2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 30,
2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to
__________
Commission File No. 1-10892
HAROLD'S STORES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1308796
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation or
organization)
5919 Maple Avenue (214) 366-0600
Dallas, Texas 75235 (Registrant's telephone
(Address of principal number,
executive offices) including area code)
(Zip Code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act)
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of November 30, 2004, the registrant had 6,221,292 shares of Common
Stock outstanding.
Harold's Stores, Inc. & Subsidiaries
Index to
Quarterly Report on Form 10-Q
For the Period Ended October 30, 2004
Part I - FINANCIAL INFORMATION Pag
e
Item Financial Statements
1.
Consolidated Balance Sheets - October 30, 2004 (unaudited) and 3
January 31, 2004
Consolidated Statements of Operations -
Thirteen and Thirty-Nine Weeks ended October 30, 2004
(unaudited) and 5
November 1, 2003 (unaudited)
Consolidated Statements of Cash Flows -
Thirty-Nine Weeks ended October 30, 2004 (unaudited) and 6
November 1, 2003 (unaudited)
Notes to Interim Consolidated Financial Statements 7
Item Management's Discussion and Analysis of Financial Condition and 12
2. Results of Operations
Item Quantitative and Qualitative Disclosure About Market Risk 16
3.
Item Controls and Procedures 16
4.
Part II - OTHER INFORMATION
Item Legal Proceedings 16
1.
Item Unregistered Sales of Equity Securities and Use of Proceeds 16
2.
Item Defaults Upon Senior Securities 16
3.
Item Submission of Matters to a Vote of Security Holders 16
4.
Item Other Information 17
5.
Item Exhibits and Reports on Form 8-K 17
6.
Signatures 18
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
October January
30, 31,
2004 2004
(Unaudite
d)
Current assets:
Cash and cash equivalents $ 931 $
1,118
Trade accounts receivable, less
allowance for doubtful accounts 8,184 7,120
of $200 as of October 30 and
January 31
Note and other receivables 196 109
Merchandise inventories 20,874 17,713
Prepaid expenses 1,831 1,130
Total current assets 32,016 27,190
Property and equipment, at cost 31,225 30,037
Less accumulated depreciation (22,051) (20,064)
and amortization
Net property and equipment 9,174 9,973
Total assets $41,190 $37,163
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIT
(In Thousands Except Share Data)
October January
30, 31,
2004 2004
(Unaudite
d)
Current liabilities:
Accounts payable $ 6,559 $ 7,526
Redeemable gift certificates 658 926
Accrued payroll expenses and 982 890
bonuses
Accrued rent expense 184 102
Current maturities of long-term 22,480 16,858
debt (See Note 5)
Total current liabilities 30,863 26,302
Accrued rent expense, net of 1,268 1,247
current maturities
Long-term debt, net of current 1,239 1,358
maturities
Total liabilities 33,370 28,907
Commitments and contingencies
(See Note 7)
Convertible preferred stock of
$.01 par value
Amended Series 2001-A,
authorized 600,000 shares,
issued and outstanding 335,032 6,701 6,627
as of October 30 and 331,631 as
of January 31
Series 2002-A, authorized
300,000 shares, issued and
outstanding 215,420 as of 4,286 4,133
October 30 and 208,803 as of
January 31
Series 2003-A, authorized
100,000 shares, issued and
outstanding 54,236 as of October 5,392 5,151
30 and 52,024 as of January 31
2001-A and 2002-A entitled to
$20.00 per share, and 2003-A
entitled to $100.00 per share,
in each case plus accrued but
unpaid dividends in liquidation
16,379 15,911
Stockholders' deficit:
Common stock of $.01 par value
Authorized 25,000,000 shares;
issued and outstanding
6,222,497 as of October 30 62 62
and 6,209,147 as of January
31
Additional paid-in capital 34,468 34,449
Accumulated deficit (43,087) (42,164)
(8,557) (7,653)
Less: Treasury stock of 205 shares
as of October 30 and January 31 (2) (2)
recorded at cost
Total stockholders' deficit (8,559) (7,655)
Total liabilities and $41,190 $37,163
stockholders' deficit
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Data)
13 Weeks Ended 39 Weeks Ended
October November October November
30, 1, 30, 1,
2004 2003 2004 2003
(Unaudited)
Sales $3,110 $23,863 $66,569 $68,118
Costs and expenses:
Costs of goods sold (including
occupancy and central buying
expenses, exclusive of items 14,728 14,776 42,999 46,033
shown separately below)
Selling, general and 6,680 6,947 20,349 20,325
administrative expenses
Depreciation and amortization 772 909 2,324 2,817
Store closing expenses - - - 1,630
Interest expense 281 221 699 650
Total costs and expenses 22,461 22,853 66,371 71,455
Income (loss) before income 649 1,010 198 (3,337)
taxes
Provision (benefit) for - - - -
income taxes
Net income (loss) $ $ 1,010 $ $(3,337)
649 198
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCKHOLDERS:
Net income (loss) $ $ 1,010 $ $(3,337)
649 198
Less: Preferred stock
dividends and accretion of 377 381 1,122 1,083
preferred stock issuance
costs
Net income (loss) applicable
to common stockholders $ $ $ $(4,420)
272 629 (924)
Net income (loss) per common
share:
Basic $0.04 $0.10 $(0.15) $(0.72)
Diluted $0.04 $0.06 $(0.15) $(0.72)
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
39 Weeks Ended
October November
30, 1,
2004 2003
(Unaudited)
Cash flows from operating
activities:
Net income (loss) $ $
198 (3,337)
Adjustments to reconcile net
income (loss) to net cash used
in operating activities:
Depreciation and amortization 2,324 2,817
Gain on sale of assets (51) (11)
Changes in assets and
liabilities:
Increase in trade and other (1,162) (1,442)
accounts receivable
Increase in merchandise (3,161) (651)
inventories
Increase in prepaid expenses (701) (21)
Decrease in accounts payable (825) (3,240)
Decrease in accrued expenses (73) (376)
Net cash used in operating (3,451) (6,261)
activities
Cash flows from investing
activities:
Acquisition of property and (1,525) (1,045)
equipment
Proceeds from disposal of 51 77
property and equipment
Issuance of note receivable (2) -
Payments received for notes 13 9
receivable
Net cash used in investing (1,463) (959)
activities
Cash flows from financing
activities:
Payments on long-term debt (210) (1,201)
Advances on revolving line of 77,059 78,424
credit
Payments on revolving line of (71,346 (74,429)
credit )
Proceeds from sale of preferred - 4,986
stock
Proceeds from issuance of common 19 -
stock
Preferred stock dividends (795) (618)
Net cash provided by financing 4,727 7,162
activities
Decrease in cash (187) (58)
Cash and cash equivalents at 1,118 483
beginning of period
Cash and cash equivalents at end $ $
of period 931 425
Non-cash investing and financing
activities:
Issuance of preferred stock in 142 -
lieu of rent
Preferred stock dividends paid in 280 389
shares of preferred stock
HAROLD'S STORES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
October 30, 2004 and November 1, 2003
(Unaudited)
1. Unaudited Interim Periods
In the opinion of the Company's management, all adjustments
(all of which are normal and recurring) have been made which are
necessary to fairly state the financial position of the Company
as of October 30, 2004 and the results of its operations and cash
flows for the thirteen week and thirty-nine week periods ended
October 30, 2004 and November 1, 2003. The results of operations
for the thirteen week and thirty-nine week periods ended October
30, 2004 and November 1, 2003 are not necessarily indicative of
the results of operations that may be achieved for the entire
year. For further information, refer to the consolidated
financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended January
31, 2004.
2. Definition of Fiscal Year
The Company has a 52-53 week year which ends on the Saturday
closest to January 31. The period from February 1, 2004 through
January 29, 2005, has been designated as 2004.
3. Basis of Presentation
The consolidated financial statements include the accounts
of the Company and its subsidiaries, all of which are wholly
owned. All significant intercompany accounts and transactions
have been eliminated.
4. Impact of New Accounting Pronouncements
On May 15, 2003, the FASB issued SFAS No. 150, "Accounting
for Certain Financial Instruments with Characteristics of both
Liabilities and Equity". SFAS No. 150 establishes standards for
classifying and measuring as liabilities certain financial
instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. Instruments that
are indexed to and potentially settled in an issuer's own shares
that are not within the scope of SFAS No. 150 remain subject to
existing guidance under EITF 00-14 "Accounting for Certain Sales
Incentives". SFAS No. 150 generally requires liability
classification for two broad classes of financial instruments:
1. instruments that represent, or are indexed to, an obligation
to buy back the issuer's shares, regardless of whether the
instrument is settled on a net-cash or gross physical basis, or
2. obligations that can be settled in shares but meet one of the
following conditions: derive their value predominately from some
other underlying obligation, have a fixed value, or have a value
to the counterparty that moves in the opposite direction as the
issuer's shares. SFAS No. 150 must be applied immediately to
instruments entered into or modified after May 31, 2003 and to
all other instruments that exist as of the beginning of the first
interim financial reporting period beginning after June 15, 2003.
The Company adopted this standard August 3, 2003, and this
adoption did not have a material impact on the Company's
consolidated financial position.
5. Long-term Debt
The Company's original three-year credit facility with Wells
Fargo Retail Finance II, LLC, ("WFRF") was entered into on
February 5, 2003 and provided the Company with a maximum
available credit limit of $22 million. This agreement was
scheduled to expire in February 2006. As discussed below, on
April 29, 2004, the maximum available credit line was increased
to the lesser of $25 million or $22 million plus outstanding
participant advances, and the expiration date was extended to
February 5, 2007. The credit facility is secured by
substantially all assets of the Company and its subsidiaries and
is subject to a borrowing base calculation based primarily on
inventory and accounts receivable. The facility has two
financial covenants, a minimum excess availability covenant of
$1.35 million and a maximum capital expenditure covenant,
established at $2.75 million for 2004. Interest rates under the
facility are at prime plus 0.5% or LIBOR plus 2.50%, with the
ability to reduce the rate if the Company achieves certain
financial criteria. The balance outstanding on the Company's
line of credit at October 30, 2004 was $22,333,000 which includes
the $4 million outstanding under the bridge facility discussed
below. At October 30, 2004 the Company's availability under the
WFRF line of credit was approximately $3.2 million above the
minimum availability requirement of $1.35 million and the average
interest rate on the credit line was 4.68%.
Subsequent to securing the initial credit facility, the
Company negotiated an increase of $2 million in its total
borrowing availability under its existing credit facility with
WFRF. The Company obtained this increase in order to provide for
additional working capital. The full $2 million was available
for borrowing on July 15, 2003 and has been extended to the
Company by Wells Fargo based upon a loan participation agreement
between Wells Fargo and RonHow, LLC, an entity established in
July 2003 which is owned and controlled directly or indirectly by
Ronald de Waal and W. Howard Lester. Mr. de Waal and Mr. Lester
are both major beneficial owners of the Company's common stock,
and Mr. Lester is also a director of the Company.
In order to achieve additional liquidity, on April 29, 2004,
the Company completed an amendment to the credit facility with
WFRF which increased the Company's borrowing availability under
the facility. The amendment increased the Company's maximum
inventory advance rate cap from 75% to 80% during non-peak times
and from 80% to 85% during peak times. Peak times were amended
to include the eight weeks prior to Easter and the eight weeks
prior to October 1. The increase in advance rates is expected to
increase the availability under the facility by as much as $3
million depending on the level of inventories. Additionally, the
amendment extended the term of the credit facility by one year,
with a new expiration of February 5, 2007. The amendment also
increased the maximum revolver amount from $22 million to the
lesser of $25 million or $22 million plus outstanding participant
advances. Finally, the amendment provided for an additional
increase of $2 million in the Company's borrowing availability
under the facility based upon an increase in the existing loan
participation agreement between WFRF and RonHow, LLC. WFRF will
continue to serve as the lending agent for the Company under the
credit facility, and the principal covenants and conditions
imposed upon the Company pursuant to the WRFR credit facility
agreement have not materially changed. RonHow, LLC's right to
repayment of any advances under the credit facility that are
attributable to its total $4 million participation is generally
subordinate to the repayment rights of the other credit facility
lenders. However, the Company may repay these advances provided
it meets certain conditions, including the maintenance of an
average daily excess availability under the credit facility of at
least $2.5 million for the 30 days prior to and 30 days projected
immediately following the repayment. The average excess
availability requirement is higher than the excess availability
otherwise required of the Company under the credit facility. If
the Company does not repay the new $2 million loan participation
of RonHow during the 18 months subsequent to April 29, 2004,
RonHow will have an option at that time to convert any of the
incremental $2 million not repaid into shares of authorized but
unissued 2003-A Preferred Stock, which will be convertible into
shares of common stock at a price of $2.524 per share, which was
the 20-day average closing price of the Company's common stock
for the period ending immediately before closing of the loan
amendment. Additionally, if the Company has not repaid the
initial $2 million of loan participation by February 2006, the
Company will pay an additional 4% fee per annum on the
outstanding participation amount up to $2 million. This
transaction was approved by the independent directors.
The Company was in compliance with its debt covenants for
the quarter ended October 30, 2004. Although the Company's line
of credit with WFRF does not expire until February 2007, the
Company has classified its borrowings under its line of credit as
current in its consolidated balance sheets due to the terms of
its agreement with the lender. Under the bank agreement, there
is an acceleration clause which potentially allows the bank to
demand immediate payment of all outstanding borrowings upon the
occurrence of a material adverse change in the Company's
operations or financial position. Determination of what
constitutes a material adverse change is at the discretion of the
bank, however, it is subject to reasonableness standards. In
addition, the Company is required to maintain a lock-box
agreement with the bank whereby all cash received is applied
against current borrowings. As a result of these items, the
Company is required to classify its line of credit borrowings as
current as proscribed by EITF 95-22, "Balance Sheet
Classification of Borrowings Outstanding under Revolving Credit
Agreements that include both a Subjective Acceleration Clause and
a Lock-Box Arrangement."
6. Income Taxes
The Company's net operating loss carryforwards will begin to
expire in 2010. During 2002, the Company increased its valuation
allowance to fully provide for all remaining deferred tax assets
because the Company's recent history of operating losses makes
the realization of these assets uncertain. The Company's
valuation allowance as of January 31, 2004 and October 30, 2004,
is equal to 100% of its deferred tax assets.
The ability of the Company to utilize net operating loss
carryforwards to reduce future federal taxable income and federal
income tax of the Company is subject to various limitations under
the Internal Revenue Code of 1986 ("the Code"), as amended. The
utilization of such carryforwards may be limited upon the
occurrence of certain ownership changes, including the issuance
or exercise of rights to acquire stock, the purchase or sale of
stock by 5% stockholders, as defined in the Treasury regulations,
and the offering of stock by the Company during any three-year
period resulting in an aggregate change of more than 50% in the
beneficial ownership of the Company.
In the event of an ownership change (as defined for income
tax purposes), Section 382 of the Code imposes an annual
limitation on the amount of a corporation's taxable income that
can be offset by these carryforwards. The limitation is
generally equal to the product of (i) the fair market value of
the equity of the Company multiplied by (ii) a percentage
approximately equivalent to the yield on long-term tax exempt
bonds during the month in which an ownership change occurs. The
Company's management, in consultation with its tax advisors, has
been assessing the impact its preferred stock issuances had on
the change in the beneficial ownership of the Company, and
whether or not such a change would impact the Company's ability
to utilize its net operating loss carryforwards ("NOLs"). After
thorough review, it was determined in the third quarter of 2004
that a change in ownership had occurred on October 1, 2002, and
that this change resulted in a limitation on the Company's
ability to utilize its NOLs under Section 382 of the Code. As a
result of the limitation, the Company may only utilize $1.4
million per year of its total October 1, 2002 pre-change NOL of
$12.5 million. Any portion of the $1.4 million annual limitation
not utilized in a particular year may be carried over to the next
year and added to that year's limitation. As of October 30,
2004, the Company has generated year-to-date net income of
$198,000. Based on the Company's performance as of October 30,
2004, it is not expected that the NOL limitation will be reached
in the current fiscal year. As a result, the Company anticipates
that taxable income for the current fiscal year will be
completely offset by some or all of the $1.4 million NOL
carryforward limitation.
7. Commitments and Contingencies
The Company is occasionally involved in various claims,
administrative agency proceedings and litigation arising out of
the normal conduct of its business. At October 30, 2004, there
existed only one minor litigation matter. Although the ultimate
outcome of such litigation cannot be predicted, the management of
the Company, after discussions with counsel, believes that the
resulting liability, if any, will not have a material effect upon
the Company's financial position or results of operations.
8. Preferred Stock
On February 28, 2001, the Company executed a definitive
agreement to allow an investor to purchase from the Company
300,000 shares of convertible preferred stock for a total
purchase price of $6 million. Under this preferred stock
agreement, each of the 300,000 initially issued shares of
preferred stock are convertible into common stock of the
Company at a fixed rate of $1.275 per share. The preferred
shares have voting rights equal to the number of common shares
into which they may be converted. Until converted, the
preferred stock is entitled to receive quarterly dividends that
cumulate annually at a rate of 10% per annum, which are reduced
to 8% per annum if the Company's operating income for any
fiscal year ending after February 28, 2001 exceeds $4,735,000.
Dividends were payable 50% in cash and 50% in additional shares
of preferred stock until February 28, 2003 and thereafter are
paid in additional shares of preferred stock or cash as the
holder of the preferred stock may elect. Shares of preferred
stock issued in respect of dividends are convertible into
common stock based upon an average market price of the common
stock as of the respective dividend dates. These preferred
shares are presently redeemable at the option of the Company at
a price equal to the initial purchase price plus cumulated and
accrued but unpaid dividends.
On August 2, 2002, the Company executed a definitive
agreement to allow a group of investors to purchase from the
Company 200,000 shares of Series 2002-A convertible preferred
stock for a total purchase price of $4 million. Under this
preferred stock agreement, each of the 200,000 initially issued
shares of preferred stock are convertible into common stock of
the Company at a fixed rate of $2.72 per share. The preferred
shares have voting rights equal to the number of common shares
into which they may be converted. Until converted, the
preferred stock is entitled to receive quarterly dividends that
cumulate annually at a rate of 8% per annum, which is reduced
to 6% per annum if certain profitability targets are met by the
Company. Dividends were payable 50% in cash and 50% in
additional shares of preferred stock until July 1, 2003 and
thereafter are paid in additional shares of preferred stock or
cash as the holder of the preferred stock may elect. Following
the third anniversary of the original issuance date, the Series
2002-A Preferred Stock is redeemable at the option of the
Company at a price equal to the initial purchase price plus
cumulated and accrued but unpaid dividends.
On February 5, 2003, the Company closed on a $5 million
private equity investment by Inter-Him, N.V., of which Ronald
de Waal is a Managing Director, and W. Howard Lester, a
director of the Company (the "Investors"). The Investors
purchased an aggregate of 50,000 shares of a new series of
preferred stock, designated Series 2003-A Preferred Stock, at a
purchase price of $100.00 per share. Each of the 50,000 shares
of Series 2003-A Preferred Stock initially issued is
convertible into common stock at a fixed rate of $1.15 per
share, and otherwise provides rights and preferences
substantially similar to the Company's existing Series 2002-A
Preferred Stock. The percentage ownership of common stock on
an as-converted basis by Inter-Him and Mr. de Waal is
approximately 51.7% (assuming conversion of all of the
Company's outstanding preferred stock). Dividends were payable
50% in cash and 50% in additional shares of preferred stock
until January 1, 2004, and thereafter are paid in additional
shares of preferred stock or cash as the holder of the
preferred stock may elect. Following the third anniversary of
the original issuance date, the Series 2003-A Preferred Stock
is redeemable at the option of the Company at a price equal to
the initial purchase price plus cumulated and accrued but
unpaid dividends.
None of the Company's outstanding preferred shares are
included in the stockholders' equity section of the balance
sheet because the preferred shareholders have special voting
rights that empower them to elect a majority of the board of
directors and maintain effective control over the Company.
9. Stock Options
The Company follows the intrinsic value method of accounting
for common stock options to employees, in accordance with the
provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related
interpretations.
Had the Company elected to recognize compensation expense
based on the fair value of the stock options granted as of their
grant date per the standards of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", the
Company's 2004 and 2003 pro forma net income (loss) and pro forma
net income (loss) per share would have differed from the amounts
actually reported as shown in the table below. The pro forma
amounts shown reflect only options granted in 1995 through 2004.
Therefore, the full impact of calculating compensation cost for
stock options based on their fair value is not reflected in the
pro forma net income (loss) amounts presented because
compensation cost is reflected over the options' vesting period
of up to ten years and compensation cost for options granted
prior to January 29, 1995 is not considered.
13 Weeks Ended 39 Weeks Ended
October November October November
30, 1, 30, 1,
2004 2003 2004 2003
(In thousands, except per share data)
Net income (loss)
applicable to common $272 $629 $(924) $(4,420)
stockholders, as reported
Add:
Stock-based employee
compensation expense - - - -
included in reported net
income (loss)
Deduct:
Stock-based employee
compensation expense 196 94 616 456
determined under fair
value method for all
awards
Pro forma net income
(loss) applicable to 76 $535 (1,540) $(4,876)
common stockholders
Net income (loss) per
average common share:
Basic, as reported $0.04 $0.10 $(0.15) $(0.72)
Basic, pro forma $0.01 $0.09 $(0.25) $(0.80)
Diluted, as reported $0.04 $0.06 $(0.15) $(0.72)
Diluted, pro forma $0.00 $0.03 $(0.25) $(0.80)
10. Revenue Recognition
Sales from store locations represented 99% of the Company's
total sales for the thirty-nine weeks ended October 30, 2004.
These sales are recognized at the time of the customer's
purchase. During the third quarter of 2003, the Company returned
to the direct channel business by offering direct response
catalogs. During the third quarter of 2004, the Company returned
to the internet commerce business by offering purchase options
through its web site. The sales related to these direct response
catalogs and internet transactions were approximately one percent
of total sales for the thirty-nine weeks ended October 30, 2004,
and a return reserve was established for this revenue stream
beginning August 2003. Direct channel and internet sales are
recognized at the time the order is shipped to the customer. All
sales are net of returns and exclude sales tax. Gift card sales
are recognized as revenue when the gift card is redeemed, not
when it is sold.
11. Earnings per Share
Outstanding shares for purposes of basic and diluted
earnings per share were calculated as follows:
13 Weeks Ended 39 Weeks Ended
October November October November
30, 1, 30, 1,
2004 2003 2004 2003
(in thousands)
Net income (loss)
applicable to common $272 $629 $(924) $(4,420)
shareholders - basic
Preferred stock 363 356 - -
dividends
Net income (loss)
applicable to common $635 $985 $(924) $(4,420)
shareholders - diluted
Average common shares 6,221 6,100 6,216 6,100
outstanding
Effect of dilutive
securities:
Employee stock options 162 171 - -
Convertible preferred 11,319 11,121 - -
stock
Diluted average common
shares outstanding 17,702 17,392 6,216 6,100
Approximately 1,616,445 shares and 1,751,000 shares for the
thirteen weeks ended October 30, 2004 and November 1, 2003,
respectively, and approximately 879,983 shares and 2,030,000
shares for the thirty-nine weeks ended October 30, 2004 and
November 1, 2003, respectively, related to outstanding employee
stock options, were not included in the calculation of diluted
earnings per average common share because the effect of including
those shares is anti-dilutive as the exercise price of the stock
options exceeded the average common stock market price during the
respective period. For the thirteen weeks ended October 30, 2004
and November 1, 2003, all preferred shares convertible into
common shares were included in the calculation of diluted
earnings per average common share. However, approximately
604,688 and 592,458 preferred shares convertible into 11,340,091
and 11,185,597 common shares, for the thirty-nine weeks ended
October 30, 2004 and November 1, 2003, respectively, were not
included in the calculation of diluted earnings per average
common share because the effect of including those shares is anti-
dilutive.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
From time to time, the Company may publish forward-looking
statements relating to certain matters including anticipated
financial performance, business prospects, the future opening or
closing of stores, inventory levels, anticipated capital
expenditures, and other matters. All statements other than
statements of historical fact contained in this Form 10-Q or in
any other report of the Company are forward-looking statements.
The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements. In order to comply
with the terms of that safe harbor, the Company notes that a
variety of factors, individually or in the aggregate, could cause
the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in
the Company's forward-looking statements including, without
limitation, the following: the ability of the Company to
generate cash flow from operations in amounts sufficient to meet
debt obligations and provide working capital and funds for
growth, consumer spending trends and habits; competition in the
retail clothing segment; the customary risks of purchasing
merchandise abroad, including longer lead times, higher initial
purchase commitments and foreign currency fluctuations; the
Company's ability to attract and retain qualified personnel;
weather conditions in the Company's operating regions; laws and
government regulations; general business and economic conditions;
availability of capital; the existence or absence of operating
initiatives, publicity, advertising and promotional efforts; and
changes in accounting policies. In addition, the Company
disclaims any intent or obligation to update those forward-
looking statements.
Overview
Harold's is a multi-channel specialty retailer of ladies'
and men's apparel, including accessories and footwear. Harold's
markets its merchandise through retail stores, catalogs and its
website at www.harolds.com.
Results of Operations
The following table sets forth for the periods indicated,
the percentage of net sales represented by items in the Company's
statements of operations.
13 Weeks Ended 39 Weeks Ended
October November October November
30, 1, 30, 1,
2004 2003 2004 2003
Sales 100.0% 100.0% 100.0% 100.0%
Costs of goods sold (63.7) (61.9) (64.6) (67.6)
Selling, general and (29.0) (29.1) (30.5) (29.8)
administrative
expenses
Depreciation and (3.3) (3.9) (3.5) (4.1)
amortization
Store closing expenses - - - (2.4)
Interest expense (1.2) (0.9) (1.1) (1.0)
Income (loss) before 2.8 4.2 0.3 (4.9)
income taxes
Provision (benefit) - - - -
for income taxes
Net income (loss) 2.8% 4.2% 0.3% (4.9)%
The following table reflects the sources of the changes in
Company sales for the periods indicated, with percentage changes
compared to the comparable period of the prior year.
13 Weeks Ended 39 Weeks Ended
October November October November
30, 1, 30, 1,
2004 2003 2004 2003
Sales (000's) 23,110 23,863 66,569 68,118
Total sales (decrease) (3.2)% 11.7% (2.3)% 4.8%
increase
Change in comparable
store sales (4.7)% 25.6% 1.9% 13.5%
(52 week basis)
Store locations:
Existing stores 41 42 42 50
Stores closed - - (1) (8)
New stores opened - - - -
Total stores at end of 41 42 41 42
period
The Company opened no new stores, relocated one store and
closed one store during the thirty-nine weeks ended October 30,
2004 compared to the thirty-nine weeks ended November 1, 2003 in
which no new stores were opened, one store was relocated, one
store was expanded and eight stores were closed. The Company
currently has no plans to close additional stores. The 2003
store closings were responsible for the total sales decline for
the thirty-nine weeks ended October 30, 2004 compared to the same
period of the prior year. The positive comparable store sales
for the thirty-nine weeks ended October 30, 2004 are primarily
due to the favorable response by the Company's customers to the
merchandise assortments.
Gross margin represents net sales less cost of products and
merchandising. Cost of products and merchandising consists
primarily of product costs (e.g., product development, sourcing,
merchandising, inventory control, inventory acquisition costs and
inventory markdowns) and operating costs (e.g., occupancy costs
for the Company's retail stores). The Company's gross margin was
36.3% for the third quarter of 2004, as compared to 38.1% in the
same period of last year. Consistent with the Company's 2004
clearance strategies outlined at the beginning of the year, the
Company recognized planned permanent markdowns earlier in the
season, causing more permanent markdowns to be recorded in the
third quarter of 2004 compared to the third quarter of 2003. The
gross margin increased for the thirty-nine week period ended
October 30, 2004 to 35.4% from 32.4% during the same period of
the prior year. The gross margin increase for the thirty-nine
weeks was primarily due to improved selling of merchandise at
full retail price.
Selling, general and administrative expenses consist
primarily of retail store selling costs, costs to produce, print
and distribute direct response catalogs, as well as corporate
administrative costs. Selling, general and administrative
expenses (including advertising and catalog production costs)
decreased to 29.0% of sales for the third quarter of 2004
compared to 29.1% for the third quarter of 2003 and increased to
30.5% of sales for the thirty-nine weeks ended October 30, 2004
compared to 29.8% for the same period of the prior year. The
increase for the thirty-nine weeks was primarily due to costs
associated with the transition in senior management.
For the third quarter of 2004, the Company reported net
income of $649,000 as compared to net income of $1,010,000 in the
same period of the previous year, primarily due to the decrease
in gross margin as described above. After consideration of
preferred stock dividends and accretion of preferred stock
issuance costs, net income for the third quarter of 2004 was
$272,000 or $0.04 per diluted and basic share, compared to net
income of $629,000 or $0.06 per diluted share ($0.10 per basic
share), in the same period of the previous year. For the thirty-
nine week period ended October 30, 2004, net income was $198,000
compared to a net loss of $3.3 million in the same period of the
prior year. The prior year results included $1.6 million of
costs associated with the closing of eight unprofitable stores.
After consideration of preferred stock dividends and accretion of
preferred stock issuance costs, the net loss for the year-to-date
period was $924,000 or $(0.15) per diluted and basic share,
compared to a net loss of $4.4 million or ($0.72) per diluted and
basic share, in the same period of the previous year.
The average balance of total outstanding debt was
$20,293,000 for the thirty-nine weeks ended October 30, 2004
compared to $19,102,000 for the same period of 2003. This
increase in average balances resulted principally from the timing
of a promotional event conducted in October 2003 (third quarter)
that was moved to November 2004 (fourth quarter).
Liquidity and Capital Resources
The Company's working capital needs arise primarily from the
need to support costs incurred in advance of revenue generation,
such as inventory acquisition and direct response catalog
development, production and mailing costs. Other liquidity needs
relate to the revolving customer charge accounts on the Company's
proprietary credit card, the need to cover operating cash flow
deficits and to invest in remodeling, fixtures and equipment.
The Company recognizes two selling seasons that correspond to the
fashion seasons. The spring season begins in January and ends in
July. The fall season begins in July and ends in January. The
Company has relied on its bank credit facility to meet these
needs as well as proceeds from preferred stock investments of $6
million in February 2001, $4 million in August 2002 and $5
million in February 2003. The Company experienced deficit
operating cash flows of $3,451,000 for the thirty-nine weeks
ended October 30, 2004 compared to deficit operating cash flows
of $6,261,000 for the thirty-nine weeks ended November 1, 2003.
This increase in cash flows is principally related to the
increase of the Company's net income for the three quarters of
2004 compared to the same period of 2003. The Company's ability
to achieve positive cash flows from operating activities depends
on its ability to continue to improve sales and gross margin
which should allow the Company to sustain a return to
profitability. Additionally, the Company may experience needs
for additional capital. While the Company has been successful in
covering cash flow deficits through line of credit borrowings and
private equity investments from its principal shareholders, there
can be no assurances that these, or any other financing resources
will be available for future needs.
The Company's original three-year credit facility with Wells
Fargo Retail Finance II, LLC, ("WFRF") was entered into on
February 5, 2003 and provided the Company with a maximum
available credit limit of $22 million. This agreement was
scheduled to expire in February 2006. As discussed below, on
April 29, 2004, the maximum available credit line was increased
to the lesser of $25 million or $22 million plus outstanding
participant advances, and the expiration date was extended to
February 5, 2007. The credit facility is secured by
substantially all assets of the Company and its subsidiaries and
is subject to a borrowing base calculation based primarily on
inventory and accounts receivable. The facility has two
financial covenants, a minimum excess availability covenant of
$1.35 million and a maximum capital expenditure covenant,
established at $2.75 million for 2004. Interest rates under the
facility are at prime plus 0.5% or LIBOR plus 2.50%, with the
ability to reduce the rate if the Company achieves certain
financial criteria. The balance outstanding on the Company's
line of credit at October 30, 2004 was approximately $22,333,000
which includes the $4 million outstanding under the bridge
facility discussed below. At October 30, 2004 the Company's
availability under the WFRF line of credit was approximately $3.2
million above the minimum availability requirement of $1.35
million and the average interest rate on the credit line was
4.68%.
Subsequent to securing the initial credit facility, the
Company negotiated an increase of $2 million in its total
borrowing availability under its existing credit facility with
WFRF. The Company obtained this increase in order to provide for
additional working capital. The full $2 million was available
for borrowing on July 15, 2003 and has been extended to the
Company by Wells Fargo based upon a loan participation agreement
between Wells Fargo and RonHow, LLC, an entity established in
July 2003 which is owned and controlled directly or indirectly by
Ronald de Waal and W. Howard Lester. Mr. de Waal and Mr. Lester
are both major beneficial owners of the Company's common stock,
and Mr. Lester is also a director of the Company.
In order to achieve additional liquidity, on April 29, 2004,
the Company completed an amendment to the credit facility with
WFRF which increased the Company's borrowing availability under
the facility. The amendment increased the Company's maximum
inventory advance rate cap from 75% to 80% during non-peak times
and from 80% to 85% during peak times. Peak times were amended
to include the eight weeks prior to Easter and the eight weeks
prior to October 1. The increase in advance rates is expected to
increase the availability under the facility by as much as $3
million depending on the level of inventories. Additionally, the
amendment extended the term of the credit facility by one year,
with a new expiration of February 5, 2007. The amendment also
increased the maximum revolver amount from $22 million to the
lesser of $25 million or $22 million plus outstanding participant
advances. Finally, the amendment provided for an additional
increase of $2 million in the Company's borrowing availability
under the facility based upon an increase in the existing loan
participation agreement between WFRF and RonHow, LLC. WFRF will
continue to serve as the lending agent for the Company under the
credit facility, and the principal covenants and conditions
imposed upon the Company pursuant to the WRFR credit facility
agreement have not materially changed. RonHow, LLC's right to
repayment of any advances under the credit facility that are
attributable to its total $4 million participation is generally
subordinate to the repayment rights of the other credit facility
lenders. However, the Company may repay these advances provided
it meets certain conditions, including the maintenance of an
average daily excess availability under the credit facility of at
least $2.5 million for the 30 days prior to and 30 days projected
immediately following the repayment. The average excess
availability requirement is higher than the excess availability
otherwise required of the Company under the credit facility. If
the Company does not repay the new $2 million loan participation
of RonHow during the 18 months subsequent to April 29, 2004,
RonHow will have an option at that time to convert any of the
incremental $2 million not repaid into shares of authorized but
unissued 2003-A Preferred Stock, which will be convertible into
shares of common stock at a price of $2.524 per share, which was
the 20-day average closing price of the Company's common stock
for the period ending immediately before closing of the loan
amendment. Additionally, if the Company has not repaid the
initial $2 million of loan participation by February 2006, the
Company will pay an additional 4% fee per annum on the
outstanding participation amount up to $2 million. This
transaction was approved by the independent directors.
The Company was in compliance with its debt covenants for
the quarter ended October 30, 2004. Although the Company's line
of credit with WFRF does not expire until February 2007, the
Company has classified its borrowings under its line of credit as
current in its consolidated balance sheets due to the terms of
its agreement with the lender. Under the bank agreement, there
is an acceleration clause which potentially allows the bank to
demand immediate payment of all outstanding borrowings upon the
occurrence of a material adverse change in the Company's
operations or financial position. Determination of what
constitutes a material adverse change is at the discretion of the
bank, however, it is subject to reasonableness standards. In
addition, the Company is required to maintain a lock-box
agreement with the bank whereby all cash received is applied
against current borrowings. As a result of these items, the
Company is required to classify its line of credit borrowings as
current as proscribed by EITF 95-22, "Balance Sheet
Classification of Borrowings Outstanding under Revolving Credit
Agreements that include both a Subjective Acceleration Clause and
a Lock-Box Arrangement."
At October 30, 2004 the Company's availability under the
WFRF line of credit was approximately $3,233,000 million above
the minimum availability requirement of $1.35 million and the
average interest rate on the credit line was 4.68%. The
Company's credit line had an average balance of $18,799,000 and
$17,312,000 for the thirty-nine weeks ended October 30, 2004 and
November 1, 2003, respectively. During the thirty-nine weeks
ended October 30, 2004, the WFRF line of credit had a high
balance of $22,829,000. The balance outstanding on October 30,
2004 was $22,333,000.
The Company considers the following as measures of liquidity and
capital resources as of the dates indicated:
October January November
30, 31, 1,
2004 2004 2003
Working capital (000's) $1,153 $888 $2,834
(1)
Current ratio (1) 1.04:1 1.03:1 1.10:1
Ratio of working capital .03:1 .02:1 .07:1
to total assets (1)
Ratio of total debt to 3.03:1 2.21:1 1.96:1
stockholders' equity (2)
( Long-term debt is classified as current to comply with
1 accounting pronouncement EITF 95-22. See Note 5 to the
) Consolidated Financial Statements for more information. If
the debt under the Company's line of credit was classified
as long-term, working capital would be $23,486, $17,508 and
$22,922 in October 2004, January 2004 and November 2003,
respectively; current ratio would be 3.75:1, 2.81:1 and
3.61:1 in October 2004, January 2004 and November 2003,
respectively; and working capital to total assets would be
.57:1, .47:1 and .54:1 in October 2004, January 2004 and
November 2003, respectively.
( Preferred stock is treated as equity for this calculation.
2
)
Seasonality
The Company's business is subject to seasonal influences,
with the major portion of sales realized during the fall season
(third and fourth quarters) of each year, which includes the back-
to-school and holiday selling seasons. In light of this pattern,
selling, general and administrative expenses are typically higher
as a percentage of sales during the spring season (first and
second quarters) of each year.
Inflation
Inflation affects the costs incurred by the Company in its
purchase of merchandise and in certain components of its selling,
general and administrative expenses. The Company attempts to
offset the effects of inflation through price increases and
control of expenses, although the Company's ability to increase
prices is limited by competitive factors in its markets.
Inflation has had no meaningful effect on the Company's
operations.
Critical Accounting Estimates and Commitments
There have been no material changes in the Company's
critical accounting estimates or in its commitments outside of
the ordinary course of business from those disclosed in the
company's Annual Report on Form 10-K for the year ended January
31, 2004.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The primary objective of this disclosure is to provide
forward-looking quantitative and qualitative information about
the Company's potential exposure to market risks. The term
"market risk" for the Company refers to the risk of loss arising
from adverse changes in interest rates and various foreign
currencies. The disclosures are not meant to be precise
indicators of expected future losses, but rather indicators of
reasonably possible losses. There have been no significant
changes to this forward-looking information during the third
quarter of 2004 that would materially alter the Company's market
risk exposures.
ITEM 4. CONTROLS AND PROCEDURES
The Company's Principal Executive Officer and Principal
Financial Officer have reviewed and evaluated the effectiveness
of the Company's disclosure controls and procedures (as defined
in Exchange Act Rule 240.13a-14(c)) as of the end of the period
covered by this report. Based on that evaluation, the Principal
Executive Officer and the Principal Financial Officer have
concluded that the Company's current disclosure controls and
procedures are effective to ensure that information required to
be disclosed by the Company in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Securities
and Exchange Commission's rules and forms.
PART II
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
On August 1, 2004, 1,170 shares of the Company's Amended
Series 2001-A Preferred Stock ("2001 Preferred") were issued as a
dividend to one of the existing holders of 2001 Preferred at his
election pursuant to the original terms of the 2001 Preferred.
Each share of 2001 Preferred issued in this dividend is
convertible into approximately 7.91 shares of Company common
stock.
On October 1, 2004, 2,266 shares of the Company's Series
2002-A Preferred Stock ("2002 Preferred") were issued as a
dividend to two of the existing holders of 2002 Preferred at
their election pursuant to the original terms of the 2002
Preferred. Each share of 2002 Preferred issued in this dividend
is convertible into approximately 8.55 shares of Company common
stock.
Also, on October 1, 2004, 272 shares of the Company's Series
2003-A Preferred Stock ("2003 Preferred") were issued as a
dividend to one of the existing holders of the 2003 Preferred in
accordance with the original terms of the 2003 Preferred. Each
share of 2003 Preferred issued in this dividend is convertible
into approximately 42.74 shares of Company common stock.
Because the shares of 2001 Preferred, 2002 Preferred and
2003 Preferred described above were all issued as preferred stock
dividends in accordance with the original terms of each series,
the Company believes that no sale of securities has occurred
which would require the registration of such shares under the
Securities Act. However, even if the issuance of such shares is
deemed to be a sale for purposes of the Securities Act, the
Company believes the issuance of such shares was, in each case,
exempt from registration under the Securities Act pursuant to
Section 4(2) thereof. These shares were issued without any
public solicitation to a limited group of investors, all of whom
are either directors of the Company or beneficially own in excess
of 10% of the Company's outstanding common stock and all of whom
acquired such shares for investment.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following exhibits are filed as a part of this report:
Exhi
bit Description
Numb
er
3.1 Certificate of Incorporation of the Company, as amended
(Incorporated by reference to Exhibit 3.1 to Form 10-K
for the year ended February 3, 2001).
3.2 By-laws of the Company (Incorporated by reference to
Exhibit 3.2 to Form 8-B Registration Statement,
Registration No. 1-10892).
4.1 Specimen Certificate for Common Stock (Incorporated by
reference to Exhibit 4.1 to Form S-1 Registration
Statement, Registration No. 33-15753).
4.2 Certificate of Elimination of Designations of the Series
2001-A Preferred Stock (Incorporated by reference to
Exhibit 4.1 to Form 8-K dated August 2, 2002).
4.3 Certificate of Designations of the Amended Series 2001-A
Preferred Stock (Incorporated by reference to Exhibit
4.2 to Form 8-K dated August 2, 2002).
4.4 Certificate of Designations of the Series 2002-A
Preferred Stock (Incorporated by reference to Exhibit
4.3 to Form 8-K dated August 2, 2002).
4.5 Amendment to the Certificate of Designation of the
Amended Series 2001-A Preferred Stock ($0.01 Par Value)
of Harold's Stores, Inc., dated February 4, 2003
(Incorporated by reference to Exhibit 4.1 to Form 8-K
dated February 4, 2003).
4.6 Certificate of Designations of the Series 2003-A
Preferred Stock (Incorporated by reference to Exhibit
4.2 to Form 8-K dated February 4, 2003).
10.1 Lease Agreement effective May 1, 1996 between Company
and Carousel Properties, Inc. (Campus Corner Store,
Norman, Oklahoma) (Incorporated by reference to Exhibit
10.7 to Form S-2 Registration Statement, Registration
No. 333-04117) and amendment to Lease Agreement dated
April 4, 2002. (Incorporated by reference to Exhibit
10.1 to Form 10-Q for the quarter ended May 4, 2002).
10.2 Amended and Restated Lease Agreement dated as of June 3,
1996 between Company and 329 Partners II Limited
Partnership (East Lindsey Warehouse Facility, Norman,
Oklahoma) (Incorporated by reference to Exhibit 10.13
to Amendment No. 1 to Form S-2 Registration Statement,
Registration No. 333-04117).
10.3 Amended and Restated Lease Agreement dated as of June
20, 2001 between Company and 329 Partners II Limited
Partnership (Outlet Store, Norman, Oklahoma)
(Incorporated by reference to Exhibit 10.6 to Form 10-K
for the year ended February 2, 2002).
10.4 2002 Performance and Equity Incentive Plan of Company.
* (Incorporated by reference to Definitive Proxy Statement
dated May 17, 2002, for annual meeting of shareholders
held on June 20, 2002.
10.5 Employment Agreement dated February 9, 2004 between
* Company and Hubert W. Mullins (Incorporated by reference
to Exhibit 10.5 to Form 10-K for the year ended January
31, 2004).
10.6 Employment Agreement dated February 9, 2004 between
* Company and Clark Hinkley (Incorporated by reference to
Exhibit 10.6 to Form 10-K for the year ended January 31,
2004).
10.7 Stock Option Agreement dated February 23, 2001 between
* Company and Clark Hinkley (Incorporated by reference to
Exhibit 10.12 to Form 10-K for the year ended February
3, 2001).
10.8 First Amendment to Stock Option Agreement dated February
* 9, 2004 between Company and Clark Hinkley (Incorporated
by reference to Exhibit 10.8 to Form 10-K for the year
ended January 31, 2004).
10.9 Employment and Deferred Compensation Agreement dated
* February 1, 1998 between Company and Harold G. Powell
(Incorporated by reference to Exhibit 10.25 to Form 10-Q
for quarter ended May 2, 1998).
10.1 First Amendment dated February 28, 2001 to Employment
0* and Deferred Compensation Agreement between Company and
Harold G. Powell (Incorporated by reference to Exhibit
10.17 to Form 10-K for the year ended February 3, 2001).
10.1 Series 2001-A Preferred Stock Purchase Agreement dated
1 February 23, 2001 between Company and Inter-Him N.V.
(Incorporated by reference to Exhibit 10.1 to Form 8-K
dated February 28, 2001).
10.1 Investor Rights Agreement dated February 28, 2001
2 between Company and Inter-Him N.V. (Incorporated by
reference to Exhibit 10.2 to Form 8-K dated February 28,
2001).
10.1 Voting Agreement dated February 28, 2001 among Company,
3 Inter-Him N.V. and the other stockholders named therein
(Incorporated by reference to Exhibit 10.3 to Form 8-K
dated February 28, 2001).
10.1 Right of First Refusal Agreement dated February 28, 2001
4 among Company, Inter-Him N.V. and the other stockholders
named therein (Incorporated by reference to Exhibit
10.4 to Form 8-K dated February 28, 2001).
10.1 First Amended and Restated Stockholders Agreement dated
5 June 15, 1998 among certain stockholders of Company
(Incorporated by reference to Exhibit 10.2 to Form 10-Q
for quarter ended August 1, 1998).
10.1 First Amendment dated February 28, 2001 to First Amended
6 and Restated Stockholders Agreement among certain
stockholders of Company (Incorporated by reference to
Exhibit 10.6 to Form 8-K dated February 28, 2001).
10.1 Series 2002-A Preferred Stock Purchase Agreement dated
7 as of June 26, 2002, by and among Harold's Stores, Inc.,
Inter-Him, N.V., W. Howard Lester, William E. Haslam,
Clark J. Hinkley and Margaret A. Gilliam (Incorporated
by reference to Exhibit 10.1 to Form 8-K dated August 2,
2002).
10.1 First Amendment to Investor Rights Agreement dated as of
8 August 2, 2002, by and among Harold's Stores, Inc.,
Inter-Him, N.V., W. Howard Lester, William E. Haslam,
Clark J. Hinkley and Margaret A. Gilliam (Incorporated
by reference to Exhibit 10.2 to Form 8-K dated August 2,
2002).
10.1 First Amendment to Right of First Refusal Agreement
9 dated as of August 2, 2002, by and among Harold's
Stores, Inc., Inter-Him, N.V., W. Howard Lester, Harold
G. Powell, Anna M. Powell, Rebecca Powell Casey, H.
Rainey Powell, Lisa Powell Hunt, Clay M. Hunt and Arvest
Trust Company, N.A. (Incorporated by reference to
Exhibit 10.3 to Form 8-K dated August 2, 2002).
10.2 First Amendment to Voting Agreement dated as of August
0 2, 2002, by and among Harold's Stores, Inc., Inter-Him,
N.V., W. Howard Lester, William E. Haslam, Clark J.
Hinkley, Margaret A. Gilliam, Harold G. Powell, Anna M.
Powell, Rebecca Powell Casey, H. Rainey Powell, Lisa
Powell Hunt, Clay M. Hunt and Arvest Trust Company, N.A.
(Incorporated by reference to Exhibit 10.4 to Form 8-K
dated August 2, 2002).
10.2 Series 2003-A Preferred Stock Purchase Agreement dated
1 as of February 5, 2003, by and among Harold's Stores,
Inc., Inter-Him N.V. and W. Howard Lester (Incorporated
by reference to Exhibit 10.1 to Form 8-K dated February
4, 2003).
10.2 Second Amendment to Investor Rights Agreement dated as
2 of February 5, 2003, by and among Harold's Stores, Inc.,
Inter-Him N.V. and W. Howard Lester (Incorporated by
reference to Exhibit 10.2 to Form 8-K dated February 4,
2003).
10.2 Loan and Security Agreement dated as of February 5,
3 2003, by and among Wells Fargo Retail Finance, LLC,
Harold's Stores, Inc., Harold's Financial Corporation,
Harold's Direct, Inc., Harold's Stores of Texas, L.P.,
Harold's Stores of Georgia, L.P., and Harold's of
Jackson, Inc. (Incorporated by reference to Exhibit 10.3
to Form 8-K dated February 4, 2003).
10.2 Series 2003-A Preferred Stock Investment Agreement dated
4 as of February 4, 2003, by and between Harold's Stores,
Inc. and 329 Partners-II Limited Partnership
(Incorporated by reference to Exhibit 10.6 to Form 8-K
dated February 4, 2003).
10.2 Form of Indemnification Agreement between Company and
5 members of its Board of Directors (Incorporated by
reference to Exhibit 10.36 to Form 10-K for the year
ended February 1, 2003).
10.2 Form of Waiver of Claims and Covenant Not to Sue
6 Directors between principal shareholders of the Company
and members of the Company's Board of Directors
(Incorporated by reference to Exhibit 10.37 to Form 10-K
for the year ended February 1, 2003).
10.2 Participation Agreement dated as of July 10, 2003, by
7 and between Wells Fargo Retail Finance II, LLC and
RonHow, LLC (Incorporated by reference to Exhibit 10.3
to Form 8-K dated July 10, 2003).
10.2 Amended and Restated Participation Agreement dated as of
8 April 29, 2004, by and between Wells Fargo Retail
Finance II, LLC and RonHow, LLC (Incorporated by
reference to Exhibit 10.28 to Form 10-K for the year
ended January 31, 2004).
10.2 Assignment and Assumption of Lease Agreement and Third
9 Amendment to Lease Agreement dated October 1, 2003 by
and between Company and 329 Partners-II Limited
Partnership (Dallas Buying Office, Dallas, Texas)
(Incorporated by reference to Exhibit 10.1 to Form 10-Q
dated November 1, 2003).
10.3 Option Agreement between Company and RONHOW LLC dated
0 April 30, 2004 (Incorporated by reference to Exhibit
10.30 to Form 10-K for the year ended January 31, 2004).
10.3 First Amendment to Loan and Security Agreement dated as
1 of February 5, 2003, by and among Wells Fargo Retail
Finance, LLC, Harold's Stores, Inc., Harold's Financial
Corporation, Harold's Direct, Inc., Harold's Stores of
Texas, L.P., Harold's Stores of Georgia, L.P., and
Harold's of Jackson, Inc. (Incorporated by reference to
Exhibit 10.31 to Form 10-K for the year ended January
31, 2004).
10.3 Second Amendment to Loan and Security Agreement dated as
2 of April 29, 2004, by and among Wells Fargo Retail
Finance, LLC, Harold's Stores, Inc., Harold's Financial
Corporation, Harold's Direct, Inc., Harold's Stores of
Texas, L.P., Harold's Stores of Georgia, L.P., and
Harold's of Jackson, Inc. (Incorporated by reference to
Exhibit 10.32 to Form 10-K for the year ended January
31, 2004).
22.1 Subsidiaries of Company (Incorporated by Reference to
Exhibit 22.1 to Form 8-B Registration Statement,
Registration No. 1-10892).
31.1 Certification of Chief Executive Officer Pursuant to
Rule 13a-14(a) under the Securities Exchange Act of
1934.
31.2 Certification of Chief Financial Officer Pursuant to
Rule 13a-14(a) under the Securities Exchange Act of
1934.
32.1 Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350.
32.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, hereunto duly authorized.
HAROLD'S STORES, INC.
By: /s/ Hugh Mullins
Hugh Mullins
President and Chief Executive Officer
By: /s/ Jodi L. Taylor
Jodi L. Taylor
Chief Financial Officer
Date: December 14, 2004
INDEX TO EXHIBITS
Exhi
bit Description
Numb
er
3.1 Certificate of Incorporation of the Company, as amended
(Incorporated by reference to Exhibit 3.1 to Form 10-K
for the year ended February 3, 2001).
3.2 By-laws of the Company (Incorporated by reference to
Exhibit 3.2 to Form 8-B Registration Statement,
Registration No. 1-10892).
4.1 Specimen Certificate for Common Stock (Incorporated by
reference to Exhibit 4.1 to Form S-1 Registration
Statement, Registration No. 33-15753).
4.2 Certificate of Elimination of Designations of the Series
2001-A Preferred Stock (Incorporated by reference to
Exhibit 4.1 to Form 8-K dated August 2, 2002).
4.3 Certificate of Designations of the Amended Series 2001-A
Preferred Stock (Incorporated by reference to Exhibit
4.2 to Form 8-K dated August 2, 2002).
4.4 Certificate of Designations of the Series 2002-A
Preferred Stock (Incorporated by reference to Exhibit
4.3 to Form 8-K dated August 2, 2002).
4.5 Amendment to the Certificate of Designation of the
Amended Series 2001-A Preferred Stock ($0.01 Par Value)
of Harold's Stores, Inc., dated February 4, 2003
(Incorporated by reference to Exhibit 4.1 to Form 8-K
dated February 4, 2003).
4.6 Certificate of Designations of the Series 2003-A
Preferred Stock (Incorporated by reference to Exhibit
4.2 to Form 8-K dated February 4, 2003).
10.1 Lease Agreement effective May 1, 1996 between Company
and Carousel Properties, Inc. (Campus Corner Store,
Norman, Oklahoma) (Incorporated by reference to Exhibit
10.7 to Form S-2 Registration Statement, Registration
No. 333-04117) and amendment to Lease Agreement dated
April 4, 2002. (Incorporated by reference to Exhibit
10.1 to Form 10-Q for the quarter ended May 4, 2002).
10.2 Amended and Restated Lease Agreement dated as of June 3,
1996 between Company and 329 Partners II Limited
Partnership (East Lindsey Warehouse Facility, Norman,
Oklahoma) (Incorporated by reference to Exhibit 10.13
to Amendment No. 1 to Form S-2 Registration Statement,
Registration No. 333-04117).
10.3 Amended and Restated Lease Agreement dated as of June
20, 2001 between Company and 329 Partners II Limited
Partnership (Outlet Store, Norman, Oklahoma)
(Incorporated by reference to Exhibit 10.6 to Form 10-K
for the year ended February 2, 2002).
10.4 2002 Performance and Equity Incentive Plan of Company.
* (Incorporated by reference to Definitive Proxy Statement
dated May 17, 2002, for annual meeting of shareholders
held on June 20, 2002.
10.5 Employment Agreement dated February 9, 2004 between
* Company and Hubert W. Mullins (Incorporated by reference
to Exhibit 10.5 to Form 10-K for the year ended January
31, 2004).
10.6 Employment Agreement dated February 9, 2004 between
* Company and Clark Hinkley (Incorporated by reference to
Exhibit 10.6 to Form 10-K for the year ended January 31,
2004).
10.7 Stock Option Agreement dated February 23, 2001 between
* Company and Clark Hinkley (Incorporated by reference to
Exhibit 10.12 to Form 10-K for the year ended February
3, 2001).
10.8 First Amendment to Stock Option Agreement dated February
* 9, 2004 between Company and Clark Hinkley (Incorporated
by reference to Exhibit 10.8 to Form 10-K for the year
ended January 31, 2004).
10.9 Employment and Deferred Compensation Agreement dated
* February 1, 1998 between Company and Harold G. Powell
(Incorporated by reference to Exhibit 10.25 to Form 10-Q
for quarter ended May 2, 1998).
10.1 First Amendment dated February 28, 2001 to Employment
0* and Deferred Compensation Agreement between Company and
Harold G. Powell (Incorporated by reference to Exhibit
10.17 to Form 10-K for the year ended February 3, 2001).
10.1 Series 2001-A Preferred Stock Purchase Agreement dated
1 February 23, 2001 between Company and Inter-Him N.V.
(Incorporated by reference to Exhibit 10.1 to Form 8-K
dated February 28, 2001).
10.1 Investor Rights Agreement dated February 28, 2001
2 between Company and Inter-Him N.V. (Incorporated by
reference to Exhibit 10.2 to Form 8-K dated February 28,
2001).
10.1 Voting Agreement dated February 28, 2001 among Company,
3 Inter-Him N.V. and the other stockholders named therein
(Incorporated by reference to Exhibit 10.3 to Form 8-K
dated February 28, 2001).
10.1 Right of First Refusal Agreement dated February 28, 2001
4 among Company, Inter-Him N.V. and the other stockholders
named therein (Incorporated by reference to Exhibit
10.4 to Form 8-K dated February 28, 2001).
10.1 First Amended and Restated Stockholders Agreement dated
5 June 15, 1998 among certain stockholders of Company
(Incorporated by reference to Exhibit 10.2 to Form 10-Q
for quarter ended August 1, 1998).
10.1 First Amendment dated February 28, 2001 to First Amended
6 and Restated Stockholders Agreement among certain
stockholders of Company (Incorporated by reference to
Exhibit 10.6 to Form 8-K dated February 28, 2001).
10.1 Series 2002-A Preferred Stock Purchase Agreement dated
7 as of June 26, 2002, by and among Harold's Stores, Inc.,
Inter-Him, N.V., W. Howard Lester, William E. Haslam,
Clark J. Hinkley and Margaret A. Gilliam (Incorporated
by reference to Exhibit 10.1 to Form 8-K dated August 2,
2002).
10.1 First Amendment to Investor Rights Agreement dated as of
8 August 2, 2002, by and among Harold's Stores, Inc.,
Inter-Him, N.V., W. Howard Lester, William E. Haslam,
Clark J. Hinkley and Margaret A. Gilliam (Incorporated
by reference to Exhibit 10.2 to Form 8-K dated August 2,
2002).
10.1 First Amendment to Right of First Refusal Agreement
9 dated as of August 2, 2002, by and among Harold's
Stores, Inc., Inter-Him, N.V., W. Howard Lester, Harold
G. Powell, Anna M. Powell, Rebecca Powell Casey, H.
Rainey Powell, Lisa Powell Hunt, Clay M. Hunt and Arvest
Trust Company, N.A. (Incorporated by reference to
Exhibit 10.3 to Form 8-K dated August 2, 2002).
10.2 First Amendment to Voting Agreement dated as of August
0 2, 2002, by and among Harold's Stores, Inc., Inter-Him,
N.V., W. Howard Lester, William E. Haslam, Clark J.
Hinkley, Margaret A. Gilliam, Harold G. Powell, Anna M.
Powell, Rebecca Powell Casey, H. Rainey Powell, Lisa
Powell Hunt, Clay M. Hunt and Arvest Trust Company, N.A.
(Incorporated by reference to Exhibit 10.4 to Form 8-K
dated August 2, 2002).
10.2 Series 2003-A Preferred Stock Purchase Agreement dated
1 as of February 5, 2003, by and among Harold's Stores,
Inc., Inter-Him N.V. and W. Howard Lester (Incorporated
by reference to Exhibit 10.1 to Form 8-K dated February
4, 2003).
10.2 Second Amendment to Investor Rights Agreement dated as
2 of February 5, 2003, by and among Harold's Stores, Inc.,
Inter-Him N.V. and W. Howard Lester (Incorporated by
reference to Exhibit 10.2 to Form 8-K dated February 4,
2003).
10.2 Loan and Security Agreement dated as of February 5,
3 2003, by and among Wells Fargo Retail Finance, LLC,
Harold's Stores, Inc., Harold's Financial Corporation,
Harold's Direct, Inc., Harold's Stores of Texas, L.P.,
Harold's Stores of Georgia, L.P., and Harold's of
Jackson, Inc. (Incorporated by reference to Exhibit 10.3
to Form 8-K dated February 4, 2003).
10.2 Series 2003-A Preferred Stock Investment Agreement dated
4 as of February 4, 2003, by and between Harold's Stores,
Inc. and 329 Partners-II Limited Partnership
(Incorporated by reference to Exhibit 10.6 to Form 8-K
dated February 4, 2003).
10.2 Form of Indemnification Agreement between Company and
5 members of its Board of Directors (Incorporated by
reference to Exhibit 10.36 to Form 10-K for the year
ended February 1, 2003).
10.2 Form of Waiver of Claims and Covenant Not to Sue
6 Directors between principal shareholders of the Company
and members of the Company's Board of Directors
(Incorporated by reference to Exhibit 10.37 to Form 10-K
for the year ended February 1, 2003).
10.2 Participation Agreement dated as of July 10, 2003, by
7 and between Wells Fargo Retail Finance II, LLC and
RonHow, LLC (Incorporated by reference to Exhibit 10.3
to Form 8-K dated July 10, 2003).
10.2 Amended and Restated Participation Agreement dated as of
8 April 29, 2004, by and between Wells Fargo Retail
Finance II, LLC and RonHow, LLC (Incorporated by
reference to Exhibit 10.28 to Form 10-K for the year
ended January 31, 2004).
10.2 Assignment and Assumption of Lease Agreement and Third
9 Amendment to Lease Agreement dated October 1, 2003 by
and between Company and 329 Partners-II Limited
Partnership (Dallas Buying Office, Dallas, Texas)
(Incorporated by reference to Exhibit 10.1 to Form 10-Q
dated November 1, 2003).
10.3 Option Agreement between Company and RONHOW LLC dated
0 April 30, 2004 (Incorporated by reference to Exhibit
10.30 to Form 10-K for the year ended January 31, 2004).
10.3 First Amendment to Loan and Security Agreement dated as
1 of February 5, 2003, by and among Wells Fargo Retail
Finance, LLC, Harold's Stores, Inc., Harold's Financial
Corporation, Harold's Direct, Inc., Harold's Stores of
Texas, L.P., Harold's Stores of Georgia, L.P., and
Harold's of Jackson, Inc. (Incorporated by reference to
Exhibit 10.31 to Form 10-K for the year ended January
31, 2004).
10.3 Second Amendment to Loan and Security Agreement dated as
2 of April 29, 2004, by and among Wells Fargo Retail
Finance, LLC, Harold's Stores, Inc., Harold's Financial
Corporation, Harold's Direct, Inc., Harold's Stores of
Texas, L.P., Harold's Stores of Georgia, L.P., and
Harold's of Jackson, Inc. (Incorporated by reference to
Exhibit 10.32 to Form 10-K for the year ended January
31, 2004).
22.1 Subsidiaries of Company (Incorporated by Reference to
Exhibit 22.1 to Form 8-B Registration Statement,
Registration No. 1-10892).
31.1 Certification of Chief Executive Officer Pursuant to
Rule 13a-14(a) under the Securities Exchange Act of
1934.
31.2 Certification of Chief Financial Officer Pursuant to
Rule 13a-14(a) under the Securities Exchange Act of
1934.
32.1 Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350.
32.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350
___________________________
* Constitutes a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this report.