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59
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended February Commission File No. 1-
1, 1997 10892
HAROLD'S STORES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1308796
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
765 Asp Norman, Oklahoma 73069 (405) 329-4045
(Address of principal executive (Registrant's
offices) telephone number,
(Zip Code) including area
code)
Securities registered pursuant to
Section 12(b) of the Act : Name of each
exchange
Title of each class on which registered
Common Stock, $0.01 Par Value American Stock
Exchange
Securities registered pursuant to Section 12(g) of the Act : None
Indicate by check mark whether the registrant (1) has filed all
reports to be filed by Section 13 or 15 (d ) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K [ ]
At March 31, 1997 the aggregate market value of the Registrant's
Common Stock held by non-affiliates was $39,633,638 based on a value of
$12.25 per share, the closing price of Common Stock as quoted by the
American Stock Exchange on that date.
On March 31, 1997 the registrant had 5,718,660 shares of Common Stock
outstanding.
DOCUMENT INCORPORATED BY REFERENCE:
Information required by Part III of Form 10-K is incorporated by
reference from the Registrant's definitive proxy statement for its 1997
Annual Meeting of Shareholders.
Harold's Stores, Inc. & Subsidiaries
Index to
Annual Report on Form 10-K
For the Fiscal Year Ended February 1, 1997
Part I.
Page
Item 1. Business
3
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders
10
Part II.
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters 10
Item 6. Selected Consolidated Financial Data 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 8. Consolidated Financial Statements and Supplementary Data
16
Item 9. Changes in and Disagreements with Accountants on Accounting
and Consolidated Financial Disclosure 32
Part III.
Item 10. Directors and Executive Officers of the Registrant
32
Item 11. Executive Compensation 32
Item 12. Security Ownership of Certain Beneficial Owners and Management
32
Item 13. Certain Relationships and Related Transactions
32
Part IV.
Item 14. Exhibits, Consolidated Financial Statement Schedule and Reports
on Form 8-K 33
Signatures
34
PART I.
ITEM 1. BUSINESS
General
Harold's Stores, Inc. and its wholly-owned subsidiaries collectively ("
Harold's" or the "Company"), through a 36-location store chain of women's and
men's specialty apparel stores in 17 states, offers high-quality, classically
inspired apparel to the upscale, quality-conscious consumer primarily in the
20 to 50 year old age group. The stores typically are strategically located
in shopping centers and malls with other top-of-the-line specialty retailers
and are enhanced by an eclectic mix of antiques, together with specially
designed fixtures and visual props, to create an appealing stage for
presentation of the Company's distinctive women's and men's apparel and
accessories. More than 90% of sales consists of the Company's designs
controlled by Harold's own stylists and designers and resourced by Harold's
buyers from domestic, European and Asian manufacturers. The remainder
consists of branded merchandise selected to complement Harold's merchandise
presentation. See "Business- Product Development and Sourcing Programs."
The Company's 37 stores are comprised of 22 full-line women's and men's
apparel stores, five women's apparel stores which include a presentation of
men's sportswear featuring the Company's Old School Clothing brand, seven
stores featuring women's apparel only and three outlet stores to clear
markdowns and slow-moving merchandise. In addition to the stores the Company
has a direct mail order catalog business. Retail stores range in size from
about 2,100 to 15,000 square feet, with the typical store ranging from 4,000
to 6,000 square feet. Store occupancy costs include base and percentage rent,
common area maintenance expense, utilities and depreciation of leasehold
improvements.
For the same 52-week periods the Company achieved comparable store sales
growth of .8% in fiscal 1997 and 7.4% in fiscal 1996, although there was a
decline in comparable store sales of .5% for fiscal 1997 (52-week basis)
compared to an increase of 8.7% for fiscal 1996 (53-week basis). The Company
believes that the increase in comparable store sales for comparable periods is
attributable to Harold's product development and merchandising and Harold's
commitment to customer service through its sales associates. The Company's
average sales per square foot (52-week basis) for stores open during the
entire fiscal year were $607 and $628 for fiscal 1997 and fiscal 1996,
respectively. The Company believes its sales per square foot are higher than
industry averages.
The Company believes that its future success will be achieved by
expanding the number of its women's and men's apparel stores, maintaining
sales momentum at existing stores, and increasing circulation of its direct
response catalog. The Company recently embarked on an aggressive expansion
program, adding in the aggregate 11 retail stores during fiscal 1996 and
fiscal 1997 and thereby increasing the chain store count by approximately 44%.
The Company's expansion plan will continue to focus primarily on markets
currently served by the Company and in new markets that represent a
geographical progression from existing markets. Thus far during fiscal 1998,
the Company has opened a new store in Cordova, Tennessee (Memphis area). Four
stores are planned for opening during the balance of fiscal 1998 in regional
shopping malls in Wichita, Kansas, Columbus, Ohio, Richmond, Virginia and a
second location in Birmingham, Alabama, and will feature a full line of men's
and ladies' merchandise.
Fiscal Years
The Company operates on a 52-53 week fiscal year which ends on the
Saturday closest to January 31. References herein to fiscal 1998, fiscal 1997,
fiscal 1996, and fiscal 1995 refer to the fiscal years ended January 31, 1998,
February 1, 1997, February 3, 1996, and January 28, 1995, respectively.
Retail Merchandising
The Company's merchandise mix in women's apparel includes coordinated
sportswear, dresses, coats, outerwear, shoes and accessories, in updated
classic styles. A fundamental feature of the Company's marketing strategy is
the development of original exclusive and semi-exclusive apparel items. The
Company estimates that more than 95% of its women's apparel sales are
attributable to the Company's product development and proprietary label
programs. In fiscal 1997, women's apparel accounted for approximately 78% of
sales.
The men's apparel product line includes tailored clothing, suits,
sportcoats, furnishings, sportswear, and shoes. The style is what is known in
the apparel trade as "updated traditional," classic styling with a
contemporary influence. The young executive and college markets account for a
substantial portion of the Company's men's store sales. Branded lines include
Polo, Corbin, Alden, and Kenneth Gordon. In fiscal 1997, the Company's
proprietary label apparel accounted for more than 90% of total men's sales.
The majority of the men's proprietary label sales are in the Company's Old
School Clothing line. In fiscal 1997, men's apparel accounted for
approximately 22% of sales.
The following table sets forth the approximate percentage of sales
attributable to the various merchandise categories offered by the Company in
the past three fiscal years:
Fiscal 1997 Fiscal 1996 Fiscal 1995
(Dollar amounts in thousands)
Women's Merchandise
Sportswear $72,8 67.3 $65,00 69.0% $50,464 66.6%
08 % 9
Shoes 5,777 5.3 5,196 5.5 3,914 5.2
Handbags, Belts 5,422 5.0 4,962 5.3 4,438 5.9
and Accessories
Men's Merchandise
Suits,
Sportcoats, Slacks 8,815 8.1 6,493 6.9 5,338 7.0
and
Furnishings
Shoes 1,067 1.0 991 1.0 845 1.1
Sportswear and 13,54 12.5 11,256 11.9 10,337 13.6
Accessories 7
Other
821 0.8 357 0.4 459 0.6
Total: $108, 100. $94,26 100.0 $75,795 100.0
257 0% 4 % %
Company Stores
The Company's 37 stores range in size from 2,100 to 15,000 square feet,
with the typical store ranging from 4,000 to 6,000 square feet. The following
table lists Harold's store locations as of March 31, 1997, with selected
information for each location. Product lines in the table are defined as
follows:
W/M Stores with the Company's full-line women's and men's
apparel.
W/OS Stores with the Company's full-line women's apparel and also
featuring the Company's "Old School Clothing
Company" concept.
W Stores featuring women's apparel only.
Metropolita Produ Squar
n Location Type of ct e
Area Location Lines Foota
ge
Atlanta, GA Lenox Square Regional W/M 6,861
Shopping Center
Atlanta, GA Park Place Specialty W 3,413
Center
Austin, TX Arboretum Market Specialty W 3,300
Place Center
Austin, TX 8611 N. Mopac Free Standing* W/M 13,20
Expressway 0
Baton Citiplace Market Specialty W/M 5,200
Rouge, LA Center Center
Birmingham, Riverchase Regional W/OS 2,713
AL Galleria Shopping Center
Charlotte, Shops on the Specialty W/OS 4,000
NC Park Center
Cordova, TN Wolfchase Regional W/M 6,302
Galleria Shopping Center
Dallas, TX Dallas Galleria Regional W 4,974
Shopping Center
Dallas, TX Highland Park Specialty W/M 7,503
Village Center
Ft. Worth, University Park Specialty W/M 4,863
TX Village Center
Germantown, Saddle Creek Specialty W/OS 3,909
TN South Center
(Memphis
metro)
Greenville, Greenville Mall Regional W/OS 5,076
SC Shopping Center
Hillsboro, TX Hillsboro Outlet Mall* W/M 5,160
Outlet Mall
Houston, TX Highland Specialty W/M 6,189
Village Center
Houston, TX Town and Specialty W/M 5,883
Country Village Center
Jackson, MS The Rogue Free Standing W 2,100
Compound
Kansas City, MO Country Club Regional W 4,155
Plaza Shopping Center
Kensington, MD White Flint Regional W/OS 4,605
(Washington, Mall Shopping Center
DC metro)
Leawood, KS Town Center Regional W/M 5,000
(Kansas City Plaza Shopping Center
metro)
Littleton, Park Meadows Regional W/M 5,465
Colorado Mall Shopping Center
(Denver
metro)
Louisville, KY Mall St. Regional W/M 4,292
Matthews Shopping Center
Lubbock, TX 8201 Quaker Specialty W/M 3,897
Avenue Center
McLean, VA Tyson's Regional W/M 5,083
Galleria Shopping Center
Nashville, TN The Mall at Regional W/M 5,975
Greenhills Shopping Center
Norman, OK Campus Corner Specialty W/M 9,050
Center Center
Norman, OK 575 S. Free Standing* W/M 15,421
University
Blvd.
Oklahoma City, 106 Park Avenue Street Location W/M 3,760
OK
Oklahoma City, 50 Penn Place Specialty W/M 14,240
OK Center
Omaha, NE One Pacific Specialty W 3,272
Place Center
Phoenix, AZ Biltmore Regional W/M 5,033
Fashion Park Shopping Center
Plano, TX Park and Free Standing W/M 5,525
(Dallas Preston
metro)
Raleigh, NC Crabtree Valley Regional W/M 5,205
Mall Shopping Center
San Antonio, TX Broadway and Free standing W 3,312
Austin Highway
St. Louis, MO Plaza Frontenac Regional W/M 4,221
Shopping Center
Tulsa, OK Farm Shopping Specialty W/M 3,888
Center Center
Tulsa, OK Utica Square Regional W/M 4,625
Shopping Center
*Outlet Store
The employee population of a typical full-line Harold's store consists of
a store manager, two assistant managers (women's and men's), one or two desk
associates, and five to seven sales associates most of whom work on a flex-
time basis (20-25 hours per week). Sales associates are paid a commission
against a draw. Commissions range from 7% to 10% based on the type of
product sold and the scale of the associate. Store managers are paid on a
salary plus a performance bonus based on attainment of sales goals and expense
control.
The Company's stores generally are open seven days per week and evenings.
In addition to the Company's own "Harold's" credit card, the Company accepts
VISA, Mastercard and American Express.
Product Development and Sourcing Programs
The Company's product development and sourcing programs enable it to
offer exclusive and semi-exclusive items not available in competing stores or
catalogs. More than 90% of sales is merchandise where the Company has created
or controlled the design, demonstrating the Company's commitment to a unique
product mix. The Company believes that this unique product mix enables it to
compete with, and differentiates it from, larger apparel chains by offering
customers an exclusive garment at a price below designers and similar open
market merchandise. Direct creation and control of merchandise also enables
the Company to improve its initial mark up.
The Company's private label merchandise consists of (i) items developed
by the Company and manufactured exclusively for the Company by individual
contractors, (ii) items developed by the Company and manufactured on a semi-
exclusive basis for the Company, and (iii) vendor-developed, non-exclusive
items to which the Company's private labels are affixed.
An important component of the Company's product development programs is
market research of styles and fabrics. The Company's buyers shop European and
domestic markets for emerging fashion trends, for new vendors, and for fabric,
artwork and samples for new garment designs. Through sophisticated, computer-
aided design technologies, the product development staff adapts and develops
fabric designs and garment models. These design models assist the Company in
sourcing and in negotiations with mills and vendors. The Company's product
development programs allow it to participate directly in the design and
manufacturing of an exclusive product without investing in costly
manufacturing equipment. The Company's development program is complemented by
association with independent buying offices in New York and Florence.
The Company's product development programs enable it to offer new styles,
often before similar merchandise is available at other specialty or department
stores or catalogs. The Company imports a significant portion of its
merchandise directly from the United Kingdom, Italy, and through domestic
importers from the Far East.
The Company's merchandisers travel to Europe, including popular fashion
meccas such as Paris and Milan, three to four times each year, searching out
new styles and collecting vintage fabrics and antique wallpaper, and original
art for pattern development. In addition to purchasing original art work
created for pattern development, merchandisers have ongoing contact with
several art studios in Europe where artists hand paint intricate patterns and
prints exclusively for the Company. The European development work helps the
Company spot emerging trends among fashion forward Europeans for development
into the Company's classically-inspired merchandise.
The Company's merchandisers review the collected material, analyze
fashion directions and select the best pieces to convert into prints and
patterns for the next season. Once the new patterns are selected, the team
then "specs" out various styles - detailing a garment's cut, fit, fabric,
color and trim. An advanced textile computer-aided design system makes
designing new pieces much easier by providing color "proofs" which allow the
Company to correct inaccuracies in a design before a working sample is made.
This process reduces costs and contributes to the inherent value of each
item. After the specs have been finalized, the piece goods - materials for
making the product - are ordered from domestic and international fabric mills.
The finished fabric is then shipped to manufacturers who cut, sew and trim the
completed design.
The Company's line of leather goods is made by European craftsmen,
primarily in Italy. Shoes, belts, handbags, wallets and other leather
products are co-designed by the Company's merchandisers and Italian artisans.
Italian-made leather goods are marketed under a variety of Company-owned
labels and are featured in all of the Company's stores and in its catalog.
Reflecting the Company's product development programs, a substantial
portion of the Company's merchandise purchases are concentrated among a small
number of vendors. The Company believes that fewer vendor relationships
advance the Company's product development objectives by increasing control
over the design and manufacturing process. During fiscal 1995, the Company
entered into a new arrangement with its largest apparel vendor, CMT
Enterprises, Inc. ("CMT"). Previously, Harold's controlled the design process
and paid CMT for finished goods when produced and manufactured. Under the new
arrangement, the process has become more verticalized. CMT acts as the
Company's agent in the purchase of raw materials (i.e. fabrics, linings,
buttons, etc.)and supervises the manufacturing process of the Company's
merchandise with manufacturing contractors. The Company purchases raw
materials directly from suppliers and pays for the manufacturing process as
costs are incurred. CMT is paid a commission based on actual cost of the
finished goods. This change has resulted in a cost savings, but has also
resulted in an increase in the Company's inventory of piece goods and work in
process. The Company believes its new relationship with CMT permits the
Company to control the quality and cost of the Company's inventory purchases.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Results of Operations and - Capital Resources, Capital
Expenditures and Liquidity."
Catalog Publication and Order Fulfillment
In March 1990, using an in-house data base, the Company mailed its first
direct response catalog to over 100,000 addresses. In addition to
contributing to sales, the catalog has become an increasingly important market
research and new store promotion tool. During fiscal 1997, the Company used
its mail order buyer list (currently containing approximately 150,000 names),
its retail customer list (currently containing approximately 200,000 names)
and a variety of rental lists to mail six issues with an average of 96 pages,
and an aggregate circulation of approximately 7.2 million copies (including
abridged issues). The catalogs are designed and produced in-house with
photography, prepress and printing services being outsourced. On-line
computerized inventory systems and order processing programs offer control of
fulfillment and shipping times and record the purchase history of catalog
buyers and the performance of each individual mailing list. Orders are
processed daily and inventory adjustments are managed accordingly.
The direct response catalog has experienced sales increases from $620,000
in fiscal 1992 to $8,883,000 in fiscal 1997. As a stand-alone venture and as
costs are currently accounted, the catalog has recorded a loss from operations
each year. There are several principal reasons for the losses: (i) absence of
critical mass is partially to blame for the catalog losses as industry norms
consider at least $10 million to be the threshold for successful catalog
operation; (ii) in addition to its primary merchandising role, the catalog is
employed as an advertising vehicle to stimulate customer traffic in the
existing Harold's stores, and also as a market research and development tool
in connection with expanding the chain into new markets; and (iii) at the end
of a specific catalog's run the unsold merchandise is reacquired from the
catalog operation at cost based prices to allow such merchandise to be sold
with a customary profit margin in the Company's retail stores, any profit is
recorded in the store and is not a component in calculating the catalog's
profitability. In addition, the Company does not account for the advertising
and traffic-building benefits of mailing the catalog to its known retail
customers, for the profits earned from catalog close-outs sold in the outlet
stores, or for the catalog's contribution to developing potential new store
locations.
Management continues to control the expansion of the Company's catalog
operations. To the extent that the financial results of the catalog
operations improve, principally as a consequence of increased sales and
associated absorption of fixed overhead, net earnings of the Company should
improve as a percentage of sales.
Merchandise Inventory, Replenishment and Distribution
The specialty retail apparel business fluctuates according to changes in
customer preferences dictated by fashion and season. These fluctuations
affect the inventory owned by apparel retailers, since merchandise usually
must be ordered well in advance of the season and sometimes before fashion
trends are evidenced by customer purchases. The Company's policy of carrying
basic merchandise items in full assortments of sizes and colors requires it to
carry a significant amount of inventory. The Company must enter into
contracts for the purchase and manufacture of proprietary label apparel well
in advance of its selling seasons.
The Company continually reviews its inventory level in order to identify
slow-moving merchandise and broken assortments (items no longer in stock in a
sufficient range of styles, colors and sizes) and may use markdowns to clear
this merchandise. Markdowns also may be used if inventory exceeds customer
demand for reasons of style, seasonal adaptation, changes in customer
preference or if it is determined that the inventory in stock will not sell at
its currently marked price. Such markdowns may have an adverse impact on
earnings, depending on their extent and the amount of inventory affected. The
Company utilizes its three outlet stores to dispose of slow moving
merchandise. In addition, slow moving merchandise is cleared through regional
off-site annual discount sales held in January, June and August and which are
promoted under the name "Harold's Warehouse Sale".
The Company operates an 85,000 square foot distribution facility capable
of processing merchandise for 64 stores, in Norman, Oklahoma. With a modest
additional investment, the facility will have the capability of processing
merchandise for 128 stores. All of the Company's merchandise, over four
million units projected for fiscal 1998, will route through the distribution
center from various manufacturers. Each item is examined, sorted, tagged with
bar coded tickets which track the merchandise for analysis by multiple
parameters, including, vendor lot number, color and size. The merchandise is
then boxed for shipment to the Company's 36 stores and catalog operation.
This process is done in a time sensitive manner in a substantially paperless
environment, utilizing computers, bar codes and scanners.
Seasonality
The Company's business follows a seasonal pattern, peaking twice a year
during the late summer (August through early September) and holiday
(Thanksgiving through Christmas) periods. During fiscal 1997, approximately
57% of the Company's sales occurred and 66% of net income was earned during
the third and fourth quarters.
Competition
The Company's business is highly competitive. The Company's stores
compete with national and local department stores, specialty and discount
store chains, catalogers and independent retail stores which offer similar
lines of specialty apparel. Many of these competitors have significantly
larger sales volumes and assets than the Company.
Depth of selection in sizes and colors and styles of merchandise,
merchandise procurement and pricing, ability to anticipate fashion trends and
customer preferences, inventory control, reputation, quality of private-label
merchandise, store design and location, advertising and customer service are
all important factors in competing successfully in the retail industry. Given
the large number of companies in the retail industry, the Company cannot
estimate the number of its competitors or its relative competitive position.
In addition, the success of the Company's operations depends upon a
number of factors relating to economic conditions and general consumer
spending. If current economic conditions worsen and consumer spending is
restricted, the Company's growth and profitability will be negatively
impacted.
Customer Credit
The Company's stores accept the proprietary "Harold's" credit card, and
Visa, Mastercard, and the American Express credit cards. The Company's
catalog operation accepts VISA, Mastercard and the Company's credit card.
Credit card sales were 70.2% in fiscal 1995, 73.4% in fiscal 1996, and 74.3%
in fiscal 1997. In fiscal 1997, 15.6% of sales were made with the Harold's
credit card and 58.7% were made with third party credit cards. The Company
maintains a credit department for customer service, credit authorizations,
credit investigation, billing and collections. As of February 1, 1997, the
allowance for bad debts from Company credit card sales was approximately 1.0%
of Harold's credit card sales for fiscal 1997.
Harold's has offered customers its proprietary credit card since 1974.
The Company believes that providing its own credit card enhances customer
loyalty while providing customers with additional credit. At February 1,
1997, the Company had approximately 43,000 credit accounts, 60% of which had
been used at least once during the prior 12 months, and the average card
holder had a line of $1,100 and an outstanding balance of $400. Charges by
holders of the Company's credit card during fiscal 1997 totaled approximately
$19,800,000.
Advertising
The Company maintains an in-house advertising department, which has won
numerous Addy awards at the local, district and national levels. The
advertising department staff produces in-house print advertising for daily and
weekly newspapers and other print media, and designs the Company's direct
response catalogs and other direct mail pieces. In fiscal 1997, the Company
spent approximately $8,000,000 (7.4% of sales) on advertising as compared to
$7,807,000 (8.3% of sales) in fiscal 1996. The advertising department is also
involved in the production of quarterly and annual reports to the Company's
stockholders, sales training materials, internal marketing materials, and all
corporate logos and labeling.
Management Information Systems
The Company has placed great emphasis on upgrading and integrating its
management information systems ("MIS"). The Company believes these upgrades
will enable it to maintain more efficient control of its operations and
facilitate faster and more informed responses to potential opportunities and
problems. The Company maintains an MIS team to oversee these information
management systems, which include credit, sales reporting, accounts payable
and merchandise control, reporting and distribution.
The Company uses an integrated point-of-sale ("POS") inventory and
management system to control merchandising and sales activities. This system
automatically polls each location every 24 hours and provides a detailed
report by merchandise category the next morning. Management evaluates this
information daily and implements merchandising controls and strategies as
needed. The Company's POS system has been updated to allow additional
functions to be programmed into the system. Recently, the Company added new
personnel scheduling and time keeping capabilities, and is currently in the
process of implementing a new customer profile function to better identify and
track consumer demographics.
The Company continues to implement newer and better inventory control
systems. The Company routinely conducts its own inventory using a
sophisticated scanning system. POS scanning devices record and track SKU bar
codes which are assigned to every piece of merchandise. This information is
downloaded into the Company's IBM AS400 computer which generates a detailed
report within 24 hours of the physical inventory.
The Company has also implemented ARTHURr, a computerized merchandise
planning system which interacts with the Company's AS400 and Island Pacific
software. ARTHURr facilitates seasonal planning by department and store, and
provides certain data for financial planning.
The Company plans to continue implementing upgrades and improving its
management information system to keep abreast of the retail industry's
increasing technological advances.
Trademarks, Service Marks, and Copyrights
"Harold's", "Harold Powell", "Old School Clothing Company", "OSCC Bespoke"
and other trademarks either have been registered, or have trademark
applications pending, with the United States Patent and Trademark Office and
with the registries of various foreign countries. The Company files U.S.
copyright registration on the original design and artwork purchased or
developed by the Company.
The Company's two Houston stores bear the name "Harold Powell" rather than
"Harold's" to avoid confusion with an existing local men's apparel store which
operates in Houston under the name "Harold's" with prior usage in this market
predating the Company's federal registration.
Employees
On March 31, 1997 the Company had approximately 612 full-time and 733
part-time employees. Additionally, the Company hires temporary employees
during the peak late summer and holiday seasons. None of the Company's
employees belongs to any labor union and the Company believes it has good
relations with its employees.
ITEM 2. PROPERTIES
Store Leases
At March 31, 1997, the Company had 36 leased stores. The Company believes
rent payable under its store leases is a key factor in determining the sales
volume at which a store can be profitably operated. The leases typically
provide for an initial term of 12 years. In most cases, the Company pays a
base rent plus a contingent rent based on the store's net sales in excess of a
certain threshold, typically four (4%) to five (5%) percent of net sales in
excess of the applicable threshold. Among current store leases, one store
lease has fixed rent with no percentage rent. Three store leases have
percentage rent only. All other store leases provide for a base rent with
percentage rent payable above specified minimum sales. All stores open during
all of fiscal 1997 except 11 operated at sales volumes above the breakpoint
(the sales volume below which only rent is payable). Based on the Company's
current level of sales per square foot, the Company believes that some of the
risk from any decline in future sales volume in these stores is reduced
because a corresponding decline in occupancy expense would occur.
Substantially all of the leases require the Company to pay property taxes,
insurance, utilities and common area maintenance charges. The current terms
of the Company's leases, including automatic renewal options, expire as
follows:
Years Leases Number of
Expire Stores
1997 4
1998-1999 5
2000-2002 5
2003 and later 21
The Company generally has been successful in renewing its store leases as
they expire.
During fiscal 1997, the Company entered into new leases for stores in
Raleigh, North Carolina, McLean, Virginia, Littleton, Colorado (Denver metro),
Norman, Oklahoma, Cordova, Tennessee (Memphis metro), Wichita, Kansas, San
Antonio, Texas, Columbus, Ohio, and Richmond, Virginia. Management believes
the terms of these leases are comparable with other similar national retailers
in these locations. Base rent (minimum rent under terms of lease) in current
leases ranges from $6 per square foot to $41 per square foot over the terms of
the leases. Total base rent has continued to increase based on new store
leases. Occupancy cost has increased slightly as the Company has entered new
markets. The following table sets forth the fixed and variable components of
the Company's rent expense for the fiscal years indicated:
1997 1996 1995
Base rent $2,806,000 $2,222,000 $1,791,000
Additional amounts
computed as a 1,261,000 1,112,000 922,000
percentage of
sales
Total $4,067,000 $3,334,000 $2,713,000
Corporate Headquarters and Catalog Fulfillment Center
The Company owns a complex of contiguous buildings in Norman, Oklahoma
comprised of approximately 36,500 square feet, with 22,000 square feet of this
space being utilized by the Company for its executive offices, administrative
functions and catalog fulfillment center. Data processing, accounting,
credit, and marketing departments are housed together with the catalog
telephone center, inventory and shipping facilities. The remainder of this
complex is currently rented and can be used for expansion of the catalog
fulfillment center and other Company needs.
Merchandise Buying Office, and Distribution Center
The Company leases a 10,000 square foot building used primarily as a men's
and ladies' buying office in Dallas, Texas (the "Dallas Buying Office") and an
85,000 square foot warehouse distribution center facility located in Norman,
Oklahoma. The distribution center is equipped with automated systems for
receiving, processing and distributing merchandise. Substantially all
merchandise is shipped from vendors directly to the distribution center, where
it is received, inspected and ticketed for inventory control. The merchandise
is then shipped by company trucks or common carrier to the stores.
The lessor of the Dallas Buying Office and the distribution center is a
limited partnership whose partners include, Rebecca Powell Casey, Michael T.
Casey, H. Rainey Powell and Lisa Powell Hunt, all of whom are stockholders and
directors of the Company. The term of the buying office lease expires March
2012, with annual rent payments of $158,000 plus insurance, utilities and
property taxes until April, 2000, at which time the annual rent will be
$180,000, plus insurance, utilities and property taxes, increasing $2,500 each
year thereafter until expiration of the lease. The term of the distribution
center lease expires in June 2012, with annual rental payments of $338,438
plus insurance, utilities and property taxes until July, 2001, at which time
the annual rent will increase annually on a fixed scale up to a maximum of
$419,951 during the final year of the lease.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company or any of
its subsidiaries is a party or of which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
At March 31, 1997, there were 625 record holders of the Company's common
stock, ("Common Stock"). The Company's Common Stock is listed on the American
Stock Exchange under the symbol "HLD". The table below presents the range of
the high and low sales prices, for the periods indicated. The price per share
information contained in the following table is restated to reflect 5% stock
dividends paid to holders of Common Stock on January 17, 1997 and on January
19, 1996.
Quarterly Common Stock Price Ranges
Fiscal 1997 High Low
1st Quarter $17.02 $11.31
2nd Quarter $16.19 $13.33
3rd Quarter $13.93 $12.98
4th Quarter $15.48 $13.00
Quarterly Common Stock Price Ranges
Fiscal 1996 High Low
1st Quarter $10.09 $8.96
2nd Quarter $10.09 $9.07
3rd Quarter $9.86 $8.73
4th Quarter $11.22 $8.96
Dividend Policy
The Company has never declared or paid cash dividends on its Common Stock
and presently intends to retain all earnings for the operation and expansion
of its business for the foreseeable future. Any future determination as to
the payment of cash dividends will depend on the Company's earnings, capital
requirements, financial condition and other factors as the Board of Directors
may deem relevant.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial information is derived from
the audited consolidated financial statements of the Company and should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and the notes thereto, appearing elsewhere herein.
Fiscal Year
1997 1996 1995 1994 1993
(Dollar amounts in thousands, except per
share data)
Statements of Earnings
Data:
Sales $108,25 94,264 75,795 60,940 49,27
7 9
Percentage increase 14.8% 24.4% 24.4% 23.7% 21.5%
Gross profit on sales(1) $38,717 33,819 26,407 20,349 16,30
3
Percentage of sales 35.8% 35.9% 34.8% 33.4% 33.1%
Earnings before income $5,880 4,645 3,539 1,875
taxes 2,783
Percentage of sales 5.4% 4.9% 4.7% 4.5% 3.8%
Net earnings $3,528 2,787 2,088 1,052
1,612
Percentage of sales 3.3% 3.0% 2.8% 2.6% 2.1%
Earnings per common $0.62 $0.53 $0.40 $0.33 $0.24
share (2)
Other Operating Data:
Stores open at end of 36 29 25 21 18
Period
Growth in comparable (0.5%) 8.7% 10.7% 7.4% 8.1%
store sales
(52-53 week basis)
Balance Sheet Data:
Working capital $28,016 $21,301 $12,524 $9,98
$12,540 5
Total assets 59,608 42,909 34,661 26,441 21,94
7
Long-term debt(3) 12,528 9,540 594 1,177
669
Stockholders' equity 36,035 25,299 22,260 19,996 15,36
6
Net book value per $6.31 $4.86 $4.30 $3.88 $3.44
share(4)
(1) In accordance with retail industry practice, gross profit from
sales is calculated by subtracting cost of goods sold (including
occupancy and central buying expenses) from sales.
(2) Net earnings per common share are based on the weighted average
number of common shares outstanding during each period restated for the
5% percent stock dividends in fiscal 1997 and fiscal 1996 and the 10% percent
stock dividends in fiscal
1995, fiscal 1994, and fiscal 1993, and include Common Stock equivalents of
139,571 shares in fiscal 1997 and 55,840 shares
in fiscal 1996.
(3) In fiscal 1996, the Company renewed its line of credit to be
payable at a fixed maturity rather than on demand which required the
loan to be reclassified as long-term debt.
(4) Net book value per share is based on the number of shares of Common
Stock outstanding at the end of each fiscal year restated for the 5%
stock dividends in fiscal 1997 and 1996 and the 10% stock dividends in fiscal
1995, fiscal 1994 and fiscal 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table reflects items in the Company's statement of earnings
as a percentage of sales for the periods indicated:
Fiscal Year
1997 1996 1995
(52- (53- (52-
Weeks) Weeks) Weeks)
Sales 100.0% 100.0% 100.0%
Cost of goods sold (64.2) (64.1) (65.2)
Selling, general and (20.1) (19.9) (19.7)
administrative expenses
Advertising expense (7.4) (8.3) (7.8)
Depreciation and amortization (2.6) (2.3) (2.3)
Interest expense (0.3) (0.5) (0.3)
Earnings before income taxes 5.4 4.9 4.7
Provision for income taxes (2.1) (1.9) (1.9)
Net earnings 3.3% 3.0% 2.8%
The following table reflects the sources of the increases in Company
sales for the periods indicated:
Fiscal Year
1997 1996 1995
(52- (53- (52-
Weeks) Weeks) Weeks)
Store sales (000's) $99,374 84,880 68,901
Catalog sales (000's)
8,883 9,384 6,894
Sales (000's) $108,25
7 94,264 75,795
Total sales growth 14.8% 24.4% 24.4%
Growth in comparable store sales 8.7 10.7
(52-53 week basis) (0.5)
Growth in catalog sales (5.3) 36.1 26.8
Store locations:
Existing stores beginning of 29 25 21
period
New stores opened during period
7 4 4
Total stores at end of
period 36 29 25
The opening of new stores, and comparable store sales contributed to an
overall increase in total sales growth for fiscal 1997, 1996 and 1995. New
stores opened during fiscal 1997 included a 5,076 square foot ladies' and "Old
School" store in Greenville, South Carolina opened in March 1996 (first
quarter); a 5,000 square foot full-line men's and ladies' store opened in
Leawood, Kansas in May 1996 (first quarter); a 5,205 square foot full-line
men's and ladies' store opened in Raleigh, North Carolina in June 1996 (second
quarter); a 5,083 square foot full-line men's and ladies' store opened in
McLean, Virginia in August, 1996 (third quarter); a 5,496 square foot full-
line men's and ladies' store opened in Littleton, Colorado (Denver metro) in
October 1996 (third quarter); a 5,857 square foot full line men's and ladies'
store, known as Harold Powell opened in Houston, Texas in November 1996 (third
quarter) and a 15,521 square foot outlet store opened in Norman, Oklahoma in
January 1997 (fourth quarter).
New stores opened during fiscal 1996 included a 4,221 square foot men's
and ladies' store in St. Louis, Missouri opened in March 1995 (first quarter);
a 4,292 square foot ladies' and "Old School" store opened in Louisville,
Kentucky in September 1995 (third quarter); a 5,200 square foot full-line
men's and ladies' store opened in Baton Rouge, Louisiana in November 1995
(third quarter); and Harold's second outlet center, a 5,160 square foot store
in Hillsboro, Texas in December 1995 (fourth quarter).
New stores opened during fiscal year 1995 included a 4,000 square foot
ladies' and "Old School" store in Charlotte, North Carolina opened in July
1994 (second quarter); a 3,300 square foot ladies' store opened in Austin,
Texas in September 1994 (third quarter); a 5,500 square foot full-line men's
and ladies' store opened in Plano, Texas in October 1994 (third quarter); and
a 5,000 square foot ladies' and "Old School" store opened in Phoenix, Arizona
in November 1994 (fourth quarter).
Decreases in fiscal 1997, catalog sales are the result of the Company
shifting its focus from expanding catalog circulation to reducing catalog
expenses as a percentage of sales and disapointing response on two of six
books. Since the 1989 test market of Harold's first catalog, the Company has
expanded its regular catalog to include six seasonal issues each year. For
fiscal 1997, the Company's catalog averaged 96 pages per issue with an
aggregate mailing (including abridged issues) of approximately 7.2 million
catalogs.
The Company's gross margin decreased 0.1% for fiscal 1997 compared to an
increase of 1.1% for fiscal 1996. Increases in initial markups and reduced
markdowns have been offset by higher occupancy costs keeping the gross margin
relatively flat. Any increase in net earnings as a percentage of sales will
be the result of increasing sales while controlling selling, general and
administrative expenses and improvement in gross profit from sales.
Selling, general and administrative expenses have continued to increase
as sales have increased in fiscal 1995, 1996 and fiscal 1997. Catalog
production cost decreased 8% in fiscal 1997 compared to an increase of 38%
and 51% in fiscal years 1996 and 1995, respectively. In fiscal 1997, the
Company decreased the rate of sales growth in the catalog division resulting
in a decrease in catalog expenses as a percentage of sales. Additionally, an
increase in sales salaries of approximately 22% in fiscal 1997 compared to 29%
in fiscal 1996 is associated with the Company's efforts to improve the quality
of customer service in all stores.
The average balance on total outstanding debt was $9,073,000 in fiscal
1997 compared to $7,663,000 for fiscal 1996. Average interest rates on the
Company's line of credit were higher in fiscal 1997, resulting in an increase
in the Company's cost of borrowed capital. As the Company's growth continues,
cash flow may require additional borrowed funds which may cause an increase in
interest expense.
The Company's purchases denominated in foreign currency are of a short
term nature. The Company does not hedge these foreign currency transactions
and it has not been adversely affected in the past. The Company has no
assurances that the impact in the future may not be material.
The Company's income tax rate of 41% in fiscal 1995, decreased to 40% in
fiscal 1996, and fiscal 1997. This decreased tax rate is attributable to the
Company's estimation of higher tax rates on temporary differences in fiscal
1995 compared to the tax rates currently estimated.
Capital Expenditures, Capital Resources and Liquidity
Cash Flows From Operating Activities. For fiscal 1997, net cash provided
by operating activities was $249,000 as compared to $1,236,000 for fiscal
1996. The significant decrease in cash flows from operating activities is
partially attributable to an increase of $6,897,000 in the Company's
merchandise inventories for fiscal 1997, compared to fiscal 1996, during which
inventories increased by $3,800,000, primarily as a result of the change in
the relationship with CMT (see "Liquidity"). Management expects that the
dollar amount of its merchandise inventories will continue to increase as it
expands its product development programs and private label merchandise and
expands its chain of retail stores, with related increases in trade accounts
receivable and accounts payable. In addition, the difference in cash flows
from operating activities is partially due to the timing of cash disbursements
as reflected in an increase in accounts payable of $2,272,000 for fiscal 1997,
as compared to an increase in accounts payable of $242,000 for fiscal 1996.
Period-to period differences in timing of inventory purchases and deliveries
will affect comparability of cash flows from operating activities.
In order to conform with the current year presentation of certain costs
associated with new store openings, comparative fiscal 1996 amounts were
reclassified from prepaid expenses to capital assets-construction in progress.
This change resulted in an increase to both Cash Flows provided by Operating
Activities and Cash Flows used in Investing Activities in the amount of
$528,000 for fiscal 1996.
Cash Flows From Investing Activities. For fiscal 1997, net cash used in
investing activities was $9,705,000 as compared to $5,385,000 for fiscal 1996.
Capital expenditures totaled $7,102,000 for fiscal 1997 compared to $5,687,000
for fiscal 1996. Capital expenditures during such periods were invested
principally in new stores and in remodeling and equipment expenditures at
existing facilities. On November 6, 1996, the Company made a term loan to
CMT, in the principal amount of $2,750,000, to be used by CMT to refinance its
existing revolving line of credit at a New York City bank of $1,391,000 and
for working capital purposes. CMT is a major independent contractor whose
assistance is instrumental in the Company's design process. See note 3 to
Consolidated Financial Statements
Cash Flows From Financing Activities. In June 1996, the Company
successfully completed an offering of 460,000 shares of newly issued common
stock which resulted in net proceeds to the Company of approximately
$6,860,000. During fiscal 1997, the Company made periodic borrowings under
its revolving credit facility to finance its inventory purchases, store
expansion, remodeling and equipment purchases for the fiscal year (see
"Liquidity").
The Company has available a line of credit with its bank, (see
"Liquidity"). This line had an average balance of $7,801,000 and $7,000,000
for the fiscal years 1997 and 1996, respectively. During fiscal 1997, this
line of credit had a high balance of $12,587,000 and $11,185,000 balance as of
February 1, 1997. The balance at March 31, 1997, was $13,357,000.
Liquidity. The Company considers the following as measures of liquidity
and capital resources as of the dates indicated (dollars in thousands).
Fiscal Year
1997 1996 1995
Working capital $28,016 $21,301 $12,524
Current ratio 3.57:1 3.71:1 2.08:1
Ratio of working capital .47:1 .49:1 .36:1
to total assets
Ratio of long-term debt
(including current .35:1 .38:1 .25:1
maturities) to
stockholders' equity
In fiscal 1996, the Company increased its line of credit to $15,000,000
to be payable at a fixed maturity (currently, June 30, 1998) rather than on
demand. As a result the loan was reclassified as long-term debt rather than
as a current liability. In fiscal 1997, a $3,000,000 line of credit was
obtained from a separate banking institution for the purpose of issuing
letters of credit.
The Company's primary needs for liquidity are to finance its inventories
and revolving charge accounts and to invest in new stores, remodeling,
fixtures and equipment. Cash flow from operations and proceeds from credit
facilities represent the Company's principal sources of liquidity. Management
anticipates these sources of liquidity to be sufficient in the foreseeable
future. The Company's capital expenditures budget for fiscal 1998 is
approximately $6,000,000.
Seasonality
The Company's business is subject to seasonal influences, with the major
portion of sales realized during the fall season (third and fourth quarters)
of each fiscal year, which includes the back-to-school and the holiday selling
seasons. In light of this pattern, selling, general and administrative
expenses were typically higher as a percentage of sales during the spring
seasons (first and second quarters) of each fiscal year.
Inflation
Inflation affects the costs incurred by the Company in its purchase of
merchandise and in certain components of its selling, general and
administrative expenses. The Company attempts to offset the effects of
inflation through price increases and control of expenses, although the
Company's ability to increase prices is limited by competitive factors in its
markets. Inflation has had no meaningful effect on sales, or net earnings of
the Company.
Impact of Pending Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board issued Statement
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (Statement 125). Statement 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. This Statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and is to be applied prosepectively.
In February 1997, the Financial Accounting Standards Board issued
Statement 128, "Earnings per Share" (Statement 128). Statement 128
establishes standards for computing and presenting earnings per share. This
statement is effective for financial statements issued for periods ending
after December 15, 1997.
Management believes that the adoption of Statements 125 and 128 will not
have a significant impact on the financial condition or the results of
operations of the Company.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report 17
Consolidated Financial Statements:
Consolidated Balance Sheets
February 1, 1997, and February 3, 1996 18
Consolidated Statements of Earnings
52 Weeks Ended February 1, 1997, 53 Weeks Ended February 3, 1996,
and
52 Weeks Ended January 28, 1995 .....................20
Consolidated Statements of Stockholders' Equity
52 Weeks Ended February 1, 1997, 53 Weeks Ended February 3, 1996,
and
52 Weeks Ended January 28, 1995 .....................21
Consolidated Statements of Cash Flows
52 Weeks Ended February 1, 1997, 53 Weeks Ended February 3, 1996,
and
52 Weeks Ended January 28, 1995 .....................22
Notes to Consolidated Financial Statements 23
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Harold's Stores, Inc.:
We have audited the accompanying consolidated balance sheets of Harold's
Stores, Inc. and subsidiaries (the Company) as of February 1, 1997 and
February 3, 1996, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for the 52 week period ended February 1,
1997, the 53 week period ended February 3, 1996, and the 52 week period ended
January 28, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Harold's
Stores, Inc. and subsidiaries as of February 1, 1997 and February 3, 1996,
and the results of their operations and their cash flows for the 52 week
period ended February 1, 1997, the 53 week period ended February 3, 1996, and
the 52 week period ended January 28, 1995, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Oklahoma City, Oklahoma
March 31, 1997
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
February February
1, 1997 3, 1996
Current assets:
Cash and cash equivalents $433 2
Trade accounts receivable, less
allowance 5,476 4,687
for doubtful accounts of $215
in 1997 and $200 in 1996
Other receivables 673 568
Merchandise inventories 28,544 21,647
Prepaid expenses 2,174 1,231
Deferred income taxes
1,615 1,010
Total current assets
38,915 29,145
Property and equipment, at cost 25,001 19,527
Less accumulated depreciation and (7,897) (6,097)
amortization
Net property and equipment 17,104 13,430
Other receivables, noncurrent 2,603
-
Other assets
986 334
Total assets
$59,608
42,909
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(In Thousands Except Share Data)
February February
1, 1997 3, 1996
Current liabilities:
Current maturities of long-term $110 75
debt
Accounts payable 6,668 4,396
Redeemable gift certificates 923 672
Accrued bonuses and payroll 1,958 1,624
expenses
Accrued rent expense 298 241
Income taxes payable 942 836
Total current liabilities 10,899 7,844
Long-term debt, net of current 12,528 9,540
maturities
Deferred income taxes 146 226
Commitments and contingent
liabilities (notes 10 and 12)
Stockholders' equity:
Preferred stock of $.01 par value
Authorized 1,000,000 shares; - -
none issued
Common stock of $.01 par value
Authorized 25,000,000 shares;
issued and 57 50
outstanding 5,713,526 in
1997, and 4,958,181 in 1996
Additional paid-in capital 31,548 20,572
Retained earnings 4,430 4,677
Total stockholders' equity 36,035 25,299
Total liabilities and stockholders' $59,608 42,909
equity
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands Except Share Data)
52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended
February February 3, January 28,
1, 1997 1996 1995
Sales $108,257 94,264 75,795
Costs and expenses:
Cost of goods sold
(including occupancy and
central buying expenses, 69,540 60,445 49,388
exclusive of items
shown separately below)
Selling, general and 21,712 18,730 14,972
administrative expenses
Advertising expense 8,001 7,807 5,912
Depreciation and 2,806 2,185 1,710
amortization
Interest expense 318 452 274
102,377 89,619 72,256
Earnings before income 5,880 4,645 3,539
taxes
Provision for income taxes 2,352 1,858 1,451
Net earnings $3,528 2,787 2,088
Earnings per common share $.62 .53 .40
Weighted average number of 5,661,569 5,250,035 5,170,149
common shares and
common stock equivalents
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended
February 1, February January
1997 3, 1996 28, 1995
Common stock:
Balance, beginning of year $50 47 43
Stock dividend (5 percent) in
1997 of 272,072 shares,
(5 percent) in 1996 of 235,868 3 3 4
shares, and
(10 percent) in 1995 of 426,970
shares
Stock bonuses, 1,761 shares in
1997, 1,301 shares in 1996, - - -
and 645 shares in 1995
Employee Stock Purchase Plan
21,512 shares in 1997, - - -
22,838 shares in 1996, and 17,712
shares in 1995
Issuance of 460,000 shares in
1997 4 - -
Balance, end of year
$57 50 47
Additional paid-in capital:
Balance, beginning of year $20,572 17,491 13,047
Stock dividend (5 percent) in
1997 and 1996 and 3,772 2,827 4,265
(10 percent) in 1995
Stock bonuses 28 13 6
Issuance of 460,000 shares in
1997, net of issuance 6,860 - -
cost of $145
Employee stock purchase plan
316 241 173
Balance, end of year $31,548
20,572 17,491
Retained earnings:
Balance, beginning of year $4,677 4,722 6,906
Net earnings 3,528 2,787 2,088
Stock dividend (5 percent) in
1997 and 1996 and (3,775)
(10 percent ) in 1995 (2,832) (4,272)
Balance, end of year $4,430
4,677 4,722
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended
February 1, February January
1997 3, 1996 28, 1995
Cash flows from operating
activities:
Net earnings $3,528 2,787 2,088
Adjustments to reconcile
net earnings to net cash
provided by operating
activities:
Depreciation and 2,806 2,185 1,710
amortization
Deferred income taxes (685) (360) (95)
(benefits)
Loss (gain) on sale of (2) 1 (4)
assets
Shares issued under 344 254 179
employee incentive plans
Changes in assets and
liabilities:
Increase in trade and (798) (346) (419)
other receivables
Increase in merchandise (6,897) (3,800) (5,200)
inventories
Increase in prepaid - - 9
income taxes
Decrease (increase) in (652) (37) 2
other assets
Increase in prepaid (415) (585) (266)
expenses
Increase in accounts 2,272 242 1,326
payable
Increase in income taxes 106 253 583
payable
Increase in accrued 642 642 656
expenses
Net cash provided by 249 1,236 569
operating activities
Cash flows from investing
activities:
Acquisition of property (7,102) (5,687) (3,994)
and equipment
Proceeds from disposal
of property and 96 302 42
equipment
Term loan to others (2,750)
- -
Payment of principal 51
from term loan to others - -
Net cash used in investing (9,705) (5,385) (3,952)
activities
Cash flows from financing
activities:
Advances on debt 45,474 32,652 26,357
Payments of debt (42,451) (28,608) (23,005)
Proceeds of common stock 6,864 - -
offering
Payments of fractional
shares issued with stock (3)
dividend - (2)
Net cash provided by 9,887 4,042 3,349
financing activities
Net increase (decrease) in
cash and cash equivalents 431 (107) (34)
Cash and cash equivalents 2 109 143
at beginning of year
Cash and cash equivalents $433 109
at end of year 2
Supplemental disclosure of
cash flow information:
Cash paid during the year
for:
Income taxes $2,239 1,965 954
Interest $703 643 291
HAROLD'S STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 1, 1997, February 3, 1996, and January 28, 1995
1. Summary of Significant Accounting Policies
Nature of Entity
Harold's Stores, Inc., an Oklahoma corporation (the Company), operates a
chain of "updated traditional", classic styled ladies' and men's specialty
apparel stores. The Company offers its merchandise in 36 stores primarily
across the South and Southwest, with 11 stores located in Texas, and through
its mail order catalog. The product development and private label programs
provide an exclusive selection of upscale merchandise to the consumer. In
addition, the in-house advertising and catalog production capabilities create
opportunities for vertical integration.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany accounts and transactions have been eliminated.
Definition of Fiscal Year
The Company has a 52-53 week fiscal year which ends on the Saturday
closest to January 31. Fiscal years 1997, 1996 and 1995 ended February 1,
1997, February 3, 1996, and January 28, 1995, respectively.
Accounts Receivable and Finance Charges
Trade accounts receivable primarily represent the Company's credit card
receivables from customers. These customers are primarily residents of
Oklahoma and Texas. Finance charges on these revolving receivables are
imposed at various annual rates in accordance with the state laws in which the
Company operates, and are recognized in income when billed to the customers.
Minimum monthly payments are required generally equal to ten percent of the
outstanding balance. The average liquidation rate at February 1, 1997 was
approximately 3 months. Finance charge revenue is netted against selling,
general and administrative expenses and was approximately $864,000, $705,000,
and $578,000, in fiscal 1997, fiscal 1996, and fiscal 1995, respectively.
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market using
the retail method of accounting. Inventories of raw materials are valued at
the lower of cost or market, and approximate $7,612,000 and $5,600,000 in
fiscal 1997, and fiscal 1996, respectively.
Depreciation, Amortization, and Maintenance and Repairs
Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets. Leasehold improvements are
amortized over the shorter of the life of the respective leases or the
expected life of the improvements. The following are the estimated useful
lives used to compute depreciation and amortization:
Buildings 30 years
Leasehold improvements 5-10 years
Furniture and equipment 4-7 years
Maintenance and repairs are charged directly to expense as incurred,
while betterments and renewals are generally capitalized in the property
accounts. When an item is retired or otherwise disposed of, the cost and
applicable accumulated depreciation are removed from the respective accounts
and the resulting gain or loss is recognized.
Preopening Expenses and Catalog Costs
Costs associated with the opening of new stores are expensed over a six
month period. The costs are carried as prepaid expenses prior to the store
opening. Such costs included approximately $117,000 at February 1, 1997 and
$7,000 at February 3, 1996.
The Company expenses all non-direct advertising as incurred and defers
the direct costs of producing its mail order catalogs. These costs are
amortized over the estimated sales period of the catalogs, generally three to
four months. At February 1, 1997 and February 3, 1996 approximately $909,000
and $257,000 of deferred catalog costs are included in other assets,
respectively. The Company incurred approximately $8,001,000, $7,807,000, and
$5,912,000, in advertising expenses of which approximately $4,429,000,
$4,818,000, and $3,678,000 were related to the mail order catalogs during
fiscal years 1997, 1996 and 1995, respectively.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
Net Earnings Per Common Share
Net earnings per common share are based upon the weighted average number
of common shares outstanding during the periods restated for the five (5%)
percent stock dividends in fiscal 1997 and fiscal 1996 and the ten (10%)
percent stock dividend in fiscal 1995 and includes common stock equivalents of
139,571 in fiscal 1997, and 55,840 in fiscal 1996.
Stock Options
The Company follows the intrinsic value method of accounting for common
stock options granted to employees.
Cash and Cash Equivalents
Cash and cash equivalents include overnight investments and credit card
receivables collected within three business days.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
on February 4, 1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. Adoption of this Statement did not have a material
impact on the Company's financial position, results of operations, or
liquidity.
Reclassifications
Certain comparative prior year amounts in the consolidated financial
statements have been reclassified to conform with the current year
presentation.
2. Fair Value of Financial Instruments
The recorded amounts for cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximate fair value because of the
short maturity of these financial instruments. The Company's other
receivables and debt are at a variable interest rate; therefore, book value
approximates fair value.
3. Other Receivables
On November 6, 1996, the Company made a term loan to CMT Enterprises,
Inc., ("CMT"), in the principal amount of $2,750,000 to be used by CMT to
refinance its existing revolving line of credit at a New York City bank of
$1,391,000 and for working capital purposes. CMT is a major independent
contractor whose assistance is instrumental in the Company's design process.
The term loan matures December 31, 2002, and bears interest at the
national prime rate, plus 4.25%, with a floor interest rate of 12.5%.
Principal and interest on the loan are payable in approximately equal monthly
installments, subject to semi-annual adjustments based upon changes in the
prime rate. The loan is governed by a loan agreement containing terms and
conditions customary to financings of this type.
The loan is secured by substantially all assets of CMT. CMT's President
and Chief Executive Officer has personally guaranteed repayment of the loan
and granted the Company a second mortgage lien on real estate in Duchess
County, New York. As further security for the loan, the President has pledged
100% of the outstanding stock of CMT and granted a subordinated lien in cash
collateral of approximately $340,000. In addition, CMT has issued a 10-year
warrant to the Company to purchase 20% of the outstanding stock of CMT.
4. Property and Equipment
Property and equipment at February 1, 1997 and February 3, 1996 consisted
of the following (in thousands):
1997 1996
Land $ 665
665
Buildings 2,847 2,796
Leasehold improvements 7,052 4,934
Furniture and 13,504 10,604
equipment
Construction in
progress 933 528
$25,001 19,527
5. Note Payable and Long-term Debt
Borrowings under short-term agreements were as follows (in thousands):
1997 1996 1995
Balance at end of fiscal year $
- - 4,90
2
Weighted average interest - - 8.5%
rate at end of fiscal year
Maximum balance outstanding - 7,558 5,92
during the year 8
Average balance outstanding - 5,552 2,96
during the year 1
Weighted average interest - 8.6% 7.4%
rate during the year
Average outstanding balances in the above table are based on the number of
days outstanding. Weighted average interest rates are the result of dividing
the related interest expense by average borrowings outstanding.
Long-term debt at February 1, 1997, and February 3, 1996, consisted of the
following (in thousands):
1997 1996
Borrowings under line of credit,
bearing interest at a variable
rate (7.6% at February 1, 1997)
payable monthly, principal due June $11,185 9,021
30, 1998.
Note payable to financial
institution, secured by building and
land with net book value of $260 at
February 1, 1997, bearing interest
at a variable rate, (7.9% at
February 1, 1997), due in monthly 519 594
installments of principal of $6 plus
accrued interest, with final payment
due September 2002.
Note payable to financial
institution, secured by building and
land with net book value of $1,182
at February 1, 1997, bearing
interest at a fixed rate, (8.3% at
February 1, 1997), due in monthly 934 -
installments of principal and
interest of $9, with final payment
due June 2011.
Total long-term debt
12,638 9,615
Less current maturities of long-
term debt 110 75
Long-term debt, net of current
maturities $12,528 9,540
The annual maturities of the above long-term debt as of February 1, 1997 are as
follows (in thousands):
Fiscal year
ending
1998 $ 110
1999 11,299
2000 117
2001 339
2002 49
2003 and 724
subsequent
Total $ 12,638
During fiscal 1995, the Company's line of credit was classified as short-
term. On February 28, 1996, the line of credit available was renewed with a
two-year maturity and increased to a $15,000,000 credit facility.
Subsequent to February 1, 1997, the Company obtained a note in the principal
sum of $1,023,702 to purchase certain equipment.
The note carries an annual percentage rate of eight percent (8%) and
matures during fiscal year 2003.
The note is secured by the purchased equipment.
6. Income Taxes
Income tax expense (benefit) for the years ended February 1, 1997, February
3, 1996, and January 28, 1995, consisted of the following (in thousands):
1997 1996 1995
Current:
Federal $2,484 1,814 1,265
State 553
404 281
3,037 1,546
2,218
Deferred:
Federal (570) (300) (79)
State (115)
(60) (16)
(685)
(360) (95)
Total 2,352 1,451
1,858
Income tax expense differs from the normal tax rate as follows :
1997 1996 1995
Statutory tax rate 34% 34% 34%
Increase in income taxes
caused by:
State income taxes 6 6 6
Other, net
- - 1
Effective tax rate 40% 40% 41%
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred
tax liabilities at February 1, 1997 and February 3, 1996 are presented below
(in thousands):
1997 1996
Deferred tax assets -
current:
Allowance for doubtful 88 85
accounts
Insurance reserves 50 50
Merchandise inventories 1,165 640
Deferred compensation
312 235
$1,615
1,010
Deferred tax liability -
noncurrent:
Property and equipment
146 226
The net deferred tax asset relates solely to future deductible temporary
differences and there is no valuation allowance. Management believes that it is
more likely than not that the Company will fully realize the gross deferred tax
assets; however, there can be no assurances that the Company will generate the
necessary adjusted taxable income in any future periods.
7. Stockholders' Equity and Stock Options
The Company has authorized 1,000,000 shares of preferred stock, par value
$.01 per share. This preferred stock may be issued in one or more series and
the terms and rights of such stock will be determined by the Board of
Directors. No preferred shares were issued and outstanding at either February
1, 1997 or February 3, 1996.
The Company has reserved 1,000,000 shares of its common stock for
issuance to key employees under its current stock option and equity incentive
plan which was adopted in April 1993 and amended June 1995. The plan has a
term of ten years. The Compensation Committee of the Board of Directors may
grant incentive or non-qualified stock options, restricted stock, stock
appreciation rights and other stock-based and cash awards under the provisions
of the plan. The exercise price of incentive stock options is the fair market
value of the stock at the date of the grant, plus ten percent if the employee
possesses more than ten percent of the total combined voting power of all
classes of the Company's stock. Options granted may have a term of up to ten
years, except that incentive stock options granted to stockholders who have
more than ten percent of the Company's voting stock at the time of the grant
may have a term of up to five years. Any unexercised portion of the options
will automatically and without notice terminate upon the applicable
anniversary of the issuance date or termination of employment. The following
table summarizes the stock option activity for the periods indicated:
Range of
Shares Exercise
Prices
Options outstanding, fiscal 30,696 $5.999
1994
Granted 318,238 8.04-8.845
Exercised - -
Terminated (22,558) 5.999-8.845
Options outstanding, fiscal 326,376 5.999-8.845
1995
Granted 34,727 9.979
Exercised (319) 9.979
Terminated (12,927) 5.999-9.979
Options outstanding, fiscal 347,857 5.999-9.979
1996
Granted 58,276 14.643-
17.548
Exercised - -
Terminated (10,500) 5.999-
17.548
Options outstanding, fiscal 395,633 5.999-
1997 17.548
Options exercisable, fiscal 207,470 5.999-
1997 17.548
At February 1, 1997, the three ranges of exercise prices and weighted-
average remaining contractual life of outstanding options were $5.999 to
8.845, $9.979, and $14.643-17.548, and eight, nine, and ten years,
respectively. The number of options exercisable was 30,696, 34,727, and
142,047, respectively.
The number of shares and exercise prices have been restated to reflect
the five percent stock dividend in fiscal 1997 and fiscal 1996, and the ten
percent stock dividend in fiscal 1995.
Additionally, as of February 1, 1997, restricted stock awards for up to
$56,700 market value of common stock were outstanding under the plan. These
awards may be exercised over the remaining four-year vesting period in equal
annual installments at the fair market value of common stock on such
installment vesting date. After giving effect to the outstanding and
exercised awards, and based upon the price of common stock on February 1,
1997, the Company may award 600,005 shares or options under the plan.
The per share weighted-average fair value of options granted during
fiscal 1996 under the non-qualified plan and incentive plan is $2.78. No
options were granted during fiscal 1996 under the incentive plan. During
fiscal 1997, the fair value of options granted were $4.08 and $4.80,
respectively. The fair values are calculated using the Black Scholes option-
pricing module which assumes that the options have lives of approximately 9
years, a 1997 expected dividend yield of zero percent, the risk free interest
rate at the date of the grant is 5.1% and volatility is 41.8%.
No compensation expense for the options granted during fiscal 1996 and
fiscal 1997 under the non-qualified and incentive plans is recorded. Had
compensation expense been recorded at February 1, 1997 and February 3, 1996,
the Company's net income would have been reduced to approximately $3,475,000
and $2,642,000 respectively, and net income per share would have been reduced
to $.61 and $.50, respectively.
Pro forma net income reflects only options granted in fiscal year 1997
and 1996. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma net income
amounts presented above 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.
8. Retirement and Benefit Plans
The Company has a profit sharing retirement plan with a 401(k) provision
that allows participants to contribute up to 15 percent of their compensation
before income taxes. Eligible participants are employees at least 21 years of
age with one year of service. The Company's Board of Directors will designate
annually the amount of the profit sharing contribution as well as the
percentage of participants' compensation that it will match as 401(k)
contributions. For the years ended February 1, 1997, February 3, 1996, and
January 28, 1995, the Company contributed approximately $108,000, $81,000,
and $43,000, respectively, to the 401(k) plan.
The Company has reserved 200,000 shares of common stock for employees
under its stock purchase plan which covers all employees who meet minimum age
and service requirements. The Company's management will determine from time
to time the amount of any matching contribution as well as the percentage of
participants' compensation that it will match as purchase contributions.
The purchase price of shares covered under the plan is fair market value as of
the date of purchase in the case of newly issued shares and the
actual price paid in the case of open market purchases. The plan was
implemented in January 1994. For the years ended February 1, 1997, February
3, 1996, and January 28, 1995, the Company's matching contributions were
approximately $66,000, $48,000 and $35,000 and approximately 22,000, 23,000
and 18,000 shares were issued, respectively.
9. Related Party Transactions
Rent on the Norman, Oklahoma store and certain related facilities is paid
to parties related to the Company's Chairman. The store lease terms in 1997,
1996, and 1995, provided for payment of percentage rent equal to (four)
percent of sales plus certain ancillary costs. During the years ended
February 1, 1997, February 3, 1996, and January 28, 1995, the total of such
rent for the store and certain related facilities was approximately $137,000,
$140,000, and $133,000, respectively.
The Company leases certain office space, a distribution center facility
and retail space from a limited partnership whose partners are stockholders
and directors of the Company. The term of the office space lease is sixteen
years commencing April 1, 1996, with annual rent payments of $158,000 plus
insurance, utilities, and property taxes until April, 2000, at which time the
rent will be $180,000 plus insurance, utilities and property taxes, increasing
$2,500 per year until expiration of the lease. The term of the distribution
center lease is sixteen years commencing July 1, 1996, with annual rental
payments of $338,438 plus insurance, utilities and property taxes until July,
2001, at which time the annual rent will increase annually on a fixed scale up
to a maximum of $419,951 during the final year of the lease. The term of the
retail space lease is twelve years commencing June 4, 1996, with payment of
percentage rent equal to four percent of sales plus insurance, utilities, and
property taxes.
See note 12 for information concerning the employment contracts with the
Company's Chairman of the Board, Chief Executive Officer and President.
10. Facility Leases
The Company conducts a majority of its retail operations from leased
store premises under leases that will expire within the next ten years. In
addition to minimum rental payments, certain leases provide for payment of
taxes, maintenance, and percentage rentals based upon sales in excess of
stipulated amounts.
Minimum rental commitments (excluding renewal options) for store,
distribution premises, office space and equipment under noncancelable
operating leases having a term of more than one year as of February 1, 1997
were as follows (in thousands):
Fiscal year
ending:
1998 $ 3,874
1999 3,931
2000 3,972
2001 3,800
2002 3,662
2003 and 19,924
subsequent
Total $39,163
Total rental expense for the years ended February 1, 1997, February 3, 1996,
and January 28, 1995, was as follows (in thousands):
1997 1996 1995
Base rent $2,806 2,222 1,791
Additional amounts
computed 1,261 1,112 922
as percentage of
sales
Total $4,067 3,334 2,713
11. Business Concentrations
During fiscal 1997 and 1996, more than 95% and 90% respectively, of the
ladies' apparel sales were attributable to the Company's product development and
private label programs. The breakdown of total sales between ladies' and men's
apparel was approximately 78% and 22% for fiscal 1997 and 80% and 20% for
fiscal 1996, respectively.
The product development programs result in a substantial portion of the
Company's purchases of raw materials being concentrated among a small group of
vendors, of which some are located outside of the United States. CMT acts as
the Company's agent in the purchase of the raw materials, including fabrics,
linings, buttons, etc., and supervises the manufacturing process of the
Company's merchandise with manufacturing contractors. In the event of the
termination of the CMT relationship or other of the Company's vendors,
management believes that in most instances more than one new vendor would be
required to replace the loss of a principal vendor. Although management
believes that replacement vendors could be located, if any buying relationship
is terminated and until replacement vendors are located, the operating results
of the Company could be materially adversely affected.
The Company's sales are directly impacted by regional and local economics and
consumer confidence. The amount of disposable income available to consumers, as
well as their perception of the current and future direction of the economy,
impact their level of purchases. The consumer demand for the Company's apparel
fluctuates according to changes in customer preferences dictated by fashion and
season. In addition, the Company's sales are subject to seasonal influences,
with the major portion of sales being realized during the fall season, which
includes the back-to-school and the holiday selling seasons. Such fluctuations
could affect sales and the valuation of inventory, since the merchandise is
placed in the production process, or ordered, well in advance of the season and
sometimes before fashion trends are evidenced by consumer purchases.
12. Commitments and Contingent Liabilities
The Company issues letters of credit which are used principally in overseas
buying, cooperative buying programs, and for other contract purchases. At
February 1, 1997, the Company had outstanding, pursuant to such facility,
approximately $939,000 in letters of credit to secure orders of merchandise
from various domestic and international vendors.
The Company currently has an employment agreement with the Chairman of the
Board which continues until January 31, 1998. Pursuant to this agreement,
dated January 31, 1993, he is paid an annual salary of $180,000 plus an annual
performance bonus and deferred annual compensation of $25,000. Subject to
certain terms, at the end of the agreement, the Chairman's employment will be
converted to that of a part-time consultant for a period of ten years at an
annual salary of $50,000.
The Company also has employment agreements with the Chief Executive Officer
and the President which terminate on January 31, 1998. The Chief Executive
Officer's agreement, dated January 31, 1993, and amended January 31, 1995,
provides for annual compensation of $220,000 plus an annual performance bonus.
The President's agreement, dated January 31, 1993 and amended January 31,
1995, provides for annual compensation of $160,000 plus an annual performance
bonus. Neither of these contracts provides for deferred compensation or part-
time consultant positions after the termination dates of such contracts.
The Company is involved in various claims, administrative agency
proceedings and litigation arising out of the normal conduct of its business.
Although the ultimate outcome of such litigation cannot be predicted, the
management of the Company, after discussions with counsel, believes that
resulting liability, if any, will not have a material effect upon the
Company's financial position or results of operations.
13. Quarterly Financial Data (Unaudited - in thousands, except per share
data)
Summarized quarterly financial results are as follows:
First Second Third Fourth
52 Weeks Ended
February 1, 1997
Sales $24,52 22,391 29,397 31,947
2
Gross profit on 8,492 8,048 10,512 11,665
sales
Net earnings 606 578 1,144 1,200
Net earnings per .11 .10 .20 .21
common share
53 Weeks Ended
February 3, 1996
Sales $21,31 19,069 25,415 28,464
6
Gross profit on 7,448 6,970 9,065 10,336
sales
Net earnings 486 508 796 997
Net earnings per .09 .10 .15 .19
common share
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND CONSOLIDATED FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to directors and
executive officers of the Company is incorporated by reference to the
registrant's definitive proxy statement for its 1997 annual meeting of
stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
registrant's definitive proxy statement for its 1997 annual meeting of
stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
registrant's definitive proxy statement for its 1997 annual meeting of
stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
registrant's definitive proxy statement for its 1997 annual meeting of
stockholders.
PART IV.
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements. See Index to Consolidated
Financial Statements on page 16.
(2) Consolidated Financial Statement Schedule. The following financial
statement schedule for the 52 Weeks ended February 1,
1997, 53 Weeks ended February 3, 1996, and 52 Weeks ended January 28, 1995, is
included in this report after the
signature page:
Independent Auditors' Report on Consolidated Financial Statement
Schedule 35
Schedule II - Valuation Account 36
(3) Exhibits. Copies of the following documents are exhibits to this
report: (see Index to Exhibits on page 37).
Certain of the exhibits to this filing contain schedules which have been
omitted in accordance with applicable regulations.
The Company undertakes to furnish supplementary a copy of any omitted schedule
to the SEC upon request.
(b) Reports on Form 8-K: There were no reports on Form 8-K for the quarter
ended February 1, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
HAROLD'S STORES, INC.
By:/s/H. Rainey Powell, Date: April 30, 1997
H. Rainey Powell, President
Pursuant to the requirements of the Securities Exchange Act of 1934 this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities shown, and on the dates indicated.
Signature Title
Date
/s/ Harold G. Powell ________________________________________
Chairman of the Board and Director April 30, 1997
Harold G. Powell
/s/Rebecca P. Casey Chief Executive Officer and Director
April 30, 1997
Rebecca P. Casey
/s/H. Rainey Powell President, Chief Financial Officer
April 30, 1997
H. Rainey Powell and Director
/s/Lisa P. Hunt Director April 30,
1997
Lisa P. Hunt
/s/Kenneth C. Row Executive Vice President and Director
April 30, 1997
Kenneth C. Row
/s/Linda L. Daugherty Vice-President and Controller
April 30, 1997
Linda L. Daugherty (Chief Accounting Officer)
/s/Michael T. Casey Director April 30,
1997
Michael T. Casey
Director
Gary C. Rawlinson
/s/William F. Weitzel_______________________________________ Director
April 30, 1997
William F. Weitzel
/s/James R. Agar___________________________________________ Director
April 30, 1997
James R. Agar
Director
W. Howard Lester owar
/s/Robert Brooks Cullum, Jr.__________________________________ Director
April 30, 1997
Robert Brooks Cullum, Jr. owar
INDEPENDENT AUDITORS' REPORT ON CONSOLIDATED FINANCIAL
STATEMENT SCHEDULE
The Board of Directors and Stockholders
Harold's Stores, Inc.:
Under date of March 31, 1997, we reported on the consolidated balance sheets
of Harold's Stores, Inc. and subsidiaries as of February 1, 1997 and February
3, 1996, and the related consolidated statements of earnings, stockholders'
equity and cash flows for the 52 week period ended February 1, 1997, the 53
week period ended February 3, 1996, and the 52 week period ended January 28,
1995, which are included in the annual report on Form 10-K for the 52 week
period ended February 1, 1997. In connection with our audits of the
aforementioned consolidated financial statements, we also have audited the
related consolidated financial statement schedule listed in Item 14(a)(2) of
Form 10-K. This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this consolidated financial statement schedule based on our
audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK LLP
Oklahoma City, Oklahoma
March 31, 1997
Schedule II
HAROLD'S STORES, INC. AND SUBSIDIARIES
VALUATION ACCOUNT
(In Thousands)
Addit Additio
Balanc ions- ns- Deducti Balan
e at Charg Recover ons- ce at
Description Beginn ed to ies of Write- End
ing of Expen Account off of of
Period se s Account Perio
Written s d
Off
52 Weeks ended
February 1, 1997: $200 49 168 215
Allowance for 134
doubtful receivables
53 Weeks ended
February 3, 1996:
Allowance for $175 34 118 200
doubtful receivables 109
52 Weeks ended
January 28, 1995:
Allowance for $175 34 95 175
doubtful receivables 61
INDEX TO EXHIBITS
No. Description
3.1 Certificate of Incorporation of Registrant (Incorporated by
reference to Exhibit 3.1 to Form 8-B Registration Statements,
Registration No. 1-10892).
3.2 By-laws of Registrant (Incorporated by reference to Exhibit 3.2
to Form 8-B Registration Statement, Registration No. 1-10892).
4.1 Specimen Certificate for Common Stock (Incorporated by
reference to Exhibit 4.1 to Form S-1 Registration Statement,
Registration No. 33-15753).
9.1 Stockholders' Agreement Among Certain Stockholders of
Registrant dated August 20, 1987 (Incorporated by reference to
Exhibit 9.1 to Form S-1 Registration Statement, Registration
No. 33-15753).
10.1 Lease Agreement dated May 1, 1987 by and between Harold's of
Norman, Inc. and Powell Properties, Inc. (Incorporated by
reference to Exhibit 10.1 to Form S-1 Registration Statement,
Registration No. 33-15753).
10.2 Lease Agreement dated May 1, 1987 by and between Harold's of
Norman, Inc. and Ruby K. Powell (Incorporated by Reference to
Exhibit 10.2 to Form S-1 Registration Statement, Registration
No. 33-15753).
10.3 Lease Agreement dated October 31, 1985 by and between Harold's
Men's Apparel, Inc. predecessor to Harold's of Norman, Inc. and
Highland Park Shopping Village (Incorporated by Reference to
Exhibit 10.9 to Form S-1 Registration Statement, Registration
No. 33-15753) and Amendment to Lease dated June 15, 1988.
(Incorporated by reference to Exhibit 10.8 to Form 10-K for the
year ended January 31, 1989).
10.4 Lease Agreement dated November 1, 1990, by and between
Registrant and Michael T. Casey, Trustee (329 Partners-I
Limited Partnership). (Incorporated by reference to Exhibit
10.29 to Form 10-K for the year ended February 2, 1991).
10.5 Amended and Restated Lease Agreement dated April 1, 1996, by
and between Registrant and 329 Partners-II Limited
Partnership. (Dallas Buying Office). (Incorporated by
reference to Exhibit 10.22 to Form 10-K for the year ended
February 1, 1992).
10.6 Lease Agreement dated October 4, 1991, by and between
Registrant and 329 Partners-II Limited Partnership. (East
Lindsey Warehouse facility, Norman, Oklahoma). (Incorporated
by Reference to Exhibit 10.22 to Form 10-K for the year ended
February 1, 1992).
10.7 Lease Agreement effective May 1, 1996 between Registrant and
Carousel Properties, Inc. (Campus Corner Store, Norman,
Oklahoma) (Incorporated by reference to Exhibit 10.7 to Form s-
2 Registration Statement, Registration No. 333-04117) and
amendment to Lease Agreement dated June 28, 1996.
(Incorporated by reference to Exhibit 10.1 to Form 10-Q for
the quarter ended November 2, 1996).
10.8 Agreement effective June 1, 1994 between Registrant and CMT
Enterprises, Inc. (Incorporated by reference to Exhibit 10.8
to Form S-2 Registration Statement, Registration No. 333-
04117).
10.9 Employment and Deferred Compensation Agreement dated January
* 31, 1993 between Registrant and Harold G. Powell (Incorporated
by reference to Exhibit 10.21 to Form 10-K for year ended
January 30, 1993).
10.1 Employment and Deferred Compensation Agreement dated January
0* 31, 1993 between Registrant and Rebecca Powell Casey, as
amended by Amendment No. 1 dated as of April 28, 1995
(Incorporated by reference to Exhibit 10.10 to Amendment No. 1
to Form S-2 Registration Statement, Registration No. 333-
04117).
10.1 Employment and Deferred Compensation Agreement dated January
1* 31, 1993 between Registrant and H. Rainey Powell, as amended by
Amendment No. 1 dated as of April 28, 1995 (Incorporated by
reference to Exhibit 10.11 to Amendment No. 1 to Form S-2
Registration Statement, Registration No. 333-04117).
10.1 Form of Indemnification Agreement between Registrant and
2 members of its Board of Directors (Incorporated by reference to
Exhibit 10.12 to Form S-2 Registration Statement, Registration
No. 333-04117).
10.1 Amended and Restated Lease Agreement dated as of June 3, 1996
3 between Registrant and 329 Partners II Limited Partnership
(East Lindsey Warehouse Facility, Norman, Oklahoma)
(Incorporated by reference to Exhibit 10.13 to Amendment No. 1
to Form S-2 Registration Statement, Registration No. 333-
04117).
10.1 Lease Agreement dated as of May 31, 1996 between Registrant
4 and 329 Partners II Limited Partnership (Proposed Outlet
Store, Norman, Oklahoma) (Incorporated by reference to Exhibit
10.14 to Amendment No. 1 to Form S-2 Registration Statement,
Registration No. 333-04117).
10.1 Second Amended and Restated Credit Agreement dated February
5 28, 1996 between Registrant and Boatmen's First National Bank
of Oklahoma (Incorporated by reference to Exhibit 10.15 to
Amendment No. 1 to Form S-2 Registration Statement,
Registration No. 333-04117).
10.1 Amended and Restated Term Loan and Security Agreement dated as
6 of November 6, 1996 among CMT Enterprises, Inc. (as borrower),
Franklin I. Bober (as Guarantor) and the Company (as lender).
(Incorporated by reference to Exhibit 10.2 to Form 10-Q for
the quarter ended November 2, 1996).
22.1 Subsidiaries of the Registrant (Incorporated by Reference to
Exhibit 22.1 to Form 8-B Registration Statements, Registration
No. 1-10892).
23.1 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule.
___________________________
* Constitutes a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this report.
INDEPENDENT AUDITORS' CONSENT Exhibit 23.1
The Board of Directors and Stockholders
Harold's Stores, Inc.:
We consent to incorporation by reference in the registration statement
(No. 33-68604) on Form S-8 of Harold's Stores, Inc. of our reports dated
March 31, 1997, relating to the consolidated balance sheets of Harold's
Stores, Inc. and subsidiaries as of February 1, 1997, and February 3, 1996,
the related consolidated statements of earnings, stockholders' equity and
cash flows, and the related consolidated financial statement schedule for
the 52 week period ended February 1, 1997, the 53 week period ended February
3, 1996, and the 52 week period ended January 28, 1995, which reports appear
in the February 1, 1997, annual report on Form 10-K of Harold's Stores, Inc.
KPMG PEAT MARWICK LLP
Oklahoma City, Oklahoma
May 2, 1997