-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AAvNYlFkgAVDFYSl/psaINa9iMUjHMuhsslKMRncj5gN0nRSS8bSTFtHbFlO6lBB sSQ+I5wXBAxlrFjkZ4XM+w== 0000916641-96-000235.txt : 19960410 0000916641-96-000235.hdr.sgml : 19960410 ACCESSION NUMBER: 0000916641-96-000235 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960127 FILED AS OF DATE: 19960409 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: S&K FAMOUS BRANDS INC CENTRAL INDEX KEY: 0000723924 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-APPAREL & ACCESSORY STORES [5600] IRS NUMBER: 540845694 STATE OF INCORPORATION: VA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-11682 FILM NUMBER: 96545263 BUSINESS ADDRESS: STREET 1: 11100 W BROAD ST STREET 2: PO BOX 31800 CITY: RICHMOND STATE: VA ZIP: 23294-1800 BUSINESS PHONE: 8043462500 MAIL ADDRESS: STREET 1: P O BOX 31800 CITY: RICHMOND STATE: VA ZIP: 23294-1800 10-K405 1 S & K FAMOUS BRANDS, INC. 10-K405 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 27, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _________________ Commission File No. 0-11682 S & K FAMOUS BRANDS, INC. ------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Virginia 54-0845694 - ------------------------------ ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 11100 West Broad Street, P. O. Box 31800, Richmond, Virginia 23294-1800 - ---------------------------------------------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code: (804) 346-2500 ----------------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ----------------------------- ------------------------------------------ None Securities registered pursuant to Section 12(g) of the Act: Common Stock $.50 par value ----------------------------------------------------- (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ 1 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. (X) The aggregate market value of the voting stock held by nonaffiliates of the registrant as of April 3, 1996, was approximately $22,492,000. This figure was calculated by multiplying (i) the mean between the high and low prices for the registrant's common stock on April 3, 1996, as reported by the NASDAQ National Market System, by (ii) the number of shares of the registrant's common stock not held by the officers or directors of the registrant or any persons known to the registrant to own more than five percent of the outstanding common stock of the registrant. Such calculation does not constitute an admission or determination that any such officer, director or holder of more than five percent of the outstanding common stock of the registrant is an affiliate of the registrant. As of April 3, 1996, 5,066,371 shares of the registrant's Common Stock, $0.50 par value were outstanding. Documents Incorporated by Reference The portions of the 1995 Annual Report to Shareholders for the fiscal year ended January 27, 1996, referred to in Part II, are incorporated by reference into Part II. The portions of the Proxy Statement for the Company's Annual Meeting of Shareholders to be held on May 30, 1996, referred to in Part III, are incorporated by reference into Part III. 2 PART I. Item 1. Business (a) General Development of Business S & K Famous Brands, Inc. (the "Company") has been in business for twenty-nine years. The Company began operations with one store and presently operates 184 stores. The Company was incorporated in Virginia in 1970, as successor to a business established in 1967. As used herein, the term "Company" includes the Company and its predecessors. The Company's corporate headquarters is located at 11100 West Broad Street, Richmond, Virginia; the telephone number is (804) 346-2500. For a discussion of the Company's business and its development during the fiscal year ended January 27, 1996 ("fiscal 1996"), see "Narrative Description of Business." (b) Financial Information about Industry Segments The Company is engaged in one line of business, the retail sale of men's clothing, furnishings, sportswear and accessories. Accordingly, data with respect to separate industry segments is not applicable and has not been reported herein. (c) Narrative Description of Business GENERAL The Company is engaged in the retail sale of men's clothing, furnishings, sportswear and accessories through stores trading primarily as S & K Famous Brand Menswear (S & K). The Company sells in-season, firstquality, men's apparel, primarily with nationally recognized brand names, at 20% to 40% less than regular, full-priced department and specialty store prices. This apparel includes a full line of men's suits, sportcoats, slacks, shirts, ties, sportswear and related accessories. The Company's operations are generally conducted under the name S & K Famous Brand Menswear, but the Company does operate three stores under the name Menswear Mega Center. There are 184 stores in 27 states: Virginia, Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, West Virginia and Wisconsin. Except for one free-standing location, all of the S&K stores are located either in strip shopping centers or enclosed shopping malls. During fiscal 1996, the Company opened 20 new S & K stores and one new Menswear Mega Center, totaling 112,195 square feet, in the following localities: Florida: Jacksonville, Pensacola and Tampa market (which includes one store each in Brandon, Clearwater, St. Petersburg and Tampa) Illinois: Peoria Iowa: Des Moines Louisiana: Baton Rouge Maryland: New Carrollton (Menswear Mega Center) New York: Buffalo market (includes one store in Hamburg and two stores in Williamsville), Niagara Falls and Syracuse market (includes one store each in Clay and Dewitt) North Carolina: Durham Ohio: West Carrollton (Dayton market) Oklahoma: Tulsa Pennsylvania: Erie Texas: Austin 3 In fiscal 1996, the Company closed seven S&K stores totaling 23,690 square feet (Brunswick, Georgia; Moline, Illinois; Davenport, Iowa; Sikeston, Missouri; Winston-Salem (Hanes Mall), North Carolina; Brentwood, Tennessee (relocating in Spring 1996 to Mallory Corners Shopping Center); Richmond (Azalea Mall, Virginia). Additionally, the Company closed its two Menswear Mega Centers in the Chicago, Illinois market (Arlington Heights and Downers Grove) which totaled 35,410 square feet. These closed stores had not met the Company's sales and profitability expectations. The following table summarizes information concerning store openings and closings during the fiscal years presented:
Fiscal Year Ended Stores: 1/27/96 1/28/95 1/29/94 1/30/93 1/25/92 Open at beginning of year 172 154 127 117 101 Closed during year 9 4 1 3 3 Opened during year 21 22 28 13 19 Open at end of year 184 172 154 127 117 ============= ============ =============== ============= ============= Relocations 0 3 3 5 1
Average sales per selling square foot for the stores included in comparable store sales statistics were: $215, $212, $217, $221, and $210 in the fiscal years ended 1996 through 1992, respectively. Other than the general economic and competitive environment, average sales per selling square foot are primarily influenced by three factors: sales levels in existing stores from year to year; an increasing proportion of newer stores which, although profitable, might not have reached sales levels of more mature stores; and an increasing number of additional stores in existing markets, where the Company does not expect sales levels to be as high as in markets in which the Company operates a single store. The number of new stores opened in existing markets (which negatively impacted existing store sales while increasing total market sales) in fiscal years 1996, 1995 and 1994, were four, five, and eight, respectively. MERCHANDISE AND MARKETING The merchandise offered in the Company's stores feature a wide variety of nationally recognized labels from America's leading manufacturers as well as the Company's exclusive, private-labels. This first-quality merchandise is purchased directly from manufacturers or produced to S & K's specifications and sold at prices substantially lower than those regularly charged by department and specialty stores. The Company does not purchase any "seconds" or "irregulars". S & K offers a complete line of men's apparel: suits, sportcoats, furnishings, casual clothing and accessories. Additionally, the Company's "Corporate Casual" collection, which is sportcoat driven, responds to the trend toward relaxed dress codes in the workplace. S & K's sales associates provide the level and quality of customer service generally found only in exclusive men's clothing stores. These services include providing basic alterations at modest cost, soliciting comments from customers on their satisfaction with the merchandise and services, maintaining customer files on special preferences, and offering a liberal refund policy for returned merchandise, including a money-back guarantee. S & K also offers a Premiere Club for those customers who shop with the Company on a repeat basis. Members of the Premiere Club receive periodic mailings which usually contain special promotional opportunities, as well as free alterations for the life of garments purchased. 4 S & K uses television as its primary advertising media. Television may be occasionally supplemented by newspaper for certain promotions or special events such as grand openings. The Company also uses direct mail for Premiere Club promotions. The Premiere Club allows the Company to target customers who have been the most responsive and loyal to S & K in the past. The Company anticipates that its Premiere Club promotions will continue to increase and may ultimately serve as the basis for most future promotional efforts. In fiscal 1996 the Company continued to use Baseball Hall of Famer Johnny Bench as its advertising and marketing spokesperson. The S & K customer has been receptive to this association and the Company plans to continue this relationship in fiscal 1997. PURCHASING AND DISTRIBUTION Purchasing for all of the Company's stores is directed from the Company's headquarters in Richmond, Virginia, under the control of the Executive Vice President - Merchandising and Distribution. The Company purchases branded merchandise directly from a number of nationally recognized manufacturers. These purchases consist primarily of merchandise produced in volume specifically from orders placed by S & K well in advance of manufacturers' production cycles and to a much lesser extent from manufacturers' overstocks. S & K's advance purchasing enables manufacturers to fill the Company's orders during off-peak manufacturing periods. The Company believes these buying practices enable it to sell this merchandise at prices generally 20% to 40% below prices regularly offered by full-priced department and specialty stores. The Company also uses a number of high quality men's clothing factories which manufacture goods to its specifications for Company-owned labels, such as Tailors Row, Deansgate, Club Run, Cambridge Bay, Fenzia and others. The Tailors Row label, which includes suits, blazers and slacks, offers a 100% worsted wool product with an exceptional level of tailoring and complements the Company's other clothing lines. The Company also offers a similar product line using blended fabric under its Deansgate label. The various manufacturing programs enable the Company to better control the quality, selection and depth of its merchandise and supplement apparel purchased from brand name manufacturers. S & K works diligently to establish and maintain good vendor relationships. The Company purchases merchandise from approximately 150 vendors. Except for one vendor who accounted for approximately 16%, no other vendor exceeded 10% of the Company's purchases in fiscal 1996. S & K does not believe that the loss of any vendor would significantly impact the Company. The Company does not maintain any long-term purchase commitments or arrangements with any supplier and believes that there will be sufficient sources of merchandise to support its expansion plans with no adverse effect on its purchasing practices. S & K has a basic item replenishment program with its major suppliers for much of its merchandise to fulfill customers' needs on a timely basis and increase the Company's inventory turnover. Substantially all of the Company's merchandise is received centrally at its 110,000 square foot distribution center in Richmond, Virginia. While the Company does have a program in place to ship direct to certain stores from its vendors, most merchandise is sorted, priced (if not pre-ticketed by the vendor) and distributed from the distribution center. S & K's stores within an average 200 miles distance from Richmond receive merchandise twice a week with deliveries generally made by the Company's own trucks. Deliveries are made two to three times a week to stores outside this radius using common carriers or package delivery companies. In fiscal 1995, several enhancements were made in the distribution center including the reconfiguration of the shipping area, an additional interior deck and technology improvements. The Company believes that through these enhancements and the availability of direct vendor shipments to its stores that there is sufficient capacity for receiving, storing and shipping merchandise to support the Company's future expansion plans. 5 STORE OPERATIONS Each store is under the direction of a general manager who is supervised by a district manager. The district managers, who each generally supervise ten to fifteen stores, visit the stores frequently to review merchandise needs, personnel training and performance, and adherence to the Company's operating procedures. The Company uses a multi-disciplinary training course specifically developed for S & K associates. All store associates participate in this 75-day self study program, which the Company calls its "Gold Star" program. This program sets a personalized standard of performance for each sales associate on a weekly basis and closely monitors that progress. Additionally, throughout the year, the Company conducts numerous one-week, in-house training seminars for selected management trainees and full-time sales associates. These developmental programs are enhanced by continuous on-the-job training, video training and periodic, indistrict meetings conducted by district managers or Vice Presidents - Operations. Annually, all general managers are brought to Richmond to participate in a 4-day corporate training and team building session. The Company stresses promotion from within, and most of the Company's general managers and district managers have been promoted in this manner. S & K has cash bonuses and other incentive plans in effect for its store and district managers with awards based upon individual and store performance. Each store employs an average of six sales associates, some on a part-time basis. A weekly sales goal is established for each sales associate. The Company evaluates weekly productivity reports and conducts semi-annual Management by DevelopmentR goal reviews to apprise each associate of his or her performance. All sales are accepted with cash, personal checks or independent credit cards (Visa/Master Card/Discover). The Company assumes no credit risk on credit card purchases but pays a customary percentage of those sales to a credit card processor as a service charge. The Company has a liberal refund policy on returned merchandise. INFORMATION MANAGEMENT AND POINT-OF-SALE SYSTEM Inventory records are controlled centrally and updated daily utilizing an automated point-of-sale (POS) system. Each store's POS system is polled nightly by the Company's computerized information system. This system assimilates all data and interfaces with the Company's automated merchandise control, ordering, replenishment and open-to-buy systems. Semi-annual physical inventories are conducted in every store to verify and enhance the accuracy of the merchandise information system. Additionally, the store managers provide daily information to the central office where it is subjected to various sales, cash and inventory procedures. All stores have a POS system which includes automatic price lookup, the ability to scan barcoded merchandise price tickets, the ability to send and receive electronic mail, the ability to capture Premiere Club purchase activity and store productivity reporting capabilities. The Company is continuing to evaluate currently available POS technology and has identified productivity and customer service enhancements which could be customized to meet S&K's expectations. The Company expects to upgrade it's POS system and, following successful testing, convert a minimum of two districts in 1996. Upgrading all current stores is estimated to require a capital outlay of approximately $2.0 million and is expected to be completed between one to three years. 6 STORE EXPANSION The Company plans to continue its policy of pursuing suitable locations and opening new stores when attractive opportunities are presented. The general plan for expansion is to increase sales and market share through the development of additional store locations in both new and existing markets, subject to favorable economic conditions. The Company is currently seeking new S&K store locations in the eastern half of the United States. The criteria used in selecting sites for new stores include the geographic locations and the demographics and psychographic of the surrounding area. Based on S & K's research, the Company locates its stores in areas that appear most likely to be receptive to the Company's retailing strategy. With respect to store sites in shopping centers, the Company considers the principal anchor stores located in the center, tenant mix and the positioning of the Company's site within that center. The S & K stores are designed to provide what the Company believes is required by the modern-day value-conscious consumers of menswear. The Company's store formats are designed to attract a broad mix of customers by providing the customer with the opportunity to make purchases quickly during leisure time as well as having quality merchandise displayed in attractive store settings. Additionally, each store format incorporates the latest advances in merchandising techniques. The Company currently has three S&K formats: approximately 59% of the stores are considered to be traditional stores, 33% are outlets and 8% are superstores (which were redesigned and expanded in fiscal 1996). The 4,000 square foot traditional S & K store provides a specialty store setting and is generally located near regional malls in mid-size markets. The 3,500 square foot outlet store is located within outlet centers and is designed to attract the bargain shopper. The 5,500-6,500 square foot superstore carries a much broader merchandise assortment, especially in tailored clothing. The larger format enables the Company to use "shop concepts" within the store, i.e. - golf shop, formal shop, etc., as well as expand the presentation of its "Corporate Casual" collection. The Company currently has three stores operating under the name Menswear Mega Center in the Washington D.C. market. These stores, approximately five to six times larger than a traditional S & K store, carry significantly more merchandise, including over 8,000 suits and sportcoats and operate on a low-overhead concept in a no frills, warehouse-type environment. The Company is continuing to evaluate the Menswear Mega Center concept and currently has no additional locations planned for 1996. SEASONALITY The Company's business is highly seasonal, with peak sales periods occurring during the fourth fiscal quarter, which includes the Christmas season. The fourth fiscal quarter generally accounts for approximately 30-33% of the Company's net sales and 55-60% of its net earnings for a fiscal year. WORKING CAPITAL The Company has historically funded its working capital from internally generated funds and from bank borrowings and expects these sources to continue to be adequate for the foreseeable future. 7 COMPETITION The retail men's apparel business is highly competitive. The Company's stores compete with department stores, other men's specialty stores and discount clothing stores. The Company competes on the basis of price, quality and selection of merchandise, as well as customer service and store location. Many of its competitors are considerably larger than the Company and have substantially greater financial and other resources. At various times throughout the year, department store chains and full-priced specialty shops offer brand name merchandise at substantial markdowns, at times resulting in prices matching or less than those regularly offered by the Company. EMPLOYEES As of January 27, 1996, the Company had approximately 1,500 employees, more than half of whom worked part-time. A number of part-time employees are usually added during the Christmas holiday season. None of the Company's employees are covered by collective bargaining agreements. The Company considers its employee relations to be good. TRADEMARKS AND SERVICE MARKS The Company believes it has the right to use all trademarks and service marks necessary to conduct its business as currently operated. The Company considers these marks and the accompanying customer recognition and goodwill to be valuable to its business, particularly in the case of its "S&K"-related service marks and logos. The Company believes its existing rights to use such marks can be preserved through continued use of the marks and, where applicable, renewal of registrations. (d) Financial Information about Foreign and Domestic Operations and Export Sales The Company has no foreign operations or export sales. 8 Item 2. Properties All of the Company's stores are leased. Of the 184 stores, 150 are located in strip shopping centers, 33 are located in enclosed malls and one is free-standing. The square footage of the stores varies with store format. The traditional S&K store generally ranges in size from approximately 3,500 to 4,500 square feet, the outlet stores from 3,000 to 4,000 square feet and the superstores from 5,500 to 6,500 square feet. The Menswear Mega Centers range in size from approximately 17,700 to 22,400 square feet. All stores are located in close proximity to population centers, department stores and other retail operations and are often situated near a major highway or thoroughfare. As leases expire, the Company generally exercises a renewal option when desirable. It is S & K's strategy to negotiate its leases to include termination clauses exercisable within two years of initial occupancy. By exercising this termination clause when appropriate, S & K is able to minimize any long-term effect of opening an undesirable location which would be unable to meet volume and profitability expectations. Additionally, these termination clauses give the Company flexibility to relocate a store should a more attractive site become available in that market. In most cases, the Company's new stores have been profitable, on an operating basis, in the first quarter of their operation. The company closed seven S&K stores in fiscal 1996: Brunswick, Georgia; Moline, Illinois; Davenport, Iowa; Sikeston, Missouri; Winston-Salem (Hanes Mall), North Carolina; Brentwood, Tennessee; Richmond (Azalea Mall), Virginia. Additionally, the Company closed its two Menswear Mega Centers in the Chicago, Illinois market (Arlington Heights and Downers Grove). As of April 3, 1996, the Company operated 184 stores in 27 states. The following summary recaps the number of current locations by state. Number of stores Virginia .................................... 26 Alabama ...................................... 10 Arkansas .................................... 3 Florida ..................................... 18 Georgia .................................... 8 Illinois .................................... 6 Indiana ..................................... 6 Iowa ........................................ 2 Kansas ..................................... 1 Kentucky .................................... 2 Louisiana ................................... 6 Maine ....................................... 2 Maryland .................................... 2 Michigan .................................... 8 Mississippi ................................. 1 Missouri ..................................... 2 New Jersey .................................. 1 New York .................................... 15 North Carolina .............................. 20 Ohio ........................................ 9 Oklahoma .................................... 2 Pennsylvania ................................ 5 South Carolina .............................. 10 Tennessee .................................. 11 Texas ....................................... 4 West Virginia ............................... 1 Wisconsin ................................... 3 ----- Total ....................................... 184 9 Store leases generally provide for a base rent of between $6.00 and $21.00 per square foot. Most leases contain provisions which require the payment of a percentage of sales as additional rent, generally when sales reach specified levels. The Company's executive offices are located at its Corporate Headquarters and Central Distribution Center in Richmond, Virginia, and are owned by the Company. The total facility contains approximately 130,000 square feet, with the distribution center occupying approximately 110,000 of that square footage. Item 3. Legal Proceedings There are no legal proceedings against the Company which are expected to have a material adverse effect upon the Company or its financial condition. Item 4. Submission of Matters to a Vote of Security Holders None. 10 EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company who serve at the discretion of the Board of Directors are as follows: Stuart C. Siegel, 53, is Chairman of the Board of Directors of the Company, and is Chief Executive Officer. Donald W. Colbert, 46, is President and Chief Operating Officer and is a director of the Company. Robert E. Knowles, 46, is Executive Vice President, Chief Financial Officer, Secretary and Treasurer. Mr. Knowles is a Certified Public Accountant. Robert J. Taphorn, 50, has been Executive Vice President in charge of merchandising and distribution since January 1994. Prior to January 1994, he was a National Merchandise Manager in charge of home fashions for the catalog division of Sears, Roebuck and Company from April 1992 to July 1993. Prior to April 1992, he was Senior Vice President and General Merchandise Manager for Emporium Weinstocks, a department store chain in California. Harry S. Shendow, 62, is Senior Vice President--Merchandise. Weldon J. Wirick, III, 45, is Senior Vice President--Operations. 11 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters Please see page 8 of the 1995 Annual Report to Shareholders under the caption "Price Ranges of Common Shares," which is incorporated herein by reference. Item 6. Selected Financial Data Please see page 6 of the 1995 Annual Report to Shareholders under the caption "Five-Year Summary of Selected Financial Data," which is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Please see pages 7 - 8 of the 1995 Annual Report to Shareholders under the caption "Management's Discussion and Financial Review," which is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data Please see Part IV, Item 14 (a) 1., captioned "Financial Statements," for a list of financial statements which are incorporated herein by reference from the 1995 Annual Report to Shareholders. Please see page 12 of the 1995 Annual Report to Shareholders under the caption "Quarterly Financial Data (unaudited)," which is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 12 PART III Item 10. Directors and Executive Officers of the Registrant Please see page 4 of the registrant's definitive Proxy Statement under the caption "Information Regarding Nominees", for information concerning directors, which is incorporated herein by reference. Please see section entitled "Executive Officers of the Registrant" in Part I of this report for information concerning executive officers. Item 11. Executive Compensation Please see page 6 and page 10 of the registrant's definitive Proxy Statement under the captions "Executive Compensation" and "Compensation Committee Interlocks and Insider Participation," which are incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Please see pages 2 - 3 of the registrant's definitive Proxy Statement under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management," which is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Please see page 5 and page 8 of the registrant's definitive Proxy Statement under the captions "Certain Relationships and Related Transactions" and "Stock Purchase Loan Plan" which are incorporated herein by reference. 13 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Documents filed as part of this report:
Page in Annual Report 1. Financial Statements: The following financial statements of S & K Famous Brands, Inc. and report of independent accountants, included in the registrant's 1995 Annual Report to Shareholders are incorporated by reference in Item 8: Statements of Income for the fiscal years ended January 27, 1996, 9 January 28, 1995 and January 29, 1994. Statements of Changes in Shareholders' Equity for the fiscal years 9 ended January 27, 1996, January 28, 1995 and January 29, 1994. Balance sheets at January 27, 1996 and January 28, 1995. 10 Statements of Cash Flows for the fiscal years ended January 27, 1996, January 28, 1995 and January 29, 1994. 11 Notes to Financial Statements 12 - 15 Report of Independent Accountants 15 2. Financial Statement Schedules: None. 3. Exhibits required to be filed by Item 601 of Regulation S-K: See INDEX TO EXHIBITS
(b) Reports on Form 8-K filed during the last quarter of the year ended January 27, 1996. None. Except for the information referred to in Items 5, 6, 7, 8 and 14(a) 1. hereof, the 1995 Annual Report to Shareholders for the fiscal year ended January 27, 1996 shall not be deemed to be filed pursuant to the Securities Exchange Act of 1934. 14 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. S & K FAMOUS BRANDS, INC. Date: April 9, 1996 /s/ Stuart C. Siegel ------------------------------- STUART C. SIEGEL Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date: April 9, 1996 /s/ Robert E. Knowles -------------------------------- ROBERT E. KNOWLES Executive Vice President, Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer) Date: April 9, 1996 /s/ Janet L. Jorgensen ------------------------------- JANET L. JORGENSEN Vice President - Controller (Principal Accounting Officer) 15 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: April 9, 1996 /s/ Stuart C. Siegel ---------------------------------- STUART C. SIEGEL, Chairman of the Board of Directors Date: April 9, 1996 /s/ Robert L. Burrus, Jr. ---------------------------------- ROBERT L. BURRUS, JR., Director Date: April 9, 1996 /s/ Donald W. Colbert ---------------------------------- DONALD W. COLBERT, President and Chief Operating Officer, Director Date: April 9, 1996 /s/ Selwyn S. Herson ---------------------------------- SELWYN S. HERSON, Director Date: April 9, 1996 /s/ Andrew M. Lewis ---------------------------------- ANDREW M. LEWIS, Director Date: April 9, 1996 /s/ Richard L. Sharp ---------------------------------- RICHARD L. SHARP, Director Date: April 9, 1996 /s/ Marshall B. Wishnack ---------------------------------- MARSHALL B. WISHNACK, Director 16 INDEX TO EXHIBITS Exhibit No. (3) Articles of incorporation and bylaws a. Registrant's Amended and Restated Articles of Incorporation, filed as Exhibit 3(a) to registrant's Registration Statement on Form S-1, No. 2-85291, are expressly incorporated herein by this reference. b. Registrant's Articles of Amendment to its Amended and Restated Articles of Incorporation, filed as Exhibit 4(b) to registrant's Registration Statement on Form S-8 (No. 33-23918), are expressly incorporated herein by this reference. c. Registrant's Articles of Amendment to its Amended and Restated Articles of Incorporation, filed as Exhibit 3(c) to the registrant's Form 10-K for the year ended January 29, 1994, are expressly incorporated herein by this reference. d. Bylaws of registrant as amended, filed as Exhibit 3(b) to the registrant's Form 10-K for the year ended January 25, 1986 (File #0-11682), are expressly incorporated herein by this reference. e. Amendments to registrant's Bylaws, filed as Exhibit 4.5 to the registrant's Registration Statement on Form S-8 (No. 33-72270), are expressly incorporated herein by this reference. (4) Instruments defining the rights of security holders, including indentures. a. Credit Agreement dated as of August 31, 1990, between the registrant and Signet Bank/Virginia, filed as Exhibit 4(a) to the registrant's Quarterly Report on Form 10-Q for the quarter ended October 27, 1990, is expressly incorporated herein by this reference. b. Bond Purchase Agreement and Agreement of Sale dated December 1, 1983, by and among registrant and Industrial Development Authority of the County of Henrico, Virginia, Bank of Virginia, and Bank of Virginia Trust Company, filed as Exhibit 2(d) to registrant's Form 8-A Registration Statement (File #0-11682), is incorporated herein by this reference. c. First Amendment to Bond Purchase Agreement and Agreement of Sale dated November 1, 1984, by and among registrant, Industrial Development Authority of the County of Henrico, Virginia, and United Virginia Bank (now Crestar Bank), filed as Exhibit 19 to the registrant's Quarterly Report on Form 10-Q for the quarter ended October 27, 1984 (File #0-11682), is expressly incorporated herein by this reference. d. Credit Agreement dated as of March 10, 1994, between the registrant and Crestar Bank, filed as Exhibit 4(d) to the registrant's Form 10-K for the year ended January 29, 1994, is expressly incorporated herein by this reference. e. First Amendment to Credit Agreement dated as of March 10, 1994, between the registrant and Signet Bank/Virginia, filed as Exhibit 4(e) to the registrant's Form 10-K for the year ended January 29, 1994, is expressly incorporated herein by this reference. 17 (10) Material Contracts a. Lease dated November 7, 1980, between registrant and Stuart C. Siegel and amendment dated July 1, 1983, filed as Exhibit 10(e) to registrant's Form S-1 Registration Statement (File #2-85291) and as Exhibit (10)(e)(1) to Amendment No. 1 to registrant's Registration Statement on Form S-1 (File #2-85291), respectively, are expressly incorporated herein by reference. * b. Deferred compensation agreements dated February 1, 1988, between registrant and the following officers of the registrant: Stuart C. Siegel, Donald W. Colbert, Robert E. Knowles, Harry S. Shendow, Weldon J. Wirick, III, and James D. Moore, Jr. filed as Exhibit 19(a) to registrant's Quarterly Report on Form 10-Q for the quarter ended April 30, 1988 (File #0-11682), is expressly incorporated herein by this reference. * c. 1983 Stock Option Plan as amended on May 28, 1987, filed as Exhibit 10(c) to registrant's Annual Report on Form 10-K for the year ended January 30, 1988 (File #0-11682), is expressly incorporated herein by this reference. * d. Executive Split Dollar Life Insurance Plan and Executive Split Dollar Life Insurance Agreement, dated May 1, 1990, between registrant and Stuart C. Siegel with a schedule of other participants and their respective coverage amounts, filed as Exhibit 10(e) to registrant's Annual Report on Form 10-K for the year ended January 30, 1993 (File #0-11682), is expressly incorporated herein by this reference. * e. 1991 Stock Option Plan, filed as Exhibit 19 to registrant's Quarterly Report on Form 10-Q for the quarter ended July 27, 1991 (File #0-11682), is expressly incorporated herein by this reference. * f. Amendment to 1991 Stock Option Plan, filed as Exhibit 19 to registrant's Quarterly Report on Form 10-Q for the quarter ended May 1, 1993 (File #0-11682), is expressly incorporated herein by this reference. * g. Stock Purchase Loan Plan filed as Exhibit A to the registrant's definitive proxy statement for the Annual Meeting of Shareholders held on May 25, 1995 (file #0-11682) is incorporated herein by this reference. (13) Annual report to security holders, Form 10-Q or quarterly report to security holders a. Registrant's 1995 Annual Report to its Shareholders for the fiscal year ended January 27, 1996. (23) Consents of Experts and Counsel a. Consent of Independent Accountants (27) Financial Data Schedule * Management contract or compensatory plan or arrangement of the Company required to be filed as an exhibit. 18 EX-13 2 ANNUAL REPORT FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
Fiscal Year Ended (Dollar amounts in thousands except per share data) ---------------------------------------------------------------------------------------- JANUARY 27, January 28, January 29, January 30, January 25, 1996 1995 (1) 1994 (1) 1993 (1) 1992 (1) -------------- ---------------- --------------- --------------- --------------- INCOME STATEMENT DATA: Net sales ............................... $ 122,759 $ 112,416 $ 98,976 $ 87,024 $ 75,069 Cost of sales............................ 67,896 64,078 55,202 47,893 42,048 Gross profit............................. 54,863 48,338 43,774 39,131 33,021 Selling, general and administrative expenses............... 47,279 42,084 36,001 31,647 26,764 Interest................................. 797 740 467 345 489 Depreciation............................. 2,174 2,008 1,615 1,382 1,287 Net income............................... 2,731 2,350 3,610 3,448 2,677 INCOME PER SHARE DATA: Net income............................... $.55 $.49 $.75 $.72 $.57 Weighted average shares outstanding 4,989,222 4,835,143 4,801,268 4,756,080 4,725,604 BALANCE SHEET DATA: Working capital.......................... $ 33,046 $ 34,644 $ 33,815 $ 26,289 $ 19,311 Inventories.............................. 39,702 40,397 38,595 32,174 27,113 Net property and equipment............... 15,092 14,799 13,831 11,581 11,488 Total assets............................. 60,598 60,341 56,482 47,090 41,425 Long-term debt (including current maturities)................... 9,121 12,963 13,343 7,336 3,590 Shareholders' equity..................... 40,372 37,559 35,042 30,903 27,322 Book value per share..................... 7.98 7.76 7.27 6.49 5.78 Current ratio............................ 4.3:1 4.9:1 5.6:1 4.3:1 3.0:1 NUMBER OF STORES OPEN AT END OF PERIOD......................... 184 172 154 127 117
(1) During the first quarter of fiscal 1996, the Company changed its method of determining the cost of inventory. See Notes to Financial Statements - Note 2. The change has been applied retroactively and decreased net income amounts previously reported as follows: $198,000 or $.04 per share in fiscal 1995; $404,000 or $.09 per share in fiscal 1994; $150,000 or $.04 per share in fiscal 1993 and $121,000 or $.02 per share in fiscal 1992. MANAGEMENT'S DISCUSSION AND FINANCIAL REVIEW RESULTS OF OPERATIONS The following table sets forth certain items in the Statements of Income as a percentage of net sales for fiscal years 1996, 1995, and 1994.
Percentage of Net Sales ----------------------------------------------------- Fiscal Year Ended ----------------------------------------------------- 1/27/96 1/28/95 1/29/94 ------------- --------------- ------------- Net sales........................................ 100.0 100.0 100.0 Cost of sales..................................... 55.3 56.9 55.8 ------------- --------------- ------------- Gross profit .................................... 44.7 43.1 44.2 Other costs and expenses: Selling, general and administrative 38.5 37.4 36.4 Interest........................................ 0.6 0.7 0.5 Depreciation.................................... 1.8 1.8 1.6 Other (income) expense, net..................... 0.2 (0.2) (0.2) ------------- --------------- ------------- Income before income taxes........................ 3.6 3.4 5.9 Provision for income taxes........................ 1.4 1.3 2.3 ------------- --------------- ------------- Net income........................................ 2.2 2.1 3.6 ============= =============== =============
YEAR ENDED JANUARY 27, 1996 COMPARED TO YEAR ENDED JANUARY 28, 1995 Net sales increased by 9% or $10.3 million, from fiscal 1995 to fiscal 1996. The increase in net sales reflects the net addition of 12 new stores in fiscal 1996. The Company opened 21 new stores and closed nine stores including the year end closing of the Brentwood, Tennessee store which will be relocated in Spring 1996. These closed stores had not met the Company's sales and profitability expectations and included the two Menswear Mega Centers (MMC) in the Chicago, Illinois market. Comparable store sales were up 4%. Sales were positively impacted by strong suit sales while sportswear and seasonal merchandise were below expectations. Cost of sales in fiscal 1996 was 55.3% of net sales compared to 56.9% of net sales in fiscal 1995. This 1.6% of net sales reduction was primarily the result of improved initial markup on inventory purchased. Selling, general and administrative expenses in fiscal 1996 were 38.5% of net sales compared to 37.4% of net sales in fiscal 1995. This 1.1% of net sales increase was primarily attributable to increased levels of advertising as part of the Company's ongoing strategy to increase customer traffic and market share. To a lesser degree, the increase was due to higher store salaries to attract and retain employees, offset in part by the leveraging of fixed headquarters salaries on higher sales. Interest expense was .6% of net sales in fiscal 1996 compared to .7% in fiscal 1995. The Company's 14% reduction in average borrowings from $11 million in fiscal 1995 to $9.5 million in fiscal 1996 offset the 26% increase in average borrowing rates. Other, net consists of other expense of .2% of net sales in fiscal 1996 compared to other income of .2% of net sales in fiscal 1995. This increase in costs is primarily due to the closing of nine stores in fiscal 1996 compared to other income last year related to an insurable loss in which claim proceeds exceeded the net book value of the Company's assets. The effective tax rate increased to 38.0% in fiscal 1996 from 37.6% in fiscal 1995 and was primarily attributable to shifts in the percentage of income allocated to states with higher tax rates. YEAR ENDED JANUARY 28, 1995 COMPARED TO YEAR ENDED JANUARY 29, 1994 Net sales increased by 14% or $13.4 million, from fiscal 1994 to fiscal 1995. The increase in net sales reflected the net addition of 18 new stores in fiscal 1995 including the relocation of three stores and the closure of four others which had not met the Company's sales and profitability expectations. Comparable store sales were down 2%. Sales were primarily impacted by a general softness in consumer demand for men's clothing in the Company's trading areas, and to a lesser degree, lower sportswear sales than planned due to unseasonable weather. Cost of sales in fiscal 1995 was 56.9% of net sales compared to 55.8% of net sales in fiscal 1994. This change was the result of the increased mix of lower margin sales from the four MMC stores and increased markdowns taken to clear seasonal merchandise. In fiscal 1994, only one MMC store was open the full 12 months while three more stores were added late that year. Selling, general and administrative expenses in fiscal 1995 were 37.4% of net sales compared to 36.4% of net sales in fiscal 1994. This increase was the net result of increased levels of advertising in order to increase market share, offset by lower professional expenses. Interest expense was .7% of net sales in fiscal 1995 compared to .5% of net sales in fiscal 1994. This increase resulted from higher interest rates and higher average revolver borrowings which approximated $11.0 million in fiscal 1995 and $8.0 million in fiscal 1994. The effective tax rate decreased to 37.6% in fiscal 1995 from 38.1% in fiscal 1994 and was attributable to a continued shift in the percentage of income in states with lower tax rates and other adjustments. LIQUIDITY AND CAPITAL RESOURCES In fiscal 1996, the Company funded its operating activities, including capital expenditures for the opening of new stores, from internally generated funds and from bank borrowings. During fiscal 1996, the Company opened 20 new S&K stores, one new MMC store in Washington, DC and remodeled 12 other S&K stores including two existing superstores. Additionally, the Company closed nine stores, six of which occurred in the fourth quarter (including the two MMC stores in Chicago, Illinois). The Company believes that its sources of liquidity and capital resources will continue to be sufficient to fund its operations and capital expenditures. Operating activities provided net cash of $7.2 million and $4.0 million in fiscal 1996 and 1995, respectively, but used net cash of $1.9 million in fiscal 1994. The change between fiscal 1996 and 1995 was primarily attributable to reduced inventory growth. The change between fiscal 1995 and 1994 was the net result of reduced inventory growth offset in part by the fiscal 1995 net income decrease. Net cash used in investing activities for the last three fiscal years was primarily for the purpose of store expansion and approximated $3.3 million, $3.4 million and $4.2 million, respectively. Fiscal 1995's capital expenditures also included $.4 million related to enhancements at the Distribution Center. The $.8 million decrease between fiscal 1995 and 1994 resulted from the purchase of property and equipment for 25 new stores in fiscal 1995 compared to 28 in the prior year (three of which were larger MMC stores). Financing activities used net cash of $4.0 million and $.4 million in fiscal 1996 and 1995 respectively, but provided net cash of $6.0 million in fiscal 1994. Financing activities primarily relate to fluctuations in the principal of the Company's revolving credit agreements. The Company's unsecured revolving credit agreements with two banks aggregate $23.0 million. The Company has the right at the end of May 1997 to convert the revolving credit agreements to four-year term loans. At the end of fiscal 1996, the Company had $17.3 million available for use under its bank revolving lines of credit. OTHER MATTERS Historically, inflation has not significantly affected the Company's gross margins. When necessary, the Company has generally been able to pass through price increases as the cost of merchandise has increased. PRICE RANGES OF COMMON SHARES S&K Famous Brands, Inc. common shares are traded over-the-counter and are listed on the Nasdaq National Market system under the symbol "SKFB." The following table is a quarterly composite of high and low stock prices.
Fiscal Year Ended January ----------------------------------------------------------------------------------- Quarter 1996 1995 ------- ------------------------------------ ------------------------------------ High Low High Low ----------- ---------- ----------- ----------- First.................................. 7 1/2 6 1/2 14 1/2 10 1/4 Second................................. 9 1/4 7 12 1/2 9 1/4 Third.................................. 9 3/8 7 1/2 10 7 1/2 Fourth................................. 8 1/2 5 3/4 10 1/4 6
As of January 27, 1996, there were approximately 2,600 holders of S&K common stock, including approximately 435 holders of record. The number of record holders does not reflect the number of beneficial owners of the Company's common stock for whom shares are held by Cede & Co., certain brokerage firms and others. The Company has not declared cash dividends and anticipates that for the foreseeable future it will continue to follow its present policy of retaining earnings in order to finance the expansion and development of its business. STATEMENTS OF INCOME
Fiscal Year Ended ---------------------------------------------------------------- JANUARY 27, January 28, January 29, 1996 1995 1994 ------------------ ------------------- ------------------ NET SALES............................................. $ 122,758,840 $ 112,416,382 $ 98,976,288 Cost of sales......................................... 67,895,644 64,077,834 55,202,010 ------------------ ------------------- ------------------ Gross profit.......................................... 54,863,196 48,338,548 43,774,278 Other costs and expenses: Selling, genereral and administrative .............. 47,278,871 42,083,756 36,000,808 Interest ........................................... 797,279 740,437 467,458 Depreciation and amortization 2,173,646 2,007,871 1,614,780 Other (income) expense, net 207,941 (257,282) (143,837) ------------------ ------------------- ------------------ Income before income taxes............................ 4,405,459 3,763,766 5,835,069 Provision for income taxes............................ 1,674,000 1,413,900 2,224,800 ------------------ ------------------- ------------------ NET INCOME............................................ $ 2,731,459 $ 2,349,866 $ 3,610,269 ================== =================== ================== NET INCOME PER COMMON SHARE........................... $ 0.55 $ 0.49 $ 0.75 ================== =================== ================== Weighted average common shares outstanding.................. 4,989,222 4,835,143 4,801,268 ================== =================== ==================
See Notes to Financial Statements. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Common Stock Capital in Notes Receivable ------------------------- Excess of Stock Purchase Retained Shares Amount Par Value Loan Plan Earnings Total ---------- ------------ ------------- --------------- -------------- --------------- Balance -- January 30, 1993 .......... 4,762,434 $2,381,217 $ 5,707,808 $ 22,814,153 $ 30,903,178 Net income ......................... 3,610,269 3,610,269 Issuances of common stock ......... 4,338 2,169 71,035 73,204 Exercise of stock options ......... 53,912 26,956 428,393 455,349 ---------- ------------ ------------- --------------- -------------- ------------- Balance -- January 29, 1994 ......... 4,820,684 2,410,342 6,207,236 26,424,422 35,042,000 Net income ........................ 2,349,866 2,349,866 Issuances of common stock ......... 2,761 1,381 33,477 34,858 Exercise of stock options ......... 15,000 7,500 124,574 132,074 ---------- ------------ ------------- --------------- -------------- -------------- Balance -- January 28, 1995 ......... 4,838,445 2,419,223 6,365,287 28,774,288 37,558,798 Net income ........................ 2,731,459 2,731,459 Issuances of common stock ......... 5,714 2,857 37,141 39,998 Issuances of common stock under the stock purchase loan plan ........ 214,275 107,137 1,392,787 1,499,924 Notes receivable - stock purchase .. $ (1,499,924) (1,499,924) Reduction of notes receivable ...... 41,460 41,460 ---------- ------------ ------------- --------------- -------------- -------------- BALANCE -- JANUARY 27, 1996 .......... 5,058,434 $2,529,217 $ 7,795,215 $ (1,458,464) $ 31,505,747 $ 40,371,715 ========== ============ ============= =============== ============== ==============
See Notes to Financial Statements. BALANCE SHEETS
JANUARY 27, January 28, 1996 1995 ----------------- ----------------- ASSETS CURRENT ASSETS: Cash.......................................................... $ 520,005 $ 584,887 Accounts receivable........................................... 609,194 320,199 Merchandise inventories....................................... 39,701,702 40,397,436 Other current assets.......................................... 2,299,519 2,263,805 ----------------- ----------------- Total current assets....................................... 43,130,420 43,566,327 PROPERTY AND EQUIPMENT, NET........................................ 15,091,661 14,799,145 OTHER ASSETS ...................................................... 2,376,115 1,975,313 ----------------- ----------------- $ 60,598,196 $ 60,340,785 ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt ......................... $ 180,000 $ 180,000 Accounts payable ............................................. 6,360,399 5,632,133 Accrued compensation and related items........................ 1,273,585 980,365 Current and deferred income taxes ............................ 1,010,152 1,120,887 Other current liabilities..................................... 1,260,258 1,009,159 ----------------- ----------------- Total current liabilities.................................. 10,084,394 8,922,544 LONG-TERM DEBT..................................................... 8,941,276 12,783,498 DEFERRED INCOME TAXES.............................................. 1,200,811 1,075,945 COMMITMENTS SHAREHOLDERS' EQUITY: Preferred stock, $1 par value; authorized shares, 500,000; issued and outstanding shares, none....................... Common stock, $.50 par value; authorized shares, 10,000,000; issued and outstanding shares, 5,058,434 (1996) and 4,838,445, (1995)......................................... 2,529,217 2,419,223 Capital in excess of par value................................ 7,795,215 6,365,287 Notes receivable -- Stock Purchase Loan Plan ................. (1,458,464) Retained earnings............................................. 31,505,747 28,774,288 ----------------- ----------------- 40,371,715 37,558,798 ----------------- ----------------- $ 60,598,196 $ 60,340,785 ================= =================
See Notes to Financial Statements. STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash
Fiscal Year Ended --------------------------------------------------------- JANUARY 27, January 28, January 29, 1996 1995 1994 ------------------- ------------------ ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................. $ 2,731,459 $ 2,349,866 $ 3,610,269 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization....................... 2,569,107 2,363,117 1,912,071 Loss on property dispositions, (net) 412,967 41,082 4,292 Other............................................... 122,778 113,682 105,262 Changes in assets and liabilities: Accounts receivable.............................. (288,995) 124,101 (104,605) Merchandise inventories ......................... 695,734 (1,802,625) (6,420,542) Other current assets............................. (35,714) (596,172) (384,346) Other assets..................................... (400,802) (435,833) (246,614) Accounts payable and accrued expenses............ 1,354,043 1,769,683 (349,850) Income taxes and deferred income taxes........... 14,131 23,245 (22,135) -------------- ------------ ---------------- Net cash provided by (used for) operating activities 7,174,708 3,950,146 (1,896,198) -------------- ------------ ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures................................... (3,293,317) (3,427,782) (4,179,042) Proceeds from property dispositions.................... 18,727 55,159 12,882 -------------- ------------ ---------------- Net cash used for investing activities................. (3,274,590) (3,372,623) (4,166,160) -------------- ------------ ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (paydowns) borrowings under revolving bank lines of credit............................. (3,785,000) (313,000) 6,082,000 Proceeds from exercise of stock options................ 95,438 146,555 Reduction of long-term debt............................ (180,000) (180,000) (180,000) -------------- ------------ ---------------- Net cash (used for) provided by financing activities (3,965,000) (397,562) 6,048,555 -------------- ------------ ---------------- Net (decrease) increase in cash......................... (64,882) 179,961 (13,803) Cash at beginning of period............................. 584,887 404,926 418,729 -------------- ------------ ---------------- Cash at end of period................................... $ 520,005 $ 584,887 $ 404,926 ============== ============ ================ SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest............................................ $ 810,000 $ 707,000 $ 446,000 Income taxes........................................ 1,680,000 1,409,000 2,260,000
See Notes to Financial Statements. QUARTERLY FINANCIAL DATA (unaudited) Summarized quarterly financial data for fiscal 1996 and 1995 are as follows: (in thousands except per share data)
1996 APRIL 29 JULY 29 OCTOBER 28 JANUARY 27 ---- ---------- ----------- ----------- ---------- NET SALES ....................... $28,746 $ 27,267 $ 28,236 $ 38,510 GROSS PROFIT ................... 12,891 12,145 12,634 17,193 NET INCOME ..................... 695 436 43 1,557 NET INCOME PER SHARE ........... .14 .09 .01 .31 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING .................... 4,840 5,000 5,058 5,058
1995 April 30 July 30 October 29 January 28 ---- -------- ---------- ---------- ---------- Net sales ....................... $ 24,688 $ 24,822 $ 27,158 $35,748 Gross profit ................... 10,702 10,668 11,627 15,341 Net income ..................... 439 233 288 1,390 Net income per share ........... .09 .05 .06 .29 Weighted average common shares outstanding .................... 4,825 4,838 4,838 4,838
NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: PRINCIPAL BUSINESS S&K Famous Brands, Inc.(the Company) is engaged in the retail sale of men's clothing, furnishings, sportswear and accessories. The Company's fiscal year is the 52 or 53 week period which ends on the last Saturday in January. Fiscal years 1996, 1995 and 1994 were all 52 week periods. 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 amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. MERCHANDISE INVENTORIES Inventories are valued at the lower of average cost or market. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation for financial reporting purposes is computed using both straight line and accelerated methods over the estimated service lives which are between 25 and 40 years for buildings and between five and seven years for furniture, fixtures and equipment. Leasehold improvements are generally amortized over an eight year period or the life of the lease if shorter. Repair and maintenance expenditures are charged to expense as incurred. Upon retirement or sale of an asset, its cost and related accumulated depreciation are written off and any gain or loss is recognized. PRE-OPENING STORE COSTS Costs associated with the opening of new stores are carried as prepaid expenses and charged to expense upon store opening. ADVERTISING COSTS Advertising expenditures are expensed in the period in which the advertisement initially runs. Advertising expense of $10.0 million, $8.4 million and $6.7 million, respectively, was included in selling, general and administrative expenses in each of the last three fiscal years. Deferred advertising costs included in the balance sheets were less than $200,000. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (FAS109), "Accounting for Income Taxes". Deferred income taxes reflect the effect of temporary differences in the carrying amount of assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax purposes, tax effected at income tax rates currently in effect. EARNINGS PER SHARE Earnings per share of common stock and common stock equivalents are calculated using the weighted average number of common shares outstanding during each period. Common stock equivalents are excluded from weighted average shares due to insignificance. NOTE 2 - MERCHANDISE INVENTORIES: During the first quarter of fiscal 1996, the Company changed its method of determining the cost of the majority of its inventories to the average cost method. The Company had previously determined the cost of inventories using the last-in, first-out (LIFO) retail inventory method. Under the retail LIFO inventory method, the Company had not experienced significant inflation in retail prices in recent years. At the same time, the Company had experienced cost reductions for certain goods as a result of volume and inventory sourcing efficiencies. Under the average cost method, the Company tracks inventory costs for approximately 130 inventory categories which are used to classify the Company's inventory. Management believes that reporting inventories using the average cost method will result in better matching of revenues and costs and reporting on a basis more consistent with other companies in its industry. The change in the method of valuing inventories has been applied retroactively and the effect on net income decreased amounts previously reported by $198,100 or $.04 per share in fiscal 1995 and $404,300 or $.09 per share in fiscal 1994. The balances of retained earnings for fiscal 1995 and 1994 have been adjusted for the effect (net of income taxes) of applying retroactively the new method of accounting. The Company capitalizes certain buying, holding and distribution costs to inventory which at the end of the last three fiscal years were approximately $2.0 million, $2.0 million and $1.8 million, respectively. Buying, holding and distribution costs charged to cost of sales in each of the fiscal years were approximately $3.4 million, $3.3 million and $3.0 million, respectively. NOTE 3 - PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
JANUARY 27, January 28, 1996 1995 -------------------- -------------------- Land............................................................. $ 721,891 $ 721,891 Corporate headquarters........................................... 4,403,150 4,408,935 Furniture, fixtures and equipment................................ 10,934,539 10,415,365 Leasehold improvements........................................... 11,651,414 10,227,203 -------------------- -------------------- 27,710,994 25,773,394 Less - accumulated depreciation and amortization 12,619,333 10,974,249 -------------------- -------------------- $ 15,091,661 $ 14,799,145 ==================== ====================
Depreciation and amortization expense of $396,000, $355,000 and $297,000, respectively, was included in cost of sales for each of the last three fiscal years. NOTE 4 - LONG-TERM DEBT: Long-term debt consists of:
JANUARY 27, January 28, 1996 1995 -------------------- ------------------- Industrial Development Revenue Bond; $45,000 of principal plus interest at 65% of prime, due quarterly to January 1, 2010, secured by land and corporate headquarters..................... $ 2,520,000 $ 2,700,000 Bank Revolving Lines of Credit................................... 5,714,000 9,499,000 Other............................................................ 887,276 764,498 -------------------- ------------------- 9,121,276 12,963,498 Less - current maturities........................................ 180,000 180,000 -------------------- ------------------- $ 8,941,276 $ 12,783,498 ==================== ===================
The Company has available an aggregate of $23.0 million from two banks under its unsecured bank revolving lines of credit. Interest is payable monthly at a rate equal to the lower of the 30 day Federal Funds Rate plus one percent or the banks' prime interest rate. The Company's financing agreements contain certain restrictive covenants, none of which is presently significant to the Company. At the Company's option, any outstanding balance at May 31, 1997 is convertible to four-year term loans at the banks' prime interest rate and is payable in 16 quarterly installments. At January 27, 1996, maturities of long-term debt, exclusive of the bank revolving lines of credit, were $180,000 for each of the next five fiscal years. NOTE 5 - PROFIT SHARING AND OTHER BENEFIT PROGRAMS: The Company maintains a noncontributory profit sharing plan for all employees who meet age and service requirements. Contributions to the plan are determined annually by the Board of Directors and were $75,000, $60,000 and $50,000, respectively, in each of the last three fiscal years. Additionally, the profit sharing plan includes a qualified salary reduction plan under Section 401(k) of the Internal Revenue Code. Eligible participants in the Company's 401(k) Plan can elect to invest 1% to 15% of their pre-tax earnings. The Company's contribution to the 401(k) Plan is at the discretion of the Board of Directors, who authorized contributions of the Company's common stock in the amount of $50,000, $40,000 and $35,000, respectively, in each of the last three fiscal years. The Company has receivables from certain officers in the amount of $345,000, $327,000 and $270,000, respectively, in each of the last three fiscal years, relating to premiums paid under split dollar life insurance policies. Deferred compensation expense relating to agreements with certain executive officers of the Company approximated $123,000, $114,000 and $105,000, respectively, in each of the last three fiscal years. NOTE 6 - STOCK OPTIONS AND STOCK PURCHASE LOAN PLAN: The Company's stock option plan provides for the granting of up to 650,000 common shares to key management employees. Options to purchase the Company's stock are granted at no less than the market value at the date of grant, are exercisable after one to three years and expire after eight to ten years. Changes in options under the plan for the three years ended January 27, 1996 were as follows:
Options Grant Price -------------- ---------------------- Outstanding - January 30, 1993 ................ 299,700 $ 4.81 - $ 7.69 Granted ....................................... 60,000 $21.75 Exercised ..................................... (66,300) $ 4.81 - $ 7.69 - -------------------------------------------------------- -------------- ---- ---------------------- Outstanding - January 29, 1994 ................ 293,400 $ 6.00 - $21.75 Granted ....................................... 120,000 $ 9.00 Exercised ..................................... (15,000) $ 6.00 - $ 7.69 - -------------------------------------------------------- -------------- ---- ---------------------- Outstanding - January 25, 1995 ................ 398,400 $ 6.00 - $21.75 Granted ....................................... 77,000 $ 8.31 Surrendered ................................... (7,000) $ 6.19 - $ 9.00 - -------------------------------------------------------- -------------- ---- ---------------------- Outstanding - January 27, 1996 ................ 468,400 $ 6.00 - $21.75 - -------------------------------------------------------- -------------- ---- ---------------------- Exercisable - January 27, 1996 ................ 293,400 $ 6.00 - $21.75
Under the Company's Stock Purchase Loan Plan the Company issued 214,275 shares of stock to seventeen Company officers and has loans with these officers approximating $1.5 million. The Plan provides for reduction of a portion of interest on the loans based on meeting certain operating targets, as well as, some forgiveness of the principle balance of the loan if the officer remains an employee of the Company for seven years and maintains ownership of the stock. At the end of fiscal 1996, the Company has interest receivable from these seventeen officers in the amount of $87,000. NOTE 7 - PROVISION FOR INCOME TAXES: Significant components of the Company's deferred income tax liabilities (assets) are as follows:
JANUARY 27, January 28, January 29, 1996 1995 1994 ----------------- ----------------- ------------------- Deferred tax liabilities: Depreciation ............................. $ 1,473,000 $ 1,302,000 $ 1,173,000 Other items ............................. 544,000 614,000 540,000 ----------------- ----------------- ------------------- Total deferred tax liabilities 2,017,000 1,916,000 1,713,000 Deferred tax assets ....................... (379,000) (314,000) (284,000) ----------------- ----------------- ------------------- Net deferred tax liabilities .............. $ 1,638,000 $ 1,602,000 $ 1,429,000 ================= ================= ===================
The provision for income taxes consists of:
Fiscal Year Ended ------------------------------------------------------------------ JANUARY 27, January 28, January 29, 1996 1995 1994 ----------------- ----------------- ------------------- Current: Federal ................................ $ 1,272,000 $ 1,024,600 $ 1,729,400 State .................................. 366,000 216,300 381,400 ----------------- ----------------- ------------------- 1,638,000 1,240,900 2,110,800 Deferred ................................. 36,000 173,000 114,000 ----------------- ----------------- ------------------- $ 1,674,000 $ 1,413,900 $ 2,224,800 ================= ================= =================== The effective income tax rates consist of:
Fiscal Year Ended ------------------------------------------------------------------ JANUARY 27, January 28, January 29, 1996 1995 1994 ----------------- ----------------- ------------------- Income taxes at federal Statutory rate (34%) .................... $ 1,498,000 $ 1,279,700 $ 1,983,900 State income taxes, Net of federal benefit ................. 245,000 155,300 244,900 Other - net ............................... (69,000) (21,100) (4,000) ----------------- ----------------- ------------------- $ 1,674,000 $ 1,413,900 $ 2,224,800 ================= ================= =================== Effective income tax rate ................. 38.0% 37.6% 38.1% ================= ================= ===================
NOTE 8 - COMMITMENTS: The Company leases all of its stores under varying terms and arrangements which generally provide renewal options and contingent rentals based on a percentage of gross sales. Total rent expense under the leases approximated $7.8 million, $7.0 million and $5.7 million in each of the last three years, respectively. The future minimum payments under operating leases as of the end of fiscal 1996 are as follows: Fiscal Year Amounts ----------- -------- 1997 ........................................... $ 8,351,000 1998 ........................................... 6,831,000 1999 .......................................... 5,289,000 2000 .......................................... 3,452,000 2001 .......................................... 2,245,000 Thereafter .................................... 1,345,000 --------------- $ 27,513,000 =============== The Company leases two properties from a shareholder and an immediate family member. Rent expense included approximately $197,000, $198,000 and $194,000 in fiscal 1996, 1995 and 1994, respectively, paid to these related parties. Additionally, the Company is obligated under the lease agreements to pay minimum rentals to the related parties of approximately $210,000 per year through fiscal 2002 and $70,000 per year thereafter through fiscal 2006. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders S & K Famous Brands, Inc. In our opinion, the accompanying balance sheets and the related statements of income, of changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of S & K Famous Brands, Inc. at January 27, 1996 and January 28, 1995, and the results of its operations and its cash flows for each of the three years in the period ended January 27, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 2 to the financial statements, the Company changed its method of accounting for inventories from the last-in, first-out retail inventory method to the average cost method. Price Waterhouse LLP Norfolk, Virginia March 8, 1996 EX-23 3 EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (Nos. 2-93013, 33-23918, 33-72270 and 33-58703) of S & K Famous Brands, Inc. of our report dated March 8, 1996, appearing on page 15 of the 1995 Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. PRICE WATERHOUSE LLP Norfolk, Virginia April 8, 1996 19 EX-27 4 EXHIBIT 27
5 1 YEAR JAN-28-1995 JAN-29-1995 JAN-27-1996 520,005 0 609,194 0 39,701,702 43,130,420 27,710,994 12,619,333 60,598,196 10,084,394 0 0 0 2,529,217 37,842,498 60,598,196 122,758,840 122,758,840 67,895,644 67,895,644 49,660,458 0 797,279 4,405,459 1,674,000 2,731,459 0 0 0 2,731,459 0.55 0.55
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