-----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, LFL8c29GZQ6zkvCvzOYlRcjBkeHWgK5t8/iMOtjO1zq/1Omi3Id1eftgArR18WZQ NAfZqmFcdyWJDu/VJVU73A== 0000916641-97-000361.txt : 19970414 0000916641-97-000361.hdr.sgml : 19970414 ACCESSION NUMBER: 0000916641-97-000361 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970125 FILED AS OF DATE: 19970411 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: 97578618 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 FORM 10-K 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 25, 1997 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 _____ 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 9, 1997, was approximately $21,298,000. This figure was calculated by multiplying (i) the mean between the high and low prices for the registrant's common stock on April 9, 1997, as reported by The Nasdaq National Market, 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 9, 1997, 5,071,508 shares of the registrant's Common Stock, $0.50 par value were outstanding. Documents Incorporated by Reference The portions of the 1996 Annual Report to Shareholders for the fiscal year ended January 25, 1997, 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 29, 1997, 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 thirty years. The Company began operations with one store and presently operates 195 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 25, 1997 ("fiscal 1997"), 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 tailored 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 tailored clothing, furnishings, sportswear and accessories through stores trading primarily as S & K Famous Brand Menswear (S & K). The Company sells in-season, first-quality, 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. There are 195 stores in 26 states: Virginia, Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, West Virginia and Wisconsin. Except for two locations, all of the S & K stores are located either in strip shopping centers or enclosed shopping malls. During fiscal 1997, the Company opened 18 new S & K stores, totaling 78,155 square feet, in the following localities: Arkansas: Fort Smith and Little Rock Florida: Lakeland Georgia: Macon Indiana: Indianapolis (includes three stores in this market) Michigan: Howell and Walker New York: Cheektowago (Buffalo market) North Carolina: Greensboro Ohio: Columbus Pennsylvania: Harrisburg and Scranton Tennessee: Brentwood and Jackson Texas: Hillsboro West Virginia: Huntington In addition, the Company expanded three stores in the following locations (converting them to the superstore concept): Columbus, Ohio; Raleigh, North Carolina and South Bend, Indiana, adding 7,452 square feet. 3 In fiscal 1997, the Company closed five S & K stores totaling 19,500 square feet: two stores were closed due to not meeting the Company's sales and profitability expectations (Fort Pierce and Kissimmee, Florida); two stores were relocated and converted into superstores (Little Rock, Arkansas and Greensboro, North Carolina); and a store located in Columbia, South Carolina was closed due to a landlord's request to buyout the lease. Additionally, the Company's three remaining Menswear Mega Centers (totaling 57,940 square feet) were closed because they had not met the Company's sales and earnings expectations. The following table summarizes information concerning store openings and closings during the fiscal years presented:
Fiscal Year Ended Stores: 1/25/97 1/27/96 1/28/95 1/29/94 1/30/93 ------- ------- ------- ------- ------- Open at beginning of year 184 172 154 127 117 Closed during year 8 9 4 1 3 Opened during year 18 21 22 28 13 Open at end of year 194 184 172 154 127 ============= ============ =============== ============= ============= Relocations 2 0 3 3 5
Average sales per selling square foot for the stores included in comparable store sales statistics were: $218, $215, $212, $217, and $221 in the fiscal years ended 1997 through 1993, 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 1997, 1996 and 1995, were three, four, and five, 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 as to 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 throughout the year 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 as well as prospective customer mailings. The direct mail programs allow the Company to target Premiere Club customers who have been the most responsive and loyal to S & K in the past or potential customers who fit the Company's demographic profile. The Company anticipates that its direct mail promotions will continue to increase and may ultimately serve as the basis for most future promotional efforts. Baseball Hall of Famer, Johnny Bench, is the advertising and marketing spokesperson for the Company. The S & K customer has been receptive to this association and the Company plans to continue this relationship in fiscal 1998. 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 - Merchandise. The Company purchases branded merchandise directly from a number of nationally recognized manufacturers. These purchases consist primarily of merchandise produced 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, Roberto Villini, Club Run, Fenzia and others. The Tailors Row label (as well as Tailors Row Finery), 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. Additionally, in fiscal 1997 the Company introduced its Johnny Bench label which was developed to appeal to mainstream America and has been initially used on sportcoats and slacks and is being expanded to include suits. 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 135 vendors. Except for one vendor who accounted for approximately 16%, no other vendor exceeded 10% of the Company's purchases in fiscal 1997. 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 the 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 mile radius of Richmond receive merchandise once a week with deliveries generally made by the Company's own trucks. Deliveries are made one to two times a week to stores outside this radius using common carriers or package delivery companies. The Company continually enhances and refines its allocation and distribution processes (generally through technology improvements in recent years). 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 one of the three 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. Physical inventories are conducted in every store two times a year 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 working with a POS systems provider to develop and customize an enhanced POS store system. This new system facilitates enhanced and expanded customer tracking, employee productivity reporting and automated point of sale markdowns, as well as several new modules which include a merchandise locator service, alterations and scheduling. This system was installed as a test in five stores during 1996. The Company is evaluating the results in these stores and following successful testing expects to convert approximately four districts in 1997. 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 existing and new 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 psychographics 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 valueconscious 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 55% of the stores are considered to be traditional stores, 31% are outlets and 14% are superstores. 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 5,000-6,500 square foot superstore carries a much broader merchandise assortment, especially in tailored clothing. The larger format also enables the Company to use "shop concepts" within the store, i.e. - golf shop, formal shop, shoes, etc., as well as expand the presentation of its "Corporate Casual" collection. 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 50-55% 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. 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 25, 1997, the Company had approximately 1,600 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. 7 Information Regarding Forward-Looking Statements The provisions of the Private Securities Litigation Reform Act of 1995 (the "Act"), which became law in late December 1995, provide companies with a "safe harbor" when making forward-looking statements. This "safe harbor" encourages companies to provide prospective information about their companies without fear of litigation. The Company wishes to take advantage of the new "safe harbor" provisions of the Act and is including this section in its Annual Report on Form 10-K in order to do so. Company statements that are not historical facts, including statements about management's expectations for fiscal year 1998 and beyond, are forward-looking statements and involve various risks and uncertainties. Factors that could cause the Company's actual results to differ materially from management's projections, forecasts, estimates and expectations include, but are not limited to, the following: (a) changes in the amount and degree of promotional intensity exerted by current competitors and potential new competition many of whom are, or may be, larger and have greater financial and marketing resources; (b) changes in general U.S. economic conditions including, but not limited to, consumer credit availability, interest rates, inflation, and consumer sentiment about the economy in general; (c) changes in availability of working capital and capital expenditure financing, including the availability of the Company's existing working capital credit facility to support development of retail stores; (d) changes in the availability on acceptable terms of appropriate real estate locations for expansion; (e) the presence or absence of new products or product features in the merchandise categories the Company sells and changes in the Company's actual merchandise sales mix, including the trend toward corporate casual attire; (f) changes in availability of or access to both domestic and foreign sources of merchandise inventory; (g) the ability to maintain an effective leadership team in a dynamic environment of changes in the cost or availability of a suitable work force to manage and support the Company's service-driven operating strategy; (h) changes in production or distribution costs of the Company's advertising; (i) unusual weather patterns. The United States retail industry and the specialty apparel retail industry in particular are dynamic by nature and have undergone significant changes in recent years. The Company's ability to anticipate and successfully respond to continuing challenges is key to achieving its expectations. 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 195 stores are leased. With the exception of 2 locations, all the stores are located in strip shopping centers or enclosed malls. 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. 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 five S & K stores in fiscal 1997: Little Rock, Arkansas; Fort Pierce and Kissimmee, Florida; Greensboro, North Carolina; and Columbia, South Carolina. Additionally, the Company closed the remaining three Menswear Mega Centers in the Washington, DC market (Alexandria and Bailey's Crossroads, Virginia, and New Carrollton, Maryland.) As of March 30, 1997, the Company operated 195 stores in 26 states. The following summary recaps the number of current locations by state. Number of stores Virginia .............................................. 25 Alabama ................................................ 10 Arkansas .............................................. 4 Florida ............................................... 17 Georgia .............................................. 9 Illinois .............................................. 6 Indiana ............................................... 9 Iowa .................................................. 2 Kansas ............................................... 1 Kentucky .............................................. 2 Louisiana ............................................. 6 Maine ................................................. 2 Michigan .............................................. 10 Mississippi ........................................... 1 Missouri ............................................... 2 New Jersey ............................................ 1 New York .............................................. 16 North Carolina ........................................ 21 Ohio .................................................. 10 Oklahoma .............................................. 2 Pennsylvania .......................................... 7 South Carolina ........................................ 9 Tennessee ............................................ 13 Texas ................................................. 5 West Virginia ......................................... 2 Wisconsin ............................................. 3 ----- Total ................................................. 195 9 Store leases generally provide for a base rent of between $6.00 and $21.50 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, 54, is Chairman of the Board of Directors of the Company, and is Chief Executive Officer. Donald W. Colbert, 47, is President and Chief Operating Officer and is a director of the Company. Robert E. Knowles, 47, is Executive Vice President, Chief Financial Officer, Secretary and Treasurer. Mr. Knowles is a Certified Public Accountant. Robert J. Taphorn, 51, 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, 63, is Senior Vice President--Merchandise. Weldon J. Wirick, III, 46, 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 1996 Annual Report to Shareholders under the caption "Price Ranges of Common Shares," which is incorporated herein by reference. During the fiscal year ended January 25, 1997, the Company contributed 7,937 shares of its common stock to the S&K Famous Brands Employees' Profit Sharing/Savings Plan. The contribution was exempt from registration pursuant to section 3 (a) 2 of the Securities Act of 1933, as amended, because the Plan does not permit employee contributions to be invested in the Company's securities. Item 6. Selected Financial Data Please see page 6 of the 1996 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 1996 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 1996 Annual Report to Shareholders. Please see page 12 of the 1996 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 pages 4 - 5 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 pages 7 - 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: 1. Financial Statements: The following financial statements of S & K Famous Brands, Inc. and report of independent accountants, included in the registrant's 1996 Annual Report to Shareholders are incorporated by reference in Item 8:
Page in Annual Report Statements of Income for the fiscal years ended January 25, 1997, January 27, 1996 and January 28, 1995. 9 Statements of Changes in Shareholders' Equity for the fiscal years 9 ended January 25, 1997, January 27, 1996 and January 28, 1995. 10 Balance Sheets at January 25, 1997 and January 27, 1996. 11 Statements of Cash Flows for the fiscal years ended January 25, 1997, January 27, 1996 and January 28, 1995. 12 - 15 Notes to Financial Statements 15 Report of Independent Accountants 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 25, 1997. None.
Except for the information referred to in Items 5, 6, 7, 8 and 14(a) 1. hereof, the 1996 Annual Report to Shareholders for the fiscal year ended January 25, 1997 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 11, 1997 /s/ Stuart C. Siegel ------------------------------ STUART C. SIEGEL Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date: April 11, 1997 /s/ Robert E. Knowles ------------------------------ ROBERT E. KNOWLES Executive Vice President, Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer) Date: April 11, 1997 /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 11, 1997 /s/ Stuart C. Siegel ------------------------------ STUART C. SIEGEL, Chairman of the Board of Directors Date: April 11, 1997 /s/ Robert L. Burrus, Jr. ------------------------------ ROBERT L. BURRUS, JR., Director Date: April 11, 1997 /s/ Donald W. Colbert ------------------------------ DONALD W. COLBERT, President and Chief Operating Officer, Director Date: April 11, 1997 /s/ Selwyn S. Herson ------------------------------ SELWYN S. HERSON, Director Date: April 11, 1997 /s/ Andrew M. Lewis ------------------------------ ANDREW M. LEWIS, Director Date: April 11, 1997 /s/ Steven A. Markel ------------------------------ STEVEN A. MARKEL, Director Date: April 11, 1997 /s/ Troy A. Peery ------------------------------ TROY A. PEERY, Director Date: April 11, 1997 /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 f. Extension letter dated July 30, 1996, to the Credit Agreement dated as of March 10, 1994, between the registrant and Crestar Bank, filed as Exhibit 4 (a) to the registrant's Quarterly Report on Form 10-Q for the quarter ended July 27, 1996, is expressly incorporated herein by this reference. g. Second Amendment to Credit Agreement dated July 15, 1996, between registrant and Signet Bank filed as Exhibit 4 (b) to the registrant's Quarterly Report on Form 10-Q for the quarter ended July 27, 1996, is expressly incorporated herein by this reference. (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 1996 Annual Report to its Shareholders for the fiscal year ended January 25, 1997. (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 TO SHAREHOLDERS FINANCIAL HIGHLIGHTS
Fiscal Year Ended (Dollar amounts in thousands, except per share data) ------------------------------------------------------------ January 25, January 27, January 28, 1997 1996 1995 (1) ------------------ ---------------- ----------------- Net sales ..................... $ 130,222 $ 122,759 $ 112,416 Income before taxes ........... 7,294 4,405 3,764 Net income .................... 4,610 2,731 2,350 Net income per share .......... .91 .55 .49 Working capital ............... 33,804 33,046 34,644 Total assets .................. 62,429 60,598 60,341 Shareholders' equity .......... 45,109 40,372 37,559 Number of stores .............. 194 184 172
(1) Amounts have been restated to reflect the Company's change in its method of determining the cost of inventory effective first quarter of fiscal 1996. FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
Fiscal Year Ended (Dollar amounts in thousands except per share data) --------------------------------------------------------------------- January 25, January 27, January 28, January 29, January 30, 1997 1996 1995 (1) 1994 (1) 1993 (1) ------------ ----------- ----------- ----------- ----------- INCOME STATEMENT DATA: Net sales ................................... $ 130,222 $ 122,759 $ 112,416 $ 98,976 $ 87,024 Cost of sales................................ 69,954 67,896 64,078 55,202 47,893 Gross profit................................. 60,268 54,863 48,338 43,774 39,131 Selling, general and administrative expenses................... 51,779 47,279 42,084 36,001 31,647 Interest..................................... 546 797 740 467 345 Depreciation and amortization ............... 2,242 2,174 2,008 1,615 1,382 Net income................................... 4,610 2,731 2,350 3,610 3,448 INCOME PER SHARE DATA: Net income................................... $ 0.91 $ 0.55 $ 0.49 $ 0.75 $ 0.72 Weighted average shares outstanding 5,065,521 4,989,222 4,835,143 4,801,268 4,756,080 BALANCE SHEET DATA: Working capital.............................. $ 33,804 $ 33,046 $ 34,644 $ 33,815 $ 26,289 Inventories.................................. 41,511 39,702 40,397 38,595 32,174 Net property and equipment................... 14,755 15,092 14,799 13,831 11,581 Total assets................................. 62,429 60,598 60,341 56,482 47,090 Long-term debt (including current maturities)....................... 5,360 9,121 12,963 13,343 7,336 Shareholders' equity......................... 45,109 40,372 37,559 35,042 30,903 Book value per share......................... 8.90 7.98 7.76 7.27 6.49 Current ratio................................ 4.1:1 4.3:1 4.9:1 5.6:1 4.3:1 Number of stores open at end of period............................. 194 184 172 154 127
(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 and $150,000 or $.04 per share in fiscal 1993. 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 1997, 1996, and 1995.
Percentage of Net Sales ----------------------------------------------------- Fiscal Year Ended ----------------------------------------------------- 1/25/97 1/27/96 1/28/95 ------------- --------------- ------------- Net sales........................................ 100.0 100.0 100.0 Cost of sales..................................... 53.7 55.3 56.9 ------------- --------------- ------------- Gross profit .................................... 46.3 44.7 43.1 Other costs and expenses: Selling, general and administrative 39.8 38.5 37.4 Interest........................................ 0.4 0.6 0.7 Depreciation and amortization .................. 1.7 1.8 1.8 Other (income) expense, net..................... (1.2) 0.2 (0.2) ------------- --------------- ------------- Income before income taxes........................ 5.6 3.6 3.4 Provision for income taxes........................ 2.1 1.4 1.3 ------------- --------------- ------------- Net income........................................ 3.5 2.2 2.1 ============= =============== =============
Year Ended January 25, 1997 Compared to Year Ended January 27, 1996 Net sales increased by 6% or $7.5 million, from fiscal 1996 to fiscal 1997. The increase in net sales reflects the net addition of ten new stores in fiscal 1997. The Company opened 18 new stores and closed eight stores (including the three remaining Menswear Mega Centers (MMC) in the Washington, DC market, three S&K locations which had not met the Company's sales and profitability expectations and two relocations). Comparable store sales were up 5%. Sales were positively impacted by strong suit sales and an aggressive marketing campaign. Cost of sales in fiscal 1997 was 53.7% of net sales compared to 55.3% of net sales in fiscal 1996. This 1.6% of net sales reduction was primarily due to a reduction in lower margin MMC sales this year as the Company closed down that operation. Selling, general and administrative expenses in fiscal 1997 were 39.8% of net sales compared to 38.5% of net sales in fiscal 1996. This 1.3% of net sales increase was primarily attributable to a reduction in lower overhead MMC sales, higher advertising costs associated with an aggressive marketing campaign which was directed at increasing market share and higher compensation incentives, and to a lesser extent, increased medical claims. Interest expense was .4% of net sales in fiscal 1997 compared to .6% of net sales in fiscal 1996. This .2% of net sales decrease resulted from a 34% reduction in average borrowings from $9.5 million in fiscal 1996 to $6.3 million in fiscal 1997 and a 9% decrease in average borrowing rates. Other, net consists of other income of 1.2% of net sales in fiscal 1997 compared to other expense of .2% of net sales in fiscal 1996. Fiscal 1997's other income primarily consists of three non-recurring items: $747,000 ($463,000 after tax, or $0.09 per share) gain, net of related expenses and corporate incentives, associated with the lease buyout of a former MMC location; $336,000 ($208,000 after tax or $.04 per share) gain, net of related expenses, associated with the lease buyout of a former S&K store; and $295,000 of non-taxable ($.06 per share) insurance proceeds from a life insurance policy. Fiscal 1996's other expense included closing costs associated with nine stores (including two MMC locations in Chicago, Illinois.) The effective tax rate decreased to 36.8% in fiscal 1997 from 38.0% in fiscal 1996 and was attributable to the non-taxable, non-recurring insurance proceeds disclosed in other, net above. 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 reflected 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 was relocated in Spring 1996. These closed stores had not met the Company's sales and profitability expectations and included the two MMC locations 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% of net sales in fiscal 1995. The Company's 14% reduction in average borrowings from $11.0 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 in fiscal 1995 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. LIQUIDITY AND CAPITAL RESOURCES In fiscal 1997, 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 1997, the Company opened 18 new S&K stores, converted four existing stores to its superstore format and remodelled eight other S&K stores. Additionally, the Company closed eight stores (including the three MMC stores in Washington D.C.). 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 for the last three fiscal years provided net cash of $6.3 million, $7.2 million and $4.0 million, respectively. The decrease between fiscal 1997 and 1996 was primarily attributable to higher net income being more than offset by increased inventory purchases. The increase between fiscal 1996 and 1995 was primarily the result of reduced inventory growth. Net cash used in investing activities for the last three fiscal years was primarily for the purpose of store expansion and approximated $2.4 million, $3.3 million and $3.4 million, respectively. Fiscal 1996 included two more stores (one of which was a larger MMC store) and greater remodeling costs than fiscal 1997. Net cash used for financing activities for the last three fiscal years was $3.9 million, $4.0 million and $.4 million, respectively. 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 $25.0 million. The Company has the right at the end of May 1998 to convert the revolving credit agreements into term loans ranging from three to four years. At the end of fiscal 1997, the Company had $23.0 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 1997 1996 ------- ------------------------------------ ------------------------------------ High Low High Low -------------- ------------ ----------- ----------- First......................... 8 1/2 5 5/8 7 1/2 6 1/2 Second........................ 10 13/15 7 3/4 9 1/4 7 Third......................... 9 1/8 7 3/8 9 3/8 7 1/2 Fourth........................ 10 1/2 7 7/8 8 1/2 5 3/4
As of January 25, 1997, there were approximately 2,200 holders of S&K common stock, including approximately 360 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 (in thousands, except per share data)
Fiscal Year Ended -------------------------------------------------------- January 25, January 27, January 28, 1997 1996 1995 ----------------- --------------- --------------- NET SALES............................................. $ 130,222 $ 122,759 $ 112,416 Cost of sales......................................... 69,954 67,896 64,078 ----------------- --------------- --------------- Gross profit.......................................... 60,268 54,863 48,338 Other costs and expenses: Selling, general and administrative............... 51,779 47,279 42,084 Interest.......................................... 546 797 740 Depreciation and amortization..................... 2,242 2,174 2,008 Other (income) expense, net (1,593) 208 (258) ----------------- --------------- --------------- Income before income taxes............................ 7,294 4,405 3,764 Provision for income taxes............................ 2,684 1,674 1,414 ----------------- --------------- --------------- Net income............................................ $ 4,610 $ 2,731 $ 2,350 ================= =============== =============== Net income per common share........................... $ 0.91 $ 0.55 $ 0.49 ================= =============== =============== Weighted average common shares outstanding............ 5,066 4,989 4,835 ================= =============== ===============
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (in thousands)
Common Stock Capital in Notes Receivable ---------------- Excess of Stock Purchase Retained Shares Amount Par Value Loan Plan Earnings Total ------ ------ ----------- --------------- ---------- --------- Balance -- January 29, 1994 .................. 4,820 $2,410 $6,207 $26,425 $35,042 Net income ................................. 2,350 2,350 Issuances of common stock ................. 3 1 33 34 Exercise of stock options ................. 15 8 125 133 ------ ------ --------- ---------- ------- -------- Balance -- January 28, 1995 ................. 4,838 2,419 6,365 28,775 37,559 Net income ................................ 2,731 2,731 Issuances of common stock ................. 6 3 37 40 Issuances of common stock under the stock purchase loan plan ............ 214 107 1,393 1,500 Notes receivable - stock purchase .......... $ (1,500) (1,500) Reduction of notes receivable .............. 42 42 ------ ------ --------- ---------- ------- -------- Balance -- January 27, 1996 ................. 5,058 2,529 7,795 (1,458) 31,506 40,372 Net income ................................ 4,610 4,610 Issuances of common stock ................. 8 4 42 46 Reduction of notes receivable .............. 81 81 ------ ------ --------- ---------- ------- -------- Balance -- January 25, 1997 .................. 5,066 $2,533 $7,837 $ (1,377) $36,116 $45,109 ====== ====== ========= ========== ======= ========
See Notes to Financial Statements. BALANCE SHEETS (in thousands, except share and per share amounts)
January 25, January 27, 1997 1996 ---------------- --------------- ASSETS Current assets: Cash.......................................................... $ 537 $ 520 Accounts receivable........................................... 398 609 Merchandise inventories....................................... 41,511 39,702 Other current assets.......................................... 2,295 2,299 ---------------- --------------- Total current assets....................................... 44,741 43,130 Property and equipment, net........................................ 14,755 15,092 Other assets ...................................................... 2,933 2,376 ---------------- --------------- $ 62,429 $ 60,598 ================ =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt ......................... $ 180 $ 180 Accounts payable ............................................. 5,699 6,360 Accrued compensation and related items........................ 2,211 1,274 Current and deferred income taxes ............................ 1,339 1,010 Other current liabilities..................................... 1,508 1,260 ---------------- --------------- Total current liabilities.................................. 10,937 10,084 Long-term debt..................................................... 5,180 8,941 Deferred income taxes.............................................. 1,203 1,201 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, 5,066,371 (1997) and 5,058,434 (1996) ....................... 2,533 2,529 Capital in excess of par value................................ 7,837 7,795 Notes receivable -- Stock Purchase Loan Plan ................. (1,377) (1,458) Retained earnings............................................. 36,116 31,506 ---------------- --------------- 45,109 40,372 ---------------- --------------- $ 62,429 $ 60,598 ================ ===============
See Notes to Financial Statements. STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash (in thousands)
Fiscal Year Ended --------------------------------------------------------------------- January 25, January 27, January 28, 1997 1996 1995 ------------------- ------------------ ------------------ Cash flows from operating activities: Net income............................................. $ 4,610 $ 2,731 $ 2,350 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization....................... 2,654 2,569 2,363 Loss on property dispositions, (net)................ 104 413 41 Other............................................... 133 123 114 Changes in assets and liabilities: Accounts receivable.............................. 211 (289) 124 Merchandise inventories ......................... (1,809) 696 (1,803) Other current assets............................. 4 (35) (596) Other assets..................................... (557) (401) (436) Accounts payable and accrued expenses............ 651 1,354 1,770 Income taxes and deferred income taxes........... 331 14 23 ------------------- ------------------ ------------------ Net cash provided by operating activities.............. 6,332 7,175 3,950 ------------------- ------------------ ------------------ Cash flows from investing activities: Capital expenditures................................... (2,966) (3,293) (3,428) Proceeds from property dispositions.................... 545 18 55 ------------------- ------------------ ------------------ Net cash used for investing activities................. (2,421) (3,275) (3,373) ------------------- ------------------ ------------------ Cash flows from financing activities: Net paydowns under revolving bank lines of credit......................................... (3,714) (3,785) (313) Proceeds from exercise of stock options................ 96 Reduction of long-term debt............................ (180) (180) (180) ------------------- ------------------ ------------------ Net cash used for financing activities................. (3,894) (3,965) (397) ------------------- ------------------ ------------------ Net increase (decrease) in cash......................... 17 (65) 180 Cash at beginning of period............................. 520 585 405 ------------------- ------------------ ------------------ Cash at end of period................................... $ 537 $ 520 $ 585 =================== ================== ================== Supplemental cash flow information: Cash paid during the period for: Interest............................................ $ 542 $ 810 $ 707 Income taxes........................................ 2,370 1,680 1,409
See Notes to Financial Statements. QUARTERLY FINANCIAL DATA (unaudited) Summarized quarterly financial data for fiscal 1997 and 1996 are as follows: (in thousands except per share data)
1997 April 27 July 27 October 26 January 25 ---- ---------------- --------------- ----------------- ------------------ Net sales ........................ $ 31,448 $ 29,396 $ 30,171 $ 39,207 Gross profit .................... 14,399 13,411 13,985 18,473 Net income ...................... 914 844 622 2,230 Net income per share ............ .18 .17 .12 .44 Weighted average common shares outstanding .................... 5,063 5,066 5,066 5,066 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
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 tailored 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 ended January 25, 1997 (fiscal 1997), January 27, 1996 (fiscal 1996) and January 28, 1995 (fiscal 1995) 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 and disclosures of contingent assets and liabilities at the date of the financial statements and that affect 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. The Company annually evaluates long-lived assets for any impairment using the guidance of Statement of Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This evaluation has not resulted in adjustments to the Company's results of operations or financial position. 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 costs are expensed in the period in which the advertisement initially runs. Advertising expense of $10.6 million, $10.0 million and $8.4 million, respectively, was included in selling, general and administrative expenses in each of the last three fiscal years. Deferred advertising costs related to future advertising programs included in the balance sheets were less than $150,000 in each year. 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 quarter ended April 29, 1995, 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 and had not recently experienced significant inflation in retail prices. 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 results in better matching of revenues and costs and reporting on a basis more consistent with other companies in its industry. The fiscal 1996 change in the method of valuing inventories had been applied retroactively and the effect on net income decreased amounts previously reported in fiscal 1995 by $198,100 or $.04 per share. Retained earnings for fiscal 1995 had been adjusted for the effect (net of income taxes) of applying the new method of accounting, retroactively. The Company capitalizes certain buying, holding and distribution costs to inventory which at the end of the last three fiscal years were approximately $2.2 million, $2.0 million and $2.0 million, respectively. Buying, holding and distribution costs charged to cost of sales in each of the fiscal years were approximately $3.5 million, $3.4 million and $3.3 million, respectively. Note 3 - Property and Equipment: Property and equipment consists of the following (in thousands):
January 25, January 27, 1997 1996 ------------------- ------------------ Land............................................................. $ 722 $ 722 Corporate headquarters........................................... 4,401 4,403 Furniture, fixtures and equipment................................ 11,596 10,935 Leasehold improvements........................................... 12,396 11,651 ------------------- ------------------ 29,115 27,711 Less - accumulated depreciation and amortization ................ 14,360 12,619 ------------------- ------------------ $ 14,755 $ 15,092 =================== ==================
Depreciation and amortization expense of approximately $.4 million was included in cost of sales for each of the last three fiscal years. Note 4 - Long-Term Debt: Long-term debt consists of (in thousands):
January 25, January 27, 1997 1996 ------------------- ------------------ Industrial Development Revenue Bond; $45 of principal plus interest at 65% of prime, due quarterly to January 1, 2010, secured by land and corporate headquarters............... $ 2,340 $ 2,520 Bank Revolving Lines of Credit................................... 2,000 5,714 Other............................................................ 1,020 887 ------------------- ------------------ 5,360 9,121 Less - current maturities........................................ 180 180 ------------------- ------------------ $ 5,180 $ 8,941 =================== ==================
The Company has available an aggregate of $25.0 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, 1998 is convertible to three-or four-year term loans at the banks' prime interest rate and is payable in monthly installments. At January 25, 1997, 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 $90,000, $75,000 and $60,000, 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 $60,000, $50,000 and $40,000, respectively, in each of the last three fiscal years. The Company has receivables from certain officers in the amount of $436,000, $345,000 and $327,000, 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 $133,000, $123,000 and $114,000, respectively, in each of the last three fiscal years. Note 6 - Stock Option and Stock Purchase Loan Plans: 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. The Company applies the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for its stock options. Accordingly, the Company has not recognized any related compensation expense in its Statements of Income. Changes in options under the plan for the three years ended January 25, 1997 were as follows:
Weighted Weighted Average Average Options Exercise Price Exercisable Exercise Price ----------- -------------------- ------------------ ------------------ Outstanding - January 29, 1994 ......... 293,400 $9.88 Granted ................................ 120,000 $9.00 Exercised .............................. (15,000) $6.36 --------- Outstanding - January 28, 1995 ......... 398,400 $9.75 238,400 $8.11 Granted ................................ 77,000 $8.31 Exercised .............................. (7,000) $7.63 --------- Outstanding - January 27, 1996 468,400 $9.54 293,400 $9.18 Surrendered ............................ (4,600) $10.07 --------- Outstanding - January 25, 1997 463,800 $9.54 375,534 $9.75 =========
Additional information regarding stock options outstanding at January 25, 1997 follows:
Weighted Weighted Weighted Range of Average Average Average Exercise Options Exercise Remaining Exercise Prices Outstanding Price Contractual Life Exercisable Price - -------------------------- --------------- ------------- --------------------- ----------- ------------ $6.00 - $7.69...... 214,400 $ 6.86 4.8 years 214,400 $ 6.86 $8.31 - $9.00...... 189,900 8.73 5.8 years 101,634 8.83 $21.75............. 59,500 21.75 4.6 years 59,500 21.75 ---------- ---------- $6.00 - $21.75..... 463,800 9.54 5.2 years 375,534 9.75 ========== ==========
SFAS No. 123, "Accounting for Stock - Based Compensation", requires the Company to make certain proforma disclosures as if the fair value based method of accounting had been applied to the Company's stock option grants made since January 1995. Accordingly, the Company determined the grant date fair value of the options granted in fiscal 1996 using the Black - Scholes option pricing model with the following weighted average assumptions: expected volatility of 43%, riskfree interest rate of 6.3% and expected life of four years. Had compensation cost been determined including the weighted average fair-value of $3.46 for options granted in fiscal 1996 (which ratably vest over three years), the Company's proforma net income (and earnings per share) would be $2,695,000, ($.54) in fiscal 1996 and $4,556,000, ($.90) in fiscal 1997. Under the Company's Stock Purchase Loan Plan, the Company has loans with sixteen officers approximating $1.5 million. The Plan annually provides for reduction of a portion of interest payable on the loans based on meeting certain operating targets, as well as the opportunity for the officer to receive a reduction of a portion of the principal balance of the loan if the officer remains an employee of the Company for seven years and maintains ownership of the stock. Compensation expense related to this program was $93,000 and $41,000 for fiscal 1997 and 1996, respectively. At the end of fiscal 1997, the Company has accrued interest receivable from these officers in the amount of $139,000. Note 7 - Provision for Income Taxes: Significant components of the Company's deferred income tax liabilities (assets) are as follows (in thousands):
Fiscal Year Ended ------------------------------------------------------------------ 1997 1996 1995 ----------------- ----------------- ------------------ Deferred tax liabilities: Depreciation ............................. $ 1,558 $ 1,473 $ 1,302 Other items ............................. 492 544 614 ----------------- ----------------- ------------------ Total deferred tax liabilities ........ 2,050 2,017 1,916 Deferred tax assets ....................... (518) (379) (314) ----------------- ----------------- ------------------ Net deferred tax liabilities .............. $ 1,532 $ 1,638 $ 1,602 ================= ================= ==================
The provision for income taxes consists of (in thousands):
Fiscal Year Ended ------------------------------------------------------------------ 1997 1996 1995 ----------------- ----------------- ------------------ Current: Federal ................................ $ 2,287 $ 1,272 $ 1,025 State .................................. 503 366 216 ----------------- ----------------- ------------------ 2,790 1,638 1,241 Deferred ................................. (106) 36 173 ----------------- ----------------- ------------------ $ 2,684 $ 1,674 $ 1,414 ================= ================= ==================
The effective income tax rates consist of (in thousands):
Fiscal Year Ended ------------------------------------------------------------------ 1997 1996 1995 ----------------- ----------------- ------------------ Income taxes at federal statutory rate (34%) .................... $ 2,480 $ 1,498 $ 1,280 State income taxes, net of federal benefit ................. 306 245 155 Other - net ............................... (102) (69) (21) ----------------- ----------------- ------------------ $ 2,684 $ 1,674 $ 1,414 ================= ================= ================== Effective income tax rate ................. 36.8% 38.0% 37.6% ================= ================= ==================
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 $8.6 million, $7.8 million and $7.0 million in each of the last three years, respectively. The future minimum payments under operating leases as of the end of fiscal 1997 aggregate $28.4 million and are payable as follows: fiscal 1998 - $9.1 million, fiscal 1999 - $7.3 million, fiscal 2000 - $5.3 million, fiscal 2001 - $3.8 million, fiscal 2002 - $2.0 million and $.9 million thereafter. The Company leases two properties from a shareholder and an immediate family member. Rent expense included approximately $206,000, $197,000 and $198,000 in fiscal 1997, 1996 and 1995, respectively, paid to these related parties. The Company is also obligated under these lease agreements to pay minimum rentals approximating $214,000 per year through fiscal 2002 and $74,000 per year thereafter through fiscal 2006. Note 9 - Nonrecurring Items: During fiscal 1997, other income, net, included three non-recurring items: $747,000 ($463,000 after tax, or $0.09 per share) gain, net of related expenses and incentives associated with a lease buyout of a former Menswear Mega Center location; $336,000 ($208,000 after tax or $.04 per share) gain, net of related expenses related to a lease buyout of a former S&K store; and, $295,000 ($.06 per share) of non-taxable insurance proceeds from a life insurance policy. 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 25, 1997 and January 27, 1996, and the results of its operations and its cash flows for each of the three years in the period ended January 25, 1997, 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. Price Waterhouse LLP Norfolk, Virginia March 10, 1997 EX-23 3 CONSENT OF INDEPENDENT ACCOUNTANTS 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 10, 1997, appearing on page 15 of the 1996 Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. PRICE WATERHOUSE LLP Norfolk, Virginia April 11, 1997 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 YEAR JAN-27-1996 JAN-28-1996 JAN-25-1997 537 0 398 0 41,511 44,741 29,115 14,360 62,429 10,937 0 0 0 2,533 42,576 62,429 130,222 130,222 69,954 69,954 52,428 0 546 7,294 2,684 4,610 0 0 0 4,610 0.91 0.91
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