-----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, SlxES259npvL/7BfM22AR0glyKmQKPOx43p4VvLdhdmbtv0k/eFAUUcrOzVM5fjN eezdi7mqkGcy/jBi7mXCBA== 0000916641-99-000326.txt : 19990413 0000916641-99-000326.hdr.sgml : 19990413 ACCESSION NUMBER: 0000916641-99-000326 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990130 FILED AS OF DATE: 19990412 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: SEC FILE NUMBER: 000-11682 FILM NUMBER: 99591411 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. FORM 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 30, 1999 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 7, 1999, was approximately $14,622,000. This figure was calculated by multiplying (i) the mean between the high and low prices for the registrant's common stock on April 7, 1999, as reported by The Nasdaq Stock 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 7, 1999, 4,798,845 shares of the registrant's Common Stock, $0.50 par value were outstanding. Documents Incorporated by Reference The portions of the 1998 Annual Report to Shareholders for the fiscal year ended January 30, 1999, 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 19, 1999, referred to in Part III, are incorporated by reference into Part III. PART I. Item 1. Business (a) General Development of Business S&K Famous Brands, Inc. (the "Company") has been in business for 32 years. The Company began operations with one store and as of April 7, 1999 operates 234 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 30, 1999 ("fiscal 1999"), see "Narrative Description of Business." (b) Financial Information about Industry Segments The Company operates in one segment, 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 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. As of April 7, 1999 there are 234 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 three locations, all of the S&K stores are located either in strip shopping centers, enclosed shopping malls or outlet centers. During fiscal 1999, the Company opened 30 new S&K stores, totaling approximately 121,000 square feet, in the following localities: Alabama: Foley Illinois: Decatur, Moline, Tuscola Iowa: Davenport Kansas: Topeka Kentucky: Lexington, Louisville Maryland: Hagerstown Michigan: Auburn Hills, Kalamazoo, Saginaw Missouri: Joplin New York: Waterloo Ohio: Columbus(1), Medina Pennsylvania: Wilkes-Barre South Carolina: Anderson, Gaffney, Hilton Head, Spartanburg (1) Tennessee: Johnson City, Knoxille Texas: Austin (2 stores), Ft. Worth, Tyler Virginia: Richmond Wisconsin: Johnson Creek, Madison (1) These new stores were relocated from previous locations which were closed: Columbus (3,873 sq. ft.) and Spartanburg (3,600 sq. ft.). In fiscal 1999, the Company closed and relocated two stores. The Company also closed the following six stores, totaling approximately 20,000 square feet, which were at the end of their lease term as they were not meeting the Company's sales and profitability expectations: Williamsburg, Iowa (2,900 sq. ft.), Lawrence, Kansas (3,000 sq. ft.), Slidell, Louisiana (3,600 sq. ft.), Traverse City, Michigan (3,835 sq. ft.), Colonie, New York (3,734 sq. ft.) and Hilton Head, South Carolina (3,000 sq. ft.). The following table summarizes information concerning store openings and closings during the fiscal years presented:
------------------------------------------------------- Fiscal Year Ended ------------------------------------------------------------------------------------ Stores: 1/30/99 1/31/98 1/25/97 1/27/96 1/28/95 ------------------------------------------------------------------------------------ Open at beginning of year 211 194 184 172 154 Closed during year 8 9 8 9 4 Opened during year 30 26 18 21 22 ------------------------------------------------------------------------------------ Open at end of year 233 211 194 184 172 ======================================================= Relocations 2 8 2 0 3 ------------------------------------------------------------------------------------
During fiscal 2000, the Company plans to open 25 new stores and close 15 under-performing locations. As of April 7, 1999, the Company has opened five new stores (Wichita, Kansas (2 stores); Columbia, South Carolina; and Appleton and Green Bay, Wisconsin) and closed four under-performing stores (Monroe and Port Huron, Michigan; Stroud, Oklahoma and Somerset, Pennsylvania). Average sales per selling square foot for the stores included in comparable store sales statistics were: $218, $226, $218, $215 and $212, in the fiscal years ended 1999 through 1995, 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. New stores opened in existing markets may negatively impact existing store sales while increasing total market sales. The number of stores opened in existing markets were 16, 26, 8, 8 and 6, in fiscal years ended 1999 through 1995, respectively. Merchandise and Marketing The merchandise offered in the Company's stores features 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, shoes and accessories. Additionally, the Company offers a custom-order program for the hard-to-fit customer with an emphasis toward the "Big & Tall" market. The Company's "Corporate Casual" collection is sportcoat driven, with a coordinating slack and sportswear focus, and 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 Premier Club for those customers who shop with the Company on a repeat basis. Members of the Premier Club receive periodic mailings throughout the year which usually contain special promotional opportunities, as well as free alterations for the life of garments purchased. During fiscal 1999, the Company began offering the S&K Premier Charge Card as another payment option and believes this also enhances our customer service. S&K Premier Charge Card sales are conducted through an independent financial institution on a non-recourse basis to the Company. Customers pay no annual fee and may be eligible for special financing arrangements. Additionally, this program allows S&K to communicate regularly with S&K Premier Charge Card customers via their monthly statement. S&K uses television as its primary advertising medium. Television may be occasionally supplemented by newspaper for certain promotions or special events such as holiday sales or grand openings. The Company uses direct mail for Premier Club promotions and prospective customer mailings. The direct mail programs allow the Company to target Premier 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. Baseball Hall of Famer, Johnny Bench, is an 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 2000. Purchasing and Distribution Purchasing for all of the Company's stores is directed from the Company's headquarters in Richmond, Virginia, by the Executive Vice President - Merchandise. The Company purchases branded merchandise directly from a number of nationally recognized manufacturers that produce labels such as Bill Blass, Jones New York, Daniel Hechter, Andrew Fezza, Pierre Cardin, Evan Picone, Nino Cerruti and Polo by Ralph Lauren. These purchases consist primarily of merchandise produced specifically from orders placed by S&K well in advance of manufacturers' production cycles allowing them to purchase fabrics advantageously and schedule production 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, Roberto Villini, Johnny Bench, Kilburne & Finch, Deansgate, 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 Roberto Villini label is carried on suits, sportcoats and dress slacks tailored in Italy from some of the finest Italian fabrics and imported exclusively for S&K, as well as on complementing shirts and ties. The Company's Johnny Bench label was developed to appeal to mainstream America and currently includes suits, sportcoats and slacks. The Kilburne & Finch label is carried on the Company's opening price point, single-breasted 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 175 vendors. Except for one vendor who accounted for approximately 18%, no other vendor exceeded 10% of the Company's purchases in fiscal 1999. 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 certain 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 300 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). 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. 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 their 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, in-district 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 which are 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/S&K Premier Charge Card). 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 on average twice 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 audit procedures. All stores have a POS system which includes the following features: 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. As of January 30, 1999, approximately 40% of the stores were using a new customized POS system which 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 manpower scheduling. The Company continues to closely monitor the results in these stores and works closely with the vendor to further enhance the software. The Company expects to convert the balance of its stores to this system by November 1999. The total project is estimated to require a capital outlay of approximately $2.0 million. In fiscal 1998, the Company formalized a plan designed to ensure that all of its computer systems will be Year 2000 compliant in advance of December 31, 1999. The Vice President - Management Information Systems updates the Company's MIS Steering Committee monthly on the progress made. This plan incorporates the Company's mainframe hardware and back office systems, personal computers, point-of-sale equipment, distribution center systems, phone and security systems and other non-critical applications. Required internal modifications have been tested and installation completed in fiscal 1999 at a cost of less than $100,000. The Company is currently in the process of evaluating business partner surveys which address their Year 2000 readiness. If it is determined that a significant vendor will not be Year 2000 ready, the Company will develop appropriate contingency plans which could include alternative suppliers, as well as establishing back-up processes. 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. These store sites could be in regional shopping malls or strip shopping centers generally located near a regional mall, or in outlet centers. In selecting an appropriate store site, the Company considers the principal anchor stores, tenant mix and the positioning of the Company's site within that center or mall. 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 formats: approximately 50% of the stores are considered to be traditional stores, 27% are outlets and 23% are superstores. The 3,900 square foot traditional S&K store provides a specialty store setting and is generally located in or 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 4,500-6,500 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. - formal shop, Italian shop, Big & Tall shop, shoes, etc., as well as attractively display 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 45-50% 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, which may result in prices matching or less than those regularly offered by the Company. Employees As of January 30, 1999, the Company had approximately 1,945 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. Information Regarding Forward-Looking Statements The provisions of the Private Securities Litigation Reform Act of 1995 (the "Act") 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 "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 2000 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 competitors 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 facilities to support development of retail stores; (d) uncertainties associated with the Year 2000 issue, including the possibility that failures may occur in the Company's systems and those of its vendors.; (e) changes in the availability of acceptable terms of appropriate real estate locations for expansion; (f) 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; (g) changes in availability of or access to both domestic and foreign sources of merchandise inventory at acceptable costs; (h) 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; (i) changes in production or distribution costs of the Company's advertising; (j) 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. Item 2. Properties As of April 7, 1999 all but one of the Company's 234 stores are leased. The Company owns one superstore which opened in March 1998. With the exception of three locations, all the stores are located in strip shopping centers, enclosed malls, or outlet centers. 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 4,500 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 eight S&K stores in fiscal 1999 (two of which were relocations): Williamsburg, Iowa; Lawrence, Kansas; Slidell, Louisiana; Traverse City, Michigan; Colonie, New York; Columbus, Ohio; and Hilton Head and Spartanburg, South Carolina. As of April 7, 1999, the Company operated 234 stores in 27 states. The following chart shows the number of current locations by state. Number of stores Virginia ........................................ 26 Alabama .......................................... 11 Arkansas ........................................ 4 Florida ......................................... 19 Georgia ........................................ 9 Illinois ........................................ 9 Indiana ......................................... 12 Iowa ............................................ 2 Kansas............................................ 3 Kentucky ........................................ 4 Louisiana ....................................... 5 Maryland.......................................... 1 Maine ........................................... 2 Michigan ........................................ 12 Mississippi ..................................... 1 Missouri ......................................... 3 New Jersey ...................................... 1 New York ........................................ 16 North Carolina .................................. 23 Ohio ............................................ 12 Oklahoma ........................................ 2 Pennsylvania .................................... 9 South Carolina .................................. 13 Tennessee ...................................... 16 Texas ........................................... 9 West Virginia ................................... 3 Wisconsin ....................................... 7 ----- Total ........................................... 234 ===== Store leases generally provide for an annual 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. 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, 56, is Chairman of the Board of Directors of the Company, and is Chief Executive Officer. Donald W. Colbert, 49, is President and Chief Operating Officer and is a director of the Company. Robert E. Knowles, 49, is Executive Vice President, Chief Financial Officer, Secretary and Treasurer. Mr. Knowles is a Certified Public Accountant. Robert J. Taphorn, 53, is Executive Vice President in charge of merchandising and distribution. Weldon J. Wirick, III, 48, is Senior Vice President--Operations. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters Please see page 15 of the 1998 Annual Report to Shareholders under the caption "Price Ranges of Common Shares," which is incorporated herein by reference. During the fiscal year ended January 30, 1999, the registrant contributed 4,885 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 registrant's securities. Item 6. Selected Financial Data Please see page 6 of the 1998 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 1998 Annual Report to Shareholders under the caption "Management's Discussion and Financial Review," which is incorporated herein by reference. Item 7(a). Quantitative and Qualitative Disclosures About Market Risk Please see page 8 of the 1998 Annual Report to Shareholders under the caption "Interest Rate Risk," 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 1998 Annual Report to Shareholders. Please see page 12 of the 1998 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. PART III Item 10. Directors and Executive Officers of the Registrant Please see page 3 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 pages 5-6 and page 10 of the registrant's definitive Proxy Statement under the captions "Executive Compensation" and "Compensation Committee Interlocks and Insider Participation," and page 4 of the registrant's definitive Proxy Statement under the caption "Directors' Compensation," which are incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Please see pages 1-2 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 pages 3-4 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. 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 1998 Annual Report to Shareholders are incorporated by reference in Item 8: Statements of Income for the fiscal years ended January 30, 1999, January 31, 1998 and January 25, 1997. 9 Statements of Changes in Shareholders' Equity for the fiscal years ended January 30, 1999, January 31, 1998 and January 25, 1997. 9 Balance Sheets at January 30, 1999 and January 31, 1998. 10 Statements of Cash Flows for the fiscal years ended January 30, 1999, January 31, 1998 and January 25, 1997. 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 30, 1999. A Current Report on Form 8-K dated November 30, 1998 was filed with the Securities & Exchange Commission on December 1, 1998 to discuss under Item 5, the registrant's Stock Buyback Program. Except for the information referred to in Items 5, 6, 7, 7(a), 8 and 14(a) 1. hereof, the 1998 Annual Report to Shareholders for the fiscal year ended January 30, 1999 shall not be deemed to be filed pursuant to the Securities Exchange Act of 1934. 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 12, 1999 /s/ Stuart C. Siegel ------------------------------------------------------------- STUART C. SIEGEL Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date: April 12, 1999 /s/ Robert E. Knowles ------------------------------------------------------------- ROBERT E. KNOWLES Executive Vice President, Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer) Date: April 12, 1999 /s/ Janet L. Jorgensen ------------------------------------------------------------- JANET L. JORGENSEN Vice President - Controller (Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: April 12, 1999 /s Stuart C. Siegel ----------------------------------------------------------------- STUART C. SIEGEL, Chairman of the Board of Directors Date: April 12, 1999 /s/ Robert L. Burrus, Jr. ----------------------------------------------------------------- ROBERT L. BURRUS, JR., Director Date: April 12, 1999 /s/ Donald W. Colbert ------------------------------------------------------------------ DONALD W. COLBERT, President and Chief Operating Officer, Director Date: April 12, 1999 /s/ Selwyn S. Herson ------------------------------------------------------------------ SELWYN S. HERSON, Director Date: April 12, 1999 /s/ Andrew M. Lewis ------------------------------------------------------------------ ANDREW M. LEWIS, Director Date: April 12, 1999 /s/ Steven A. Markel ------------------------------------------------------------------ STEVEN A. MARKEL, Director Date: April 12, 1999 /s/ Troy A. Peery, Jr. ------------------------------------------------------------------ TROY A. PEERY, JR., Director Date: April 12, 1999 /s/ Marshall B. Wishnack ------------------------------------------------------------------ MARSHALL B. WISHNACK, Director
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. Amended and Restated Credit Agreement dated as of May 31, 1997, between the registrant and Signet Bank/Virginia (now First Union Bank), filed as Exhibit 4(b) to the registrant's Quarterly Report on Form 10-Q for the quarter ended July 26, 1997, 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. Amendment to Credit Agreement dated April 30, 1997, between the registrant and Crestar Bank filed as Exhibit 4(a) to the registrant's Form 10-Q for the quarter ended July 26, 1997, 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, 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), are 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), are 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. Amendment to 1991 Stock Option Plan, filed as Exhibit 10(g) to registrant's Annual Report on form 10-K for the year ended January 31, 1998 (file #0-11682), is expressly incorporated herein by this reference. * h. 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 expressly incorporated herein by this reference. (13) Annual report to security holders, Form 10-Q or quarterly report to security holders a. Registrant's 1998 Annual Report to its Shareholders for the fiscal year ended January 30, 1999. (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. EX-13 2 ANNUAL REPORT Exhibit 13 FINANCIAL HIGHLIGHTS Fiscal Year Ended (Dollar amounts in thousands, except per share data) ---------------------------------------------------- January 30, January January 25, 1999 31, 1998 1997 ------------- ------------ ------------- Net sales $ 154,446 $ 144,983 $ 130,222 Income before income taxes 8,848 8,034 7,294 Net income 5,486 4,981 4,610 Net income per share: Basic 1.09 .99 .91 Diluted 1.07 .97 .91 Working capital 45,021 35,000 33,804 Total assets 79,296 69,446 62,429 Shareholders' equity 53,717 49,521 45,109 Number of stores 233 211 194 FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
Fiscal Year Ended (Dollar and share amounts in thousands, except per share data) ------------------------------------------------------------------------------ January 30, January 31, January 25, January 27, January 28, 1999 1998 1997 1996 1995 -------------- -------------- ------------- -------------- --------------- INCOME STATEMENT DATA: Net sales ............................... $ 154,446 $ 144,983 $ 130,222 $ 122,759 $ 112,416 Cost of sales ........................... 80,806 76,085 69,954 67,896 64,078 Gross profit ............................ 73,640 68,898 60,268 54,863 48,338 Selling, general and administrative expenses ................. 61,561 57,964 51,779 47,279 42,084 Interest ................................ 772 536 546 797 740 Depreciation and amortization ........... 2,757 2,404 2,242 2,174 2,008 Net income .............................. 5,486 4,981 4,610 2,731 2,350 INCOME PER SHARE DATA: Basic net income per share .............. $ 1.09 $ 0.99 $ 0.91 $ 0.55 $ 0.49 Diluted net income per share ............ 1.07 0.97 0.91 0.55 0.48 Weighted average shares outstanding - basic .............................. 5,040 5,026 5,066 4,989 4,835 Weighted average shares outstanding - including dilutive potential common shares ............................. 5,119 5,118 5,092 5,006 4,877 BALANCE SHEET DATA: Working capital .................... $ 45,021 $ 35,000 $ 33,804 $ 33,046 $ 34,644 Inventories ........................ 50,779 43,896 41,511 39,702 40,397 Net property and equipment ......... 19,713 17,833 14,755 15,092 14,799 Total assets ....................... 79,296 69,446 62,429 60,598 60,341 Long-term debt (including current maturities) .............. 13,687 5,483 5,360 9,121 12,963 Shareholders' equity ............... 53,717 49,521 45,109 40,372 37,559 Book value per share ............... 11.02 9.88 8.90 7.98 7.76 Current ratio ...................... 5.3:1 3.6:1 4.1:1 4.3:1 4.9:1 Number of stores open at end of period .................... 233 211 194 184 172
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 1999, 1998 and 1997.
Percentage of Net Sales -------------------------------------- Fiscal Year Ended -------------------------------------- 1/30/99 1/31/98 1/25/97 ---------- ---------- ---------- Net sales ............................. 100.0 100.0 100.0 Cost of sales .......................... 52.3 52.5 53.7 ------- ------- ------- Gross profit ........................... 47.7 47.5 46.3 Other costs and expenses: Selling, general and administrative 39.9 40.0 39.8 Interest .......................... 0.5 0.4 0.4 Depreciation and amortization ..... 1.8 1.6 1.7 Other income, net ................. (0.2) -- (1.2) ------- ------- ------- Income before income taxes ............. 5.7 5.5 5.6 Provision for income taxes ............. 2.2 2.1 2.1 ------- ------- ------- Net income ............................. 3.5 3.4 3.5 ======= ======= =======
YEAR ENDED JANUARY 30, 1999 COMPARED TO YEAR ENDED JANUARY 31, 1998 Net sales increased $9.5 million, from fiscal 1998 which was a 53-week year, to fiscal 1999 which was a 52-week year. The 7% increase in net sales reflects the addition of 30 new stores and eight closures (two of which were relocated). Comparable store sales on a 52-week basis decreased 1% and is due in part to the opening of the majority of new stores over the last 18 months in existing markets. Cost of sales in fiscal 1999 was 52.3% of net sales compared to 52.5% of net sales in fiscal 1998. The .2% of net sales reduction was due primarily to the combined effect of greater leveraging of central office and distribution center expenses relating to buying and processing merchandise, and due to lower inventory shrinkage. Selling, general and administrative expenses in fiscal 1999 were 39.9% of net sales compared to 40.0% of net sales in fiscal 1998. This .1% of net sales decrease was the combined result of lower incentive bonus payments and increased alterations net income, both offset by higher advertising expense and store occupancy costs. Interest expense in fiscal 1999 was .5% of net sales compared to .4% of net sales in fiscal 1998 and is primarily attributable to higher average borrowings in fiscal 1999. Other income, net, in fiscal 1999 included $266,000 ($165,000 after tax or $.03 per diluted share) related to income from an insurance claim. YEAR ENDED JANUARY 31, 1998 COMPARED TO YEAR ENDED JANUARY 25, 1997 Net sales increased by 11%, or $14.8 million, from fiscal 1997 to fiscal 1998. Exclusive of the volume in the three former Menswear Mega Centers (MMC) which were sold in 1996, net sales increased 15%. The 15% increase in net sales reflects the addition of 26 new stores (which includes eight relocations) and one closure. Comparable store sales were up 6% for fiscal 1998. Fiscal 1998 was a 53-week year while fiscal 1997 was a 52-week year. On a basis consistent with a 52-week year, comparable store sales in fiscal 1998 were up 5%. Sales were positively impacted by continued strong suit sales and various marketing campaigns. Cost of sales in fiscal 1998 was 52.5% of net sales compared to 53.7% of net sales in fiscal 1997. This 1.2% of net sales reduction was due to having the lower margin sales volume from the former MMC during the first eight months of fiscal 1997 and reduced markdowns as a percentage of net sales in fiscal 1998. Selling, general and administrative expenses in fiscal 1998 were 40.0% of net sales compared to 39.8% of net sales in fiscal 1997. This .2% of net sales increase was the net result of not having the lower overhead MMC sales this year offset in part by lower advertising costs and medical claims as a percentage of net sales. Other income, net, in fiscal 1997 included non-recurring gains of $1.1 million ($671,000 after tax, or $0.13 per diluted share), net of related expenses and incentives associated with buyouts of two store leases and $295,000 ($0.06 per diluted share) of non-taxable insurance proceeds. The effective tax rate in fiscal 1998 was 38.0% of income before income taxes compared to 36.8% in fiscal 1997. The lower effective tax rate in fiscal 1997 was attributable to the non-taxable insurance proceeds discussed in other income, net, above. LIQUIDITY AND CAPITAL RESOURCES In fiscal 1999, 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 1999, the Company opened 30 new S&K stores, closed eight stores (two of which were relocated), converted one store to the superstore format and remodeled 17 other S&K stores. During fiscal 2000, the Company believes it will open 25 new stores and close 15 under-performing locations and does not believe this will significantly impact liquidity or capital resources. 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 used net cash of $1.1 million in fiscal 1999 while providing net cash of $6.9 million and $6.3 million, in fiscal 1998 and 1997, respectively. The change between fiscal 1999 and 1998 was primarily the result of reductions in accounts payable and accrued compensation balances and to increased inventory purchases. The increase between fiscal 1998 and 1997 was attributable primarily to higher net income and secondarily to increased payables offset by increased inventory purchases. Net cash used in investing activities for the last three fiscal years was primarily for the purpose of store expansion and remodeling and approximated $5.2 million, $6.1 million and $2.4 million, respectively. Fiscal 1999 included capital expenditures for four more new stores and approximately $400,000 related to the point of sale equipment rollout compared to fiscal 1998. Fiscal 1998 included $1.7 million in capital expenditures for an owned superstore location which opened in March 1998. Fiscal 1998 also included capital expenditures for eight more new stores and four more remodelings compared to fiscal 1997. Financing activities provided net cash of $6.3 million in fiscal 1999 while using net cash of $0.8 million and $3.9 million, in fiscal 1998 and 1997, respectively. Financing activities primarily relate to fluctuations in the borrowing levels under the Company's revolving credit agreements which have an aggregate borrowing capacity of $30.0 million. Financing activities for fiscal 1999 and 1998 included $2.2 million and $0.8 million used for the repurchase of 220,600 and 74,000 shares of common stock, respectively. The Company has the right at the end of May 2000 to convert the revolving credit agreements into four year term loans. At the end of fiscal 1999, the Company had $19.6 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. Interest Rate Risk The Company's bank revolving credit lines and Industrial Development Bonds bear interest at variable rates which expose the Company to risk from interest rate fluctuations. If interest rates were to increase or decrease by 10%, the effect on net income and cash flows would not be material. Year 2000 (Y2K) The Y2K issue is the result of computer programs using two digits rather than four to define the applicable year. Computer equipment, information technology software and devices with imbedded technology that are time-sensitive may recognize a date using "00" as the year 1900 rather than the year 2000. If not properly addressed, the Y2K problem could result in computer and other equipment failures at the Company and our vendors. Because of the substantial use of computers and embedded systems throughout our business and the businesses of our vendors, if failures occur, they could have a material impact on our business. Since 1997, the Company has been following a plan designed to ensure that all of its computer systems will be Y2K compliant in advance of December 31, 1999. This plan incorporates the Company's mainframe hardware and back-office systems, personal computers, point-of-sale equipment, distribution center systems, phone and security systems and other non-critical applications. Preparation for Y2K compliance has required modifications to existing software costing less than $100,000, most of which was anticipated in the Company's budget and spent in fiscal 1999. The Company has tested Y2K changes as system modifications have been completed and brought on line. Required internal modifications have been tested and installation completed in fiscal 1999. The Company does not anticipate any significant additional expenditures related to Y2K preparations. The Y2K issue may impact vendors that provide products or services to the Company. The Company has circulated a business partner survey to significant vendors and is in the process of evaluating responses. The evaluation of responses from significant vendors should be completed during the second quarter. If it is determined upon completion of its evaluation of such responses that a significant vendor will not be Y2K ready, the Company will begin the preparation of appropriate contingency plans, including alternative suppliers and establishing backup processing. In the opinion of management, the most likely worst-case scenario of the failure of the Company or its vendors to be Y2K compliant would be the inability to obtain or distribute products from significant vendors. This would require the Company to seek alternative sources which could have gross margin implications. Forward-Looking Statements Certain statements made in this Annual Report may constitute forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause the Company's actual results in future periods to differ materially from forecasted or expected results. Those risks include, among other things, the competitive environment in the value-priced men's apparel industry in general and in the Company's specific market area, inflation, changes in costs of goods and services, economic conditions in general and in the Company's specific market area and uncertainties associated with the Y2K issue. Those and other risks are more fully described in the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the fiscal year ended January 30, 1999. PRICE RANGES OF COMMON SHARES S&K Famous Brands, Inc. common shares are traded on The Nasdaq Stock Market under the symbol SKFB. The following table is a quarterly composite of high and low stock prices.
Fiscal Year Ended January -------------------------------------------------------------- Quarter 1999 1998 -------------------------- -------------------------- High Low High Low ----------- ---------- ----------- -------- First ............................ 17 3/4 12 5/8 10 1/2 9 1/8 Second ........................... 19 1/2 12 3/4 13 10 Third ............................ 15 1/2 9 1/2 16 12 1/8 Fourth ........................... 11 1/4 8 15/16 14 1/2 12 1/4
As of January 30, 1999, there were approximately 1,950 holders of S&K common stock, including approximately 270 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 30, January January 1999 31, 1998 25, 1997 ------------- ------------ ---------- NET SALES ..................................... $154,446 $144,983 $130,222 Cost of sales ................................. 80,806 76,085 69,954 -------- -------- -------- Gross profit .................................. 73,640 68,898 60,268 Other costs and expenses: Selling, general and administrative ...... 61,561 57,964 51,779 Interest ................................. 772 536 546 Depreciation and amortization ............ 2,757 2,404 2,242 Other income, net ........................ (298) (40) (1,593) -------- -------- -------- Income before income taxes .................... 8,848 8,034 7,294 Provision for income taxes .................... 3,362 3,053 2,684 -------- -------- -------- NET INCOME .................................... $ 5,486 $ 4,981 $ 4,610 ======== ======== ======== NET INCOME PER COMMON SHARE: BASIC .................................... $ 1.09 $ 0.99 $ 0.91 ======== ======== ======== DILUTED .................................. $ 1.07 $ 0.97 $ 0.91 ======== ======== ======== Weighted average common shares outstanding- basic ....................................... 5,040 5,026 5,066 Dilutive effect of stock options .............. 79 92 26 -------- -------- -------- Weighted average common shares outstanding - including dilutive potential common shares... 5,119 5,118 5,092 ======== ======== ========
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 27, 1996.............. 5058 $ 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 Net income............................. 4,981 4,981 Repurchase of common stock............. (74) (37) (729) (766) Issuances of common stock.............. 5 3 48 51 Exercise of stock options.............. 17 8 76 84 Reduction of notes receivable.......... 62 62 -------- ---------- ------------ ---------------- ----------- ---------- Balance -- January 31, 1998.............. 5,014 2,507 7,232 (1,315) 41,097 49,521 Net income............................. 5,486 5,486 Repurchase of common stock............. (221) (110) (2,076) (2,186) Issuances of common stock.............. 5 2 78 80 Exercise of stock options.............. 76 38 585 623 Reduction of notes receivable.......... 193 193 -------- ---------- ------------ ---------------- ----------- ---------- Balance -- January 30, 1999 ............. 4,874 $ 2,437 $ 5,819 $ (1,122) $ 46,583 $ 53,717 ======== ========== ============ ================ =========== ==========
See Notes to Financial Statements. BALANCE SHEETS (in thousands, except per share amounts)
January 30, January 31, 1999 1998 ------------- ------------ ASSETS Current assets: Cash .............................................................. $ 547 $ 593 Accounts receivable ............................................... 862 554 Merchandise inventories ........................................... 50,779 43,896 Other current assets .............................................. 3,286 3,170 -------- -------- Total current assets ........................................... 55,474 48,213 Property and equipment, net ........................................... 19,713 17,833 Other assets .......................................................... 4,109 3,400 -------- -------- $ 79,296 $ 69,446 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt .................................. $ 180 $ 180 Accounts payable .................................................. 6,345 7,561 Accrued compensation and related items ............................ 1,599 2,592 Current and deferred income taxes ................................. 624 983 Other current liabilities ......................................... 1,705 1,897 -------- -------- Total current liabilities ...................................... 10,453 13,213 Long-term debt ........................................................ 13,507 5,303 Deferred income taxes ................................................. 1,619 1,409 Commitments Shareholders' equity: Preferred stock, $1 par value; authorized shares, 500; issued and outstanding shares, none ......................................... Common stock, $.50 par value; authorized shares, 10,000; issued and outstanding shares, 4,874 (1999), and 5,014 (1998) ............... 2,437 2,507 Capital in excess of par value ...................................... 5,819 7,232 Notes receivable -- Stock Purchase Loan Plan ........................ (1,122) (1,315) Retained earnings ................................................... 46,583 41,097 -------- -------- 53,717 49,521 -------- -------- $ 79,296 $ 69,446 ======== ========
See Notes to Financial Statements. STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash (in thousands)
Fiscal Year Ended ------------------------------------------------- January 30, January 31, January 25, 1999 1998 1997 -------------- -------------- ------------- Cash flows from operating activities: Net income ......................................... $ 5,486 $ 4,981 $ 4,610 Adjustments to reconcile net income to net cash (used for) provided by operating activities: Depreciation and amortization ................. 3,196 2,788 2,654 Loss on property dispositions, (net) .......... 160 202 104 Other ......................................... 87 203 133 Changes in assets and liabilities: Accounts receivable ...................... (308) (156) 211 Merchandise inventories .................. (6,883) (2,385) (1,809) Other current assets ..................... (116) (875) 4 Other assets ............................. (709) (467) (557) Accounts payable and accrued expenses .... (2,273) 2,745 651 Income taxes and deferred income taxes ... 232 (150) 331 ------- ------- ------- Net cash (used for) provided by operating activities (1,128) 6,886 6,332 ------- ------- ------- Cash flows from investing activities: Capital expenditures ............................... (5,250) (6,083) (2,966) Proceeds from property dispositions ................ 14 15 545 ------- ------- ------- Net cash used for investing activities ............. (5,236) (6,068) (2,421) ------- ------- ------- Cash flows from financing activities: Net borrowings (paydowns) under revolving bank lines of credit ................................ 8,297 100 (3,714) Proceeds from exercise of stock options ............ 242 84 Paydown of borrowings under Stock Purchase Loan Plan ....................................... 145 Reduction of long-term debt ........................ (180) (180) (180) Repurchase of common stock ......................... (2,186) (766) ------- ------- ------- Net cash provided by (used for) financing activities 6,318 (762) (3,894) ------- ------- ------- Net (decrease) increase in cash ......................... (46) 56 17 Cash at beginning of period ............................. 593 537 520 ------- ------- ------- Cash at end of period ................................... $ 547 $ 593 $ 537 ======= ======= ======= Supplemental cash flow information: Cash paid during the period for: Interest ...................................... $ 759 $ 513 $ 542 Income taxes .................................. 3,158 3,492 2,370
See Notes to Financial Statements. QUARTERLY FINANCIAL DATA (unaudited) Summarized quarterly financial data for fiscal 1999 and 1998 are as follows: (in thousands, except per share data)
1999 May 2 August 1 October 31 January 30 - ---- ----- --------- ----------- ---------- Net sales ..................................... $ 37,109 $ 33,852 $ 35,120 $ 48,365 Gross profit .................................. 17,791 15,980 17,268 22,601 Net income .................................... 1,564 965 651 2,306 Net income per share: Basic .................................... .31 .19 .13 .46 Diluted* ................................. .30 .19 .13 .46 Weighted average common shares outstanding - basic .................................... 5,028 5,076 5,067 4,990 Weighted average common shares outstanding - including dilutive potential common shares 5,138 5,181 5,137 5,017
*Note: Net income per share, diluted, does not add to total for year due to rounding.
1998 April 26 July 26 October 25 January 31 - ---- ---------- ----------- -------------- ------------ Net sales ......................................... $ 33,460 $ 30,788 $ 33,705 $ 47,030 Gross profit ...................................... 15,887 14,381 16,238 22,392 Net income ........................................ 1,162 791 668 2,360 Net income per share: Basic ........................................ .23 .16 .13 .47 Diluted ...................................... .23 .15 .13 .46 Weighted average common shares outstanding - basic ........................................ 5,068 5,019 5,006 5,013 Weighted average common shares outstanding - including dilutive potential common shares.... 5,121 5,104 5,122 5,125
NOTES TO FINANCIAL STATEMENTS NOTE 1 - Summary of Significant Accounting Policies: PRINCIPAL BUSINESS S&K Famous Brands, Inc.(the Company) operates in one segment, the retail sale of menswear, including tailored clothing, furnishings, sportswear and accessories. During fiscal 1999, the Company changed its year end to the Saturday closest to January 31. Previously the fiscal year was the 52 or 53 week period which ended on the last Saturday in January. Fiscal year ended January 30, 1999 (fiscal 1999) was a 52-week period, January 31, 1998 (fiscal 1998) was a 53-week period, and January 25, 1997 (fiscal 1997) was a 52-week period. 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. The Company annually evaluates long-lived assets for any impairment using the guidance of Statement of Financial Accounting Standards ("FAS") No. 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. OTHER ASSETS Other assets consists primarily of cash surrender value related to various life insurance policies aggregating $4.1 million and $3.4 million in fiscal 1999 and 1998, respectively. ADVERTISING COSTS Advertising costs are expensed in the period in which the advertisement initially runs. Advertising expense of $12.6 million, $11.2 million and $10.6 million, respectively, was included in selling, general and administrative expenses in each of the last three fiscal years. Deferred advertising costs related to future programs included in the balance sheets were less than $100,000 in each year. EARNINGS PER SHARE The Company adopted FAS No. 128, "Earnings per Share," in fiscal 1998. Basic net income per share is calculated using the weighted average number of common shares outstanding during each period. Diluted net income per share includes the dilutive effect of stock options. Options which were anti-dilutive of 51,500, 59,500 and 59,500 shares were not included in computing diluted net income per share for fiscal 1999, 1998 and 1997, respectively. NEW ACCOUNTING STANDARDS During fiscal 1999, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued and established accounting and reporting standards for derivative instruments. This statement is not currently applicable to the Company because it does not have any derivative instruments and is not involved in hedging activities. Note 2 - Merchandise Inventories: Inventories are valued using an average cost method, under which the Company tracks inventory costs for approximately 100 inventory categories which are used to classify its inventory. The Company capitalizes certain buying, holding and distribution costs to inventory which at the end of the last three fiscal years were approximately $2.5 million, $2.3 million and $2.2 million, respectively. Buying, holding and distribution costs charged to cost of sales in each of the fiscal years were approximately $3.8 million, $3.8 million and $3.5 million, respectively. Note 3 - Property and Equipment: Property and equipment consists of the following (in thousands):
January 30, January 31, 1999 1998 ----------- ------------ Land ............................................... $ 1,620 $ 1,620 Buildings .......................................... 5,609 5,236 Furniture, fixtures and equipment .................. 14,550 12,858 Leasehold improvements ............................. 15,699 13,853 ------- ------- 37,478 33,567 Less - accumulated depreciation and amortization.... 17,765 15,734 ------- ------- $19,713 $17,833 ======= =======
Depreciation and amortization expense of approximately $400,000 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 30, January 31, 1999 1998 --------- ------------ 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...... $ 1,980 $ 2,160 Bank revolving lines of credit .................... 10,397 2,100 Other ............................................. 1,310 1,223 ------- ------- 13,687 5,483 Less - current maturities ......................... 180 180 ------- ------- $13,507 $ 5,303 ======= ======= The Company has available an aggregate of $30.0 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 three quarters of one percent or the banks' prime interest rates. 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, 2000 is convertible to four-year term loans at the banks' prime interest rates and is payable in monthly or quarterly installments. At January 30, 1999, 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 $120,000, $120,000 and $90,000, 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 $80,000, $80,000 and $60,000, respectively, in each of the last three fiscal years. The Company has receivables from certain officers in the amount of $489,000, $515,000 and $436,000, in each of the last three fiscal years, respectively, relating to premiums paid under split dollar life insurance policies. The Company has unfunded deferred compensation agreements with certain officers which fix a minimum level for retirement benefits to be paid based on age and years of service. Deferred compensation expense is being accrued over the vesting period using a discount rate of 8% and approximated $89,000, $203,000 and $133,000, 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 850,000 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 five 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 30, 1999 were as follows:
Weighted Weighted Average Average Options Exercise Price Exercisable Exercise Price ------------ ---------------- -------------- ---------------- 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 Granted....................... 77,800 9.63 Exercised..................... (33,466) 7.06 ------------ Outstanding - January 31, 1998 508,134 9.71 405,723 9.81 Granted....................... 70,000 11.94 Exercised..................... (108,631) 7.03 Surrendered................... (9,667) 19.66 ------------ Outstanding - January 30, 1999 459,836 10.48 341,613 10.30 ============
Additional information regarding stock options outstanding at January 30, 1999 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......... 103,000 $ 7.22 3.3 years 103,000 $ 7.22 $8.31 - $9.63......... 235,336 9.00 4.6 years 187,113 8.84 $11.94................ 70,000 11.94 7.6 years $21.75................ 51,500 21.75 2.6 years 51,500 21.75 ----------- -------------- $6.00 - $21.75........ 459,836 341,613 =========== ==============
FAS 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 years 1999, 1998 and 1996 (no options were granted in fiscal 1997) using the Black - Scholes option pricing model with the following weighted average assumptions: 1999 1998 1996 ------ ----- ----- Expected volatility 42.0% 44.0% 43.0% Risk free interest rate 5.0% 6.5% 6.3% Expected life in years 5 4 4 Fair value per option $5.25 $4.09 $3.46 Had compensation cost been determined including the weighted average fair-value of options granted in fiscal years 1999 (which ratably vest over five years), 1998 and 1996 (both of which ratably vest over three years), the Company's proforma net income (and basic net income per share) would be $5.4 million ($1.07) in fiscal 1999, $4.9 million ($.97) in fiscal 1998 and $4.6 million ($.90) in fiscal 1997. Under the Company's Stock Purchase Loan Plan, the Company has full recourse loans with fifteen officers approximating $1.1 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 $79,000, $147,000 and $93,000 for the last three fiscal years, respectively. At the end of fiscal 1999, the Company has accrued interest receivable from these officers in the amount of $49,000. 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 ---------------------------------------- 1999 1998 1997 ---------- ----------- ------------ Deferred tax liabilities: Depreciation ....................... $ 2,163 $ 1,890 $ 1,558 Other items ........................ 396 444 492 ------- ------- ------- Total deferred tax liabilities 2,559 2,334 2,050 Deferred tax assets, primarily compensation related ................. (728) (694) (518) ------- ------- ------- Net deferred tax liabilities ........... $ 1,831 $ 1,640 $ 1,532 ======= ======= =======
The provision for income taxes consists of (in thousands): Fiscal Year Ended ---------------------------------------- 1999 1998 1997 ---------- ----------- ------------ Current: Federal ... $ 2,551 $ 2,419 $ 2,287 State ..... 620 526 503 ------- ------- ------- 3,171 2,945 2,790 Deferred ...... 191 108 (106) ------- ------- ------- $ 3,362 $ 3,053 $ 2,684 ======= ======= ======= The effective income tax rates consist of (in thousands): Fiscal Year Ended ---------------------------------------------- 1999 1998 1997 ---------- ----------- ------------ Income taxes at federal statutory rate (34%)......... $ 3,008 $ 2,731 $ 2,480 State income taxes, net of federal benefit...... 374 339 306 Other - net ................... (20) (17) (102) ------- ------- ------- $ 3,362 $ 3,053 $ 2,684 ------- ------- ------- Effective income tax rate...... 38.0% 38.0% 36.8% ======= ======= ======= 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 $11.1 million, $9.8 million and $8.6 million in each of the last three years, respectively. The future minimum payments under operating leases as of the end of fiscal 1999 aggregate $40.3 million and are payable as follows: fiscal 2000 - $12.1 million, fiscal 2001 - $9.5 million, fiscal 2002 - $7.1 million, fiscal 2003 - $5.3 million, fiscal 2004 - $3.1 million and $3.2 million thereafter. The Company leases two properties from a shareholder and an immediate family member. Rent expense included approximately $185,000, $182,000 and $178,000 in fiscal 1999, 1998 and 1997, respectively, paid to these related parties. The Company is also obligated under these lease agreements to pay minimum rentals approximating $191,000 per year through fiscal 2002 and $45,000 per year thereafter through fiscal 2006. Note 9 - Nonrecurring Items: During fiscal 1999, other income, net, included $266,000 ($165,000 after tax or $.03 per diluted share) related to income from an insurance claim. During fiscal 1997, other income, net, included non-recurring gains of: $1,083,000 ($671,000 after tax, or $0.13 per basic share), net of related expenses and incentives associated with lease buyouts of two former locations and $295,000 ($.06 per basic share) of non-taxable insurance proceeds. Note 10 - Subsequent Events: Subsequent to January 30, 1999, the Company bought 236,000 shares of its common stock in the open market for $2.1 million; 175,812 of these shares were then purchased by sixteen Company officers for $1.5 million under the Company's Stock Purchase Loan Plan. 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 30, 1999 and January 31, 1998, and the results of its operations and its cash flows for each of the three fiscal years in the period ended January 30, 1999, 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. PricewaterhouseCoopers LLP Virginia Beach, Virginia March 18, 1999 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 033-58703) of S&K Famous Brands, Inc. of our report dated March 18, 1999, appearing on page 15 of the 1998 Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. PRICEWATERHOUSECOOPERS LLP Virginia Beach, Virginia April 12, 1999 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 YEAR JAN-30-1999 FEB-01-1998 JAN-30-1999 547 0 862 0 50,779 55,474 37,478 17,765 79,296 10,453 0 0 0 2,437 51,280 79,296 154,446 154,446 80,806 80,806 64,020 0 772 8,848 3,362 5,486 0 0 0 5,486 1.09 1.07
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