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 August 3, 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 X NO . --------- ------------ 26,888,260 common shares were outstanding as of August 30, 2002.

See accompanying notes. 1 TODAY'S MAN, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

See accompanying notes. 2

See accompanying notes. 3

See accompanying notes. 4 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 or 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 August 3, 2002, the Company paid $252,700 related to these charges and at August 3, 2002, $675,400 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. 5 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 4. Executive Equity Plan Loans On August 2, 2002 the Company foreclosed on and cancelled 152,465 shares of common stock held as collateral for loans made to the former participants of the Company's Executive Equity Plan which was terminated in 1992. These loans were fully reserved in prior years and the retirement of these shares did not have a material effect on the Company's financial position or results of operations. 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. 6 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 and twenty-six periods ended August 3, 2002 and August 4, 2001, respectively.

7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) THIRTEEN WEEKS ENDED AUGUST 3, 2002 AND AUGUST 4, 2001: ------------------------------------------------------- NET SALES. Net sales decreased $6,668,600 or 19.1% in the second quarter of fiscal 2002 compared to the year ago period. Comparative store sales decreased 24.6%. The decrease in net sales was a result of a decline in foot traffic in stores partially attributable to the Company's decision to eliminate television and radio advertising in fiscal 2002. There were 24 superstores and six mall stores in operation at August 3, 2002 and 25 superstores and no mall stores in operation at August 4, 2001. GROSS PROFIT. Gross profit as a percentage of net sales increased to 43.1% for the second quarter of fiscal 2002 compared to 40.5% for second quarter of fiscal 2001. The increase in 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 $3,217,400 or 19.5% in the second quarter of fiscal 2002, and decreased as a percentage of sales to 47.1% from 47.4% in the second quarter of fiscal 2001. Advertising expenses decreased $2,693,200 due to the Company's decision to eliminate television and radio advertising in fiscal 2002. Additionally, payroll expenses decreased $392,300 due to reductions in staffing. INTEREST EXPENSE AND OTHER INCOME, NET. Interest expense, interest income and other expense, net decreased by $26,200 from the second quarter of fiscal 2001. The decrease in interest expense was attributable to the decrease in the interest rate charged under the Company's Amended Loan and Security Agreement with LaSalle Bank, N.A. (successor to Mellon Bank). The Company had average borrowings under its revolving credit facility of $16,726,700 during the second quarter of fiscal 2002 as compared to average borrowings of $16,180,500 under its revolving credit facility during the second quarter of fiscal 2001. The interest rate in effect was 6.00% as of August 3, 2002 as compared to 7.88% as of August 4, 2001. As a result of revolving credit borrowings, the Company recorded interest expense of $328,100 during the second quarter of fiscal 2002 as compared to $354,300 during the second quarter of fiscal 2001. TWENTY-SIX WEEKS ENDED AUGUST 3, 2002 AND AUGUST 4, 2001: --------------------------------------------------------- NET SALES. Net sales decreased $11,603,400 or 17.5% for the first six months of fiscal 2002 compared to the year ago period. Comparative store sales decreased 21.5%. The decrease in net sales was a result of a decline in foot traffic in stores partially attributable to the Company's decision to eliminate television and radio advertising in the first six months of fiscal 2002. There were 24 superstores and six mall stores in operation at August 3, 2002 and 25 superstores and no mall stores in operation at August 4, 2001. GROSS PROFIT. Gross profit as a percentage of net sales increased to 44.3% for the first six months of 2002 compared to 40.6% for the first six months 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. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreased $5,129,500 or 16.5% in the first six months of fiscal 2002, and increased as a percentage of sales to 47.4% from 46.9% in the comparable period of fiscal 2001. Advertising expenses decreased $5,073,100 due to the Company's decision to eliminate television and radio advertising in the first six months of fiscal 2002. INTEREST EXPENSE AND OTHER INCOME, NET. Interest expense, interest income and other expense, net decreased by $128,500 from the first six months of fiscal 2001. The decrease in interest expense is attributable to the decrease in the interest rate charged under the Company's Amended Loan and Security Agreement with LaSalle Bank, N.A. (successor to Mellon Bank). The Company had average borrowings of $17,262,400 under its revolving credit facility during the six month period ended August 3, 2002 as compared to average borrowings of $17,187,600 for the six month period ended August 4, 2001. As a result of revolving credit borrowings the Company recorded interest expense of $643,200 for the six month period ended August 3, 2002 and $771,700 for the six month period ended August 4, 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 $38,000,000. During the same period, the Company's working capital has declined. The decline in sales and resulting decline in working capital 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 is the fact that the Company closed five under performing stores over the last three fiscal years and has recorded charges of $7,833,000 related to the store closings. The Company has negotiated settlements with the landlords on all but two of the leases. The Company expects to settle the remaining leases in fiscal 2002. Additionally, the Company has taken steps to right size the business, such as to reduce its operating expenses and inventory levels to be in line with the current revenue stream. Further, the Company opened six new concept stores in fiscal 2001 and three in fiscal 2002. 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 warrant. 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 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, among 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 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 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 August 3, 2002, the Loan and Security Agreement, as amended, provides for a $23.0 million revolving credit facility, with a $5.0 million sublimit for letters of credit. Outstanding letters of credit at August 3, 2002 were $2,144,000. 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 $2,233,900 as of August 3, 2002. The agreement provides for an over-advance facility. The permitted out-of-formula advances could not exceed $3,500,000 from February 27, 2002 to May 30, 2002. The over-advance facility reduced to $3,000,000 on May 31, 2002, $2,750,000 on June 30, 2002, increased 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. 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 and believes that the reduction in losses for the first six months of fiscal 2002 was a result of the Company's efforts to date. Management's plans implemented thus far, as well as actions initiated that will continue into fiscal 2003, 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. Subsequent to the second quarter of fiscal 2002, the Company opened three retail store locations in the following shopping mall locations: Exton Square Mall, Exton Pennsylvania; Marley Station, Glen Burnie, Maryland and Poughkeepsie Galleria, Poughkeepsie, New York. These stores have lease terms ranging from six months to ten years and square footage ranging from 4,500 square feet to 7,300 square feet. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Management believes the cash requirements in fiscal 2002 will be met by operations and borrowings under 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 the following accounting policies to be more critical to the preparation of the financial statements and accompanying notes. Inventories Merchandise inventories are valued at the lower of cost or market as determined by the retail method (average cost basis). Under the retail inventory method ("RIM"), the valuation of inventories at cost and the resulting gross margins are determined by applying a calculated cost-to-retail ratio to the retail value of inventories. RIM is an average method that has been widely used in the retail industry due to its practicality. Also, it is recognized that the use of the retail inventory method will result in valuing inventories at lower of cost or market if markdowns are currently taken as a reduction of the retail value of inventories. Inherent in the RIM calculation are certain significant management judgments and estimates including, among others, merchandise markon, markup, markdowns and shrinkage, which significantly impact the ending inventory valuation at cost as well as resulting gross margins. These significant estimates, coupled with the fact that the RIM is an averaging process, can, under certain circumstances, produce distorted or inaccurate cost figures. Consequently, future events such as store closings, liquidations, and the general economic environment for retail apparel sales could result in an increase in the level of markdowns, which could result in lower inventory values and increases to cost of sales in future periods. In addition, failure to take markdowns currently can result in an overstatement of cost under the lower of cost or market principle. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 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. 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 August 3, 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. Item 4. Controls and Procedures There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of the chief executive officer's and the chief financial officer's most recent evaluation. 12 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 ----------------------------------------------- The Annual Meeting of Shareholders of the Company was held on July 19, 2002. At the Annual Meeting, the shareholders elected Leonard Wasserman for a term of four years as described below: Name For Withheld Authority ---- --- ------------------ Leonard Wasserman 23,613,425 112,651 In addition, the terms of the following directors continued after the Annual Meeting: David Feld Larry Feld Neal J. Fox Verna K. Gibson Eli Katz Bruce Weitz Item 5. Other Information ----------------- None - not applicable Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits 99.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K None - not applicable 13 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: September 17, 2002 /s/David Feld ----------------------------------------- David Feld Chairman of the Board Date: September 17, 2002 /s/Bruce Weitz ----------------------------------------- Bruce Weitz President and Chief Executive Officer Date: September 17, 2002 /s/Frank E. Johnson ----------------------------------------- Frank E. Johnson Executive Vice President, Chief Financial Officer and Treasurer Principal Financial Officer Date: September 17, 2002 /s/David J. Brown ----------------------------------------- David J. Brown Vice President and Controller Principal Accounting Officer 14 CERTIFICATIONS -------------- I, Bruce Weitz, President and Chief Executive Officer of Today's Man, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Today's Man, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Date: September 17, 2002 /s/ Bruce Weitz ----------------------------------- Bruce Weitz President and Chief Executive Officer I, Frank E. Johnson, Executive Vice President and Chief Financial Officer of Today's Man, Inc. certify that: 1. I have reviewed this quarterly report on Form 10-Q of Today's Man, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Date: September 17, 2002 /s/ Frank E. Johnson ---------------------------- Frank E. Johnson Executive Vice President and Chief Financial Officer 15

TODAYS MAN INC 10-Q