10-K 1 ten-k.txt 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 2, 2002 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 22, 2002)
Indicate by check mark whether the Registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [ ] The aggregate market value of voting and non-voting common equity held by non-affiliates of the Registrant is $2,969,569(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 22, 2002. 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," "fiscal 2001," and "fiscal 2002," 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, February 2, 2002, and February 1, 2003, respectively. Today's Man(R) is a registered trademark of the Company. PART I Item 1. Business. General Today's Man, Inc. is an operator of menswear retail stores specializing in tailored clothing, furnishings, sportswear and shoes. The Company operates a chain of 24 stores ranging in size from approximately 18,000 to 34,000 gross square feet and six new concept stores in regional shopping malls, ranging in size from approximately 4,500 to 9,100 gross square feet, in the Greater Philadelphia, Washington, D.C., Baltimore 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 as well as purchasing quantities opportunistically in the market. The Company generated net sales of $289 per square foot of selling space in its stores in fiscal 2001. In the fourth quarter of fiscal 2001, the Company opened six new concept stores in the following shopping mall locations: Franklin Mills Mall, Philadelphia, Pennsylvania; Hamilton Mall, May's Landing, New Jersey; Arundel Mills Mall, Hanover, Maryland; Lake Forest Mall, Gaithersburg, Maryland; Palisades Mall, West Nyack, New York; and the Broadway Mall in Hicksville, New York. The new concept stores are of significantly less square footage than the traditional Today's Man superstores. The Company believes that these stores will generate greater traffic than its existing locations while requiring significantly less square footage and therefore less inventory investment. The six stores opened in fiscal 2001 have lease terms ranging from three to 15 months and square footage ranging from 4,500 square feet to 9,100 square feet. The Company closed its Germantown, Maryland store and its internet electronic commerce site in fiscal 2001. In November 2001, the Company promoted Mr. Les Schwartzberg to the position of Senior Vice President and General Merchandise Manager. He took over the responsibilities in the Merchandising Department, held previously by Mr. Neal Fox. In November 2001, Mr. Neal Fox, resigned as Vice Chairman, Merchandising and Marketing. Mr. Fox will continue to serve as a member of the Company's Board of Directors and has agreed to work as a consultant for the Company. 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 the Company's plans for fiscal 2002 and beyond, 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. 1 Company Performance and its Lending Institution Relationship Since the Company emerged from bankruptcy on December 31, 1997, it has sustained significant declines in sales and has experienced aggregate net losses of approximately $37,000,000. During the same period, the Company's working capital has declined and debt has increased. The decline in sales and resulting decline in working capital and increase in debt are due in part to a decrease in traffic and therefore a decrease in comparable store sales in four out of the last five fiscal years. Another contributing factor to the decrease in sales and working capital and the increase in debt is the fact that the Company has closed five under performing stores over the last two fiscal years and has recorded charges of $7,833,000 related to the store closings. As a result, the Company has required assistance from its lending institution to sustain its operations. In order to address liquidity needs or remain in compliance with the credit facility, which currently expires on February 2, 2004, the Company and the lending institution have entered into 13 amendments or modifications since its inception on December 4, 1998. The Company's credit facility has covenants requiring, amongst other things, minimum tangible net worth levels, net income/net loss levels, fixed charge coverage ratios, daily application of Company receipts as payments against the credit facility and daily borrowings to fund cash requirements. Additionally, the Company's credit facility gives the lending institution the ability to declare an event of default, and thus render the loan immediately due and payable, based upon the lending institution's own determination of a "material adverse change". If this were to occur, the Company would not be able to repay the loan in full. The indebtedness is secured by virtually all the Company's assets, including its inventory. In the event of a default, the lender would be able to take possession of such assets and sell them to pay off the loan. The Company has sought, but has not obtained, other sources of financing and has explored other efforts to improve its capital structure. The Company's ability to execute on its new business strategy, continue to improve operations, improve its capital structure and maintain its working relationship with the lending institution are all pivotal to the Company's ability to sustain operations. Growth Strategy. The Company opened six new concept stores in fiscal 2001. The new concept stores are smaller than the Company's traditional superstores. The Company cannot assure you that these new concept stores will generate sales per square foot greater than that of its existing stores. Also, the opening of these additional stores in its current markets could attract customers from the Company's existing stores. The Company anticipates opening additional new concept stores in fiscal 2002 and beyond in regional shopping malls, strip centers or other high-density urban areas. The Company may also open additional superstores if the demographics and economics work for a location(s). No assurance can be given that any new concept stores or superstores will be opened or operated successfully. 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 one store and its internet electronic commerce site in fiscal 2001 and anticipates closing two underperforming stores in fiscal 2002. Small Store Base; Geographic Concentrations. The Company currently operates a chain of 24 superstores and six new concept stores, which are located in the Greater Philadelphia, Washington, D.C., and New York markets. Due to the Company's 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 stores 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. 2 Declining Unit Sales of Men's Tailored Clothing. On a national basis, and also for the Company itself, 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. No assurance can be given 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 2001, approximately 58% of the dollar volume of all merchandise purchased by the Company was purchased from ten vendors, and approximately 33% 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 3 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 therefore will reduce or 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 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 any member of the organization. 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 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 30 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 22, 2002, the Company has 27,040,725 shares of Common Stock outstanding, all of which are available for 4 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. 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 entitled 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 will continue to build on specific strategies, which will enable the Company to differentiate itself from its competitors. The strategy of everyday good value on business and business casual apparel for men will be the foundation of the merchandising assortment. The Company's assortment consists principally of business dress (suits, sportcoats, slacks, formalwear, and outerwear), dress furnishings and accessories (dress shirts, neckties, belts, underwear, socks, scarves, gloves, suspenders, and jewelry), business casual sportswear (casual slacks, sportshirts, knits, sweaters, leather 5 and casual jackets), and shoes. The core of the Company's merchandise offering is primarily Today's Man private label and proprietary labels (80%) with the re-introduction of brands and designers labels (20%) in fiscal 2001. The stores carry a broad selection of styles and sizes (including hard to find sizes). In fiscal 2001, nearly 54% of the Company's net sales were tailored clothing, with approximately 41% 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 remained the same. Morse Shoe, Inc. was 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, LFD 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. On February 22, 2002, the License Agreement was amended to change the responsibility of staffing and management to Today's Man, Inc. and as such the proceeds of shoe sales that the Company retains was appropriately increased. The remaining provisions of the contract are generally the same. The Company recorded net sales of $1,850,300, $1,655,700, and $1,196,000 from licensed shoe department sales for fiscal 1999, 2000 and 2001, respectively. Marketing and Promotion The Company has identified as its core customers men between the ages of 25 and 54 with per capita income 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 direct mail advertising to customers on its mailing list, including holders of Today's Man credit cards. In addition, the Company uses local television, radio, and newspaper advertising. The Company uses outside agencies as well as its own marketing department to prepare its advertising materials. Today's Man Stores Today's Man currently operates two distinct store formats - superstores and new concept stores. Both formats use similar layouts, provide ease of shopping and the ability to meet the customer's appearance requirements in both dress and casual menswear. 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 superstores 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 superstores into the 6 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 superstore 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 with assistance from sales associates who suggest outfits, help with locating sizes and with the coordination of 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 superstore relative to the planned performance. Each superstore is managed by a store manager who is compensated by a base salary and a bonus based on the superstore's sales performance, shrinkage and other factors. Store managers have an average of 15 years of retail experience. Store managers report to one of two regional managers. All superstores 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 superstore's assistant managers and department heads. Full-function tailoring facilities are located at each superstore 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 on average within one week or when the customer needs the garment. Because the Company 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 superstore based on local conditions. The Company's new concept stores average approximately 6,500 gross square feet. These stores are located within regional shopping malls. Approximately 80% 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. The Company believes that these locations will generate greater traffic than its existing locations while requiring significantly less square footage and therefore less inventory investment. These stores connect with the impulse buyer, attracting the shopper through powerful front of store presentations to attract the customer. Merchandise assortment in these stores is more defined due to smaller square footage, and targets men's "dress requirement" needs that are not usually met by other retailers. The Company attempts to arrange its merchandise to provide an appealing, updated, vibrant, easy to shop environment, and regularly monitors its product layouts in an attempt to attract the impulse buyer and to maximize sales per square foot. The Company staffs each of these stores with trained personnel supported by an efficient checkout system and in most locations a mini-tailoring facility to meet the demands of customers. 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 with assistance from sales associates who suggest outfits, help with locating sizes and with the coordination of 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 mall store relative to the planned performance. 7 Each of these stores 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 two regional managers. All of these stores have an average of three full-time and - from five to seven part-time associates that operate as sales associates with cashier and fitting responsibilities. Most of the Company's associates have prior retail experience. Additional training is provided on the job by the store's management. Mini-functioning tailoring facilities are located at most of these stores and are typically staffed by one part time fitter - tailor that provide the same level of service as a full functioning superstore. As part of the Today's Man efficient shopping experience, the Company seeks to provide professional alterations on average within one week or when the customer needs the garment. Because the Company 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 of these stores based on local conditions. Purchasing The Company purchases a significant portion of its merchandise in large volumes through preplanned buying programs. The Company also makes opportunistic purchases that come about in the marketplace from time to time. Both programs allow the Company to consistently offer a broad and deep selection of current-season, moderate-to-better designer, branded and 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 162 domestic and overseas manufacturers and suppliers during fiscal 2001. During the year, the top ten vendors by dollar volume accounted for approximately 58% 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 2001, approximately 33% 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 over the years on developing good relationships with many of its vendors. The Company purchased approximately 3.6 million units of merchandise in fiscal 2001. The majority of this merchandise is produced by manufacturers who partner with the Company. A portion of the product is produced on a direct basis with manufacturers from around the world. The Company also purchases a portion of this inventory opportunistically from manufacturers existing inventories. The Company believes by balancing its buying in this manner, there is a minimizing of risk and an upside on inventory management and uniqueness of product. 8 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. 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 once or twice a week by the Company's trucks. Merchandise is usually shipped to the stores ready for immediate placement on the selling floor. Management Information and 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 nine-person MIS group, including one programmer. 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 database system tracks merchandise from order through sale, comparing actual to planned results and highlighting areas requiring management attention. The 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 85% 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 2, 2002, approximately 550,000 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. 9 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 2, 2002, the Company had 550 full-time and 390 part-time associates. The Company also employs additional part-time 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. 10 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 Germantown, Maryland store in fiscal 2001. 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 Franklin Mills Mall, Philadelphia, PA 9,100 2001 Hamilton Mall, Mays Landing, NJ 5,100 2001 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 (3) 18,000 1999 Towson, MD (2) 25,700 1999 Arundel Mills Mall, Hanover, MD 8,700 2001 Lake Forest Mall, Gaithersburg, MD 5,200 2001 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 Woodbridge, NJ 27,100 1993 Manhattan (Sixth Avenue), NY 28,100 1994 Hartsdale, NY 26,600 1994 Manhattan (Fifth Avenue), NY 27,200 1995 Palisades Center Mall, West Nyack, NY 4,500 2001 Broadway Mall, Hicksville, NY 6,100 2001 (1) Leased from Mr. David Feld. See Item 13. "Certain Relationships and Related Transactions." (2) Closed in fiscal 2000. (3) Closed in fiscal 2001. 11 The Company leases all of its stores and anticipates that it will continue to do so. Unexpired lease terms range from three months to 28 years assuming the exercise of options to renew in certain cases. Approximately one-half of the leases 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. Item 4. Submission of Matters to a Vote of Security Holders None. Item 4.1. Certain Executive Officers of the Registrant who are also not Directors Set forth below is certain information concerning the executive officers of the Company who are also not directors.
Name Age Position ---- --- -------- Frank E. Johnson 52 Executive Vice President and Chief Financial Officer Mycal Webster 52 Executive Vice President, Store Operations David J. Brown 35 Vice President, Controller and Chief Accounting Officer
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. 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. Mr. Brown joined the Company in October of 2001. Prior to joining the Company, Mr. Brown held several financial management positions for Miller & Hartman Mid Atlantic Inc., a tobacco and grocery wholesale distributor, from 1999 to 2001. Prior thereto, Mr. Brown served as Corporate Controller for Reading Entertainment Inc., a publicly held developer and operator of multiplex cinemas and entertainment centers, from 1998 to 1999. Prior thereto, Mr. Brown served nine years with Ernst & Young LLP, most recently in the position of Senior Manager. 12 PART II Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters. The Company's Common Stock formerly traded on the Nasdaq National Market under the symbol "TMAN". Effective July 20, 2000, the Company's Common Stock began trading on the OTC Bulletin Board under the symbol "TMAN.OB." 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 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 $0.33 $0.14 Second Quarter 0.40 0.13 Third Quarter 0.29 0.13 Fourth Quarter 0.35 0.14 2002 First Quarter (through April 22, 2002) $0.17 $0.13 As of April 22, 2002, the Company's Common Stock was held by approximately 1,574 holders of record. The Company does not anticipate paying any cash dividends in the foreseeable future. The Company's loan agreement prohibits the payment of cash dividends without prior consent of the lender. 13 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 ----------- 1997 1998 1999 2000 (5) 2001 ---- ---- ---- -------- ---- Statement of Operations Data: Net sales $ 203,695 $ 203,563 $ 186,038 $ 167,959 $ 127,909 Cost of goods sold 127,622 125,739 119,936 103,310 76,269 --------- --------- --------- -------- ---------- Gross profit 76,073 77,824 66,102 64,649 51,640 Selling, general and administrative expenses (1) 65,820 66,760 77,831 76,214 60,346 --------- --------- --------- -------- ---------- Income (loss) from operations 10,253 11,064 (11,729) (11,565) (8,706) Reorganization items, net 6,769 - - - - Interest expense and other income, net 7,786 3,280 1,627 2,459 1,657 --------- --------- --------- -------- ---------- (Loss) income before income taxes and extraordinary item (4,302) 7,784 (13,356) (14,024) (10,363) Income tax provision - 2,883 - - - --------- --------- --------- -------- ---------- (Loss) income before extraordinary item (4,302) 4,901 (13,356) (14,024) (10,363) Extraordinary item, net of income tax benefit - (658) - - - --------- --------- --------- -------- ---------- Net (loss) income $ (4,302) $ 4,243 (13,356) (14,024) $ (10,363) ========= ========= ========= ========= ========== (Loss) earnings per share: (Loss) income before extraordinary item $ (0.39) $ 0.18 $ (0.49) $ (0.52) $ (0.38) Extraordinary item, net - (0.02) - - - --------- --------- --------- -------- ---------- (Loss) earnings per share $ (0.39) $ 0.16 $ (0.49) $ (0.52) $ (0.38) ========= ========= ========= ========= ========== Weighted average shares outstanding 11,063 27,013 27,041 27,041 27,041 (Loss) earnings per share assuming dilution: (Loss) income before extraordinary item $ (0.39) $ 0.18 $ (0.49) $ (0.52) $ (0.38) Extraordinary item, net - (0.02) - - - --------- --------- --------- -------- ---------- (Loss) earnings per share assuming dilution $ (0.39) $ 0.16 $ (0.49) $ (0.52) $ (0.38) ========= ========= ========= ========= ========== Weighted average shares assuming dilution 11,063 27,013 27,041 27,041 27,041 Balance Sheet Data (at end of period): Working capital (deficit) $ 26,292 $ 22,982 $ 7,355 $ (1,193) $ (3,921) Total assets 87,164 78,974 80,653 65,580 54,931 Long-term debt and capitalized leases 14,432 1,038 1,338 937 714 Liabilities subject to settlement 8,988 - - - - Shareholders' equity 46,800 52,694 39,401 25,377 15,014 Operating Data: Net sales per square foot of selling space (2) $ 451 $ 450 $ 402 $ 349 $ 289 Increase (decrease) in comparable store sales (3) 7.0% (0.3)% (10.7)% (10.6)% (19.3)% Average sales per store (in thousands) (4) $ 8,566 $ 8,544 $ 7,633 $ 6,577 $ 5,100 Number of stores: Open at beginning of period 25 25 25 29 25 Opened during period - - 4 - 6 Closed during period - - - 4 1 Open at end of period 25 25 29 25 30
14 --------------- (1) Includes buying and occupancy expenses. (2) Calculated using sales generated from stores 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) Stores 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. (4) Average sales per store include sales from stores open for the entire year divided by the number of stores open for the entire period. (5) Fiscal year 2000 included fifty-three weeks. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and accompanying notes appearing elsewhere in this report. As used herein, the terms "Fiscal 2001," "Fiscal 2000," and "Fiscal 1999" refer to our fiscal years ended February 2, 2002, February 3, 2001, and January 29, 2000, respectively. Fiscal 2000 consisted of 53 weeks, while Fiscal 2001 and Fiscal 1999 each consisted of 52 weeks. FORWARD-LOOKING STATEMENTS With the exception of historical information, the matters contained in the following analysis and elsewhere in this report are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, but are not limited to, projections of revenues, income or loss, and capital expenditures, plans for future operations, and financing needs or plans, as well as assumptions relating to the foregoing. The words "expect," "project," "estimate," "predict," "anticipate," "believes," and similar expressions are also intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results, performance, and achievements could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. We assume no obligation to update any forward-looking statement to reflect actual results or changes in or additions to the factors affecting such forward-looking statements. 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 ----------- 1999 2000 2001 ---- ---- ---- Net sales 100.0% 100.0% 100.0% Cost of goods sold 64.5 61.5 59.6 ------ ------ ----- Gross profit 35.5 38.5 40.4 Selling, general and administrative expenses 41.8 45.3 47.2 ------ ------ ----- Loss from operations (6.3) (6.8) (6.8) Interest expense and other expense, net .9 1.5 1.3 ------ ------ ----- Loss before income taxes (7.2) (8.3) (8.1) Income tax provision - - - ------ ------ ----- Net loss (7.2)% (8.3)% (8.1)% ====== ====== =====
15 Fiscal Years 2001 and 2000 Net Sales. Net sales were $127,909,100 in fiscal 2001, a decrease of $40,049,900 or 23.8% from net sales of $167,959,000 in fiscal 2000. Fiscal 2001 consisted of fifty-two weeks as compared to fifty-three weeks during the prior year. Comparable store sales decreased 19.3% versus fiscal 2000. Additionally, sales decreased 5.4% related to the closing of four stores during the fourth quarter of fiscal 2000, and one store in the third quarter of 2001, partially offset by sales from six new concept stores opened during the fourth quarter of fiscal 2001. The Company operated 25 and 30 stores at February 3, 2001 and February 2, 2002, respectively. Gross Profit. Gross profit as a percentage of net sales increased to 40.4% in fiscal 2001 from 38.5% in fiscal 2000. The increase in the gross profit percentage was a result of the Company's strategy in fiscal 2001 of higher initial mark-ups on its inventory purchases offset by an increase in markdowns as a percentage of sales. Selling, General and Administrative Expenses. Selling, general and administrative expenses, which include pre-opening expenses of new stores, decreased 20.8% or $15,868,800 from $76,214,500 in fiscal 2000 to $60,345,700 in fiscal 2001. As a percentage of net sales, selling, general and administrative expenses increased from 45.3% in fiscal 2000 to 47.2% in fiscal 2001. The dollar decrease in expenses was primarily due to a decrease in advertising expenses of $4,701,200 as well as a $5,530,700 reduction in expenses related to store payroll, credit card related expenses, merchandise department expenses, internet expenses and a reduction in depreciation expense. The decrease in expenses reflects the Company's continuing efforts to return to profitability by structuring its operating costs consistent with its revenue stream. Additionally, fiscal 2000 included $6,287,300 in fixed asset write-offs 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 and employee severance costs related to store and corporate staff reductions as compared to $1,545,700 incurred in fiscal 2001 for fixed asset write-offs and lease termination costs related to the closing of the Germantown, Maryland location and two locations to be closed in fiscal 2002 and employee severance costs related to store and corporate staff reductions. During fiscal 2001, the Company paid $3,558,900 related to these charges and at February 2, 2002, $1,350,800 of these charges have not yet been paid and are reported in accrued expenses and other current liabilities. These amounts are expected to be paid during fiscal 2002. The Company believes that by proactively closing these underperforming stores it has been able to redeploy its inventory investment in order to generate potentially higher inventory turns. Additionally, the Company believes that these closings were essential to redeploy its resources towards the opening of the new concept stores. Interest Expense, Interest Income and Other (Income) Expense, Net. Interest expense, interest income and other (income) expense, net decreased by $802,000 in fiscal 2001 from fiscal 2000. The decrease in interest expense was attributable to the decrease in the interest rate charged (5.88% as of February 2, 2002 versus 9.25% as of February 3, 2001) on average borrowings of $18,179,000 in fiscal 2001 versus average borrowings of $22,446,800 in fiscal 2000 under the Company's Amended Loan and Security Agreement with LaSalle Bank. Income Tax Expense. The Company had a net loss in fiscal 2001 and fiscal 2000 and, therefore, recorded no tax provision. 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 stores 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. 16 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 fixed asset write-offs 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. Liquidity and Capital Resources Company Performance and its Lending Institution Relationship Since the Company emerged from bankruptcy on December 31, 1997, it has sustained significant declines in sales and has experienced aggregate net losses of approximately $37,000,000. During the same period, the Company's working capital has declined and debt has increased. The decline in sales and resulting decline in working capital and increase in debt are due in part to a decrease in traffic and therefore a decrease in comparable store sales in four out of the last five fiscal years. Another contributing factor to the decrease in sales and working capital and the increase in debt is the fact that the Company closed five under performing stores over the last two fiscal years and has recorded charges of $7,833,000 related to the store closings. The Company has successfully negotiated settlements with the landlords on all but two of the leases. The Company expects to settle the remaining leases in fiscal 2002. Additionally, the Company has taken steps to right size the business such as to reduce its operating expenses and inventory levels to be in line with the current revenue stream. Further, the Company opened six new concept stores in fiscal 2001. Each store is located in a suburban shopping mall within the Company's existing footprint. The Company believes that these locations will generate greater traffic than its existing locations while requiring significantly less square footage and therefore less inventory investment. The Company also believes that, to the extent the concept stores are located in a regional shopping mall, they will experience less competition from other menswear retailers. The Company plans to open additional new concept locations in fiscal 2002 and beyond. The Company may also open additional superstores in the future if the demographics and economics work for a location(s). 17 Despite its efforts, the Company has required assistance from its lending institution to sustain its operations. In order to address liquidity needs or remain in compliance with the credit facility, which currently expires on February 2, 2004, the Company and the lending institution have entered into 13 amendments or modifications since its inception on December 4, 1998. The Company's credit facility has covenants requiring, amongst other things, minimum tangible net worth levels, net income/net loss levels, fixed charge coverage ratios, daily application of Company receipts as payments against the credit facility and daily borrowings to fund cash requirements. Additionally, as not uncommon for asset based lending agreements, the Company's credit facility gives the lending institution the ability to declare an event of default, and thus render the loan immediately due and payable, based upon the lending institution's own determination of a "material adverse change". If this were to occur, the Company would not be able to repay the loan in full. The indebtedness is secured by virtually all the Company's assets, including its inventory. In the event of default, the lender would be able to take possession of such assets and sell them to payoff the loan. The Company has sought, but has not obtained, other sources of financing and has explored other efforts to improve its capital structure. The Company's ability to execute on its new business strategy, continue to improve operations, improve its capital structure and maintain its working relationship with the lending institution are all pivotal to the Company's ability to sustain operations. The Company's primary sources of working capital (deficit) are cash flow from operations and borrowings under the revolving credit facility. The Company had working capital (deficit) of $7,354,600, $(1,193,200) and $(3,921,400) at the end of fiscal 1999, 2000 and 2001, 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 2.52 times, 2.39, and 2.20 times in fiscal 1999, 2000 and 2001, respectively. Net cash (used in) provided by operating activities amounted to ($7,441,200), $3,774,500, and $62,500 in fiscal 1999, 2000 and 2001, 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 $5,909,700, $847,300, and $381,000 in fiscal 1999, 2000 and 2001, respectively. The decrease in fiscal 2001 from 2000 was primarily due to a decrease in capital expenditures in fiscal 2001. Net cash provided by (used in) financing activities amounted to $12,562,500, ($2,839,700), and ($122,200) in fiscal 1999, 2000 and 2001, respectively, and consists primarily of borrowings, net of repayments, under the Company's revolving credit facility. The Company is party to a Loan and Security Agreement with LaSalle Bank, N.A. (successor to Mellon Bank, N.A.), individually and as agent. As of February 2, 2002, the Loan and Security Agreement, as amended, provided for a $25.0 million revolving credit facility with a $5.0 million sublimit for letters of credit. Outstanding letters of credit at February 2, 2002 were $1,048,000. As of February 2, 2002, the facility bore interest at 1.125% per annum above LaSalle's base rate and expired on February 3, 2003. 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 $1,064,300 as of February 2, 2002. The 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 LaSalle 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. 18 On February 27, 2002, the Company and LaSalle entered into Amendment 12 to the revolving credit facility. The amended agreement extends the expiration date of the revolving credit facility to February 2, 2004. The amended agreement recast all of the Company's financial covenants as of and for the year ended February 2, 2002 such that the Company would be in compliance with these financial covenants. The amendment also sets the covenants for the remaining term of the loan agreement. The Company was in compliance with all covenants under the amended Agreement as of February 2, 2002. The agreement also amended the over-advance facility. The permitted out-of-formula advances may not exceed $3,500,000 from February 27, 2002 to May 30, 2002. The over-advance facility is then reduced to $3,000,000 on May 31, 2002, $2,750,000 on June 30, 2002, increases to $3,500,000 on July 31, 2002, reduces to $3,000,000 on September 30, 2002, $2,500,000 on November 30, 2002, $1,750,000 on December 15, 2002 and expires on December 31, 2002. The amendment also reduces the outstanding revolving credit facility usage (including the permitted out-of-formula advances) to $23,000,000. The amendment also effectively changes the interest charged on the facility to 1.25% per annum above LaSalle's base rate. The Company must pay a termination fee of $1,050,000 if the facility is terminated on or before February 2, 2004. On April 25, 2002, the Company and LaSalle Bank entered into Amendment 13 to the revolving credit facility. The amended agreement recast all of the Company's financial covenants. In fiscal 2001, the Company closed its Germantown, Maryland location. In addition, the Company intends to close two locations in 2002. The Company incurred a charge to operations in fiscal 2001 of approximately $1.5 million for the write-off of furniture and fixtures and the accrual of lease termination costs for these three underperforming stores. This charge is included in selling, general and administrative expenses in the accompanying consolidated statement of operations. In fiscal 2001, the Company opened six retail store locations in the following shopping mall locations: Franklin Mills Mall, Philadelphia, Pennsylvania; Hamilton Mall, Mays Landing, New Jersey; Arundel Mills Mall, Hanover, Maryland; Lake Forest Mall, Gaithersburg, Maryland; Palisades Mall, West Nyack, New York and the Broadway Mall in Hicksville, New York. These stores have lease terms ranging from three to 15 months and square footage ranging from 4,500 square feet to 9,100 square feet. The capital requirements associated with these store openings are considered immaterial. The Company has been substantially dependent upon borrowings under its credit facility to finance its operations and received an amended credit facility from LaSalle in February 2002, which allows the Company additional liquidity through an over-advance facility through December 31, 2002 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 2002 include the execution of the amended credit facility, the opening of additional new concept stores, a layoff of non-operating personnel in January 2002, the closing of one under-performing store in fiscal 2001, and the anticipated closing of two underperforming stores in fiscal 2002. Management believes the Company's cash requirements in 2002 will be generated by operations and borrowings under the Company's credit facility. Management also believes that the actions initiated and its 2002 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. 19 Critical Accounting Policies The financial statements and accompanying notes included under Item 8 have been prepared in conformity with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company's management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management evaluates such estimates and assumptions on an ongoing basis. Such estimates and assumptions are based on historical experience, analysis of current trends, and various other factors that management believes to be reasonable under the circumstances. Actual results could differ from those estimates under different assumptions or conditions. Management believes that the Company's application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates are constantly reevaluated, and adjustments are made when facts and circumstances dictate a change. Historically, management has found the Company's application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates. The Company's significant accounting policies are described in the notes accompanying the financial statements included under Item. 8. Management considers the following accounting policies to be more critical to the preparation of the financial statements and accompanying notes. Inventories Merchandise inventories are valued at the lower of cost or market as determined by the retail method (average cost basis). Under the retail inventory method ("RIM"), the valuation of inventories at cost and the resulting gross margins are determined by applying a calculated cost-to-retail ratio to the retail value of inventories. RIM is an average method that has been widely used in the retail industry due to its practicality. Also, it is recognized that the use of the retail inventory method will result in valuing inventories at lower of cost or market if markdowns are currently taken as a reduction of the retail value of inventories. Inherent in the RIM calculation are certain significant management judgments and estimates including, among others, merchandise markon, markup, markdowns and shrinkage, which significantly impact the ending inventory valuation at cost as well as resulting gross margins. These significant estimates, coupled with the fact that the RIM is an averaging process, can, under certain circumstances, produce distorted or inaccurate cost figures. Consequently, future events such as store closings, liquidations, and the general economic environment for retail apparel sales could result in an increase in the level of markdowns, which could result in lower inventory values and increases to cost of sales in future periods. In addition, failure to take markdowns currently can result in an overstatement of cost under the lower of cost or market principle. Management believes that the Company's RIM provides an inventory valuation which reasonably approximates cost and results in carrying inventory at the lower of cost or market. Store Closing Provision The Company provides a provision for store closings when the decision to close a store is made. The provision consists of incremental costs which are expected to be incurred including future net lease obligations, fixed asset write-offs, employee costs and other obligations as a result of the Company's actions. Although management does not anticipate significant changes, the actual costs may differ from these estimates. 20 Revenue Recognition Revenues from merchandise sales are recognized at the point of sale and are recorded net of actual returns and exclude sales tax. The Company adopted the provisions of Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No. 101 ("SAB 10"), "Revenue Recognition in Financial Statements," effective as of the beginning of Fiscal 2000. As a result of adoption of SAB 101, 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. Recent Accounting Pronouncements In August 2001, the Financial Accounting Standards Board issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121." Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for a "Disposal of a Segment of a Business." FAS 144 is effective for fiscal years beginning after December 15, 2001. The Company will adopt FAS 144 as of February 3, 2002 and it has not determined the effect, if any, the adoption of FAS 144 will have on the Company's financial position and results of operations. 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, prior to the quasi-reorganization, 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 at the time the Company emerged from bankruptcy. 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. 21 The following table sets forth certain unaudited quarterly results of operations for fiscal 2001 and 2000.
Thirteen Weeks Ended --------------------- May 5, August 4, November 3, February 2, Fiscal 2001: 2001 2001 2001(1) 2002(2) ------------ ----------- ---------- ---------- (In thousands, except per share amounts) Net sales $ 31,565 $ 34,916 $ 25,908 $ 35,520 Cost of goods sold 18,722 20,791 14,568 22,188 ------------ ----------- ---------- ---------- Gross profit 12,843 14,125 11,340 13,332 Selling, general and administrative Expenses 14,629 16,531 13,634 15,552 ------------ ----------- ---------- ---------- Loss from operations (1,786) (2,406) (2,294) (2,220)) Interest expense and other (income) expense, net 417 354 374 512 ------------ ----------- ---------- ---------- Loss before income taxes (2,203) (2,760) (2,667) (2,733) Income tax provision - - - - ------------ ----------- ---------- ---------- Net loss $ (2,203) $ (2,760) $ (2,667) $ (2,733) ============ =========== ========== ========== Basic and diluted earnings (loss) per share: $ (0.08) $ (0.10) $ (0.10) $ (0.10) ============ =========== ========== ========== Weighted average shares outstanding 27,041 27,041 27,041 27,041 Thirteen Weeks Ended -------------------- April 29, July 29, October 28, February 3, Fiscal 2000: 2000(3) 2000 2000 2001(4) ------------ ----------- ---------- ---------- (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
(1) Thirteen weeks ended November 3, 2001 includes $465,700 related to store closing costs and other unusual charges. (2) Thirteen weeks ended February 2, 2002 includes $1,080,100 related to store closing costs and other unusual charges. (3) Thirteen weeks ended April 29, 2000 includes $3,987,600 related to store closing costs and other unusual charges. (4) Fourteen weeks ended February 3, 2001 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 2001 and fiscal 2000 because the impact of common share equivalents is anti-dilutive. 22 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 2001, 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 200 basis point 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 2002 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 2002 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 2002 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 2002 Annual Meeting of Shareholders to be filed pursuant to General Instruction G(3) to Form 10-K. 23 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 February 3, 2001 and February 2, 2002 Consolidated Statements of Operations for the fiscal years ended January 29, 2000, February 3, 2001 and February 2, 2002 Consolidated Statements of Shareholders' Equity for the fiscal years ended January 29, 2000, February 3, 2001 and February 2, 2002 Consolidated Statements of Cash Flows for the fiscal years ended January 29, 2000, February 3, 2001 and February 2, 2002 Notes to Consolidated Financial Statements The Report of Independent Auditors on 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, the required information is not applicable, 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 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
24
Exhibit No. Description ---------- ------------ 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(14) Eighth Amendment to Loan and Security Agreement with Mellon Bank, N.A. 10.26(15) Ninth Amendment to Loan and Security Agreement with LaSalle Bank, N.A. 10.27(16) Tenth Amendment to Loan and Security Agreement with LaSalle Bank, N.A.
25
Exhibit No. Description ---------- ------------ 10.28(16) Eleventh Amendment to Loan and Security Agreement with LaSalle Bank, N.A. 10.29 Twelfth Amendment to Loan and Security Agreement with LaSalle Bank, N.A. 10.30 Third Amendment to License Agreement between the Company and LFD Today, Inc. 10.31 Consulting Agreement between the Company and Neal J. Fox 10.32 Thirteenth Amendment to Loan and Security Agreement with LaSalle Bank, N.A. 21.1(5) Subsidiaries of the Registrant 23.1 Consent of Ernst & Young LLP
(b) Reports on Form 8-K None ------------- (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 February 3, 2001(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). (14) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended February 3, 2001(Commission File No. 0-20234). (15) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended August 4, 2001 (Commission File No. 0-20234). (16) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended November 3, 2001 (Commission File No. 0-20234). 26 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 20, 2002. 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 20, 2002 ----------------------------- David Feld /s/Bruce Weitz President and Chief Executive Officer May 20, 2002 ----------------------------- (principal executive officer) Bruce Weitz /s/ Frank E. Johnson Executive Vice President, Treasurer and May 20, 2002 ----------------------------- Chief Financial Officer Frank E. Johnson /s/ Larry Feld Vice President, Secretary and Director May 20, 2002 ----------------------------- Larry Feld /s/David J. Brown Vice President, Controller and Chief May 20, 2002 ----------------------------- Accounting Officer David J. Brown /s/ Leonard Wasserman Director May 20, 2002 ----------------------------- Leonard Wasserman /s/ Verna K. Gibson Director May 20, 2002 ----------------------------- Verna K. Gibson /s/ Eli Katz Director May 20, 2002 ----------------------------- Eli Katz /s/ Neal J. Fox Director May 20, 2002 ----------------------------- Neal J. Fox
27 TODAY'S MAN, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Independent Auditors....................................................................F-2 Consolidated Balance Sheets as of February 3, 2001 and February 2, 2002...........................F-3 Consolidated Statements of Operations for the fiscal years ended January 29, 2000, February 3, 2001 and February 2, 2002......................................F-4 Consolidated Statements of Shareholders' Equity for the fiscal years ended January 29, 2000, February 3, 2001 and February 2, 2002......................................F-5 Consolidated Statements of Cash Flows for the fiscal years ended January 29, 2000, February 3, 2001 and February 2, 2002......................................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 2, 2002 and February 3, 2001, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three fiscal years in the period ended February 2, 2002. 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 2, 2002 and February 3, 2001, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended February 2, 2002, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Philadelphia, Pennsylvania March 29, 2002, except for Note 6, as to which the date is April 25, 2002 F-2 TODAY'S MAN, INC. CONSOLIDATED BALANCE SHEETS
February 3, February 2, 2001 2002 ---- ---- ASSETS Current assets: Cash $ 480,200 $ 39,500 Due from credit card companies and other receivables, net of allowance for uncollectible accounts of $17,200 and $29,700 1,576,000 1,332,400 Inventory 30,941,100 27,258,800 Prepaid expenses and other current assets 1,024,700 958,100 Prepaid inventory purchases 1,589,300 238,200 ------------ ------------ Total current assets 35,611,300 29,827,000 Property and equipment, less accumulated depreciation and amortization 27,976,100 23,845,900 Rental deposits and other noncurrent assets 1,992,300 1,258,000 ------------ ------------ $ 65,579,700 $ 54,930,900 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable 11,555,500 13,748,900 Accrued expenses and other current liabilities 6,318,900 3,938,300 Current maturities of capital lease obligations 224,100 253,200 Obligation under revolving credit facility 18,706,000 15,808,000 ------------ ------------ Total current liabilities 36,804,500 33,748,400 Capital lease obligations, less current maturities 713,500 460,200 Deferred rent and other 2,684,800 5,708,100 ------------ ------------ 40,202,800 39,916,700 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 Retained earnings (deficit) (23,136,800) (33,499,500) ------------ ------------ Total shareholders' equity 25,376,900 15,014,200 ------------ ------------ $ 65,579,700 $ 54,930,900 ============ ============
See accompanying notes. F-3 TODAY'S MAN, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
For the Fiscal Years Ended --------------------------- January 29, February 3, February 2, 2000 2001 2002 ---- ---- ---- (52 weeks) (53 weeks) (52 weeks) ------------- ------------ ----------- Net sales $186,038,400 $167,959,000 $127,909,100 Cost of goods sold 119,936,900 103,309,500 76,268,900 ------------ ------------ ------------ Gross profit 66,101,500 64,649,500 51,640,200 Selling, general and administrative expenses (includes $6,287,300 and $1,545,700 in asset impairment charges and lease termination costs in fiscal 2000 and fiscal 2001, respectively) 77,830,600 76,214,500 60,345,700 ------------ ------------ ------------ Loss from operations (11,729,100) (11,565,000) (8,705,500) Interest expense 1,606,400 2,534,300 1,604,900 Other expense (income), net 20,200 (75,100) 52,300 ------------ ------------ ------------ Loss before income taxes (13,355,700) (14,024,200) (10,362,700) Provision for income taxes - - - ------------ ------------ ------------ Net loss $ 13,355,700) $(14,024,200) $(10,362,700) ============ ------------ ------------ Basic and diluted loss share $ (0.49) $ (0.52) $ (0.38) ============ ============ ============ Weighted average shares outstanding 27,040,628 27,040,725 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, 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) Net loss - - (10,362,700) ---------- ----------- ------------- Balances at February 2, 2002 27,040,725 $48,513,700 $(33,499,500) ========== =========== ============
See accompanying notes. F-5 TODAY'S MAN, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended --------------------------------- January 29, February 3, February 2, 2000 2001 2002 ---- ---- ---- Operating activities: Net loss $(13,355,700) $(14,024,200) $(10,362,700) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation expense 3,537,900 3,909,700 3,694,300 Amortization expense 949,000 1,756,800 1,852,900 Write-off of fixed assets - 2,553,700 243,800 Provision for uncollectible accounts receivable (34,300) (10,000) 12,500 Reserve of loans to shareholders - 228,400 - Deferred rent and other (1,404,800) (660,400) 23,300 Changes in operating assets and liabilities: (Increase) decrease in receivables (123,300) 126,900 231,100 (Increase) decrease in inventory (4,698,100) 8,393,600 3,682,300 Decrease in prepaid expenses 4,038,400 290,000 1,417,700 Increase (decrease) in payables and accrued expenses 3,876,400 2,451,400 (187,200) Increase in other noncurrent assets (226,700) (1,241,400) (545,500) Total adjustments 5,914,500 17,798,700 10,425,200 -------------- ------------ ------------ Net cash (used in)provided by operating activities (7,441,200) 3,774,500 62,500 Investing activities: Capital expenditures (5,841,500) (847,300) (381,000) Fixtures and equipment in process (68,200) - - -------------- ------------ ------------- Net cash used in investing activities (5,909,700) (847,300) (381,000) Financing activities: Repayment of capital leases 300,600 (400,600) (224,200) Advance from landlord - - 3,000,000 Proceeds from exercise of stock options and common stock purchase warrants 62,500 - - Borrowings under revolving credit facility 180,809,800 156,493,800 119,010,600 Repayments of term loan and revolving credit facility (168,610,400) 158,932,900) (121,908,600) -------------- ------------ ------------ Net cash provided by (used in) financing 12,562,500 (2,839,700) (122,200) Net (decrease) increase in cash (788,400) 87,500 (440,700) Cash at beginning of year 1,181,100 392,700 480,200 -------------- ------------ ------------ Cash at end of year $392,700 $480,200 $39,500 ============== ============ ============
See accompanying notes. F-6 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Company Performance and its Lending Institution Relationship Since the Company emerged from bankruptcy on December 31, 1997, it has sustained significant declines in sales and has experienced aggregate net losses of approximately $37,000,000. During the same period, the Company's working capital has declined and debt has increased. The decline in sales and resulting decline in working capital and increase in debt are due in part to a decrease in traffic and therefore a decrease in comparable store sales in four out of the last five fiscal years. Another contributing factor to the decrease in sales and working capital and the increase in debt is the fact that the Company closed five under performing stores over the last two fiscal years and has recorded charges of $7,833,000 related to the store closings. The Company has negotiated settlements with the landlords on all but two of the leases. The Company expects to settle the remaining leases in fiscal 2002. Additionally, the Company has taken steps to right size the business such as to reduce its operating expenses (including a layoff of personnel in January 2002) and inventory levels to be in line with the current revenue stream. Further, the Company opened six new concept stores in fiscal 2001. Each store is located in a suburban shopping mall within the Company's existing footprint. The Company anticipates that these locations will generate greater traffic than its existing locations as well as, to the extent the concept stores are located in a regional shopping mall, less competition from other menswear retailers while requiring significantly less square footage and therefore less inventory investment. The Company plans to open additional new concept locations in fiscal 2002 and beyond. The Company may also open additional superstores in the future if the demographics and economics work for a location(s). The Company also has a new management team working on executing this plan. Despite its efforts, the Company has required assistance from its lending institution to sustain its operations. In order to address liquidity needs or remain in compliance with the credit facility, which currently expires on February 2, 2004, the Company and the lending institution have entered into thirteen amendments or modification since its inception on December 4, 1998. The Company's credit facility has covenants requiring, amongst other things, minimum tangible net worth levels, net income/net loss levels, and fixed charge coverage ratios, daily application of Company receipts as payments against the credit facility and daily borrowings to fund cash requirements. Additionally, the Company's credit facility gives the lending institution the ability to declare an event of default, and thus render the loan immediately due and payable, based upon the lending institutions' own determination of a "material adverse change". If this were to occur, the Company would not be able to repay the loan in full. The indebtedness is secured by virtually all the Company's assets, including its inventory. In the event of a default, the lender would be able to take possession of such assets and sell them to pay off the loan. The Company has sought, but has not obtained, other sources of financing and has explored other efforts to improve its capital structure. The Company's ability to execute on its new business strategy, continue to improve operations, improve its capital structure and maintain its working relationship with the lending institution are all pivotal to the Company's ability to sustain operations. 2. 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. F-7 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. 3. Description of Business and Significant Accounting Policies Description of Business The Company operates menswear stores specializing in tailored clothing, furnishings and accessories and sportswear. The Company also offers footwear through licensed shoe departments. The stores 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, prior to the quasi-reorganization, 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 at the time the Company emerged from bankruptcy. 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-8 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. Cash and Cash Equivalents 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 February 3, 2001 and February 2, 2002. Fair Values of Financial Instruments The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of their short-term nature. The carrying amount of long-term debt approximates its fair value because the interest rate is reflective of rates that the Company could currently obtain on debt with similar terms and conditions. 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 $17,671,500, $12,561,600, and $7,860,400 for the fiscal years 1999, 2000, and 2001, respectively. F-9 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Revenue Recognition Revenues from merchandise sales are recognized at the point of sale and are recorded net of actual returns and exclude sales tax. 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, fixed asset write-offs, 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. Recent Accounting Pronouncements In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (FAS 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for a "Disposal of a Segment of a Business." FAS 144 is effective for fiscal years beginning after December 15, 2001. The Company will adopt FAS 144 as of February 3, 2002 and it has not determined the effect, if any, the adoption of FAS 144 will have on the Company's financial position and results of operations. F-10 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. Property and Equipment Property and equipment is summarized as follows:
February 3, February 2, 2001 2002 ---- ---- Furniture, fixtures and signs $ 6,949,500 $ 6,831,600 Leasehold improvements 30,755,400 28,586,600 Data processing equipment 7,733,700 7,394,700 Fixtures and equipment under capital leases 7,103,500 7,120,000 Fixtures and equipment in process 61,200 50,000 ------------ ------------ Gross property and equipment 52,603,300 49,982,900 Accumulated depreciation (19,780,700) (20,701,000) Accumulated amortization of equipment under capital leases (4,846,500) (5,436,000) ------------ ------------ Net property and equipment $ 27,976,100 $ 23,845,900 ============ ============
Property and equipment accounts and their associated accumulated depreciation accounts are reduced to "0" when the asset's useful life has expired. Depreciation and amortization expense related to property and equipment was $4,339,400, $4,552,800, and $4,267,400 for fiscal years 1999, 2000 and 2001, 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. 5. Related Party Transactions Certain of the Company's stores 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 $1,817,300, $1,615,600, and $1,263,400 for the fiscal years ended January 29, 2000, February 3, 2001, and February 2, 2002, respectively. Included in the schedule of operating lease commitments in Note 7 are required payments on leases with Mr. David Feld for the Company's principal offices and distribution center as well as certain stores, totaling $1,376,200 for each of the next five years and $4,495,000 thereafter. Certain of the leases require increasing payments based upon changes in the Consumer Price Index. F-11 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. Debt As more completely described in Note 2, 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. The Company is party to a Loan and Security Agreement with LaSalle Bank, N.A. (successor to Mellon Bank, N.A.), individually and as agent. As of February 2, 2002, the Loan and Security Agreement, as amended, provided for a $25.0 million revolving credit facility with a $5.0 million sublimit for letters of credit. Outstanding letters of credit at February 2, 2002 were $1,048,000. As of February 2, 2002, the facility bore interest at 1.125% per annum above LaSalle Bank's base rate (LaSalle Bank's base rate was 4.75% at February 2, 2002) and expired on February 3, 2003. 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 $1,064,300 as of February 2, 2002. The agreement also provides for an over-advance facility. The Loan and Security Agreement has covenants requiring amongst other things minimum tangible net worth levels, net income/net loss levels, fixed charge covenants ratios daily application of Company receipts as payments against the credit facility and daily borrowings to fund cash requirements. Additionally the Company's credit facility gives the lending institution the ability to declare an event of default and thus render the loan immediately due and payable, based upon the lending institution's own determination of a "material adverse change". If this were to occur, the Company would not be able to repay the loan in full. The Company has sought, but has not obtained, other sources of financing and has explored other efforts to improve its capital structure. The Company's ability to execute on its new business strategy, continue to improve operations, improve its capital structure and maintain its working relationship with the lending institution are all pivotal to the Company's ability to sustain operations. The Company granted LaSalle Bank, N.A. 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. On February 27, 2002, the Company and LaSalle Bank entered into Amendment 12 to the revolving credit facility. The amended agreement extends the expiration date of the revolving credit facility to February 2, 2004. The amended agreement recast all of the Company's financial covenants as of and for the year ended February 2, 2002 such that the Company would be in compliance with these financial covenants. The amendment also sets the covenants for the remaining term of the loan agreement. The Company was in compliance with all covenants under the amended Agreement as of February 2, 2002. The agreement also amended the over-advance facility. The permitted out-of-formula advances may not exceed $3,500,000 from February 27, 2002 to May 30, 2002. The over-advance facility is then reduced to $3,000,000 on May 31, 2002, $2,750,000 on June 30, 2002, increases to $3,500,000 on July 31, 2002, reduces to $3,000,000 on September 30, 2002, $2,500,000 on November 30, 2002, $1,750,000 on December 15, 2002 and expires on December 31, 2002. The amendment also reduces the outstanding revolving credit facility usage (including the permitted out-of-formula advances) to $23,000,000. The amendment also effectively changes the interest charged on the facility to 1.25% per annum above LaSalle's base rate. The Company must pay a termination fee of $1,050,000 if the facility is terminated on or before February 2, 2004. On April 25, 2002, the Company and LaSalle entered into Amendment 13 to the revolving credit facility. The amended Agreement recast all of the Company's financial covenants. F-12 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7. Commitments and Contingencies The Company leases its stores and distribution center under non-cancelable operating leases. Several stores and the Company's distribution center are leased from Mr. David Feld, the Company's Chairman of the Board of Directors and principal shareholder. (See Note 5.) In addition, certain equipment leases are classified as capital leases. The following is a schedule by year of the future minimum lease payments at February 2, 2002 for leases with initial terms in excess of one year:
Capital Operating Leases Leases ------------ ----------- 2002 $330,600 $14,285,400 2003 313,200 12,397,300 2004 203,100 11,572,200 2005 100 10,848,000 2006 - 9,900,400 Thereafter - 27,378,700 ----------- ----------- 847,000 $86,382,000 Total minimum lease payments =========== Less: Amounts representing interest 133,600 ----------- Present value of net minimum lease payments $713,400 ===========
Total rent expense for the fiscal years ended January 29, 2000, February 3, 2001, and February 2, 2002 was, $12,963,600, $13,329,000, and $12,427,900, respectively. The distribution center lease provides for payment by the Company 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 $2,284,800 and $5,308,200 at February 3, 2001 and February 2, 2002, 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. F-13 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. Profit Sharing Plan The Company has a profit sharing plan under Section 401(k) of the Internal Revenue Code. In fiscal 2001 the Company revised its 401K Profit Sharing Plan. The revised plan allows all eligible employees to defer up to 15% of their income on a pretax basis through contributions to the plan. Under the provisions of the plan, the Company matches a minimum of 10% of the employees' contributions. In addition to the minimum Company matching contribution of 10% of employee salary deferrals, there is an annual discretionary contribution of 10% of the employee's salary deferrals based on a formula with respect to the Company's performance. The charge to operations for Company contributions was $327,200, $329,100, and $136,700 for the years ended, January 29, 2000, February 3, 2001, and February 2, 2002, 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. 9. Supplemental Cash Flow Information
For the Fiscal Years Ended --------------------------- January 29, February 3, February 2, 2000 2001 2002 ---- ---- ---- Interest paid $1,741,800 $2,746,300 $1,568,800
10. Income Taxes A reconciliation of the effective tax rate with the statutory federal income tax rate follows:
For the Fiscal Years Ended --------------------------- January 29, February 3, February 2, 2000 2001 2002 ---- ---- ---- Statutory federal income tax rate 34.0% 34.0% 34.0% Effect of permanent differences (0.3) (0.3) (0.3) Income tax valuation allowance (33.7) (33.7) (33.7) ------ ------- ------ -% -% -% ------ ------- ------
F-14 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The components of the deferred tax assets and liabilities are as follows:
February 3, February 2, 2001 2002 ---- ---- Deferred tax assets: Accrued liabilities $ 956,000 $ 24,700 Inventory 383,300 337,700 Net operating loss carryforward 17,118,600 19,957,100 AMT credit carryforward 394,300 394,300 Leases 927,600 2,038,400 Bad debts 7,000 12,100 Other 49,700 49,700 Property and equipment, including capital leases 43,900 1,262,600 ------------- ------------ Total deferred tax assets 19,880,400 24,076,600 Less: deferred tax valuation allowance (19,582,400) (23,897,700) ------------- ------------ Net deferred tax assets 298,000 178,900 ------------- ------------ Deferred tax liabilities: Property and equipment, including capital leases - - Other 698,000 578,900 ------------- ------------ 698,000 578,900 ------------- ------------ Net deferred tax liability $ 400,000 $ 400,000 ============= ============
The valuation allowance against deferred tax assets increased by $4,315,300 in fiscal 2001 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 2000 and 2001, there is no charge in lieu of income taxes being reflected due to the post quasi-reorganization loss. As of February 2, 2002, the Company has $10,588,000 remaining of tax attributes that will be credited to additional paid in capital if realized. At February 2, 2002, the Company had available for carryforward net operating losses (for federal tax purposes) of $48,583,400 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 2, 2002, 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-15 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. Stock Option Plans Pursuant to the Plan of Reorganization: (i) the existing employee and director stock option plan and all existing options thereunder were canceled and (ii) the Management Stock Option Plan ("Management Plan") was adopted. 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 2, 2002, the Company had outstanding options to purchase an aggregate of 2,843,500 shares of Common Stock under the Management Stock Option Plan. The following summarizes activity in fiscal 1999, fiscal 2000 and fiscal 2001. Management Stock Option Plan
Number of Shares Under Exercise Price Option Per Share ----------- ------------- 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 Options issued 40,000 $0.13 - $0.23 Options cancelled (728,000) $0.20 - $2.38 --------- ------------- Outstanding at February 2, 2002 2,843,500 $0.13 - $2.38 ========= ============= Exercisable at February 2, 2002 2,500,200 $0.13 - $2.38 ========= =============
F-16 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Set forth below are the outstanding options at February 2, 2002, summarized by range of exercise price:
------------------------------------------------------------------------------------------------------------------ Range of Exercise Number Weighted Weighted Prices Outstanding Average Average Number Weighted Average Remaining Life Exercise Price Exercisable Exercise Price ------------------------------------------------------------------------------------------------------------------ $0.13 - $0.56 1,834,500 9 $0.25 1,503,000 $0.23 ------------------------------------------------------------------------------------------------------------------ $1.28 - $1.56 35,000 8 $1.41 24,000 $1.41 ------------------------------------------------------------------------------------------------------------------ $2.38 974,000 6 $2.38 973,200 $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 2, 2002, 2,156,500 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:
1999 2000 2001 ---- ---- ---- Risk-free interest rate 6.0% 5.4% 4.1% Dividend yield 0% 0% 0% Volatility factor of the expected market price of the 0.626 0.618 0.648 Company's common stock Weighted average expected life of the options 5 5 5
The weighted average fair value of options granted during the year was $0.86, $0.16, and $0.10 for the year ending January 29, 2000, February 3, 2001, and February 2, 2002, 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:
1999 2000 2001 ---- ---- ---- Pro-forma net loss $(13,810,200) $(14,165,700) $(10,689,400) Pro-forma loss per share: Basic and diluted $(0.51) $(0.52) $(0.40) ======= ======= =======
F-17 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 12. Store Closing and Other Unusual Charges For the fiscal year ended February 2, 2002, the Company recorded store closing and other unusual charges of $1,545,700, primarily related to one store closing in fiscal 2001 and two anticipated store closings in fiscal 2002 to cover estimated lease termination costs and asset impairment charges. Included in this charge is severance payments of $228,300 related to headcount reductions for 16 employees and $310,000 related to an additional reserve for lease termination costs for a store closed in the prior year. For the fiscal 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 $883,000 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. During fiscal 2001 the Company paid $3,558,900 related to these charges and at February 2, 2002, $1,350,800 of these charges have not been paid and are reported in accrued expenses and other current liabilities. These amounts are expected to be paid during fiscal 2002. F-18
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 Consultant 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 homeclick.com EXECUTIVE OFFICERS Bruce Weitz President and Chief Executive Officer 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 David J. Brown Vice President, Controller and Chief Accounting Officer