10-Q 1 d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


FORM 10-Q

 


Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

For the Quarterly Period Ended

August 4, 2007

 

Commission File Number

0-15898

 


CASUAL MALE RETAIL GROUP, INC.

(Exact name of registrant as specified in its charter)

 


 

Delaware   04-2623104

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

555 Turnpike Street, Canton, MA   02021
(Address of principal executive offices)   (Zip Code)

(781) 828-9300

(Registrant’s telephone

number, including area code)

 


Indicate by “X” whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares of common stock outstanding as of August 17, 2007 was 41,651,080.

 



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

CASUAL MALE RETAIL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

     August 4, 2007     February 3, 2007  
     (unaudited)        

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 5,902     $ 5,325  

Accounts receivable

     3,625       3,833  

Inventories

     119,740       114,535  

Deferred and prepaid income taxes

     7,985       6,897  

Prepaid expenses and other current assets

     13,249       11,133  
                

Total current assets

     150,501       141,723  

Property and equipment, net of accumulated depreciation and amortization

     61,582       59,063  

Other assets:

    

Goodwill

     60,656       60,636  

Other intangible assets

     35,358       35,534  

Deferred income taxes

     19,035       21,384  

Other assets

     2,062       2,096  
                

Total assets

   $ 329,194     $ 320,436  
                

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current liabilities:

    

Current portion of other long-term debt

   $ 4,344     $ 688  

Current portion of deferred gain on sale-leaseback

     1,465       1,465  

Accounts payable

     27,983       35,368  

Income taxes payable

     —         614  

Accrued expenses and other current liabilities

     24,588       28,278  

Notes payable

     44,621       8,529  
                

Total current liabilities

     103,001       74,942  
                

Long-term liabilities:

    

Deferred gain on sale-leaseback, net of current portion

     25,645       26,378  

Long-term debt, net of current portion

     13,032       —    

Other long-term liabilities

     874       1,070  
                

Total liabilities

     142,552       102,390  
                

Stockholders’ equity:

    

Preferred stock, $0.01 par value, 1,000,000 shares authorized, none outstanding at August 4, 2007 and February 3, 2007

     —         —    

Common stock, $0.01 par value, 75,000,000 shares authorized, 52,150,988 and 50,860,322 shares issued at August 4, 2007 and February 3, 2007, respectively

     522       509  

Additional paid-in capital

     269,353       258,334  

Retained earnings (accumulated deficit)

     2,350       (1,249 )

Treasury stock at cost, 10,499,742 shares and 6,686,029 shares at August 4, 2007 and February 3, 2007, respectively

     (85,045 )     (38,570 )

Accumulated other comprehensive loss

     (538 )     (978 )
                

Total stockholders’ equity

     186,642       218,046  
                

Total liabilities and stockholders’ equity

   $ 329,194     $ 320,436  
                

The accompanying notes are an integral part of the consolidated financial statements.

 

2


CASUAL MALE RETAIL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

     For the three months ended     For the six months ended  
     August 4, 2007     July 29, 2006     August 4, 2007     July 29, 2006  

Sales

   $ 114,209     $ 111,802     $ 225,513     $ 214,666  

Cost of goods sold, including occupancy

     61,012       61,179       121,359       119,039  
                                

Gross profit

     53,197       50,623       104,154       95,627  

Expenses:

        

Selling, general and administrative

     43,911       40,234       88,266       79,593  

Depreciation and amortization

     4,233       3,440       8,290       6,690  
                                

Total expenses

     48,144       43,674       96,556       86,283  
                                

Operating income

     5,053       6,949       7,598       9,344  

Other income, net

     138       —         275       1,112  

Interest expense, net

     (1,070 )     (1,351 )     (1,876 )     (2,570 )
                                

Income before provision for income taxes

     4,121       5,598       5,997       7,886  

Provision for income taxes

     1,648       2,197       2,398       3,098  
                                

Net income

   $ 2,473     $ 3,401     $ 3,599     $ 4,788  
                                

Net income – basic

   $ 0.06     $ 0.10     $ 0.09     $ 0.14  

Net income – diluted

   $ 0.06     $ 0.09     $ 0.08     $ 0.13  

Weighted average number of common shares outstanding

        

- basic

     41,606       34,719       41,899       34,801  

- diluted

     43,338       45,999       43,878       37,128  

The accompanying notes are an integral part of the consolidated financial statements.

 

3


CASUAL MALE RETAIL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     Six Months Ended  
     August 4, 2007     July 29, 2006  

Cash flows from operating activities:

    

Net income

   $ 3,599     $ 4,788  

Adjustments to reconcile net income to net cash (used for) provided by operating activities:

    

Depreciation and amortization

     8,290       6,690  

Gain on sale of subsidiary

     —         (1,483 )

Amortization of deferred gain from sale-leaseback

     (733 )     (733 )

Issuance of common stock to related party

     —         101  

Issuance of common stock to Board of Directors

     95       54  

Stock based compensation expense

     851       248  

Loss on disposal of fixed assets

     17       154  

Changes in operating assets and liabilities:

    

Accounts receivable

     71       2  

Inventories

     (5,205 )     (8,883 )

Prepaid expenses

     (2,116 )     (1,302 )

Other assets

     (94 )     1,452  

Accounts payable

     (7,385 )     3,685  

Income taxes payable

     648       —    

Accrued expenses and other current liabilities

     (2,115 )     (2,338 )
                

Net cash (used for) provided by operating activities

     (4,077 )     2,435  
                

Cash flows from investing activities:

    

Additions to property and equipment

     (10,542 )     (7,832 )

Net proceeds from sale-leaseback of corporate headquarters

     —         55,937  

Acquisition of Jared M., net of cash acquired

     —         (2,580 )

Payment of earn-out provision for Rochester acquisition

     (1,333 )     (1,333 )

Net proceeds from sale of subsidiary, LP Innovations, Inc.

     138       2,570  
                

Net cash (used for) provided by investing activities

     (11,737 )     46,762  
                

Cash flows from financing activities:

    

Net borrowings (repayments) under credit facility

     36,092       (32,105 )

Proceeds from issuance of secured note

     17,376    

Principal payments on long-term debt

     (688 )     (7,000 )

Repurchase of common stock

     (46,475 )     (13,142 )

Issuance of common stock under option program and warrants

     10,086       5,212  
                

Net cash provided by (used for) financing activities

     16,391       (47,035 )
                

Net change in cash and cash equivalents

     577       2,162  

Cash and cash equivalents:

    

Beginning of the period

     5,325       5,568  
                

End of the period

   $ 5,902     $ 7,730  
                

The accompanying notes are an integral part of the consolidated financial statements.

 

4


CASUAL MALE RETAIL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For the six months ended August 4, 2007

(In thousands)

 

    

 

Common Stock

  

Additional
Paid-in
Capital

  

 

Treasury Stock

    Retained
Earnings
(Accumulated
Deficit)
    Accumulated
other
comprehensive
loss
   

 

Total

 
     Shares    Amounts       Shares     Amounts        

Balance at February 3, 2007

   50,860    $ 509    $ 258,334    (6,686 )   $ (38,570 )   $ (1,249 )   $ (978 )   $ 218,046  
                                                         

Repurchase of common stock

            (3,814 )     (46,475 )         (46,475 )

Exercises under option program

   251      3      1,335              1,338  

Exercises of warrants

   1,029      10      8,738              8,748  

Stock-based compensation expense

           851              851  

Board of Directors compensation

   11      —        95              95  

Accumulated other comprehensive income-foreign currency

                    440       440  

Net income

                  3,599         3,599  
                         

Total comprehensive income

                      4,039  
                                                         

Balance at August 4, 2007

   52,151    $ 522    $ 269,353    (10,500 )   $ (85,045 )   $ 2,350     $ (538 )   $ 186,642  
                                                         

The accompanying notes are an integral part of the consolidated financial statements.

 

5


CASUAL MALE RETAIL GROUP, INC,

Notes to Consolidated Financial Statements

1. Basis of Presentation

In the opinion of management of Casual Male Retail Group, Inc., a Delaware corporation (the “Company”), the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the interim financial statements. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with the notes to the Company’s audited consolidated financial statements for the fiscal year ended February 3, 2007 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on April 2, 2007.

The information set forth in these statements may be subject to normal year-end adjustments. The information reflects all adjustments that, in the opinion of management, are necessary to present fairly the Company’s results of operations, financial position and cash flows for the periods indicated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s business historically has been seasonal in nature, and the results of the interim periods presented are not necessarily indicative of the results to be expected for the full year.

The Company’s fiscal year is a 52- or 53- week period ending on the Saturday closest to January 31. Fiscal 2007 is a 52-week period ending on February 2, 2008. Fiscal 2006 was a 53-week period, with the fourth quarter containing 14 weeks.

Segment Information

The Company reports its operations as one reportable segment, Big & Tall Men’s Apparel, which consists of two operating segments—Casual Male and Rochester. The Company considers its operating segments to be similar in terms of economic characteristics, production processes and operations, and have therefore aggregated them into a single reporting segment.

Stock-based Compensation

The Company accounts for stock-based compensation pursuant to the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123R), which requires that all share-based payments, including grants of employee stock options, be recognized as an expense in the statement of operations based on their fair values and vesting periods. The fair value of stock options is determined using the Black-Scholes valuation model and requires the input of subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the “expected term”), the estimated volatility of the Company’s common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (“forfeitures”). As required under the accounting rules, the Company reviews its valuation assumptions at each grant date and, as a result, is likely to change its valuation assumptions used to value employee stock-based awards granted in future periods. The values derived from using the Black-Scholes model are recognized as expense over the vesting period, net of estimated forfeitures. The estimation of stock-based awards that will ultimately vest requires significant judgment. Actual results, and future changes in estimates, may differ from the Company’s current estimates.

For the first six months of fiscal 2007 and fiscal 2006, the Company recognized total compensation expense of $851,000 and $248,000, respectively. The total compensation cost related to non-vested awards not yet recognized as of August 4, 2007 is approximately $3.8 million which will be expensed over a weighted average remaining life of 25 months.

Valuation Assumptions for Stock Options

For the first six months of fiscal 2007 and fiscal 2006, 631,004 and 670,000 stock options were granted, respectively. The weighted-average exercise price of the 631,004 stock options was $11.86 per share. The fair value of each option was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants for the six months ended August 4, 2007 and July 29, 2006:

 

     August 4, 2007    July 29, 2006

Expected volatility

   40.0%    45.0%

Risk-free interest rate

   4.50-4.57%    4.48%-5.02%

Expected life

   2.0-3.0 yrs    4.0-4.5 yrs.

Dividend rate

   —      —  

 

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Expected volatilities are based on historical volatilities of the Company’s common stock; the expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and historical exercise patterns; and the risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.

During the first quarter of fiscal 2007, warrants to purchase approximately 1.0 million shares of the Company’s common stock were exercised. The total intrinsic value of these warrants at the time of exercise was $3.4 million.

2. Change in Accounting Principle - Inventory

In the second quarter of fiscal 2006, the Company changed its inventory valuation method. Inventory for the first quarter of fiscal 2006 was principally valued at the lower of cost or market on a first in, first out (“FIFO”) basis, under the retail inventory method. Inventory for its catalog and e-commerce businesses were accounted for using the average cost method, which approximated the retail method. Commencing in the second quarter of fiscal 2006, all inventories were valued at the lower of cost or market, using a weighted-average cost method.

At July 29, 2006, the revaluation of inventory using the weighted-average cost method approximated the inventory valuation under the previous FIFO retail method; accordingly, the impact of the change was not material to the financial statements for the three and six month periods ended July 29, 2006.

3. Debt Credit

Agreement with Bank of America Retail Group, Inc.

The Company had outstanding borrowings of $44.6 million under its credit facility, as most recently amended July 20, 2007, with Bank of America Retail Group, LLC, (the “Credit Facility”) at August 4, 2007. Outstanding standby letters of credit were $2.7 million and outstanding documentary letters of credit were $2.9 million. Average monthly borrowings outstanding under this facility during the first six months of fiscal 2007 were approximately $44.5 million, resulting in an average unused excess availability of approximately $42.5 million. Unused excess availability at August 4, 2007 was $46.7 million. The Company was in compliance with all debt covenants under the Credit Facility at August 4, 2007.

The fair value of amounts outstanding under the Credit Facility approximates the carrying value at August 4, 2007. At the Company’s option, any portion of the outstanding borrowings can be converted to LIBOR-based contracts; the remainder bears interest based on prime. At August 4, 2007, the prime-based interest rate was 8.25%. The Company had approximately $28.0 million of its outstanding borrowings in LIBOR-based contracts with an interest rate of approximately 6.58%.

Master Loan and Security Agreement with Banc of America Leasing & Capital, LLC

On July 20, 2007, the Company entered into a Master Loan and Security Agreement (the “Master Agreement”) with Banc of America Leasing & Capital, LLC (“BALC”) for equipment financing. In conjunction with the Master Agreement, the Company entered into an Equipment Security Note (the “Secured Note”), whereby the Company borrowed an aggregate of $17.4 million from BALC. The Secured Note is secured by a security interest in all of the Company’s rights, title and interest in and to certain equipment. The Secured Note is due July 20, 2011 and accrues interest at a per annum rate of 1.75% plus the rate of interest equal to the 30-day published LIBOR rate. Principal and interest, in arrears, are payable monthly, commencing on August 20, 2007. The Company is subject to a prepayment penalty equal to 1% of the prepaid principal until July 20, 2008, 0.5% of the prepaid principal from July 21, 2008 through July 20, 2009 and no prepayment penalty thereafter. The Master Agreement includes certain debt covenants similar to, and no more restrictive than, those under the Company’s Credit Facility with Bank of America, N.A. The Company was in compliance with all debt covenants under the Master Agreement at August 4, 2007.

 

7


5% senior subordinated notes due 2007

In May 2002, the Company issued 5% senior subordinated notes due 2007 through a private placement with the Kellwood Company. The Company has been making quarterly principal payments in the amount of $687,500 since fiscal 2003. During the first quarter of fiscal 2007, the Company repaid these notes in full by making its final quarterly payment.

4. Equity

Earnings Per Share

The following table provides a reconciliation of the number of shares outstanding for basic and diluted earnings per share:

 

     For the three months ended    For the six months ended
(in thousands)    August 4, 2007    July 29, 2006    August 4, 2007    July 29, 2006

Net Income

           

Net income – basic

   $ 2,473    $ 3,401    $ 3,599    $ 4,788

Add back of interest costs, tax effected, assuming conversion of convertible notes (1)

     —        717      —        —  
                           

Net income – diluted

   $ 2,473    $ 4,118    $ 3,599    $ 4,788

Common Stock Outstanding

           

Basic weighted average common shares outstanding

     41,606      34,719      41,899      34,801

Add:

           

Stock options and warrants

     1,732      2,383      1,979      2,327

Shares issued upon conversion of convertible notes at $10.65 per share (1)

     —        8,897      —        —  
                           

Diluted weighted average common shares outstanding

     43,338      45,999      43,878      37,128
                           

(1) There were no outstanding convertible notes for the three and six months periods ended August 4, 2007. Shares issuable upon the conversion of the convertible notes of 8.9 million for the six months ended July 29, 2006 were excluded from the calculation of diluted earnings per share because they were anti-dilutive to earnings using the “if-converted” method.

The following potential common stock equivalents were excluded from the computation of diluted earnings per share in each period because the exercise price of such options and warrants was greater than the average market price per share of common stock for the respective periods. As described in footnote 1 to the table above, for the first six months of fiscal 2006 convertible notes were also excluded because they were anti-dilutive using the ‘if-converted’ method.

 

     For the three months ended    For the six months ended
(in thousands, except exercise prices)    August 4, 2007    July 29, 2006    August 4, 2007    July 29, 2006

Options

   621    351    491    351

Warrants

   —      —      —      —  

Convertible notes at $10.65 per share

   —      —      —      8,897

Range of exercise prices of such options, warrants and convertible notes

   $11.15-$12.35    $10.15-$10.30    $11.81-$12.35    $10.15-$10.65

The above options, which were outstanding and out-of-the-money at August 4, 2007, expire from July 31, 2016 to July 16, 2017.

 

8


Stock Repurchase Program

On December 4, 2006, in connection with the Company’s decision to redeem a portion of its 5% senior subordinated convertible notes, the Company’s Board of Directors approved a $75.0 million stock repurchase program, replacing the existing $30.0 million stock repurchase program that was currently in place. Under this stock repurchase program, the Company is authorized to repurchase up to $75.0 million of its common stock through open market and privately negotiated transactions pursuant to Rule 10b-18 of the Exchange Act. The stock repurchase program expires on December 31, 2007 but may be terminated earlier at any time without prior notice. Under this $75.0 million stock repurchase program, the Company has acquired 3.9 million shares at an aggregate cost of $48.0 million, leaving another $27.0 million of repurchases to complete the program. During the first six months of fiscal 2007, the Company repurchased approximately 3.8 million shares for an aggregate price of $45.9 million.

During the second quarter of fiscal 2007, the Company received from an employee 47,617 shares of its common stock with a value of $0.6 million as payment upon stock options exercises.

At August 4, 2007, the Company has a total of 10.5 million shares of repurchased stock at an aggregate cost of $85.0 million which is reported by the Company as treasury stock and is reflected as a reduction in stockholders’ equity.

FAS 158

In September 2006, the FASB issued Statement of Accounting Standards No. 158 (“FAS 158”) Employers Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87,88,106 and 132(R). This statement improves financial reporting by requiring an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan as an asset or liability and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. Public companies are required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006.

In the Company’s Form 10-K for the fiscal year ended February 3, 2007, a FAS 158 transition adjustment in the amount of $(1,111), net of tax, was recognized as a component of the ending balance of Accumulated Other Comprehensive Income (Loss). This adjustment was misapplied as a component of Comprehensive Income rather than as a component to the ending Accumulated Other Comprehensive Income (Loss). The table below reflects the misapplication of this adjustment at February 3, 2007:

 

     As
Reported
    Misapplied     As
Revised

Other Comprehensive Loss, Net of Tax

   $ (978 )   $ (1,111 )   $ 306

Comprehensive Income

   $ 41,827     $ (1,111 )   $ 42,938

The Company will correct the Other Comprehensive Loss and Comprehensive Income presentation in the Form 10-K for the fiscal year ending February 2, 2008. This change in presentation will not affect the Consolidated Balance Sheets or Consolidated Statements of Operations.

5. Income Taxes

During the fourth quarter of fiscal 2006, the Company determined that it was “more likely than not” that it would be able to realize the benefits of substantially all of its deferred tax assets and the majority of the Company’s valuation allowance was reversed at that time. Based on net operating loss carryforwards available to the Company, management expects that cash payments for taxes will continue to be minimal at this time. At August 4, 2007, the Company had total gross deferred tax assets of approximately $28.3 million, with a corresponding valuation allowance of $1.3 million. These tax assets principally relate to federal net operating loss

 

9


carryforwards that expire from 2018 through 2024. The valuation allowance is for losses associated with the Company’s Canada operations and certain state net operating losses, the benefit of which may not be recognized due to short carryforward periods.

The Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), as of February 4, 2007. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The charge for taxation is based on the results for the year as adjusted for items that are non-assessable or disallowed. The charge is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred taxes are accounted for using the balance sheet liability method with respect to temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized. Deferred taxes are calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred taxes are charged or credited in the income statement, except when related items are credited or charged directly to equity, in which case the deferred taxes are also dealt with in equity.

Pursuant to FIN 48, the Company will recognize the benefit from a tax position only if it is more likely than not that the position would be sustained upon audit based solely on the technical merits of the tax position. At February 3, 2007 and August 4, 2007, the Company had no material unrecognized tax benefits based on the provisions of FIN 48.

The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company has concluded all U.S. federal income tax matters for years through fiscal 1997, with remaining fiscal years subject to income tax examination by federal tax authorities.

The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits in its income tax provision. The Company has not accrued or paid interest or penalties which were material to its results of operations for the second quarter or first six months of fiscal 2007.

6. Sale of LP Innovations, Inc. subsidiary

During the first quarter of fiscal 2006, the Company sold its loss prevention subsidiary, LP Innovations, Inc. (“LPI”), to a private equity group for a purchase price of $5.2 million. The Company received $3.0 million of the purchase price in cash at the closing and entered into a note for the remaining purchase price of $2.2 million. The note requires LPI to make quarterly payments to the Company commencing on the first anniversary of the note. The Company recognized an initial gain on the sale of LPI in the amount of $1.5 million which was recognized as “other income” in the results for the first six months of fiscal 2006. Due to the uncertainty regarding the collection of the note, the Company fully reserved the balance of the note on the Consolidated Balance Sheet and recognizes income on the note when realizability is assured. For the second quarter and first six months of fiscal 2007, the Company recognized $137,500 and $275,000, respectively, as “other income.”

7. Recent Accounting Pronouncements

In February 2007, the FASB issued SFAS 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115”. SFAS 159 provides companies with an option to measure, at specified election dates, many financial instruments and certain other items at fair value that are not currently measured at fair value. A company that adopts SFAS 159 will report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of adopting SFAS 159.

 

10


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “will,” “estimate,” “intend,” “plan,” “continue,” “believe,” “expect” or “anticipate” or the negatives thereof, variations thereon or similar terminology. The forward-looking statements contained in this Quarterly Report are generally located in the material set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but may be found in other locations as well. These forward-looking statements generally relate to plans and objectives for future operations and are based upon management’s reasonable estimates of future results or trends. The forward-looking statements in this Quarterly Report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. Numerous factors could cause our actual results to differ materially from such forward-looking statements. We encourage readers to refer to Part I, Item 1A of our Annual Report on Form 10-K for the year ended February 3, 2007, filed with the Securities and Exchange Commission on April 2, 2007, which identifies certain risks and uncertainties that may have an impact on our future earnings and the direction of our Company.

All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the foregoing. These forward-looking statements speak only as of the date of the document in which they are made. We disclaim any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances in which the forward-looking statement is based.

BUSINESS SUMMARY

Casual Male Retail Group, Inc. together with our subsidiaries (the “Company”) is the largest specialty retailer of big and tall men’s apparel with retail operations throughout the United States, Canada and London, England. We operate 473 Casual Male XL retail and outlet stores, 5 Casual Male at Sears Canada stores, 25 Rochester Big & Tall stores and a direct to consumer business, which includes several catalogs and e-commerce sites.

Unless the context indicates otherwise, all references to “we,” “ours,” “our,” “us” and “the Company” refer to Casual Male Retail Group, Inc. and its consolidated subsidiaries. We refer to our fiscal years which end on February 2, 2008 and February 3, 2007 as “fiscal 2007” and “fiscal 2006,” respectively.

When discussing sales growth, we refer to the term “comparable sales.” Comparable sales for all periods discussed include our retail stores that have been open for at least one full year together with our e-commerce and catalog sales. Stores that may have been remodeled, expanded or re-located during the period are also included in our determination of comparable sales. We include our direct businesses as part of our calculation of comparable sales because we are a multi-channel retailer, offering our customers convenient alternatives for their shopping. The method of calculating comparative store sales varies across the retail industry and, as a result, our calculation of comparable sales is not necessarily comparable to similarly titled measures reported by other companies.

RESULTS OF OPERATIONS

Summary

During the first six months of fiscal 2007, we continued to focus on our long-term goal of growing our market share within the big & tall market through the introduction of new brands and product extensions of our existing brands:

 

   

We launched our first B & T Factory Direct catalog for Spring 2007. This new catalog offering, along with our new e-commerce site www.btdirect.com which we launched in Fall 2006, will allow us an opportunity to cater to our value-oriented customers. We will carry several private label lines which will be very similar in fashion and style to our private label lines in our retail stores but will be made at lower costs and sold at lower price points.

 

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In October 2006, we acquired Supersize World, a direct-to-consumer business which we believed was an ideal fit for our existing customers. During the first quarter of fiscal 2007, we launched the newly designed and updated website www.livingXL.com. The website provides our customers a collection of unique, innovative and high quality products for tall and plus-sized men and women to help them achieve a more comfortable lifestyle. During the second quarter of fiscal 2007, we launched the LivingXL catalog, which carries similar products as the website.

 

   

During the first quarter of fiscal 2007, we added Jared M. concept stores into three of our existing Rochester Big & Tall stores offering our Rochester customers ready-to-wear merchandise similar to the custom line sold at our Jared M. New York showroom. During the second quarter of fiscal 2007, we rolled out our made-to-measure product into these Rochester locations, offering our customers a custom made alternative to their traditional offerings.

 

   

Subsequent to the end of the second quarter of fiscal 2007, we launched our new website www.shoesxl.com, which will carry a complete line of men’s footwear in extended sizes. This website offers our customers a full range of footwear in hard-to-find sizes. Our plan is to significantly increase our sales penetration in the shoe product category to levels which are more in line with men’s apparel spending for shoes. We will be adding the expanded shoe assortments within our existing Casual Male and Rochester catalogs, including on our websites, www.casualmalexl.com and www.rochesterclothing.com, as well as featuring the entire shoe product assortments on www.shoesxl.com.

Our operating income during the first six months of fiscal 2007 was $7.6 million resulting in net income of $3.6 million, or $0.08 per diluted share. For the second quarter of fiscal 2007, operating income was $5.1 million resulting in net income of $2.5 million, or $0.06 per diluted share. Operating income was less than last year by $1.7 million for the first six months of 2007, and $1.9 million less than last year for the second quarter of fiscal 2007. There were two primary items which impacted operating income during the first half of fiscal 2007; (1) the losses from our new businesses of $1.9 million for the first six months of fiscal 2007 and $0.9 million for the second quarter of fiscal 2007, and (2) and $0.7 million in legal expenses incurred in the second quarter of fiscal 2007 associated with our successful litigation of a lawsuit. After considering these items, operating income for the first six months of fiscal 2007 was 10% above last year’s levels and slightly less for the second quarter of fiscal 2007. On an earnings per diluted share basis, this $2.5 million, together with last year’s $1.4 million gain on the sale of LPI resulted in a difference of approximately $0.05 per diluted share for the first half of 2007 compared to last year.

For the second half of fiscal 2007, based upon the fact that we anticipate that our selling, general and administrative expenses will be flat to last year’s levels, gross margins are expected to improve from last year’s levels by 2.0 percentage points, and we expect that our comparable sales growth from our Casual Male and Rochester core businesses will be between 3.7% and 5.8%. We anticipate our earnings will improve from last year’s levels by between $7.0-$9.0 million and expect earnings for fiscal 2007 of between $0.45-$0.50 per diluted share. With respect to the Company’s expectations with its new businesses, we had previously stated that we were planning the new businesses to attain an operating breakeven level for fiscal 2007; although we expect the new businesses to generate a modest operating profit in the second half of fiscal 2007, we expect that the new businesses will generate an operating loss of approximately $1.3 million for fiscal 2007.

Sales

For the second quarter of fiscal 2007, sales, which include our e-commerce and catalog businesses, increased 2.2% to $114.2 million as compared to $111.8 million for the second quarter of fiscal 2006. The sales increase of $2.4 million was driven by increases among all channels, with our direct-to-consumer business representing approximately $1.6 million of the increase. For the second quarter of fiscal 2007, our new businesses, which include Jared M., LivingXL and B&T Factory Direct, had sales of $2.0 million. Comparable sales increased 3.9% during the second quarter of fiscal 2007, after adjusting for the calendar shift caused by the 53 week period in fiscal 2006, of which the retail channel increased 2.8% and our direct channel increased 11.3%.

Total sales for the first six months of fiscal 2007 increased 5.1% to $225.5 million as compared to $214.7 million for the first six months of fiscal 2006. The sales increase of $10.8 million was driven by increases among all channels, with our retail stores representing 52% of the increase. The remainder of the increase was from our internet businesses which had an increase of 16.8% for

 

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the first six months of fiscal 2007 as compared to the prior year. For the first six months of fiscal 2007, our new businesses, which include Jared M., LivingXL and B&T Factory Direct, had sales of $3.2 million. Comparable sales increased 5.0% during the first six months of fiscal 2007, of which the retail channel increased 3.4% and our direct channel increased 15.3%.

During the first six months of fiscal 2007, comparable sales from our core Casual Male and Rochester businesses, excluding the new businesses, generated an increase of approximately 4.1%. For the second half of fiscal 2007, we are anticipating an increase in comparable sales from our core businesses to approximate between 3.7% and 5.8% as compared to the prior year, and together with the expected $19.0 million from new businesses, total sales for fiscal 2007 are expected to approximate between $495.0 and $500.0 million.

Gross Profit Margin

For the second quarter of fiscal 2007, the Company’s gross margin rate, inclusive of occupancy costs, was 46.6% which was an increase of 1.3 percentage points as compared to a gross margin rate of 45.3% for the second quarter of fiscal 2006. This increase was attributable to improved merchandise margins of approximately 1.8 percentage points over the prior period offset by a slight increase in occupancy rates as a percent of sales of 0.5 percentage points. The improvement in merchandise margin was primarily due to continued increases in initial margins related to our direct sourcing and, to a lesser extent, lower overall markdown percentage. The slight increase in occupancy costs as a percent of sales was principally due to the new store leases and lease option renewals.

Gross margin for the first six months of fiscal 2007 was 46.2% which was an increase of 1.6 percentage points as compared to a gross margin rate of 44.6% for the first six months of fiscal 2006. The increase of 1.6 percentage points was attributable to our improved merchandise margins of approximately 1.8 percentage points offset slightly by an increase in occupancy rates as a percent of sales of 0.2 percentage points.

We anticipate that our gross margins for fiscal 2007 will continue to show improvement for the balance of the year, resulting in an overall increase of between 1.5 and 1.8 percentage points for fiscal 2007, or between 47.0% and 47.3%.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses as a percentage of sales for the second quarter of fiscal 2007 were 38.4% of sales as compared to 36.0% for the second quarter of fiscal 2006. For the first six months of fiscal 2007, SG&A expenses were 39.1% of sales as compared to 37.1% for the first six months of fiscal 2006. The increase in SG&A of $3.7 million and $8.7 million for the second quarter and first six months of fiscal 2007, respectively, is partially due to approximately $1.5 million and $3.0 million related to our new businesses and product extensions, respectively. During the second quarter of fiscal 2007, we also incurred approximately $0.7 million in legal expenses related to litigation in which we were the plaintiff. We were awarded damages of $1.5 million plus interest. Collection of this award is subject to a legal process and will be recognized when ultimately realized. The balance of the SG&A increases were as anticipated and relate primarily to sales volume-related costs, such as supporting payroll, transaction and marketing expenses to support our growth.

For the balance of fiscal 2007, we expect our SG&A levels to approximate last year’s levels, inclusive of our new businesses and, therefore, we anticipate that our SG&A expense levels for fiscal 2007 will approximate between $180.0 to $182.0 million, of which approximately $11.5 million relate to our new businesses.

Interest Expense, Net

Net interest expense was $1.1 million for the second quarter of fiscal 2007 as compared to $1.4 million for the second quarter of fiscal 2006. For the first six months of fiscal 2007 net interest expense was $1.9 million as compared to $2.6 million for the first six months of fiscal 2006. This decrease in interest expense is principally due to the conversion of our convertible notes during the fourth quarter of fiscal 2006, which has resulted in lower debt levels. This decrease was partially offset by increased interest costs from our Credit Facility as a result of increased borrowings to fund our stock repurchase program. In July 2007, we also entered into a Master Loan and Security Agreement and related Equipment Security Note for approximately $17.4 million in additional borrowings. See our Liquidity discussion below.

 

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Other Income, Net

During the first quarter of fiscal 2006, we sold our subsidiary LP Innovations, Inc. at which time we recognized an initial gain of $1.5 million. This gain of $1.5 million was partially offset in the prior year by certain non-operating expenses of $0.4 million. As part of the sale, we received a note receivable for a portion of the sale price which we fully reserved against at that time. We are recognizing income as the note is repaid or as realizability is assured. See Note 6 to the Consolidated Financial Statements for a complete description of the sale. For the second quarter and first six months of fiscal 2007, $137,500 and $275,000, respectively, of the gain was recognized as other income.

Income Taxes

Based on net operating loss carryforwards available to us, we expect that cash payments for taxes will continue to be minimal at this time. At August 4, 2007, our total gross deferred tax assets were approximately $28.3 million, with a corresponding valuation allowance of $1.3 million. These tax assets principally relate to federal net operating loss carryforwards that expire from 2018 through 2024. The valuation allowance of $1.3 million is for losses associated with our Canadian operations and certain state net operating losses, the benefit of which may not be recognized due to short carryforward periods.

Net Income

For the second quarter of fiscal 2007, net income was $2.5 million, or $0.06 per diluted share, as compared to $3.4 million, or $0.09 per diluted share, for the second quarter of fiscal 2006. For the first six months of fiscal 2007, net income was $3.6 million, or $0.08 per diluted share, as compared to $4.8 million, or $0.13 per diluted share, for the first six months of fiscal 2006. Net income for the first six months of fiscal 2006 included a pre-tax gain of $1.5 million related to the sale of LPI as compared to $0.3 million for the first six months of fiscal 2007, as discussed above.

Inventory

At August 4, 2007, total inventory equaled $119.7 million compared to $114.5 million at February 3, 2007 and $101.0 million at July 29, 2006. Inventory at the end of the second quarter of fiscal 2007 increased 4.5% as compared to February 3, 2007 and increased 18.5% compared to July 29, 2006.

The increase in inventory from February 3, 2007 of $5.2 million is principally due to added inventories of $3.4 million in our Casual Male XL stores and $2.0 million in our direct businesses to support our increased sales volumes and also to maintain a sufficient in-stock position in our core merchandise and an increase of $1.4 million in inventories related to our new businesses. These increases were partially offset by a decrease in our Rochester business of approximately $1.6 million.

The increase in inventory from July 29, 2006 of $18.7 million is due to added inventories of $7.8 million for our Casual Male XL business, $5.8 million for our Rochester business, $3.7 million for our direct businesses and an increase of $1.4 million related specifically to our new businesses. These increases are supporting our continued sales growth as well as our new businesses and product extensions.

The growth in inventory levels has slowed during the first six months of fiscal 2007 as compared to the same period of fiscal 2006. At the end of the second quarter of fiscal 2007 our inventory level increased $5.2 million while during the same period last year, inventory levels increased $10.0 million. We anticipate that by the end of fiscal 2007, inventory levels will be approximately $15.0-$20.0 million less than the prior year.

In the second quarter of fiscal 2006, we changed our inventory valuation method to lower of cost or market, using a weighted-average cost method. Previously, substantially all of our inventory was valued using the lower of cost or market on a first in, first out (“FIFO”) basis, under the retail inventory method. See Note 2 to the Consolidated Financial Statements for a full description.

 

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SEASONALITY

Historically and consistent with the retail industry, we have experienced seasonal fluctuations in revenues and income, with increases traditionally occurring during our third and fourth quarters as a result of the “Fall” and “Holiday” seasons.

LIQUIDITY AND CAPITAL RESOURCES

Our primary cash needs are for working capital (essentially inventory requirements) and capital expenditures. Specifically, our capital expenditure program includes projects for new store openings, relocations and remodeling, downsizing or combining existing stores, and improvements and integration of our system’s infrastructure. We expect that cash flow from operations, external borrowings and trade credit will enable us to finance our current working capital and expansion requirements. We have financed our working capital requirements, store expansion program, stock repurchase programs and acquisitions with cash flow from operations, external borrowings, and proceeds from equity and debt offerings. Our objective is to maintain a positive cash flow after capital expenditures such that we can support our growth activities with operational cash flows without incurring any additional debt.

For the first six months of fiscal 2007, cash used by operating activities was $4.1 million as compared to cash provided by operating activities of $2.4 million for the corresponding period of the prior year. The decrease in cash flow from operating activities was primarily due to the timing of cash flow of our working capital accounts, such as the payment of inventory.

In addition to cash flow from operations, our other primary source of working capital is our credit facility with Bank of America Retail Group, Inc., which was most recently amended on July 20, 2007 (the “Credit Facility”). The Credit Facility provides for a total commitment of $110 million comprised of (i) a $100 million revolving credit facility which includes a sublimit of $20 million for commercial and standby letter of credits and a sublimit of up to $15 million for SwingLine Loans and (ii) a $10 million “Last Out” revolving credit facility, which will be subordinate to the $100 million revolving credit facility. If at any time our Excess Availability Ratio, as defined in the Credit Facility, is less than 50%, our borrowings must first be made from the “Last Out” revolving credit facility before borrowing from the $100 million revolving credit facility. The maturity date of the Credit Facility is October 29, 2008. Borrowings under the Credit Facility bear interest at variable rates based on Bank of America’s prime rate or the London Interbank Offering Rate (“LIBOR”) and vary depending on our levels of excess availability.

We had outstanding borrowings under the Credit Facility at August 4, 2007 of $44.6 million. Outstanding standby letters of credit were $2.7 million and outstanding documentary letters of credit were $2.9 million. Average monthly borrowings outstanding under this facility during the first six months of fiscal 2007 were approximately $44.5 million, resulting in an average unused excess availability of approximately $42.5 million. Unused excess availability at August 4, 2007 was $46.7 million.

Master Loan and Security Agreement

On July 20, 2007, we entered into a Master Loan and Security Agreement (the “Master Agreement”) with Banc of America Leasing & Capital, LLC (“BALC”) for equipment financing. In conjunction with the Master Agreement, we entered into an Equipment Security Note (the “Secured Note”), whereby we borrowed an aggregate of $17.4 million from BALC. The Secured Note is secured by a security interest in all of our rights, title and interest in and to certain equipment. The Secured Note is due July 20, 2011 and accrues interest at a per annum rate of 1.75% plus the rate of interest equal to the 30-day published LIBOR rate. Principal and interest, in arrears, are payable monthly, commencing on August 20, 2007. We are subject to a prepayment penalty equal to 1% of the prepaid principal until July 20, 2008, 0.5% of the prepaid principal from July 21, 2008 through July 20, 2009 and no prepayment penalty thereafter.

The proceeds from the Secured Note will be used to fund our working capital needs and our stock repurchase program.

Stock Repurchase Program

On December 4, 2006, in connection with our decision to redeem a portion of our 5% senior subordinated convertible notes, our Board of Directors approved a $75.0 million stock repurchase program. Under this stock repurchase program, we are authorized to repurchase up to $75.0 million of our common stock through open market and privately negotiated transactions pursuant to Rule 10b-18 of the Exchange Act. The stock repurchase program expires on December 31, 2007 but may be terminated earlier at any time without prior notice. During the first six months of fiscal 2007, we repurchased approximately 3.8 million shares for an aggregate

 

15


price of $45.9 million. Since the first quarter of fiscal 2006, we have repurchased a total of 5.3 million shares of our common stock at an aggregate cost of $61.1 million. We have funded our stock repurchase program with borrowings from our Credit Facility. We believe that this stock repurchase program is a good investment of our available funds and reflects our commitment to our shareholders and our confidence in our earnings growth and accelerating cash flow.

At August 4, 2007, we have a total of 10.5 million shares of repurchased stock at an aggregate cost of $85.0 million which is reported by us as treasury stock and is reflected as a reduction in stockholders’ equity. As of August 4, 2007, we have $27.0 million available under the current stock repurchase program pursuant to which we may repurchase additional shares through December 31, 2007.

Capital Expenditures

The following table sets forth the stores opened and related square footage at August 4, 2007 and July 29, 2006, respectively:

 

     At August 4, 2007    At July 29, 2006

Store Concept

   Number of Stores    Square Footage    Number of Stores    Square Footage

(square footage in thousands)

           

Casual Male XL

   473    1,628    484    1,662

Rochester Big & Tall

   25    201    24    181

Sears Canada

   5    3    12    14
                   

Total Stores

   503    1,832    520    1,857

Total cash outlays for capital expenditures for the first six months of fiscal 2007 were $10.5 million as compared to $7.8 million for the first six months of fiscal 2006. Below is a summary of store openings and closings since February 3, 2007:

 

     Casual Male    

Rochester

Big & Tall

  

Sears

Canada

    Total stores  

At February 3, 2007

   472     24    12     508  

New outlet stores

   3     1    —       4  

New retail stores

   2     —      —       2  

Closed stores

   (4 )   —      (7 )   (11 )
                       

At August 4, 2007

   473     25    5     503  
                       

We expect our total capital expenditures for fiscal 2007 will be approximately $19.0 million, of which $7.8 million relates to capital for new stores, relocations and remodels and includes funds to relocate approximately 10 of our existing Casual Male XL retail stores at an estimated $100,000 to $120,000 for each location. We expect to incur approximately $9.0 million for system enhancements and a new sortation system for our distribution center.

During the second quarter of fiscal 2007, we closed seven of our Sears Canada locations and expect to close the remaining five locations by the end of the third quarter of fiscal 2007. We currently plan to continue to participate in our co-branded catalogs with Sears Canada. For the remainder of fiscal 2007, we intend to open three new Casual Male XL stores and two Rochester Big & Tall retail stores. We also expect to close 14 existing Casual Male XL retail stores and one Rochester store as their respective leases expire and we plan to relocate seven other Casual Male XL locations. During the first six months of fiscal 2007, we have renovated 19 of our Casual Male XL stores and expect to renovate an additional 27 during the third quarter of fiscal 2007.

CRITICAL ACCOUNTING POLICIES

There have been no material changes to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended February 3, 2007 filed with the SEC on April 2, 2007.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

In the normal course of business, our financial position and results of operations are routinely subject to a variety of risks, including market risk associated with interest rate movements on borrowings and foreign currency fluctuations. We regularly assess these risks and have established policies and business practices to protect against the adverse effects of these and other potential exposures.

Interest Rates

We utilize cash from operations and from our Credit Facility to fund our working capital needs. Our Credit Facility is not used for trading or speculative purposes. In addition, we have available letters of credit as sources of financing for our working capital requirements. Borrowings under the Credit Facility, which expires October 29, 2008, bear interest at variable rates based on Bank of America’s prime rate or the London Interbank Offering Rate (“LIBOR”). At August 4, 2007, the interest rate on our prime based borrowings was 8.25%. Approximately $28.0 million of our outstanding borrowings were in LIBOR contracts with an average interest rate of approximately 6.58%. Based upon a sensitivity analysis as of August 4, 2007, assuming average outstanding borrowing during the first six months of fiscal 2007 of $44.5 million, a 50 basis point increase in interest rates would have resulted in a potential increase in interest expense of approximately $111,250.

Foreign Currency

Our Sears Canada store locations conduct business in Canadian dollars and our Rochester Big & Tall Clothing store located in London, England conducts business in British pounds. If the value of the Canadian dollar or the British pound against the U.S. dollar weakens, the revenues and earnings of these stores will be reduced when they are translated to U.S. dollars. Also, the value of these assets to U.S. dollars may decline. As of August 4, 2007, sales from our Sears Canada stores and our London Rochester Big & Tall store were immaterial to consolidated sales. As such, we believe that movement in foreign currency exchange rates will not have a material adverse affect on our financial position or results of operations.

 

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of August 4, 2007. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of August 4, 2007, our disclosure controls and procedures were effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended August 4, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings.

Following a jury trial, the United States District Court for the District of Massachusetts entered judgment on July 6, 2007, in favor of us and against a competitor and a former independent contractor/consultant in the amount of $1,480,000. The defendants’ counterclaims were dismissed. The parties have filed post-trial motions that have not yet been scheduled for hearing. We intend to take appropriate steps to enforce and collect this judgment.

We have also filed a separate action in the United States District Court for the District of Massachusetts against the same former independent contractor/consultant and a separate former supplier and current competitor alleging similar misconduct. This second action remains in preliminary discovery stages. However, we intend to prosecute these claims vigorously.

We are also subject to various legal proceedings and claims that arise in the ordinary course of business. We believe that the resolution of these matters will not have an adverse impact on its result of operations or its financial position.

 

Item 1A. Risk Factors.

There have been no material changes to the risk factors as previously disclosed in Part I, Item 1A (“Risk Factors”) of our Annual Report on Form 10-K for the year ended February 3, 2007 filed with the SEC on April 2, 2007.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

  (c) Issuer Purchases of Equity Securities

The following is a summary of our share repurchase activity for the three months ended August 4, 2007:

 

     (a)     (b)    (c)    (d)

Period

   Total Number of
Shares Purchased
    Average Price Paid
per Share
   Total Number of
Shares Purchased as
Part of Publicly
Announced Plan (3)
   Maximum Number
(or Approximate
Dollar Value) of
Shares that May Yet
Be Purchased Under
the Plan (3)

May 6, 2007 – June 1, 2007

   674,354 (1)   $ 11.22    674,354    $ 27,021,896

June 2, 2007 – July 6, 2007

   —         —      —        —  

July 7, 2007 – August 4, 2007

   47,617 (2)   $ 11.81    —        —  

Total

   721,971     $ 11.26    674,354    $ 27,021,896

(1) Share repurchases under the program were made pursuant to open-market purchases.
(2) Represents shares delivered to us by employees upon stock option exercises.
(3) On December 18, 2006, we publicly announced a $75 million stock repurchase program. The program will expire on December 31, 2007 but may be terminated earlier at any time without prior notice.

 

Item 3. Defaults Upon Senior Securities.

None.

 

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Item 4. Submission of Matters to a Vote of Security Holders.

We held our Annual Meeting of Stockholders on July 31, 2007. The matters submitted to a vote of our stockholders were (i) the election of eight directors and (ii) the ratification of Ernst & Young LLP as our independent registered public accounting firm for the current fiscal year.

 

  (i) Our stockholders elected eight directors to hold office until the 2007 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified. The results of the voting were as follows:

 

Directors

   Votes FOR    Votes AGAINST

Seymour Holtzman

   37,601,054    601,123

David A. Levin

   37,607,162    595,015

Alan S. Bernikow

   38,034,735    167,442

Jesse Choper

   36,565,690    1,636,487

Ward K. Mooney

   38,097,615    104,562

George T. Porter, Jr.

   38,097,615    104,562

Mitchell S. Presser

   38,035,219    166,958

Robert L. Sockolov

   36,240,378    1,961,799

 

  (ii) Our stockholders also ratified the appointment of Ernst & Young LLP as our independent registered public accounting firm for the current fiscal year. The results of the voting were as follows:

 

Votes FOR

   Votes AGAINST    Votes ABSTAINED

38,194,898

   4,099    3,179

 

Item 5. Other Information.

On August 22, 2007, we entered into an employment agreement (the “Employment Agreement”) with Walter E. Sprague, a Named Executive Officer in our 2007 Proxy Statement. The Employment Agreement remains in effect until terminated by either party. The Employment Agreement provides that Mr. Sprague will be paid a base salary at an annual rate of $235,000 and will be eligible to participate in our annual appraisal process. Pursuant to the Employment Agreement, Mr. Sprague will also be eligible to participate in our annual incentive plan and our Long Term Incentive Plan.

The Employment Agreement provides that in the event that the executive officer’s employment is terminated by us at any time for any reason other than “justifiable cause” (as defined in the Employment Agreement), disability or death, we are required to pay the executive officer his then current salary for five months after the effectiveness of such termination. In the event the executive’s employment is terminated at any time during the twelve months following a Change in Control (as defined in the Employment Agreement) other than for “justifiable cause”, we shall pay the executive an amount equal to twelve months of base annual salary in effect at the time of the termination. Mr. Sprague has also agreed to maintain the confidentiality of our confidential information and not to compete with the Company while his Employment Agreement is in effect and for a period of two years thereafter.

 

Item 6. Exhibits.

 

10.1    Employment Agreement between the Company and Wayne Diller dated January 30, 2006.

 

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10.2   Employment Agreement between the Company and Ric Della Bernarda dated January 1, 2006.
10.3   Employment Agreement between the Company and Walter E. Sprague dated August 22, 2007.
10.4   Master Loan and Security Agreement dated July 20, 2007 between the Company and Banc of America Leasing & Capital LLC (included as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 23, 2007, and incorporated herein by reference).
10.5   Equipment Security Note Number 17608-70001 to the Master Loan and Security Agreement dated July 20, 2007 between the Company and Banc of America Leasing & Capital LLC (included as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed July 23, 2007, and incorporated herein by reference).
10.6   First Amendment to Fifth Amended and Restated Loan and Security Agreement dated July 11, 2007 by and among the Company and Bank of America, N.A. (included as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed July 23, 2007, and incorporated herein by reference).
10.7   Second Amendment to Fifth Amended and Restated Loan and Security Agreement dated July 20, 2007 by and among the Company and Bank of America , N.A. (included as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed July 23, 2007, and incorporated herein by reference).
31.1   Certification of the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.2   Certification of the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    CASUAL MALE RETAIL GROUP, INC.
Date: August 24, 2007   By:  

/s/ SHERI A. KNIGHT

    Sheri A. Knight
    Senior Vice President of Finance and Corporate Controller

 

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