10-Q 1 d10q.txt FORM 10-Q United States Securities and Exchange Commission Washington, DC 20549 FORM 10-Q [x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended May 4, 2002 ----------- Or Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 0-23874 ------- Jos. A. Bank Clothiers, Inc. Delaware 5611 36-3189198 -------- ---- ---------- (State incorporation) (Primary Standard (I.R.S. Employer Industrial Classification Identification Code Number) Number) 500 Hanover Pike, Hampstead, MD 21074-2095 ------------------------------- ---------- None ---- (Former name or former address, if changed since last report)
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 if 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 the number of shares of each of the issuer's classes of common stock, as of the latest practicable date: Class Outstanding as of June 13, 2002 ----- ------------------------------- Common Stock, $.01 par value 6,169,472 --------- Jos. A. Bank Clothiers, Inc. Index -----
Part I. Financial Information Page No. Item 1. Financial Statements Condensed Consolidated Statements 3 of Operations - Three Months ended May 4, 2002 and May 5, 2001 Condensed Consolidated Balance 4 Sheets - as of May 4, 2002 and February 2, 2002 Condensed Consolidated Statements 5 of Cash Flows - Three Months ended May 4, 2002 and May 5, 2001 Notes to Condensed Consolidated Financial Statements 6-9 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 9-12 Item 3. Quantitative and Qualitative Disclosures about Market Risk 13 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14
2 PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (In Thousands except per share data) (Unaudited) Three Months Ended ------------------ May 5, May 4, 2001 2002 ---- ---- Net sales $ 47,406 $ 55,760 ------ ------ Costs and expenses: Cost of goods sold 23,896 26,411 General and administrative 4,553 5,849 Sales and marketing 17,656 20,342 Store opening costs 69 27 One-time charge 210 -- ------ ------ 46,384 52,629 ------ ------ Operating income 1,022 3,131 Interest expense, net 219 293 ------ ------ Income before provision for income taxes 803 2,838 Provision for income taxes 297 1,107 ------ ------ Net income $ 506 $ 1,731 ====== ====== Earnings per share: Net income: Basic $ 0.08 $ 0.29 Diluted $ 0.08 $ 0.25 Weighted average shares outstanding: Basic 5,956 6,045 Diluted 6,210 6,819 See accompanying notes 3 JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In Thousands)
February 2, May 4, 2002 2002 ---- ---- (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 827 $ 1,182 Accounts receivable 2,364 3,599 Inventories: Raw materials 5,018 4,668 Finished goods 59,624 59,270 --------- --------- Total inventories 64,642 63,938 --------- --------- Prepaid expenses and other current assets 6,532 5,770 Deferred income taxes 594 594 --------- --------- Total current assets 74,959 75,083 --------- --------- Property, plant and equipment, at cost 64,559 67,107 Accumulated depreciation and amortization (32,018) (33,292) --------- --------- Net property, plant and equipment 32,541 33,815 Other assets 117 109 Deferred income taxes 840 840 --------- --------- Total assets $ 108,457 $ 109,847 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 16,528 $ 18,276 Accrued expenses 19,930 19,305 Current portion of long-term debt 744 710 --------- --------- Total current liabilities 37,202 38,291 Noncurrent Liabilities: Long-term debt 15,894 12,528 Deferred rent 3,109 3,094 --------- --------- Total liabilities 56,205 53,913 --------- --------- Shareholders' equity: Common stock 71 73 Additional paid-in capital 56,558 58,507 Retained earnings 681 2,412 --------- --------- 57,310 60,992 Less treasury stock (5,058) (5,058) --------- --------- Total shareholders' equity 52,252 55,934 --------- --------- Total liabilities and shareholders' equity $ 108,457 $ 109,847 ========= =========
See accompanying notes 4 JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (In Thousands) (Unaudited) Three Months Ended ------------------ May 5, May 4, 2001 2002 ---- ---- Cash flows from operating activities: Net income $ 506 $ 1,731 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Increase in deferred taxes (566) -- Depreciation and amortization 1,089 1,300 Net (increase) decrease in operating working capital (8,674) 1,347 ------- -------- Net cash (used in) provided by operating activities (7,645) 4,378 ------- -------- Cash flows from investing activities: Capital expenditures (1,984) (2,574) ------- -------- Net cash used in investing activities (1,984) (2,574) ------- -------- Cash flows from financing activities: Borrowings under long-term Credit Agreement 17,136 14,968 Repayments under long-term Credit Agreement (15,482) (18,184) Borrowing of other long-term debt 5,500 -- Repayment of other long-term debt (130) (184) Net proceeds from issuance of common stock -- 1,951 ------- -------- Net cash provided by (used in) financing activities 7,024 (1,449) ------- -------- Net (decrease) increase in cash and cash equivalents (2,605) 355 Cash and cash equivalents - beginning of period 3,126 827 ------- -------- Cash and cash equivalents - end of period $ 521 $ 1,182 ======= ======== See accompanying notes 5 Jos. A. Bank Clothiers, Inc. S.E.C. Form 10-Q, 5/4/02 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- (Unaudited) 1. BASIS OF PRESENTATION Jos. A. Bank Clothiers, Inc. (the "Company") is a nationwide retailer of classic men's clothing through conventional retail stores and catalog and internet direct marketing. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the fiscal year. In the opinion of management, the information contained herein reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. These adjustments are of a normal recurring nature. Certain notes and other information have been condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the Company's February 2, 2002 Annual Report on Form 10-K. 2. SIGNIFICANT ACCOUNTING POLICIES Inventories are stated at the lower of first-in, first-out, cost or market. The Company capitalizes into inventory certain warehousing and delivery costs associated with shipping its merchandise to the point of sale. Costs related to mail order catalogs and promotional materials are included in prepaid expenses and other current assets. These costs are amortized over the expected periods of benefit, not to exceed six months. The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 - Accounting for Income Taxes (SFAS 109). This standard requires, among other things, recognition of future tax benefits, measured by enacted tax rates attributable to deductible temporary differences between financial statement and income tax basis of assets and liabilities and to tax net operating loss carry forwards, to the extent that realization of such benefits is more likely than not. Reclassifications - Certain reclassifications have been made to the May 5, 2001 financial statements in order to conform with the May 4, 2002 presentation. 6 Jos. A. Bank Clothiers, Inc. S.E.C. Form 10-Q, 5/4/02 3. WORKING CAPITAL The net change in operating working capital is composed of the following: Three Months Ended May 5, May 4, 2001 2002 ---- ------ Increase in accounts receivable $ (540) $(1,235) (Increase) decrease in inventories (8,453) 704 (Increase) decrease in prepaids and other assets (252) 770 Increase in accounts payable 1,861 1,748 Decrease in accrued expenses and other liabilities (1,290) (640) ------- ------- Net (increase) decrease in operating working capital $(8,674) $ 1,347 ======= ======= 4. EARNINGS PER SHARE Earnings Per Share (EPS) - Statement of Financial Accounting Standards (SFAS) No. 128 requires presentation of basic earnings per share and diluted earnings per share. The weighted average shares used to calculate basic and diluted earnings per share in accordance with SFAS No. 128 is as follows: Three Months Ended ------------------ May 5, May 4, 2001 2002 ------ ------- Weighted average shares outstanding for basic EPS 5,956 6,045 Dilutive effect of common stock equivalents 254 774 ------ ------- Weighted average shares outstanding for diluted EPS 6,210 6,819 ====== ======= Weighted average shares outstanding for calculating dilutive EPS include basic shares outstanding, plus shares issuable upon the exercise of stock options, using the treasury stock method. 7 Jos. A. Bank Clothiers, Inc. S.E.C. Form 10-Q, 5/4/02 5. SEGMENT REPORTING The Company has two reportable segments: full line stores and catalog/internet direct marketing. While each segment offers a similar mix of men's clothing to the retail customer, the full line stores also provide alterations. The accounting policies of the segments are the same as those described in the Company's February 2, 2002 Annual Report on Form 10-K. The Company evaluates performance of the segments based on "four wall" contribution which excludes any allocation of "management company" costs, distribution center costs (except order fulfillment costs which are allocated to catalog/internet), interest and income taxes. The Company's segments are strategic business units that offer similar products to the retail customer by two distinctively different methods. In full line stores the typical customer travels to the store and purchases men's clothing and/or alterations and takes their purchases with them. The catalog/internet direct marketing customer receives a catalog in his or her home, office and/or visits our web page via the internet and either calls, mails, faxes or places an order on-line. The merchandise is then shipped to the customer. The detail segment data is presented in the following table:
Quarter ended May 4, 2002 Full line Catalog/Internet (in thousands) Stores Direct Marketing Other Total ------ ---------------- ----- ----- Net sales $ 47,489 $ 6,109 $ 2,162 (a) $ 55,760 Depreciation and amortization 950 15 335 1,300 Operating income (loss) (b) 8,316 1,354 (6,539) 3,131 Identifiable assets (c) 66,168 13,979 29,700 109,847 Capital expenditures (d) 835 -- 1,739 2,574 Quarter ended May 5, 2001 Full line Catalog/Internet (in thousands) Stores Direct Marketing Other Total ------ ---------------- ----- ----- Net sales $ 41,024 $ 4,891 $ 1,491 (a) $ 47,406 Depreciation and amortization 791 15 283 1,089 Operating income (loss) (b) 5,851 310 (5,139) 1,022 Identifiable assets (c) 59,975 11,453 25,627 97,055 Capital expenditures (d) 777 390 817 1,984
(a) Net sales from segments below the quantitative thresholds are attributable primarily to four operating segments of the Company. Those segments include factory stores, outlet stores, franchise and regional tailor shops. None of these segments has ever met any of the quantitative thresholds for determining reportable segments. (b) Operating income represents profit before allocations of overhead from "management company" and the distribution center, interest and income taxes. (c) Identifiable assets include cash, accounts receivable, inventories, prepaid expenses and fixed assets residing in or related to the reportable segments. Assets included in Other are primarily fixed assets associated with the corporate office and distribution center, deferred tax assets, and inventory which has not been assigned to one of the reportable segments. (d) Capital expenditures include purchases of property, plant and equipment made for the reportable segment. 8 Jos. A. Bank Clothiers, Inc. S.E.C. Form 10-Q, 5/4/02 6. ONE-TIME CHARGE During the first quarter of fiscal 2001, the Company recorded a one-time charge of $.2 million. The one-time charge primarily represents professional fees incurred in the first quarter of fiscal 2001 in connection with a strategic action considered by the Board of Directors. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition The following discussion should be read in conjunction with the attached condensed consolidated financial statements and notes thereto and with the Company's audited financial statements and notes thereto for the fiscal year ended February 2, 2002. Overview - For the first quarter of fiscal 2002, the Company earned $.25 per share compared with $.08 per share in fiscal 2001. As such, earnings per share was more than triple compared with the prior year. The earnings per share of $.25 represents the third consecutive quarter of record earnings for the Company. The Company generated increased profits in both the stores and catalog/internet segments driven by increased sales and gross profit margins. The Company's gross profit percent increased 300 basis points in the first quarter of fiscal 2002 as the Company continued to improve its sourcing of merchandise. The Company had $12.1 million of total debt outstanding as of the end of the quarter (excluding cash) compared with $13.4 million at the same time last year. Total debt decreased $3.8 million in the first quarter of fiscal 2002 whereas last year total debt increased $9.6 million in the first quarter. The Company had $32.7 million of additional availability in the bank line of credit as of June 7, 2002, compared with $32.3 million at the same time last year. The Company expects to open 23 to 25 new stores in fiscal 2002, mostly in existing markets. Two of the new stores were opened in the first quarter, 6 to 10 are scheduled to open in the second quarter, 6 to10 are scheduled to open in the third quarter, with the remainder opening in the fourth quarter. The Company also expects to open at least 30 stores next year, which will be evaluated as the year progresses. 9 Jos.A. Bank Clothiers, Inc. S.E.C. Form 10-Q, 5/4/02 Inventories at the end of the first quarter of fiscal 2002 were approximately $64 million, or $5 million (9%) higher than last year. The increase relates almost entirely to the new stores that were opened since the end of the first quarter of fiscal 2001. The Company expects to increase inventories in the second half of fiscal 2002 to support new stores and anticipated sales growth.
Percentage of Net Sales Three Months Ended ------------------ May 5, May 4, 2001 2002 ---- ---- Net sales ............................................. 100.0% 100.0% Cost of goods sold .................................... 50.4 47.4 ---- ---- Gross profit .......................................... 49.6 52.6 General and administrative expenses ................... 9.6 10.5 Sales and marketing expenses .......................... 37.2 36.5 Store opening costs ................................... 0.1 -- One-time charge ....................................... 0.4 -- ---- ---- Operating income ...................................... 2.2 5.6 Interest expense, net ................................. 0.5 0.5 ---- ---- Income before provision for income taxes .............. 1.7 5.1 Provision for income taxes ............................ 0.6 2.0 ---- ---- Net income ............................................ 1.1% 3.1% ==== ====
Net sales - Net sales increased 17.7% or $8.4 million to $55.8 million in the first quarter of fiscal 2002 compared with $47.4 million in fiscal 2001. The sales increase was primarily related to a 15.7% increase in store sales in both new and existing stores and a 24.9% increase in combined catalog/internet sales. The sales increases were across the Company's broad range of products. The following table summarizes store opening and closing activity during the respective periods.
For the Three Months Ended -------------------------- May 5, May 4, 2001 2002 ---- ---- Stores open at the beginning of the period 116 135 Opened 3 2 Closed 1 -- ----- ----- Stores open at the end of the period 118 137 ===== =====
Gross profit - Gross profit (net sales less cost of goods sold) increased $5.8 million to $29.3 million in the first quarter of fiscal 2002 compared to $23.5 million in fiscal 2001. Gross profit as a percent of sales increased 300 basis points to 52.6% primarily due to the continued improvement in sourcing of merchandise. 10 Jos.A. Bank Clothiers, Inc. S.E.C. Form 10-Q, 5/4/02 General and Administrative Expenses - General and administrative expenses increased $1.3 million to $5.8 million in fiscal 2002 compared with $4.6 million in fiscal 2001. The increase was due primarily to higher accrued incentive compensation expense and other expenses such as professional fees, recruitment costs and travel related to business expansion. Sales and Marketing Expenses - Sales and marketing expenses increased $2.7 million to $20.3 million, or 36.5% of net sales, in the first quarter of fiscal 2002 from $17.7 million, or 37.2% of net sales in the first quarter of fiscal 2001. The increased sales and marketing expense primarily represents occupancy, payroll and advertising for the 20 new stores opened since the end of the first quarter of fiscal 2001. The decrease in expense as a percentage of sales relates to increased leverage of store expenses on the higher store sales. Store Opening Costs - Store opening costs decreased to $27 thousand during the first quarter of fiscal 2002 from $69 thousand in the prior year as the Company opened two new stores in the first quarter of fiscal 2002 and three new stores in the first quarter of fiscal 2001. The decrease per store relates primarily to lower store opening advertising costs for the new stores. Interest Expense - Interest expense increased in the first quarter of fiscal 2002 compared with the prior year due primarily to the higher average outstanding debt balance in the current year. One-Time Charge - The one-time charge in the prior year primarily represents professional fees incurred in the first quarter of fiscal 2001 in connection with a strategic action considered by the Board of Directors. Income Taxes - The first quarter of fiscal 2002 effective income tax rate is 39.0% compared with 37.0% in fiscal 2001. The increase resulted from higher effective state tax rates for the first quarter of fiscal 2002. The Company operates in 29 states with varying tax rates. Liquidity and Capital Resources - The Company has significant availability under its current $60 million Credit Agreement which expires April 30, 2005. At May 4, 2002 the Company had outstanding borrowings of $4.0 million and $34.4 million of availability under its Credit Agreement compared with borrowings of $3.4 million and availability of $35.1 million at the end of the first quarter last year. The Company also has $6.6 million of term debt due over the next 11 years. The Company had $12.1 million of total debt outstanding as of the end of the quarter (excluding cash) compared with $13.4 million at the same time last year. Total debt decreased $3.8 million in the first quarter of fiscal 2002 whereas last year total debt increased $9.6 million in the first quarter. The Company had $32.7 million of additional availability in the bank line of credit as of June 7, 2002, compared with $32.3 million at the same time last year. 11 Jos.A. Bank Clothiers, Inc. S.E.C. Form 10-Q, 5/4/02 The following table summarizes the Company's sources and uses of funds as reflected in the condensed consolidated statements of cash flows:
Three Months Ended ------------------ May 5, May 4, 2001 2002 ---- ---- Cash provided by (used in): Operating activities $(7,645) $ 4,378 Investing activities (1,984) (2,574) Financing activities 7,024 (1,449) ------- ------- Net increase (decrease) in cash and cash equivalents $(2,605) $ 355 ======= =======
Cash provided by operating activities was primarily due to earnings, an increase in accounts payable and depreciation. Cash used in investing activities primarily relates to the purchase of a corporate aircraft and opening new stores. Cash used in financing activities is primarily from repayments under the Credit Agreement. In the remaining three quarters of fiscal 2002, the Company expects to spend between $6 million and $8 million on capital expenditures primarily to open the remaining 23 to 25 new stores to be opened in fiscal 2002 and to renovate several stores. The capital expenditures will be financed through operations, the Credit Agreement and additional term debt. The Company believes that its current liquidity, Credit Agreement and term loans will be adequate to support its current working capital and capital expenditure needs. The Company's plans and beliefs concerning future operations contained herein are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forecast due to a variety of factors that can adversely affect the Company's operating results, liquidity and financial condition such as risks associated with economic, weather and other factors affecting consumer spending, the ability of the Company to finance its expansion plans, mix of goods sold, pricing, availability of lease sites for new stores, the ability to source the product from its global supplier base and other competitive factors. Many of the risks are described in the Company's reports filed with the Securities and Exchange Commission, which should be carefully reviewed before any investment decision. Critical Accounting Policies - The Company believes the following critical accounting policy affects management's significant judgments and estimates used in the preparation of the Consolidated Financial Statements. For a detailed discussion on the application of this and other accounting policies, see Note 1 in the Consolidated Financial Statements in the Company's February 2, 2002 Annual Report on Form 10K. Inventory. The Company records inventory at the lower of cost or market. The estimated market value is based on assumptions for future demand and related pricing. If actual market conditions are less favorable than those projected by management, reductions in the value of inventory may be required. 12 Jos. A. Bank Clothiers, Inc. S.E.C. Form 10-Q, 5/4/02 Item 3. Quantitative and Qualitative Disclosures about Market Risk At May 4, 2002, there were no derivative financial instruments. In addition, the Company does not believe it is materially at risk for changes in market interest rates or foreign currency fluctuations. The Company's interest on borrowings under its Credit Agreement is at a variable rate based on the prime rate or a spread over the LIBOR. PART II. OTHER INFORMATION Item 6. Exhibits and reports on Form 8-K (a) Exhibits Exhibit 10.8(b) -- Amended and Restated Employment Agreement dated May 15, 2002 between David E. Ullman and Jos. A. Bank Clothiers, Inc., filed herewith (Contract renewal) Exhibit 10.13(b) -- Amended and Restated Employment Agreement dated May 15, 2002 between Charles D. Frazer and Jos. A. Bank Clothiers, Inc., filed herewith (Contract renewal) Exhibit 10.17(d) -- Fourth Amendment to Employment Agreement dated May 28, 2002 between Robert Hensley and Jos. A. Bank Clothiers, Inc., filed herewith Exhibit 10.18(c) -- Third Amendment to Employment Agreement dated May 29, 2002 between R. Neal Black and Jos. A. Bank Clothiers, Inc., filed herewith Exhibit 10.21 -- Employment Offer Letter dated September 18, 2000 between Gary Merry and Jos. A. Bank Clothiers, Inc., filed herewith
(b) Reports on Form 8-K On May 8, 2002 the Company filed a report on Form 8-K related to the termination of Arthur Andersen LLP and the engagement of KPMG LLP to serve as the Company's independent public accountants. 13 Jos. A. Bank Clothiers, Inc. S.E.C. Form 10-Q, 5/4/02 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. Dated: June 18, 2002 Jos. A. Bank Clothiers, Inc. --------- (Registrant) /s/ David E. Ullman ------------------------------- David E. Ullman Executive Vice President, Chief Financial Officer 14