10-Q 1 ten-q.txt 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended May 4, 2002 ------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended _______________________to________________________ ------------------------------------------ Commission File No.0-20234 ------- Today's Man, Inc. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-1743137 -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 835 Lancer Drive, Moorestown, NJ 08057 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number 856-235-5656 --------------------------------------------------- Not Applicable -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES __X__ NO _____. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN A BANKRUPTCY DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES _____ NO _____. 27,040,725 common shares were outstanding as of May 20, 2002. TODAY'S MAN INC. ---------------- INDEX -----

See accompanying notes. 1

See accompanying notes. 2

See accompanying notes. 3 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Financial Statement Presentation The accompanying unaudited consolidated financial statements, which include the accounts of the Company and its wholly owned subsidiaries, have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. All significant intercompany transactions and accounts have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring accruals and the asset write-offs and lease termination costs disclosed in Note 3) considered necessary for a fair presentation have been included. Due to the seasonal nature of the Company's sales, operating results for the interim period are not necessarily indicative of results that may be expected for the fiscal year ending February 1, 2003. For further information, refer to the consolidated financial statements and footnotes thereto which are included in the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2002. Certain prior period amounts have been reclassified to conform to the current period presentation. In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (FAS 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for a "Disposal of a Segment of a Business." FAS 144 is effective for fiscal years beginning after December 15, 2001. The Company adopted FAS 144 as of February 3, 2002 and has determined the adoption of FAS 144 has not had a material effect on the Company's financial position and results of operations. 2. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 3. Store Closings For the fiscal year ended February 2, 2002, the Company recorded store closing and other unusual charges of $1,545,700, primarily related to one store closing in fiscal 2001 and two anticipated store closings in fiscal 2002 to cover estimated lease termination costs and asset impairment charges. During the thirteen weeks ended May 4, 2002 the Company paid $372,500 related to these charges and at May 4, 2002, $978,300 of these charges have not been paid and are reported in accrued expenses and other current liabilities. These amounts are expected to be paid by the end of fiscal 2002. 4 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Investment Considerations In analyzing whether to make, or to continue, an investment in the Company, investors should consider, among other factors, certain investment considerations more particularly described in "Item 1: Business - Investment Considerations" in the Company's Annual Report on Form 10-K for the year ended February 2, 2002, a copy of which can be obtained, without charge except for exhibits to the Report, upon written request to Mr. Frank E. Johnson, Executive Vice President and Chief Financial Officer, Today's Man, Inc., 835 Lancer Drive, Moorestown, New Jersey 08057. Safe Harbor Statement under Private Securities Litigation Reform Act of 1995 Certain statements in this Form 10-Q which are not historical facts, including, without limitation, statements as to the Company's plans for fiscal 2002, or as to management's beliefs, expectations, or opinions, are forward looking statements that involve risks and uncertainties and are subject to change at any time. Certain factors, including, without limitation the risk that the assumptions upon which the forward-looking statements are based ultimately may prove incorrect, risks relating to the Company's performance and relationship with its lender, the Company's growth strategy, small store base and geographic concentration, the declining unit sales of men's tailored clothing, control of the Company by its principal shareholder, the Company's relationship with its suppliers and possible foreign currency fluctuations, the Company's dependence on senior management, the effects of seasonality and general economic conditions, competition and the other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission, including, without limitation, its Annual Report on Form 10-K, can cause actual results and developments to be materially different from those expressed or implied by such forward-looking statements. See "Investment Considerations" above, for instructions on how to receive a copy of the Company's Annual Report. RESULTS OF OPERATIONS: The following table sets forth, as a percentage of net sales, certain items appearing in the consolidated statements of operations for the thirteen week periods ended May 4, 2002 and May 5, 2001, respectively. PERCENTAGE OF NET SALES THIRTEEN WEEKS ENDED May 4, May 5, 2002 2001 ------------------------ Net sales 100.0% 100.0% Cost of goods sold 54.4 59.3 ------------------------ Gross profit 45.6 40.7 Selling, general and administrative expenses 47.7 46.4 ------------------------ Loss from operations (2.1) (5.7) Interest expense and other income, net 1.2 1.3 ------------------------ Loss before income taxes (3.3) (7.0) Income taxes (0.0) (0.0) ------------------------ Net loss (3.3%) (7.0%) ======================== 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) THIRTEEN WEEKS ENDED MAY 4, 2002 AND MAY 5, 2001: NET SALES. Net sales decreased $4,934,800 or 15.6% in the first quarter of fiscal 2002 compared to the year ago period. Comparative store sales decreased 18.2%. The decrease in sales was due to a decline in foot traffic in stores. Part of the decline in foot traffic was due to the Company's decision to eliminate television and radio advertising in the first quarter of fiscal 2002. There were 24 superstores and six mall stores in operation at May 4, 2002 and 25 superstores and no mall stores in operation at May 5, 2001. GROSS PROFIT. Gross profit as a percentage of net sales increased to 45.6% for the first quarter of fiscal 2002 compared to 40.7% in the first quarter of fiscal 2001. The increase in the gross profit percentage was a result of lower markdowns incurred due to better management of inventories and opportunistic inventory purchases. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreased $1,912,100 or 13.1% in the first quarter of fiscal 2002, and increased as a percentage of sales to 47.7% from 46.4% in the first quarter of fiscal 2001. Advertising expenses decreased $2,380,000 due to the Company's decision to eliminate television and radio advertising in the first quarter of fiscal 2002. Store payroll expenses decreased by $378,900 due to reductions in staffing in the first quarter of fiscal 2002. These decreases were partially offset by an increase of $760,000 in rent and occupancy expenses in the first quarter of fiscal 2002 as a result of a favorable adjustment in the prior year quarter resulting from a lease termination settlement, rent increases at certain existing locations, as well as the additional rent for six mall stores in the first quarter of fiscal 2002. INTEREST EXPENSE AND OTHER INCOME, NET. Interest expense, interest income and other expense, net decreased by $102,300 from the first quarter of fiscal 2001. The decrease in interest expense was attributable to the decreased amount of average borrowings incurred as well as the decrease in the interest rate charged under the Company's Amended Loan and Security Agreement with LaSalle Bank. The Company had average borrowings under its revolving credit facility of $17,789,800 during the quarter ended May 4, 2002 as compared to average borrowings of $18,179,000 under its revolving credit facility during the quarter ended May 5, 2001. The interest rate in effect was 6.000% as of May 4, 2002 as compared to 8.625% as of May 5, 2001. As a result of revolving credit borrowings, the Company recorded interest expense of $315,100 during the quarter ended May 4, 2002 as compared to $417,400 during the quarter ended May 5, 2001. LIQUIDITY AND CAPITAL RESOURCES Company Performance and its Lending Institution Relationship Since the Company emerged from bankruptcy on December 31, 1997, it has sustained significant declines in sales and has experienced aggregate net losses of approximately $37,000,000. During the same period, the Company's working capital has declined and debt has increased. The decline in sales and resulting decline in working capital and increase in debt are due in part to a decrease in traffic and therefore a decrease in comparable store sales in four out of the last five fiscal years. Another contributing factor to the decrease in sales and working capital and the increase in debt is the fact that the Company closed five under performing stores over the last two fiscal years and has recorded charges of $7,833,000 related to the store closings. The Company has successfully negotiated settlements with 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) the landlords on all but two of the leases. The Company expects to settle the remaining leases in fiscal 2002. Additionally, the Company has taken steps to right size the business, such as to reduce its operating expenses and inventory levels to be in line with the current revenue stream. Further, the Company opened six new concept stores in fiscal 2001. Each store is located in a suburban shopping mall within the Company's existing footprint. The Company believes that these locations will generate greater traffic than its existing locations, while requiring significantly less square footage and therefore less inventory investment. The Company also believes that, to the extent the concept stores are located in a regional shopping mall, they will experience less competition from other menswear retailers. The Company plans to open additional new concept locations in fiscal 2002 and beyond. The Company may also open additional superstores in the future, if the demographics and economics work for a location(s). Despite its efforts, the Company has required assistance from its lending institution to sustain its operations. In order to address liquidity needs to remain in compliance with the credit facility, which currently expires on February 2, 2004, the Company and the lending institution have entered into 13 amendments or modifications, since its inception on December 4, 1998. The Company's credit facility has covenants requiring, amongst other things, minimum tangible net worth levels, net income/net loss levels and fixed charge coverage ratios. The agreement also requires the daily application of Company receipts as payments against the credit facility and daily borrowings to fund cash requirements. Additionally, as is common for asset based lending agreements, the Company's credit facility gives the lending institution the ability to declare an event of default, and thus render the loan immediately due and payable, based upon the lending institution's own determination of a "material adverse change". If this were to occur, the Company would not be able to repay the loan in full. The indebtedness is secured by virtually all the Company's assets, including its inventory. In the event of default, the lender would be able to take possession of such assets and sell them to pay off the loan. The Company has sought, but has not obtained, other sources of financing and has explored other efforts to improve its capital structure. The Company's ability to execute on its new business strategy, continue to improve operations, improve its capital structure and maintain its working relationship with the lending institution are all pivotal to the Company's ability to sustain operations. The Company is party to a Loan and Security Agreement with LaSalle Bank, N.A. individually and as agent. As of May 4, 2002, the Loan and Security Agreement, as amended on April 25, 2002, provides for a $23.0 million revolving credit facility, with a $5.0 million sublimit for letters of credit. Outstanding letters of credit at May 4, 2002 were $978,000. The facility bears interest at 1.25% per annum above LaSalle's base rate and expires on February 2, 2004. The Company must pay a termination fee of $1,050,000 if the facility is terminated on or before February 2, 2004. Availability under the revolver is determined by a formula based on inventory and credit card receivables, less applicable reserves. Availability under the revolving credit facility was $1,267,000 as of May 4, 2002. The agreement provides for an over-advance facility. The permitted out-of-formula advances may not exceed $3,500,000 from February 27, 2002 to May 30, 2002. The over-advance facility is then reduced to $3,000,000 on May 31, 2002, $2,750,000 on June 30, 2002, increases to $3,500,000 on July 31, 2002, reduces to $3,000,000 on September 30, 2002, $2,500,000 on November 30, 2002, $1,750,000 on December 15, 2002 and expires on December 31, 2002. The Company granted LaSalle Bank a lien on its tangible and intangible assets to secure this facility. Additionally Mr. David Feld, Chairman of the Board and principal shareholder of the Company, provided additional collateral to secure the credit facility. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The Company has been substantially dependent upon borrowings under its credit facility to finance its operations. The Company is in the process of implementing a plan to reverse the trend of losses noted above. Management's plans implemented thus far, as well as actions initiated that will continue into fiscal 2002, include the execution of the amended credit facility, the opening of additional new concept stores, a layoff of non-operating personnel in January 2002, the closing of one under performing store in fiscal 2001, and the anticipated closing of two under performing stores in fiscal 2002. Management believes the cash requirements in fiscal 2002 will be met by operations and borrowings on the Company's credit facility. Management also believes that the actions previously initiated, as well as its fiscal 2002 plans, will result in the successful funding of the Company's working capital and cash requirements, while enabling the Company to meet its financial covenants under its credit facility. Critical Accounting Policies The financial statements and accompanying notes included under Item 1 have been prepared in conformity with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company's management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management evaluates such estimates and assumptions on an ongoing basis. Such estimates and assumptions are based on historical experience, analysis of current trends, and various other factors that management believes to be reasonable under the circumstances. Actual results could differ from those estimates under different assumptions or conditions. Management believes that the Company's application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates are constantly reevaluated, and adjustments are made when facts and circumstances dictate a change. Historically, management has found the Company's application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates. The Company's significant accounting policies are described in the notes accompanying the financial statements included under Item 1. Management considers these accounting policies to be more critical to the preparation of the financial statements and accompanying notes. Inventories Merchandise inventories are valued at the lower of cost or market as determined by the retail method (average cost basis). Under the retail inventory method ("RIM"), the valuation of inventories at cost and the resulting gross margins are determined by applying a calculated cost-to-retail ratio to the retail value of inventories. RIM is an average method that has been widely used in the retail industry due to its practicality. Also, it is recognized that the use of the retail inventory method will result in valuing inventories at lower of cost or market if markdowns are currently taken as a reduction of the retail value of inventories. Inherent in the RIM calculation are certain significant 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) management judgments and estimates including, among others, merchandise markon, markup, markdowns and shrinkage, which significantly impact the ending inventory valuation at cost as well as resulting gross margins. These significant estimates, coupled with the fact that the RIM is an averaging process, can, under certain circumstances, produce distorted or inaccurate cost figures. Consequently, future events such as store closings, liquidations, and the general economic environment for retail apparel sales could result in an increase in the level of markdowns, which could result in lower inventory values and increases to cost of sales in future periods. In addition, failure to take markdowns currently can result in an overstatement of cost under the lower of cost or market principle. Management believes that the Company's RIM provides an inventory valuation which reasonably approximates cost and results in carrying inventory at the lower of cost or market. Store Closing Provision The Company provides a provision for store closings when the decision to close a store is made. The provision consists of incremental costs which are expected to be incurred including future net lease obligations, fixed asset write-offs, employee costs and other obligations as a result of the Company's actions. Although management does not anticipate significant changes, the actual costs may differ from these estimates. Revenue Recognition Revenues from merchandise sales are recognized at the point of sale and are recorded net of actual returns and exclude sales tax. The Company adopted the provisions of Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No. 101 ("SAB 10"), "Revenue Recognition in Financial Statements," effective as of the beginning of Fiscal 2000. As a result of adoption of SAB 101, the Company changed its method of recording licensed shoe department sales. This change reduced reported sales and reported expenses but had no impact on operating or net income. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company is a retail company doing business within the United States. Its primary market risk is exposure to interest rates fluctuations on its debt instruments. The Company's bank revolving credit facility bears interest at variable rates. The variable interest rate is the rate in effect at the quarter ended May 4, 2002, and it fluctuates with the lending bank's prime rate. A hypothetical increase of 200 basis points in the interest rate on the Company's revolving credit facility would have an immaterial effect on the Company's operations. 9 PART II - OTHER INFORMATION --------------------------- Item 1. Legal Proceedings ----------------- None - not applicable Item 2. Changes in Securities and Use of Proceeds ----------------------------------------- None - not applicable Item 3. Defaults Upon Senior Securities ------------------------------- None - not applicable Item 4. Submission of Matters to a Vote of Shareholders ----------------------------------------------- None - not applicable Item 5. Other Information ----------------- None - not applicable Item 6. Exhibits and Reports on Form 8-K -------------------------------- Exhibits None - not applicable Reports on Form 8-K None - not applicable 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TODAY'S MAN, INC. (Registrant) Date: June 7, 2002 /s/David Feld ------------------------------------ David Feld Chairman of the Board Date: June 7, 2002 /s/Bruce Weitz ------------------------------------- Bruce Weitz President and Chief Executive Officer Date: June 7, 2002 /s/Frank E. Johnson ------------------------------------- Frank E. Johnson Executive Vice President, Chief Financial Officer and Treasurer Principal Financial Officer Date: June 7, 2002 /s/David J. Brown ------------------------------------- David J. Brown Vice President and Controller Principal Accounting Officer 11

TODAYS MAN INC 10-Q