10-K405 1 ten-k.txt 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended February 3, 2001 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 (856) 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 27,040,725 -------------------------- ---------- (Title of Class) (Number of Shares Outstanding as of April 23, 2001) 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. [ ] 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 $2,971,343 (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 the Company's Common Stock outstanding, reduced by the amount of shares of Common Stock held by officers, directors and shareholders owning 10% or more of the Company's Common Stock, multiplied by $.17, the last reported sale price for the Company's Common Stock on April 23, 2001. 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.
TABLE OF CONTENTS Page ---- PART I Item 1. Business........................................................................................1 Item 2. Properties......................................................................................9 Item 3. Legal Proceedings..............................................................................10 Item 4. Submission of Matters to a Vote of Security Holders............................................10 Item 4.1 Certain Executive Officers of the Registrant...................................................10 PART II Item 5. Market for Registrant's Common Stock and Related Shareholder Matters........................................................................................11 Item 6. Selected Financial Data........................................................................12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..........................................................................13 Item 7a. Quantitative and Qualitative Disclosures About Market Risk.....................................20 Item 8. Financial Statements and Supplementary Data....................................................20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........................................................................20 PART III Item 10. Directors and Executive Officers of the Registrant.............................................20 Item 11. Executive Compensation.........................................................................20 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................20 Item 13. Certain Relationships and Related Transactions.................................................20 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................21-23 Signatures.....................................................................................24 Index to Consolidated Financial Statements....................................................F-1
-------------- As used in this Report on Form 10-K, "fiscal 1991," "fiscal 1992," "fiscal 1993," "fiscal 1994," "fiscal 1995," "fiscal 1996," "fiscal 1997," "fiscal 1998," "fiscal 1999," "fiscal 2000,"and "fiscal 2001," refer to the Company's fiscal years ended or ending February 1, 1992, January 30, 1993, January 29, 1994, January 28, 1995, February 3, 1996, February 1, 1997, January 31, 1998, January 30, 1999, January 29, 2000, February 3, 2001 and February 2, 2002 respectively. Today's Man(R) is a registered trademark of the Company. PART I Item 1. Business. General Today's Man, Inc. is a leading operator of menswear superstores specializing in tailored clothing, furnishings, sportswear and shoes. The Company operates a chain of 25 superstores ranging in size from approximately 18,000 to 34,000 gross square feet in the Greater Philadelphia, Washington, D.C., and New York markets. The Company seeks to be the leading menswear retailer in each of its markets by providing a broad and deep assortment of moderate-to-better, current-season, brand-name and private-label merchandise at everyday low prices which the Company believes represents the greatest value at a given price point. The Company provides these everyday low prices to its customers through economies provided by its large volumes of preplanned inventory purchases. The Company generated net sales of $349 per square foot of selling space in its superstores in fiscal 2000. The Company closed its Center City, Philadelphia, Pennsylvania store, the Manhasset, New York store, the Norwalk, Connecticut store, and the Towson, Maryland store in fiscal 2000. In January 2001, the Company retained investment banker Berwind Financial, L.P. to explore opportunities for raising additional capital and enhancing shareholder value. Subsequent to year end, the Company closed its online virtual superstore, Todaysman.com. Messrs. Ira Brind and Randall Lambert resigned as directors in the first quarter of fiscal 2000. In August 2000, David Feld resigned as President and Chief Executive Officer of the Company but retained his position as Chairman of the Board of Directors. Bruce Weitz joined the Company's Board of Directors in May 2000 and became the Company's President and Chief Executive Officer in August 2000. Neal Fox joined the Company's Board of Directors in May 2000 and became the Company's Vice Chairman in charge of merchandising and marketing in August 2000. The Company was incorporated in Pennsylvania in 1971 as Feld & Sons, Inc. and changed its name to Today's Man, Inc. in March 1992. The Company's executive and administrative offices are located at 835 Lancer Drive, Moorestown West Corporate Center, Moorestown, New Jersey 08057 and its telephone number is (856) 235-5656. Investment Considerations The information contained in this Annual Report on Form 10-K contains forward looking statements (as such term is defined in the Securities Exchange Act of 1934 and regulations thereunder), including without limitation, statements as to trends or management's beliefs, expectations or opinions. Such forward looking statements are subject to risks and uncertainties and may be affected by various factors which may cause actual results to differ materially from those in the forward looking statements. Certain of these risks, uncertainties and other factors are discussed below and elsewhere in this Annual Report on Form 10-K. In addition to the other information contained in this Annual Report on Form 10-K, the following factors should be considered carefully in evaluating an investment in the Company's Common Stock. Growth Strategy. The Company's growth over the next several years depends principally on establishing and maintaining profitability in existing sites and the availability of appropriate financing for expansion, if appropriate. The Company closed four stores in fiscal 2000 and its Internet electronic commerce site subsequent to year end. Small Store Base; Geographic Concentrations. The Company currently operates a chain of 25 superstores, which are located in the Greater Philadelphia, Washington, D.C., and New York markets. Due to the Company's 1 relatively small store base, one or more unsuccessful new stores, or a decline in sales at an existing store, would have a more significant effect on the Company's results of operations than would be the case if the Company had a larger store base. Because the Company's superstores currently are located in only three markets, the effect on the Company of adverse events in any of those markets may be greater than if the Company's stores were more geographically dispersed. Declining Unit Sales of Men's Tailored Clothing. On a national basis, unit sales of men's tailored clothing have been declining over many years. The Company believes that this decline can be attributed to men allocating a lower portion of their disposable income to tailored clothing as a result of less frequent changes in tailored clothing fashions, relaxation of dress codes by many employers and a more casual lifestyle. The Company also believes that this decline has contributed to a consolidation among retailers of men's tailored clothing. There can be no assurance that the Company will continue to be able to maintain or increase its sales volume or attain profitability as further consolidation of the industry occurs as the unit sales of men's tailored clothing continues to decline. Control by Majority Shareholder. Mr. David Feld beneficially owns approximately 31% of the outstanding Common Stock and together with the other directors and executive officers of the Company, collectively beneficially own or owns approximately 39% of the outstanding Common Stock. Accordingly, Mr. David Feld, together with the other directors and executive officers of the Company, will likely be able to effectively control most matters requiring approval by the Company's shareholders, including the election of directors. In addition, Mr. David Feld has pledged 5,439,578 shares of Common Stock to secure loans. In the event of default by Mr. David Feld, the sale of all or a large block of the pledged shares by a lender to one purchaser or a group of purchasers acting in concert would result in such purchaser or group owning a substantial block of the outstanding Common Stock of the Company and being able to significantly affect the outcome of the election of directors and of all votes which require shareholder approval. See Item 12. "Security Ownership of Certain Beneficial Owners and Management." Relationship with Suppliers; Foreign Currency Fluctuations. The Company's business is dependent upon its ability to purchase both brand name and private label merchandise in large quantities and at attractive prices. During fiscal 2000, approximately 53% of the dollar volume of all merchandise purchased by the Company was purchased from ten vendors, and approximately 37% of the dollar volume of all merchandise was purchased from overseas vendors. While the Company believes that alternative sources of supply are available, any disruption in the Company's sources of supply could have a material adverse effect on its business. Moreover, although the Company historically has hedged its exposure to fluctuations in the relationship between the dollar and various foreign currencies, the Company currently is not engaging in hedging transactions and could incur additional expense in the event of currency fluctuations. See "Business--Purchasing" and Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." Dependence on Senior Management. The success of the Company's business will continue to be dependent upon David Feld, Bruce Weitz and the other members of senior management. The Company's continued growth also will depend upon its ability to attract and retain additional skilled management personnel and store managers. The Company does not maintain key-man life insurance for David Feld, Bruce Weitz or any other senior member of management. See Item 4.1 "Certain Executive Officers of the Registrant" and Item 10. "Directors and Executive Officers." Seasonality and General Economic Conditions. The Company's business is affected by the pattern of seasonality common to most apparel retailers. Historically, the Company has generated a greater portion of its net sales during its fourth fiscal quarter, which includes the Christmas selling season, and has experienced less sales volume in its first and third fiscal quarters. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations--Seasonality and Quarterly Results." The Company's 2 operating results may be adversely affected by unfavorable local, regional or national economic conditions, especially those affecting the Mid-Atlantic Region where the Company's 25 stores are currently located. During recessionary periods, consumers can be expected to reduce their spending on discretionary items such as menswear. Competition. The retail menswear business is highly competitive with respect to price, quality and style of merchandise and store location. The Company faces competition for customers and store locations from large national and regional department stores, various menswear chains, a number of off-price specialty retailers as well as local department stores, catalog retailers and local menswear stores. Many of these competitors have significantly greater financial and other resources than the Company. The retailing business is affected by changes in consumer tastes, demographic trends and the type, number and location of competing stores. Restrictions on Cash Dividends. Since its inception as a public company in 1992, the Company has not paid any cash dividends. The Company's loan agreement prohibits the payment of cash dividends. See Item 5. "Market for the Registrant's Common Stock and Related Shareholder Matters." Market for Common Stock. The Common Stock is traded on the Over the Counter Bulletin Board. Numerous factors, including announcements of fluctuations in the Company's or its competitors' operating results, market conditions for stocks in general, or fluctuations in the Company's quarterly operating results, could have a significant impact on the future price of the Common Stock. In addition, the stock market in recent years has experienced significant price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of companies. These broad fluctuations may adversely affect the market price of the Common Stock. Shares Eligible for Future Sale. Sales of the Company's Common Stock in the public market could adversely affect the market price of the Company's Common Stock and could impair the Company's future ability to raise capital through the sale of equity securities. As of April 27, 2001, the Company has 27,040,725 shares of Common Stock outstanding, all of which are available for resale in the public market without restrictions, except for any such shares held by persons who may be deemed to be "affiliates" of the Company. In addition, the Company has registered, or will register under the Securities Act all of the 5,000,000 shares authorized for issuance under the Company's Management Stock Option Plan. Anti-Takeover Provisions. The Amended and Restated Articles and Amended and Restated Bylaws contain provisions which may be deemed to be "anti-takeover" in nature in that such provisions may deter, discourage or make more difficult the assumption of control of the Company by another corporation or person through a tender offer, merger, proxy contest or similar transaction. The Amended Articles permit the Board of Directors to establish the rights, preferences, privileges and restrictions of, and to issue, up to 5,000,000 shares of Preferred Stock without shareholder approval. The Amended Bylaws also provide for the staggered election of directors to serve for four-year terms, subject to removal by shareholders only for cause upon the vote of not less than 65% of the shares of Common Stock cast at a shareholders meeting and provide that the vote of at least 60% of the votes entitled to be cast by all shareholders is required to call special meetings of shareholders. Certain provisions of the Amended Articles and Amended Bylaws may not be amended except by a similar 65% vote. For more information, see the Amended and Restated Articles of Incorporation and the Amended and Restated Bylaws of the Company which are filed as Exhibits 2.1 and 2.2, respectively, to the Company's Form 8-A Report, filed with the Commission on December 29, 1997. In addition, the Company is subject to certain anti-takeover provisions of the Pennsylvania Business Corporation Law. 3 Chapter 11 Proceedings. On December 12, 1997, the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") entered an order 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 seeking to reorganize under Chapter 11 of the U.S. Bankruptcy Code. Pursuant to the Plan of Reorganization, 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 Plan of Reorganization, 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 January 2, 2001. A total of 5,430,503 Warrants were issued to the Company's shareholders of record as of October 14, 1997. All unexercised warrants expired on January 2, 2001. Merchandising Today's Man seeks to offer a larger selection and variety of menswear, in terms of styles, sizes and price points, than its competitors. The Company's merchandise assortment consists principally of tailored clothing (suits, sportcoats, slacks, formal wear and outerwear), furnishings and accessories (dress shirts, ties, belts, suspenders, underwear, socks, scarves and gloves) and sportswear (casual pants, sportshirts, sweaters and jackets) and shoes. A 25,000 square foot superstore typically offers 56,000 items, including approximately 4,400 suits in American and European styles, 2,300 sportcoats, 9,300 dress shirts, 8,900 ties, 6,200 pairs of dress and casual pants and 4,000 pairs of shoes. The core of the Company's merchandise offering is primarily Today's Man private label suits (featuring the Company's private labels, Made in Italy and Made in England) complemented by a handful of nationally recognized brand-name and designer label suits at prices typically ranging from $200 to $400. In fiscal 2000, nearly 53% of the Company's net sales were tailored clothing, with approximately 42% divided between furnishings and sportswear and 5% of net sales from licensed shoe department sales. In July 1995, the Company entered into a License Agreement with Shoe Corporation of America ("SCOA"), pursuant to which SCOA installed and operated licensed shoe departments in the Company's stores. Under the terms of the license agreement, SCOA was responsible for the operations of the department including inventory purchases, presentation, staffing and management. The Company remitted, on a weekly basis, the net proceeds due to SCOA. SCOA filed for Chapter 11 under the U. S. Bankruptcy Code in June, 1999 and was subsequently acquired by Morse Shoe, Inc. in February, 2000. Today's Man then amended its shoe license agreement with Morse Shoe, Inc. The provisions of the contract generally remain the same. Morse Shoe, Inc. is responsible for the operations of the shoe department including inventory purchases, presentation, staffing and management. Today's Man remits, on a weekly basis, the net proceeds due to Morse Shoe, Inc. This license agreement expires January 31, 2006. On February 4, 2001, LDF Today's Inc., a subsidiary of Footstar, Inc. acquired from Morse Shoe, Inc., the rights and obligations associated with operating the footwear department in the Company's stores. The Company recorded net sales of $2,162,700, $1,850,300 and $1,655,700 from licensed shoe department sales for fiscal 1998, 1999 and 2000, respectively. 4 The Company has product offerings in all of its merchandise categories under the Company's private labels. Today's Man's private label programs are focused on high volume merchandise classifications and include products which can differentiate the Company from other retailers on the basis of price and quality. Marketing and Promotion The Company has identified as its core customers men between the ages of 25 and 54 with average household incomes between $40,000 and $75,000 per year who routinely wear a suit to work. The Company seeks to be the first choice among its target customers when they decide to shop for clothes by using local television, radio, and newspaper advertising. In addition, the Company uses direct mail advertising to customers on its mailing list, including holders of Today's Man credit cards. The Company uses outside agencies as well as its own marketing department to prepare its advertising materials. Today's Man Superstores The Company's superstores average approximately 25,000 gross square feet. Approximately three quarters of the area of each store is devoted to selling space, with the remaining portion used for tailoring, check-out, storage and administrative and employee areas. Today's Man superstores are usually located in a shopping center or freestanding building near a major shopping mall. The Company places great emphasis on providing an attractive, brightly lit and well-organized shopping environment. The Company's stores have similar layouts, emphasizing efficient traffic flow, separation of distinct departments, merchandise presentation and ease of merchandise selection. Use of a similar store design facilitates the operational integration of new stores into the Company's centralized merchandising, distribution, management and accounting systems. The Company attempts to arrange its merchandise to provide a logical flow from department to department and regularly monitors its product layouts in an attempt to make shopping easier and to maximize sales per square foot. The Company believes that a courteous and knowledgeable staff and efficient cashiers are important factors in attracting and retaining customers. The Company staffs each store with trained personnel, supported by an efficient check-out system and a full-function tailoring facility. The Company emphasizes to its employees the importance of customer service, courtesy and product knowledge through its training programs. The Company also believes that its typical customer prefers to shop without aggressive sales help and seeks assistance primarily to locate sizes or to coordinate styles and colors. Accordingly, Today's Man sales associates are paid on a salaried rather than a commission basis. In addition, sales associates are eligible to earn incentive payments based on the performance of that associate and the performance of the store relative to the planned performance. Each store is managed by a store manager who is compensated by a base salary and a bonus based on the store's sales performance, shrinkage and other factors. Store managers have an average of 15 years of retail experience. Store managers report to one of four regional managers. All stores have one or more assistant managers, one to two clothing department heads (including the head of the tailoring department) and an average of 13 full-time and 15 part-time associates (including sales associates, tailors and cashiers). Most of the Company's tailored clothing associates have prior retail experience. Additional training is provided on the job by the store's assistant managers and department heads. Full-function tailoring facilities are located at each store and are typically staffed by one fitter, four full-time and one part-time tailors and one presser under the supervision of the head of the tailoring department and an assistant. As part of the Today's Man efficient shopping experience, the Company seeks to provide professional alterations within one week. Because the Company 5 views efficient and competitively priced tailoring as a means of attracting and retaining its core customers, the Company's tailoring services generally are priced at cost. The Company maintains an appropriate level of security in each store based on local conditions. Purchasing The Company purchases most of its merchandise in large volumes through preplanned buying programs, which allow it to consistently offer a broad and deep selection of current-season, moderate to better private label menswear at substantial savings to its customers. The Company typically does not purchase manufacturers' production overruns and does not seek advertising allowances from its vendors. The Company purchased merchandise from approximately 138 domestic and overseas manufacturers and suppliers during fiscal 2000. During that year, the top ten vendors by dollar volume accounted for approximately 53% of total purchases, but no vendor accounted for more than 10% of the Company's purchases. Of the Company's purchases by dollar volume in fiscal 2000, approximately 37% were from overseas vendors, primarily in U.S. dollars. Moreover, although the Company historically has hedged its exposure to fluctuations in the relationship between the dollar and various foreign currencies, the Company is not engaging in hedging transactions and could incur additional expense in the event of currency fluctuations. Many of the Company's overseas purchases are financed by letters of credit. Understanding the importance of the vendors to the Company's business, management has focused on developing good relationships over the years with many of its vendors. The Company purchased approximately 4.4 million units of merchandise in fiscal 2000. This merchandise is made by manufacturers based upon the Company's quality and size specifications, often using materials that the Company has purchased from other suppliers. The Company uses quality control inspectors to oversee the manufacture of its merchandise to maintain its quality standards. The Company believes that by overseeing the design of its own private label merchandise and by dealing directly with manufacturers, it is able to offer fashionable merchandise at substantial savings to its customers. The Company does not own or operate any manufacturing facilities. Distribution The Company's distribution center is adjacent to the Company's executive and administrative offices in an office park in Moorestown, New Jersey. The distribution center is a modern 116,000 square foot facility constructed in 1987 that was expanded by the landlord in fiscal 1992. The expansion doubled the Company's merchandise processing potential to ten million units per year, increasing the number of superstores it is capable of serving using a single shift to approximately 30. The Company believes that the distribution facility is capable of supporting an additional 29 superstores by using two shifts. Merchandise is generally shipped directly by common carriers to the distribution center or to ports or airports for pick up by the Company's trucks. Merchandise from local manufacturers is often picked up by the Company's trucks directly from the manufacturer. At the distribution center, merchandise is received, counted, ticketed with the Company's bar coded labels and sorted for distribution to the Company's stores. Whenever possible, merchandise is preticketed with the Company's bar coded labels by the Company's vendors prior to delivery to reduce processing time and expense. Deliveries are made from the distribution center to each store typically twice a week by the Company's trucks. Merchandise is usually shipped to the stores ready for immediate placement on the selling floor. 6 Management Information and Control Systems The Company has placed substantial emphasis on upgrading and integrating its management information and financial control systems. The Company believes its management information and control systems are an important factor in enabling it to achieve its goal of superior execution of all aspects of the Company's operations. The Company employs a twelve-person MIS group, including two programmers. Control of the Company's merchandising activities is maintained by a fully integrated point-of-sale (POS) inventory and management information system, which permits management to monitor inventory and store operations on a daily basis and to determine weekly operating results by store. Each store communicates with the Company's central IBM RS/6000 computer system via IBM 4680 POS registers. Merchandise sales and inventories are automatically maintained by scanning bar-coded merchandise as customers check out. In 1999, the Company implemented a new retail information system. This state-of-the-art database system tracks merchandise from order through sale, comparing actual to planned results and highlighting areas requiring management attention. The new system enables the Company to work on improving its management of merchandising inventories, in-store stock replenishment, and financial reporting. The Company also uses ARTHUR, a merchandise planning system which facilitates seasonal planning by department and by store and provides data for financial planning. Customer Credit Today's Man customers may pay for their purchases with the Today's Man proprietary credit card, Visa, MasterCard, American Express, Discover, cash or check. Approximately 83% of all purchases are paid for by credit card. Today's Man credit cards are issued by a national bank, using the bank's credit standards, on a non-recourse basis to the Company. As of February 3, 2001, approximately 500,000 Today's Man credit cards were outstanding. The Company believes that its credit card is a particularly productive tool for targeted marketing and presents an excellent opportunity to analyze and better understand its customers' shopping patterns and needs. Competition The retail menswear business is highly competitive with respect to price, quality and style of merchandise and store location. The Company faces competition for customers and store locations from large national and regional department stores, various full-price menswear chains, a number of off-price specialty retailers as well as local department stores, catalog retailers and local menswear stores. Many of these competitors have significantly greater financial and other resources than the Company. The retailing business is affected by changes in consumer tastes, demographic trends and the type, number and location of competing stores. In the future, the Company may experience increased competition from menswear retailers attempting to imitate the Company's strategy. The Company believes that it generally compares favorably with its competitors with respect to the quality, depth and range of sizes and styles of merchandise, prices for comparable quality merchandise, customer service and store environment. Associates Today's Man places great importance on recruiting, training and motivating quality store level associates by such methods as promoting associates from within and offering bonuses for associates who recommend successful job applicants. As of February 3, 2001, the Company had 630 full-time and 420 part-time associates. The Company also employs additional part-time 7 clerks and cashiers during peak periods. None of the Company's associates is represented by a labor union. The Company believes that its relationship with its associates is good. Trademarks The Company owns all rights to the trademarks it believes are necessary to conduct its business as currently operated. The Company believes that no individual trademark or trade name, other than the Today's Man trademark, is material to the Company's competitive position in the industry. 8 Item 2. Properties The Company's executive offices and distribution center are housed in a 140,000 square foot building located in an office park in Moorestown, New Jersey. The Company leases the building and certain adjacent land for expansion from Mr. David Feld, pursuant to a lease expiring in 2010. See Item 13. "Certain Relationships and Related Transactions." The Company closed its Center City, Philadelphia, Pennsylvania store, the Manhasset, New York store, the Norwalk, Connecticut store, and the Towson, Marlyland store in fiscal 2000. The following table provides information regarding the Company's existing stores under lease:
Approximate Gross Square Year of Store Location Feet Opening -------------- ---------------------------------- Greater Philadelphia Market: Center City Philadelphia, PA (1), (2) 25,600 1980 Broomall, PA 17,800 1984 Deptford, NJ (1) 19,600 1985 Allentown, PA 22,700 1986 Montgomeryville, PA 22,100 1986 Northeast Philadelphia, PA 22,500 1987 King of Prussia, PA 25,000 1988 Langhorne, PA (1) 25,000 1988 Cherry Hill, NJ 25,800 1990 Greater Washington, D.C. Market: Bailey's Crossroads, VA 26,000 1987 Rockville, MD 26,100 1988 Fairfax, VA 25,900 1992 Greenbelt, MD 21,100 1995 Springfield, VA 17,500 1999 Sterling, VA 17,500 1999 Germantown, MD 18,000 1999 Towson, MD (2) 25,700 1999 Greater New York Market: Paramus, NJ 30,000 1991 Carle Place, NY 33,500 1991 Wayne, NJ 33,400 1992 Stony Brook, NY 25,900 1992 Huntington, NY 29,300 1993 East Hanover, NJ 30,000 1993 Manhassett, NY (2) 25,000 1993 Woodbridge, NJ 27,100 1993 Manhattan (Sixth Avenue), NY 28,100 1994 Hartsdale, NY 26,600 1994 Manhattan (Fifth Avenue), NY 27,200 1995
(1) Leased from Mr. David Feld. See Item 13. "Certain Relationships and Related Transactions." (2) Closed in fiscal 2000. The Company leases all of its stores and anticipates that it will continue to do so. Unexpired lease terms range from one to thirty years assuming the exercise of options to renew in certain cases, and no lease is scheduled to expire prior to the end of fiscal 2001. Approximately one-half of the leases 9 have percentage rent clauses, although none of the leases with Mr. David Feld has a percentage rent clause. Item 3. Legal Proceedings 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 materially 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. In January 1999, the Company brought suit against NationsBank N.A., The Bank of New York, N.A., and Fleet Financial Corp., (formerly Shawmut Bank, N.A.) seeking unspecified damages resulting from the pre-petition lender group's alleged non-performance under the Amended and Restated Loan and Security Agreement dated November 1995. The Company had alleged that the lender group's actions in January 1996 constituted a breach of contract under the loan agreement. In January 2001 this suit was settled for an undisclosed amount that is not material to the accompanying financial statements. Item 4. Submission of Matters to a Vote of Security Holders None. Item 4.1. Certain Executive Officers of the Registrant Set forth below is certain information concerning the executive officers of the Company who are also not directors.
Name Age Position ---- --- -------- Frank E. Johnson 51 Executive Vice President and Chief Financial Officer Barry S. Pine 46 Vice President, Controller, and Chief Accounting Officer Mycal Webster 51 Executive Vice President, Store Operations
Mr. Johnson joined the Company in 1986 as Controller and was promoted to Chief Financial Officer in November 1995 and Executive Vice President in April 1997. Prior to joining the Company, Mr. Johnson served as Corporate Controller of Nan Duskin, Inc., a women's apparel retailer, from 1984 to 1986. Mr. Pine joined the Company in 1990 as Assistant Controller and was promoted to Controller in November 1995. In April 1997, Mr. Pine was promoted to Vice President. Prior to joining the Company, Mr. Pine served as Manager of Merchandise Control of Charming Shoppes, Inc., a woman's apparel retailer, from 1987 to 1990. Mr. Webster joined the Company in June of 1986 as the Director of the Distribution Center and was appointed Vice President of Distribution in 1995. In April of 1997, he was promoted to Vice President of Human Resources and Logistics. In 1999, Mr. Webster also assumed responsibilities of Store Operations. Mr. Webster is responsible for overseeing all store related activities. Prior to his joining the Company Mr. Webster held several management positions at Acumark, Inc. a division of Bambergers. 10 PART II Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters. The Company's Common Stock and Warrants formerly traded on the Nasdaq National Market under the symbols "TMAN" and "TMANW," respectively. Effective July 20, 2000, the Company's Common Stock and Warrants began trading on the OTC Bulletin Board under the symbols "TMAN.OB" and "TMANW.OB," respectively. All unexercised Warrants expired on January 2, 2001. The following table sets forth, for the fiscal quarters indicated, the high and low closing bid prices for the Common Stock, as reported on the Nasdaq National Market or the OTC Bulletin Board, as applicable :
High Low 1999 First Quarter $2.03 $1.13 Second Quarter 1.56 1.09 Third Quarter 1.16 0.66 Fourth Quarter 0.94 0.53 2000 First Quarter $1.31 $0.53 Second Quarter 0.78 0.22 Third Quarter 0.42 0.16 Fourth Quarter 0.41 0.09 2001 First Quarter (through April 23, 2001) $0.33 $0.17
The Warrants were issued on January 2, 1998 and expired on January 2, 2001. The following table sets forth, for the fiscal quarters indicated, the high and low closing sale price for the Warrants, as reported by Nasdaq:
1999 First Quarter $0.47 $1.13 Second Quarter 0.28 0.16 Third Quarter 0.22 0.06 Fourth Quarter 0.22 0.03 2000 First Quarter $0.31 $0.09 Second Quarter 0.12 0.03 Third Quarter 0.12 0.01 Fourth Quarter (expired January 2, 2001) 0.02 0.001
As of March 21, 2001, the Company's Common Stock was held by approximately 1,566 holders of record. The Company does not anticipate paying any cash dividends in the foreseeable future because it intends to use or otherwise retain its earnings to finance the operations and expansion of its business and to service its debt. The Company's loan agreement prohibits the payment of cash dividends without prior consent of the lender. 11 Item 6. Selected Financial Data SELECTED FINANCIAL DATA (In thousands, except per share data and operating data) The following selected financial data have been derived from the Company's consolidated financial statements. The information set forth below should be read in conjunction with Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company and notes thereto beginning on page F-1. Certain amounts from prior periods have been reclassified to conform to the current year presentation. ----------------------------
Fiscal Year ----------- 1996 1997 1998 1999 2000 (7) ---- ---- ---- ---- -------- Statement of Operations Data: Net sales $ 196,602 $ 203,695 $ 203,563 $ 186,038 $167,959 Cost of goods sold 127,084 127,622 125,739 119,936 103,310 ---------- --------- --------- --------- -------- Gross profit 69,518 76,073 77,824 66,102 64,649 Selling, general and administrative expenses (1) 65,982 65,820 66,760 77,831 76,214 ---------- --------- --------- --------- -------- Income (loss) from operations 3,536 10,253 11,064 (11,729) (11,565) Reorganization items, net 8,848 6,769 - - - Interest expense and other income, net 499 7,786 3,280 1,627 2,459 ---------- --------- --------- --------- -------- Income (loss) before income taxes and (5,811) (4,302) 7,784 (13,356) (14,024) extraordinary item Income tax provision - - 2,883 - - ---------- --------- --------- --------- -------- Income (loss) before extraordinary item (5,811) (4,302) 4,901 (13,356) (14,024) Extraordinary item, net of income tax benefit - - (658) - - ---------- --------- --------- --------- --------- Net income (loss) $ (5,811) $ (4,302) $ 4,243 (13,356) (14,024) ========== ========= ========= ========= ======== Earnings (loss) per share: Income (loss) before extraordinary item $ (0.54) $ (0.39) $ 0.18 $ (0.49) $ (0.52) Extraordinary item, net - - (0.02) - - ---------- --------- --------- --------- -------- Earnings (loss) per share $ (0.54) $ (0.39) $ 0.16 $ (0.49) $ (0.52) ========== ========= ========= ========= ======== Weighted average shares outstanding 10,861 11,063 27,013 27,041 27,041 Earnings (loss) per share assuming dilution: Income (loss) before extraordinary item $ (0.54) $ (0.39) $ 0.18 $ (0.49) $ (0.52) Extraordinary item, net - - (0.02) - - ---------- --------- --------- --------- -------- Earnings (loss) per share assuming dilution $ (0.54) $ (0.39) $ 0.16 $ (0.49) $ (0.52) ========== ========= ========= ========= ======== Weighted average shares assuming dilution 10,861 11,063 27,013 27,041 27,041 Balance Sheet Data (at end of period): Working capital $ 49,528 $ 26,292 $ 31,927 $ 28,500 $ 14,513 Total assets 95,397 87,164 78,974 80,653 65,580 Long-term debt and capitalized leases 3,661 14,432 9,983 22,483 19,644 Liabilities subject to settlement 63,368 8,988 - - - Shareholders' equity 15,255 46,800 52,694 39,401 25,377 Operating Data: Net sales per square foot of selling space (2) $ 421 $ 451 $ 450 $ 402 $ 349 Increase (decrease) in comparable store sales (3) (7.8)% 7.0% (0.3)% (10.7)% (10.6)% Average sales per store (in thousands) (4) $ 8,008 $ 8,566 $ 8,544 $ 7,633 $ 6,577 Number of superstores (5): Open at beginning of period 35 25 25 25 29 Opened during period - - - 4 - Closed during period 10 (6) - - - 4 Open at end of period 25 25 25 29 25
12 ------------------------------------ (1) Includes buying and occupancy expenses. (2) Calculated using sales generated from superstores open for the entire fiscal year divided by the square feet of selling space of such stores. Selling space does not include tailoring, check-out and administrative areas or stockrooms. (3) Superstores are included in the comparable store sales calculation beginning in their fourteenth full month of operation. Accordingly, the calculation does not include a store's first full month of operation, which typically has an abnormally high volume of sales resulting from the store's grand opening promotion. Stores relocated to a larger facility are not included in the comparable store sales calculation until the beginning of their fourteenth full month of operation at their new locations. (4) Average sales per store include sales from superstores open for the entire year divided by the number of stores open for the entire period. (5) Relocations of older, smaller stores to larger facilities do not constitute new store openings. (6) Does not include an outlet store in Sawgrass Mills, Florida that was opened in April 1995 and closed in the first quarter of 1996. In the first quarter of 1996, the Company also closed a total of ten underperforming stores in the Greater Chicago, New York and Washington, D.C. markets. (7) Fiscal year 2000 included fifty-three weeks. 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 ----------- 1998 1999 2000 ---- ---- ---- Net sales 100.0% 100.0% 100.0% Cost of goods sold 61.8 64.5 61.5 ----- ----- ----- Gross profit 38.2 35.5 38.5 Selling, general and administrative expenses 32.8 41.8 45.3 ----- ----- ----- Income (loss) from operations 5.4 (6.3) (6.8) Interest expense and other (income) expense, net 1.6 .9 1.5 ----- ----- ----- Income (loss) before income taxes and extraordinary item 3.8 (7.2) (8.3) Income tax provision 1.4 - - ----- ----- ----- Income (loss) before extraordinary item 2.4 (7.2) (8.3) Extraordinary item, net of income tax benefit (0.3) - - ----- ----- ----- Net income (loss) 2.1% (7.2)% (8.3)% ===== ===== =====
13 Fiscal Years 2000 and 1999 Net Sales. Net sales were $167,959,000 in fiscal 2000, a decrease of $18,079,400 or 9.7% from net sales of $186,038,400 in fiscal 1999. Fiscal 2000 consisted of fifty-three weeks as compared to fifty-two weeks during the prior year. Comparable store sales decreased 10.6% versus fiscal 1999. The decrease in net sales was due to a decline in foot traffic and hence a decline in sales. The Company operated 29 and 25 superstores at January 29, 2000 and February 3, 2001, respectively. Gross Profit. Gross profit as a percentage of net sales increased to 38.5% in fiscal 2000 from 35.5% in fiscal 1999. The increase in the gross profit percentage was a result of the Company's strategy in fiscal 2000 of higher initial mark-ups on its inventory purchases. Selling, General and Administrative Expenses. Selling, general and administrative expenses, which include pre-opening expenses of new stores, decreased 2.1% or $1,616,100 from $77,830,600 in fiscal 1999 to $76,214,500 in fiscal 2000. As a percentage of net sales, selling, general and administrative expenses increased from 41.8% in fiscal 1999 to 45.3% in fiscal 2000. The dollar decrease in expenses was primarily due to a decrease in advertising expenses of $5,109,900 as well as a $2,858,700 reduction in expenses related to general and administrative professional fees, payroll related distribution center and replenishment department expenses, credit card related expenses and an overall reduction in expenses related to the human resource department. These decreases were partially offset by $6,287,300 in asset impairment charges and lease termination costs for the closing of the Center City, Philadelphia, Pennsylvania store, the Manhasset, New York store, the Norwalk, Connecticut store, the Towson, Maryland store and the e-commerce web site Todaysman.com. Interest Expense, Interest Income and Other (Income) Expense, Net. Interest expense, interest income and other (income) expense, net increased by $832,600 in fiscal 2000 from fiscal 1999. The increase in interest expense was attributable to the increased amount of average borrowings outstanding ($22,446,800 for the year ended February 3, 2001 versus $17,233,600 for the year ended January 29, 2000) due to the decline in sales revenues as discussed above, as well as the increase in the interest charged (9.25% as of February 3, 2001 versus 8.66% as of January 29, 2000) under the Company's Amended Loan and Security Agreement with Mellon Bank. Income Tax Expense. The Company had a net loss in fiscal 2000 and fiscal 1999 and therefore recorded no tax provision. 14 Fiscal Years 1999 and 1998 Net Sales. Net sales were $186,038,400 in fiscal 1999, a decrease of $17,524,800 or 8.6% from net sales of $203,563,200 in fiscal 1998. The decrease in net sales was a result of the overall decline in foot traffic the Company experienced in fiscal 1999. Additionally, the Company shortened the first quarter fiscal 1999 clearance period as well as delayed the promotion of the semi-annual event in the second quarter of fiscal 1999 in order to emphasize the Today's Man brand and everyday low price philosophy. The Company operated 25 and 29 superstores at January 30, 1999, and January 29, 2000, respectively. Gross Profit. Gross profit as a percentage of net sales decreased to 35.5% in fiscal 1999 from 38.2% in fiscal 1998. As a result of the decline in foot traffic, the Company was forced to take more markdowns in fiscal 1999 as compared to fiscal 1998 in order to cleanse seasonal inventories. These additional markdowns contributed to the decrease in the gross profit percentage in fiscal 1999. Selling, General and Administrative Expenses. Selling, general and administrative expenses, which include pre-opening expenses of new stores, increased 16.6% or $11,070,300 from $66,760,300 in fiscal 1998 to $77,830,600 in fiscal 1999. As a percentage of net sales, selling, general and administrative expenses increased from 32.8% in fiscal 1998 to 41.8% in fiscal 1999. The increase in expenses was primarily due to an additional $5,426,000 in planned advertising costs associated with the Company's branding and on-line website campaign and accrued severance of $883,000 related to employee terminations in January 2000. The Company incurred an additional $518,000 in depreciation and amortization expenses in fiscal 1999 related to the increase in capital expenditures for data processing systems. Additionally, the Company incurred $408,600 of new store expenses attributable to the opening of four new stores in the Baltimore, Maryland and Washington D.C. markets. Store payroll, occupancy, and advertising costs increased by $6,795,300 in fiscal 1999 as compared to the same period in fiscal 1998, and represented 26.1% of net sales in fiscal 1999 as compared to 20.5% of net sales in fiscal 1998. Interest Expense, Interest Income and Other (Income) Expense, Net. Interest expense, interest income and other (income) expense, net, decreased by $1,653,600 in fiscal 1999 from fiscal 1998. The decrease in interest expense was attributable to the lower interest rate obtained by the refinancing of the Company's revolving credit facility with Mellon bank on December 4, 1998 which bore interest at prime (8.50% at January 29, 2000). The Mellon Bank facility permitted the Company to have one or more portions of the outstanding balance of its loan accrue interest at LIBOR rate plus applicable margin. On December 2, 1999, the Company elected to have $12,500,000 accrue interest at LIBOR plus applicable margin (8.66%) for a period of 60 days. 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. The Company had a net loss in fiscal 1999 and therefore recorded no tax provision. In fiscal 1998 the Company recorded a provision for income taxes of $2,495,900. This provision was fully offset by the Company's net operating loss carryforwards. 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. 15 Liquidity and Capital Resources The Company's primary sources of working capital are cash flow from operations and borrowings under the revolving credit facility. The Company had working capital of $31,927,200, $28,500,000 and $14,513,800 at the end of fiscal 1998, 1999 and 2000, respectively. The Company measures its inventory turnover by dividing net sales by the retail value of the inventory averaged over 12 months. Inventory turnover was 2.81 times, 2.52 times and 2.39 times in fiscal 1998, 1999 and 2000, respectively. Net cash provided by (used in) operating activities amounted to $11,330,300, ($7,441,200) and $3,774,500 in fiscal 1998, 1999 and 2000, respectively. These amounts primarily represent net income (loss) plus depreciation, amortization and other changes in operating assets and liabilities. Net cash used in investing activities amounted to $4,521,400, $5,909,700 and $847,300 in fiscal 1998, 1999 and 2000, respectively. The decrease in fiscal 2000 from 1999 was primarily due to the fact there were no capital expenditures related to new store openings in fiscal 2000 compared to four new store openings in fiscal 1999. Net cash (used in) provided by financing activities amounted to ($5,847,300), $12,562,500 and ($2,839,700) in fiscal 1998, 1999 and 2000, respectively, and in fiscal 2000 consisted primarily of borrowings, net of repayments, under the Company's revolving credit facility. On December 4, 1998, the Company entered into a Loan and Security Agreement with Mellon Bank, N.A., ("Mellon") individually and as agent. Proceeds from this loan were used to refinance the Company's previous revolving credit facility and term loan with Foothill Capital Corporation. The Loan and Security Agreement, as amended, provides for a $30.0 million revolving credit facility with a $15.0 million sublimit for letters of credit. The facility bears interest at 0.75% per annum above Mellon's prime rate (Mellon Bank's prime rate was 8.5% at February 3, 2001) and expires on March 15, 2002. Availability under the revolver is determined by a formula based on inventory and credit card receivables, less applicable reserves. The amended agreement provides for an over-advance facility. The agreement contains financial covenants including tangible net worth, indebtedness to tangible net worth, maximum net loss per month and limitations on new store openings and capital expenditures as well as restrictions on the payment of dividends. The Company granted Mellon Bank a lien on its tangible and intangible assets to secure this facility. Additionally, Mr. David Feld, Chairman of the Board and principal shareholder of the Company, provided additional collateral to secure the credit facility. The Agreement also provides that the Company must pay a termination fee of $1,050,000 if the facility is terminated on or before March 14, 2002. On February 28, 2001, the Company and Mellon Bank entered into Amendment 8 to the revolving credit facility. In conjunction with the amendment, the Company was required to paydown $3,000,000 under the revolving credit facility and accordingly this amount has been included in current liabilities. The amended Agreement recast all of the Company's financial covenants as of and for the year ended February 3, 2001 such that the Company would be in compliance with these financial covenants and for the remaining term of the loan agreement. The Company was in compliance with all covenants under the amended Agreement as of February 3, 2001. The permitted out-of-formula advances may not exceed $2,000,000 from February 28, 2001 to May 15, 2001. The over-advance facility is then reduced to $1,250,000 on May 16, 2001, $0 on June 16, 2001, increases to $2,000,000 on August 5, 2001, reduces to $1,500,000 on November 4, 2001, $1,000,000 on December 1, 2001, $500,000 on December 21, 2001 and expires on December 30, 2001. The amendment also effectively changes the interest charged on the facility to 1.125% per annum above Mellon's prime rate. In January 2001, the Company retained investment banker Berwind Financial, L.P. to explore opportunities for raising additional capital and enhancing shareholder value. 16 In fiscal 2000, the Company closed four under-performing stores. Subsequent to year end, the Company closed its e-commerce website, Todaysman.com. The closing of the four stores and website resulted in a charge to operations in fiscal 2000 of approximately $6.3 million for the write-off of furniture and fixtures and the accrual of lease termination costs. This charge is included in selling, general and administrative expenses in the accompanying consolidated statement of operations. The Company has been substantially dependent upon borrowings under its credit facility to finance its operations and received an amended credit facility from Mellon in February 2001, which allows the Company additional liquidity through an over-advance facility through December 30, 2001 as discussed above. Additionally, the Company is in the process of implementing a plan to reverse the trend of losses noted above. Management's plans implemented thus far, as well as actions initiated that will continue into fiscal 2001 include the execution of the amended credit facility, a layoff of non-operating personnel in January 2001, the closing of four under-performing stores in fiscal 2000 and the closing of the e-commerce website. Management believes the Company's cash requirements in 2001 will be generated by operations and borrowings under the Company's credit facility. Management also believes that the actions initiated and its 2001 plans will result in the successful funding of its working capital and cash requirements while enabling the Company to meet its financial covenants under its credit facility. 17 Recent Accounting Pronouncements In December 1999 the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements", which effectively changes previous guidance related to the recording of licensed business revenues for retail companies. In fiscal 2000, the Company changed its method of recording licensed shoe department sales. This change reduced reported sales and reported expenses, but had no impact on operating or net income. Year 2000 The Company did not encounter any latent year 2000 problems with regard to its mission critical computer applications and those of its suppliers and vendors throughout the year 2000. 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 greater portion of the Company's net sales 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. The following table sets forth certain unaudited quarterly results of operations for fiscal 2000 and 1999. 18
Fiscal Quarter Ended --------------------- April 29, July 29, October 28, February 3, Fiscal 2000: 2000 2000 2000 2001(2) ---- ---- ---- ------- (In thousands, except per share amounts) Net sales $ 41,071 $ 41,617 $ 38,227 $ 47,044 Cost of goods sold 25,157 26,391 22,957 28,805 --------------- -------------- ---------------- -------------- Gross profit 15,914 15,226 15,270 18,239 Selling, general and administrative Expenses 20,542 17,033 16,968 21,671 --------------- -------------- ---------------- -------------- Loss from operations (4,628) (1,807) (1,698) (3,432) Interest expense and other (income) expense, net 605 626 671 557 --------------- -------------- ---------------- -------------- Loss before income taxes (5,233) (2,433) (2,369) (3,989) Income tax provision - - - - --------------- -------------- ---------------- -------------- Net loss $ (5,233) $ (2,433) $ (2,369) $ (3,989) =============== ============== ================ ============== Basic and diluted earnings (loss) per share: $ (0.19) $ (0.09) $ (0.09) $ (0.15) =============== ============== ================ ============== Weighted average shares outstanding 27,041 27,041 27,041 27,041
Fiscal Quarter Ended -------------------- May 1, July 31 October 30, January 29, Fiscal 1999: 1999 1999 1999 2000 (1) ---- ---- ---- -------- (In thousands, except per share amounts) Net sales $ 42,777 $ 45,471 $ 40,215 $ 57,576 Cost of goods sold 26,528 29,113 24,302 39,994 -------------- -------------- ---------------- -------------- Gross profit 16,249 16,358 15,913 17,582 Selling, general and administrative Expenses 16,710 17,591 18,080 25,451 -------------- -------------- ---------------- -------------- Loss from operations (461) (1,233) (2,167) (7,869) Interest expense and other (income) expense, net 247 288 364 728 -------------- -------------- ---------------- -------------- Loss before income taxes (708) (1,521) (2,531) (8,597) Income tax provision (benefit) (204) (559) (937) 1,699 -------------- -------------- ---------------- -------------- Net loss $ (504) $ (962) $ (1,594) $ (10,296) ============== ============== ================ ============== Basic and diluted earnings (loss) per share: $ (0.02) $ (0.04) $ (0.06) $ (0.38) Weighted average shares outstanding 27,015 27,015 27,015 27,041
(1) Fourth Quarter 1999 reflects an income tax adjustment of $1,699 to eliminate the tax benefit recorded in the prior quarters because the Company did not achieve its expected operating results. (2) Fourth Quarter 2000 includes $2,299,700 related to store closing costs and other unusual charges. There is no difference between earnings per share and earnings per share assuming dilution in fiscal 2000 and fiscal 1999 because the impact of common share equivalents is anti-dilutive. 19 Item 7a. Quantitative and Qualitative Disclosure About Market Risk The Company is a retail company doing business within the United States. Its primary market risk is exposure to interest rate fluctuations on its debt instruments. The Company's bank revolving credit facility bears interest at variable rates. The variable interest rate is the rate in effect at the end of fiscal 2000, and it fluctuates with the lending bank's prime rate. The change in fair value of the Company's bank revolving credit facility resulting from a hypothetical 2% increase in interest rates would not be material. Item 8. Financial Statements and Supplementary Data. The financial statements and related documents that are filed with this Report are listed in Item 14 (a) of this Report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. Incorporated by reference from the Company's Proxy Statement relating to the 2001 Annual Meeting of Shareholders to be filed pursuant to General Instruction G(3) to Form 10-K, except for information concerning certain executive officers of the Company which is set forth in Item 4.1 hereof. Item 11. Executive Compensation. Incorporated by reference from the Company's Proxy Statement relating to the 2001 Annual Meeting of Shareholders to be filed pursuant to General Instruction G(3) to Form 10-K. Item 12. Security Ownership of Certain Beneficial Owners and Management. Incorporated by reference from the Company's Proxy Statement relating to the 2001 Annual Meeting of Shareholders to be filed pursuant to General Instruction G(3) to Form 10-K. Item 13. Certain Relationships and Related Transactions. Incorporated by reference from the Company's Proxy Statement relating to the 2001 Annual Meeting of Shareholders to be filed pursuant to General Instruction G(3) to Form 10-K. 20 PART IV Item 14. Exhibits, Financial Statements and Reports on Form 8-K. (a) Documents filed as part of this report: 1. List of Consolidated Financial Statements. The following consolidated financial statements and the notes thereto of Today's Man, Inc., which are attached hereto beginning on page F-1, have been incorporated by reference into Item 8 of this Report on Form 10-K. Consolidated Balance Sheets as of January 29, 2000 and February 3, 2001 Consolidated Statements of Operations for the fiscal years ended January 30, 1999, January 29, 2000 and February 3, 2001 Consolidated Statements of Shareholders' Equity for the fiscal years ended January 30, 1999, January 29, 2000 and February 3, 2001 Consolidated Statements of Cash Flows for the fiscal years ended January 30, 1999, January 29, 2000 and February 3, 2001 Notes to Consolidated Financial Statements The Report of Independent Auditors, which covers the Company's consolidated financial statements appears on page F-2 of this Report on Form 10-K. 2. No financial statement schedules have been included because there is either no respective financial statement caption or there is full disclosure in the Notes to the Consolidated Financial Statements. 3. List of Exhibits filed pursuant to Item 601 of Regulation S-K. The following exhibits are incorporated by reference in, or filed with, this Report on Form 10-K. Management contracts and compensatory plans, contracts and arrangements are indicated by "*". Exhibit No. Description ----------- ------------ 2.1(1) Debtors' Second Amended Joint Plan of Reorganization as modified on December 12, 1997 3.1(2) The Company's Amended and Restated Articles of Incorporation 3.2(2) The Company's Amended and Restated Bylaws 10.1(3) Lease between Mr. David Feld and the Company relating to the Company's central headquarters and distribution center 10.2(3) Lease, as amended, between Mr. David Feld and the Company relating to the Center City Philadelphia store 21 Exhibit No. Description ----------- ----------- 10.3(3) Lease between Mr. David Feld and the Company relating to the Deptford store 10.4(3) Lease, as amended, between Mr. David Feld and the Company relating to the Langhorne store 10.5(3) Lease between Mr. David Feld and the Company relating to the lease of a parking lot adjacent to the Montgomeryville store *10.6(10) Management Stock Option Plan *10.7(3) 401(k) Profit-Sharing Plan, as amended, and related Trust Agreement 10.8(3) Tax Indemnification Agreement between the Company and Mr. David Feld 10.9(5) Amendment No. 1 to Tax Indemnification Agreement between the Company and Mr. David Feld 10.10(6) Amended and Restated License Agreement between the Company and D&L, Inc. *10.11(4) Form of Note and Stock Pledge Agreement for Executive Equity Plan tax loans 10.13(8) Order of the U.S. Bankruptcy Court dated May 22, 1996 approving the Employee Retention Plan. 10.14(8) Order of the U.S. Bankruptcy Court dated July 25, 1996 approving the remaining provisions of the Employee Retention Plan. 10.15(9) Loan and Security Agreement with Foothill Capital Corporation 10.16(10) Loan and Security Agreement with Mellon Bank, N.A. 10.17(11) First Amendment to Loan and Security Agreement with Mellon Bank, N.A. 10.18(11) Second Amendment to Loan and Security Agreement with Mellon Bank, N.A. 10.19(11) Third Amendment to Loan and Security Agreement with Mellon Bank, N.A. 10.20(11) Fourth Amendment to Loan and Security Agreement with Mellon Bank, N.A. 10.21(11) Fifth Amendment to Loan and Security Agreement with Mellon Bank, N.A. 10.22(11) License Agreement between the Company and Morse Shoe, Inc. 10.23(12) Sixth Amendment to Loan and Security Agreement with Mellon Bank, N.A. 10.24(13) Seventh Amendment to Loan and Security Agreement with Mellon Bank, N.A. 10.25 Eighth Amendment to Loan and Security Agreement with Mellon Bank, N.A. 21.1(5) Subsidiaries of the Registrant 23.1 Consent of Ernst & Young LLP (b) Reports on Form 8-K None 22 -------------------------- (1) Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 29, 1997. (Commission File No. 0-20234). (2) Incorporated by reference to the Company's Registration Statement on Form 8-A filed with the Securities and Exchange Commission on December 29, 1997. (Commission File No. 0-20234). (3) Incorporated by reference to the Company's Registration Statement on Form S-1 (Registration No. 33-46755) filed with the Securities and Exchange Commission on March 26, 1992. (4) Incorporated by reference to the Company's Registration Statement on Form S-1 (Registration No. 33-60798) filed with the Securities and Exchange Commission on April 9, 1993. (5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended October 31, 1992 (Commission File No. 0-20234). (6) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended January 29, 1994 (Commission File No. 0-20234). (7) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended January 28, 1995 (Commission File No. 0-20234). (8) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended February 1, 1997 (Commission File No. 0-20234). (9) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended January 31, 1998 (Commission File No. 0-20234). (10) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended January 30, 1999 (Commission File No. 0-20234). (11) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended January 29, 2000 (Commission File No. 0-20234). (12) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended July 29, 2000 (Commission File No. 0-20234). (13) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended October 28, 2000 (Commission File No. 0-20234). 23 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on May 4, 2001. TODAY'S MAN, INC. By: /s/Bruce Weitz ------------------------------------- Bruce Weitz President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K has been signed below by the following persons on behalf of the Registrant in the capacities and on the date indicated.
Signature Capacity Date /s/David Feld Chairman of the Board May 4, 2001 ----------------------------- David Feld /s/Bruce Weitz President and Chief Executive Officer May 4, 2001 ----------------------------- (principal executive officer) Bruce Weitz /s/ Frank E. Johnson Executive Vice President, Treasurer and May 4, 2001 ----------------------------- Chief Financial Officer Frank E. Johnson /s/ Larry Feld Vice President, Secretary and Director May 4, 2001 ----------------------------- Larry Feld /s/ Barry S. Pine Vice President, Controller and Chief May 4, 2001 ----------------------------- Accounting Officer Barry S. Pine /s/ Leonard Wasserman Director May 4, 2001 ----------------------------- Leonard Wasserman /s/ Verna K. Gibson Director May 4, 2001 ----------------------------- Verna K. Gibson /s/ Eli Katz Director May 4, 2001 ----------------------------- Eli Katz
24 TODAY'S MAN, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ---- Report of Independent Auditors..............................................F-2 Consolidated Balance Sheets as of January 29, 2000 and February 3, 2001.....F-3 Consolidated Statements of Operations for the fiscal years ended January 30, 1999, January 29, 2000 and February 3, 2001................F-4 Consolidated Statements of Shareholders' Equity for the fiscal years ended January 30, 1999, January 29, 2000 and February 3, 2001................F-5 Consolidated Statements of Cash Flows for the fiscal years ended January 30, 1999, January 29, 2000 and February 3, 2001................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 February 3, 2001 and January 29, 2000, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three fiscal years in the period ended February 3, 2001. 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 auditing standards generally accepted in the United States. 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 February 3, 2001 and January 29, 2000, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended February 3, 2001, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Philadelphia, Pennsylvania March 23, 2001 F-2 TODAY'S MAN, INC. CONSOLIDATED BALANCE SHEETS
January 29, February 3, 2000 2001 ---- ---- ASSETS Current assets: Cash $ 392,700 $ 480,200 Due from credit card companies and other receivables, net of Allowance for uncollectible accounts of $27,200 and $17,200 1,692,900 1,576,000 Inventory 39,334,700 30,941,100 Prepaid expenses and other current assets 1,056,100 1,024,700 Prepaid inventory purchases 1,847,900 1,589,300 ----------- ----------- Total current assets 44,324,300 35,611,300 Property and equipment, less accumulated depreciation and Amortization 34,235,300 27,976,100 Loans to shareholders 228,400 - Rental deposits and other noncurrent assets 1,864,600 1,992,300 ----------- ----------- $80,652,600 $65,579,700 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable 9,014,700 11,555,500 Accrued expenses and other current liabilities 6,408,300 6,318,900 Current maturities of capital lease obligations 401,600 224,100 Current portion of long-term debt - 3,000,000 ----------- ----------- Total current liabilities 15,824,600 21,098,500 Capital lease obligations, less current maturities 936,600 713,500 Deferred rent and other 3,345,200 2,684,800 Obligation under revolving credit facility 21,145,100 15,706,000 ----------- ----------- 41,251,500 40,202,800 Shareholders' equity: Preferred stock, no par value, 5,000,000 shares authorized, none Issued - - Common stock, no par value, 100,000,000 shares authorized, 27,040,725 shares issued and outstanding 48,513,700 48,513,700 Accumulated deficit (9,112,600) (23,136,800) ----------- ----------- Total shareholders' equity 39,401,100 25,376,900 ----------- ----------- $80,652,600 $65,579,700 =========== ===========
See accompanying notes. F-3 TODAY'S MAN, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
For the Fiscal Years Ended -------------------------- January 30, January 29, February 3, 1999 2000 2001 ---- ---- ---- (52 weeks) (52 weeks) (53 weeks) Net sales $203,563,200 $186,038,400 $167,959,000 Cost of goods sold 125,738,700 119,936,900 103,309,500 ------------ ------------ ------------ Gross profit 77,824,500 66,101,500 64,649,500 Selling, general and administrative expenses (includes $6,287,300 in asset impairment charges and lease termination costs in fiscal 2000) 66,760,300 77,830,600 76,214,500 ------------ ------------ ------------ Income (loss) from operations 11,064,200 (11,729,100) (11,565,000) Interest expense 3,200,600 1,606,400 2,534,300 Other expense (income), net 79,600 20,200 (75,100) ------------ ------------ ------------ Income (loss) before income taxes and extraordinary item 7,784,000 (13,355,700) (14,024,200) Provision for income taxes 2,882,500 - - ------------ ------------ ------------ Income (loss) before extraordinary item 4,901,500 (13,355,700) (14,024,200) Extraordinary item, net of income tax benefit of $386,600 658,400 - - ------------ ------------ ------------ Net income (loss) $ 4,243,100 $(13,355,700) $(14,024,200) ============ ============ ------------ Basic and diluted earnings (loss) per share before extraordinary item $ 0.18 $ (0.49) $ (0.52) Basic and diluted earnings (loss) per share from extraordinary item (0.02) - - ------------ ------------ ------------ Basic and diluted earnings (loss) share $ 0.16 $ (0.49) $ (0.52) ============ ============ ------------ Weighted average shares outstanding 27,013,125 27,040,628 27,040,725
See accompanying notes. F-4 TODAY'S MAN, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK NUMBER RETAINED OF EARNINGS SHARES AMOUNT (DEFICIT) ------ ------ --------- 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 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 Exercise of stock purchase warrants 150 400 - Adjustment of shares due to settlement of pre-petition claims 26,090 62,100 - Net loss - - (13,355,700) ---------- ----------- ------------ Balances at January 29, 2000 27,040,725 $48,513,700 $(9,112,600) Net loss - - (14,024,200) ---------- ----------- ------------ Balances at February 3, 2001 27,040,725 $48,513,700 $(23,136,800) ========== =========== ============
See accompanying notes. F-5 TODAY'S MAN, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended January 30, January 29, February 3, 1999 2000 2001 ---- ---- ---- Operating activities: Net income (loss) $ 4,243,100 $(13,355,700) $(14,024,200) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation expense 2,548,800 3,537,900 3,909,700 Amortization expense 881,900 949,000 1,756,800 Reserve for asset impairment charges - - 2,553,700 Provision for uncollectible accounts receivable 183,700 (34,300) (10,000) Reserve of loans to shareholders - - 228,400 Deferred rent and other (567,200) (1,404,800) (660,400) 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 - - Decrease (increase) in receivables 417,400 (123,300) 126,900 Decrease (increase) in inventory 15,500 (4,698,100) 8,393,600 (Increase) decrease in prepaid expenses (749,200) 4,038,400 290,000 (Decrease) increase in payables, accrued expenses and liabilities subject to settlement (909,100) 3,876,400 2,451,400 Increase in other noncurrent assets (431,600) (226,700) (1,241,400) Payment of liabilities subject to settlement (9,236,000) - - ------------ ------------ ------------- Total adjustments 7,087,200 5,914,500 17,798,700 ------------ ------------ ------------- Net cash provided by (used in) operating activities 11,330,300 (7,441,200) 3,774,500 Investing activities: Capital expenditures (3,871,600) (5,841,500) (847,300) Fixtures and equipment in process (649,800) (68,200) - ------------ ------------ ------------- Net cash used in investing activities (4,521,400) (5,909,700) (847,300) Financing activities: Repayment of capital leases (1,226,200) 300,600 (400,600) Proceeds from exercise of stock options and Common stock purchase warrants 11,300 62,500 - Borrowings under revolving credit facility 97,837,100 180,809,800 156,493,800 Repayment of term loan and revolving credit facility (102,469,500) (168,610,400) (158,932,900) ------------ ------------ ------------- Net cash (used in) provided by financing (5,847,300) 12,562,500 (2,839,700) Net increase (decrease) in cash 961,600 (788,400) 87,500 Cash at beginning of year 219,500 1,181,100 392,700 ------------ ------------ ------------- Cash at end of year $ 1,181,100 $ 392,700 $ 480,200 ============ ============ =============
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 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 the expiration date of December 31, 1999. During fiscal 1999, the expiration date of the Warrants was extended to January 2, 2001. 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. All unexercised Warrants expired on January 2, 2001. 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., Baltimore and New York Markets. Quasi-Reorganization 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. 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. F-7 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 no such investments as of January 29, 2000 and February 3, 2001. 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 year with fiscal year end being the Saturday closest to January 31. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States 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. Advertising The Company utilizes both broadcast and print advertising and expenses related costs as incurred. Advertising expense was $12,246,000, $17,671,500 and $12,561,600 for the fiscal years 1998, 1999 and 2000, respectively. F-8 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Revenue Recognition The Company recognizes revenue at the point of sale. Store Closing Provision The Company provides a provision for store closings when the decision to close a store is made. The provision consists of the incremental costs which are expected to be incurred, including future net lease obligations, employee costs and other direct store closing costs. Inventory valuation adjustments, as necessary, are recorded as additional cost of goods sold and as a direct reduction to inventory. If the Company determines that the provision is no longer necessary, it is reversed at that time. Company Operations The Company's financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. In fiscal 2000, the Company incurred a net loss of $14,024,200. The net loss was caused mainly by a significant shortfall in revenues and the closing of four underperforming stores (See Note 11). The Company has been substantially dependent upon borrowings under its credit facility to finance its operations and amended its credit facility from Mellon in February 2001, which allows the Company additional liquidity through an over-advance facility through December 30, 2001. Additionally, the Company is in the process of implementing a plan to reverse the trend of losses noted above. Management's plans implemented thus far, as well as actions initiated that will continue into fiscal 2001 include, the execution of the amended credit facility, a layoff of non-operating personnel in January 2001, the closing of four under performing stores in fiscal 2000, and the closing of the e-commerce website. Management believes the cash requirements in fiscal 2001 will be generated by operations and borrowings on the Company's credit facility. Management also believes that the actions initiated and its fiscal 2001 plans will result in the successful funding of the Company's working capital and cash requirements while enabling the Company to meet its financial covenants under its credit facility. Recent Accounting Pronouncements In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements", which effectively changes previous guidance related to the revenue recognition and the recording of license business revenues for retail companies. During the thirteen weeks ended April 29, 2000, the Company changed its method of recording licensed shoe department sales. This change reduced reported sales and reported expenses but had no impact on operating or net income. Net licensed shoe department sales were $2,162,700, $1,850,300 and $1,655,700 for 1998, 1999, and 2000, respectively. Sales have been reduced by $10,045,400, $8,507,300 and $7,540,100 for 1998, 1999, and 2000, respectively with a corresponding reduction in cost of sales. After due consideration, the Company has concluded this is the only impact that SAB 101 has on its consolidated financial position and results of operations. Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," was issued by the Financial Accounting Standards Board F-9 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) in June 1998. This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires recognition of all derivatives as either assets or liabilities on the balance sheet and measurement of those instruments at fair value. The Company has adopted SFAS 133 (as amended by SFAS 138) effective February 4, 2001. There was not a material impact on the results of operations or financial position as a result of the adoption of SFAS 133. 3. Property and Equipment Property and equipment is summarized as follows: January 29, February 3, 2000 2001 ---- ---- Furniture, fixtures and signs $ 6,741,900 $ 6,949,500 Leasehold improvements 33,099,600 30,755,400 Data processing equipment 7,934,200 7,733,700 Fixtures and equipment under capital leases 7,119,800 7,103,500 Fixtures and equipment in process 68,200 61,200 ------------ ------------ Gross property and equipment 54,963,700 52,603,300 Accumulated depreciation (16,525,000) (19,780,700) Accumulated amortization of equipment under capital leases (4,203,400) (4,846,500) ------------ ------------ Net property and equipment $ 34,235,300 $ 27,976,100 ============ ============ 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 $3,441,700, $4,339,400 and $4,552,800 for fiscal years 1998, 1999 and 2000, respectively. Fixtures and equipment in process includes items for new systems and equipment which as of the respective financial statement date have not been placed into service. 4. Related Party Transactions Certain of the Company's superstores and its executive offices and distribution center are leased from Mr. David Feld, the Company's Chairman of the Board of Directors and principal shareholder. Rent expense on these locations was $1,789,400, $1,817,300 and $1,615,600 for the fiscal years ended January 30, 1999, January 29, 2000 and February 3, 2001, respectively. Included in the schedule of operating lease commitments in Note 6 are required payments on leases with Mr. David Feld for the Company's principal offices and distribution center as well as certain stores, totaling $1,741,900 for each of the next five years and $9,010,300 thereafter. Certain of the leases require increasing payments based upon changes in the Consumer Price Index. F-10 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. 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. On December 4, 1998 the Company entered into a Loan and Security Agreement with Mellon Bank, N.A., ("Mellon") individually and as agent. Proceeds from this loan were used to refinance the Company's previous revolving credit facility and term loan from Foothill Capital Corporation. The Loan and Security Agreement, as amended, provides for a $30.0 million revolving credit facility with a $15.0 million sublimit for letters of credit. Outstanding letters of credit at February 3, 2001 were $1,506,000. The facility bears interest at 0.75% per annum above Mellon Bank's prime rate (Mellon Bank's prime rate was 8.50% at February 3, 2001) and expires on March 15, 2002. Availability under the revolver is determined by a formula based on inventory and credit card receivables, less applicable reserves. Availability under the revolving credit facility was $1,055,700 as of February 3, 2001. The amended agreement provides for an over-advance facility. The agreement contains financial covenants including tangible net worth, indebtedness to tangible net worth, maximum net loss per month and limitations on new store openings and capital expenditures as well as restrictions on the payment of dividends. The Company granted Mellon Bank a lien on its tangible and intangible assets to secure this facility. Additionally, Mr. David Feld, Chairman of the Board and principal shareholder of the Company, provided additional collateral to secure the credit facility. The Agreement also provides that the Company must pay a termination fee of $1,050,000 if the facility is terminated on or before March 14, 2002. On February 28, 2001, the Company and Mellon bank entered into Amendment 8 to the revolving credit facility. The amended Agreement recast all of the Company's financial covenants as of and for the year ended February 3, 2001 such that the Company would be in compliance with these financial covenants and for the remaining term of the loan agreement. The Company was in compliance with all covenants under the amended Agreement as of February 3, 2001. The permitted out-of-formula advances may not exceed $2,000,000 from February 28, 2001 to May 15, 2001. The over-advance facility is then reduced to $1,250,000 on May 16, 2001, $0 on June 16, 2001, increases to $2,000,000 on August 5, 2001, reduces to $1,500,000 on November 4, 2001, $1,000,000 on December 1, 2001, $500,000 on December 21, 2001 and expires on December 30, 2001. The amendment also effectively changes the interest charged on the facility to 1.125% per annum above Mellon's prime rate. F-11 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. 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 Mr. David Feld, the Company's Chairman of the Board of Directors and principal shareholder. (See Note 4.) 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 February 3, 2001: Capital Operating Leases Leases ------ ------ 2001 $ 331,900 $13,468,600 2002 330,600 12,865,000 2003 313,200 11,687,600 2004 203,100 9,053,000 2005 100 8,291,200 Thereafter - 31,593,000 ---------- ----------- Total minimum lease payments 1,178,900 $86,958,400 =========== Less: Amounts representing interest 241,400 ---------- Present value of net minimum lease payments $ 937,500 ========= Total rent expense for the fiscal years ended January 30, 1999, January 29, 2000 and February 3, 2001 was, $12,087,100, $12,963,600, and $13,329,000 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 $2,945,200 and $2,284,800 at January 29, 2000 and February 3, 2001 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. 7. 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. F-12 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The charge to operations for Company contributions was $287,600, $327,200 and $329,100 for the years ended, January 30, 1999, January 29, 2000 and February 3, 2001, 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. In fiscal 2000, the Company, upon approval by the Board of Directors, wrote down the shareholder loans to reflect the fair value of the underlying collateral. The amount of this charge was $228,400 and is included in selling, general and administrative expenses in the accompanying consolidated statement of operations. 8. Supplemental Cash Flow Information For the Fiscal Years Ended -------------------------- January 30, January 29, February 3, 1999 2000 2001 ---- ---- ---- Interest paid $3,367,600 $1,741,800 $2,746,300 9. Income Taxes A reconciliation of the effective tax rate with the statutory federal income tax rate follows: For the Fiscal Years Ended -------------------------- January 30, January 29, February 3, 1999 2000 2001 ---- ---- ---- Statutory federal income tax rate 34.0% 34.0% 34.0% Effect of permanent differences 0.5 (0.3) (0.3) Income tax valuation allowance - (33.7) (33.7) Quasi reorganization equity accounting 2.5 - - ----- ----- ----- 37.0% -% -% ----- ----- ----- F-13 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The components of the deferred tax assets and liabilities are as follows:
January 29, February 3, 2000 2001 ---- ---- Deferred tax assets: Accrued liabilities $ 313,300 $ 956,000 Inventory 486,600 383,300 Net operating loss carryforward 13,172,100 17,118,600 AMT credit carryforward 394,300 394,300 Leases 1,180,700 927,600 Bad debts 5,100 7,000 Other 49,700 49,700 Property and equipment, including capital leases - 43,900 ------------- ------------- Total deferred tax assets 15,601,800 19,880,400 Less: deferred tax valuation allowance (14,903,100) (19,582,400) ------------- ------------- Net deferred tax assets 698,700 298,000 ------------- ------------- Deferred tax liabilities: Property and equipment, including capital leases 281,500 - Other 817,200 698,000 ------------- ------------- 1,098,700 698,000 ------------- ------------- Net deferred tax liability $ 400,000 $ 400,000 ============= =============
The valuation allowance against deferred tax assets increased by $4,679,300 in fiscal 2000 due to the increase in net operating loss carryforwards. As a result of the Company's quasi-reorganization (see Note 2), the Company is required to record a charge in lieu of income taxes for 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. For 1999 and 2000, there is no charge in lieu of income taxes being reflected due to the post quasi-reorganization loss. As of February 3, 2001, the Company has remaining $10,588,000 of tax attributes that will be credited to additional paid in capital when realized. At February 3, 2001, the Company had available for carryforward net operating losses (for federal tax purposes) of $40,234,800 and a minimum tax credit carryover of $394,000. The NOL carryforwards expire in 2012 through 2020; the minimum tax credits can be carried forward indefinitely. Additionally, at February 3, 2001, 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. F-14 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 10. 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. The Management Plan was amended by the Board of Directors in January 2001 to increase the number of shares of Common Stock authorized for issuance under the plan from 2,450,000 shares to 5,000,000 shares. At February 3, 2001, the Company had outstanding options to purchase an aggregate of 3,531,500 shares of Common Stock under the Management Stock Option Plan. The following summarizes activity in fiscal 1998, fiscal 1999 and fiscal 2000. Management Stock Option Plan Number of Shares Under Exercise Price Option Per Share ------------ --------------- Outstanding at January 31, 1998 2,247,500 $2.38 Options issued 44,000 $1.31 - $2.38 Options cancelled (293,200) $2.38 Options exercised (800) $2.38 ========== =============== Outstanding at January 30, 1999 1,997,500 $1.31 - $2.38 Options issued 362,500 $1.28 - $2.38 Options cancelled (448,100) $2.38 ---------- --------------- Outstanding at January 29, 2000 1,911,900 $1.28 - $2.38 Options issued 2,305,000 $0.20 - $0.56 Options cancelled (685,400) $0.31 - $2.38 ---------- --------------- Outstanding at February 3, 2001 3,531,500 $0.20 - $2.38 ========== =============== Exercisable at February 3, 2001 2,688,300 $0.20 - $2.38 ========== =============== F-15 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Set forth below are the outstanding options at February 3, 2001, summarized by range of exercise price:
------------------------------------------------------------------------------------------------------------- Number Weighted Weighted Number Range of Exercise Outstanding Average Average Excercisable at Weighted Average Prices at 02/03/01 Remaining Life Exercise Price 02/03/01 Exercise Price ------------------------------------------------------------------------------------------------------------- $0.20 - $0.56 2,301,000 10 $0.26 1,493,000 $0.21 ------------------------------------------------------------------------------------------------------------- $1.31 - $1.69 72,500 9 $1.44 38,500 $1.46 ------------------------------------------------------------------------------------------------------------- $2.38 1,158,000 7 $2.38 1,156,800 $2.38 -------------------------------------------------------------------------------------------------------------
Options to purchase an aggregate of 5,000,000 shares of Common Stock may be granted pursuant to the Management Stock Option Plan. Options are granted at the fair market value at the date of grant. At February 3, 2001, 1,468,500 options 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 using the alternative fair value accounting provided for under FASB Statement No. 123. 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:
1998 1999 2000 ---- ---- ---- Risk-free interest rate 6.0% 6.0% 5.4% Dividend yield 0% 0% 0% Volatility factor of the expected market price of the Company's common stock 0.702 0.626 0.618 Weighted average expected life of the options 5 5 5
The weighted average fair value of options issued in which the exercise price equals fair value was $1.36, $0.86 and $0.16 as of January 30, 1999, January 29, 2000 and February 3, 2001, respectively. 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: 1998 1999 2000 ---- ---- ---- Pro-forma net income (loss) $3,672,600 $(13,810,200) $(14,165,700) Pro-forma earnings per share: Basic and diluted $0.14 $(0.51) $(0.52) ========== ============ ============ F-16 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. Store Closing and Other Unusual Charges For the fiscal year year ended February 3, 2001, the Company recorded store closing and other unusual charges of $6,287,300, primarily related to four store closings to cover estimated lease termination costs and asset impairment charges. Included in this charge is severance payments of $615,000 related to headcount reductions for 7 employees. For the fiscal year ended January 29, 2000, the Company recorded a charge of $883,00 for severance payments related to headcount reductions for 20 employees. No such charges were recorded for the fiscal year ended January 30, 1999. These charges are included in selling, general and administrative expenses in the accompanying consolidated statements of operations. At February 3, 2001, $2,454,400 of these charges have not been paid and are reported in accrued expenses and other current liabilities and $1,153,400 are reported in accounts payable. These amounts are expected to be paid during fiscal 2001. Management believes that these reserves are adequate. F-17
DIRECTORS CORPORATE OFFICES David Feld 835 Lancer Drive Chairman of the Board Moorestown, New Jersey 08057 Today's Man, Inc Telephone: (856) 235-5656 Bruce Weitz INDEPENDENT AUDITORS President and Chief Executive Officer Ernst & Young LLP Today's Man, Inc. Two Commerce Square 2001 Market Street Neal J. Fox Philadelphia, Pennsylvania 19103 Vice Chairman, Merchandising/Marketing Today's Man, Inc. COUNSEL Blank Rome Comisky & McCauley LLP Larry Feld One Logan Square Vice President, Store Development and Secretary Philadelphia, Pennsylvania 19103-6998 Today's Man, Inc. TRANSFER AGENT AND REGISTRAR Leonard Wasserman StockTrans, Inc. Consultant Seven East Lancaster Avenue Ardmore, Pennsylvania 19003 Verna Gibson Partner, Retail Options, Inc. Eli Katz bathclick.com EXECUTIVE OFFICERS Bruce Weitz President and Chief Executive Officer Neal J. Fox Vice Chairman, Merchandising/Marketing Frank E. Johnson Executive Vice President, Chief Financial Officer and Treasurer Mycal Webster Executive Vice President, Store Operations Larry Feld Vice President, Store Development and Secretary Barry Pine Vice President and Controller