-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O7yChueU4VchZz8ArZ5s55gBufwi51z8OK30mNIe6drvGnDA4NV43TML+PKLBRd7 ABV2qrxjY+10JmceMq7//g== 0000950110-99-000850.txt : 19990608 0000950110-99-000850.hdr.sgml : 19990608 ACCESSION NUMBER: 0000950110-99-000850 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990130 FILED AS OF DATE: 19990607 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TODAYS MAN INC CENTRAL INDEX KEY: 0000885546 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-APPAREL & ACCESSORY STORES [5600] IRS NUMBER: 231743137 STATE OF INCORPORATION: PA FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-13745 FILM NUMBER: 99641438 BUSINESS ADDRESS: STREET 1: 835 LANCER DR STREET 2: MOORESTOWN WEST CORPORATE CNTR CITY: MOORESTOWN STATE: NJ ZIP: 08057 BUSINESS PHONE: 6092355656 MAIL ADDRESS: STREET 1: 835 LANCER DR STREET 2: MOORESTOWN W CORP CTR CITY: MOORESTOWN STATE: NJ ZIP: 08057 10-K/A 1 FORM 10-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K/A (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended January 30, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to ____________________ Commission File No. 0-20234 TODAY'S MAN, INC. (Exact Name of Registrant as Specified in its Charter) Pennsylvania 23-1743137 ------------ ---------- (State or Other Jurisdiction of (IRS Employer Identification No.) Incorporation or Organization) 835 Lancer Drive Moorestown, New Jersey 08057 ---------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, Including Area Code (609) 235-5656 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, no par value 27,014,485 -------------------------- ---------- (Title of Class) (Number of Shares Outstanding as of May 24, 1999) Common Stock Purchase Warrants 5,427,927 - ------------------------------ --------- (Title of Class) (Number of Warrants Outstanding as of May 24, 1999) Indicate by check mark whether the Registrant (i) 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 (ii) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ X ] No [ ] The aggregate market value of voting and non-voting common equity held by non-affiliates of the Registrant is $23,574,839 (1). Documents incorporated by reference are listed in the Exhibit Index. - -------------------- (1) The aggregate dollar amount of the voting and non-voting common equity set forth equals the number of shares of and warrants for the Company's Common Stock outstanding, reduced by the amount of shares of and warrants for Common Stock held by officers, directors and shareholders owning 10% or more of the Company's Common Stock and Warrants for Common Stock, multiplied by $1.44 and $0.25, the last reported sale price for the Company's Common Stock and Warrants on May 24, 1999. The information provided shall in no way be construed as an admission that any officer, director or 10% shareholder in the Company may be deemed an affiliate of the Company or that such person is the beneficial owner of the shares reported as being held by such person, and any such inference is hereby disclaimed. The information provided herein is included solely for recordkeeping purposes of the Securities and Exchange Commission. PURPOSE OF AMENDMENT The registrant hereby amends the following items, financial statements exhibits or other portions of its Annual Report on Form 10-K for the Annual Period ended January 30, 1999, as set forth in the pages attached hereto. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 8. Financial Statements and Supplementary Data (see page F-1) 1 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth for the periods indicated the percentages which the items in the Company's Statements of Operations bear to net sales.
Fiscal Year ----------- 1996 1997 1998 ---- ---- ---- Net sales 100.0% 100.0% 100.0% Cost of goods sold 65.9 64.5 63.6 ----------- ----------- ---------- Gross profit 34.1 35.5 36.4 Selling, general and administrative expenses 32.3 30.7 31.3 ----------- ----------- ---------- Income from operations 1.8 4.8 5.1 Reorganization items, net 4.3 3.2 - Interest expense and other (income) expense, net .3 3.6 1.5 ----------- ----------- ---------- Income (loss) before income taxes and extraordinary item (2.8) (2.0) 3.6 Income tax provision - - 1.3 ----------- ----------- ---------- Income (loss) before extraordinary item (2.8)% (2.0)% 2.3 Extraordinary item, net of income tax benefit - - 0.3 ----------- ----------- ----------- Net income (loss) (2.8)% (2.0)% 2.0% =========== =========== ===========
FISCAL YEARS 1998 AND 1997 Net Sales. Net sales were $213,608,600 in fiscal 1998, a decrease of $539,400 or 0.3% from net sales of $214,148,000 in fiscal 1997. The sales decrease was due in part to a $434,500 decrease in sales from licensed shoe departments. Additionally, the Company has reduced its semi-annual clearance event. In fiscal 1998 the Company shortened its fall clearance event by two weeks as compared to fiscal 1997. The Company operated 25 superstores at January 31, 1998, and January 30, 1999, respectively. Gross Profit. Gross profit as a percentage of net sales increased to 36.4% in fiscal 1998 from 35.5% in fiscal 1997. The increase in gross profit was attributable to a reduction in the promotional activities and markdowns from those used in fiscal 1997 related to the marketing of the Today's Man proprietary card. Additionally, the Company has moved a significant portion of its inventory to a replenishment program which allows for more timely receipt of merchandise and therefore fewer markdowns. In fiscal 1998, approximately 48% of sales were made through replenishment programs as compared to 35% in fiscal 1997. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 1.4% or $940,500 from $65,819,800 in fiscal 1997 to $66,760,300 in fiscal 1998. As a percentage of net sales, selling, general and administrative expenses increased from 30.7% in fiscal 1997 to 31.3% in fiscal 1998. The increase in expenses was primarily due to an additional $1,100,000 in planned advertising costs associated with the relationship marketing campaign. In addition to the relationship marketing, the cost of administering the Today's Rewards Program increased by approximately $450,000 due to increased utilization of the card and a higher number of payouts under the program. Offsetting these increases was a decrease in amortization expense of approximately $500,000 related to the decrease in assets under capital leases and bank issuance costs. Store payroll, occupancy, and advertising costs increased by $847,100 in fiscal 1998 as compared to the same period in fiscal 1997, and represented 19.5% of net sales in fiscal 1998 as compared to 19.1% of net sales in fiscal 1997. Reorganization Items, Net. Reorganization items in fiscal 1997 consisted of legal and accounting fees incurred in the administration of the Chapter 11 proceedings offset by interest income earned during the period. No reorganization items were incurred in fiscal 1998. Interest Expense, Interest Income and Other (Income) Expense, Net. Interest expense, interest income and other (income) expense, net, decreased by $4,505,700 in fiscal 1998 from fiscal 1997. This decrease is a result of the charge taken in the third quarter of fiscal 1997 of $7,264,000 related to the Company's Plan of Reorganization. In fiscal 1998, the Company recognized $1,045,000 in charges for the early termination of its revolving credit facility and term loan with Foothill Capital Corporation, which the Company recorded as an extraordinary item. Income Tax Expense. In fiscal 1998 the Company recorded a provision for income taxes of $2,495,900. This provision is fully offset by the Company's net operating loss carryforwards. The Company had a net loss in fiscal 1997 and therefore recorded no tax provision. 2 Extraordinary Item. In December 1998, the Company refinanced its revolving credit facility and term loan from Foothill Capital with a new revolving credit facility with Mellon Bank, N.A. As a result of this refinancing, the company incurred a prepayment penalty of approximately $720,000 and wrote off approximately $640,000 of unamortized debt issuance costs. These amounts were offset by approximately $315,000 in accrued debt discount and related liabilities and approximately $387,000 in income tax benefits related to this extraordinary item. FISCAL YEARS 1997 AND 1996 Net Sales. Net sales of $214,148,000 in fiscal 1997 represented an increase of $10,105,600 or 5.0% over net sales of $204,042,400 in fiscal 1996. The sales increase was due to the increase from license shoe department sales as well as better merchandise assortments, more timely arrival of merchandise, and better in-stock positions resulting from the Company's expanded utilization of its merchandise replenishment program. Sales from licensed shoe departments increased $3,853,600 to $12,642,600 for fiscal 1997 as compared to the prior year period. The replenishment program serves to minimize stock outs and quickly restock fast selling merchandise. These factors contributed to the Company's comparable store sales increase of 7%. There were 25 superstores in operation at January 31, 1998 and February 1, 1997 respectively. Gross Profit. Gross profit increased by $6,554,700 to $76,072,900 and as a percentage of net sales to 35.5% in fiscal 1997 from 34.1% in fiscal 1996. The gross margin improvement was due to better buying, a decrease in markdowns resulting from better merchandise transition between seasons and the increase in merchandise productivity due to the Company's merchandise replenishment program. Selling, General and Administrative Expenses. Selling, general and administrative expenses declined $162,700 to $65,819,800 in fiscal 1997 from $65,982,500 in the year ago period and declined as a percentage of net sales to 30.7% in fiscal 1997 as compared to 32.3% in fiscal 1996. Store payroll, occupancy and advertising costs decreased $984,100 to 19.1% of net sales in fiscal 1997 as compared to 20.5% of net sales in the prior fiscal year. This decrease was partially offset by increases in the Company's credit card processing costs due to an increase in usage of the Company's private label credit card. Reorganization Items, Net. Reorganization items consisted of $7,224,000 in professional fees, $121,300 in retention bonus expenses and other employee related costs to minimize employee turnover, and $519,700 related to lease rejection settlement costs. These items were offset by $1,096,000 in interest income earned on cash accumulated during the bankruptcy period while not paying pre-petition obligations. These amounts compared to $3,567,600 in professional fees, $4,780,600 in asset write-offs, $526,000 in retention bonus expense and $283,800 in net lease rejection costs offset by $310,300 in interest income in the prior fiscal year. Interest Expense, Interest Income and Other (Income) Expense, Net. Interest expense, interest income and other (income) expense, net increased by $7,286,600 in fiscal 1997. This was primarily due to the Company recording a charge of $7,264,000 as a result of the Company's Plan of Reorganization representing the premium demanded by the Official Committee of the Unsecured Creditors, the holders of the secured pre-petition bank claims and other holders of unsecured pre-petition obligations of the Company to support a Plan that provided a full recovery for all allowed claims. LIQUIDITY AND CAPITAL RESOURCES The Company's primary historic source of working capital is cash flow from operations. The recent bankruptcy proceedings have distorted the presentation of the historic sources of working capital by allowing the Company to accumulate cash without paying its pre-petition obligations. The Company had working capital of $49,527,600, $26,291,900 and $31,927,200 at the end of fiscal 1996, 1997 and 1998, respectively. The fiscal 1997 decrease in working capital was a result of the Company's emergence from Chapter 11 and the payment of pre-petition obligations pursuant to the Reorganization Plan. See Item 1. "Business." Historically, the Company's working capital is at its lowest level in the first and third quarters and increases in the second and fourth quarters during the peak selling seasons. The Company measures its inventory turnover by dividing net sales by the retail value of the inventory averaged over 12 months. Inventory turnover was 3.22 times, 3.05 times and 2.81 times in fiscal 1996, 1997 and 1998, respectively. Net cash provided by (used in) operating activities amounted to $24,362,100, ($45,080,000) and $11,330,300 in fiscal 1996, 1997 and 1998, respectively. These amounts primarily represent net income plus depreciation, amortization and other changes in operating assets and liabilities. The large use of cash in fiscal 1997 was primarily due to the payment of approximately $42,329,700 of liabilities subject to settlement in the Company's Chapter 11 proceedings. Without such payment, operating activities would have used net cash of $2,750,300. In fiscal 1998 the Company used approximately $11,005,500 to fund additional liabilities subject to settlement. Net cash used in investing activities for existing stores and new systems amounted to $1,424,200, $1,326,600 and $4,521,400 in fiscal 1996, 1997 and 1998, respectively. The increase in fiscal 1998 from 1997 represents the capital expenditures related to the Company's new merchandising system and general ledger program. 3 Net cash provided by (used in) financing activities amounted to ($1,397,300), $23,700,100 and ($5,847,300) in fiscal 1996, 1997 and 1998, respectively. The increase in fiscal 1997 represents the proceeds from the Company's equity offering and the proceeds from the term loan, two of the funding sources used to fund the Plan of Reorganization. On December 31, 1997, the Company entered into a Loan and Security Agreement with Foothill Capital Corporation ("Foothill"), individually and as agent. The Loan and Security Agreement provided for a $12.5 million term loan and a $30.0 million revolving credit facility. The Company granted Foothill Capital Corporation a lien on its tangible and intangible assets to secure this term loan and revolving credit facility. Proceeds from these loans were used to fund a portion of the Company's Plan of Reorganization. There were no outstanding borrowings under the Foothill revolving credit facility at January 31, 1998. The Company had approximately $6,600,000 in outstanding letters of credit at January 31, 1998. On December 4, 1998, the Company entered into a Loan and Security Agreement with Mellon Bank, N.A., ("Mellon") individually and as agent. The Loan and Security Agreement provides for a $45.0 million revolving credit facility. The Company has granted Mellon a lien on its tangible and intangible assets to secure this revolving credit facility. Proceeds from this loan were used to refinance the Company's previous revolving credit facility and term loan from Foothill. In accordance with the early termination provisions of the Foothill loan document, the Company paid an early termination fee of $720,000 to Foothill. The Mellon revolving credit facility bears interest at the option of the Company at prime (7.75% at January 30, 1999) or LIBOR (5.03% at January 30, 1999) plus a margin ranging from 1.75% to 3.25% depending upon the Company's EBITDA. This facility has a term of five years and includes a $20.0 million sublimit for letter of credit advances. Availability under the revolver is based on a formula of inventory and credit card receivables, less applicable reserves. The Mellon Loan and Security Agreement contains financial covenants including tangible net worth, indebtedness to tangible net worth and fixed charge coverage ratios, and limitations on new store openings and capital expenditures as well as restrictions on the payment of dividends. The Company was in compliance with all covenants as of and for the year ended January 30, 1999. In April 1999 the Company and Mellon amended the Loan Agreement to allow for the inclusion of participant lenders and to modify certain other provisions. The Company believes that the sources of capital above and internally generated funds will be adequate to meet the Company's anticipated needs through fiscal 1999. YEAR 2000 COMPLIANCE The Company is conducting a comprehensive review of its information technology and non information technological systems to determine which systems will require modification to enable proper processing of transactions related to the year 2000 and beyond. The primary information systems upon which the Company relies for its daily operations are the point of sale register systems, its merchandising system and its general ledger accounting system. The Company has completed testing of its point of sale and existing general ledger system and concluded that these systems are capable of processing transactions in the year 2000 and beyond. The Company's merchandising system will require remediation that is estimated to cost less than $250,000. A further and complete analysis of the Company's internal systems has indicated that despite the systems' ability to properly process transactions related to the year 2000 and beyond the Company's overall operations would be better served by replacing the existing general ledger and merchandising systems. As of January 30, 1999, the Company has completed the installation of its new general ledger system. The Company's new merchandising system has been warranted to be Year 2000 compliant system by the supplier and management believes that it will be fully installed, tested and functioning by the end of the second quarter of Fiscal 1999. The Company estimates that it will spend an additional $1.0 million and $2.0 million of budgeted funds through the end of the fiscal year ending January 30, 2000 ("Fiscal 1999") to replace its existing merchandise, and financial accounting systems. Included in the capital expenditures for the fiscal year ended January 30, 1999 is approximately $3.5 million of new system costs. One of the primary requirements imposed by the Company on its new systems vendors is certification of year 2000 compliance and compatibility. The costs for new systems will be capitalized and depreciated, to the extent permitted by Generally Accepted Accounting Principles, in accordance with the Company's fixed asset policy. In an effort to determine and ensure that there would be no material and adverse impact on the results of the Company's operations caused by non informational technological systems, an internal committee was developed using a cross section of all disciplines within the Company. All of the Company's vendors and suppliers were polled and asked to evaluate and confirm their abilities to process transactions in the year 2000 and beyond. This committee, which reports directly to the Company's Chief Financial Officer, is currently evaluating responses from vendors and has preliminarily identified all mission critical non information technological systems. These systems will be tested and contingency plans will be developed for those systems deemed to be non-compliant. It is the committee's intention to complete its testing and contingency planning before September 30, 1999 as of April 23, 1999 no contingency plans have been developed.. If the 4 Company's present efforts to address year 2000 compliance issues are not successful, or if the systems of its suppliers are not complaint, the Company may be unable to engage in normal business activities for a period of time after January 1, 2000. As a result the Company would be unable to recognize income. The Company also may lose existing or potential clients and its reputation and in the industry might be damaged. ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which is required to be adopted in fiscal 2000. The Company expects to adopt the new Statement effective January 30, 2000. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position. In March, 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) No. 98-1 "Accounting for the Costs of Computers Software Developed or Obtained for Internal Use." The Company followed the SOP in accounting for the costs of computer software obtained for internal use during 1998. SOP 98-1 is consistent with the Company's prior accounting policies in all material respects. QUASI-REORGANIZATION As of January 31, 1998, the Company effected a quasi-reorganization through the application of $27,316,200 of its $74,115,700 Common Stock account to eliminate its retained deficit. The Company's Board of Directors authorized a quasi-reorganization given that the Company had completed its restructuring, obtained long-term financing and successfully emerged from bankruptcy. The Company's retained deficit was related to operations that resulted in the restructuring of the Company and losses incurred during the Chapter 11 proceeding and was not, in management's view, reflective of the Company's financial condition. INFLATION The Company does not believe that inflation has had a material effect on the results of operations during the past three years. However, there can be no assurance that the Company's business will not be affected by inflation in the future. SEASONALITY AND QUARTERLY RESULTS The Company's business, like that of most retailers, is subject to seasonal influences. A significant portion of the Company's net sales and profits are realized during the fourth fiscal quarter (which includes the Christmas selling season) and, to a lesser extent, during the second fiscal quarter. In addition, because the Company's cost of goods sold includes net alteration expense, the Company's gross profit as a percentage of net sales has historically been lower in the first and third fiscal quarters primarily as the result of a lower level of net sales being spread over fixed (primarily payroll) expenses related to tailoring operations. In addition, quarterly results can be affected by the timing of the opening of new stores. Because of the seasonality of the Company's business, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. 5 The following table sets forth certain unaudited quarterly results of operations for fiscal 1998 and 1997.
Fiscal Quarter Ended -------------------- May 2, August 1, October 31, January 30, FISCAL 1998: 1998 1998 1998(1) 1999 ---- ---- ------- ---- (In thousands, except per share amounts) Net sales $ 46,253 $ 51,580 $ 48,270 $ 67,505 Cost of goods sold 29,455 33,685 29,334 43,309 --------------- -------------- ---------------- --------------- Gross profit 16,798 17,895 18,936 24,196 Selling, general and administrative expenses 15,340 16,016 16,293 19,111 --------------- -------------- ---------------- --------------- Income from operations 1,458 1,879 2,642 5,085 Interest expense and other income, net 757 775 768 981 --------------- -------------- ---------------- --------------- Income before income taxes and extraordinary item 701 1,104 1,874 4,105 Income tax provision (benefit) 260 409 693 1,521 --------------- -------------- ---------------- --------------- Income before extraordinary item 441 696 1,181 2,584 Extraordinary item, net of income tax benefit - - 658 - --------------- -------------- ---------------- --------------- Net income $ 441 $ 696 $ 523 $ 2,584 =============== ============== ================ =============== Earnings per share: Before extraordinary item $ 0.02 $ 0.03 $ 0.04 $ 0.10 Extraordinary item - - (0.02) - --------------- -------------- ---------------- --------------- Earnings per share $ 0.02 $ 0.03 $ 0.02 $ 0.10 =============== ============== ================ =============== Weighted average shares outstanding 26,911 26,915 26,915 27,014 Earnings per share assuming dilution: Before extraordinary item $ 0.02 $ 0.03 $ 0.04 $ 0.10 Extraordinary item - - (0.02) - --------------- -------------- ---------------- --------------- Earnings per share assuming dilution $ 0.02 $ 0.03 $ 0.02 $ 0.10 =============== ============== ================ =============== Weighted average shares outstanding assuming dilution 28,169 26,945 26,915 27,014
Fiscal Quarter Ended -------------------- May 3, August 2, November 1, January 31, FISCAL 1997: 1997 1997 1997 1998 ---- ---- ---- ---- (In thousands, except per share amounts) Net sales $ 43,929 $ 50,466 $ 48,457 $ 71,296 Cost of goods sold 27,998 32,466 30,618 46,993 --------------- -------------- ---------------- --------------- Gross profit 15,931 18,000 17,839 24,303 Selling, general and administrative expenses 15,062 16,092 15,869 18,797 --------------- -------------- ---------------- --------------- Income from operations 869 1,908 1,970 5,506 Reorganization items, net 654 1,268 973 3,874 Interest expense and other income, net 57 (30) 7,266 493 --------------- -------------- ---------------- --------------- Income (loss) before income taxes 158 670 (6,269) 1,139 Provision for income taxes - - - - --------------- -------------- ---------------- --------------- Net income (loss) $ 158 $ 670 $ (6,269) $ 1,139 =============== ============== ================ =============== Earnings (loss) per share $ 0.02 $ 0.06 $ (0.57) $ 0.10 =============== ============== ================ =============== Earnings (loss) per share assuming dilution $ 0.02 $ 0.06 $ (0.57) $ 0.09 =============== ============== ================ =============== Weighted average shares outstanding 10,861 10,861 10,861 11,677 Weighted average shares outstanding assuming dilution 10,861 10,861 10,861 12,502
(1) Third quarter 1998 restated to reflect the reclassification of the extraordinary item related to the early termination of the Company's revolving credit facility. There is no difference between earnings per share and earnings per share assuming dilution in fiscal 1998 because the impact of common share equivalents is anti-dilutive. 6 SIGNATURES The undersigned registrant hereby amends the following items, financial statements exhibits or other portions of its Annual Report on Form 10-K for the Annual Period ended January 30, 1999, as set forth in the pages attached hereto. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 8. Financial Statements and Supplementary Data (see page F-1) Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned thereunto duly authorized. TODAY'S MAN, INC. By: /s/ DAVID FELD ------------------------------------ David Feld Chairman of the Board, President and Chief Executive Officer 7 TODAY'S MAN, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Independent Auditors....................................................................F-2 Consolidated Balance Sheets as of January 31, 1998 and January 30, 1999...........................F-3 Consolidated Statements of Operations for the fiscal years ended February 1, 1997, January 31, 1998 and January 30, 1999......................................F-4 Consolidated Statements of Shareholders' Equity for the fiscal years ended February 1, 1997, January 31, 1998 and January 30, 1999......................................F-5 Consolidated Statements of Cash Flows for the fiscal years ended February 1, 1997, January 31, 1998 and January 30, 1999......................................F-6 Notes to Consolidated Financial Statements........................................................F-7
F-1 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Today's Man, Inc. We have audited the Consolidated Balance Sheets of Today's Man, Inc. as of January 30, 1999 and January 31, 1998, and the related Consolidated Statements of Operations, Shareholders' Equity and Cash Flows for each of the three fiscal years in the period ended January 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Today's Man, Inc. at January 30, 1999 and January 31, 1998, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended January 30, 1999, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Philadelphia, Pennsylvania March 17, 1999 F-2 TODAY'S MAN, INC. CONSOLIDATED BALANCE SHEETS
January 31, January 30, 1998 1999 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 219,500 $ 1,181,100 Cash equivalents restricted for pre-petition settlements 11,005,500 - Due from credit card companies and other receivables, net of allowance for uncollectible accounts of $177,800 and $61,500 2,136,400 1,535,300 Inventory 34,652,100 34,636,600 Prepaid expenses and other current assets 2,753,600 3,903,800 Prepaid inventory purchases 2,611,400 3,038,600 ------------------- ---------------- Total current assets 53,378,500 44,295,400 Property and equipment, less accumulated depreciation and amortization 31,574,100 32,664,900 Loans to shareholders 228,400 228,400 Rental deposits and other noncurrent assets 1,983,000 1,785,500 ------------------- ---------------- $87,164,000 $78,974,200 =================== ================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $7,670,800 $ 5,719,400 Accrued expenses and other current liabilities 4,784,900 5,827,200 Current maturities of capital lease obligations 1,226,600 821,600 Current portion of term loan 4,416,700 - Liabilities subject to settlement 8,987,600 - ------------------- ---------------- Total current liabilities 27,086,600 12,368,200 Capital lease obligations, less current maturities 1,037,200 216,000 Deferred rent and other 4,489,000 4,750,000 Obligation under revolving credit facility - 8,945,700 Term loan, less current maturities 7,751,700 - ------------------- ---------------- 40,364,500 26,279,900 Shareholders' equity: Preferred stock, no par value, 5,000,000 shares authorized, none issued - - Common stock, no par value, 100,000,000 shares authorized, 27,274,588 and 27,014,485 shares issued and outstanding at January 31, 1998 and January 30, 1999 respectively, net of accumulated retained earnings (deficit) of $27,316,200 as of January 31, 1998 46,799,500 48,451,200 Retained earnings - 4,243,100 ------------------- ---------------- Total shareholders' equity 46,799,500 52,694,300 ------------------- ---------------- $87,164,000 $78,974,200 =================== ================
See accompanying notes. F-3 TODAY'S MAN, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
For the Fiscal Years Ended -------------------------- February 1, January 31, January 30, 1997 1998 1999 ---- ---- ---- (52 weeks) (52 weeks) (52 weeks) Net sales $ 204,042,400 $ 214,148,000 $ 213,608,600 Cost of goods sold 134,524,200 138,075,100 135,784,100 ------------------- ------------------- ------------------- Gross profit 69,518,200 76,072,900 77,824,500 Selling, general and administrative expenses 65,982,500 65,819,800 66,760,300 ------------------- ------------------- ------------------- Income from operations 3,535,700 10,253,100 11,064,200 Reorganization items: Professional fees and other 4,341,100 7,865,000 - Asset write-offs and additional lease rejection claims, net 4,816,900 - - Interest income (310,300) (1,096,000) - ------------------- ------------------- ------------------- Net reorganization items 8,847,700 6,769,000 - Interest expense (excludes contractual interest of $2,785,200 in fiscal 1996) 484,300 7,759,900 3,200,600 Other expense, net 15,000 26,000 79,600 ------------------- ------------------- ------------------- Income/(loss) before income taxes and extraordinary item (5,811,300) (4,301,800) 7,784,000 Provision for income taxes - - 2,882,500 ------------------- ------------------- ------------------- Income (loss) before extraordinary item (5,811,300) (4,301,800) 4,901,500 Extraordinary item, net of income tax benefit of $386,600 - - 658,400 ------------------- ------------------- ------------------- Net income (loss) $ (5,811,300) $ (4,301,800) $ 4,243,100 =================== =================== =================== Basic and diluted earnings per share before extraordinary item $ (0.54) $ (0.39) $ 0.18 Basic and diluted earnings per share from extraordinary item - - (0.02) ------------------- ------------------- ------------------- Basic and diluted earnings per share $ (0.54) $ (0.39) $ 0.16 =================== =================== =================== Weighted average shares outstanding 10,861,005 11,063,275 27,013,125
See accompanying notes. F-4 TODAY'S MAN, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK RETAINED NUMBER EARNINGS OF SHARES AMOUNT (DEFICIT) --------- ------ --------- Balances at February 3, 1996 10,861,005 $38,269,100 $(17,203,100) Net loss - - (5,811,300) ----------------- --------------- ---------------- Balances at February 1, 1997 10,861,005 38,269,100 (23,014,400) Issuance of shares pursuant to rights offering 8,145,753 16,291,500 - Issuance of shares in settlement of pre-petition 8,257,280 19,524,800 - claims Issuance of shares to employees 10,550 30,300 - Net loss - - (4,301,800) Quasi-reorganization as of January 31, 1998 - (27,316,200) 27,316,200 ----------------- --------------- ---------------- Balances at January 31, 1998 27,274,588 46,799,500 - Exercise of stock options 800 1,900 - Issuance of shares to employees 820 2,400 - Benefit of net operating loss carryforwards - 2,495,900 - Exercise of stock purchase warrants 2,576 7,000 - Adjustment of shares due to final settlement of pre-petition claims (264,299) (855,500) - Net income - - 4,243,100 ----------------- --------------- ---------------- Balances at January 30, 1999 27,014,485 $48,451,200 $4,243,100 ================= =============== ================
See accompanying notes. F-5 TODAY'S MAN, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended -------------------------- February 1, January 31, January 30, 1997 1998 1999 ---- ---- ---- Operating activities: Net income (loss) $(5,811,300) $(4,301,800) $4,243,100 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation expense 2,389,900 2,215,000 2,548,800 Amortization expense 1,676,300 1,575,400 881,900 Provision for uncollectible accounts receivable 562,000 142,300 183,700 Accretion of debt discount - 36,500 - Deferred rent and other 468,800 (91,300) (567,200) Extraordinary item - - 1,045,000 Charge in lieu of income taxes - - 2,882,500 Changes in operating assets and liabilities: Restricted cash - (11,005,500) 11,005,500 Decrease in receivables 5,000 20,700 417,400 Decrease (increase) in inventory 6,829,200 (6,015,500) 15,500 Decrease in refundable income taxes 6,016,000 - - Decrease (increase) in prepaid expenses 1,142,300 230,400 (749,200) (Decrease) increase in payables, accrued expenses and liabilities subject to settlement 4,155,200 12,085,500 (909,100) (Increase) decrease in other noncurrent assets 1,390,200 (310,000) (431,600) Payment of liabilities subject to settlement - (42,329,700) (9,236,000) Charges due to reorganization activities: Reorganization costs 8,847,700 6,769,000 - Payment of reorganization costs (3,309,200) (4,101,000) - ----------------- -------------- --------------- Total adjustments 30,173,400 (40,778,200) 7,087,200 ----------------- -------------- --------------- Net cash provided by (used in) operating activities 24,362,100 (45,080,000) 11,330,300 Investing activities: Capital expenditures (1,278,900) (1,306,100) (3,871,600) Fixtures and equipment in process (145,300) (20,500) (649,800) ----------------- --------------- --------------- Net cash used in investing activities (1,424,200) (1,326,600) (4,521,400) Financing activities: Repayment of capital leases (1,397,300) (1,396,700) (1,226,200) Proceeds from exercise of stock options and common stock purchase warrants - - 11,300 Proceeds from sale of common stock - 12,964,900 - Proceeds from term loan - 12,500,000 - Borrowings under revolving credit facility - 3,972,000 97,837,100 Repayment of term loan and revolving credit facility - (4,340,100) (102,469,500) ----------------- --------------- --------------- Net cash provided by (used in) financing activities (1,397,300) 23,700,100 (5,847,300) Net increase (decrease) in cash and cash equivalents 21,540,600 (22,706,500) 961,600 Cash and cash equivalents at beginning of year 1,385,400 22,926,000 219,500 ----------------- --------------- --------------- Cash and cash equivalents at end of year $22,926,000 $ 219,500 $1,181,100 ================= =============== ===============
See accompanying notes. F-6 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BANKRUPTCY REORGANIZATION Reorganization Proceedings. On December 12, 1997, the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") entered an order dated December 12, 1997 confirming the Company's Second Amended Joint Plan of Reorganization (the "Reorganization Plan") proposed by Today's Man, Inc. ("the Company") and certain of its subsidiaries. On December 31, 1997, the Reorganization Plan became effective and the Company emerged from bankruptcy reorganization proceedings. Those proceedings had begun on February 2, 1996 when the Company and certain of its subsidiaries filed voluntary petitions in seeking to reorganize under Chapter 11 of the U.S. Bankruptcy Code. Pursuant to the Reorganization Plan, the Company paid an aggregate of $51.0 million and issued 9,656,269 shares of Common Stock to its creditors in settlement of $73.3 million of outstanding indebtedness, including post-petition interest. Under the Reorganization Plan, holders of the Company's Common Stock received for each share of old Common Stock: (1) one share of new Common Stock and (2) 0.5 of a Common Stock Purchase Warrant ("Warrant"). Each whole Warrant entitles the holder to purchase one share of New Common Stock at an exercise price of $2.70 per share at any time on or before December 31, 1999. At January 30, 1999 approximately $1,100,000 remained to be distributed; these amounts were distributed in April 1999. A total of 5,430,503 Warrants were issued to the Company's pre-reorganization shareholders. 2. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS The Company operates menswear superstores specializing in tailored clothing, furnishings and accessories and sportswear. The Company also offers footwear through licensed shoe departments. The superstores are located in the Greater Philadelphia, Washington, D.C. and New York Markets. BASIS OF PRESENTATION As of January 30, 1998, the Company effected a quasi-reorganization through the application of $27,316,200 of its $74,115,700 Common Stock account to eliminate its retained deficit. The Company's Board of Directors decided to effect a quasi-reorganization given that the Company had completed its restructuring, obtained long-term financing and successfully emerged from bankruptcy. The Company's retained deficit was related to operations that resulted in the restructuring of the Company and losses incurred during the Chapter 11 proceeding and was not, in management's view, reflective of the Company's financial condition. FINANCIAL REPORTING FOR BANKRUPTCY PROCEEDINGS The American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), provides guidance for financial reporting by entities that have filed petitions with the Bankruptcy Court and expect to reorganize under Chapter 11 of the Bankruptcy Code. Under SOP 90-7, the financial statements of an entity in a Chapter 11 reorganization proceeding should distinguish transactions and events that are directly associated with the reorganization from those of the operations of the ongoing business as it evolves. Accordingly, SOP 90-7 requires the following financial reporting/accounting treatments with respect to each of the financial statements. Consolidated Balance Sheet The balance sheet separately classifies pre-petition and post-petition liabilities. A further distinction is made between pre-petition liabilities subject to settlement (generally unsecured and undersecured claims) and those not subject to settlement (fully secured claims). Pre-petition liabilities are reported on the basis of the expected amount of such allowed claims, as opposed to the amounts for which those allowed claims may be settled. When a liability subject to settlement becomes an allowed claim and that claim differs from the net carrying amount of the liability, the net carrying amount is adjusted to the amount of the allowed claim. The resulting change is classified as a reorganization item in the Consolidated Statement of Operations. Consolidated Statement of Operations Pursuant to SOP-90-7, revenues and expenses, realized gains and losses, and provisions for losses resulting from the reorganization of the business are reported in the Consolidated Statement of Operations separately as reorganization items. Professional fees are expensed as incurred. Interest expense of $7,264,000, incurred during F-7 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) the bankruptcy period, was recorded as part of the settlement negotiated with the Official Committee of the Unsecured Creditors. CONSOLIDATED STATEMENT OF CASH FLOWS Reorganization items are reported separately within the operating, investing and financing categories of the Consolidated Statement of Cash Flows. CREDIT CARD RECEIVABLES The Company sells through third-party credit cards and collects related receivables, generally within four days. INVENTORY Inventory consisting of merchandise held for sale is valued at cost, using the retail method, which is not in excess of market. PREPAID INVENTORY PURCHASES Prepaid inventory purchases includes costs associated with merchandise acquired which has not been received as of the Consolidated Balance Sheet date. PROPERTY AND EQUIPMENT Property and equipment is stated at cost. Depreciation and amortization is computed using the straight-line method for financial reporting purposes and accelerated methods for tax purposes over the estimated useful lives of the assets, ranging from 3-22 years, or the terms of applicable leases, if shorter and accelerated methods for tax purposes. CASH AND CASH EQUIVALENTS For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. The Company held $11,005,500 of such investments at January 31, 1998. These investments are stated at cost which approximates market. The $11,005,500 at January 31, 1998 has been designated as restricted cash, set aside for the settlement of pre-petition obligations. The Company held no such investments as of January 30, 1999. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany accounts and transactions are eliminated. The Company operates on a 52-53 week with fiscal year end being the Saturday closest to January 31. EARNINGS (LOSS) PER COMMON SHARE Earnings per share is calculated following Financial Accounting Standards Board issued Statement No. 128 Earnings per Share. Statement 128 requires companies to present basic and diluted earnings per share. Basic earnings per share excludes any dilutive effect of outstanding stock options whereas diluted earnings per share include the effect of such items. There is no difference between basic and diluted earnings per share because the effect of the Company's common share equivalents would be anti-dilutive. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. RECLASSIFICATIONS Certain amounts in prior years have been reclassified to conform with the current year presentation. F-8 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) ADVERTISING The Company utilizes both broadcast and print advertising and expenses related costs as incurred. Advertising expense was $11,066,000, $11,198,500 and $12,246,000 for the fiscal years 1996, 1997 and 1998, respectively. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which is required to be adopted in fiscal 2000. The Company expects to adopt the new Statement effective January 30, 2000. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position. In March, 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) No. 98-1 "Accounting for the Costs of Computers Software Developed or Obtained for Internal Use." The Company followed the SOP in accounting for the costs of computer software obtained for internal use during 1998. SOP 98-1 is consistent with the Company's prior accounting policies in all material aspects. 3. PROPERTY AND EQUIPMENT Property and equipment is summarized as follows:
January 31, January 30, 1998 1999 ---- ---- Furniture, fixtures and signs $ 5,005,000 $ 5,083,400 Leasehold improvements 32,586,300 32,765,500 Data processing equipment 1,911,900 5,048,200 Fixtures and equipment under capital leases 7,122,700 5,963,600 Fixtures and equipment in process 20,500 649,800 ---------------- --------------- Gross property and equipment 46,646,400 49,510,500 Accumulated depreciation (11,405,600) (13,443,600) Accumulated amortization of equipment under capital leases (3,666,700) (3,402,000) ---------------- --------------- Net property and equipment $31,574,100 $32,664,900 ================ ===============
Property and equipment accounts and their associated accumulated depreciation accounts are reduced to "0" when the asset's useful life has expired. Depreciation and amortization expense related to property and equipment was $3,329,700, $3,258,500 and $3,441,700 for fiscal years 1996, 1997 and 1998, respectively. Fixtures and equipment in process includes items for new systems, equipment, and stores which as of the respective financial statement date have not been placed into service. 4. BARTER CREDITS At February 3, 1996, rental deposits and other noncurrent assets included $4,600,000 relating to trade credits received by the Company in exchange for merchandise sold to a barter agency. These credits may be used by the Company for the purchase of various merchandise and services through September 1999. The Company has determined that the Chapter 11 proceedings and the inherent business environment significantly limit its ability to use the credits. These limitations included, but are not limited to, reluctance on the part of vendors to accept such credits; the curtailment of the Company's previous growth strategy and a significant reduction in advertising expenditures. The Company wrote off the $4,600,000 in the fourth quarter of fiscal 1996. The charge was included as a component of the reorganization items in the accompanying Consolidated Statement of Operations for fiscal 1996. F-9 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. RELATED PARTY TRANSACTIONS Certain of the Company's superstores and its executive offices and distribution center are leased from the Company's Chairman, President and Chief Executive Officer (CEO). Rent expense on these locations was $2,053,500, $1,702,400 and $1,789,400 for the fiscal years ended February 3, 1996, January 31, 1998 and January 30, 1999, respectively. Pursuant to the Company's Plan of Reorganization, the Company's CEO was paid approximately $900,000 in settlement of pre-petition obligations arising from leases with the Company. In addition, the CEO received a $3.3 million credit to be used towards the purchase of stock in the equity offering and 938,190 additional shares of common stock in satisfaction of his $5.0 million subordinated loan and accrued interest. Included in the schedule of operating lease commitments in Note 7 are required payments on leases with the Company's CEO for its principal offices and distribution center as well as certain stores, totaling $1,708,000 for each of the next five years and $8,591,900 thereafter. Certain of the leases require increasing payments based upon changes in the Consumer Price Index. In May 1995, the Company's CEO acquired a manufacturing facility. Purchases by the Company from this facility were approximately $3,642,300 for the fiscal year ended February 1, 1997. The facility was sold in January 1997. See Notes 7 and 8 for discussions of additional related party transactions. 6. DEBT As more completely described in Note 1, all amounts outstanding under the Company's pre-petition debt facilities were satisfied pursuant to the Company's Plan of Reorganization, including claims for post-petition interest. Upon satisfaction of the obligations, any and all liens were removed by the pre-petition debt holders. On December 31, 1997, the Company entered into a Loan and Security Agreement with Foothill Capital Corporation ("Foothill"), individually and as agent. The Loan and Security Agreement provided for a $12.5 million term loan and a $30.0 million revolving credit facility. The Company granted Foothill Capital Corporation a lien on its tangible and intangible assets to secure this term loan and revolving credit facility. Proceeds from these loans were used to fund a portion of the Company's Plan of Reorganization. There were no outstanding borrowings under the Foothill revolving credit facility at January 31, 1998. The Company had approximately $6,600,000 in outstanding letters of credit at January 31, 1998. On December 4, 1998, the Company entered into a Loan and Security Agreement with Mellon Bank, N.A., ("Mellon") individually and as agent. The Loan and Security Agreement provides for a $45.0 million revolving credit facility. The Company has granted Mellon a lien on its tangible and intangible assets to secure this revolving credit facility. Proceeds from this loan were used to refinance the Company's previous revolving credit facility and term loan from Foothill. As a result of this refinancing, the company incurred a prepayment penalty of approximately $720,000 and wrote off approximately $640,000 of unamortized debt issuance costs. These amounts were offset by approximately $315,000 in accrued debt discount and related liabilities and approximately $387,000 in income tax benefits related to this extraordinary item. The Mellon revolving credit facility bears interest at the option of the Company at prime (7.75% at January 30, 1999) or LIBOR (5.03% at January 30, 1999) plus a margin ranging from 1.75% to 3.25% depending upon the Company's EBITDA, has a term of five years and includes a $20.0 million sublimit for letter of credit advances. Availability under the revolver is determined by a formula based on inventory and credit card receivables, less applicable reserves. The Mellon Loan and Security Agreement contains financial covenants including tangible net worth, indebtedness to tangible net worth and fixed charge coverage ratios, and limitations on new store openings and capital expenditures as well as restrictions on the payment of dividends. The Company was in compliance with all covenants as of and for the year ended January 30, 1999. In April 1999 the Company and Mellon amended the Loan Agreement to allow for the inclusion of participant lenders and to modify certain other provisions. F-10 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7. COMMITMENTS AND CONTINGENCIES The Company leases its stores and distribution center under non-cancelable operating leases. Several stores and the Company's distribution center are leased from the Company's principal shareholder. (See Note 5.) In addition, certain equipment leases are classified as capital leases. The following is a schedule by year of the future minimum lease payments for leases with initial terms in excess of one year at January 30, 1999:
Capital Operating Leases Leases ------- --------- 1999 $ 884,000 $12,567,300 2000 209,400 12,450,300 2001 - 11,722,600 2002 - 10,548,200 2003 - 9,517,000 Thereafter - 28,627,100 ------------- --------------- Total minimum lease payments 1,093,400 $85,432,500 =============== Less: Amounts representing interest 55,800 ------------- Present value of net minimum lease payments $1,037,600 =============
Total rent expense for the fiscal years ended February 1, 1997, January 31, 1998 and January 30, 1999 was, $12,593,900, $11,825,000 and $12,087,100 respectively. The distribution center lease provides for payment of direct operating costs including real estate taxes. Certain store leases provide for increases in rentals when sales exceed specified levels. To date, no such payments have been required. Certain store leases provide for predetermined escalations in future minimum annual rentals. The pro rata portion of future minimum rent escalations, amounting to $3,050,400 and $3,135,400 at January 31, 1998 and January 30, 1999 respectively, has been included in Deferred rent and other in the accompanying Consolidated Balance Sheet. The Company is involved in routine legal proceedings incidental to the conduct of its business. Management believes that none of these routine legal proceedings will have a material adverse effect on the financial condition or results of operations of the Company. The Company maintains general liability insurance coverage in amounts deemed adequate by management. 8. PROFIT SHARING PLAN The Company has a profit sharing plan under Section 401(k) of the Internal Revenue Code. The plan allows all eligible employees to defer up to 6% of their income on a pretax basis through contributions to the plan. Under the provisions of the plan, the Company matches 40% of the employees' contributions subject to a maximum limit. The charge to operations for Company contributions was $266,800, $279,000 and $287,600 for the years ended, February 1, 1997, January 31, 1998 and January 30, 1999, respectively. On the termination of the Company's Executive Equity Plan in fiscal 1991, the Company provided loans to the Plan's participants to fund any federal and state income taxes relating to the issuance of the shares. The loans bear interest at 1% above the prime lending rate as established by the Company's principal lender. All principal and accrued interest was due on April 14, 1996. Loans are collateralized by the participants' shares of Common Stock. At this time, the Company has made no decision relative to the collection of these loans. F-11 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 9. SUPPLEMENTAL CASH FLOW INFORMATION
For the Fiscal Years Ended -------------------------- February 1, January 31, January 30, 1997 1998 1999 ---- ---- ---- Interest paid $ 452,400 $ 7,723,400 $3,367,600 Noncash investing and financing activities: Settlement of pre-petition obligations through issuance of shares of Common Stock and credit for stock rights $ - $22,845,900 $ -
10. INCOME TAXES In light of the net operating loss position in fiscal 1996 and 1997 the Company did not record an income tax benefit. The fiscal 1998 tax provision consists of a charge in lieu of federal income taxes of $2,322,300 and state income taxes of $173,600 resulting from the benefit of NOL carryforwards existing at the date of the quasi-reorganization. A reconciliation of the effective tax rate with the statutory federal income tax rate follows:
For the Fiscal Years Ended -------------------------- February 1, January 31, January 30, 1997 1998 1999 ---- ---- ---- Statutory federal income tax rate 34.0% 34.0% 34.0% State income tax, net of federal income tax effects - - - Effect of permanent differences (28.6) (18.3) 0.5 Federal income tax valuation allowance (6.7) (15.7) - Other 1.3 - - Quasi reorganization equity accounting - - 2.5 --------------- --------------- -------------- -% -% 37.0% =============== =============== ==============
The components of the deferred tax assets and liabilities are as follows:
January 31, January 30, 1998 1999 ---- ---- Deferred tax assets: Accrued liabilities $ 3,112,700 $ 88,100 Inventory 429,200 434,500 Net operating loss carryforward 8,093,400 9,220,100 AMT credit carryforward 394,300 394,300 Leases 1,238,500 1,273,000 Bad debts 72,200 25,000 Other 49,000 49,700 ----------------- --------------- Total deferred tax assets 13,389,300 11,484,700 Less: deferred tax valuation allowance (11,522,500) (10,270,100) ----------------- --------------- Net deferred tax assets 1,866,800 1,214,600 ----------------- --------------- Deferred tax liabilities: Property and equipment, including capital leases 1,215,700 678,200 Other 1,051,100 936,400 ----------------- --------------- 2,266,800 1,614,600 ----------------- --------------- Net deferred tax liability $ 400,000 $ 400,000 ================= ===============
The valuation allowance against deferred tax assets decreased by $1,252,400 in fiscal 1998 due to the decrease in net deferred tax assets. F-12 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) As a result of the Company's quasi-reorganization (see Note 2), the Company has recorded a charge in lieu of income taxes which represents the federal and state taxes that are eliminated by the utilization of tax benefits existing at the quasi-reorganization date, and result in an increase to contributed capital. As of January 31, 1999, the Company has remaining $10,588,000 of tax attributes that will be credited to additional paid in capital when realized. At January 31, 1999, the Company had available for carryforward net operating losses (for federal tax purposes) of $19,614,000 and a minimum tax credit carryover of $394,000. The NOL carryforwards expire in 2011 through 2018; the minimum tax credits can be carried forward indefinitely. Additionally, at January 31, 1999, the Company had available carryforward losses for state tax purposes in the states in which the Company does business. These deferred tax assets are fully offset by the valuation allowance. 11. STOCK OPTION PLANS Pursuant to the Plan of Reorganization: (i) the existing employee and director stock option plan and all existing options thereunder were canceled and (ii) the Management Stock Option Plan ("Management Plan") was adopted. At January 30, 1999, the Company had outstanding options to purchase an aggregate of 1,997,500 shares of Common Stock under the Management Stock Option Plan. The following tables summarize activity in fiscal 1996, fiscal 1997 and fiscal 1998.
Number of Shares Under Option Exercise Price Per Share ----------------------------- ------------------------ Employee Director Stock Stock Option Plan Option Plan Total ------------ ------------- ------------- Outstanding at February 3, 1996 560,450 30,000 590,450 $ 7.50 - $ 18.75 Options issued - 30,000 30,000 $ 1.69 Options canceled (226,900) - (226,900) $ 7.50 - $ 18.75 Exercised - - - ------------ -------------- -------------- ---------------------- Outstanding at February 1, 1997 333,550 60,000 393,550 $ 1.69 - $ 15.75 Options canceled (333,550) (60,000) (393,550) $ 1.69 - $ 15.75 ------------ -------------- -------------- Outstanding at January 31, 1998 - - - ============ ============== ==============
F-13 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Management Stock Option Plan (A) Number of Exercise Shares Under Price Per Option Share ------------- -------------- Outstanding at February 1, 1997 - - Options issued December 31, 1997 2,247,500 $2.38 Exercised - - ------------- -------------- Outstanding at January 31, 1998 2,247,500 $2.38 Options issued 44,000 $2.38 Options cancelled (293,200) $2.38 Exercised (800) $2.38 ------------- -------------- Outstanding at January 30, 1999 1,997,500 $2.38 ============= ============== Exercisable at January 30, 1999 1,191,300 $2.38 ============= ============== (A) Options to purchase an aggregate of 2,450,000 shares of Common Stock may be granted pursuant to this plan. Options are granted at the fair market value at the date of grant. At January 30, 1999, 451,700 shares were available for grant. The unexercisable options issued vest over three years. All options issued expire ten years from the date of grant. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for its employee stock options. Under APB 25, because the market price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro-forma information regarding net income and earnings per share is required because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options and has been determined as if the Company had accounted for its employee stock options issued under the Management Plan under the fair value method of that Statement. The fair value for these options was estimated at the date of the grant using a Black-Scholes option pricing model with the following weighted average assumptions: 1997 1998 ---- ---- Risk-free interest rate 6.0% 6.0% Dividend yield 0% 0% Volatility factor of the expected market price of the Company's common stock 0.72 0.702 Weighted average expected life of the options 5 5 Fair Value of options issued was $1.52 and $1.36 as of January 31, 1998 and January 30, 1999, respectively. F-14 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) For purposes of pro-forma disclosure, the estimated fair value of the options issued as part of the Management Plan is amortized to expense in accordance with the options vesting period. The Company's pro-forma information is as follows: 1997 1998 ---- ---- Pro-Forma net income (loss) ($4,364,400) $3,672,600 Pro-Forma earnings per share: Basic and diluted ($0.39) $0.14 ======= ===== EX-23.1 2 CONSENT OF ERNST & YOUNG CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-56515) pertaining to the Employees' Savings Plan of Today's Man, Inc. and in the Registration Statement (Form S-3 No. 333-57179) of Today's Man, Inc. and in the related Prospectus of our report dated March 17, 1999, with respect to the consolidated financial statements of Today's Man, Inc. included in its amended Annual report (Form 10-K/A) for the year ended January 30, 1999. /s/ ERNST & YOUNG LLP Philadelphia, Pennsylvania June, 1, 1999 -----END PRIVACY-ENHANCED MESSAGE-----