equivalents were anti-dilutive.
NOTE J - 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 K - Quarterly Results (Unaudited)
The following is a summary of quarterly results for the fiscal years ended
February 1, 2003 and February 2, 2002 (in thousands except per share data).
Fiscal 2002 Quarters Ended
----------------------------------------------------------
May 4, August 3, November 2, February 1,
2002 2002 2002 2003
----------------------------------------------------------
Net sales $87,310 $90,088 $73,308 $81,065
Gross margin 33,239 33,734 24,577 27,939
Net income (loss) 434 112 (8,024) (7,816)
Net income (loss) per common share - diluted 0.14 0.04 (2.67) (2.60)
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)
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
DIRECTORS OF THE COMPANY
The table below sets forth for each of the Company's directors (based upon
information supplied by him or her), his or her name, age, principal
occupation and business experience for the past five years, length of service
as a director of the Company, and the number of shares, nature of beneficial
ownership and percentage of the outstanding shares of Common Stock
beneficially owned by him or her, all as of May 19, 2003.
Amount and Nature Percentage of
of Beneficial Total Outstanding
Name and Age Principal Occupation Director Since Ownership Shares(1)
- ------------------ ------------------------ -------------- -------------------- --------------
Leonard M. Snyder Executive Chairman and 1998 86,713 (3) 2.85%
55 Chief Executive Officer
(2)
Renee M. Love President and CEO of 2000 10,636 (5) (6) (14)
57 Omega Group Inc. (4)
Laurie M. Shahon President of Wilton 1994 15,490 (6) (8) (14)
51 Capital Group (7)
Malcolm L. Sherman Chairman of Gordon 1993 18,075 (6) (8) (14)
71 Brothers Group Inc. (9)
Robert J. Stevenish President and Chief 2000 7,145 (6) (11) (14)
59 Operating Officer of
Modell's Sporting Goods
(10)
Allan Tofias Consultant and Director 1999 9,574 (6) (13) (14)
73 (12)
(1) Pursuant to Rule 13d-3(d)(1) promulgated under the Securities Exchange
Act of 1934, as amended, percentages have been computed on the
assumption that shares of Common Stock that can be acquired within 60
days of May 19, 2003 upon the exercise of options or the lapse of the
risks of forfeiture under grants of Restricted Stock by a given person
are outstanding, but no other shares similarly subject to acquisition
by other persons are outstanding.
(2) Mr. Snyder was appointed Executive Chairman and interim Chief
Executive Officer on January 15, 2001. Following his election as a
director on June 10, 1998, Mr. Snyder was appointed Non-Executive
Chairman by the Board. From April 16, 1998, until his appointment as
Non-Executive Chairman, he also served as a consultant to the Company.
Mr. Snyder has been a marketing and management consultant since
January 1995. From April 1987 to October 1994, he served as Chairman
and Chief Executive Officer of Lamonts Apparel, Inc., a chain of
approximately 55 family apparel stores. Prior to his tenure at
Lamonts, Mr. Snyder held executive positions with Allied Stores
Corporation (currently Federated Department Stores, Inc.) and Dayton
Hudson Corporation (currently Target). Mr. Snyder also serves as a
member of the board of directors of Harold's Stores, Inc., a chain of
specialty apparel stores, and of Paper Calmenson & Company, a
diversified steel company.
(3) The figure shown includes 35,715 shares subject to presently
exercisable stock options and 18,574 shares of Restricted Stock, of
which 8,572 carry a risk of forfeiture subject to certain conditions.
(4) Ms. Love serves as President and Chief Executive Officer of Omega
Group Inc., a strategic consulting company, which she founded in 1980.
(5) The figure shown includes 3,216 shares subject to presently
exercisable stock options.
(6) The figure shown includes a grant of options to purchase 1,429 shares
granted on June 11, 2002, which options will vest on the business day
prior to the Annual Meeting, provided the director remains a director
at such date.
(7) Since January 1994, Ms. Shahon has served as President of Wilton
Capital Group, which makes principal investments in later stage
venture capital companies and medium-sized management buyouts. Ms.
Shahon also serves as a member of the board of directors of Safelite
Glass Corporation, the largest producer and seller of after-market
automotive glass in the country.
(8) The figure shown includes 10,003 shares subject to presently
exercisable stock options.
(9) Mr. Sherman has served as Chairman of Gordon Brothers Group Inc., a
financial services corporation, since 1993. Mr. Sherman has also
served as Chairman of the board of directors of StethTech Corporation,
a medical devices company, since 1994. Mr. Sherman serves as a
director of Maxwell Shoe Company, a designer and marketer of women's
and children's footwear, and Active International, Inc., a corporate
trading company. Mr. Sherman served from 1996 to 1999 as the Chairman
and Chief Executive Officer of Ekco Group, Inc., a manufacturer and
marketer of branded houseware products, and from 2000 to 2002 as Chief
Executive Officer of SmartBargains, Inc., an Internet retailer.
(10) Since October 2002, Mr. Stevenish has served as President and Chief
Operating Officer of Modell's Sporting Goods, a 94 store chain with
stores in the mid-Atlantic region. From September 2001 to October
2002, Mr. Stevenish served as President and Chief Executive Officer of
Trilegiant Corporation, the largest membership services and loyalty
business in the United States, providing products and services to over
100 million Americans. Trilegiant Corporation is the successor to
Cendant Membership Services Inc. and Cendant Incentives. Trilegiant is
also a successor to Netmarket Group, Inc., where from July 1, 2000 to
September 2001, Mr. Stevenish served as Chairman, President and Chief
Executive Officer. From January 2000 to July 2000, Mr. Stevenish
served as President and Chief Executive Officer of RU4.com, an
Internet company. From June 1997 to January 2000, Mr. Stevenish served
as President and Chief Executive Officer of FEDCO, a mutual benefit
non-profit retail company. FEDCO filed a plan of reorganization under
Chapter 11 of the Bankruptcy Code on July 9, 1999, and emerged from
bankruptcy on December 16, 1999. He is a member of the board of
directors of the International Mass Retail Association and of the
FEDCO charitable foundation of Southern California, and a member of
the board of advisors of Modell's Sporting Goods.
(11) The figure shown includes 2,858 shares subject to presently
exercisable stock options.
(12) Mr. Tofias is a Certified Public Accountant. Since January 1998, his
principal occupation has been as a consultant. He is the founder of
Tofias, P.C. (formerly Tofias, Fleishman, Shapiro & Co., P.C.), one of
the largest regional accounting firms in the Northeast, where he was
the managing shareholder from 1966 to 1995 and chairman of the board
from 1995 to December 1997. Mr. Tofias serves as a member of the board
of directors and as chairman of the audit committee of The Rowe
Companies, which is engaged in the design and manufacture of furniture
and the operation of retail furniture stores. Mr. Tofias served as a
trustee and chairman of the audit committee of Gannett, Welch & Kotler
Mutual Funds until September 2002 when Bank of New York acquired the
funds.
(13) The figure shown includes 4,287 shares subject to presently
exercisable stock options.
(14) Less than one percent (1%).
EXECUTIVE OFFICERS OF THE COMPANY
The table below lists the Company's current executive officers and
describes their business experience.
Name and Age Position with the Company
------------------ ------------------------------------------
Leonard M. Snyder Executive Chairman and Chief Executive Officer (1)
55
Thomas R. Kelly Senior Vice President - Merchandising (2)
57
H. Dane Reynolds Senior Vice President and Chief Financial Officer (3)
52
Ronald C. Swedin Senior Vice President - Store Operations (4)
57
(1) See information under "Directors."
(2) Mr. Kelly joined the Company on October 30, 2000, as Senior Vice
President - Merchandising. From 1995 until 2000, Mr. Kelly served in
senior management positions at Goody's Family Clothing, Inc., a chain of
family specialty stores with annual sales volume in 1999 in excess of $1
billion. At the time of his departure from Goody's, Mr. Kelly was
Executive Vice President and General Merchandise Manager, with
responsibilities for the Merchandise and Planning & Distribution
functions.
(3) Mr. Reynolds joined the Company on April 12, 1999. Prior to joining the
Company, Mr. Reynolds served as Senior Vice-President at Rack Room Shoes,
a retail chain with approximately 340 shoe stores and approximately $400
million in annual sales in 1998, from September 1984 to the end of
January 1999, with responsibility for Finance, Information Systems, Human
Resources, Real Estate, Distribution and Logistics.
(4) Mr. Swedin joined the Company in March 1992 as Vice President - Store
Operations. He was promoted to Senior Vice President - Store Operations
in January 1996.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company during and with respect to its most recent fiscal year,
the Company believes that except for two filings regarding the reacquisition of
a limited number of stock options from Mr. Swedin and Mr. Reynolds in October
and November which should have been filed on Form 4, but were filed on Form 5 on
March 18, 2003, all of its executive officers, directors and persons who may
have been deemed to be greater than 10% stockholders during the year ended
February 1, 2003, have timely made all filings required to be made under Section
16(a) of the Securities Exchange Act of 1934, as amended.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation during fiscal 2002, 2001 and
2000 of each of the Company's Named Executive Officers.
Summary Compensation Table
---------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
Awards
------------------------------------------------- ---------------------------------------------
Other
Annual Restricted Securities All Other
Name and Fiscal Salary Bonus Compensation Stock Underlying Compen-sation
Principal Position Year ($) ($)(1) ($)(2) Awards ($) Options (#) ($)(3)
-------------------------- --------- ------------- ------------- ----------- ------------ ---------------- ---------------
Leonard M. Snyder (4) 2002 500,000 170,000 201,355 43,813 0 24,184
Executive Chairman & 2001 500,000 190,000 90,254 4,023 0 16,405
Chief Executive Officer 2000 19,231 50,000 0 62,341 14,286 0
Thomas R. Kelly (5) 2002 300,000 2,500 0 6,134 2,250 7,347
Senior Vice President - 2001 300,000 0 71,626 0 2,858 4,697
Merchandising 2000 75,000 0 0 0 14,286 0
H. Dane Reynolds 2002 275,000 2,500 104,521 6,134 2,250 12,397
Senior Vice President & 2001 264,192 0 0 0 4,286 10,714
CFO 2000 249,231 0 0 0 4,286 7,943
Ronald C. Swedin 2002 245,000 2,500 0 6,134 2,250 17,314
Senior Vice 2001 245,000 0 0 0 4,286 15,733
President-Store 2000 242,923 0 0 0 4,286 10,172
Operations
(1) There were no bonuses paid for fiscal 2002 under the Company's management
bonus plan since the Company did not achieve the minimum level of
earnings required to pay bonuses. See "Compensation Committee Report On
Executive Compensation." The bonus shown for Mr. Snyder in fiscal 2002
was paid pursuant to his individual Employment Contract, less $10,000,
which Mr. Snyder elected to waive. The remaining bonuses shown were paid
as a part of a cost savings incentive program for the third and fourth
quarters of fiscal 2002.
(2) The amounts shown in this column were paid for reimbursement of taxes
and/or relocation expenses. In respect to Mr. Snyder, this amount also
includes reimbursements for certain travel and living expenses. It also
includes a tax gross-up for a stock award of $26,012, as outlined in his
contract. The Company's top managers also receive certain non-cash
compensation in the form of personal benefits. Although the value of such
compensation cannot be determined precisely, the Company has determined
that such compensation did not exceed $10,000 to any of the Named
Executive Officers during any of fiscal 2002, 2001 or 2000.
(3) "All Other Compensation" for fiscal 2002 includes the following:
o contributions of $1,300 to the Company's 401(k) Plan on behalf of each
of Messrs. Snyder, Reynolds and Swedin to match 2002 pre-tax elective
deferral contributions (included under "Salary") made by each to such
plan;
o contributions of $15,562, $1,450 and $5,074 on behalf of Messrs.
Snyder, Reynolds and Swedin for the Company's contributions under the
deferred compensation plan;
o premium payments of $1,080, $1,944, $1,188, and $1,588 for the benefit
of Messrs. Snyder, Kelly, Reynolds, and Swedin, respectively, in order
to continue a level of life insurance coverage not otherwise available
under the Company's standard life insurance plan;
o premium payments of $504, $4,782 and $2,935 for the benefit of Messrs.
Kelly, Reynolds, and Swedin, respectively, in order to continue a
level of disability coverage not otherwise available under the
Company's standard disability plan;
o medical reimbursements in the amounts of $6,243, $3,366, $2,144 and
$4,884 to each of Messrs. Snyder, Kelly, Reynolds, and Swedin,
respectively; and
o tax gross-ups in the amount of $1,533 to each of Messrs. Kelly,
Reynolds and Swedin to offset income taxes resulting from the award of
restricted stock.
(4) Mr. Snyder became Executive Chairman and Chief Executive Officer on January
15, 2001.
(5) Mr. Kelly joined the Company in October 2000.
Stock Options
The following table sets forth information regarding option grants with respect
to Common Stock made by the Company to the Named Executive Officers during
fiscal 2002.
Option Grants in Last Fiscal Year
Individual Grants
- -------------------------------------------------------------------------------------------------------------------------------
Number of Securities % of Total Options Grant Date
Underlying Options Granted to Employees Exercise Price Expiration Present Value
Granted (#) in 2002 ($/Sh) Date (1) ($)(2)
----------- ------- ------ -------- ------
Name
- -----------------
Leonard M. Snyder -- 0.0% -- -- --
Thomas R. Kelly 2,250 6.8% 1.75 02/28/2012 2,750
H. Dane Reynolds 2,250 6.8% 1.75 02/28/2012 2,750
Ronald C. Swedin 2,250 6.8% 1.75 02/28/2012 2,750
(1) The option plan(s) pursuant to which the options were granted and/or
stock option agreements provide for earlier expiration dates under
certain conditions.
(2) The grant date present value was calculated using the Black-Scholes
option pricing model assuming an expected volatility of 140%, a risk-free
rate of return of approximately 2.5%, a dividend yield of 0%, and an
estimated option life of approximately 1.1 years from the exercisability
date.
Option Exercises
The following table sets forth information with respect to the Named Executive
Officers concerning unexercised options held as of the end of the 2002 fiscal
year. None of the Named Executive Officers exercised options in fiscal 2002.
Aggregated Option Exercises in Last Fiscal Year
and Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at 2002 at 2002 Fiscal
Shares Acquired Value Fiscal Year-End (#) Year-End ($)
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable (1)
------------------- ----------- -------- -------------- -----------------
Leonard M. Snyder 0 0 35,715 / 0 0 / 0
Thomas R. Kelly 0 0 10,001 / 9,393 0 / 0
H. Dane Reynolds 0 0 10,715 / 7,250 0 / 0
Ronald C. Swedin 0 0 9,287 / 4,393 0 / 0
(1) Based on the difference between the option exercise price and $0.43,
the closing price of the Common Stock on NASDAQ on January 31, 2003.
Equity Compensation Plan Information
The following table provides information as of February 1, 2003, with
respect to the Company's compensation plans under which the Company's equity
securities are authorized for issuance:
Number of
securities to be Number of securities
issued upon remaining available for
exercise of Weighted-average future issuance under
outstanding exercise price of equity compensation plans
options, warrants outstanding options, excluding securities
Plan Category and rights warrants and rights ($) already issued
---------------------------------- ----------------- ----------------------- --------------------
Equity compensation plans approved
by stockholders (1) 260,999 8.750 107,743
Equity compensation plans not
approved by stockholders (2) 107,287 4.726 25,000
Total 368,286 7.578 132,743
(1) Consists of 21,847 shares of Common Stock issuable on the exercise of
options granted under the Company's 1988 Stock Option Plan, 194,495
shares under the Company's 1991 Stock Option Plan and 44,657 shares of
Common Stock issuable on the exercise of options granted under the
Company's Directors Stock Option Plan.
(2) Consists of 47,144 shares of Common Stock issuable on the exercise of
options granted under individual inducement plans for awarded to
various officers upon joining the company and 60,143 shares of Common
Stock under warrants to Enhanced Retail Funding, LLC for value
received.
Effective October 11, 2002, the Company adopted the Directors deminimis Plan to
encourage and enable members of the Board to acquire Common Stock in order to
promote a closer identification of their interests with those of the Company and
its stockholders. Under the Directors deminimis Plan, the Compensation Committee
is authorized to award shares or issue options to purchase up to an aggregate of
8,333 shares of Common Stock to members of the Board. The exercise price,
vesting and term of options issued under the Directors deminimis Plan will be
determined by the Compensation Committee at the time of grant.
Effective October 11, 2002, the Company adopted the Management deminimis Plan to
encourage and enable selected senior management employees to acquire shares of
Common Stock in order to promote a closer identification of their interests with
those of the Company and its stockholders. Under the Management deminimis Plan,
the Compensation Committee is authorized to award shares or issue options to
purchase up to an aggregate of 16,667 shares of Common Stock to selected senior
management employees. The exercise price, vesting and term of options issued
under the Management deminimis Plan will be determined by the Compensation
Committee at the time of grant.
EMPLOYMENT CONTRACTS AND DEFERRED COMPENSATION ARRANGEMENTS
All executive officers of the Company are parties to employment contracts with
the Company. The Company entered into an employment contract with Mr. Snyder
effective as of January 15, 2001, regarding his services as Executive Chairman
and interim Chief Executive Officer. (See "Mr. Snyder's Fiscal 2002
Compensation" under "Compensation Committee Report on Executive Compensation"
below.)
The Company entered into an employment agreement with Mr. Reynolds on April 12,
1999, which provides for a minimum term of two years, and, as an inducement for
Mr. Reynolds to join the Company, a grant of an option to purchase 11,429 shares
of Common Stock. The employment contracts of Messrs. Reynolds, Kelly and Swedin
provide for the continuation of base salary for a period of six months after the
date of involuntary termination of employment without cause, with provisions for
up to an additional six months of severance payments if other employment has not
commenced by the end of such six month period. In December 1998, the Board, upon
the unanimous recommendation of the Compensation Committee, approved amendments
to the contracts of the then current executive officers. These amendments
provide that, in the event of a "Change of Control" followed by an "Employment
Event," as such terms are defined in such contracts, severance payments are
extended, all unvested stock options immediately vest and any restrictions on
Restricted Stock lapse.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Decisions on compensation of the Company's executives generally are made by the
Compensation Committee of the Board. Each member of the Compensation Committee
is an "independent" director, as defined in Rule 4200(a)(14) of the NASD's
listing standards. All decisions by the Compensation Committee relating to the
compensation of the Company's executive officers are reviewed by the full Board.
The Compensation Committee is providing the following report.
Compensation Policies Toward Executive Officers
The Company's executive compensation policies are designed to provide incentives
to meet the Company's annual and long-term performance goals, recognize
individual initiative and achievements, and provide competitive levels of
compensation in order to attract and retain qualified executives. The
Compensation Committee annually reviews the Company's corporate performance and
that of its executives and sets target levels of compensation at its discretion.
As a result, the executive officers' actual compensation levels in any
particular year may be above or below those of the Company's competitors,
depending upon Company-wide and individual performance.
The Compensation Committee believes that stock ownership by management and
stock-based performance compensation arrangements are useful tools to align the
interests of management with those of the Company's stockholders. Accordingly,
the Compensation Committee grants options and, in certain cases, stock, to
designated members of the Company's management and provides compensation
packages based in part upon personal and earnings goals.
The Omnibus Budget Reconciliation Act of 1993 denies publicly traded companies
the ability to deduct for federal income tax purposes certain compensation paid
to top executive officers in excess of $1 million per person per annum. The
Compensation Committee intends to administer the Company's executive
compensation programs in such a way that compensation for executive officers
generally will be fully deductible under the Internal Revenue Code of 1986, as
amended, including submitting plans for stockholder approval where necessary and
determining compensation on an objective basis. However, in order to maintain
flexibility to attract and retain qualified executives, the Compensation
Committee may allow for non-deductible compensation.
Executive Officer Compensation
The incentive compensation plan for fiscal 2002 provided for bonuses based upon
individual performance, coupled with corporate performance tied to earnings
before interest, taxes, depreciation and amortization ("EBITDA"). In general,
the approach has been to tie the percentage of bonus attributable to corporate
performance to each individual's level of responsibility and potential impact on
such corporate performance. A three-tier bonus structure was adopted for fiscal
2002, with a minimum of $5,000,000 in EBITDA required before any bonus could be
earned by an executive officer. The Compensation Committee set a threshold of
$9,000,000 in EBITDA for 100% maximum bonuses to be paid. Performance goals are
set at the beginning of each fiscal year and communicated to the participating
members of the Company's management. Based upon actual EBITDA in fiscal 2002,
the Company did not meet the corporate performance component for bonuses in
fiscal 2002; accordingly, no bonus awards were made to Named Executive Officers
under this plan. A separate incentive plan was developed for the third and
fourth quarters to focus on cost savings as compared to budgeted expenses. This
program paid out $2,500 to each Messrs. Reynolds, Kelly and Swedin. Mr. Snyder
received $170,000 pursuant to his employment agreement, as amended, during
fiscal 2002. While the agreement was for $180,000, Mr. Snyder unilaterally
elected to waive $10,000 of this amount.
Mr. Snyder's Fiscal 2002 Compensation
At the request of the Board, and pursuant to an amendment of his contract
effective February 2, 2002, Mr. Snyder agreed to serve in the capacity of
Chairman and Chief Executive Officer through fiscal 2002. Such contract, as
revised, provides for:
o a base salary commensurate with that for fiscal 2001 of $500,000 per annum;
o right to participate in the Company's 2002 bonus plan for executives, with a
minimum guaranteed bonus of $180,000;
o a grant of 25,000 shares of Common Stock
with vesting on a date to be set by the Compensation Committee, which grant
may be made from stock previously bought back by the Company under its Stock
Repurchase Program;
o a tax cash gross-up equal to the greater of $25,000 or 33 1/3% of the value of
such shares;
o continuation of certain living and travel expenses;
o payment of any base salary, minimum guaranteed bonus, and a
tax cash gross-up on restricted stock due for the remaining term of the
contract, plus a lump sum payment of $250,000 in the event of termination
"without cause;" and
o in the event of an "Employment Event" arising from a "Change of Control", as
such terms are defined in his employment contract, a lump sum payment
of $750,000, together with the balance payable for the remainder of his term
under such employment contract and any amount unpaid as of such date with
respect to the minimum guaranteed bonus and tax gross-up on Mr. Snyder's stock
grant.
o the appointment to the position of Non-Executive Chairman upon appointment of
a new Chief Executive Officer.
Compensation Committee
Laurie M. Shahon, Chairman
Renee M. Love
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
Among One Price Clothing Stores, Inc., Russell 2000
Index and NASDAQ Retail Trade Stock Index
Performance Graph
The following graph compares the cumulative total stockholder return on the
Common Stock for the last five fiscal years with cumulative total returns of the
Russell 2000 Index (a broad equity market index) and the NASDAQ Retail Trade
Stock Index (an industry index). The stock performance shown in the graph below
is not necessarily indicative of future price performance.
The Performance Graph assumes the investment of $100 on December 31, 1997, and
the reinvestment of any and all dividends.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
$ 300 ______________________________________________________
| O |
| |
| |
| |
250 |______________________________________________________|
| |
| |
| |
| |
200 |______________________________________________________|
| |
| |
| |
| O |
150 |______________________________________________________|
| |
| |
| N R R |
| R |
100 X__________R__________N________________________________|
| N R
| |
| N N
| |
50 |________________________________O_____________________|
| |
| O |
| |
| |
0 |__________|__________|__________|__________|__________O
1997 1998 1999 2000 2001 2002
O = One Price Clothing Stores, Inc.
N = Nasdaq Retail Trade Stocks
R = Russell 2000 Index
X = All indexes (initial investment of $100)
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 19, 2003, except as otherwise noted,
information regarding the persons known by the Company to own beneficially more
than five percent of the outstanding shares of the Common Stock. Information
regarding security ownership of individual directors is included under
"Election of Directors" below and information regarding security ownership of
management is included under "Security Ownership of Management" below. Unless
otherwise indicated in the notes to the table, the Company believes
that the persons named in the table have sole voting and dispositive power with
respect to all of the shares of Common Stock shown as beneficially owned by
them.
Name and Address Amount and Nature Percentage of Total
of Beneficial Owner of Beneficial Ownership Outstanding Shares
- ------------------- ----------------------- ------------------
Henry D. Jacobs, Jr. 496,629 (1) 16.52%
320 Dale Drive
Spartanburg, SC 29307
FMR Corp. 293,986 (2) 9.78%
82 Devonshire Street
Boston, MA 02109
Ashraf Adhi 232,705 (3) 7.74%
Mohammad Ayub Sorathia
Muhammad Munaf Atara
1950 Sugar Lake Court
Lawrenceville, GA 30043-5050
Dimensional Fund Advisors Inc. 197,143 (4) 6.56%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
(1) Mr. Jacobs is a founder of the Company and the former Chairman of the
Board. He retired as Chairman on June 10, 1998. The information regarding
ownership of shares was derived from the Schedule 13G filed by Mr. Jacobs
with the SEC on February 12, 2002. According to such Schedule 13G, Mr.
Jacobs has sole voting and dispositive power with respect to 449,486
shares. The figure shown includes 47,143 shares owned by Mr. Jacobs'
spouse, as to which he may be deemed to share voting and dispositive power
but disclaims beneficial ownership.
(2) The information regarding ownership of shares was derived from the Schedule
13G of FMR Corp. ("FMR") dated February 14, 2002. The Schedule 13G states
that Fidelity Management & Research Company ("Fidelity") is a wholly owned
subsidiary of FMR and an investment advisor to various investment
companies, including the Fidelity Low-Priced Stock Fund ("Fidelity Fund"),
and that Fidelity Fund owns all of the indicated shares. According to the
Schedule 13G, Fidelity Fund's Board of Trustees has sole voting power with
respect to all of the indicated shares. Each of Mr. Edward C. Johnson III,
FMR, through control of Fidelity, and the Fidelity Fund has power to
dispose of all of the shares indicated. Through ownership of common stock
of FMR and a shareholder's agreement, members of the Johnson family
(including Ms. Abigail Johnson) may be deemed to form a controlling group
with respect to FMR.
(3) The information regarding ownership of shares of this group of three
individual filers was derived from the Schedule 13G dated January 22, 2002.
This Schedule 13G states that the total shares owned are owned beneficially
by each member individually, and that such shares were acquired and are
held in the ordinary course of business and were not acquired and are not
held for the purpose of or with the intent of changing or influencing the
control of the issuer of the securities and were not acquired and are not
held in connection with or as a participant in any transaction having such
purpose or effect. Certain members of this group, including Mr. Muhammad
Munaf Atara, have supplied merchandise to the Company for several years. In
fiscal 2001 purchases from such group, including Mr. Atara, were not
material.
(4) The information regarding ownership of shares was derived from the Schedule
13G of Dimensional Fund Advisors Inc. ("Dimensional") dated February 3,
2003. All of the indicated shares are owned by advisory clients of
Dimensional, none of which to the knowledge of Dimensional owns more than
5% of the Common Stock. In its role as investment adviser or manager,
Dimensional possesses voting and/or dispositive power with respect to all
of the indicated shares. Dimensional disclaims beneficial ownership of all
of the indicated shares.
SECURITY OWNERSHIP OF MANAGEMENT
The following table provides information as of May 19, 2003, regarding stock
ownership by the Chief Executive Officer and each other executive officer
required to be disclosed in the "Summary Compensation Table" of this Proxy
Statement ("Named Executive Officers") and of all current directors and
executive officers of the Company, as a group:
Amount and Nature
of Beneficial Percentage of Total
Name Principal Occupation Ownership Outstanding Shares (1)
- --------------- -------------------- ------------- ----------------------
Leonard M. Snyder Executive Chairman and Chief 86,713 (3) 2.85%
Executive Officer (2)
Thomas R. Kelly Senior Vice President - 20,209 (4) (8)
Merchandising
H. Dane Reynolds Senior Vice President & Chief 22,923 (5) (8)
Financial Officer
Ronald C. Swedin Senior Vice President - Store 23,894 (6) (8)
Operations
All directors and executive 214,659 (7) 7.3%
officers as a group (9 persons)
- ---------------------
(1) Pursuant to Rule 13d-3(d)(1) promulgated under the Securities Exchange Act
of 1934, as amended, percentages have been computed on the assumption that
shares of Common Stock that can be acquired within 60 days of May 19, 2003
upon the exercise of options or the lapse of the risks of forfeiture under
grants of Restricted Stock by a given person are outstanding, but no other
shares similarly subject to acquisition by other persons are outstanding.
(2) See "Directors."
(3) The figure shown includes 35,715 shares subject to presently exercisable
stock options and 18,574 shares of Restricted Stock, of which 8,572 shares
carry a risk of forfeiture subject to certain conditions.
(4) This figure includes 13,680 shares of Common Stock subject to stock options
presently exercisable.
(5) This figure includes 17,965 shares of Common Stock subject to stock options
presently exercisable. On October 22, 2002, Mr. Reynolds voluntarily agreed
to forfeit options to purchase 4,286 shares of Common Stock for the sum of
$324.88 as a response to an option buyback offer approved by the
Compensation Committee.
(6) This figure includes 13,680 shares of Common Stock subject to stock options
presently exercisable. On November 22, 2002, Mr. Swedin voluntarily
forfeited certain options to purchase 9,859 shares of Common Stock with no
remuneration for such forfeitures.
(7) This figure includes 111,407 shares of Common Stock subject to stock
options presently exercisable and 7,145 shares granted pursuant to stock
options that vest on the business day prior to the Annual Meeting, subject
to certain conditions.
(8) Less than one percent (1%).
The executive officers of the Company are appointed by the Board and serve at
the pleasure of the Board.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPENSATION COMMITTEE INTERLOCKS AND INTERESTED PARTY TRANSACTIONS
Ms. Shahon and Ms. Love served on the Compensation Committee of the
Board during fiscal 2002. Ms. Shahon serves as Chairman of this committee. Mr.
Snyder is Chairman of the Board and is also Chief Executive Officer of the
Company. No person serving on the Compensation Committee or on the Company's
Board of Directors is an executive officer of another entity for which an
executive officer of the Company serves on such entity's board of directors or
compensation committee.
On April 16, 1998, Mr. Snyder was appointed to the Board and entered
into an agreement with the Company to serve initially as a consultant to the
Board, with compensation for such consulting position set at $130,000 per year.
Pursuant to this agreement, and following his election to the Board by the
stockholders, his consultancy ended and the Board appointed him Non-Executive
Chairman, with annual compensation for all Board-related activities of $150,000,
together with a bonus based upon pre-tax earnings of the Company. As an
inducement to entering into his agreement with the Company, Mr. Snyder received
an option to purchase 22,857 shares of Common Stock at an exercise price of
$6.20 per share, the average of the high and low prices of the stock as of the
date of grant, April 16, 1998. This option is wholly vested. In December 1998,
Mr. Snyder's agreement with the Company was amended to provide for an extension
of severance benefits upon the occurrence of a "Change of Control" coupled with
a "Trigger Event," as such terms are defined in such agreement. This amendment
extends such severance from a period of 12 months to 24 months. In addition,
should a "Change of Control" occur, all of Mr. Snyder's options not yet vested
would vest immediately and the risk of forfeiture under his Restricted Stock
grants would expire. In 1999, Mr. Snyder's agreement was amended to permit him
to participate in the Company's Director Stock Option Plan, and in May 2000, Mr.
Snyder's agreement was further amended to permit him to participate in a
five-tier bonus plan similar to the Company's Executive Bonus Plan.
Following Mr. Snyder's appointment as Executive Chairman and interim
Chief Executive Officer on January 15, 2001, the Company substantially revised
its letter of understanding regarding Mr. Snyder's services as Non-Executive
Chairman. This revised letter of understanding, which is dated February 7, 2001,
provides that upon appointment of a permanent Chief Executive Officer, Mr.
Snyder, in his capacity as Chairman, will receive: (i) compensation totaling
$240,000 per annum, with a bonus to be determined; (ii) a termination payment of
$250,000 if relieved of his duties other than as provided for in such letter of
understanding; and (iii) a lump sum payment of $500,000 if he is relieved of his
duties following a "Change of Control" as defined in this letter of
understanding. This letter of understanding was extended for two additional
years by an amendment dated February 13, 2002.
ITEM 14. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's reports filed
pursuant to the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules, regulations and related forms, and
that such information is accumulated and communicated to the Company's chief
executive officer and chief financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
Within the 90 days prior to the date of this report on Form 10-K, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's chief executive officer and
chief financial officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the Company's chief executive officer and
chief financial officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required to be
included in the Company's periodic filings with the Securities and Exchange
Commission.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect the Company's internal controls
subsequent to the date the Company carried out this evaluation. Accordingly, no
corrective actions have been required to be taken.
PART IV
ITEM 15. 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 1, 2003 and
February 2, 2002
Consolidated Statements of Operations for the fiscal years
ended February 1, 2003, February 2, 2002 and February 3,
2001
Consolidated Statements of Shareholders' Equity for the
fiscal years ended February 1, 2003, February 2, 2002 and
February 3, 2001
Consolidated Statements of Cash Flows for the fiscal years
ended February 1, 2003, February 2, 2002 and February 3,
2001
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 58 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: May 19, 2003 /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: May 23, 2003 /s/ H. Dane Reynolds
---------------------------------
H. Dane Reynolds
Senior Vice President and Chief
Financial Officer (principal
financial officer and principal
accounting officer)
Date: May 23, 2003 /s/ Laurie M. Shahon
---------------------------------
Laurie M. Shahon
Director
Date: May 23, 2003 /s/ Malcolm L. Sherman
---------------------------------
Malcolm L. Sherman
Director
Date: May 23, 2003 /s/ Allan Tofias
---------------------------------
Allan Tofias
Director
Date: May 23, 2003 /s/ Renee M. Love
---------------------------------
Renee M. Love
Director
Date: May 23, 2003 /s/ Robert J. Stevenish
---------------------------------
Robert J. Stevenish
Director
CERTIFICATIONS:
I, Leonard M. Snyder, certify that:
1. I have reviewed this annual report on Form 10-K of One Price
Clothing Stores, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 23, 2003
/s/ Leonard M. Snyder
Leonard M. Snyder
Chief Executive Officer
I, H. Dane Reynolds, certify that:
1. I have reviewed this annual report on Form 10-K of One Price
Clothing Stores, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 23, 2003
/s/ H. Dane Reynolds
H. Dane Reynolds
Chief Financial Officer
ONE PRICE CLOTHING STORES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E
------------------------- ---------------------- ------------------------------------------ ------------------- --------------
DESCRIPTION ADDITIONS
------------------------------------------
Balance at Charged to Charged Deduction - Balance
Beginning of Cost & to Other- Describe (1) at End of
Period Expenses Describe Period
------------------------- ---------------------- ------------------------------------------ ------------------- --------------
FISCAL YEAR ENDED
FEBRUARY 1, 2003
Allowance for
doubtful accounts $ 128,000 $ 532,000 $ 548,000 $ 112,000
========== ========== ========== ===========
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
FEBRUARY 1, 2003
Valuation allowance on
net deferred tax assets $10,091,000 $7,904,000 $ - $17,995,000
=========== ========== ========== ===========
FISCAL YEAR ENDED
FEBRUARY 2, 2002
Valuation allowance on
net deferred tax assets $ - $10,091,000 $ - $10,091,000
========== =========== ========== ===========
FISCAL YEAR ENDED
FEBRUARY 3, 2001
Valuation allowance on
net deferred tax assets $ - $ - $ - $ -
========= =========== ========== ==========
(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 the 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 the 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) 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
the Exhibit of the 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 19, 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 the 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 the 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 the 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: Incorporated by reference to Exhibit 4(d)(11) to the
Registrant's Annual Report on Form 10-K for the year ended February 2, 2002
(File No. 0-15385) ("the 2001 Form 10-K").
4(d)(12) Amendment Number Twelve to the Continuing Commercial Credit 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 25, 2002: Incorporated by reference to Exhibit 10(a) to the
Registrant's Quarterly report on Form 10-Q for the quarter ended November
2, 2002 (File No. 0-15385) (the "October 2002 Form 10-Q").
4(d)(13)+ Amendment Number Thirteen to the Continuing Commercial Credit
Agreement by and between Congress Financial Corporation (Southern) as
Lender and the Registrant and One Price Clothing of Puerto Rico, Inc. as
Borrowers dated April 2, 2003.
4(d)(14)+ Amendment Number Fourteen to the Continuing Commercial Credit
Agreement by and between Congress Financial Corporation (Southern) as
Lender and the Registrant and One Price Clothing of Puerto Rico, Inc. as
Borrowers dated May 16, 2003.
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) Amended and Restated 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 21,
2002: Incorporated by reference to Exhibit 10(a) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended August 3, 2002 (File
No. 0-15385) (the "July 2001 Form 10-Q").
4(g)(1) Amendment Number One to the Amended and Restated 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 1, 2002: Incorporated by reference to
Exhibit 10(b) to the October 2002 Form 10-Q.
4(g)(2)+ Amendment Number Two to the Amended and Restated 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 January 30, 2003.
4(g)(3)+ Amendment Number Three to the Amended and Restated 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 30, 2003.
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, 1988 (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(c)(2) Directors Deminimis Stock Incentive Plan dated October 11, 2002:
Incorporated by reference to Exhibit 10(c) to the Registrant's Quarterly
report on Form 10-Q for the quarter ended November 2, 2002 (File No.
0-15385) (the "October 2002 Form 10-Q").
10(c)(3) Management Deminimis Stock Incentive Plan dated October 11, 2002:
Incorporated by reference to Exhibit 10(d) to the Registrant's Quarterly
report on Form 10-Q for the quarter ended November 2, 2002 (File No.
0-15385) (the "October 2002 Form 10-Q").
10(d)* 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(e)* 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(f)* 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(g)* 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(g)(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(g)(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 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(h)* 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(i)* 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(i)(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(i)(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: Incorporated by reference to
Exhibit 4(d)(11) to the 2001 Form 10-K.
10(j)* 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(j)(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(j)(2)* Amendment Number Two dated February 3, 2002 to the Employment
Agreement by and between the Registrant and Leonard M. Snyder :
Incorporated by reference to Exhibit 4(d)(11) to the 2001 Form 10-K.
10(k)* 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(l)* 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(m)* 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(n)* Employment Agreement dated October 20, 2000 between the Registrant and
Thomas R. Kelly: Incorporated by reference to Exhibit 10(a) to the October
2000 Form 10-Q.
10(o)* 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(p)* 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(q)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(r)(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 : Incorporated by
reference to Exhibit 4(d)(11) to the 2001 Form 10-K.
10(r)(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(r)(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: Incorporated by reference to Exhibit 4(d)(11)
to the 2001 Form 10-K.
10(r)(4) Common Stock Warrant Agreement dated January 31, 2002 by and between
the Registrant and Enhanced Retail Funding, LLC: Incorporated by reference
to Exhibit 4(d)(11) to the 2001 Form 10-K.
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
99.1 Certification Required By Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Required By Section 906 of the Sarbanes-Oxley Act of 2002.
- ---------------------------------------
* Denotes a management contract or compensatory plan or agreement.
+ Filed herewith.
(b) Reports on Form 8-K.
On January 14, 2003, the Company filed Form 8-K to report that
the Company's listing for its outstanding common shares transferred
from the Nasdaq National Market to the Nasdaq SmallCap Market
effective January 15, 2003.
On April 8, 2003 the Company filed Form 8-K to report that the
Company issued a press release announcing its earnings for the
three-month and twelve-month periods ended February 1, 2003.
Financial statements were attached. In addition, the Company
announced the amendment of its revolving credit facility with
Congress Financial (Southern), an affiliate of Wachovia
Corporation.
(c) Exhibits.
The response to this portion of Item 15 is submitted as a separate
section of this report.
(d) Financial Statement Schedules.
The response to this portion of Item 15 is submitted as a separate
section of this report.