FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 1, 1999
Commission File No. 0-11682
S & K FAMOUS BRANDS, INC.
...............................................................................
(Exact name of registrant as specified in its charter)
Virginia 54-0845694
............................... ....................................
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11100 West Broad Street, P. O. Box 31800, Richmond, Virginia 23294-1800
...............................................................................
(Address of principal executive offices)
Registrant's telephone number, including area code: (804) 346-2500
....................
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes____X____ No ________
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of May 1, 1999.
4,773,433 shares of Common Stock, $0.50 par value
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
S & K FAMOUS BRANDS, INC.
Statements of Income
(in thousands, except per share amounts)
(unaudited)
<CAPTION>
Three Months Ended
------------------------------
May 1, May 2,
1999 1998
------------- -------------
<S> <C> <C>
Net sales $ 39,799 $ 37,109
Cost of sales 20,512 19,318
------------- -------------
Gross profit 19,287 17,791
Other costs and expenses:
Selling, general and administrative 16,049 14,512
Interest 215 108
Depreciation and amortization 729 651
Other, net (4) (3)
------------- -------------
Income before income taxes 2,298 2,523
Provision for income taxes 873 959
------------- -------------
Net income $ 1,425 $ 1,564
============= =============
Net income per common share:
Basic $ 0.30 $ 0.31
============= =============
Diluted $ 0.30 $ 0.30
============= =============
Weighted average common shares outstanding - basic 4,779 5,028
============= =============
Weighted average common shares outstanding including
dilutive potential common shares 4,800 5,138
============= =============
</TABLE>
See notes to financial statements.
2
<PAGE>
<TABLE>
S & K FAMOUS BRANDS, INC.
Balance Sheets
(In thousands, except per share amounts)
(unaudited)
<CAPTION>
May 1, May 2, January 30,
1999 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Assets
Current assets:
Cash $ 430 $ 411 $ 547
Accounts receivable 261 636 862
Merchandise inventories 61,122 53,282 50,779
Other current assets 3,224 2,064 3,286
-------- -------- --------
Total current assets 65,037 56,393 55,474
Property and equipment, at cost:
Land and buildings 7,229 7,174 7,229
Furniture, fixtures and equipment 14,872 13,225 14,550
Leasehold improvements 16,138 14,352 15,699
-------- -------- --------
38,239 34,751 37,478
Less: Accumulated depreciation and amortization 18,111 16,214 17,765
-------- -------- --------
20,128 18,537 19,713
Other assets 4,252 3,497 4,109
-------- -------- --------
$ 89,417 $ 78,427 $ 79,296
======== ======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt $ 180 $ 180 $ 180
Accounts payable 10,823 9,989 6,345
Accrued expenses:
Compensation-related items 1,662 1,445 1,599
Current and deferred income taxes 775 877 624
Other current liabilities 1,778 1,760 1,705
-------- -------- --------
Total current liabilities 15,218 14,251 10,453
Industrial Development Revenue Bond 1,755 1,935 1,800
Long-term debt 18,106 9,233 11,707
Deferred income taxes 1,650 1,476 1,619
Commitments
Shareholders' equity:
Preferred stock, $1 par value; authorized shares, 500;
issued and outstanding shares, none
Common stock, $.50 par value, authorized shares,
10,000; issued and outstanding shares, 4,773,
5,055 and 4,874, respectively 2,387 2,527 2,437
Capital in excess of par value 4,893 7,528 5,819
Notes receivable--Stock Purchase Loan Plan (2,599) (1,184) (1,122)
Retained earnings 48,007 42,661 46,583
-------- -------- --------
52,688 51,532 53,717
-------- -------- --------
$ 89,417 $ 78,427 $ 79,296
======== ======== ========
</TABLE>
See notes to financial statements.
3
<PAGE>
<TABLE>
S & K FAMOUS BRANDS, INC.
Statements of Cash Flows
Increase (Decrease) in Cash
(in thousands)
(unaudited)
<CAPTION>
Three Months Ended
------------------------------
May 1, May 2,
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,425 $ 1,564
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization 836 756
Loss on property dispositions, net 55 45
Other 16 22
Changes in assets and liabilities:
Accounts receivable 601 (82)
Inventories (10,343) (9,386)
Other current assets 62 1,106
Other assets (143) (97)
Accounts payable and accrued expenses 4,716 1,237
Income taxes and deferred income taxes 182 170
-------- --------
Net cash used for operating activities (2,593) (4,665)
-------- --------
Cash flows from investing activities:
Capital expenditures (1,306) (1,505)
-------- --------
Cash flows from financing activities:
Net borrowings under revolving bank lines of credit 6,383 5,888
Proceeds from exercise of stock options 0 27
Principal paydown on Stock Purchase Loan Plan 0 118
Reduction of long-term debt (45) (45)
Repurchase of common stock (2,556) 0
-------- --------
Net cash provided by financing activities 3,782 5,988
-------- --------
Net decrease in cash (117) (182)
Cash at beginning of period 547 593
-------- --------
Cash at end of period $ 430 $ 411
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 212 $ 107
Income taxes 690 842
</TABLE>
See notes to financial statements.
4
<PAGE>
S & K FAMOUS BRANDS, INC.
Notes to Financial Statements
(unaudited)
A. Accounting Policies
The accompanying unaudited interim financial statements have been prepared
by the Company in accordance with the regulations of the Securities and Exchange
Commission in regard to quarterly reporting. In the opinion of the Company, the
statements include all adjustments, consisting only of normal recurring
adjustments, which are necessary for a fair representation of the financial
position and results of operations for interim periods.
B. Interim Results of Operations
The Company's business is highly seasonal, with peak sales periods
occurring during its fourth fiscal quarter which includes the Christmas season.
The net earnings of any interim quarter are seasonally disproportionate to net
sales since administrative and certain operating expenses remain relatively
constant during the year. Consequently, interim results should not be considered
necessarily indicative of the results for the entire fiscal year.
C. Expansion
Since January 30, 1999, the Company has opened nine new stores totaling
approximately 37,700 square feet.
<TABLE>
<CAPTION>
S & K Store Locations Date Opened Square Footage
- -------------------------------------------------- ------------------------------ ----------------------------
<S> <C> <C> <C>
Kansas: Wichita --Town East Square March 24, 1999 4,813
--Town West Square March 24, 1999 2,900
Ohio: Columbus * May 21, 1999 5,000
Huber Heights * May 21, 1999 5,000
South Carolina: Columbia March 1, 1999 4,261
Tennessee: Kingsport May 1, 1999 4,064
Texas: Longview April 28, 1999 3,722
Wisconsin: Appleton March 2, 1999 4,500
Green Bay March 30, 1999 3,449
</TABLE>
* Stores opened in the second quarter
Since the beginning of the year, the Company has closed five under-performing
stores in Somerset, Pennsylvania (2,820 square feet); Stroud, Oklahoma (3,000);
Monroe, Michigan (3,605); Port Huron, Michigan (3,000) and one of its three
stores in Raleigh, North Carolina (4,000). These stores had not met the
Company's sales and profitability expectations.
5
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND FINANCIAL REVIEW
Information regarding forward-looking statements.
The statements contained in this quarterly report that are not historical
facts, including statements about management's expectations for fiscal 2000 and
beyond, may be forward-looking statements. The forward-looking statements are
subject to certain risks and uncertainties which could cause actual results to
differ materially from historical results or those anticipated. Readers are
cautioned not to place undue reliance on these forward-looking statements.
Factors that could cause the Company's actual results to differ materially from
management's projections, forecasts, estimates and expectations include, but are
not limited to, those discussed in the Company's Annual Report on Form 10-K.
Three Months Ended May 1, 1999 Compared to Three Months Ended May 2, 1998
RESULTS OF OPERATIONS
The following table sets forth certain items in the Statements of Income
as a percentage of net sales for the three months ended May 1, 1999 and May 2,
1998.
Percentage of Net Sales
---------------------------
Three Months Ended
---------------------------
5/1/99 5/2/98
---------- ----------
Net sales..................................... 100.0% 100.0%
Cost of sales................................. 51.5 52.1
-------- --------
Gross profit.................................. 48.5 47.9
Other costs and expenses:
Selling, general and administrative...... 40.3 39.1
Interest................................. 0.6 0.3
Depreciation and amortization............ 1.8 1.7
Other, net............................... -- --
-------- --------
Income before income taxes.................... 5.8 6.8
Provision for income taxes.................... 2.2 2.6
-------- --------
Net income.................................... 3.6% 4.2%
======== ========
Net sales in the first quarter of fiscal 2000 increased 7%, or $2.7
million, over the same period last year, and reflects the net addition of 22 new
stores. Comparable store sales were down 1% due primarily to weaker than planned
customer traffic in April, 1999, and in part to the opening of new stores in
existing markets. During the first quarter the Company opened seven new stores
and closed four locations which had not met sales and profitability
expectations. There were 236 stores in operation as of May 1, 1999, compared to
214 stores at May 1, 1998.
Cost of sales in the first quarter of fiscal 2000 was 51.5% of net sales
compared to 52.1% of net sales for the same period last year. This 0.6% of net
sales reduction was primarily due to the higher capitalization of buying and
occupancy costs in inventory.
Selling, general and administrative expenses in the first quarter of
fiscal 2000 were 40.3% of net sales compared to 39.1% of net sales in the
previous year. This 1.2% of net sales increase was due primarily to incurring
planned store payroll and rent costs while sales were less than planned.
6
<PAGE>
Interest expense in the first quarter of fiscal 2000 was 0.6% of net sales
compared to 0.3% of net sales last year due primarily to higher borrowing
levels. Approximately half of the Company's increased borrowings was the result
of the Company's stock buy-back program and the balance of the increase relates
to inventory purchases and capital expenditures for the 22 net new stores.
Net income was $1.4 million ($0.30 per diluted share) and $1.6 million
($0.30 per diluted share) for the first quarter of fiscal 2000 and 1999
respectively. Diluted earnings per share remained constant as a result of the
reduced number of weighted average shares outstanding which was attributable to
the Company's stock buyback program.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operating activities, including capital
expenditures for the opening of new stores, from internally generated funds and
from bank borrowings. The Company plans to open 20 - 25 new stores in fiscal
2000, expects to close approximately fifteen under-performing stores, while also
remodeling several others. During the three months ended May 1, 1999, the
Company opened seven new stores and closed four. The Company also expects to
continue to repurchase the Company's common stock in the open market. The
Company believes that its sources of liquidity and capital resources will
continue to be sufficient to fund its operations, capital expenditures and stock
repurchase initiatives.
Operating activities used net cash of $2.6 million and $4.7 million during
the first quarter of fiscal 2000 and 1999, respectively. This fluctuation was
primarily attributable to improved payment terms on inventory purchases this
year versus last year, which resulted in higher payables at May 1, 1999 compared
to May 2, 1998.
Net cash used for investing activities was primarily for the purpose of
store expansion and remodeling, as well as point of sale (POS) register
purchases. Capital expenditures for the first quarter of fiscal 2000 and 1999
approximated $1.3 million and $1.5 million, respectively. In the first quarter
of fiscal 2000 the Company opened seven new stores, converted one store to its
superstore format and converted approximately 55 stores to its new POS register.
During the first quarter of the prior year, the Company opened six new stores,
converted one to its superstore format, remodeled three stores and converted
approximately ten stores to its new POS register.
Financing activities for the first quarter of fiscal 2000 and 1999
provided net cash of approximately $3.8 million and $6.0 million, respectively.
Financing activities primarily relate to fluctuations in the borrowing levels
under the Company's revolving credit agreements. During the first quarter of
fiscal 2000, the Company used approximately $2.6 million for the repurchase of
286,000 shares of its common stock. The Company's revolving credit agreements
with two banks aggregate $30.0 million. As of May 1, 1999, the Company had net
unused commitments of approximately $13.3 million under the agreements.
7
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
(c) During the quarter ended May 1, 1999, the Company contributed
9,588 shares of its common stock to the S&K Famous Brands
Employees' Profit Sharing/Savings Plan. The contribution was
exempt from registration pursuant to section 3 (a) 2 of the
Securities Act of 1933, as amended, because the Plan does not
permit employee contributions to be invested in the Company's
securities.
Item 3. Quantitative and Qualitative Disclosures on Market Risk
During the first three months of fiscal 2000 there were no
material changes in the Company's market risk exposure or in
management strategy as stated in the Company's 1998 Annual Report.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of the Company's shareholders was held on May
19, 1999.
(b) & (c) At the annual meeting, the shareholders elected eight directors,
approved the Company's 1999 Stock Incentive Plan and ratified the
selection of independent accountants. The results of the voting
were as follows:
Election of Directors
Director For Withheld
--------------------------- ---------------- ------------
Stuart C. Siegel 4,406,790 10,549
Robert L. Burrus, Jr. 4,401,690 15,649
Donald W. Colbert 4,406,606 10,733
Selwyn S. Herson 4,405,490 11,849
Andrew M. Lewis, Ph.D. 4,404,928 12,411
Steven A. Markel 4,405,790 11,549
Troy A. Peery, Jr. 4,404,190 13,149
Marshall B. Wishnack 4,405,590 11,749
Approval of 1999 Stock Incentive Plan
For Against Abstain
------------------ -------------- -----------
3,443,153 692,545 7,896
Ratification of PricewaterhouseCoopers LLP as Independent
Accountants
For Against Abstain
------------------ -------------- -----------
4,409,116 3,095 5,128
8
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(4)a Modification letter dated March 17, 1999 to the Credit
Agreement dated March 10, 1994 and the subsequent Amendment
to the Credit Agreement dated April 30, 1997, between the
registrant and Crestar Bank.
(4)b First Amendment to Amended and Restated Credit Agreement
dated April 2, 1999 between registrant and First Union
National Bank as successor-in-interest to Signet
Bank/Virginia.
(27) Financial Data Schedule
(b) There were no reports filed on Form 8-K during the three months ended May
1, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
S & K FAMOUS BRANDS, INC.
(Registrant)
Date: June 1, 1999 /s/ Robert E. Knowles
--------------------------------
Robert E. Knowles
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer)
Date: June 1, 1999 /s/ Janet L. Jorgensen
--------------------------------
Janet L. Jorgensen
Vice President and Controller
Chief Accounting Officer
(Principal Accounting Officer)
9
Exhibit (4) a
Crestar Bank
P. O. Box 26665
Richmond, VA 23261-6665
(804) 782-5000
March 17, 1999
Mr. Robert E. Knowles
Executive Vice President
Chief Financial Officer
S & K Famous Brands, Inc.
P. O. Box 31800
Richmond, VA 23294
Dear Bob:
I am writing to document the modifications to the Credit Agreement dated March
10, 1994, and the subsequent Amendment to the Credit Agreement dated April 30,
1997, between S & K Famous Brands, Inc. (the "Company"), and Crestar Bank (the
"Bank") related to the $16,000,000 Revolver offered to the Company. The
revisions to the above agreements in order to permit the Company to pursue the
repurchase of its stock are as follows:
1. Section 7.3.3 Investments. Subsection (h) is added to the Credit Agreement to
permit the repurchase of the Company's outstanding shares, if, after giving
effect thereto, there would not exist any Default hereunder. Any previous Event
of Default prior to the addition of this clause, as a result of the repurchase
of the Company's outstanding stock, is hereby waived, as long as the repurchase
meets the requirements of the above language. 2. Section 7.1.3 Minimum
Consolidated Tangible Net Worth in the Amendment to the Credit Agreement is
modified to require the Company to maintain at least $48,300,000 of Consolidated
Tangible Net Worth at January 30, 1999 and for each fiscal year thereafter, of
not less than $48,300,000 plus 80% of each successive year's net income.
However, during the fiscal year beginning February 1, 1999 and all periods
thereafter, upon approval of the Company's Board of Directors and notification
to Crestar, S & K Famous Brands may repurchase up to an additional $12,800,000
of its own stock. Any such repurchases shall reduce the minimum Consolidated
Tangible Net Worth requirement by 90% of the value of the stock repurchased. The
minimum Consolidated Net Worth will not be adjusted for any net loss reported by
the Company.
These revisions shall be incorporated into the Amendment to the Credit Agreement
dated April 30, 1997 and the Credit Agreement dated March 10, 1994. I hope these
modifications will give you the flexibility needed to implement your repurchase
strategy. Thanks for allowing Crestar to meet the banking requirements of S & K.
Please give me a call should you have any questions.
Sincerely,
/s/ William A. Stratton
William A. Stratton
Senior Vice President
Approved and accepted this 31 day of March, 1999 S & K Famous Brands, Inc.
By: /s/ Robert E. Knowles
Executive Vice President
Exhibit (4) b
FIRST AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
This FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT is dated as
of April 2, 1999, and is between S & K FAMOUS BRANDS, INC. (the "Company") and
FIRST UNION NATIONAL BANK, as successor-in-interest to Signet Bank/Virginia (the
"Bank").
Recitals
A. The Company and the Bank entered into an Amended and Restated Credit
Agreement dated as of May 31, 1997 (the "Loan Agreement"). B. The Company and
the Bank have agreed to modify certain provisions in the Loan Agreement, subject
to the terms and conditions of this First Amendment.
Agreement
NOW, THEREFORE, for and in consideration of the terms, conditions and
agreements herein, the Bank and the Company hereby agree as follows:
1. Definitions. Except as provided specifically herein, all defined terms
used herein shall have the meanings ascribed to such terms in the Loan
Agreement.
2. Amendments. The Loan Agreement is hereby amended as follows:
A. Section 7.3 is amended and restated as follows:
SECTION 7.3 Consolidated Tangible Net Worth. The
Company will maintain Consolidated Tangible Net Worth (i) as
of January 30, 1999, of not less than $48,300,000 and (ii)
for each fiscal year thereafter, of not less than
$48,300,000 plus eighty percent (80%) of each successive
year's net income. However, during the fiscal year beginning
February 1, 1999 and all periods thereafter, upon approval
of the Company's Board of Directors and notification to the
Bank, S & K may repurchase its own stock, provided the
aggregate market value of such repurchases does not exceed
$12,800,000. Any such repurchases shall reduce the minimum
Consolidated Tangible Net Worth requirement by 90% of the
value of the stock repurchased. In no event, however, shall
the Consolidated Tangible Net Worth as calculated herein be
reduced in the event of any net loss for any fiscal year.
B. Section 7.14 is amended to provide that the Company is permitted to
repurchase outstanding shares of the Company, if, after giving effect thereto,
there would not exist any Default or any Potential Default under the Loan
Agreement, and that any previous Event of Default prior to this First Amendment,
as a result of the repurchase of the Company's outstanding stock, is hereby
waived.
C. Section 10.5 is amended to change the manner in which interest is
calculated for Money Market Loans (made pursuant to section 2.3 of the Loan
Agreement) from the basis of a year of 365 days to a 360-day year basis.
Interest shall continue to be calculated on a 365-day-year basis for Fed Funds
Loans (made pursuant to section 2.1 of the Loan Agreement).
3. Limited Amendment. Except as provided expressly in this First
Amendment, each term, condition or agreement in the Loan Agreement shall
continue to be fully enforceable in accordance with its terms.
WITNESS the following authorized signatures of the parties hereto:
Company:
S & K FAMOUS BRANDS, INC.
By: /s/ Robert E. Knowles
Robert E. Knowles
Executive Vice President and
Chief Financial Officer
Bank:
FIRST UNION NATIONAL BANK
(formerly, Signet Bank/Virginia)
By: /s/ Joyce L. Barry
Joyce L. Barry
Senior Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> MAY-01-1999
<CASH> 430
<SECURITIES> 0
<RECEIVABLES> 261
<ALLOWANCES> 0
<INVENTORY> 61,122
<CURRENT-ASSETS> 65,037
<PP&E> 38,239
<DEPRECIATION> 18,111
<TOTAL-ASSETS> 89,417
<CURRENT-LIABILITIES> 15,218
<BONDS> 0
<COMMON> 2,387
0
0
<OTHER-SE> 50,301
<TOTAL-LIABILITY-AND-EQUITY> 89,417
<SALES> 39,799
<TOTAL-REVENUES> 39,799
<CGS> 20,512
<TOTAL-COSTS> 20,512
<OTHER-EXPENSES> 16,774
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 215
<INCOME-PRETAX> 2,298
<INCOME-TAX> 873
<INCOME-CONTINUING> 1,425
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,425
<EPS-BASIC> 0.30
<EPS-DILUTED> 0.30
</TABLE>
