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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 [FEE REQUIRED]
For the Fiscal Year Ended February 1, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
835 Lancer Drive
Moorestown, New Jersey 08057
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (609) 235-5656
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, no par value 10,861,005
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(Title of Class) Number of Shares Outstanding as of April 28, 1997)
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 ]
The aggregate market value of voting stock held by non-affiliates of
the Registrant is $12,775,920 (1)
Documents incorporated by reference are listed in the Exhibit Index.
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(1) The aggregate dollar amount of the voting stock set forth equals the
number of shares of the Company's Common Stock outstanding, reduced by
the amount of Common Stock held by officers, directors and shareholders
owning 10% or more of the Company's Common Stock, multiplied by $2.75,
the last reported sale price for the Company's Common Stock on April
28, 1997. 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 he is the beneficial
owner of the shares reported as being held by him, and any such
inference is hereby disclaimed. The information provided herein is
included solely for recordkeeping purposes of the Securities and
Exchange Commission.
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TABLE OF CONTENTS
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PART I
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 4.1 Certain Executive Officers of the Registrant 8
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder
Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 15
PART III
Item 10. Directors and Executive Officers of the Registrant 16
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial Owners and Management 21
Item 13. Certain Relationships and Related Transactions 22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 23-25
Signatures 26
Index to Consolidated Financial Statements F-1
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As used in this Report on Form 10-K, "fiscal 1987," "fiscal 1988,"
"fiscal 1989," "fiscal 1990," "fiscal 1991," "fiscal 1992," "fiscal 1993,"
"fiscal 1994," "fiscal 1995," "fiscal 1996" and "fiscal 1997" refer to the
Company's fiscal years ended or ending January 30, 1988, January 28, 1989,
February 3, 1990, February 2, 1991, February 1, 1992, January 30, 1993, January
29, 1994, January 28, 1995, February 3, 1996, February 1, 1997 and February 2,
1998, respectively.
Today's Man(R) is a registered trademark of the Company.
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PART I
Item 1. Business.
Investment Considerations
The information contained in this Annual Report on Form 10-K contains
forward looking statements (as such term is defined in the Securities Exchange
Act of 1934 and regulations thereunder), including without limitation,
statements as to trends or management's beliefs, expectations or opinions. Such
forward looking statements are subject to risks and uncertainties and may be
affected by various factors which may cause actual results to differ materially
from those in the forward looking statements. Certain of these risks,
uncertainties and other factors are discussed below. In addition to the other
information contained in this Report on Form 10-K, the following factors should
be considered carefully in evaluating an investment in the Company's common
stock.
Chapter 11 Proceedings. On February 2, 1996 Today's Man, Inc. ("the
Company") and certain of its subsidiaries filed voluntary petitions in the
United States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court") seeking to reorganize under Chapter 11 of the U.S. Bankruptcy Code. (See
Business "Chapter 11 Proceedings.") Under Chapter 11, certain claims against the
Company in existence prior to the filing of the petition for relief under
federal bankruptcy law are stayed while the Company continues business
operations as a debtor-in-possession. The ultimate terms of settlement of these
claims will be determined in accordance with a plan of reorganization which
generally requires the approval of the impaired prepetition creditors and
shareholders and confirmation by the Bankruptcy Court. Additional claims may
arise subsequent to the filing of the Chapter 11 petitions resulting from the
rejection of certain executory contracts and unexpired leases, and from the
determination by the Court (or agreed to by the parties in interest) of allowed
claims for contingencies and other disputed amounts. The ultimate resolution of
such liabilities, all of which are subject to compromise, will be part of a plan
of reorganization.
Since the commencement of the Chapter 11 filing, the Company has had
the exclusive right to file a plan of reorganization. The period of exclusivity
granted to the Company is scheduled to expire on June 2, 1997. The Company has
agreed that it will not seek an extension of the period of exclusivity without
the prior written consent of the Creditor's Committee. Any extension is within
the discretion of the Bankruptcy Court.
Inherent in a successful plan of reorganization is a capital structure
which permits the reorganized Company to generate sufficient cash flow after
reorganization to meet its restructured obligations and fund current
obligations. There can be no assurance at this time that a plan of
reorganization will be proposed by the Company or approved or confirmed by the
Bankruptcy Court, or that such plan will be consummated. After the expiration of
the exclusivity period, creditors of the Company also have the right to propose
alternative plans of reorganization. Any plan of reorganization, among other
things, may result in material dilution to existing shareholders, as a result of
the issuance of equity to creditors or new investors, or, under certain
circumstances, in the elimination of existing shareholders' equity.
At this time, the Company cannot predict the outcome of the Chapter 11
filing, in general, or its effects on the future business of the Company or on
the ultimate interests of creditors or shareholders. The Company's independent
auditors have issued a report which states that substantial doubt exists about
the Company's ability to continue as a going concern. See the Consolidated
Financial Statements of the Company beginning on page F-1.
Growth Strategy. The Company does not plan to open any stores in fiscal
1997. The Company's growth over the next several years depends principally on
its plan of reorganization and the availability of appropriate financing for
expansion.
Small Store Base; Geographic Concentrations. The Company currently
operates a chain of 25 superstores, which are located in the Greater
Philadelphia, Washington, D.C., and New York markets. Due to the Company's
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. In February 1996, subsequent to the Chapter 11 filing, the
Company closed all seven of its superstore locations in the Greater Chicago
Market and its outlet location in Sawgrass Mills, Florida. In March 1996, the
Company closed its Springfield, Virginia superstore and in April 1996, the
Company closed stores located in Staten Island and Manhattan, New York. Because
the Company's superstores currently are located in only three markets, the
effect on the Company of adverse events in any of those markets may be greater
than if the Company's stores were geographically dispersed.
1
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Declining Unit Sales of Men's Tailored Clothing. On a national basis,
unit sales of men's tailored clothing have been decling over many years. The
Company believes that this decline can be attributed to men allocating a lower
portion of their disposable income to tailored clothing as a result of less
frequent changes in tailored clothing fashions, relaxation of dress codes by
many employers and a more casual lifestyle. The Company also believes that this
decline has contributed to a consolidation among retailers of men's tailored
clothing. There can be no assurance that the Company will continue to be able to
maintain or increase it sales volume or attain profitability as further
consolidation of the industry occurs as the unit sales of men's tailored
clothing continue to decline.
Control by Majority Shareholder. Mr. David Feld owns approximately 52%
of the outstanding Common Stock. Accordingly, Mr. David Feld will continue to be
able to elect all of the members of the Company's board of directors and
determine the outcome of all shareholder votes requiring majority approval. Mr.
Feld filed a voluntary petition in the United States Bankruptcy Court for the
District of New Jersey on February 2, 1996 seeking protection under Chapter 11
of the United States Bankruptcy Code. Pursuant to a settlement agreement between
Mr. Feld, Alex. Brown & Sons, Incorporated ("Alex.Brown") and Jefferson Bank New
Jersey ("Jefferson Bank"), Jefferson Bank purchased from Alex.Brown certain
loans made to Mr. Feld and the collateral securing such loans, including a
pledge of 5,000,000 shares of common stock owned by Mr. Feld, representing
approximately 46% of the total outstanding Common Stock. Jefferson Bank agreed
that repayment of the loan secured by the pledged shares will be due October
1999. The settlement agreement has been approved by the Bankruptcy Court,
subject to the expiration of the applicable appeal period. Under the terms of
this settlement agreement, Mr. Feld has granted to Alex. Brown an option to
purchase 210,000 shares of Today's Man common stock currently held by Mr. Feld.
In addition, Mr. Feld has pledged 310,578 shares of Common Stock to Jefferson
Bank and 129,000 shares to Merrill Lynch, to secure personal loans from these
lenders. The sale of all or a large block of the pledged shares by Jefferson
Bank 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. In
addition, the sale of the pledged shares may constitute a change of control
under Section 382 of the Internal Revenue Code of 1986, as amended and,
accordingly, may adversely impact the Company's ability to fully utilize its net
operating loss carryforwards. See "Note 13 to the Consolidated Financial
Statements." 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 1996, approximately 36% of the dollar volume of all merchandise purchased
by the Company was purchased from ten vendors, and approximately 38% of the
dollar volume of all merchandise was purchased from overseas vendors.
Approximately 3% of the Company's 1996 purchases were made from a manufacturer
owned by the Company's principal shareholder. See Item 13. "Certain
Relationships and Related Transactions." The Company expects that purchases from
overseas vendors as a percentage of the total dollar volume purchased will
decrease in the future. While the Company believes that alternative sources of
supply are available, any disruption in the Company's sources of supply could
have a material adverse effect on its business. Moreover, although the Company
historically has been able to hedge its exposure to fluctuations in the
relationship between the dollar and various foreign exchange contracts, the
Company currently is not engaging in hedging transactions and could incur
additional expense in the event of currency fluctuations. See
"Business--Purchasing." See 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 Messrs. David Feld, Wasserman, Johnson and
Kellman 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. 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 significant portion of its net sales
and the majority of its profits during its fourth fiscal quarter, which includes
the Christmas selling season, and has experienced losses or nominal earnings 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 25 stores are currently
located. During recessionary periods, consumers can be expected to reduce their
spending on discretionary items such as menswear.
2
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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.
Restrictions on Cash Dividends. Since its inception as a public company
in 1992, the Company has not paid any cash dividends. The Company's Chapter 11
proceedings and loan agreements prohibit the payment of cash dividends. See Item
5. "Market for the Registrant's Common Stock and Related Shareholder Matters."
Chapter 11 Proceedings
On February 2, 1996 the Company and certain of its subsidiaries filed
voluntary petitions in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court") seeking to reorganize under Chapter 11 of the
U.S. Bankruptcy Code. The Chapter 11 filing was the result of banking
difficulties, operating losses, deterioration of vendor support, and cash flow
problems. Under Chapter 11, certain claims against the Company in existence
prior to the filing of the petition for relief under federal bankruptcy law are
stayed while the Company continues business operations as a
debtor-in-possession. Additional claims may arise subsequent to the filing of
the Chapter 11 petitions resulting from the rejection of certain executory
contracts and unexpired leases, and from the determination by the Court (or
agreed to by the parties in interest) of allowed claims for contingencies and
other disputed amounts. Claims secured against the Company's assets are also
stayed, although the holders of such claims may move the Court for relief from
the stay. Secured claims are likely to be asserted against certain of the
Company's accounts receivable, intangible assets and fixed assets.
On March 11, 1996 by order of the Bankruptcy Court, the Company
received final approval for a $20 million Debtor-In-Possession Revolving Credit
Facility with the CIT Group/Business Credit, Inc. The facility permits
borrowings of up to $20 million, including a letter of credit sublimit of $15
million, through the earlier of February 13, 1998 or the date of substantial
consummation of a plan of reorganization. Borrowings under the facility are
subject to availability under a borrowing base formula. Interest is payable
monthly at the prime rate plus 0.5%. Loans under the facility will have a
superpriority administrative expense claim status under the Bankruptcy Code,
subject to certain exceptions. The Company has had no direct borrowings under
this facility at any time since the inception of the loan.
The Company is presently operating its business as a
debtor-in-possession under the jurisdiction of the Bankruptcy Court and intends
to propose a plan of reorganization pursuant to Chapter 11. As a
debtor-in-possession, the Company may not engage in transactions outside the
ordinary course of business without the approval of the Bankruptcy Court, after
notice and hearing.
Since the commencement of the Chapter 11 filing, the Company has had
the exclusive right to file a plan of reorganization. The initial period of
exclusivity granted to the Company has been extended and is scheduled to expire
on June 2, 1997. The Company has agreed that it will not seek an extension of
the period of exclusivity without the prior written consent of the Creditor's
Committee. Any extension is within the discretion of the Bankruptcy Court.
General
Today's Man, Inc. is a leading operator of menswear superstores
specializing in tailored clothing, furnishings and accessories and sportswear.
The Company operates a chain of 25 superstores in the Greater Philadelphia,
Washington, D.C. and New York markets. The Company seeks to be the leading
menswear retailer in each of its markets by providing a broad and deep
assortment of moderate to better, current-season, brand-name and private label
merchandise at everyday low prices which the Company believes represents the
greatest value at a given price point. The Company provides these everyday low
prices to its customers through economies provided by its large volumes of
preplanned inventory purchases and lower initial mark-ups. The Company generated
net sales of $421 per square foot of selling space in its superstores in fiscal
1996.
The Company opened its first store in 1971 in Philadelphia and has
focused since 1984 on developing and refining its superstore concept.
Recognizing the success of other category-dominant retailers as well as the
fragmented nature of the menswear retailing industry, the Company replaced the
five smaller stores it operated in 1984 with its current 25 superstores ranging
in size from approximately 18,000 to 34,000 gross square feet.
3
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In July 1995, the Company entered into a License Agreement with Shoe
Corporation of America ("SCOA"), pursuant to which SCOA installed and operates
licensed shoe departments in the Company's stores. Under the terms of the
license agreement, SCOA is responsible for the operations of the department
including inventory purchases, presentation, staffing and management. The
Company remits, on a weekly basis, the net proceeds due to SCOA. Licensed shoe
departments were introduced in certain superstores in 1995. During 1996, the
Company completed the introduction of shoe departments in the remaining
locations. The initial term of the license agreement expires January 30, 1999.
The Company recorded sales of $8,789,000 and $1,261,900 from licensed shoe
department sales for fiscal 1996 and 1995, respectively.
In the first quarter of 1996, the Company closed a total of ten
underperforming superstores in the Greater Chicago, New York and Washington,
D.C. Markets and its outlet store in Sawgrass Mills, Florida. The Company's
primary focus will be to develop and execute an acceptable plan of
reorganization and to emerge from Bankruptcy.
In November 1996, the Company hired Gary Kellman to be Executive Vice
President of Merchandising. In August 1996, the Company hired Burt Chapman as
Vice President of Marketing.
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
(609) 235-5656.
Merchandising
Today's Man seeks to offer a larger selection and variety of menswear,
in terms of styles, sizes and price points, than its competitors. The Company's
merchandise assortment consists principally of tailored clothing (suits,
sportcoats, slacks, formal wear and outerwear), furnishings and accessories
(dress shirts, ties, belts, suspenders, underwear, socks, scarves and gloves)
sportswear (casual pants, sportshirts, sweaters and jackets) and shoes. A 25,000
square foot superstore typically offers 65,000 items, including approximately
5,000 suits in American and European styles, 2,500 sportcoats, 13,000 dress
shirts, 10,000 ties, 8,000 pairs of dress and casual pants and 4,000 pairs of
shoes. The core of the Company's merchandise offering is nationally recognized
brand-name and designer label suits at prices typically ranging from $150 to
$350. In fiscal 1996, nearly 49% of the Company's net sales were tailored
clothing, with approximately 47% divided between furnishings and sportswear and
4% of net sales from licensed shoe department sales.
The Company has product offerings in most of its merchandise categories
under the Company's private labels, such as "Today's Man," "Brookcraft,"
"Amherst and Brock," "Torriani," "Lamberti," "Arcadia Rustic Simplicity" and
"Domani Uomo." Today's Man's private label programs are focused on high volume
merchandise classifications and include products which can differentiate the
Company from other retailers on the basis of price and quality.
Marketing and Promotion
The Company has identified its core customers as someone who spends
$500 per year on clothes men wear to work. This individual is typically between
the ages of 25 and 54 with average household incomes of approximately $40,000
per year. The Company seeks to be the first choice among its target customers
when they decide to shop for clothes by using advertising inserts in local
newspapers, advertisements in local print and radio, and in significant selling
periods, selected television advertising. The Company uses outside agencies as
well as its own marketing department to prepare its advertising materials. In
addition, the Company uses direct mail advertising to customers on its mailing
list, including holders of Today's Man credit cards.
Today's Man Superstores
The Company's superstores average approximately 25,000 gross square
feet. Approximately three quarters of the area of each store is devoted to
selling space, with the remaining portion used for tailoring, check-out, storage
and administrative and employee areas. Today's Man superstores are usually
located in a shopping center or freestanding building near a major shopping
mall.
The Company places great emphasis on providing an attractive, brightly
lit and well-organized shopping environment. The Company's stores have similar
layouts, emphasizing efficient traffic flow, separation of distinct departments,
merchandise presentation and ease of merchandise selection. Use of a similar
store design facilitates the operational integration of new stores into the
Company's centralized merchandising, distribution, management and accounting
systems. The Company attempts to arrange its merchandise to provide a logical
flow from department to department and regularly monitors its product layouts in
an attempt to make shopping easier and to maximize sales per square foot.
4
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The Company believes that a courteous and knowledgeable staff and
efficient cashiers are important factors in attracting and retaining customers.
The Company staffs each store with trained personnel, supported by an efficient
check-out system and a full-function tailoring facility. The Company emphasizes
to its employees the importance of customer service, courtesy and product
knowledge through its training programs. The Company also believes that its
typical customer prefers to shop without aggressive sales help and seeks
assistance primarily to locate sizes or to coordinate styles and colors.
Accordingly, Today's Man sales associates are paid on a salaried rather than a
commission basis. Sales associates in the tailored clothing departments are also
eligible to earn incentive payments based on the total performance of that
department.
Each store is managed by a store manager who is compensated by a base
salary and a bonus based on the store's actual versus planned sales, shrinkage
and other factors. Store managers have an average of 15 years of retail
experience. Store managers report to one of three regional managers. All stores
have one or more assistant managers, three to five clothing department heads
(including the head of the tailoring department) and an average of 30 full-time
and 14 part-time associates (including sales associates, tailors and cashiers).
Most of the Company's tailored clothing associates have prior retail experience.
Additional training is provided on the job by the store's assistant managers and
department heads.
Full-function tailoring facilities are located at each store and are
typically staffed by one fitter, six full-time and one part-time tailors and two
pressers under the supervision of the head of the tailoring department and an
assistant. As part of the Today's Man efficient shopping experience, the Company
seeks to provide professional alterations within one week. Because the Company
views efficient and competitively priced tailoring as a means of attracting and
retaining its core customers, the Company's tailoring services generally are
priced at cost.
The Company maintains an appropriate level of security in each store
based on local conditions.
Purchasing
The Company purchases most of its merchandise in large volumes through
preplanned buying programs, which allow it to consistently offer a broad and
deep selection of current-season, moderate to better brand-name and private
label menswear at substantial savings to its customers. The Company typically
does not purchase manufacturers' production overruns and does not seek return
privileges or advertising and markdown allowances from its vendors.
The Company purchased merchandise from approximately 168 domestic and
overseas manufacturers and suppliers during fiscal 1996. During that year, the
top ten vendors by dollar volume accounted for approximately 36% 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 1996, approximately 38%
were from overseas vendors, primarily in U.S. dollars. Approximately 3% of the
Company's 1996 purchases were made from a manufacturer owned by the Company's
principal shareholder. See Item 13. "Certain Relationships and Related
Transactions." Although the Company historically has been able to hedge its
exposure to fluctuations in the relationship between the dollar and various
foreign currencies through forward exchange contracts, the Company currently is
not engaging in hedging transactions and could incur additional expense in the
event of currency fluctuations. Many of the Company's overseas purchases are
financed by letters of credit. Understanding the importance of the vendors to
the Company's business, management has focused on developing good relationships
over the years with many of its vendors. As a result, the Company has
experienced positive vendor support from its pre-petition supplier base since
entering into Chapter 11. The Company has also added new key national vendors
while in Chapter 11.
The Company purchased approximately 6.2 million units of merchandise in
fiscal 1996, of which approximately 33% were purchases of brand-name merchandise
and the remainder were purchases of the Company's private label merchandise.
Private label products are made by manufacturers based upon the
Company's quality and size specifications, often using materials that the
Company has purchased from other suppliers. The Company uses quality control
inspectors to oversee the manufacture of its private label merchandise to
maintain its quality standards. The Company believes that by overseeing the
design of its own private label merchandise and by dealing directly with
manufacturers, it is able to offer fashionable merchandise at substantial
savings to its customers. The Company does not own or operate any manufacturing
facilities.
5
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Distribution
The Company's distribution center is adjacent to the Company's
executive and administrative offices in an office park in Moorestown, New
Jersey. The distribution center is a modern 116,000 square foot facility
constructed in 1987 that was expanded by the landlord in fiscal 1992. The
expansion doubled the Company's merchandise processing potential to ten million
units per year, increasing the number of superstores it is capable of serving
using a single shift to approximately 30. The Company believes that the
distribution facility is capable of supporting an additional 25 superstores by
using two shifts. Merchandise is generally shipped directly by common carriers
to the distribution center or to ports or airports for pick up by the Company's
trucks. Merchandise from local manufacturers is often picked up by the Company's
trucks directly from the manufacturer. At the distribution center, merchandise
is received, counted, ticketed with the Company's bar coded labels and sorted
for distribution to the Company's stores. Whenever possible, merchandise is
preticketed with the Company's bar coded labels by the Company's vendors prior
to delivery to reduce processing time and expense. Deliveries are made from the
distribution center to each store typically twice a week by the Company's
trucks. Merchandise is usually shipped to the stores ready for immediate
placement on the selling floor.
Management Information and Control Systems
The Company has placed substantial emphasis on upgrading and
integrating its 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 fifteen-person MIS group, including three
programmers. Control of the Company's merchandising activities is maintained by
a fully integrated point-of-sale (POS) inventory and management information
system which permits management to monitor inventory and store operations on a
daily basis and to determine weekly operating results by store. Each store is
on-line with the Company's IBM RS/6000 computer system via IBM 4680 POS
registers. By bar coding all merchandise and using POS scanners, inventories are
automatically adjusted and sales recognized as customers check out. Today's Man
has also installed a computerized purchasing system, allowing buyers to order
merchandise in appropriate quantities and sizes based on each store's historical
sales pattern and other variables. These closely linked systems track
merchandise from order through sale, comparing actual to planned results and
highlighting areas requiring management attention. The Company also uses ARTHUR,
a merchandise planning system which facilitates seasonal planning by department
and by store and provides data for financial planning. This system interacts
with the Company's POS inventory management system.
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 70% 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. The Company
intends to seek to increase aggressively the number of Today's Man credit card
holders while maintaining credit standards. As of February 1, 1997,
approximately 226,500 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 menswer 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.
6
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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 1, 1997, the Company had 800 full-time and 484 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.
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 following table provides information regarding the Company's
existing stores under lease:
<TABLE>
<CAPTION>
Approximate
Gross Square Year of
Store Location Feet Opening
- -------------- --------------- -------
<S> <C> <C>
Greater Philadelphia Market:
Center City Philadelphia, PA (1) 25,600 1980
Broomall, PA 17,800 1984
Deptford, NJ (1) 19,600 1985
Allentown, PA 22,700 1986
Montgomeryville, PA 22,100 1986
Northeast Philadelphia, PA 22,500 1987
King of Prussia, PA 25,000 1988
Langhorne, PA (1) 25,000 1988
Cherry Hill, NJ 25,800 1990
Greater Washington, D.C. Market:
Bailey's Crossroads, VA 26,000 1987
Rockville, MD 26,100 1988
Fairfax, VA 25,900 1992
Greenbelt, MD 21,100 1995
Greater New York Market:
Paramus, NJ 30,000 1991
Carle Place, NY 33,500 1991
Wayne, NJ 33,400 1992
Stony Brook, NY 25,900 1992
Huntington, NY 29,300 1993
East Hanover, NJ 30,000 1993
Manhassett, NY 25,000 1993
Woodbridge, NJ 27,100 1993
Manhattan (Sixth Avenue), NY 28,100 1994
Hartsdale, NY 26,600 1994
Manhattan (Fifth Avenue), NY 27,200 1995
Norwalk, CT 24,000 1995
</TABLE>
(1) Leased from Mr. David Feld. See Item 13. "Certain Relationships and
Related Transactions."
7
<PAGE>
The Company leases all of its existing stores and anticipates that it
will continue to do so. Unexpired lease terms range from five to thirty-six
years and no lease is scheduled to expire prior to May 1999 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
On February 2, 1996 the Company and certain of its subsidiaries filed
voluntary petitions in the United States Bankruptcy Court for the District of
Delaware seeking to reorganize under Chapter 11 of the U.S.
Bankruptcy Code. See Item 1. "Business - Chapter 11 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
Set forth below is certain information concerning the executive
officers of the Company who are also not directors.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Gary Kellman 53 Executive Vice President - Merchandising
Frank E. Johnson 47 Executive Vice President and Chief Financial Officer
Barry S. Pine 42 Vice President, Controller, Chief Accounting Officer
</TABLE>
Mr. Kellman joined the Company in 1996 as Executive Vice President -
Merchandising. Prior to joining the Company, Mr. Kellman was employed by The May
Company for 17 years where he most recently served as Senior Vice President and
General Merchandising Manager - Men's, Boys & Children of Lord & Taylor, an
operating division of The May Company.
Mr. Johnson joined the Company in 1986 as Controller and was promoted
to Chief Financial Officer in November 1995 and Executive Vice President in
April 1997. Prior to joining the Company, Mr. Johnson served as Corporate
Controller of Nan Duskin, Inc., a women's apparel retailer, from 1984 to 1986.
Mr. Pine joined the Company in 1990 as Assistant Controller and was
promoted to Controller in November 1995. In April 1997, Mr. Pine was promoted to
Vice President. Prior to joining the Company, Mr. Pine served as Manager of
Merchandise Control of Charming Shoppes, Inc., a woman's apparel retailer, from
1987 to 1990.
8
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder
Matters.
The Company's Common Stock has been traded on the Nasdaq National
Market System under the symbol "TMANQ." The following table sets forth, for the
fiscal quarters indicated, the high and low closing sale prices for the Common
Stock, as reported by Nasdaq:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1995
First Quarter $14.25 $9.63
Second Quarter 14.63 10.13
Third Quarter 11.00 4.50
Fourth Quarter 5.75 1.88
1996
First Quarter $3.13 $1.13
Second Quarter 2.50 1.06
Third Quarter 3.00 1.00
Fourth Quarter 2.63 1.44
1997
First Quarter (through April 28) $4.06 $2.13
</TABLE>
As of April 28, 1997, the Company's Common Stock was held by
approximately 310 holders of record.
The Company does not anticipate paying any cash dividends in the
foreseeable future due to the Chapter 11 proceedings and thereafter because it
intends to use or otherwise retain its earnings to finance the operations and
expansion of its business and to service its debt. The Company's loan agreements
prohibit the payment of cash dividends without prior consent of the lenders.
9
<PAGE>
Item 6. Selected Financial Data
SELECTED FINANCIAL DATA
(Dollars 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.
- ----------------------------
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------------------------------
1992 1993 1994 1995 (7) 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $ 132,676 $ 167,072 $ 216,893 $ 263,256 $ 204,042
Cost of goods sold 85,137 105,709 137,440 180,928 134,524
---------- ---------- ---------- ---------- ----------
Gross profit 47,538 61,363 79,453 82,328 69,518
Selling, general and administrative
expenses (1) 38,551 51,254 70,264 100,753 65,982
Restructuring charges - - - 19,249 -
---------- ---------- ---------- ---------- ----------
Income (loss) from operations 8,987 10,109 9,189 (37,674) 3,536
Reorganization items, net - - - - 8,848
Interest expense and other income, net 995 838 2,233 4,211 499
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes 7,992 9,271 6,956 (41,885) (5,811)
Income tax provision (benefit) 3,007 3,251 2,348 (6,201) -
---------- ---------- ---------- ----------- ----------
Net income (loss) $ 4,985 $ 6,020 $ 4,608 $ (35,684) (5,811)
========== ========== ========== =========== ===========
Net income (loss) per share $ 0.57 $ 0.58 $ 0.43 $ (3.29) $ (0.54)
========== ========== ========== =========== ===========
Weighted average shares outstanding 8,766 10,449 10,819 10,847 10,861
Balance Sheet Data (at end of period):
Working capital $ 11,554 $ 25,701 $ 29,119 $ 44,784 $ 49,528
Total assets 60,292 91,171 121,122 98,203 95,397
Long-term debt and capitalized leases 4,867 4,699 19,371 5,478 3,661
Liabilities subject to settlement - - - 61,887 63,368
Shareholders' equity 25,530 51,675 56,512 21,066 15,255
Operating Data:
Net sales per square foot of selling
space (2) $ 499 $ 479 $ 439 $ 421 $ 421
Increase (decrease) in comparable store
sales (3) 5.2% 3.8% (0.3)% (1.5)% (7.8)%
Average sales per store (in thousands) (4) $ 9,077 $ 8,952 $ 8,354 $ 8,110 $ 8,008
Number of superstores (5):
Open at beginning of period 13 16 21 28 35
Opened during period 3 5 7 7 -
Closed during period - - - - 10 (6)
Open at end of period 16 21 28 35 25
</TABLE>
- ------------------------------------
(1) Includes buying and occupancy expenses.
(2) Calculated using net sales generated from superstores open for the
entire fiscal year divided by the square feet of selling space of such
stores. Selling space does not include tailoring, check-out and
administrative areas or stockrooms.
10
<PAGE>
(3) Superstores are included in the comparable store sales calculation
beginning in their fourteenth full month of operation. Accordingly, the
calculation does not include a store's first full month of operation,
which typically has an abnormally high volume of sales resulting from
the store's grand opening promotion. Stores relocated to a larger
facility are not included in the comparable store sales calculation
until the beginning of their fourteenth full month of operation at
their new locations.
(4) Average sales per store include sales from comparable superstores open
for the entire year divided by the number of stores open for the entire
period.
(5) Relocations of older, smaller stores to larger facilities do not
constitute new store openings. There were no remodeled stores in the
years presented.
(6) Does not include an outlet store in Sawgrass Mills, Florida which was
opened in April 1995 and was closed in the first quarter of 1996. In
the first quarter of 1996, the Company also closed a total of ten
underperforming stores in the Greater Chicago, New York and Washington,
D.C. markets.
(7) Fiscal year 1995 included fifty-three weeks.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
On February 2, 1996, the Company and certain of its subsidiaries filed
voluntary petitions in the United States Bankruptcy Court for the District of
Delaware seeking to reorganize under Chapter 11 of the U.S.
Bankruptcy Code.
The accompanying Consolidated Financial Statements have been prepared
in accordance with generally accepted accounting principles applicable to a
company on a "going concern" basis, which, except as otherwise noted,
contemplates the realization of assets and the liquidation of liabilities in the
ordinary course of business; however, as a result of the Chapter 11 proceedings,
and circumstances relating to this event, including the Company's debt
structure, its operating losses, and current economic conditions, such
realization of assets and liquidation of liabilities are subject to significant
uncertainties. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. As reflected in the Consolidated
Financial Statements, the Company experienced significant net losses in 1996 and
1995. During the Chapter 11 proceedings, the Company has incurred and will
continue to incur substantial reorganization costs. The Company's ability to
continue as a going concern is dependent upon the confirmation of a plan of
reorganization by the Bankruptcy Court, the ability to secure adequate exit
financing and to maintain compliance with all debt covenants under the
post-petition financing, combined with the achievement of profitable operations.
A plan of reorganization, as finally approved by the Bankruptcy Court,
could materially change the currently recorded amounts. These financial
statements do not reflect further adjustments to the carrying value of assets
and the amounts and classifications of liabilities or shareholders' equity that
might be necessary as a consequence of these bankruptcy proceedings. Events
completed in relation to the Company's ongoing operational restructuring include
the closing of ten underperforming locations and its outlet center and
reductions in store operating expenses and corporate overhead. Additional
components of the operational restructuring include ongoing evaluation of store
operations, review of both corporate and store expenses and a refocusing of the
Company's merchandising and marketing strategies.
11
<PAGE>
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
-----------------------------
1994 1995 1996
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 63.4 68.7 65.9
------- ------- -------
Gross profit 36.6 31.3 34.1
Selling, general and administrative
expenses 32.4 38.3 32.3
Restructuring charges - 7.3 -
------- ------- -------
Income (loss) from operations 4.2 (14.3) 1.8
Reorganization items, net - - 4.3
Interest expense and other income, net 1.0 1.6 .3
------- ------- -------
Income (loss) before income taxes 3.2 (15.9) (2.8)
Income tax provision (benefit) 1.1 (2.4) -
------- ------- -------
Net income (loss) 2.1% (13.5)% (2.8)%
======= ======= =======
Fiscal Years 1996 and 1995
Net Sales. Net sales of $204,042,400 in fiscal 1996 represented a
decrease of $59,213,600 or 22.5% from net sales of $263,256,000 in fiscal 1995.
This decrease was primarily attributable to the closing of ten superstores and
one outlet store in fiscal 1996, which, collectively, accounted for $44,500,000
in net sales in fiscal 1995. The results for fiscal 1996 were also negatively
impacted by the overall weak retail environment, merchandise disruptions caused
by the bankruptcy proceedings, and a lack of promotional activities as compared
to fiscal 1995. Additionally, fiscal 1996 consisted of fifty-two weeks as
compared to fifty-three weeks during the prior year. Comparative store sales
decreased 7.8% versus fiscal 1995. The 1996 sales include $8,789,000 in licensed
shoe department sales compared to $1,261,900 in fiscal 1995. The Company
operated 25 superstores at February 1, 1997, compared to 35 superstores at
February 3, 1996.
Gross Profit. Gross profit as a percentage of net sales increased to
34.1% in fiscal 1996 from 31.3% in fiscal 1995. The increase in gross profit was
attributable to a reduction in promotional activities and markdowns compared to
fiscal 1995. Markdowns decreased 20% or approximately $10,000,000 from fiscal
1995. The 1995 gross profit was also negatively impacted by the delayed shipment
of a large special inventory purchase in the third quarter which resulted in
higher than planned markdowns.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, which, in fiscal 1995, included pre-opening expenses of
new stores, decreased in the aggregate by $34,770,500 or 34.5% in fiscal 1996,
and decreased as a percentage of net sales to 32.3% in fiscal 1996 from 38.3% in
fiscal 1995. The decrease in aggregate expenses was primarily due to the cost
savings obtained by operating eleven fewer locations. Store payroll, occupancy
and advertising costs decreased by $22,549,200 in fiscal 1996 as compared to the
same period in fiscal 1995, and represented 20.5% of net sales in fiscal 1996 as
compared to 24.5% of net sales in fiscal 1995. In addition, in fiscal 1995, the
Company incurred costs of $2,700,000 for severance of officers, the write-off of
amounts related to the development of new stores and closing a foreign buying
office.
Reorganization Items, Net. Reorganization items consisted of $3,567,600
in legal and accounting fees incurred in the administration of the Chapter 11
proceedings; $4,780,600 in additional asset write-offs related to the
reorganization process; $526,000 in retention bonus expenses to minimize
employee turnover; and $283,800 in net lease rejection and other related costs.
These items were offset by $310,300 in interest income earned on cash
accumulated during the period while not paying pre-petition obligations.
Interest Expense, Interest Income and Other (Income) Expense, Net.
Interest expense, interest income and other (income) expense, net, decreased by
$3,711,500 in fiscal 1996 from fiscal 1995. This decrease is a result of the
stay imposed pursuant to the Chapter 11 filing which precludes the payment of
principal and interest on pre-petition obligations during the reorganization
period. In fiscal 1996, the Company recognized $452,400 in interest expense
imputed from ongoing obligations under capital leases. Other income and expense
decreased $638,500 from fiscal 1995. This decrease is primarily a result of the
elimination of the Company-owned life insurance program. In fiscal 1995, the
charge to expense for this program was $476,000.
12
<PAGE>
Fiscal Years 1995 and 1994
Net Sales. Net sales of $263,256,000 in fiscal 1995 represented an
increase of $46,363,400 or 21.4% over net sales of $216,892,600 in fiscal 1994.
This increase was attributable to the opening of seven new stores in fiscal
1995, three in the Illinois market, two in the Greater New York market and two
in the Greater Washington, D.C. market, which accounted for $33,957,800 in net
sales in fiscal 1995. The 1995 sales also include $1,352,900 in sales from the
outlet location and $1,261,900 in licensed shoe department sales. Fiscal 1995
included fifty-three weeks as compared to fifty-two weeks during the prior year.
Comparative store sales decreased 1.5% versus fiscal 1994. The Company operated
35 superstores at February 3, 1996, compared to 28 superstores at January 28,
1995. (See "Restructuring Charges" below.)
Gross Profit. Gross profit as a percentage of net sales decreased to
31.3% in fiscal 1995 from 36.6% in fiscal 1994. The reduction in gross profit
was a result of fiscal 1995 price reductions which were initiated earlier and
more aggressively than in the prior year in response to an increased promotional
environment and overall consumer sluggishness. The 1995 gross profit was also
negatively impacted by the delayed shipment of a large special inventory
purchase in the third quarter which resulted in higher than planned markdowns.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, which include pre-opening expenses of new stores,
increased in the aggregate by $30,488,900 or 43.4% in fiscal 1995, and increased
as a percentage of net sales to 38.3% in fiscal 1995 from 32.4% in fiscal 1994.
The increase in aggregate expenses was primarily due to the cost of opening
seven additional stores and one outlet, and operating all stores and the outlet
for fifty-three versus fifty-two weeks. The increase as a percentage of net
sales in fiscal 1995 was due to an increase in store occupancy costs and
corporate advertising expenditures as a percentage of net sales and
lower-than-expected sales volume. Store payroll, occupancy and advertising costs
increased by $18,383,500 in fiscal 1995 as compared to the same period in fiscal
1994, and represented 24.5% of net sales in fiscal 1995 as compared to 21.1% of
net sales in fiscal 1994. In addition, the Company incurred costs of $2,700,000
for severance of officers, the write-off of amounts related to the development
of new stores and closing a foreign buying office.
Restructuring Charges. In January 1996, the Board of Directors approved
a plan to restructure the Company by closing ten underperforming stores and the
outlet. In connection with this plan, the Company recorded a charge of
$19,248,700. The components of the charge are fixed asset write-offs totaling
$12.6 million and lease rejection, exit and other costs of $6.6 million. The
asset write-offs are comprised of fixtures and leasehold improvements which were
abandoned or disposed of in fiscal 1996 in conjunction with the store closings
in the Greater Chicago, New York and Washington, D.C. markets and the Florida
outlet location. Lease rejection costs reflect management's estimate of the
settlement amounts related to lease rejections for closed stores. These 11
locations' sales and losses from operations excluding the restructuring charge
were $44.5 million and ($12.3) million, respectively, for fiscal 1995. The
restructuring plan resulted in a workforce reduction of 268 store employees.
There were no severance payments associated with the closing of these locations.
Interest Expense, Interest Income and Other (Income). Interest expense,
interest income and other (income) expense, net, increased by $1,977,400 in
fiscal 1995 from fiscal 1994. Interest expense increased approximately
$1,783,500 in fiscal 1995 as compared to the prior year. Of this increase
$1,307,100 was due to increased borrowing levels and the remaining $476,400 was
due to increased interest rates. Net other expense increased by $118,200 in
fiscal 1995 compared to fiscal 1994.
Income Tax Expense (Benefit). The Company's income tax benefit rate was
14.8% in fiscal 1995, as compared to an expense rate of 33.7% for fiscal 1994.
The change was primarily due to a valuation allowance established on the
Company's deferred tax asset in 1995. See Item 1. "Business - Investment
Considerations -- Control by Majority Shareholder" and Footnote 13 in the Notes
to the Consolidated Financial Statements.
Liquidity and Capital Resources
Under Chapter 11, actions to enforce certain claims against the Company
are stayed if the claims arose, or are based on, events that occurred on or
before the petition date of February 2, 1996. The ultimate terms of settlement
of these claims will be determined in accordance with a plan of reorganization
which requires the approval of the impaired prepetition creditors and
shareholders and confirmation by the Bankruptcy Court. Other liabilities may
arise or be subject to compromise as a result of rejection of executory
contracts and unexpired leases, or the Bankruptcy Court's resolution of claims
for contingencies and other disputed amounts. The ultimate resolution of such
liabilities, all of which are subject to compromise, will be part of a plan of
reorganization.
13
<PAGE>
Until a plan of reorganization is confirmed by the Bankruptcy Court,
only such payments on prepetition obligations that are approved or required by
the Bankruptcy Court will be made. Except for payments for certain property and
equipment under lease, principal and interest payments on pre-petition debt have
not been made since the filing date and will not be made without the Bankruptcy
Court's approval or until a plan of reorganization, defining the repayment
terms, has been confirmed by the Bankruptcy Court. There is no assurance at this
time that a plan of reorganization will be proposed by the Company and approved
or confirmed by the Bankruptcy Court.
The Company's primary source of working capital is cash flow from
operations. The Company had working capital of $29,118,500, $44,783,800 and
$49,702,600 at the end of fiscal 1994, 1995 and 1996, respectively. The increase
in fiscal 1995 and 1996 is a result of the reclassification to liabilities
subject to settlement of $47.4 million of current liabilities as a result of the
February 2, 1996 bankruptcy filing. Historically, the Company's working capital
is at its lowest level in the first and third quarters and increases sharply in
the second and fourth quarters in anticipation of the peak selling seasons. The
Company measures its inventory turnover by dividing net sales by the retail
value of the inventory averaged over 12 months. Inventory turnover was 2.44
times, 3.07 times and 3.22 times in fiscal 1994, 1995 and 1996, respectively.
Net cash (used in) provided by operating activities amounted to
($215,000), $3,406,600 and $24,216,800 in fiscal 1994, 1995 and 1996,
respectively. These amounts primarily represent net income plus depreciation,
amortization and other changes in operating assets and liabilities
Net cash used in investing activities amounted to $13,723,000,
$10,787,400 and $1,278,900 in fiscal 1994, 1995 and 1996, respectively, to fund
investments for new and existing stores. The fiscal 1996 decrease reflects the
contraction in the store base that occurred during the fiscal year ended
February 1, 1997.
Net cash provided by (used in) financing activities amounted to
$12,915,700, $7,674,100 and ($1,397,300) in fiscal 1994, 1995 and 1996,
respectively, and in fiscal 1994 and 1995 consisted primarily of additional
borrowings, net of repayments, under the Company's various loan agreements and
in fiscal 1996 repayment of obligations incurred under capital leases.
On March 11, 1996, by order of the Bankruptcy Court, the Company
received final approval for the $20 million Debtor-In-Possession Revolving
Credit Facility (the "DIP Agreement") with The CIT Group/Business Credit, Inc.
The facility permits borrowings of up to $20 million, including a letter of
credit sublimit of $15 million, through the earlier of February 13, 1998 or the
date of substantial consummation of a plan of reorganization. Borrowings under
the facility are subject to availability under a borrowing base formula.
Interest is payable monthly at the bank's prime rate plus 0.5%. Loans under the
facility will have a superpriority administrative expense claim status under the
Bankruptcy Code, subject to certain exceptions. The Company has had no direct
borrowings under this facility since the inception of the loan.
Inherent in a successful plan of reorganization is a capital structure
which permits the Company to generate sufficient cash flow after reorganization
to meet its restructured obligations and fund the current obligations of the
reorganized Company. Under the Bankruptcy Code, the rights of and ultimate
payment to prepetition creditors may be substantially altered and, as to some
classes, eliminated. At this time, the Company cannot predict the outcome of the
Chapter 11 filing, in general, or its effect on the future business of the
Company or on the ultimate interests of creditors or shareholders.
The Company believes that the sources of capital above and internally
generated funds will be adequate to meet the Company's anticipated needs through
fiscal 1997; however, as a result of the Company's Chapter 11 proceedings and
the other events described above, no assurance can be given with respect to the
Company's liquidity. The Company currently is evaluating various alternatives
for a Plan of Reorganization, including various forms of financing, and intends
to file a Plan of Reorganization by June 2, 1997. Upon emergence from the
Chapter 11 proceedings, the Company will need to replace the DIP Agreement with
a suitable financing structure to meet its plan of reorganization.
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.
14
<PAGE>
Seasonality and Quarterly Results
The Company's business, like that of most retailers, is subject to
seasonal influences. A significant portion of the Company's net sales and
profits are realized during the fourth fiscal quarter (which includes the
Christmas selling season) and, to a lesser extent, during the second fiscal
quarter. In addition, because the Company's cost of goods sold includes net
alteration expense, the Company's gross profit as a percentage of net sales has
historically been lower in the first and third fiscal quarters primarily as the
result of a lower level of net sales being spread over fixed (primarily payroll)
expenses related to tailoring operations. In addition, quarterly results are
affected by the timing of the opening of new stores. Because of the seasonality
of the Company's business, results for any quarter are not necessarily
indicative of the results that may be achieved for a full fiscal year.
The following table sets forth certain unaudited quarterly results of
operations for fiscal 1996 and 1995.
<TABLE>
<CAPTION>
Fiscal Quarter Ended
-------------------------------------------------------
May 4, August 3, November 2, February 1,
Fiscal 1996: 1996 1996 1996 1997(1)
---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 46,397 $ 45,298 $ 44,617 $ 67,730
Cost of goods sold 33,180 28,702 28,964 43,678
--------- ---------- -------- ---------
Gross profit 13,217 16,596 15,653 24,052
Selling, general and administrative expenses 16,098 16,338 15,642 17,904
--------- ---------- -------- ---------
(Loss) income from operations (2,881) 258 11 6,148
Reorganization items, net 1,286 1,061 755 5,746
Interest expense and other income, net 42 (15) 6 466
--------- ----------- -------- ---------
Loss before income taxes (4,209) (788) (750) (64)
Income taxes - - - -
--------- ---------- -------- ---------
Net loss $ (4,209) $ (788) $ (750) $ (64)
========== =========== ========= ==========
Net loss per share $ (0.39) $ (0.07) $ (0.07) $ (0.01)
=========== ============ =========== ==========
Weighted average shares outstanding 10,861 10,861 10,861 10,861
Fiscal Quarter Ended
---------------------------------------------------------
April 29, July 29, October 28, February 3,
Fiscal 1995: 1995 1995 1995 1996(1)
---- ---- ---- ----
(In thousands, except per share amounts)
Net sales $ 57,725 $ 67,885 $ 54,898 $ 82,748
Cost of goods sold 37,421 43,687 37,685 62,136
--------- ---------- -------- ---------
Gross profit 20,304 24,199 17,213 20,612
Selling, general and administrative expenses 19,507 25,026 22,399 33,821
Restructuring charges - - - 19,249
--------- ---------- -------- ---------
Income (loss) from operations 797 (828) (5,186) (32,457)
Interest expense and other income, net 530 816 1,119 1,747
--------- ---------- -------- ---------
Income (loss) before income taxes 267 (1,644) (6,305) (34,204)
Income taxes (benefit) 94 (575) (2,207) (3,512)
--------- ----------- --------- ----------
Net income (loss) $ 174 $ (1,069) $ (4,098) $ (30,691)
========= =========== ========= ==========
Net income (loss) per share $ 0.02 $ (0.10) $ (0.38) $ (2.83)
========== =========== ========= ==========
Weighted average shares outstanding 10,831 10,843 10,854 10,868
</TABLE>
(1) The fourth quarter of fiscal 1996 contained 13 weeks as compared to the 14
week quarter ended February 3, 1996.
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.
15
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following table sets forth information, as of the date of this
Annual Report, concerning the Company's directors. Information concerning the
Company's executive officers who are not directors is set forth in Item 4.
"Certain Executive Officers of the Registrant."
<TABLE>
<CAPTION>
Director Term
Name Age Position Since Expires
---- --- -------- ----- -------
<S> <C> <C> <C> <C>
David Feld 49 Chairman of the Board, President and 1971 1998
Chief Executive Officer
Leonard Wasserman 71 Executive Vice President, Operations 1992 1998
and Director
Larry Feld 46 Vice President, Store Development, 1971 1999
Secretary and Director
Ira Brind (1)(2) 56 Director 1992 1998
Verna K. Gibson (1) 54 Director 1992 1999
Bernard J. Korman (2) 65 Director 1992 1997
</TABLE>
- ----------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
The following information about the Company's directors and nominees
for director is based, in part, upon information supplied by such persons.
Mr. David Feld has been with the Company continuously since he founded
it in 1971. He grew up in his family's retail business and opened the Company's
first store in Philadelphia in 1971. Mr. David Feld has served as Chairman of
the Board and Chief Executive Officer of the Company since its inception and,
except for the period from March 1995 until July 1995, also has served as
President of the Company. On February 2, 1996, Mr. Feld filed a voluntary
petition to reorganize under Chapter 11 of the United States Bankruptcy Code.
Mr. Wasserman joined the Company in 1983 as a consultant to assist in
strategic planning and marketing development and was appointed to the Office of
the President in 1991 and a director in 1992. Mr. Wasserman was named Executive
Vice President, Operations in 1995. Between 1982 and 1983, Mr. Wasserman was
President and Chief Executive Officer of The Lionel Corporation and, prior
thereto, was President of its Kiddie City Division for 11 years. Mr. Wasserman
founded Kiddie City in 1957.
Mr. Larry Feld has served as Vice President, Store Development since
1983 and as a Vice President, Secretary and Director of the Company since its
inception in 1971. Messrs. David Feld and Larry Feld are brothers.
Mr. Brind is President and a shareholder principal of Brind-Lindsay &
Co., Inc., a management and consulting firm in Philadelphia. Until 1987, Mr.
Brind was President, Chief Executive Officer and a Director of McDonnell Douglas
Truck Services, Inc., a full service truck lessor and transportation services
subsidiary of McDonnell Douglas Corporation.
Mrs. Gibson is an active partner in Retail Options, Inc., a consulting
firm formed in 1993. Mrs. Gibson has been an independent retail consultant since
1991 and provided consulting services to the Company, among others, in fiscal
1992, fiscal 1993 and fiscal 1994. From 1985 to 1991, Mrs. Gibson was President
and Chief Executive Officer of the Limited Stores, Inc., which she joined as a
trainee in 1971. From December 1994 to 1996, Mrs. Gibson served as Chairman of
the Board of Petrie Retail, Inc. Mrs. Gibson is a director of Caldor, Inc.,
MothersWork, Inc. and Chicos FAS, Inc. Petrie Retail filed a voluntary petition
to reorganize under Chapter 11 of the United States Bankruptcy Code in October
1995.
16
<PAGE>
Mr. Korman has been Chairman of the Board of Graduate Health System,
Inc., a not-for-profit healthcare system since November 1996. From 1977 to 1995
Mr. Korman was President, Chief Executive Officer and a director of MEDIQ
Incorporated, a healthcare services and equipment company located in Pennsauken,
New Jersey. Mr. Korman is also a director of NutraMax Products, Inc., The Pep
Boys -- Manny, Moe & Jack, Omega Healthcare Investors, Inc., the New America
High Income Fund, Inc., InnoServe Technologies, Inc., Kapson Senior Quarters
Corp., and Kranzco Realty Trust.
Item 11. Executive Compensation.
The Company's executive officer compensation program is comprised of
base salary, annual cash incentive compensation, long term incentive
compensation in the form of stock options, and various benefits generally
available to all full-time employees of the Company, including participation in
group medical and life insurance plans and the 401(k) Plan. The Company seeks to
be competitive with compensation programs offered by companies of a similar size
within the retail industry based on formal and informal surveys conducted by the
Company.
As a result of the Company's bankruptcy proceeding, the Compensation
Committee is evaluating the Company's compensation program, particularly with
respect to incentive compensation and retention. To aid in the retention of
management and key employees during the bankruptcy proceeding, the Company has
adopted a Retention Plan and a Severance Plan discussed in greater detail below.
Decisions with respect to the compensation of Mr. David Feld, the
President and Chief Executive Officer, are made by the Compensation Committee.
Decisions with respect to the compensation of all other executive officers are
made by Mr. David Feld.
Base Salary. Prior to the beginning of each fiscal year, financial and
other goals are established for the Company. Each executive officer is
responsible for accomplishing the goals pertaining to his area of
responsibility. At the end of each fiscal year, a performance review takes place
with each executive officer to measure performance against those objectives.
Base salary decisions are made based on the results of the performance review as
well as other considerations such as the executive officer's level of
responsibility, years of service with the Company and professional background.
No executive officers' base salary was increased in fiscal 1996.
Employee Rentention Program. The Company has adopted, with the approval
of the Bankruptcy Court, an Employee Retention Program consisting of: (1) an
Annual Incentive Bonus Plan; (2) the Rentention Bonus Plan; (3) a Severance Plan
and (4) a Change-in-Control Plan.
Annual Incentive Compensation. The Annual Incentive Bonus Plan (the
"Incentive Plan") is designed to promote the interest of the Company by
providing meaningful incentive compensation to management and key professionals
to drive performance through the emergence from the bankruptcy proceedings. The
Incentive Plan is designed to provide incentive opportunities dependent upon the
achievement of predetermined performance goals which are measured relative to
earnings before interest, income taxes, depreciation and amortization
("EBITDA"). The Incentive Plan payout was $868,300 in fiscal 1996 was paid in
the first quarter of fiscal 1997.
Retention Plan. The Company adopted a Retention Bonus Plan (the
"Retention Plan") to provide meaningful incentive compensation to designated
employees to continue their employment with the Company during the first 18
months of the Company's bankruptcy proceeding. The Retention Plan provides for
the payment of a bonus ranging from 7.5% to 35% of a participant's then base
salary, payable in 25% installments in July 1996 and February 1997, with the
balance payable in August 1997, except that the retention bonus is payable in
full upon the Company's emergence from the bankruptcy proceeding, if earlier. If
a participant ceases to be employed by the Company at any time prior to the end
of the Retention Plan by reason of death, disability, retirement, change of
control or liquidation of the Company, the participant will be paid a pro rata
portion of the retention bonus; however, no retention bonus is payable if the
participant is terminated for any other reason or for cause.
Severance Plan. The Company has adopted a Severance Plan to encourage
the continued employment of its employees during the Company's bankruptcy
proceeding. All employees are entitled to participate in the Severance Plan. In
the event an employee's employment is terminated by the Company without "Cause,"
such employee will be entitled to a continuation of his or her base salary for a
period of time based on the individual's position and, in some cases, length of
service with the Company. "Cause" is defined as the willful and continued
failure of the employee to perform his or her duties or the willful engaging by
employee in illegal conduct or gross misconduct materially injurious to the
Company. In addition, the employee is entitled to continued medical benefits
during the severance period, subject to reduction or elimination in the event
that the employee obtains medical benefits as a result of new employment. Under
the Severance Plan, executive officers will be entitled to receive their base
salary for from six to 18 months after termination of their
17
<PAGE>
employment without Cause, depending on their position, except that any
compensation received by an executive officer who is a Vice President or above
as a result of new employment obtained during the severance period will be set
off against and reduce up to a maximum of one-half of the amount of severance
payable to the former executive officer.
Change in Control Plan. The Company has adopted a Change in Control
Plan for its executive officers and vice presidents which provides that, in the
event their employment is terminated by them voluntarily for "good cause" or
involuntarily without cause, they will be entitled to a lump sum cash payment
consisting of their base salary through the date of termination, a proportionate
bonus based upon the highest annual bonus, a pro rata retention bonus, if
applicable, one or two times, depending on their position, the executive's base
salary equal to or greater than the highest base salary paid to the executive by
the Company during the previous year and unpaid deferred compensation and
vacation pay. In addition, the executive is entitled to continued employee
welfare benefits for one or two years, depending upon their position. There is
no obligation under the part of the executive to mitigate damages. Good reason
means: the diminution of responsibilities, assignment to inappropriate duties,
adjustments to compensation or benefits provisions such that (a) the monthly
base salary is less than the highest monthly base salary paid to the executive
by the Company during the previous year, (b) annual incentive bonus
opportunities which are substantially similar to those which were available
prior to the change of control, (c) any earned retention bonus which is not paid
according to the award schedule or (d) savings, welfare benefits, fringe
benefits or retirement plan participation which is not substantially similar to
that which was in effect prior to the change of control, transfer more than 50
miles, a purported termination of the Agreement by the Company other than in
accordance with the Agreement, or failure of the Company to require any
successor to the Company to comply with the Agreement. Determination by the
executive of "good reason" shall be conclusive if made in good faith.
Stock Options. The Company uses the Employee Stock Option Plan as a
long-term incentive plan for executive officers and key employees. The
objectives of this Plan are to align the long-term interests of executive
officers and shareholders by creating a direct link between executive
compensation and shareholder return and to enable executives to develop and
maintain a significant long-term equity interest in the Company. The Plan
authorizes the Compensation Committee to award stock options to officers and key
employees. Stock option grants are determined by the Compensation Committee
based upon recommendations of senior management and are made at a level
calculated to be competitive within the retail industry. The Compensation
Committee usually awards stock options every other year, except in the case of
individual awards made in connection with the hiring or promotion of an
executive officer or key employee. In general under the Plan, options are
granted with an exercise price equal to the fair market value of the Common
Stock on the date of grant and are exercisable according to a vesting schedule
determined by the Compensation Committee at the time of grant. The Committee
granted no options under this Plan during fiscal 1996.
Policy with respect to Section 162(m) of the Internal Revenue Code.
Generally, Section 162(m) of the Internal Revenue Code of 1986, and the
regulations promulgated thereunder (collectively, "Section 162(m)"), denies a
deduction to any publicly held corporation, such as the Company, for certain
compensation exceeding $1,000,000 paid during a taxable year to the chief
executive officer and the four other highest paid executive officers, excluding,
among other things, certain performance-based compensation. Where appropriate,
the Compensation Committee has taken action to reduce the impact of this
provision. For example, the Compensation Committee intends that the Employee
Stock Option Plan qualify for the performance-based exclusion. The Compensation
Committee continually evaluates to what extent Section 162(m) will apply to its
other compensation programs.
18
<PAGE>
Summary Compensation Table
The following table sets forth certain information regarding the
compensation paid to the Chief Executive Officer and each of the six other most
highly compensated executive officers of the Company (including certain former
executive officers) for services rendered in all capacities for fiscal 1996,
fiscal 1995 and fiscal 1994.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------- ------------
All
Other Securities Other
Name and Fiscal Annual Underlying Compen-
Principal Position Year Salary Bonus(1) Compensation Options sation (2)
- ------------------ ---- ------ -------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C> <C>
David Feld 1996 $ 190,000 $86,625 -- -- $ 3,800
President and 1995 190,000 -- -- -- 3,683
Chief Executive 1994 190,000 -- -- -- 4,385
Officer
Frank E. Johnson 1996 165,000 84,437 -- -- 3,800
Executive Vice President 1995 132,300 -- -- 10,000 shares 3,511
and Chief Financial Officer 1994 95,000 -- -- -- 2,352
Gary Kellman 1996 63,462 70,006 -- -- --
Executive Vice President, 1995 -- -- -- -- --
General Merchandise 1994 -- -- -- -- --
Manager
Leonard Wasserman (3) 1996 250,000 91,875 -- -- 3,800
Executive Vice President, 1995 250,000 -- -- 12,000 shares 3,598
Operations 1994 160,000 -- -- -- 4,239
Larry Feld 1996 165,000 49,673 -- -- 2,637
Vice President, 1995 165,000 -- -- 10,000 shares 3,928
Store Development 1994 154,000 -- -- -- 3,360
</TABLE>
- ----------------
(1) Represents bonuses earned under the Retention Bonus Plan and Incentive
Plan. Bonuses earned under the Incentive Plan were paid in the following
fiscal year. No bonuses were paid under the Officers' Bonus Program for
fiscal 1994 or fiscal 1995.
(2) Represents the Company's matching contribution under the 401(k) Profit
Sharing Plan.
(3) Mr. Wasserman served as Office of the President until he was named as
Executive Vice President, Operations in July 1995.
Aggregated Option Exercises in Last Year and Fiscal Year-End Option Values
The following table sets forth certain information concerning the
number and value of unexercised options held at the end of fiscal 1996 by the
executive officers of the Company named in the Summary Compensation Table.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares Acquired Value Fiscal Year-End Fiscal Year-End
Name On Exercise Realized (1) Exercisable/Unexercisable Exercisable/Unexercisable (2)
---- ----------- ------------ ------------------------- -----------------------------
<S> <C> <C> <C> <C>
David Feld --- --- --- / --- --- / ---
Leonard Wasserman --- --- 30,000/11,000 --- / ---
Frank E. Johnson --- --- 15,733/10,267 --- / ---
Gary Kellman --- --- --- / --- --- / ---
Larry Feld --- --- 24,333/9,667 --- / ---
</TABLE>
- ------------------
(1) No options were exercised by the named executive officers in fiscal 1996.
19
<PAGE>
(2) There were no in-the-money options at the end of fiscal 1996 because the
last sale price of the Common Stock on January 31, 1997, the last trading
day in fiscal 1996, as reported on the Nasdaq National Market System, was
$2.375 which was less than the exercise price of all outstanding options.
Employee Stock Option Plan
The Company's Employee Stock Option Plan ("Employee Plan") was adopted
by the Board and approved by the shareholders in March 1992 and was amended in
1994. The purpose of the Employee Plan is to attract and retain officers and
other key employees and to provide additional incentive to them by encouraging
them to invest in the Common Stock and acquire an increased personal interest in
the Company's business. Payment of the exercise price for options granted under
the Employee Plan may be made in cash, shares of Common Stock or a combination
of both. Options granted pursuant to the Employee Plan may not be exercised more
than ten years from the date of grant.
All officers and key employees of the Company or any of its current or
future parents or subsidiaries are eligible to receive options under the Plan.
The Employee Plan provides that the maximum number of shares of Common Stock for
which options may be granted under the Employee Plan to any participant prior to
the expiration of the Employee Plan on March 26, 2002 is 500,000 shares (subject
to appropriate adjustments to reflect changes in the capitalization of the
Company).
The Employee Plan is administered by the Compensation Committee of the
Board of Directors, consisting of Mr. Brind and Mrs. Gibson. The Compensation
Committee selects the optionees and determines the nature of the option granted,
the number of shares subject to each option, the option vesting schedule and
other terms and conditions of each option. The Compensation Committee, in its
sole discretion, has the authority to grant options with anti-dilution rights
which provide for the automatic grant of additional stock options (subject to
the limitations on the number of shares of Common Stock which may be issued
under the Employee Plan or to any participant) in the event that the Company
issues any additional shares of any class of its capital stock which causes the
number of stock options originally granted to such participant to constitute
less then a stated percentage of the Company's then outstanding Common Stock.
The Board of Directors may modify, amend, suspend or terminate the Employee
Plan, provided that such action may not affect outstanding options.
Options to purchase an aggregate of 1,100,000 shares of Common Stock
may be granted pursuant to the Employee Plan. Options granted under the Employee
Plan may be incentive stock options intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended, or options not intended to so qualify
("non-qualified options"). The Employee Plan requires the exercise price of
incentive stock options to be at least equal to the fair market value of the
Common Stock on the date of the grant. In the case of incentive options granted
to a shareholder owning, directly or indirectly, in excess of 10% of the Common
Stock, the option exercise price must be at least equal to 100% of the fair
market value of the Common Stock on the date of grant and such option may not be
exercised more than five years from the date of grant. The option price for
non-qualified options, at the discretion of the Compensation Committee, may be
less than the fair market value of the Common Stock on the date of grant.
All unexercised options terminate three months following the date an
optionee ceases to be employed by the Company or any parent or subsidiary of the
Company, other than by reason of disability or death (but not later than the
expiration date), whether or not such termination is voluntary, except that if
an optionee is terminated for cause, all unexcersied options will terminate
immediately. Any option held by an employee who dies or who ceases to be
employed because of disability must be exercised by the employee or his
representative within one year after the employee dies or ceases to be an
employee (but not later than the expiration date). Options are not transferable
except in the event of death to the decedent's estate. No options may be granted
under the Employee Plan after March 26, 2002.
Option Grants in the Last Fiscal Year
No options were granted under the Employee Stock Option Plan in fiscal
1996.
Director Compensation
Each director of the Company who is not an employee receives an annual
fee of $5,000 and a fee of $1,000 for each meeting of the Board or any committee
of the Board attended, plus reimbursement of expenses incurred in attending
meetings.
20
<PAGE>
Pursuant to the Company's 1995 Stock Option Plan for Non-Employee
Directors which was approved at the 1995 Annual Meeting of Shareholders (the
"1995 Director Plan"), each person who is not an employee of the Company or any
subsidiary is automatically granted an option to purchase 10,000 shares of
Common Stock upon his or her initial election or appointment to the Board and at
each annual meeting of shareholders thereafter, at the then fair market value of
the Common Stock. The 1995 Director Plan authorizes the issuance of options to
purchase an aggregate of 210,000 shares of Common Stock. All options are
exercisable immediately and, unless terminated earlier, by the terms of the 1995
Director Plan, expire ten years after the date of grant. At the 1996 Annual
Meeting of Shareholders, each of Mrs. Gibson and Messrs. Brind and Korman
received options to purchase 10,000 shares of Common Stock at $1.6875 per share.
The 1995 Director Plan replaced the Director Stock Option Plan which was adopted
in 1992 (the "1992 Director Plan").
Compliance with Section 16(a) Beneficial Ownership Comliance Reporting
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who beneficially own
more than ten percent of the Company's Common Stock, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater-than-ten-percent shareholders are required by regulation
of the Securities and Exchange Commission to furnish the Company with copies of
all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to the
Company's officers, directors and greater-than-ten-percent beneficial owners
were complied with during fiscal 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of February 1, 1997 certain
information with respect to the beneficial ownership of the Common Stock (i) by
each person who is known by the Company to be the beneficial owner of more than
5% of the Common Stock, (ii) by each director of the Company, (iii) by each
executive officer of the Company named in the Summary Compensation Table and
(iv) by all directors and executive officers of the Company as a group. Except
as otherwise indicated, the beneficial owners of the Common Stock listed below
have sole investment and voting power with respect to such shares.
Shares Beneficially
Owned(1)
-------------------
Number Percent
------ -------
David Feld (2) 5,650,752 52.0%
Ira Brind (3) (4) 43,500 *
Verna K. Gibson (3) 77,500 *
Bernard J. Korman (3) 29,500 *
Leonard Wasserman (5) 235,218 2.1
Larry Feld (6) 145,955 1.3
Frank E. Johnson (7) 28,407 *
Gary Kellman - *
All directors and executive officers as a group
(9 persons) (8) 6,215,216 57.2
- ----------------------
* Less than one percent.
(1) The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission and, accordingly,
include securities owned by or for the spouse, children or certain other
relatives of such person as well as other securities as to which the person
has or shares voting or investment power or has the right to acquire within
60 days after the Record Date. The same shares may be beneficially owned by
more than one person. Beneficial ownership may be disclaimed as to certain
of the securities.
(2) Includes 1,175 shares allocated to Mr. David Feld's account in the 401(k)
Profit Sharing Plan. Also includes 210,000 shares of Today's Man common
stock currently held by Mr. Feld which are subject to an option purchase
agreement held by Alex.Brown. A total of 5,439,578 shares have been pledged
by Mr. David Feld to secure certain personal loans. See Item 1.
"Business-Investment Considerations-Control by Majority Shareholder."
Excludes 124,100 shares held in trusts for the benefit of Mr. David Feld's
children, as to which Mr. David Feld disclaims beneficial ownership. Mr.
David Feld's address is c/o Today's Man, Inc., 835 Lancer Drive,
Moorestown, New Jersey 08057.
(3) Includes options to purchase 7,500 shares under the 1992 Director Plan and
20,000 shares under the 1995 Director Plan.
21
<PAGE>
(4) Includes 2,000 shares held by Mr. Brind in trust for his sons and 4,000
shares owned by his wife.
(5) Includes options to purchase 30,000 shares under the Employee Stock Option
Plan and 1,218 shares allocated to his account in the 401(k) Profit Sharing
Plan. Includes 124,100 shares held in trusts for the benefit of Mr. David
Feld's children for which trusts Mr. Wasserman is trustee. Also excludes
shares held in trusts for the benefit of Mr. Wasserman's children and
grandchildren. Mr. Wasserman disclaims beneficial ownership as to all such
trust shares.
(6) Includes options to purchase 24,333 shares under the Employee Stock Option
Plan and 1,197 shares allocated to his account in the 401(k) Profit Sharing
Plan. Includes 100 shares held by Mr. Larry Feld in trust for his son.
(7) Includes options to purchase 15,733 shares under the Employee Stock Option
Plan and 1,471 shares allocated to his account in the 401(k) Profit Sharing
Plan.
(8) Includes options to purchase an aggregate of 155,916 shares held by all
directors and executive officers as a group under the 1992 Director Plan,
the 1995 Director Plan and Employee Stock Option Plan, and 6,094 shares
allocated to the accounts of all executive officers as a group under the
401(k) Profit Sharing Plan.
Item 13. Certain Relationships and Related Transactions.
Certain Transactions
Executive Equity Plan Loans. The Company made loans to the former
participants of the Company's Executive Equity Plan to permit them to pay their
federal and state income tax resulting from the termination of that plan in 1992
and the conversion of the participant's interests in the plan into shares of
Common Stock, including loans of $239,085 to Mr. Wasserman, $272,798 to Mr.
Larry Feld and $30,112 to Mr. Johnson. These loans bear interest at 1% above the
prime rate, were payable in a single payment of principal and interest on April
14, 1996 (plus a 30 day grace period), subject to prepayment if the shares are
sold or the participant's employment with the Company terminates, and are
secured by a pledge of a portion of the shares. The Company believes that the
interest rate of these loans was comparable to the interest rate that
participants could obtain from unaffiliated parties but that the repayment terms
may be more favorable. Certain of these loans, including Messrs. Wasserman's,
Larry Feld's and Johnson's loans, are past due. The Company currently is
evaluating appropriate arrangements with the obligors of these loans.
Leases. The Company leases its executive offices, distribution center
and certain adjoining land, located in Moorestown, New Jersey, and three of its
superstores from Mr. David Feld. Set forth below is information with respect to
those leases. Except as noted below, the Company pays an annual base rental and
all operating expenses during the term of the lease, including property taxes
and insurance. None of the leases have unexercised renewal options.
Lease Lease Annual
Commencement Termination Base
Location Date Date Rental (1)
-------- ---- ---- ----------
Center City Philadelphia, PA 1980 2007 $ 364,992
Deptford, NJ 1985 2008 296,000(2)
Moorestown, NJ 1988 2010 739,200(3)
Langhorne, PA 1988 2008 342,250(2)
- -------------
(1) Does not include taxes, insurance and other operating expenses payable by
the Company.
(2) Increases annually based upon increases in the Consumer Price Index.
(3) A new lease agreement was executed in February 1995 which, among other
things, increased the annual base rental and extended the term of lease.
Mr. David Feld also was the landlord of the Company's King of Prussia
location until August 1996 at which time he sold the property to an unaffiliated
party.
The Company leases from Mr. David Feld a parcel of land adjacent to the
Company's Montgomeryville store for use as a parking lot pursuant to a two year
lease which expired in March 1994. The Company paid an annual base rental of
$81,000 plus all operating expenses during the term of this lease. The Company
continues to lease this parcel on a month-to-month basis pending the execution
of a new lease.
In fiscal 1996, the Company paid an aggregate of $2,053,500 to Mr.
David Feld under all leases with him. The Company believes that the terms of
each of the leases with Mr. David Feld are no less favorable to the Company than
those generally available from unaffiliated third parties. The Company will not
lease additional facilities to or from any officers, directors or affiliated
parties without the approval of its non-employee directors.
22
<PAGE>
Loans. In fiscal 1995, Mr. David Feld made a $5.0 million demand loan
to the Company which bears interest at the prime rate plus 0.5%, payable
quarterly in arrears. This loan is subordinated to the Company's existing credit
facilities. No principal payments have been made to Mr. David Feld on this loan.
Tax Indemnification Agreement. From January 1, 1987 to January 30,
1992, the Company was subject to taxation under Subchapter S of the Internal
Revenue Code of 1986. As a result, the net income of the Company, for federal
and certain state income tax purposes, was reported by and taxed directly to Mr.
David Feld, the Company's sole shareholder at such time, rather than to the
Company. In connection with the Company's initial public offering, the Company
entered into a tax indemnification agreement, as amended, with Mr. David Feld
which provided for, among other things (i) an indemnification by the Company of
Mr. Feld for any losses or liabilities with respect to any additional taxes
(including interest, penalties, legal fees and any additional taxes resulting
from any indemnification) resulting from the Company's operations during the
period in which it was an S Corporation and (ii) an indemnification by Mr. Feld
of the Company for the amount of any tax refund received by Mr. Feld due to a
reduction in his share of the Company's S Corporation earnings for calendar year
1991 and the period from January 1 through January 30, 1992 less any income
payable by Mr. Feld with respect to distributions to him from January 1, 1991
through September 15, 1993.
Manufacturing Facility. In May 1995, Mr. David Feld acquired a
manufacturing facility that was engaged in the production of tailored clothing
for the Company. Prior to acquiring this facility, Mr. Feld offered the
opportunity to make the acquisition to the Company; however, upon the
recommendation of the Audit Committee, the Board of Directors (with Mr. David
Feld abstaining) decided not to make the acquisition. The Company made purchases
totaling approximately $3,642,300 from this facility during 1996. The Company
believes that the costs of the purchases from this facility after the
acquisition by Mr. Feld were comparable to the costs of tailored clothing
generally available to the Company from unaffiliated parties. In April, 1997,
Mr. Feld sold this facility to an unaffiliated party.
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, 1996 and February 1,
1997
Consolidated Statements of Operations for the fiscal years ended
January 28, 1995, February 3, 1996 and February 1, 1997
Consolidated Statements of Shareholders' Equity for the fiscal
years ended January 28, 1995, February 3,
1996 and February 1, 1997
Consolidated Statements of Cash Flows for the fiscal years ended
January 28, 1995, February 3, 1996 and February 1, 1997
Notes to Consolidated Financial Statements
The Report of Independent Auditors, which covers the Company's
Consolidated Financial Statements appears on page F-2 of this
Report on Form 10-K.
2. 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
"*".
3. No financial statement schedules have been included because there
is either no respective financial statement caption or there is
full disclosure in the Notes to the Consolidated Financial
Statements.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 (1) The Company's Amended and Restated Articles of Incorporation
4.1 (1) Specimen of Common Stock Certificate
10.5 (1) Lease between Mr. David Feld and the Company relating to the Company's central headquarters
and distribution center
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.6 (1) Lease, as amended, between Mr. David Feld and the Company relating to the Center City
Philadelphia store
10.7 (1) Lease between Mr. David Feld and the Company relating to the Deptford store
10.9 (1) Lease, as amended, between Mr. David Feld and the Company relating to the Langhorne store
10.10 (1) Lease between Mr. David Feld and the Company relating to the lease of a parking lot adjacent to
the Montgomeryville store
*10.12 (1) Employee Stock Option Plan
*10.13 (1) Director Stock Option Plan
*10.14 (1) 401(k) Profit-Sharing Plan, as amended, and related Trust Agreement
10.15 (1) Tax Indemnification Agreement between the Company and Mr. David Feld
10.19 (1) First Amendment and Waiver to Subordinated Loan Agreement between the Company and Barclays
Bank, PLC
10.20 (1) Registration Rights and Board Observation Rights Agreement between the Company and Barclays
Bank, PLC
10.21 (1) Amendment to First Amendment and Waiver to Subordinated Loan Agreement between the Company and
Barclays Bank, PLC to reflect a reduction in the net proceeds of the initial public offering and a
reduction in the amount of the S corporation earnings distribution payable to the principal
shareholder
10.22 (3) Amendment No. 1 to Tax Indemnification Agreement between the Company and Mr. David Feld
10.23 (4) Amended and Restated License Agreement between the Company and D&L, Inc.
*10.24 (2) Form of Note and Stock Pledge Agreement for Executive Equity Plan tax loans
10.26 (2) Second Amendment and Consent to Subordinated Loan Agreement between the Company and Barclays Bank,
PLC
10.28 (4) Third Amendment and Consent to the Subordinated Loan Agreement between the Company and Barclays
Bank, PLC
10.30 (4) Amendment No. 1 to Employee Stock Option Plan
10.31 (4) Amendment No 1 to Director Stock Option Plan
10.37 (6) Fifth Amendment, Waiver and Consent to the Subordinated Loan Agreement between the Company and
Barclays Bank, PLC
10.39 (6) Sixth Amendment and consent to the Subordinated Loan Agreement between the Company and Barclay's
Bank, PLC.
10.40 (6) Credit agreement among Today's Man, Inc. and its subsidiaries, NationsBank, N.A., Shawmut Bank,
N.A., and The Bank of New York, N.A.
10.41 (7) Seventh Amendment and Consent to the Subordinated Loan Agreement between the Company and
Barclay's Bank, PLC.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.42 (7) Amended & Restated Credit Agreement dated as of April 27, 1995, amended and restated as of November
17, 1995, among NationsBank, N.A., Shawmut Bank, N.A. (now known as Fleet National Bank of
Massachusetts), and The Bank of New York (NJ) and the Company and each of its directly and
indirectly owned subsidiaries.
10.43 (7) Letter Agreement between David Feld and the Company dated November 17, 1995 concerning repayment of
indebtedness to Mr. Feld.
10.44 (8) Replacement Subordinated Demand Note between the Company and David Feld.
10.46 (8) License Agreement between the Company and Shoe Corporation of America.
10.47 Order of the U.S. Bankruptcy Court dated May 22, 1996 approving the Employee Retention Plan.
10.48 Order of the U.S. Bankruptcy Court dated July 25, 1996 approving the remaining provisions of the
Employee Retention Plan.
21.1 (5) Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended February 1, 1997.
</TABLE>
- --------------------------
(1) 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.
(2) 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.
(3) 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).
(4) 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).
(5) 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).
(6) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended April 29, 1995 (Commission File No. 0-20234).
(7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended October 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 3, 1996 (Commission File No. 0-20234).
25
<PAGE>
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 April
30, 1997.
TODAY'S MAN, INC.
By: /s/David Feld
-----------------------------------------
David Feld
Chairman of the Board 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.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/David Feld Chairman of the Board and Chief Executive April 30, 1997
- --------------------------- Officer (principal executive officer)
David Feld
/s/Leonard Wasserman Office of the President and Director April 30, 1997
- ---------------------------
Leonard Wasserman
/s/Larry Feld Vice President, Secretary and Director April 30, 1997
- ---------------------------
Larry Feld
/s/Frank E. Johnson Executive Vice President, Treasurer and April 30, 1997
- --------------------------- Chief Financial Officer
Frank E. Johnson
/s/Gary Kellman Executive Vice President, General Merchandise April 30, 1997
- --------------------------- Manager
Gary Kellman
/s/Barry S. Pine Vice President, Controller and Chief Accounting April 30, 1997
- --------------------------- Officer
Barry S. Pine
/s/Ira Brind Director April 30, 1997
- ---------------------------
Ira Brind
/s/Verna K. Gibson Director April 30, 1997
- ---------------------------
Verna K. Gibson
/s/Bernard J. Korman Director April 30, 1997
- ---------------------------
Bernard J. Korman
</TABLE>
26
<PAGE>
TODAY'S MAN, INC.
(Debtor-In-Possession)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Auditors F-2
Consolidated Balance Sheets as of February 3, 1996 and February 1, 1997 F-3
Consolidated Statements of Operations for the fiscal years ended
January 28, 1995, February 3, 1996 and February 1, 1997 F-4
Consolidated Statements of Shareholders' Equity for the fiscal years ended
January 28, 1995, February 3, 1996 and February 1, 1997 F-5
Consolidated Statements of Cash Flows for the fiscal years ended
January 28, 1995, February 3, 1996 and February 1, 1997 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
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. (the
Company and its principal operating subsidiaries in reorganization under Chapter
11 of the United States Bankruptcy Code since February 2, 1996, see Note 1 to
the Consolidated Financial Statements) as of February 1, 1997 and February 3,
1996, and the related Consolidated Statements of Operations, Shareholders'
Equity and Cash Flows for each of the three fiscal years in the period ended
February 1, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the Consolidated Financial Position of Today's Man, Inc.
at February 1, 1997 and February 3, 1996, and the Consolidated Results of its
Operations and its Cash Flows for each of the three fiscal years in the period
ended February 1, 1997, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates continuity of the Company's operations and realization
of its assets and payments of its liabilities in the ordinary course of
business. On February 2, 1996, Today's Man, Inc. filed a voluntary petition for
relief under Chapter 11 of the United States Bankruptcy Code and is currently
operating its business as a debtor-in-possession under the supervision of the
Bankruptcy Court. The Chapter 11 filing was the result of difficulties in
retaining bank financing, operating losses, deterioration of vendor support, and
cash flow problems. As more fully described in Note 1, the Company's ability to
continue as a going concern depends upon, among other things, approval of a plan
of reorganization by the Bankruptcy Court, a return by the Company to
profitability, and its ability to generate sufficient cash from operations and
other financing sources to support its business activities, all of which are
uncertain. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans to finance operating
activities and further reorganize operations are described in Note 1. The
accompanying Consolidated Financial Statements do not reflect further
adjustments that may be required in connection with reorganizing the Company
under Chapter 11 of the United States Bankruptcy Code.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 19, 1997
F-2
<PAGE>
TODAY'S MAN, INC.
(Debtor-In-Possession)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 3, February 1,
1996 1997
--------------- ---------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,385,400 $ 22,926,000
Due from credit card companies and other receivables, net of allowance
for uncollectible accounts of $151,600 and $284,000 2,973,600 2,299,400
Refundable income taxes 6,016,000 -
Inventory 35,465,800 28,636,600
Prepaid expenses and other current assets 2,413,200 3,548,300
Prepaid inventory purchases 4,324,500 2,047,100
--------------- ---------------
Total current assets 52,578,500 59,457,400
Property and equipment, less accumulated depreciation and amortization 35,530,500 33,452,200
Loans to shareholders 228,400 228,400
Rental deposits and other noncurrent assets 9,865,100 2,258,700
--------------- ---------------
$ 98,202,500 $ 95,396,700
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 2,543,700 $ 3,801,800
Accrued expenses and other current liabilities 3,085,700 4,731,500
Income taxes payable 30,700 -
Current maturities of capital lease obligations 2,134,600 1,396,500
--------------- ---------------
Total current liabilities 7,794,700 9,929,800
Capital lease obligations, less current maturities 3,343,400 2,264,000
Deferred rent and other 4,111,500 4,580,300
Liabilities subject to settlement 61,886,900 63,367,900
--------------- ---------------
77,136,500 80,142,000
Shareholders' equity:
Preferred stock, no par value, 5,000,000 shares authorized, none issued Common
stock, no par value, 20,000,000 shares authorized, 10,861,005
Shares issued and outstanding 38,269,100 38,269,100
Retained earnings (deficit) (17,203,100) (23,014,400)
---------------- ----------------
Total shareholders' equity 21,066,000 15,254,700
--------------- ---------------
$ 98,202,500 $ 95,396,700
=============== ===============
</TABLE>
See accompanying notes.
F-3
<PAGE>
TODAY'S MAN, INC.
(Debtor-In-Possession)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Fiscal Years Ended
--------------------------
January 28, February 3, February 1,
1995 1996 1997
--------------- --------------- ---------------
(52 weeks) (53 weeks) (52 weeks)
<S> <C> <C> <C>
Net sales $ 216,892,600 $ 263,256,000 $ 204,042,400
Cost of goods sold 137,439,200 180,928,200 134,524,200
--------------- --------------- ---------------
Gross profit 79,453,400 82,327,800 69,518,200
Selling, general and administrative expenses 70,264,100 100,753,000 65,982,500
Restructuring charges - 19,248,700 -
--------------- --------------- ---------------
Income (loss) from operations 9,189,300 (37,673,900) 3,535,700
Reorganization items:
Professional fees and other - - 4,341,100
Asset write-offs and additional lease
rejection claims, net - - 4,816,900
Interest income - - (310,300)
--------------- --------------- ----------------
Net reorganization items - - 8,847,700
Interest expense (excludes contractual interest
of $2,785,200 in fiscal year ended
February 1, 1997)
1,793,700 3,577,200 484,300
Interest income (95,600) (19,900) -
Other expense, net 535,300 653,500 15,000
--------------- --------------- ---------------
Income (loss) before income taxes 6,955,900 (41,884,700) (5,811,300)
Income tax provision (benefit) 2,348,000 (6,201,000) -
--------------- ---------------- ---------------
Net income (loss) $ 4,607,900 $ (35,683,700) $ (5,811,300)
=============== ================ ================
Net income (loss) per share $ .43 $ (3.29) $ (0.54)
=============== ================ ===============
Weighted average shares outstanding 10,818,956 10,846,971 10,861,005
</TABLE>
See accompanying notes.
F-4
<PAGE>
TODAY'S MAN, INC.
(Debtor-In-Possession)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
RETAINED
NUMBER EARNINGS
OF SHARES AMOUNT (DEFICIT)
----------- ------------ --------------
<S> <C> <C> <C>
Balances at January 29, 1994 10,798,815 $ 37,802,400 $ 13,872,700
Exercise of stock options 30,420 228,100 -
Shares issued 70 800 -
Net income - - 4,607,900
----------- ------------ --------------
Balances at January 28, 1995 10,829,305 38,031,300 18,480,600
Exercise of stock options 31,700 237,800 -
Net loss - - (35,683,700)
----------- ------------ ---------------
Balances at February 3, 1996 10,861,005 38,269,100 (17,203,100)
Net loss - - (5,811,300)
----------- ------------ ---------------
Balances at February 1, 1997 10,861,005 $ 38,269,100 $ (23,014,400)
=========== ============ ===============
</TABLE>
See accompanying notes.
F-5
<PAGE>
TODAY'S MAN, INC.
(Debtor-In-Possession)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Fiscal Years Ended
----------------------------------------------------------
January 28, February 3, February 1,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 4,607,900 $ (35,683,700) $ (5,811,300)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities:
Depreciation and amortization 3,639,300 4,790,700 4,066,200
Provision for uncollectible accounts
receivable 163,800 88,300 162,000
Accretion of debt discount 230,300 416,000 -
Deferred rent and other 578,900 907,300 468,800
Restructuring charges - 18,901,200 -
Changes in operating assets and liabilities:
Decrease (increase) in receivables (996,800) 1,395,900 405,000
Decrease (increase) in inventory (12,938,900) 21,680,900 6,829,200
(Increase) decrease in refundable
income taxes - (6,016,000) 6,016,000
(Increase) decrease in prepaid expenses (531,600) 2,403,200 1,142,300
(Decrease) increase in payables, accrued
expenses and liabilities subject to
settlement 9,202,500 (4,825,500) 4,155,200
(Increase) decrease in other
noncurrent assets (4,170,400) (651,700) 1,244,900
Changes due to reorganization activities:
Reorganization costs - - 8,847,700
Payment of reorganization costs - - (3,309,200)
--------------- --------------- ----------------
Total adjustments (4,822,900) 39,090,300 30,028,100
--------------- --------------- ---------------
Net cash (used in) provided by operating activities (215,000) 3,406,600 24,216,800
Investing activities:
Capital expenditures (13,769,200) (11,141,500) (1,278,900)
Shareholder loans 46,200 354,100 -
--------------- --------------- ---------------
Net cash used in investing activities (13,723,000) (10,787,400) (1,278,900)
Financing activities:
Borrowings under pre-petition revolving
credit facility 121,321,700 136,166,000 -
Subordinated loan from majority shareholder - 5,000,000 -
Repayment of capital leases (1,544,600) (2,349,600) (1,397,300)
Repayment of pre-petition debt (107,090,300) (131,380,100)
Proceeds from sale of stock options 228,900 237,800 -
--------------- --------------- ---------------
Net cash provided by (used in) financing activities 12,915,700 7,674,100 (1,397,300)
Net increase (decrease) in cash and cash
equivalents (1,022,300) 293,300 21,540,600
Cash and cash equivalents at beginning of year 2,114,400 1,092,100 1,385,400
--------------- --------------- ---------------
Cash and cash equivalents at end of year $ 1,092,100 $ 1,385,400 $ 22,926,000
=============== =============== ===============
</TABLE>
See accompanying notes.
F-6
<PAGE>
TODAY'S MAN, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Chapter 11 Proceedings
On February 2, 1996 Today's Man, Inc. ("the Company") and certain of its
subsidiaries filed voluntary petitions in the United States Bankruptcy Court for
the District of Delaware (the "Bankruptcy Court") seeking to reorganize under
Chapter 11 of the U.S. Bankruptcy Code. Under Chapter 11, certain claims against
the Company in existence prior to the filing of the petition for relief under
federal bankruptcy law are stayed while the Company continues business
operations as debtor-in-possession. These claims are reflected in the
accompanying Consolidated Balance Sheet as "liabilities subject to settlement."
In addition, the filing of a voluntary petition under Chapter 11 was an event of
default under all of the Company's loan agreements (See Note 7). One subsidiary
was not included in the Chapter 11 filings. The results of its operations and
financial position are not material to the Consolidated Financial Statements.
On March 11, 1996 by order of the Bankruptcy Court, the Company received
final approval for a $20 million Debtor-In-Possession Revolving Credit Facility
(the "DIP Facility") with the CIT Group/Business Credit, Inc. The DIP Facility
permits borrowings of up to $20 million, including a letter of credit sublimit
of $15.0 million, through the earlier of February 13, 1998 or the date of
substantial consummation of a plan of reorganization. Borrowings under the DIP
Facility will be subject to availability under a borrowing base formula.
Interest is payable monthly at the prime rate plus 0.5%. The Company has had no
borrowings under this DIP Facility since the inception of the loan. Loans under
the DIP Facility will have a superpriority administrative expense claims status
under the Bankruptcy Code, subject to certain exceptions.
The accompanying Consolidated Financial Statements have been prepared in
accordance with generally accepted accounting principles applicable to a company
on a "going concern" basis, which, except as otherwise noted, contemplates the
realization of assets and the liquidation of liabilities in the ordinary course
of business; however, as a result of the Chapter 11 proceedings, and
circumstances relating to this event, including the Company's debt structure,
its operating losses, and current economic conditions, such realization of
assets and liquidation of liabilities are subject to significant uncertainties.
As reflected in the Consolidated Financial Statements, the Company experienced
significant net losses in 1996 and 1995. During the Chapter 11 proceedings, the
Company has incurred and will continue to incur substantial reorganization
costs. The Company's ability to continue as a going concern is dependent upon
the confirmation of a plan of reorganization by the Bankruptcy Court, the
ability to secure adequate exit financing and to maintain compliance with all
debt covenants under the post-petition financing, combined with the achievement
of profitable operations. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.
A plan of reorganization, as finally approved by the Bankruptcy Court,
could materially change the currently recorded amounts of assets and
liabilities. These financial statements do not reflect further adjustments to
the carrying value of assets and the amounts and classifications of liabilities
or shareholders' equity that might be necessary as a consequence of the
bankruptcy proceedings. Events completed in relation to the Company's ongoing
operational restructuring include the closing of ten underperforming locations
and its outlet center and reductions in store operating expenses and corporate
overhead. Additional components of the operational restructuring include ongoing
evaluation of store operations, review of both corporate and store expenses and
a refocusing of the Company's merchandising and marketing strategies.
Since the commencement of the Chapter 11 filing, the Company has had the
exclusive right to file a plan of reorganization. The period of exclusivity
granted to the Company has been extended and is now scheduled to expire on June
2, 1997. The Company has agreed that it will not seek an extension of the period
of exclusivity without the prior written consent of the Creditor's Committee.
Any extension is within the discretion of the Bankruptcy Court.
Under the Bankruptcy Code, the Company may elect to assume or reject real
estate leases, employment contracts, personal property leases, service contracts
and other unexpired executory pre-petition contracts, subject to Bankruptcy
Court approval. Certain leases and contracts have been rejected in connection
with the Chapter 11 proceedings. Obligations related to these rejected items
have been included in liabilities subject to settlement in amounts pursuant to
the Bankruptcy Code. The ultimate amount of such claims is subject to adjustment
based on the finalization of a reorganization plan. Accordingly, the Company
cannot presently determine the ultimate liability which may result from the
filing of claims for any contracts which have been or may subsequently be
rejected in the Chapter 11 proceedings.
The Court established September 3, 1996 (the "Bar Date") as the deadline
for filing proofs of claim in the Chapter 11 proceedings. The Company has
notified all known claimants for the purposes of identifying all pre-petition
claims against the Company.
F-7
<PAGE>
TODAY'S MAN, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The principal categories of claims classified as liabilities subject to
settlement are identified below. All amounts below may be subject to further
adjustment depending on Bankruptcy Court action, further developments with
respect to disputed claims, determination as to the value of any collateral
securing claims, or other events. Additional claims may arise resulting from
rejection of additional executory contracts or unexpired leases by the Company.
February 3, February 1,
1996 1997
----------- -----------
Revolving credit facility $ 20,100,000 $ 21,894,000
Senior subordinated debt 1,750,000 1,750,000
Subordinated debt 5,000,000 5,000,000
Accounts payable 28,039,800 28,678,500
Lease termination claims 6,300,000 6,045,400
Other 697,100 -
------------ ------------
Total liabilities subject to settlement $ 61,886,900 $ 63,367,900
============ ============
There are approximately 4,000 scheduled liabilities and filed proofs of
claim against the Company. The aggregate amount of those claims which specified
amounts was approximately $270,000,000. Included among the claims filed have
been claims of unspecified amounts. The Company considers this amount to be
highly inflated and a totally unreliable estimate of its liabilities. The
Company intends to request the Bankruptcy Court to approve reductions of, or to
expunge, overstated, duplicate or amended claims. The ultimate amount of and
settlement terms for such liabilities will be subject to an approved plan of
reorganization and, accordingly, are not presently determinable. Therefore, no
provision has been made for the differences between the amounts filed with the
court and the balances reflected in the accompanying Consolidated Financial
Statements.
2. Description of Business and Significant Accounting Policies
Description of Business
The Company operates menswear superstores specializing in tailored
clothing, furnishings and accessories and sportswear. The Company also offers
footwear through licensed shoe departments. The superstores are located in the
Greater Philadelphia, Washington, D.C. and New York Markets.
Financial Reporting for Bankruptcy Proceedings
The American Institute of Certified Public Accountants Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7"), provides guidance for financial reporting by
entities that have filed petitions with the Bankruptcy Court and expect to
reorganize under Chapter 11 of the Bankruptcy Code.
Under SOP 90-7, the financial statements of an entity in a Chapter 11
reorganization proceeding should distinguish transactions and events that are
directly associated with the reorganization from those of the operations of the
ongoing business as it evolves. Accordingly, SOP 90-7 requires the following
financial reporting/accounting treatments in respect to each of the financial
statements.
Consolidated Balance Sheet
The balance sheet separately classifies pre-petition and post-petition
liabilities. A further distinction is made between pre-petition liabilities
subject to settlement (generally unsecured and undersecured claims) and those
not subject to settlement (fully secured claims). Pre-petition liabilities are
reported on the basis of the expected amount of such allowed claims, as opposed
to the amounts for which those allowed claims may be settled. Under an approved
final plan of reorganization, those claims may be settled at amounts
substantially less than their allowed amounts.
F-8
<PAGE>
TODAY'S MAN, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
When a liability subject to settlement becomes an allowed claim and that
claim differs from the net carrying amount of the liability, the net carrying
amount is adjusted to the amount of the allowed claim. The resulting gain or
loss is classified as a reorganization item in the Consolidated Statement of
Operations.
Consolidated Statements of Operations
Pursuant to SOP-90-7, revenues and expenses, realized gains and losses, and
provisions for losses resulting from the reorganization of the business are
reported in the Consolidated Statement of Operations separately as
reorganization items. Professional fees are expensed as incurred. Interest
expense is reported only to the extent that it will be paid during the
proceeding or that it is probable that it will be an allowed claim.
Consolidated Statements of Cash Flows
Reorganization items are reported separately within the operating,
investing and financing categories of the Consolidated Statement of Cash Flows.
Credit Card Receivables
The Company sells through third-party credit cards and collects related
receivables, generally within seven days. The Company, in connection with the
November 1995 Amendment and Restatement of its Revolving Credit Agreement,
granted the bank lenders a security interest in certain non-inventory assets.
Included in Cash and cash equivalents is approximately $1.0 million representing
the proceeds from receivables related to credit card sales in the three days
preceding the Chapter 11 filing which have been separated from the Company's
operating bank accounts for the potential benefit of the bank lenders if it is
ultimately determined that they have valid liens.
Inventory
Inventory consisting of merchandise held for sale is valued at cost, using
the retail method, which is not in excess of market.
Prepaid Inventory Purchases
Prepaid inventory purchases includes costs associated with merchandise
acquired which has not been received as of the Consolidated Balance Sheet date.
Property and Equipment
Property and equipment is stated at cost. Included in the cost is
capitalized interest in the amount of $193,800 for fiscal 1994 and $0 for both
fiscal 1995 and 1996 respectively. Depreciation and amortization is computed
using the straight-line method for financial reporting 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.
Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and the amount used for income tax purposes.
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly liquid investments purchased with an initial maturity of
three months or less to be cash equivalents. The Company held $22,926,000 of
such investments at February 1, 1997. These investments are stated at cost which
approximates market.
F-9
<PAGE>
TODAY'S MAN, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Preopening Costs
Non-capital costs associated with the opening of new locations are expensed
in the year of opening.
Recent Accounting Pronouncements
The Company has adopted the provisions of SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and
SFAS 123, "Accounting for Stock-based Compensation," in the fiscal year
beginning February 4, 1996. The adoption of these standards did not have a
material impact on the Company's Consolidated Financial Statements. SFAS 123
provides two alternative forms of accounting for stock compensation: pro-forma
disclosure of the effects on net income and earnings per share, or a charge to
earnings. The Company elected to utilize the pro-forma disclosure alternative in
its Consolidated Financial Statements and to account for stock-based
compensation in accordance with APB No. 25 "Accounting for Stock Issued to
Employees."
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All significant
intercompany accounts and transactions are eliminated. The Company operates on a
52-53 week with fiscal year end being the Saturday closest to January 31.
Net Income (Loss) Per Share
Net income (loss) per share is computed using the weighted average number
of common shares and common share equivalents outstanding during each year. The
calculation of net loss per common share does not include share equivalents in
determining the weighted average shares outstanding as the result would be
antidilutive.
Use of Estimates
The preparation of Consolidated Financial Statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect amounts reported in the Consolidated Financial
Statements and accompanying notes. Actual results could differ from those
estimates. See Note 1 "Chapter 11 Proceedings" regarding the potential impact of
the Bankruptcy proceedings on the amount of recorded assets and liabilities.
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 $14,467,200, $23,129,900 and
$11,066,000 for the fiscal years 1994, 1995 and 1996, respectively.
3. Restructuring
At February 3, 1996, the Company recorded a charge of $19,248,700 related
to the decision to restructure the operations of the Company to reduce operating
costs. The primary components of the charge are summarized below:
Fixed asset write-offs $12,622,700
Lease rejection, exit and other costs 6,626,000
-----------
$19,248,700
===========
F-10
<PAGE>
TODAY'S MAN, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The asset write-offs are comprised of fixtures and leasehold improvements
abandoned or disposed of in conjunction with store closings in the Greater
Chicago, New York and Washington, D.C. markets as well as the outlet store in
Sawgrass Mills, Florida. Sales and losses from operations for these locations
were $44,500,000 and $12,300,000, respectively, for fiscal 1995. Sales of
$3,830,400 were produced in these locations prior to their closing in the first
quarter of fiscal 1996. Lease rejection costs reflect management's estimate of
the settlement amounts related to lease rejections for closed stores, and are
included in Liabilities subject to settlement in the accompanying Consolidated
Balance Sheet. The ultimate satisfaction of these lease rejection claims is
subject to confirmation of any proposed plan of reorganization.
In addition, during 1995, in actions apart from the restructuring, the
Company incurred costs of $2,700,000 for severance of officers, the write-off of
amounts related to the development of new stores and closing a foreign buying
office. These amounts are included in Selling, general and administrative
expenses in the accompanying Consolidated Statement of Operations.
4. Property and Equipment
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
February 3, February 1,
1996 1997
------------ ------------
<S> <C> <C>
Furniture, fixtures and signs $ 7,837,500 $ 4,663,400
Leasehold improvements 42,245,900 32,198,400
Automotive equipment 62,600 62,600
Data processing equipment 1,394,800 1,582,200
Fixtures and equipment under capital leases 13,005,800 8,377,500
------------ ------------
Gross property and equipment 64,546,600 46,884,100
Accumulated depreciation (21,691,100) (9,542,600)
Accumulated amortization of equipment under capital leases (7,325,000) (3,889,300)
------------ -------------
Net property and equipment $ 35,530,500 $ 33,452,200
============ ============
</TABLE>
Gross property and equipment and accumulated depreciation and amortization
at February 3, 1996 include $12,622,700 which represents the reserve for the
write-off of fixtures and leasehold improvements which were abandoned or
disposed of in conjunction with the restructuring, during the fiscal year ended
February 1, 1997. (See Note 3.) Property and equipment accounts and their
associated accumulated depreciation accounts are reduced to "0" when the assets'
useful life has expired. Depreciation and amortization expense related to
property and equipment was $3,257,800, $4,133,600 and $3,329,700 for fiscal
years 1994, 1995 and 1996, respectively.
5. Barter Credits
At February 3, 1996, rental deposits and other noncurrent assets included
$4,600,000 relating to trade credits received by the Company in exchange for
merchandise sold to a barter agency. These credits may be used by the Company
for the purchase of various merchandise and services through September 1998. The
Company has determined that the Chapter 11 proceedings and the inherent business
environment significantly limit its ability to use the credits. These
limitations include, but are not limited to, reluctance on the part of vendors
to accept such credits; the curtailment of the Company's previous growth
strategy and a significant reduction in advertising expenditures. The Company
wrote off the $4,600,000 in the fourth quarter of 1996. The charge is included
as a component of the reorganization items in the accompanying Consolidated
Statement of Operations.
6. Related Party Transactions
Certain of the Company's superstores and its executive offices and
distribution center are leased from the Company's principal shareholder. Rent
expense on these locations was $2,211,200, $2,412,900 and $2,053,500 for the
fiscal years ended January 28, 1995, February 3, 1996 and February 1, 1997,
respectively.
F-11
<PAGE>
TODAY'S MAN, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Included in the schedule of operating lease commitments in Note 9 are
required payments on leases with the Company's principal shareholder, for its
principal offices and distribution center as well as certain stores, totaling
$1,708,000 for each of the next five years and $11,997,900 thereafter. Certain
of the leases require increasing payments based upon changes in the Consumer
Price Index.
In May 1995, the Company's principal shareholder acquired a manufacturing
facility. Purchases by the Company from this facility were approximately
$3,181,000 and $3,642,300 for the fiscal years ended February 3, 1996 and
February 1, 1997, respectively.
See Notes 7, 9 and 11 for discussions of additional related party
transactions.
7. Debt
As a result of the Chapter 11 filings (See Note 1) all long-term debt
outstanding at February 2, 1996 has been classified as Liabilities subject to
settlement. No principal or interest payments on pre-petition debt will be made
without Bankruptcy Court approval or until a reorganization plan defining the
repayment terms has been confirmed. A description of the debt facilities in
existence at the petition date follows.
In April 1995, the Company entered into a $50 million revolving credit
facility with NationsBank, N.A., The Bank of New York, N.A., and Fleet Financial
Corp., (formerly Shawmut Bank, N.A.) (the "Nations loan"). This facility
replaced a $30 million Revolving Credit Agreement with First Fidelity Bank, N.A.
The Nations loan was amended and restated in November 1995 to reflect
certain financial covenant modifications to accommodate the violations in the
second quarter of that fiscal year. The amended and restated Nations loan
agreement contained covenants relating to mandatory reductions in the principal
amounts outstanding. The Company reduced the outstanding principal balance from
$42.9 million on October 28, 1995 to $14.9 million on December 31, 1995, below
the covenant level of $15 million required in the amended loan agreement.
Further, the Company maintained compliance with the $24 million covenant limit
for the month of January 1996. In February 1996, the Company and the bank
lenders reached an understanding with regard to the merchandise purchased under
documentary letters of credit. This agreement, which was approved by the
Bankruptcy Court, required the Company to pay 80% of the face amount of
presentments in satisfaction of the documentary letters of credit and granted an
undisputed unsecured claim in the amount of the remaining balance. The terms of
the agreement also called for the Company to replace $550,000 of standby letters
of credit. Pursuant to this agreement and the documentary letters of credit
fundings made by the bank before consummation of this agreement, approximately
$2.1 million was added to the principal outstanding. The bank has also claimed
interest, fees and expenses in excess of $300,000 offset by a $600,000 gain from
the conversion of forward foreign exchange contracts outstanding at February 2,
1996.
The February 1995 amendment to the Fidelity Revolving Credit Agreement
required the Company's principal shareholder to provide a $5.0 million
subordinated demand loan to the Company. This loan bears interest at the rate
equal to the Nations loan, payable quarterly. No principal payments have been
made on this loan.
The Company's senior subordinated loan agreement was amended in connection
with the Nations loan agreement. This amendment accelerated the principal
repayment schedule and, accordingly, the Company made principal payments of
$750,000 in April and December 1995. The remaining principal balance was $1.75
million as of February 3, 1996.
The filing of a voluntary Chapter 11 petition was an event of default under
all of the Company's loan agreements. The Company has classified the loans from
NationsBank, Barclays Bank, PLC and the subordinated loan from the principal
shareholder as Liabilities subject to settlement in the accompanying
Consolidated Balance Sheets. In accordance with provisions of SOP 90-7 (See Note
2), the Company has not recognized interest expense on these loans since the
Chapter 11 filing as it is not probable that post-petition interest for any of
these loans will be an allowed claim in these proceedings. The Company and its
professionals are in the process of evaluating these issues. The Company's loan
agreements prohibit the payment of cash dividends without prior consent of the
lenders.
F-12
<PAGE>
TODAY'S MAN, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Debtor-In-Possession Financing
On March 11, 1996 by order of the Bankruptcy Court, the Company received
final approval for a $20 million Debtor-In-Possession Revolving Credit Facility
with The CIT Group/Business Credit, Inc. The facility permits borrowings of up
to $20 million, including a letter of credit sublimit of $15.0 million, through
the earlier of February 13, 1998 or the date of substantial consummation of a
plan or reorganization. Borrowings under the facility are subject to
availability under a borrowing base formula. Interest is payable monthly at the
bank's prime rate plus 0.5%. Loans under the facility have a superpriority
administrative expense claim status under the Bankruptcy Code, subject to
certain exceptions. The Company had no cash borrowings under this facility
during the fiscal year ended February 1, 1997. As of February 1, 1997 the
Company had outstanding letters of credit totaling $4,333,000 issued under this
facility.
9. Commitments and Contingencies
The Company leases its stores and distribution center under non-cancelable
operating leases. Several stores and the Company's distribution center are
leased from the Company's principal shareholder. (See Note 6.) In addition,
certain equipment leases are classified as capital leases. The following is a
schedule by year of the future minimum lease payments for leases with initial
terms in excess of one year at February 1, 1997:
Capital Operating
Leases Leases
------ ------
1997 $ 1,697,800 $ 11,954,100
1998 1,396,000 11,762,800
1999 885,400 12,000,600
2000 215,300 11,474,000
2001 - 10,608,600
Thereafter - 43,030,400
------------ --------------
Total minimum lease payments 4,194,500 $ 100,830,500
==============
Less:
Amounts representing interest 534,000
------------
Present value of net minimum lease
payments $ 3,660,500
============
Amounts due on leases which have been rejected in connection with the
Chapter 11 filing have been excluded from the above table.
Total rent expense for the fiscal years ended January 28, 1995, February
3, 1996 and February 1, 1997 was $11,724,200, $16,424,800 and $12,593,900,
respectively.
The distribution center lease provides for payment of direct operating
costs including real estate taxes. Certain store leases provide for increases in
rentals when sales exceed specified levels. To date, no such payments have been
required.
Certain store leases provide for predetermined escalations in future
minimum annual rentals. The pro rata portion of future minimum rent escalations,
amounting to $2,497,800 and $3,141,700 at February 3, 1996 and February 1, 1997
respectively, has been included in deferred rent and other in the accompanying
Consolidated Balance Sheets.
10. Other Income/Expense
The charge to other expense for the Company's owned life insurance program
which was terminated during fiscal 1996 was $628,500, $476,000 and $0 for the
years ended January 28, 1995, February 3, 1996 and February 1, 1997
respectively.
F-13
<PAGE>
TODAY'S MAN, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Profit Sharing Plan
The Company has a profit sharing plan under Section 401(k) of the Internal
Revenue Code. The plan allows all eligible employees to defer up to 6% of their
income on a pretax basis through contributions to the plan. Under the provisions
of the plan, the Company matches 40% of the employees' contributions subject to
a maximum limit.
The charge to operations for Company contributions was $310,600, $344,800
and $266,800 for the years ended January 28, 1995, February 3, 1996 and February
1, 1997, respectively.
In August 1995, the Company established an Employee Stock Purchase Plan
which, once initiated, will enable eligible employees, through payroll
deduction, to acquire the Company's Common Stock. The Company matches 10% of an
employee's contribution. This plan has not yet been activated.
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 the
fourth quarter of 1995, the Company wrote down the shareholder loans to reflect
the fair value of the underlying collateral. The amount of this charge was
$684,000 and was included in Selling, general and administrative expenses in the
accompanying Consolidated Statement of Operations. At this time, the Company has
made no decision relative to the collection of these loans.
12. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
For the Fiscal Years Ended
-----------------------------------------------
January 28, February 3, February 1,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Interest paid $ 1,679,900 $ 3,654,900 $ 452,400
Income taxes paid $ 3,839,300 $ 1,089,800 $ -
Noncash investing and financing activities:
Capital lease obligations incurred $ 2,412,400 $ 2,830,100 $ -
</TABLE>
13. Income Taxes
The provisions for income taxes (benefit) consist of the following:
<TABLE>
<CAPTION>
For the Fiscal Years Ended
-----------------------------------------------
January 28, February 3, February 1,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $ 2,528,500 $ (5,796,300) $ -
State 151,800 - -
Deferred:
Federal (193,700) (375,900) -
State (138,600) (28,800) -
----------- ------------ ------------
$ 2,348,000 $ (6,201,000) $ -
=========== ============ ============
</TABLE>
F-14
<PAGE>
TODAY'S MAN, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A reconciliation of the effective tax rate with the statutory federal income tax
rate follows:
<TABLE>
<CAPTION>
For the Fiscal Years Ended
-----------------------------------------------
January 28, February 3, February 1,
1995 1996 1997
---------- ------------- -----------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income tax, net of federal income tax effects .1 - -
Effect of permanent differences (3.7) 1.5 (28.6)
Federal income tax valuation allowance - (20.7) (6.7)
Other 3.3 - 1.3
--- - ---
33.7% 14.8% -%
==== ==== ===
</TABLE>
The components of the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
February 3, February 1,
1996 1997
------------- -------------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities $ 8,472,200 $ 2,877,000
Inventory 428,000 348,800
Net operating loss carryforward 734,800 6,629,700
AMT credit carryforward 394,000 412,900
Leases 807,600 1,275,500
Bad debts 14,200 113,700
------------- -------------
Total deferred tax assets 10,850,800 11,657,600
Less: deferred tax valuation allowance (10,196,800) (10,619,000)
------------- -------------
Net deferred tax assets 654,000 1,038,600
------------- -------------
Deferred tax liabilities:
Property and equipment, including capital leases 636,800 399,700
Other 417,200 1,038,900
------------- -------------
1,054,000 1,438,600
------------- -------------
Net deferred tax liability $ 400,000 $ 400,000
============= =============
</TABLE>
The valuation allowance against deferred tax assets increased by $422,200 in
fiscal 1996 due to the increase in net deferred tax assets.
The Company's fiscal 1995 loss was carried back and generated a refund of
previously paid taxes of approximately $5,800,000. The bank lenders have, under
the terms of the Amended and Restated Credit Agreements, asserted a lien on the
amounts of such refunds. While the Company believes this assertion is without
merit, if the lenders were successful any refund would be applied as a reduction
of the Company's pre-petition liability to the lenders. The proceeds for the tax
refund have been separated from operating bank accounts for the potential
benefit of the bank lenders if it is ultimately determined that they have valid
liens.
There are no additional taxes paid in prior years which are available for
refund. As such, the remaining net operating loss carryforward of $16,773,500
and AMT credit carryforward of $412,900 are available to offset future tax
liabilities, subject to any applicable limitations under Internal Revenue Code
Section 382 and can be affected by the ultimate treatment of liabilities subject
to settlement. These carryforwards are fully offset by the valuation allowance.
The federal net operating loss carryforwards expire in 2010 and 2011.
F-15
<PAGE>
TODAY'S MAN, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued
14. Stock Option Plan
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 and non-employee director stock
options because the alternative fair value accounting provided for under FASB
Statement No. 123, " Accounting for Stock-Based Compensation," requires the use
of option valuation models that were not developed for use in valuing employee
stock options. The effect of applying Statement No. 123's fair value method to
the Company's stock-based awards results in pro-forma net income and earnings
per share that are not materially different from amounts reported.
At February 1, 1997, the Company had outstanding options to purchase an
aggregate of 393,550 shares of Common Stock under employee and director stock
option plans. The following table summarizes activity in fiscal 1994, fiscal
1995 and fiscal 1996.
<TABLE>
<CAPTION>
Number of Shares Under Option Exercise Price Per Share
----------------------------- ------------------------
Employee Stock Director Stock
Option Plan Option Plan Total
(A) (B)
<S> <C> <C> <C> <C> <C>
Outstanding at January 29, 1994 361,050 15,000 376,050 $ 7.50 - $ 18.75
Options issued 453,000 7,500 460,500 $ 8.00 - $ 15.75
Options canceled (9,450) - (9,450) $ 7.50 - $ 18.00
Exercised (30,420) - (30,420) $ 7.50
---------- -------- ---------- -------------------
Outstanding at January 28, 1995 774,180 22,500 796,680 $ 7.50 - $ 18.75
Options issued 196,000 30,000 226,000 $ 12.31 - $ 13.75
Options canceled (378,030) (22,500) (400,530) $ 7.50 - $ 18.75
Exercised (31,700) - (31,700) $ 7.50
---------- -------- ---------- -------------------
Outstanding at February 3, 1996 560,450 30,000 590,450 $ 7.50 - $ 18.75
Options issued - 30,000 30,000 $ 1.69
Options canceled (226,900) - (226,900) $ 7.50 - $ 18.75
Exercised - - -
---------- -------- ---------- -------------------
Outstanding at February 1, 1997 333,550 60,000 393,550 $ 1.69 - $ 15.75
======= ====== ========= ===================
Exercisable at February 1, 1997 228,104 60,000 288,104 $ 1.69 - $ 15.75
========= ======== ========= ===================
</TABLE>
(A) Options to purchase an aggregate of 1,100,000 shares of Common Stock may be
granted pursuant to this plan. Options are granted at the fair market value
at the date of grant. At February 1, 1997, 695,630 shares were available
for grant. The unexercisable options issued during the year ended January
28, 1995 vest over five years beginning in March 1995; the unexercisable
options issued during the year ended February 3, 1996 vest over three years
beginning in June 1996. All options issued expire ten years from the date
of grant.
(B) In June of 1995, the 1995 Stock Option Plan for Non-Employee Directors was
approved by the shareholders. The 1995 Director Plan replaced the 1992
Director Plan, which authorized the Company to issue options to purchase
50,000 shares of common stock. The 1995 Director Plan authorizes the
Company to issue options to purchase an aggregate of 210,000 shares of
common stock. Options are granted at the fair market value at the date of
grant, and all options issued expire ten years from the date of grant. At
February 1, 1997, 150,000 shares were available for grant pursuant to the
1995 Director Plan.
F-16
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements (Form
S-8, No. 33-65360, 33-81806, and 33-95360) of Today's Man, Inc. Of our report
dated March 19, 1997 with respect to the consolidated financial statements of
Today's Man, Inc. Included in the Annual report (Form 10-K) for the year ended
February 1, 1997.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
May 1, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AT FEBRUARY 1, 1997 AND THE CONSOLIDATED STATEMENTS
OF OPERATIONS FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> FEB-01-1997
<CASH> 22,926,000
<SECURITIES> 0
<RECEIVABLES> 2,583,400
<ALLOWANCES> 284,000
<INVENTORY> 28,636,600
<CURRENT-ASSETS> 59,457,400
<PP&E> 46,884,100
<DEPRECIATION> (13,431,900)
<TOTAL-ASSETS> 95,396,700
<CURRENT-LIABILITIES> 9,929,800
<BONDS> 0
0
0
<COMMON> 38,269,100
<OTHER-SE> (23,014,400)
<TOTAL-LIABILITY-AND-EQUITY> 95,396,700
<SALES> 204,042,400
<TOTAL-REVENUES> 204,042,400
<CGS> 134,524,200
<TOTAL-COSTS> 134,524,200
<OTHER-EXPENSES> 65,982,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 484,300
<INCOME-PRETAX> (5,811,300)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,811,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,811,300)
<EPS-PRIMARY> (0.54)
<EPS-DILUTED> (0.54)
</TABLE>
