SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 3, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to_______
Commission file Number 0-14681
CASUAL MALE CORP.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2866591
(State of Incorporation) (IRS Employer Identification Number)
555 Turnpike Street, Canton, Massachusetts 02021
(Address of principal executive offices)
(781) 828-9300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.50 per share
7% Convertible Subordinated Notes Due 2002
Preferred Stock Purchase Rights
(Title of Class)
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
---
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 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]
As of December 10, 2001, the aggregate market value of voting stock held by
non-affiliates of Registrant was $403,369 based on the last reported sale price
of Registrant's common stock on the over-the-counter (OTC) market as reported by
Pink Sheets LLC.
14,207,873 shares of common stock were outstanding on December 10, 2001.
Casual Male Corp.
Report on Form 10-K
Year Ended February 3, 2001
Part I
This Annual Report on Form 10-K contains statements that are not statements
of historical fact and are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The forward-looking statements are principally contained
in "Item 1: Business", "Item 2: Properties" and "Item 7: Management's Discussion
and Analysis of Financial Condition and Results of Operations." These statements
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, performance or achievements to be materially different from
any future results, performance or achievements expressed or implied by the
forward-looking statements. Forward-looking statements include, but are not
limited to, statements about the Company's or management's confidence or
expectations, plans, intentions, opportunities for sales growth or cost
reductions and other statements about the Company's operational outlook that are
not historical facts. In some cases, you can identify forward-looking statements
by terms such as "may," "will," "should," "could, " "would," "expects," "plans,"
"anticipates," "believes," "estimates," "projects," "predicts," "intends,"
"potential" and similar expressions intended to identify forward-looking
statements. These statements reflect our current views with respect to future
events and are based on assumptions and subject to risks and uncertainties.
Given these uncertainties, you should not place undue reliance on these forward-
looking statements. We discuss many of these risks in detail under the heading
"Risk Factors and Uncertainties" beginning on page 11. You should carefully
review all of these factors, and you should be aware that there may be other
factors, including factors of which we are not currently aware, that could cause
these differences. Also, these forward-looking statements represent our
estimates and assumptions only as of the date of this report. We may not update
these forward-looking statements, even though our situation may change in the
future, unless we have obligations under the federal securities laws to update
and disclose material developments related to previously disclosed information.
Item 1. BUSINESS
Casual Male Corp. ("CMC" or the "Company", which terms include all
subsidiaries of the Company), operates businesses engaged in the retail sale of
apparel through (i) its Casual Male Big & Tall, Repp Ltd. Big & Tall and outlet
store businesses, which offer fashion, casual and dress clothing and footwear to
the big and tall man and (ii) its Work n' Gear subsidiary, which sells a wide
selection of workwear, health-care apparel and uniforms for industry and service
businesses. The Company's businesses offer their merchandise to customers
through diverse selling and marketing channels, including retail stores,
catalogs, direct selling workforces and e-commerce websites. Prior to February
3, 2001, the Company also operated retail footwear businesses that sold footwear
through self-service licensed departments in discount, department and specialty
stores (the "Footwear Business"). The Company sold substantially all of the
assets of the Footwear Business to an affiliate of Footstar, Inc. effective as
of February 3, 2001. The Footwear Business is accounted for in the Company's
financial statements as discontinued operations. For more information regarding
the sale of the Footwear Business, see "--Discontinued Operations" and Note 2 to
the Consolidated Financial Statements.
Casual Male Corp. was incorporated under the laws of Massachusetts in 1985.
On February 26, 2001, the Company's shareholders voted to amend the Company's
Articles of Organization to change its name from J. Baker, Inc. to Casual Male
Corp.
Bankruptcy Court Case
On May 18, 2001 (the "Filing Date"), Casual Male Corp. and 15 of its direct
and indirect subsidiaries (collectively, the "Debtors") filed voluntary
petitions to reorganize their businesses under chapter 11 of the Bankruptcy Code
(the "Chapter 11 Case") in the United States Bankruptcy Court for the Southern
District of New York (the "Bankruptcy Court"). JBAK Holding, Inc. and JBAK
Canton Realty, Inc., a direct and indirect subsidiary of Casual Male Corp.,
respectively, are not debtors in the Chapter 11 Case. The Debtors continue to
operate their businesses and manage their properties as debtors-in-possession
pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. On May 24, 2001,
the United States Trustee for the Southern District of New York appointed an
Official Committee of Unsecured Creditors (the "Creditors' Committee") pursuant
to Section 1102 of the Bankruptcy Code.
1
Factors Contributing to the Chapter 11 Filing
A number of factors contributed to the Company's decision to commence the
Chapter 11 Case on May 18, 2001. Generally, the Chapter 11 filing arose in
response to the Company's need to obtain additional liquidity and to restructure
its long-term indebtedness. While the Company pursued potential capital market
transactions in an effort to secure the necessary financing, it was unable to
obtain such financing within the time-frame, and on the terms, required to
continue operations. The factors that impacted the Company's inability to
restructure its long-term indebtedness, and to obtain alternative financing in a
timely manner, include:
Market Conditions and Sales Performance. During the Winter and Spring of
2001, market conditions in the United States deteriorated, precipitating a broad
decline in overall consumer spending. The extent of this economic downturn is
evidenced by the recent pronouncement that the U.S. economy officially fell into
a recession in March 2001. This decline in the consumer market had a
particularly acute effect on the retail sector. As a result of the overall
economic downturn, more than two dozen retail chains (including Ames, Bradlees,
Home Place, Lechters, Montgomery Ward, Natural Wonders and Track'n Trail)
declared bankruptcy during this period. Although the Company has a prominent
position in the men's big and tall specialty retail market, this business
experienced comparable store sales declines each month beginning in December
2000. See "Risk Factors and Uncertainties - General Economic Factors."
Credit Market Tightness. Lenders generally reduced amounts made available
for commercial loans to retail companies during the period prior to the Filing
Date. In particular, the high yield markets were unavailable to many retail
companies, including the Company. In addition to this, the financing sources
willing to consider lending funds to retailers were uncomfortable lending funds
to the Company in light of the scheduled maturity on December 31, 2001 and June
30, 2002 of the $10.0 million 13% Senior Subordinated Notes (the "JBI Apparel
Notes") and the $70.0 million 7% Convertible Subordinated Notes (the
"Convertible Notes"), respectively. See "Risk Factors and Uncertainties -
General Economic Factors."
Inability to Refinance Convertible Notes. During a conference call
broadcast over the internet on March 21, 2001, the Company announced that it
believed it would need to sell non-core assets and/or conduct a capital market
transaction in order to fund the redemption of the Convertible Notes, upon their
maturity. Thereafter, the Company engaged an investment banker to assist it in
preparing an exchange offer to present to holders of the Convertible Notes.
However, the Company ultimately was unable to conduct such an exchange offer.
See "Risk Factors and Uncertainties - Leverage."
Reduced Borrowing Availability. During the periods preceding the Filing
Date, the Company experienced a general tightening of the credit made available
to it under its revolving credit facility. For example, in March 2001, the
Company's senior lenders increased by $1.0 million certain reserve requirements
under this facility. During April 2001, the Company incurred an additional
approximately $3.0 million reduction in the borrowing base availability under
its revolving credit line as the result of the lenders' imposition of additional
reserves and their inventory revaluation. See "Risk Factors and Uncertainties -
General Economic Factors."
Decreasing Trade Credit. Beginning in or about May 2001, as the Company's
liquidity position became apparent to its merchandise and other vendors, certain
of its vendors (and their factors) refused to ship merchandise ordered in
advance of Father's Day, the Company's second biggest selling period. As a
result, new merchandise receipts were substantially below plan for the month of
May 2001.
Loss from Discontinued Operations. On February 3, 2001, the Company sold
its remaining footwear operations to an affiliate of Footstar, Inc. See
"Discontinued Operations" below. On March 21, 2001 (following the completion of
the post-closing audit conducted in connection with the Footstar Transaction and
the Company's year-end audit), the Company announced that its net loss from
discontinued operations was larger than anticipated, as a result of higher
inventory liquidation and severance costs, which had a negative impact on the
Company's cash available for its operations. See "Note 2 to Notes to
Consolidated Financial Statements."
Leverage. Immediately prior to the Filing Date, the Company had
outstanding $193.0 million in borrowings under several facilities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." Of this amount, Casual Male Corp.
owed $70.0 million pursuant to the Convertible Notes, which are scheduled to
mature on June 30, 2002, and JBI Apparel, Inc. owed $10.0 million pursuant to
the JBI Apparel Notes, which are scheduled to mature on December 31, 2001. The
Company's operating subsidiaries also owed approximately $60.0 million in trade
and other payables as of the Filing Date. See "Risk Factor and Uncertainties -
Leverage."
2
Beginning in March 2001 and continuing until the Filing Date, the Company
engaged in extensive discussions with its existing lenders as well as with
potential refinancing lenders and various sources of equity financing in an
effort to address its liquidity concerns. While the Company pursued several
promising negotiations into May 2001, its efforts to obtain the necessary third
party financing to resolve its liquidity needs were unsuccessful.
Consequently, the Debtors decided to commence their Chapter 11 cases to
protect their retail franchises.
3
Insider Stock Transactions
No member of the Company's Board of Directors or management sold shares of
the Company's common stock during the period of March 2000 to the Filing Date.
Two executive officers, including the Company's Chairman and Chief Executive
Officer Alan I Weinstein, acquired shares of the Company's common stock on
February 7, 2001 pursuant to the cash exercise of stock options.
Exclusivity Period Extension
Under Section 1121 (b) of the Bankruptcy Code, a debtor has the exclusive
right to file a plan of reorganization during the initial 120 days after the
date of the commencement of a Chapter 11 case. The Debtors have not yet
proposed a plan of reorganization. On August 20, 2001, the Debtors filed with
the Bankruptcy Court a motion to extend the exclusive period and the time within
which to solicit acceptances of a plan for approximately six months (without
prejudice to its right to request further extensions if necessary). On October
10, 2001, the Bankruptcy Court granted the extension. Such extension extends
the Debtors' exclusive period for filing a plan until March 25, 2002.
Men's Big and Tall Apparel
The Company believes it is the leading multi-channel specialty retailer of
apparel for big and tall men. During fiscal year 2000, the Company
significantly increased its investment in this market niche by acquiring the
Repp Ltd. Big & Tall and Repp Ltd. By Mail businesses of Edison Brothers Stores,
Inc. ("Edison Brothers") and integrating them into its existing men's big and
tall apparel operations. See "Repp Big & Tall" and "--Conversion and
Elimination of Repp Stores." Trading under the Casual Male Big & Tall, Repp
Ltd. Big & Tall and B&T Factory Store tradenames, the Company markets and sells
to big (waist sizes to 70") and/or tall (6'2" or taller) men through retail
stores, catalogs and e-commerce websites as more fully described below. Sales
in the men's big and tall apparel businesses accounted for 86.5%, 86.0% and
82.6% of the Company's sales from continuing operations for the fiscal years
ended February 3, 2001, January 29, 2000 and January 30, 1999, respectively.
The Market. A survey prepared for the Company by The NPD Group, Inc., an
independent market researcher, estimated total market sales of men's big and
tall apparel during the period of January 1, 2000 through December 31, 2000 to
be approximately $5.8 billion. The Company believes the apparel demands of big
and tall customers historically have not been met through traditional men's
apparel stores. The big and tall customer frequently has difficulty finding an
adequate selection of apparel in his size in department and men's specialty
stores. Furthermore, the big and tall specialty store market is characterized by
many small, local operators who typically have a narrow selection of current
sportswear fashions. Management believes the Company's type and selection of
merchandise, favorable prices and ability to obtain desirable store locations
are, and will continue to be, key factors in enabling it to compete effectively
in this market niche.
Specialized "Guest" Service. Unlike department stores, discounters and
general specialty stores that provide apparel for men of all sizes, the
Company's big and tall stores exclusively cater to the big and tall man.
Because of this exclusive focus, the Company's sales efforts and marketing
materials are tailored to the specific needs and shopping patterns of the big
and tall man, whose needs include assistance and guidance on fashion, sizing and
garment care. The Company seeks to develop personal relationships with each of
its customers, who are often long-term customers and shop at the Company's
stores frequently. The Company attempts to develop these relationships through
its "guest service" selling approach, and by in-store marketing efforts and
direct mail initiatives.
The Company's big and tall store operations associate training philosophy
is entitled "Stepping Beyond Service." This approach to selling trains store
associates to treat each of the Company's customers as if he or she is a "guest"
at the associate's home. Accordingly, store associates are trained to welcome
new customers with a tour of the store, a description of the merchandise
presented and a discussion about the services the Company offers (e.g.,
layaways, proprietary credit cards, e-commerce sites and catalogs). The goal of
this selling approach is to foster long-term relationships with the customer by
developing a sense of familiarity with the store and its personnel, and to
encourage the customer to consider the store a welcoming and comfortable place
to visit often. The Company's store operations management employs quantitative
and qualitative measurement techniques to recognize and reward those store
associates who provide customers with superior service. Quantitative
measurements include sales per associate, units per transaction and store
inventory shrink performance.
4
The Company also monitors performance by deploying "secret shoppers" to each
store twice a year to measure associates on defined qualitative criteria.
In-store marketing efforts include developing an understanding of the
customer's style and size needs and, whenever practical, contacting that
customer directly with sale information or other special opportunities (e.g.,
"birthday club" discounts). The Company's direct marketing initiatives include
mailing over 20 million pieces of direct mail annually, including sales
promotion information and catalogs. Through these measures, each of the
Company's big and tall businesses attempts to reinforce its personal
relationship with the individual customer.
. Casual Male Big & Tall
----------------------
The Casual Male Big & Tall business offers a wide range of quality fashion,
casual and dress clothing and footwear for big and tall men at moderate prices
through stores, catalogs and an e-commerce website, www.casualmale.com. Casual
Male Big & Tall offers private label as well as brand name casual sportswear and
dress wear in a broad array of styles, colors and fabrics with a focus on casual
clothing, sports coats, dress pants and shirts and footwear.
Stores. As of December 10, 2001, Casual Male operated 387 stores,
including 8 stores that were conducting store-closing sales as authorized by the
Bankruptcy Court. See "--Store Closings." The 379 Casual Male stores not
conducting store-closing sales are located in 44 states.
Most Casual Male stores are located in strip or power centers, or are
stand-alone stores. Casual Male stores target the middle-income customer seeking
good value at moderate prices and, as a result, these stores limit the amount of
high-fashion oriented and low-turnover tailored clothing offered and focus
primarily on basic items and classic fashion sportswear, thereby reducing
fashion risk and markdowns. Casual Male stores average approximately 3,300
square feet.
The Company completed a store retrofit program during fiscal year 2000 for
the Casual Male chain whereby all stores received upgraded fixturing, improved
and standardized marketing collateral and other cosmetic enhancements.
Management believes these low-cost enhancements highlight the Company's
merchandise better and have made the stores more attractive to the customer and
easier to shop.
In deciding to open Casual Male stores, the Company reviews, among other
factors, market demographics, drive-by visibility for customers, store occupancy
costs and costs to build out and stock each location. Based on its analysis,
Company management projects sales volumes and estimates operating costs for each
location and decides to open a store if these projections demonstrate that an
acceptable return on the Company's inventory and fixed asset investment can be
realized. New Casual Male stores require an average inventory and fixed asset
investment of approximately $180,000 to $230,000, comprised of approximately
$85,000 to $120,000 for fixed assets and $95,000 to $110,000 for inventory.
The Company makes decisions to close Casual Male locations when management
believes these locations are not generating acceptable profit levels. On August
22, 2001, the Company received Bankruptcy Court approval to close 21 Casual Male
Big & Tall stores, 13 of which have closed as of December 10, 2001. See "--
Store Closings" and "Properties - Lease Rejection Activities." In the past (and
excluding these announced store closings), most store closings have occurred at
lease expiration, unless a lease buyout was a more economical option for the
Company. In addition, the Company seeks to negotiate early termination rights
in its leases wherever possible that allow the Company to terminate the lease
prior to the expiration of the term if it is unable to attain certain specified
sales volumes. The costs to close stores are expensed at the time the decision
is reached to close the store.
Catalog. In March 2000, the Company released the first issue of the Casual
Male Catalog. This catalog targets customers having similar demographic profiles
as customers of Casual Male stores. While carrying a similar assortment of
casual merchandise as is available in Casual Male stores, the Casual Male
Catalog offers a broader assortment of merchandise, especially sportcoats, suit
separates and other tailored clothing. During fiscal year 2001, the Company
issued spring, fall and holiday editions of the Casual Male Catalog and
circulated a total of approximately 2.5 million catalogs. The Company's mailing
strategy for the Casual Male Catalog includes mailing catalogs to people who
have purchased in the past from a Casual Male store who are also known to
purchase from catalogs generally, as well as individuals whose names appear on
mailing lists rented from third-party sources. In addition, the Company
maintains a catalog station in some of its Casual Male stores that allows
customers to place catalog merchandise orders directly to the catalog call
center through a dedicated telephone line without the assistance of a store
associate. Store associates are trained in the "Nobody Walks" selling program,
which
5
emphasizes the importance of offering customers the opportunity to find
the items they are looking for in the Company's catalogs and assisting the
customer in placing the order through the Company's call center. In-bound
telemarketing and order fulfillment are currently handled by the Company's
135,000 square foot Alpharetta, Georgia call and fulfillment center, which
became operational in June 2000 (the "Alpharetta Facility"). The Company expects
to begin telemarketing and order fulfillment activities from its Canton,
Massachusetts headquarters and warehouse (the "Canton Facility") beginning in
February 2002. See "-- Consolidation of Catalog and E-Commerce Call and
Fulfillment Center."
E-commerce. The www.casualmale.com website, which was previously used
primarily to market Casual Male stores, became commerce-enabled in June 2000.
The Company offers on this website substantially the same items as are offered
in the Casual Male Catalog. During the fall of 1999, the Company entered into
an agreement with Ecometry Corporation (formerly known as Smith-Gardner
Associates, Inc.) to implement the WebOrder e-commerce system, which provides,
among other things, electronic shopping carts and order taking, payment and
security systems, order management, warehouse and shipping management and real-
time inventory availability (the "WebOrder System"). The Company made
additional capital investments in this website to improve transaction speeds and
to make it more customer-friendly. The Company currently processes and fulfills
orders from the www.casualmale.com website through the Alpharetta Facility. The
Company expects to begin processing and fulfilling e-commerce orders through the
Canton Facility in February 2002. See "-- Consolidation of Catalog and E-
Commerce Call and Fulfillment Center."
. Repp Big & Tall
---------------
On May 23, 1999, the Company completed the acquisition of substantially all
of the assets of the Repp Ltd. Big & Tall and Repp Ltd. By Mail divisions of
Edison Brothers. At the time of the acquisition, Edison Brothers operated 175
stores under the Repp Ltd. tradename, four catalog titles and an e-commerce
website. The Company immediately sold Repp's Canadian operation, consisting of
16 stores, to Grafton-Fraser, Inc., a Canadian men's retailer, and commenced the
closing of 31 stores in the United States. During the second half of fiscal
2000, the Company successfully completed the integration of the Repp businesses'
information, distribution and merchandising systems and, continuing into the
first half of fiscal year 2001, the Company took measures to enhance the
systems, facilities and personnel employed in Repp's catalog and e-commerce
operations. These activities provided the Company with the platform to
accelerate the development of the Casual Male Catalog and the www.casualmale.com
e-commerce website.
Stores. As of December 10, 2001, the Company operated 81 Repp Big & Tall
stores, including 15 stores that were conducting store-closing sales as
authorized by the Bankruptcy Court. See "--Store Closings." The 66 Repp stores
not conducting store-closing sales are located in 23 states.
Most Repp stores are located in strip or power centers or are stand-alone
stores. Repp caters to mid- to upper-middle income big and tall men and
primarily offers a limited assortment of designer branded casual and dress
apparel. Certain Repp stores, however, target upper-income customers and carry
a larger percentage of higher-end fashion, often carrying designer labels such
as Tommy Hilfiger(R), Polo Ralph Lauren(R) and Nautica(R). Repp stores average
approximately 3,800 square feet.
Due to the factors described under the heading "- - Conversion and
Elimination of Repp Stores" below, the Company does not currently anticipate
opening new Repp retail stores in the foreseeable future. Repp stores opened by
the Company since May 1999 have required an average inventory and fixed asset
investment of approximately $260,000 to $320,000, comprised of approximately
$120,000 to $140,000 for fixed assets and $140,000 to $180,000 for inventory.
Conversion and Elimination of Repp Stores. When the Company acquired the
Repp Ltd. Big & Tall retail business from Edison Brothers in May 1999, it re-
merchandised this business with a larger assortment of higher priced casual
fashion apparel than the chain traditionally carried. This strategy reflected,
in part, the Company's desire to (i) enter the higher-end big and tall market
and (ii) further distinguish the Repp product assortment from the Casual Male
product assortment, which historically overlapped in many categories. As a
group, however, the Repp retail stores have not performed at acceptable levels.
The Company now believes that the portfolio of store locations acquired in the
Repp acquisition was not uniformly sited in areas with demographic
characteristics that support higher-end stores. As a result, the Company has
undertaken a review of the prospects for the Repp business, and has elected to
close the majority of Repp stores.
Prior to the commencement of the Chapter 11 Case, the Company began to: (i)
allow certain Repp leases associated with under-performing stores to expire at
the end of their term and (ii) convert certain Repp stores to the Casual Male or
B&T Factory Store concepts in markets whose demographics were expected to
support the concept. From February 3, 2001 until the Company's bankruptcy
filing, the Company closed six Repp stores upon their lease expiration,
converted eight Repp stores to the Casual Male
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concept and converted 12 Repp stores to the B&T Factory Store concept.
Thereafter, following the commencement of the Chapter 11 Case, the Company,
after consulting with its advisors and the Creditors Committee, petitioned the
Bankruptcy Court to permit it to close 80 big and tall stores (including 43 Repp
stores and 18 former Repp stores previously converted to the Casual Male and B&T
Factory Store concepts), a majority of which were acquired from Edison Brothers
as part of the Repp acquisition.
As of December 10, 2001, the Company is evaluating further store closing
opportunities, including the closing of additional Repp stores. In addition,
the Company is considering alternative strategies with respect to the Repp
retail store chain, including, without limitation, operating the remaining Repp
stores as Casual Male Premier stores.
Catalog. The Company currently issues three catalog titles bearing the
Repp brandname: (i) the Repp Catalog, (ii) the Repp Premier Catalog and (iii)
the Repp Essentials Catalog. The Repp Catalog primarily carries proprietary,
branded and a limited amount of designer branded apparel and is targeted to mid-
to upper-middle income customers. The Company currently issues editions of the
Repp Catalog in the pre-spring, spring, summer, fall and holiday seasons. The
Repp Premier Catalog emphasizes designer and fashion brands, and is targeted at
upper-income customers. The Repp Premier Catalog is currently issued twice a
year during the spring and fall seasons. In March 2001, the Company re-
introduced the Repp Essentials catalog title. The Repp Essentials Catalog
offers a limited assortment of the best selling items from the Repp Catalog and
is issued primarily to mail order customer prospects whose names were rented
from third parties or Repp store customers not known to be catalog shoppers. The
Company expects to issue the Repp Essentials catalog two or three times a year.
From time to time, Repp also issues smaller catalogs featuring a focused
assortment of products offered under one brandname. For example, the Company
issued two editions of the Cutter & Buck Big & Tall Catalog during fiscal year
2001, which were targeted to customers having a similar demographic profile as
the Repp Premier customer.
The Company mails Repp catalogs to individuals whose names appear on the
Repp house file of past purchasers, people who have purchased in the past from
the Company's stores and who are also known to purchase from catalogs generally,
and mailing lists rented from third-party sources. Combined circulation for the
catalog titles offered by Repp was approximately 5.8 million in fiscal year
2001. In addition, all Repp stores contain a catalog station that allows
customers to place catalog merchandise orders directly to the catalog call
center through a dedicated telephone line. As is the case in Casual Male
stores, Repp store associates are trained in the "Nobody Walks" selling program,
which emphasizes the importance of offering customers the opportunity to find
the items they are looking for in the Company's catalogs and assisting the
customer in placing the order through the Company's call center. As with The
Casual Male Catalog, in-bound telemarketing and fulfillment operations are
currently performed at the Company's Alpharetta Facility. The Company expects to
begin telemarketing and order fulfillment activities from its Canton Facility
beginning in February 2002. See "-- Consolidation of Catalog and E-Commerce
Call and Fulfillment Center."
E-commerce. The Company also operates the www.reppbigandtall.com e-commerce
website, which can also be reached by using its former URL, www.reppbynet.com.
This website offers substantially similar merchandise as the Repp Catalog. As
with the www.casualmale.com website, the Company employs the WebOrder System to
manage the e-commerce activities of the www.reppbigandtall.com website. Orders
placed on this website are currently fulfilled from the Company's Alpharetta
Facility. The Company expects to begin processing and fulfilling orders from
this site from its Canton Facility beginning in February 2002. See
"--Consolidation of Catalog and E-Commerce Call and Fulfillment Center."
. Outlet Stores
-------------
The Company's outlet store business offers a wide range of casual clothing
and footwear for big and tall men at moderate and entry-level prices. This
business allows the Company to reach an audience seeking everyday apparel at
bargain prices. Most of the merchandise offered by the Company's outlet stores
is offered specifically in this chain with the purchasing interests of the
value-oriented customer in mind. This business also serves as a consolidation
point for clearance and other slow-moving inventory originally purchased for the
Casual Male Big & Tall and Repp Big & Tall businesses. The Company seeks to
provide outlet store customers with a merchandise assortment that is
approximately one-third value priced private label merchandise, one-third
discounted manufacturer overruns or other branded discount offerings and one-
third inventory that has been consolidated from the Company's Casual Male and
Repp businesses.
Until the summer of 1999, the Company operated outlet stores, called Casual
Male Big & Tall Outlet stores, as part of the Casual Male Big & Tall business.
Beginning in July 1999, all new outlet stores were constructed and operated in
the B&T Factory Store format. The Company currently expects to return these
stores to the Casual Male Big & Tall Outlet concept during fiscal 2003 to take
advantage of opportunities to leverage the Casual Male trade name.
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Stores. As of December 10, 2001 the Company operated 68 outlet stores,
including 4 stores that were conducting store-closing sales as authorized by the
Bankruptcy Court. See "--Store Closings." The 64 outlet stores not conducting
store-closing sales are located in 22 states.
The Company's outlet stores are primarily located in outlet centers. The
Company seeks to locate these stores in retail environments that attract a
higher-than-average number of value-oriented shoppers. Because outlet centers
are often destinations for this type of shopper, locating stores in successful
outlet centers is the principal real estate strategy for this chain. The Company
believes the outlet concept also allows it to put a second store in certain
markets in which a Casual Male store already exists where the demographics of
the market support more than one store. New outlets require an average
inventory and fixed asset investment of approximately $165,000 to $220,000,
comprised of approximately $75,000 to $110,000 for fixed assets and $90,000 to
$110,000 for inventory. The Company's outlet stores average approximately
3,400 square feet.
Catalog and E-commerce. In addition to its stores, outlet offerings were
included in The Casual Male Catalog and e-commerce website for the first time
during the fall of fiscal year 2001 on a test basis. Between five percent and
ten percent of the pages of The Casual Male Catalog within which these offerings
were included were dedicated to them. In addition, the Company launched a
commerce-enabled website for the B&T Factory Outlet Store concept using the
WebOrder System in June 2001. Orders placed through this website are currently
fulfilled from the Company's Alpharetta Facility. The Company expects to begin
order processing and fulfillment activities from its Canton Facility beginning
in February 2002. See "-- Consolidation of Catalog and E-Commerce Call and
Fulfillment Center."
. Competition
-----------
The Company's men's big and tall apparel businesses face competition from a
variety of sources, including department stores, specialty stores, discount
stores and off-price and other retailers that sell big and tall merchandise. In
addition, sales of apparel through catalogs, e-commerce and home shopping
networks or other electronic media provide additional sources of competition.
These businesses face competition on a local level from independent retailers
and small, regional retail chains, as well as on a national scale from a limited
number of national specialty chains. While the Company has successfully
competed on the basis of merchandise selection, inventory replenishment on an
on-going basis by color and size, favorable pricing, customer service and
desirable store locations, there can be no assurance other retailers will not
adopt purchasing and marketing concepts similar to those of the Company.
Certain regional and national men's apparel businesses, including Men's
Wearhouse, carry big and tall merchandise as a portion of their assortment.
Recently, some of these competitors have increased marketing activity with
respect to their big and tall merchandise offerings. In addition, discount
retailers with significant buying power, such as Wal-Mart, K-Mart and Target
stores, represent an increasing source of competition for the Company. The bulk
of the merchandise carried by these discount stores is classified as commodity,
or "basic" items, but the stores' buying power provides them with a competitive
edge and an ability to charge low prices for such items.
Work 'n Gear
Work 'n Gear is a specialty retail company exclusively focused on marketing
and selling utility workwear, uniforms, healthcare apparel and footwear through
stores, a business-to-business direct selling sales force, catalog and direct
marketing initiatives and e-commerce activities. Work 'n Gear seeks to address
the needs of three major groups: (i) customers who buy work clothing to be worn
on the job, including industrial tops and bottoms, jeans, work boots, rugged
outerwear and other accessories, (ii) corporate customers who either supply
uniforms or provide a clothing allowance to their employees to purchase
uniforms, and (iii) customers who work in the healthcare industry and related
fields. Merchandise is organized by healthcare and workwear and then within
these classifications by industry category, price, color and brand, where
important. Work 'n Gear offers merchandise at multiple price-points in order to
attract customers at various economic levels. Work 'n Gear sales accounted for
13.5%, 14.0% and 17.4% of the Company's sales from continuing operations for
the years ended February 3, 2001, January 29, 2000 and January 30, 1999,
respectively.
In March 2001, the Company engaged an investment banker to market the Work
'n Gear business for sale. See "--Factors Contributing to Chapter 11 Filing -
Inability to Refinance Convertible Notes." The Company is currently evaluating
its strategic alternatives regarding this business, including a possible sale
pursuant to Section 363 of the Bankruptcy Code.
Stores. As of November 12, 2001, the Company operated 70 Work 'n Gear
stores in 13 states. Work 'n Gear stores carry a wide selection of workwear
products, including rugged specialty outerwear, work shirts and pants, cold
weather accessories and footwear, as well as a broad assortment of uniforms for
industry and service businesses and healthcare
8
apparel. Work 'n Gear stores are generally located in strip shopping centers or
are free standing. Locations in active strip centers are a preferable criterion
for site selection, as the close proximity to other stores increases traffic
into Work 'n Gear stores, particularly for healthcare apparel and accessories.
Site locations must take into consideration proximity of major medical
facilities, active retail environments, population density, business presence in
the market and competition. New Work 'n Gear stores require an average inventory
and fixed asset investment of approximately $230,000 to $280,000, comprised of
approximately $110,000 to $140,000 for fixed assets and $120,000 to $140,000 for
inventory. Work 'n Gear stores average approximately 4,300 square feet.
Catalog and E-commerce. In September 2000, the Company issued the first
edition of the Work 'n Gear Catalog. With the exception of health care apparel,
the Work 'n Gear Catalog offers substantially the same categories of merchandise
as is offered by the Work 'n Gear stores. Included among the catalog's
offerings are a wide variety of personalization service options. Because the
process of selling personalized uniforms or workwear to corporate customers
often involves multiple decision-makers, the Company believes that the catalog
helps store management and the Company's direct selling staff drive corporate
sales. The Company issued approximately 260,000 copies of the Work 'n Gear
Catalog during fiscal 2001. In addition, the Company maintains a catalog
station in all of its Work 'n Gear stores that allows customers, particularly
small business customers, to place catalog merchandise orders directly to the
catalog call center through a dedicated telephone line. In contrast to the
catalog stations in Casual Male and Repp stores, the Work 'n Gear catalog
stations are larger and customers are typically serviced by a store associate.
The Company launched the www.workngear.com commerce-enabled website in
October 2000. The Work 'n Gear online store offers substantially the same items
as are offered through the Work 'n Gear Catalog, and features product
customization software. As with the Casual Male and Repp websites, this website
uses the WebOrder System. Orders placed through the Work 'n Gear Catalog and e-
commerce site are currently processed through the Alpharetta Facility and are
fulfilled through the Canton Facility. The Company expects to begin order
processing from its Canton Facility in February 2002. See "-- Consolidation of
Catalog and E-Commerce Call and Fulfillment Center."
Other Marketing and Selling Initiatives. Work 'n Gear also sells its
products through a direct corporate sales force, which markets workwear and
uniforms to large, medium and small business accounts, including government
entities, supermarket chains, manufacturing entities and private security
companies. The Company installed an in-house embroidery capability to support
the personalization needs of its corporate customers in 1999. In the summer of
fiscal year 2001, Work 'n Gear also entered into an agreement to operate a
licensed workwear department in a major regional specialty store chain located
in the Mid-Atlantic states. Currently, Work 'n Gear operates 19 such licensed
workwear departments.
Competition. Competition for the sale of workwear is fragmented.
Traditional Army and Navy stores offer a large assortment of workwear items, but
supplement with fishing, hunting and other product lines. Other competitors
include large specialty chains, such as Bob's Stores, and full service
department stores, which typically have more narrow product offerings. To the
Company's knowledge, no specific specialty stores similar to Work 'n Gear exist
on a national basis. Competition for corporate workwear (purchased by employers)
comes from large manufacturers such as WearGuard/ARAMARK, Uniforms to You and
Cintas, as well as small, independent uniform dealers. In the healthcare apparel
business, competition is dominated by three entities: (i) Life Uniform, the
largest retailer with approximately 300 stores, (ii) catalog operations, led by
J. C. Penney and including Tafford, Uniform World, Sears Roebuck & Company and
Jasco, and (iii) over 2,000 independent operators of healthcare apparel
businesses. Management believes its strategy of servicing all three segments of
the workwear market--consumer, corporate and healthcare--combined with its
retail expertise, affords Work 'n Gear a significant competitive advantage in
the marketplace.
Store Closings
On July 11, 2001, the Company filed a motion with the Bankruptcy Court
requesting authorization to conduct store-closing sales at certain of its
locations. Prior to the filing of such motion, the Company consulted with its
advisors, as well as the Creditors' Committee to discuss which stores no longer
contributed to the Company's overall business objectives nor conformed with
current projections as to the future configuration of the Company's businesses.
The Company requested approval to commence store closing sales at 80 of its
locations - consisting of 21 Casual Male Big & Tall stores (6 of which were
originally Repp stores that were converted to Casual Male Big & Tall stores in
April 2001), 43 Repp Ltd. Big & Tall stores and 16 B & T Factory Stores (12 of
which were originally Repp stores that were converted to B&T Factory Stores in
April 2001). On August 22, 2001, the Bankruptcy Court authorized the Company's
store closing sales. Store closing sales commenced at the end of August, and 55
were completed by December 10, 2001. The
9
Company anticipates that the remaining store closing sales will continue through
December 29, 2001 for approximately 25 stores. For information concerning the
treatment of the leases associated with the 80 closing stores, see "Properties -
Lease Rejection Activities."
Consolidation of Catalog and E-Commerce Call and Fulfillment Center
The Company has elected to consolidate the catalog and e-commerce
operations currently located in its Alpharetta Facility into its Canton
Facility. This consolidation will allow the Company to utilize space in the
Canton Facility made available as a result of the disposal of the Footwear
Business and will eliminate occupancy and related expenses associated with the
Alpharetta Facility. In order to ensure a smooth transition of the Company's
catalog and e-commerce business from Alpharetta to Canton, the Company has
received authorization from the Bankruptcy Court to allow it to establish a
retention program that will provide economic incentives to its Alpharetta-based
employees to remain with the Company through the transition period.
Consolidation activities are expected to conclude by the end of February 2002.
The Company expects that cash expenses associated with this consolidation,
including retention and severance expenses, moving costs and capital costs for
improvements to the Canton Facility, will not exceed $2.0 million.
Discontinued Operations
On November 16, 2000, the Company entered into an agreement to sell
substantially all of the ongoing assets of its JBI, Inc. and Morse Shoe, Inc.
licensed footwear department businesses to an affiliate of Footstar Inc. (the
"Footstar Transaction"). Upon the consummation of the Footstar Transaction,
which was effective as of February 3, 2001, the Company exited the retail
footwear business. Pursuant to the terms of the Asset Purchase Agreement
between the Company and Footstar, the Company retained the obligation to operate
certain footwear departments in the following stores scheduled to close: (i) all
105 stores operated by Bradlees Stores, Inc., a debtor in possession under
Chapter 11 of the United States Bankruptcy Code, which stores closed during
February 2001, (ii) 32 stores operated by Ames Department Stores, Inc., which
stores closed during March 2001 and (iii) six stores operated by Ann & Hope,
Inc., which stores closed during the Spring of 2001.
Prior to the sale of its licensed footwear department operations, the
Company divested its footwear retail store operations, including its chain of
Parade of Shoes stores, which it sold to Payless Shoe Source during fiscal 1997,
and its chain of Fayva shoe stores, which it closed in fiscal 1996. In addition
to these businesses, the Company sold its Shoe Corporation of America ("SCOA")
licensed shoe department business to a group of investors (including SCOA's
management team) during fiscal 1997. The Company reacquired the assets of SCOA
in February 2000, and sold these assets as part of the Footstar Transaction.
For more information regarding the Company's discontinued footwear operations,
see Note 2 to Notes to Consolidated Financial Statements.
Seasonality
The Company's businesses are seasonal. The men's big and tall apparel
businesses generate their largest sales volumes in June (in advance of Father's
Day) and the Christmas season, and the Work 'n Gear business generates its
largest sales volume during the second half of the fiscal year. Unseasonable
weather may affect sales of cold weather related apparel and work clothing,
especially during the traditional high-volume periods. See "Outlook: Important
Factors and Uncertainties - Weather Conditions."
Inventory
The Company is required to carry a substantial inventory in order to
provide prompt deliveries to its retail stores. In addition, the Company is
required to carry sufficient inventory to satisfy the demands of the customers
of its catalog and e-commerce businesses, which inventory levels the Company
expects to increase as these businesses grow. Catalog and e-commerce order
backlogs, however, have not been material to the Company's business to date, but
are expected to grow as the Company increases its catalog and e-commerce
activities. The inventories needed in the operation of the Company's businesses
are currently available from a number of domestic and overseas sources, with no
single source accounting for more than five percent of the Company's
merchandise.
Return Policies
10
The Company's store and catalog operations accept returns of merchandise if
the customer is not pleased with the item purchased or ordered for any reason.
The Company's retail stores offer cash back, charge card credits, merchandise
credits or exchanges for merchandise returned within 30 days of purchase with a
receipt. The Company's stores offer merchandise credits at the current selling
price or product exchanges for merchandise returned over 30 days after the
purchase date. Catalog customers returning items at any time may elect to
receive a replacement item, an exchange in size or color or a cash refund.
Trademarks
The Company owns several servicemarks relating to the names of its businesses
and trademarks relating to products sold in the businesses. Aside from the
servicemark registrations relating to the Company's tradenames, the Company does
not consider any trademark to be materially important to its business.
Research and Development
The Company does not engage in any Company-sponsored research and development
or customer-sponsored research and development. From time to time, the Company
will sponsor, or participate in vendor-sponsored, market research to determine
the Company's positioning in the big and tall apparel or workwear markets. The
cost of such research is not material to the Company.
Environment
The Company has not been required to make any material capital equipment
expenditures, or suffered any material effect on its earnings or competitive
position, as a result of compliance with federal, state or local environmental
laws.
Employees
As of December 10, 2001, the Company employed approximately 2,412 persons
full-time and 1,536 persons part-time, of whom approximately 1,578 full-time and
1,450 part-time employees were engaged in retail operations at the store level.
None of the Company's full-time or part-time employees are covered by collective
bargaining agreements. The Company believes its employee relations are
generally good.
MANAGEMENT
The following is a discussion of the Company's management as of December 10,
2001:
Executive Officers of the Company
Name Age Office
---- --- ------
Alan I. Weinstein 58 Chairman of the Board and Chief Executive Officer
Stuart M. Glasser 54 President and Chief Operating Officer
Jay M. Scheiner 46 Executive Vice President, Corporate Strategy and Business Development
and Chief Information Officer
Elizabeth C. White 43 First Senior Vice President and Chief Financial Officer
Mr. Weinstein has held the positions of Chairman of the Company's Board of
Directors and Chief Executive Officer since February 2001 and March 1997,
respectively and Mr. Weinstein has been a member of the Board of Directors of
the Company since 1996. Mr. Weinstein served as President of the Company from
November 1996 until February 2001. From January 1999 to June 1999, Mr.
Weinstein also held the position of Acting President of the Company's Work 'n
Gear division. From September 1996 through November 1996, Mr. Weinstein served
as Acting Chief Executive Officer of the Company. From July 1985 through
September 1996, Mr. Weinstein held the positions of Senior Executive Vice
President, Chief Financial Officer and Secretary of the Company. He was also
appointed Chief Administrative Officer in 1988. Mr. Weinstein joined the
Company's predecessor in 1968 as Assistant Controller and has held a variety of
positions of increasing responsibility in finance and administration since that
time.
11
Mr. Glasser has held the positions of President and Chief Operating Officer
of the Company since February 2001. Mr. Glasser held the positions of President
and Chief Executive Officer of The Casual Male, Inc. from September 1997 until
February 2001. Mr. Glasser has served as a member of the Board of Directors of
the Company since December 1999. From June 1998 until February 2001, Mr.
Glasser served as Senior Executive Vice President of the Company. Prior to
joining the Company, from January 1991 until September 1997, Mr. Glasser was an
Executive Vice President and General Merchandise Manager of men's, boy's,
children's and cosmetics for Bloomingdales, a division of Federated Department
Stores, Inc. Prior to 1991, Mr. Glasser served as President and Chief Executive
of the department store division of Elder-Beerman Stores Corp. and prior to that
he served as an Executive Vice President of Lord & Taylor. Mr. Glasser has also
served as a member of the Board of Directors of Allou Health & Beauty Care,
Inc., a distributor of nationally advertised health and beauty aid products,
pharmaceuticals, fragrances, cosmetics and non-perishable foods, since March
2000.
Mr. Scheiner has held the position of Executive Vice President, Corporate
Strategy and Business Development and Chief Information Officer since June
2001 and June 1992, respectively, and since January 2000 has assumed
responsibility for traffic and distribution. Mr. Scheiner served as First
Senior Vice President, Corporate Strategy and Business Development from November
2000 until June 2001. Mr. Scheiner has been employed by the Company since April
1974 in a variety of positions of increasing responsibility in finance and
merchandising.
Ms. White has held the position of First Senior Vice President and Chief
Financial Officer since March 2000 after having served as interim Chief
Financial Officer from January 2000 through March 2000. Except for a five month
period during 1996 when she served as Controller of Quebecor Printing (USA), a
commercial printing company, Ms. White has been employed by the Company since
November 1983 in various capacities, including serving as Senior Vice President
and Controller from October 1996 through December 1999. Prior to joining the
Company, Ms. White was employed by the public accounting firm of Peat Marwick
Mitchell & Co., the predecessor of KPMG LLP.
Risk Factors and Uncertainties
This Annual Report on Form 10-K contains statements that are not statements
of historical fact and are forward-looking statements within the meaning of
Federal securities laws. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by the forward-looking statements. These
statements reflect our current views with respect to future events and are based
on assumptions and subject to risks and uncertainties. We discuss many of these
important risk factors below. These risk factors and uncertainties, among
others, should be considered in evaluating these forward-looking statements and
the Company's future prospects. You should carefully review all of these
factors, as well as the discussion of forward-looking statements on page 1 of
this Annual Report on Form 10-K.
Bankruptcy Factors. The commencement of the Chapter 11 Case could
adversely affect the Company's relationships with its customers, suppliers or
employees. If the Company's relationships with customers, suppliers or
employees are adversely affected, the Company's operations could be materially
affected. The Company's ability to continue as a going concern is dependent
upon its ability to maintain compliance with debt covenants under its debtor-in-
possession credit facility and the formulation of a plan of reorganization and
confirmation thereof by the Bankruptcy Court.
Limited Market for Company Securities. The Company's Common Stock and
Convertible Notes were delisted from the Nasdaq's National Market System on May
31, 2001. In addition, the Bankruptcy Court has authorized certain restrictions
on trading such securities in order to protect the Company's NOL tax
carryforward. See "Market for Registrant's Common Stock at Related Stockholders
Matters - Restrictions on Transferability of Securities."
Availability of Tax Net Operating Loss Carryforward. At February 3, 2001,
the Company had net operating loss carryforwards and general business credit
carryforwards for federal income tax purposes of approximately $229.0 million
and $1.3 million, respectively, which expire in years ended January 2002 through
January 2021. The Company also has minimum tax credit carryforwards of
approximately $4.0 million available to reduce future regular income taxes, if
any, over an indefinite period. Such carryforwards are defined herein as
"NOLs". The Company's ability to utilize its NOLs could be substantially
limited upon the occurrence of certain changes in stock ownership of the Company
under Section 382 of the Internal Revenue Code. See "Management's Discussion on
Analysis of Financial Condition and Results of Operations - Re-valuation of
Deferred Tax Asset" and Note 5 to Notes to Consolidated Financial Statements.
The Company has obtained Bankruptcy Court approval for procedures intended to
preserve its NOL tax carryforward. See "Market for Registrant's Common Stock
12
and Related Stockholder Matters -Restrictions on Transferability of Securities."
These procedures however, only apply during the Chapter 11 cases.
Net Capital Deficiency. The Company has a net capital deficiency for the
purpose of financial reporting. As such, the Company shows greater liabilities
than assets on its balance sheet as of February 3, 2001. The Company's
independent auditors have described certain important factors that may affect
the Company's ability to continue as a going concern in the Independent
Auditors' report accompanying the Financial Statements included herein.
General Economic Factors. The Company's operating results could be
materially adversely affected by changes in the general economy, including broad
scale changes in consumer spending patterns. In addition, the Company's ability
to grow its businesses may be negatively impacted by changes in the financial
markets such as a tightening in the availability of credit, increases in
interest rates and lowered valuations of equity securities. In addition, the
terrorist attacks on September 11, 2001 have negatively impacted general
economic, market and political conditions. The recent terrorist attacks,
compounded with the slowing national economy, have resulted in substantially
reduced consumer spending across all segments. While we currently cannot project
the precise impact of these events on the Company, we do expect that the reduced
consumer spending will result in declines in the Company's revenue.
Weather Conditions. Like all retailers, the Company would experience
reduced sales in the event the areas served by its stores suffer severe weather
conditions. In addition, as a retailer of seasonal apparel, the Company must
make certain inventory decisions based upon an expectation of future weather
conditions. Accordingly, weather conditions or patterns different from those
forecasted by the Company could result in the Company carrying too little or too
much seasonal inventory. Should this occur, the Company could experience
decreased sales, increased markdowns and/or increased inventory-carrying costs.
Leverage. The Company is highly leveraged. As of the Filing Date, the
Company's outstanding consolidated indebtedness for borrowed money (including
current maturities but excluding undrawn letters of credit) totaled
approximately $193.0 million. This relatively high level of indebtedness could
be a factor in determining feasibility of any plan of reorganization that is
required to be confirmed in connection with the Company's Chapter 11 cases.
This level of indebtedness also could impair the Company's ability to obtain
additional financing and requires the Company to dedicate a significant portion
of its net cash flow from operations to the payment of principal and interest on
this indebtedness, and puts the Company at increased risk in the event it
defaults under any indebtedness.
Competition. The Company faces intense competition for customers, personnel
and innovative products in each of its divisions. Many of the Company's
competitors have substantially greater financial, marketing and other resources
than the Company. See "Business - Competition."
Dependence on Foreign Vendors. A significant portion of the Company's
merchandise is produced by foreign vendors, including vendors with factories in
Pakistan. The performance of the Company's businesses would likely be
significantly impacted if production at, or deliveries by, one or more of its
key vendors were disrupted for a material amount of time or if the cost of
merchandise was significantly increased. Such disruptions or cost increases
could occur as the result of social or political strife, unforeseen economic or
production regulations, import, licensing or trade restrictions, acts of God,
war or terrorism, or other unforeseen circumstances. In the event that any such
disruption occurs, there can be no assurance that the Company will be able to
identify adequate substitute vendors to replace the products affected by such a
disruption in a timely manner or at comparable prices.
Dependence on Fashion and Trends. Successful implementation of the
Company's merchandising strategy depends on its ability to introduce in a timely
manner new or updated products which both appeal to its customers and are priced
appropriately. The success of the Company also depends in part on its ability to
anticipate and respond to changing fashion and merchandise trends and consumer
demands in a timely manner. Accordingly, any failure by the Company's divisions
to identify and respond to these trends could adversely affect consumer
acceptance of the merchandise, which in turn could adversely affect the
Company's sales and profitability.
New Stores and Remodeling Initiatives. The Company's ability to open new
stores or to implement remodeling initiatives successfully depends upon, among
other things, the Company's capital resources and its ability to locate suitable
sites, negotiate favorable rents and other lease and license terms. In
addition, because the Company's store designs must evolve over time, actual
store-related capital expenditures may vary from historical levels (and
projections based thereon) due
13
to such factors as the scope of remodeling projects, general increases in the
costs of labor and materials and unusual product display requirements.
Retention of Qualified Employees. The Company's success depends upon its
ability to attract and retain highly skilled and motivated employees with
appropriate retail experience to work in management and in its stores.
Centralized Distribution. The Company conducts its retail store
distribution operations and its direct marketing and e-commerce fulfillment and
call center functions from centralized facilities located in Canton,
Massachusetts and Alpharetta, Georgia, respectively. A disruption in operations
at either one of these facilities may significantly increase the Company's
distribution costs or materially impact sales in its direct marketing and e-
commerce businesses. Further, beginning in February 2002, the Company's
distribution operations will become more centralized as its Alpharetta Facility
operations are consolidated into its Canton Facility operations. See "Business
- - - Consolidation of Catalog and E-Commerce Call and Fulfillment Center."
Direct Marketing Costs. Increases in the costs of printing and mailing
catalogs and other marketing pieces could have an adverse effect on the
Company's direct marketing businesses.
E-Commerce. The Company's e-commerce initiatives could be materially
adversely affected by technological failures in the Company's information
systems and distribution infrastructure and in the failure of third party
software and equipment employed in the service of the Company's e-commerce
activities. In addition, the Company's e-commerce activities could be disrupted
by outside forces engaged in activities aimed at preventing the Company's e-
commerce sites from working properly.
Trade Imbalances. Because a significant amount of the Company's
merchandise is manufactured by foreign vendors, disruption in the shipping trade
could materially adversely impact its ability to receive merchandise in a timely
fashion.
You should carefully review and consider all of these factors when analyzing a
forward-looking statement and should be aware that there may be other factors
that could cause results to differ from the Company's expectations. Any
forward-looking statement made by the Company is based on information, plans,
estimates and beliefs at the time such statement was made, and the Company
assumes no obligation to update any forward-looking statements to reflect
changes in the underlying assumptions or factors, new information, future events
or other changes.
Item 2. PROPERTIES
The executive and administrative offices of the Company are located at 555
Turnpike Street in Canton, Massachusetts. This facility also serves as the
distribution center for the Company's Casual Male Big & Tall, B & T Factory
Store, Repp and Work 'n Gear retail stores. The facility is located on 37 acres
of land (the "Canton Facility") and is owned by JBAK Canton Realty, Inc. ("JBAK
Realty"), a wholly-owned subsidiary of JBAK Holding, Inc. ("JBAK Holding") and
an indirect, wholly-owned subsidiary of Casual Male Corp. In December 1996 JBAK
Realty obtained a $15.5 million mortgage loan from The Chase Manhattan Bank (the
"Mortgage Loan"), secured by the real estate, buildings and other improvements
owned by JBAK Realty located at the Canton Facility. JBAK Realty leases the
Canton Facility to JBI, Inc., a wholly owned subsidiary of Casual Male Corp.
This facility contains approximately 750,000 square feet of space, including
approximately 150,000 square feet of office space. Neither JBAK Realty nor JBAK
Holding is a party in the Chapter 11 case.
The Company formerly leased a building at 437 Turnpike Street, Canton,
Massachusetts, which served as administrative offices for the Casual Male Big &
Tall, outlet store and Repp retail businesses (the "437 Turnpike Facility"). On
July 1, 2001, the Company relocated these administrative offices to the Canton
Facility. See "- - Lease Rejection Activities".
Catalog and e-commerce fulfillment and call center activities for the
Company's apparel divisions are currently provided from a 135,000 square foot
facility in Alpharetta, Georgia (the "Alpharetta Facility"). This facility also
serves as offices for the Company's direct marketing management. The initial
term of this lease expires on May 3, 2010 and the Company has one option to
extend the term of the lease for a five-year period at the then-prevailing
market rate. The Company has elected to consolidate the catalog and e-commerce
operations currently located in its Alpharetta Facility into its Canton
Facility. This consolidation will allow the Company to utilize space in the
Canton Facility made available as a result of the disposal of the Footwear
Business and will
14
eliminate occupancy and related expenses associated with the Alpharetta
Facility. In order to ensure a smooth transition of the Company's catalog and e-
commerce business from Alpharetta to Canton, the Company has petitioned the
Bankruptcy Court to allow it to establish a retention program that will provide
economic incentives to its Alpharetta-based employees to remain with the Company
through the transition period. Consolidation activities are expected to conclude
by the end of February 2002. The Company expects that cash expenses associated
with this consolidation, including retention and severance expenses, moving
costs and capital costs for improvements to the Canton Facility, will not exceed
$2.0 million.
The Company leases space in a building at 330 Turnpike Street, Canton,
Massachusetts, which serves as administrative offices for the Company's loss
prevention department. The space contains approximately 41,000 square feet,
including approximately 14,000 square feet of office space. The lease on this
facility expires October 31, 2003.
As of December 10, 2001, excluding the 8 stores conducting store closing
sales, the Company operated 379 Casual Male Big & Tall stores, all in leased
premises ranging from 2,000 to 5,987 square feet, with average space of
approximately 3,315 square feet and total space of approximately 1,263,000
square feet. A majority of the leases run for initial terms of five years.
Most are renewable at the option of the Company for one or more five-year terms.
See "Business --Store Closings" and "Lease Rejection Activities" for additional
information on Bankruptcy Court approved store closings.
As of December 10, 2001, excluding the 5 stores conducting store closing
sales, the Company operated 63 outlet stores, all in leased premises ranging
from 2,113 to 5,000 square feet, with average space of approximately 3,130
square feet and total space of approximately 200,250 square feet. A majority of
the leases run for initial terms of 5 years. Most are renewable at the option
of the Company for one or more five-year terms. See "Business --Store Closings"
and "Lease Rejection Activities" for additional information on Bankruptcy Court
approved store closings.
As of December 10, 2001, excluding the 15 stores conducting store closing
sales, the Company operated 66 Repp stores, all in leased premises ranging from
2,500 square feet to 9,510 square feet, with average space of approximately
3,515 square feet and total space of approximately 232,000 square feet. A
majority of the leases run for initial terms of five years. Most are renewable
at the option of the Company for one or more five-year terms. See "Business--
Store Closings" and "Lease Rejection Activities" for additional information on
Bankruptcy Court approved store closings.
As of December 10, 2001, the Company operated 70 Work 'n Gear stores, all
in leased premises ranging from 2,400 square feet to 6,200 square feet, with
average space of approximately 4,285 square feet and total space of
approximately 300,000 square feet. A majority of the leases run for initial
terms of five years. Most are renewable at the option of the Company for one or
more five-year terms.
Lease Rejection Activities
As debtors-in-possession under Chapter 11 of the United States Bankruptcy
Code, the Debtors have the right to reject or assume unexpired real property
leases (subject to limitations set forth in the Bankruptcy Code). The Debtors
are in the process of evaluating which of its leases it will reject, assume for
its own use or assume and assign to a third party. On August 2, 2001, the
Bankruptcy Court entered an Order permitting the Debtors to extend the time to
reject or assume non-residential leases through April 17, 2002. Effective July
31, 2001, the Debtors rejected the lease for the 437 Turnpike Facility. As of
December 10, 2001, the Debtors have not yet determined whether they will reject
the Alpharetta Facility lease or assume this lease and assign it to a third
party. With respect to the 80 stores described under "Business--Store Closings",
the Company has assumed three store leases and assigned said leases to third
parties, and has rejected the leases associated with 59 stores. The leases
associated with 18 stores have terminated pursuant to their terms or a lease
termination agreement with the landlord.
Item 3. LEGAL PROCEEDINGS
The Debtors are presently operating their businesses as debtors-in-
possession subject to the jurisdiction of the Bankruptcy Court. There were no
material legal proceedings pending against the Company prior to the Chapter 11
filing. The Debtors currently retain the exclusive right to file a plan of
reorganization until March 25, 2002 and to solicit acceptance of a plan of
reorganization until May 22, 2002. Certain claims have been brought against the
Company which are incident to, and will be resolved in, the Chapter 11
proceeding. There are no other material legal proceedings pending or, to the
knowledge of management, threatened against the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
15
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
-------
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
Market Information
Prior to May 18, 2001, the Company's common stock and Convertible Notes
traded on The Nasdaq Stock Market(R) (Nasdaq) under the symbol "CMAL" and
"CMALG", respectively. On May 31, 2001, the Company's common stock and
Convertible Notes were delisted from the Nasdaq National Market System, and the
common stock now trades on the over-the-counter market as reported by Pink
Sheets LLC under the symbol "CMALQ." According to their website,
www.pinksheets.com the Pink Sheets' Electronic Quotation Service is not an
- ------------------
exchange, but a nexus in which competitive market makers display real-time
prices and potential liquidity in thousands of domestic equities for companies
that are unable or choose not to list their securities on the Nasdaq or a
securities exchange.
The following table sets forth the last reported high and low sales prices,
as reported by Nasdaq, for the Company's common stock for each quarterly period
during the years ended February 3, 2001 and January 29, 2000. The prices set
forth below do not include retail mark-ups, markdowns or commissions.
Year Ended February 3, 2001 High Low
--------------------------- ---- ---
First Quarter $7 1/4 $5
Second Quarter 6 11/16 4 15/16
Third Quarter 5 1/4 3 5/8
Fourth Quarter 7 2 1/4
Year Ended January 29, 2000 High Low
--------------------------- ---- ---
First Quarter $6 1/4 $3 3/4
Second Quarter 9 5 3/4
Third Quarter 7 7/8 5 1/2
Fourth Quarter 6 4 1/2
Holders
There were approximately 635 holders of record of the Company's common
stock as of December 10, 2001. The Company believes the actual number of
beneficial owners of the Company's common stock is substantially greater than
the stated number of holders of record because a portion of the outstanding
common stock is held in "street name".
Dividends
On March 12, 1987, the Board of Directors of the Company adopted a policy
of paying quarterly dividends. For each quarter thereafter up until April 2001,
the Company has paid a dividend of 1 1/2 cents per share. In light of the
Company's financial situation, the Company has suspended the payment of all
dividends. The Company's debtor-in-possession credit facility prohibits the
payment of cash dividends to stockholders. For additional information, see
"Management's Discussion and Analysis - Liquidity and Capital Resources."
Restrictions on Transferability of Securities
In connection with the Chapter 11 Case, the Bankruptcy Court entered an
order that enables the Company to take advantage of the automatic injunction
(that commenced immediately upon the Chapter 11 filings) to protect its
substantial net operating loss carryforward. The Bankruptcy Court approved
certain notice procedures that limit the buying and selling of the Company's
common stock and Convertible Notes and the trading of claims that could effect
an "ownership change" for tax purposes, thereby adversely affecting the
Company's valuable NOL tax carryforward. In order to make sure that no
violations of
16
the automatic stay occur by claims or securities trading, the Bankruptcy Court
approved certain procedures to govern and restrict trading.
These procedures restrict beneficial holders of the Company's Convertible
Notes or common stock as follows: (i) if any such holder beneficially owns 5% or
more of such notes or stock, it is stayed from purchasing any additional notes
or stock, and (ii) if any such holder owns less than 5% of such notes and stock,
it is stayed from purchasing an amount which, when added to their total
beneficial ownership, would equal more than 4.99% of such notes or stock.
Further, holders of general unsecured claims (other than Convertible Notes) and
holders of the 13% Senior Subordinated Notes due December 31, 2001, are required
to provide the Company with 30 days written notice of an intended sale or other
transfer before the sale or other transfer of such claims may be deemed
effective. Pursuant to the Order, any sale or other transfer in violation of
such procedures will be null and void.
Other
On December 15, 1994, the Company's Board of Directors adopted a
Shareholder Rights Agreement (the "Rights Agreement") designed to enhance the
Company's ability to protect shareholder interests and to ensure shareholders
receive fair treatment in the event any future coercive takeover attempt of the
Company is made. Pursuant to the Rights Agreement, the Board of Directors
declared a dividend distribution of one preferred stock purchase right (the
"Right") for each share of the Company's outstanding common stock to
shareholders of record as of the close of business on January 6, 1995. Each
right entitles the holder to purchase from the Company a unit consisting of one
ten thousandth (1/10,000) of a share of Series A Junior Participating Cumulative
Preferred Stock, par value $1.00 per share, at a cash exercise price of $70 per
unit, subject to adjustment, upon the occurrence of certain events as set forth
in the Rights Agreement. These events include the earliest to occur of: (i) the
acquisition of 15% or more of the Company's outstanding common stock by any
person or group; (ii) the commencement of a tender or exchange offer that would
result upon its consummation in a person or a group becoming the beneficial
owner of 15% or more of the Company's outstanding common stock; or (iii) the
determination by the Board of Directors that any person is an "Adverse Person",
as defined in the Rights Agreement. The Rights are not exercisable until or
following the occurrence of one of the above events and will expire on December
14, 2004, unless previously redeemed or exchanged by the Company, as provided in
the Rights Agreement.
In May 1999, to facilitate the Repp acquisition by the Company's JBI
Apparel, Inc. subsidiary, JBI Apparel, Inc. issued 13% Senior Subordinated Notes
(the "Notes") in the principal amount of $10.0 million to a group of 12
investors, which included investment funds affiliated with Donaldson, Lufkin and
Jenrette, Inc. (the "Investor Group"). Detachable warrants were issued in
connection with the Notes, which warrants enable the holders thereof to purchase
1,200,000 shares of Casual Male Corp. common stock at a purchase price of $5.00
per share (the "Warrants"). The Notes mature on December 31, 2001 and the
Warrants expire on May 21, 2004. The Notes and the Warrants were offered and
sold in a private placement transaction utilizing the exemption set forth in
Section 4(2) of the Securities Act of 1933, as amended, and were sold directly
without the involvement of a broker or commissioned agent.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the Company are
derived from the consolidated financial statements that have been audited and
reported on by KPMG llp, independent certified public accountants, and are
qualified in their entirety by reference to the more detailed consolidated
financial statements and the independent auditors' report thereon appearing
elsewhere in this Form 10-K. The financial data presented below reflect the
results of the Company's continuing apparel segment as continuing operations,
and reflect the results of the Company's former footwear segment as discontinued
operations. The Company's continuing apparel operations reflect the purchase of
the Repp Big & Tall businesses in May 1999. In November 2000, the Company
announced it had entered into an agreement with an affiliate of Footstar, Inc.
to sell substantially all the assets of its JBI, Inc. and Morse Shoe, Inc.
subsidiaries, which are entities that comprised its footwear segment. The sale
was finalized effective February 3, 2001.
17
CASUAL MALE CORP.
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
Year Ended
------------------------------------------------------
2/03/01 1/29/00 1/30/99 1/31/98 2/01/97
--------- -------- -------- -------- ---------
Income Statement Data: (53 weeks)
- ---------------------
Net sales $ 471,817 $411,107 $324,336 $309,500 $ 293,775
Cost of sales 245,121 212,154 169,974 163,406 153,174
--------- -------- -------- -------- ---------
Gross profit 226,696 198,953 154,362 146,094 140,601
Selling, administrative and general expenses 188,579 164,600 132,374 125,226 118,846
Depreciation and amortization 11,974 12,013 10,240 9,233 10,171
Restructuring and other non-recurring charges - - - 350 -
--------- -------- -------- -------- ---------
Operating income from continuing operations 26,143 22,340 11,748 11,285 11,584
Interest expense, net 11,972 10,075 7,486 6,664 4,262
--------- -------- -------- -------- ---------
Earnings from continuing operations
before income taxes 14,171 12,265 4,262 4,621 7,322
Income tax expense 57,216 4,047 1,534 1,802 2,855
--------- -------- -------- -------- ---------
Earnings (loss) from continuing operations (43,045) 8,218 2,728 2,819 4,467
Earnings (loss) from discontinued operations,
net of taxes (58,811) 655 (694) 994 (115,895)
--------- -------- -------- -------- ---------
Net earnings (loss) $(101,856) $ 8,873 $ 2,034 $ 3,813 $(111,428)
========= ======== ======== ======== =========
Earnings (loss) per common share:
Basic
Continuing operations $ (3.06) $ 0.58 $ 0.19 $ 0.20 $ 0.32
Discontinued operations $ (4.18) $ 0.05 $ (0.04) $ 0.07 $ (8.34)
--------- -------- -------- -------- ---------
Net earnings (loss) per
common share, basic $ (7.24) $ 0.63 $ 0.15 $ 0.27 $ (8.02)
========= ======== ======== ======== =========
Earnings (loss) per common share:
Diluted
Continuing operations $ (3.06) $ 0.57 $ 0.19 $ 0.20 $ 0.32
Discontinued operations $ (4.18) $ 0.05 $ ( 0.05) $ 0.07 $ (8.34)
--------- -------- -------- -------- ---------
Net earnings (loss) per
common share, diluted $ (7.24) $ 0.62 $ 0.14 $ 0.27 $ (8.02)
========= ======== ======== ======== =========
As Of
------------------------------------------------------
2/03/01 1/29/00 1/30/99 1/31/98 2/01/97
--------- -------- -------- -------- ---------
Balance Sheet Data:
- ------------------
Working capital $ 72,746 $124,983 $120,089 $121,368 $182,122
Total assets 245,084 376,627 324,035 335,067 388,541
Long-term debt 164,089 174,064 174,583 186,251 214,092
Stockholders' equity (deficit) (12,937) 89,726 78,183 75,263 71,989
========= ======== ======== ======== =========
Cash dividends declared
per common share $ 0.06 $ 0.06 $ 0.06 $ 0.06 $ 0.06
========= ======== ======== ======== =========
18
CASUAL MALE CORP.
SELECTED CONSOLIDATED FINANCIAL DATA
Store Openings and Closings:*
- ---------------------------
Outlet
Casual ------ Total Work 'n
Male Stores Repp Big & Tall Gear Total
----------------- ----------------- -------------- ---------------- ----------------- ----------
Stores open at
January 31, 1998 424 35 - 459 66 525
Openings 7 3 - 10 1 11
Closings (15) (1) - (16) - (16)
Conversions (1) 1 - - - -
---- -- ----- --- -- ---
Stores open at
January 30, 1999 415 38 - 453 67 520
Openings 4 1 137** 142 - 142
Closings (12) (1) (2) (15) (2) (17)
Conversions (14) 14 - - - -
---- -- ----- --- -- ---
Stores open at
January 29, 2000 393 52 135 580 65 645
Openings 2 20 4 26 5 31
Closings (3) - (5) (8) - (8)
Conversions 1 - (1) - - -
---- -- ----- --- -- ---
Stores open at
February 3, 2001 393 72 133 598 70 668
Openings 7 0 2 9 - 9
Closings (23) (14) (34) (71) - (29)
Conversions 10 10 (20) - - -
--- --- --- --- -- ---
Stores open at
December 10, 2001*** 387 68 81 536 70 648
* Reflects continuing operations only and excludes store information relating
to discontinued operations. On August 22, 2001, the Bankruptcy Court
authorized the Company to conduct store closing sales in 80 stores. See
"Business--Store Closings."
** Excludes the 16 Canadian Repp stores sold to Grafton-Fraser, Inc. and the
31 stores whose leases were terminated at or around closing and whose
inventory was sold by a liquidator.
*** Includes 8 Casual Male, 4 outlet and 15 Repp stores currently conducting
store closing sales.
19
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following section of this Annual Report on Form 10-K entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contains statements that are not statements of historical fact and
are forward-looking statements within the meaning of federal securities laws.
These statements involve known and unknown risks, uncertainties and other
factors that may cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. These statements
reflect our current views with respect to future events and are based on
assumptions and subject to risks and uncertainties. We discuss many of these
risks in detail under the heading "Risk Factors and Uncertainties" beginning on
page 11. You should carefully review all of these factors, as well as the
discussion of forward-looking statements on page 1 of this Annual Report on Form
10-K.
All references herein to fiscal 2001, fiscal 2000 and fiscal 1999 relate to
the years ended February 3, 2001, January 29, 2000 and January 30, 1999,
respectively. All references herein to fiscal 2002 and fiscal 2003 relate to the
years ending February 2, 2002 and February 1, 2003, respectively. With the
exception of fiscal 2001, which consists of 53 weeks, all fiscal years consist
of 52 weeks. To the extent the Company may have incurred increased costs
resulting from inflation, the Company believes it has been able to offset these
costs through higher revenues. Accordingly, the Company believes inflation has
had no significant impact on its operations.
Bankruptcy Court Case
On May 18, 2001 (the "Filing Date"), Casual Male Corp. and 15 of its direct
and indirect subsidiaries (collectively, the "Debtors") filed voluntary
petitions to reorganize their businesses under chapter 11 of the Bankruptcy Code
(the "Chapter 11 Case") in the United States Bankruptcy Court for the Southern
District of New York (the "Bankruptcy Court"). JBAK Holding, Inc. and JBAK
Canton Realty, Inc., a direct and indirect subsidiary of Casual Male Corp.,
respectively, are not debtors in the Chapter 11 Case. The Debtors continue to
operate their businesses and manage their properties as debtors-in-possession
pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. On May 24, 2001,
the United States Trustee for the Southern District of New York appointed an
Official Committee of Unsecured Creditors (the "Creditors' Committee") pursuant
to Section 1102 of the Bankruptcy Code.
Factors Contributing to the Chapter 11 Filing
A number of factors contributed to the Company's decision to commence the
Chapter 11 Case on May 18, 2001. Generally, the Chapter 11 filing arose in
response to the Company's need to obtain additional liquidity and to restructure
its long-term indebtedness. While the Company pursued potential capital market
transactions in an effort to secure the necessary financing, it was unable to
obtain such financing within the time-frame, and on the terms, required to
continue operations. The factors that impacted the Company's inability to
restructure its long-term indebtedness, and to obtain alternative financing in a
timely manner, include:
Market Conditions and Sales Performance. During the Winter and Spring of
2001, market conditions in the United States deteriorated, precipitating a broad
decline in overall consumer spending. The extent of this economic downturn is
evidenced by the recent pronouncement that the U.S. economy officially fell into
a recession in March 2001. This decline in the consumer market had a
particularly acute effect on the retail sector. As a result of the overall
economic downturn, more than two dozen retail chains (including Ames, Bradlees,
Home Place, Lechters, Montgomery Ward, Natural Wonders and Track'n Trail)
declared bankruptcy during this period. Although the Company has a prominent
position in the men's big and tall specialty retail market, this business
experienced comparable sales declines each month beginning in December 2000.
See "Risk Factor and Uncertainties - General Economic Factors."
Credit Market Tightness. Lenders generally reduced amounts made available
for commercial loans to retail companies during the period prior to the Filing
Date. In particular, the high yield markets were unavailable to many retail
companies, including the Company. In addition to this, the financing sources
willing to consider lending funds to retailers were uncomfortable lending funds
to the Company in light of the scheduled maturity on December 31, 2001 and June
30, 2002 of the $10.0 million 13% Senior Subordinated Notes (the "JBI Apparel
Notes") and the $70.0 million 7% Convertible Subordinated Notes (the
"Convertible Notes"), respectively. See "Risk Factors and Uncertainties -
General Economic Factors."
Inability to Refinance Convertible Notes. During a conference call
broadcast over the internet on March 21, 2001, the Company announced that it
believed it would need to sell non-core assets and/or conduct a capital market
transaction in
20
order to fund the redemption of the Convertible Notes, upon their maturity.
Thereafter, the Company engaged an investment banker to assist it in preparing
an exchange offer to present to holders of the Convertible Notes. However, the
Company ultimately was unable to conduct such an exchange offer. See "Risk
Factors and Uncertainties - Leverage."
Reduced Borrowing Availability. During the periods preceding the Filing
Date, the Company experienced a general tightening of the credit made available
to it under its revolving credit facility. For example, in March 2001, the
Company's senior lenders increased by $1.0 million certain reserve requirements
under this facility. During April 2001, the Company incurred an additional
approximately $3.0 million reduction in the borrowing base availability under
its revolving credit line as the result of the lenders' imposition of additional
reserves and their inventory revaluation. See "Risk Factors and Uncertainties -
General Economic Factors."
Decreasing Trade Credit. Beginning in or about May 2001, as the Company's
liquidity position became apparent to its merchandise and other vendors, certain
of its vendors (and their factors) refused to ship merchandise ordered in
advance of Father's Day, the Company's second biggest selling period. As a
result, new merchandise receipts were substantially below plan for the month of
May 2001.
Loss from Discontinued Operations. On February 3, 2001, the Company sold
its remaining footwear operations to an affiliate of Footstar, Inc. See "-
Discontinued Operations" below. On March 21, 2001 (following the completion of
the post-closing audit conducted in connection with the Footstar Transaction and
the Company's year-end audit), the Company announced that its net loss from
discontinued operations was larger than anticipated, as a result of higher
inventory liquidation and severance costs, which had a negative impact on the
Company's cash available for its operations. See "Note 2 to Notes to
Consolidated Financial Statements."
Leverage. Immediately prior to the Filing Date, the Company had
outstanding $193.0 million in borrowings under several facilities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." Of this amount, Casual Male
Corp. owed $70.0 million pursuant to the Convertible Notes, which are scheduled
to mature on June 30, 2002, and JBI Apparel, Inc. owed $10.0 million pursuant to
the JBI Apparel Notes, which are scheduled to mature on December 31, 2001. The
Company's operating subsidiaries also owed approximately $60.0 million in trade
and other payables as of the Filing Date. See "Risk Factor and Uncertainties -
Leverage."
Beginning in March 2001 and continuing until the Filing Date, the Company
engaged in extensive discussions with its existing lenders as well as with
potential refinancing lenders and various sources of equity financing in an
effort to address its liquidity concerns. While the Company pursued several
promising negotiations into May 2001, its efforts to obtain the necessary third
party financing to resolve its liquidity needs were unsuccessful.
Consequently, the Debtors decided to commence their Chapter 11 cases to
protect their retail franchises.
Exclusivity Period Extension
Under Section 1121(b) of the Bankruptcy Code, a debtor has the exclusive
right to file a plan of reorganization during the initial 120 days after the
date of the commencement of a Chapter 11 case. The Debtors have not yet
proposed a plan of reorganization. On August 20, 2001, the Debtors filed with
the Bankruptcy Court a motion to extend the exclusive period and the time within
which to solicit acceptances of a plan for approximately six months (without
prejudice to its right to request further extensions if necessary). On October
10, 2001, the Bankruptcy Court granted the extension. Such extension extends
the Debtors' exclusive period for filing a plan until March 25, 2002.
Debtor-in-Possession Financing
On May 18, 2001, the Bankruptcy Court approved on an interim basis a $135
million post-petition credit and term loan facility provided by a lending group
led by Fleet Retail Finance, Inc. and Back Bay Capital Funding LLC (the "DIP
Financing"). The credit facility provides loans to the Debtors to fund ongoing
operations, as more fully described below under the heading "--Liquidity and
Capital Resources - DIP Financing." The DIP Financing received final approval
from the Bankruptcy Court on July 19, 2001.
Discontinued Operations
On November 16, 2000, the Company entered into an agreement to sell
substantially all of the ongoing assets of its JBI,
21
Inc. and Morse Shoe, Inc. licensed footwear department businesses to an
affiliate of Footstar, Inc. (the "Footstar Transaction"). Upon the consummation
of the Footstar Transaction, the Company exited the retail footwear business.
Accordingly, the operating results and the effect of the sale of the footwear
operations are reflected as discontinued operations. The sale resulted in a loss
of $58.8 million recorded in fiscal 2001, which loss included the difference
between the book value of the Footwear Business assets sold less the
consideration received in respect thereof, the operating results of the division
in 2001 and other costs directly associated with the divestiture of the Footwear
Business.
Re-valuation of Deferred Tax Asset
At February 3, 2001, the Company had net operating loss carryforwards and
general business credit carryforwards for federal income tax purposes of
approximately $229.0 million and $1.3 million, respectively, which expire in
years ended January 2002 through January 2021. The Company also has minimum tax
credit carryforwards of approximately $4.0 million available to reduce future
regular income taxes, if any, over an indefinite period. Such carryforwards are
defined herein as "NOLs".
SFAS No. 109, "Accounting for Income Taxes", requires the tax benefit of
such NOLs be recorded for financial reporting purposes as an asset to the
extent the Company assesses the utilization of such NOLs to be "more likely
than not". At January 29, 2000, the Company established a valuation allowance
against its deferred tax assets of $27,671,000.
As described in Note 2 in Notes to Consolidated Financial Statements, in
the year ended February 3, 2001, the Company disposed of its footwear business,
and subsequent to year-end the Company began certain efforts to undertake a
financial restructuring in order to secure additional future liquidity to
satisfy ongoing operations and repay debt that was scheduled to mature during
the next year. In accordance with current accounting literature, the Company
considered its changing financial circumstances, and the related risks, in
assessing whether at February 3, 2001 it is more likely than not that some
portion or all of the NOLs will be realized. In considering the likelihood of
realizing the value of the NOLs, the Company was required to consider the
likelihood of the generation of future taxable income during the periods in
which the NOLs may be utilized. In addition, the Company considered Section 382
of the Internal Revenue Code, which serves to limit a taxpayer's ability to
utilize NOLs as a result of changes in stock ownership of the Company over a
three year period. The Company's financial circumstances and the possible
limitation which would be caused by a change in ownership have caused management
to conclude that none of the Company's deferred tax assets are more likely than
not to be realized. The Company has therefore increased the valuation allowance
to eliminate its net deferred tax assets in the year ending February 3, 2001.
The elimination of this asset resulted in income tax expense allocable to
continuing operations of $56,347,000.
Results of Operations
Fiscal 2001 versus Fiscal 2000
Net sales from continuing operations increased by $60.7 million to $471.8
million in fiscal 2001 from $411.1 million in fiscal 2000, primarily due to a
$35.5 million increase in sales generated by the Repp Big & Tall retail store,
catalog and e-commerce businesses acquired in May 1999 and the introduction of
the Casual Male Catalog and e-commerce website during the period. The sales
increase was also the result of (i) an increase in the average number of Casual
Male Big & Tall stores, outlet stores and Work 'n Gear stores in operation
during fiscal 2001 as compared to fiscal 2000, (ii) a 3.2% increase in
comparable store sales (comparable store sales increases/decreases are based
upon comparisons of weekly sales volume in Casual Male Big & Tall stores, outlet
stores and Work 'n Gear stores that were open in corresponding weeks of the
comparison periods, as well as comparisons, beginning in September 2000, of
weekly sales volume in the Repp Big & Tall stores, which were open in
corresponding weeks of the comparison periods) and (iii) an additional week in
fiscal 2001, which accounted for additional sales of $6.6 million.
Cost of sales from continuing operations constituted 52.0% of sales in
fiscal 2001, as compared to 51.6% of sales in fiscal 2000. This increase in
percentage was primarily due to additional promotional activity in the newly
acquired Repp Big & Tall stores, which experienced a higher cost of sales
percentage than the Company's other chains. The Company initiated this
additional promotional activity in Repp, primarily during the fourth quarter, to
liquidate seasonal product and generate sales. When the Company purchased the
Repp business from Edison Brothers in May 1999, the business's real estate
portfolio was not uniformly positioned to target customers with higher incomes.
As a result, many Repp stores are or were located in areas whose demographics do
not support its current merchandise assortment and higher price points. The
Company believes that the customers' lack of receptivity to Repp's higher price
points in certain Repp stores resulted in increased markdowns at Repp in fiscal
2001. Because the Company believes that the Repp retail business does not
currently correspond to the needs of its customers, it has undertaken, or will
undertake, the actions described under the headings "Business - Repp Big & Tall-
22
Conversion and Elimination of Repp Stores." The cost of sales percentage
increase was also the result of an increase in warehousing and distribution
costs as a percentage of sales, partially offset by a higher initial markup on
merchandise purchases.
Selling, administrative and general expenses from continuing operations
increased $24.0 million, or 14.6%, to $188.6 million in fiscal 2001 from $164.6
million in fiscal 2000. As a percentage of sales, selling, administrative and
general expenses were 40.0% in both fiscal 2001 and fiscal 2000. In fiscal 2001,
the Company experienced an increase in direct store and catalog expenses as a
percentage of sales. The increase in direct store expenses reflects higher
payroll costs in the newly acquired Repp stores, which feature more higher-
priced and tailored clothing and require more salespeople than the Company's
other businesses. The increase in catalog expenses reflects the expanded
circulation of the catalogs and associated payroll costs, partially offset by
lower catalog production costs as a percentage of sales. The increase in direct
expenses as a percentage of sales was offset by a decrease in management
information system expenses as a percentage of sales, which was the result of
non-recurring expenses in fiscal 2000 related to both systems integration of the
Repp business acquired in May 1999 and the development of the Company's catalog
and e-commerce businesses.
Depreciation and amortization expense from continuing operations was $12.0
million in both fiscal 2001 and fiscal 2000.
As a result of the above, the Company's operating income from continuing
operations increased by $3.8 million to $26.1 million in fiscal 2001 from $22.3
million in fiscal 2000. As a percentage of sales, operating income was 5.5% in
fiscal 2001 as compared to 5.4% in fiscal 2000.
Net interest expense from continuing operations increased by $1.9 million
to $12.0 million in fiscal 2001 from $10.1 million in fiscal 2000, primarily due
to higher interest rates on bank borrowings and higher average levels of bank
borrowings associated with higher average levels of inventory in fiscal 2001 as
compared to fiscal 2000. The increase in bank borrowings resulted primarily
from the Company's acquisition of the Repp businesses in May 1999, and the
increase in rate was the result of generally higher short term borrowing rates
in fiscal 2001 versus fiscal 2000.
Taxes on earnings from continuing operations were $57.2 million. As
disclosed in Note 5 in Notes to Consolidated Financial Statements and in the "--
Revaluation of Deferred Tax Asset" section in this Item 7, the Company has
increased the valuation allowance on its deferred tax asset to 100% of the value
of the asset. The increase of this valuation reserve is fully reflected in
taxes on earnings from continuing operations. In fiscal 2000, taxes on earnings
from continuing operations totaled $4.0 million, yielding an effective tax rate
of 33.0%.
Loss from continuing operations was $43.0 million in fiscal 2001 as
compared to earnings from continuing operations of $8.2 million in fiscal 2000.
For the fiscal year ended February 3, 2001, the Company recorded a loss
from discontinued operations of $58.8 million as compared to earnings from
discontinued operations, net of income tax expense, of $655,000 in fiscal 2000.
See "--Discontinued Operations" and Note 2 to Notes to Consolidated Financial
Statements.
Net loss for fiscal 2001 was $101.9 million as compared to net earnings for
fiscal 2000 of $8.9 million.
Fiscal 2000 versus Fiscal 1999
Net sales from continuing operations increased by $86.8 million to $411.1
million in fiscal 2000 from $324.3 million in fiscal 1999, primarily due to
sales of $72.6 million generated in fiscal 2000 by the Repp Big & Tall stores
and the Repp By Mail catalog business acquired in May 1999. The sales
increase was also the result of a 5.5% increase in comparable store sales,
partially offset by the closing of a net of ten Casual Male Big & Tall, outlet
stores and Work 'n Gear stores.
Cost of sales from continuing operations constituted 51.6% of sales in
fiscal 2000, as compared to 52.4% of sales in fiscal 1999. This decrease was
primarily attributable to lower markdowns as a percentage of sales and a higher
initial markup on merchandise purchases.
Selling, administrative and general expenses from continuing operations
increased $32.2 million, or 24.3%, to $164.6 million in fiscal 2000 from $132.4
million in fiscal 1999. The increase was primarily due to the acquisition of
the Repp businesses in May 1999. As a percentage of sales, selling,
administrative and general expenses were 40.0% in fiscal 2000, as compared to
40.8% of sales in fiscal 1999. The decrease in such percentage was primarily
attributable to greater operating
23
efficiencies created by the leveraging of fixed administrative costs against the
volume added by the Repp acquisition, coupled with an increase in comparable
store sales.
Depreciation and amortization expense from continuing operations increased
by $1.8 million to $12.0 million in fiscal 2000 from $10.2 million in fiscal
1999 due to a net increase in depreciable and amortizable assets, primarily as a
result of the Repp acquisition.
As a result of the above, the Company's operating income from continuing
operations increased by $10.6 million to $22.3 million in fiscal 2000 from $11.7
million in fiscal 1999. As a percentage of sales, operating income from
continuing operations was 5.4% in fiscal 2000 as compared to 3.6% in fiscal
1999.
Net interest expense from continuing operations increased by $2.6 million
to $10.1 million in fiscal 2000 from $7.5 million in fiscal 1999 primarily due
to higher interest rates on bank borrowings and other debts and higher average
levels of bank borrowings in fiscal 2000 as compared to fiscal 1999. Both
increases resulted primarily from the Company's acquisition of the Repp
businesses in May 1999, coupled with a higher average interest rate environment
in fiscal 2000 versus fiscal 1999.
Taxes on earnings from continuing operations were $4.0 million in fiscal
2000, yielding an effective tax rate of 33.0%, as compared to $1.5 million in
fiscal 1999, yielding an effective tax rate of 36.0%. The decrease in the
effective tax rate was primarily due to adjustments recorded in fiscal 2000 to
deferred taxes and the related valuation reserve.
Earnings from continuing operations increased $5.5 million in fiscal 2000
to $8.2 million from $2.7 million in fiscal 1999.
For the fiscal year ended January 29, 2000, the Company recorded earnings
from discontinued operations, net of income tax expense, of $655,000 as compared
to recording a loss from discontinued operations net of income tax benefit, of
$694,000 in the fiscal year ended January 30, 1999.
Net earnings for fiscal 2000 were $8.9 million as compared to net earnings
of $2.0 million in fiscal 1999.
Financial Condition
February 3, 2001 versus January 29, 2000
Due to the Footstar Transaction and the Company's exit from the Footwear
Business, the Company's consolidated balance sheets have been reclassified to
reflect certain account balances or a portion thereof related to the
discontinued Footwear Business. As such, the following captions have been
added: "Current assets of discontinued operations" and "Non-current assets of
discontinued operations."
The increase in merchandise inventories at February 3, 2001 from January
29, 2000 reflects increased inventory in the Company's catalog and e-commerce
businesses, and in the Work 'n Gear business to meet the demands generated by
the division's business-to-business initiatives. The increase also reflects an
increase in the average inventory level per store coupled with additional
inventory required for new stores.
The decrease in current assets of discontinued operations at February 3,
2001 from January 29, 2000 reflects the substantial consummation of the Footstar
Transaction on February 3, 2001, as discussed in Note 2 to Notes to Consolidated
Financial Statements.
The increase in net property, plant and equipment at February 3, 2001 from
January 29, 2000 was the result of capital additions of $15.4 million, primarily
for the opening of new stores, the renovation of existing stores and equipment
and software necessary to meet the Company's information systems needs. The
increase was partially offset by the recording of $10.0 million in depreciation
expense during fiscal 2001.
The elimination of current and long-term deferred income taxes at February
3, 2001 from the value at January 29, 2000 resulted from the establishment of a
100% valuation reserve against the Company's deferred tax assets for the reasons
described above under the heading "--Re-valuation of Deferred Tax Asset" and in
Note 6 to Notes to Consolidated Financial Statements.
The decrease in non-current assets of discontinued operations at February
3, 2001 from January 29, 2000 reflects the substantial consummation of the
Footstar Transaction on February 3, 2001, as discussed in Note 2 to Notes to
Consolidated
24
Financial Statements.
The increase in current portion of long-term debt at February 3, 2001 from
January 29, 2000 was due primarily to the reclassification from non-current to
current of the 13% Senior Subordinated Notes, due December 21, 2001, of the
Company's JBI Apparel, Inc. subsidiary that mature in December 2001 (the "JBI
Apparel Notes").
Included in accounts payable are $35.9 million and $8.4 million at February
3, 2001 and January 29, 2000, respectively, of merchandise payables related to
the Company's discontinued Footwear business. The footwear accounts payable
balance at January 29, 2000 includes $20.8 million related to in transit
inventory. Net of the accounts payable related to the discontinued Footwear
business, the ratio of accounts payable to merchandise inventories in the
Company's continuing apparel operations is 36.2% at February 3, 2001 as compared
to 45.9% at January 29, 2000. The decrease in such ratio reflects the Company's
decision to purchase a larger percentage of its merchandise inventories directly
from foreign sources. Foreign sources provide less trade credit as compared to
domestic sources, but generally allow a higher initial markup on purchases. The
Company believes the pricing available from its foreign sources for certain
product classifications to be favorable to that of domestic sources.
Additionally, the decrease in the ratio reflects a larger amount of branded
merchandise acquired from domestic sources in its inventory at February 3, 2001
as compared to January 29, 2000. Vendors of branded product often offer less
favorable credit terms than vendors of non-branded product.
The decrease in long-term debt, net of current portion, at February 3, 2001
from January 29, 2000 was primarily due to a decrease in the balance of the
Company's chattel and term loans. See Note 4 to Notes to Consolidated Financial
Statements for a further discussion of debt.
Cash Flow Statement Data
Net cash provided by operating activities for fiscal 2001 was $14.3
million, as compared to net cash provided by operating activities of $39.4
million in fiscal 2000. The $26.6 million change was primarily due to a $1.2
million increase in accounts payable at February 3, 2001 from January 29, 2000
as compared to a $29.8 million increase in accounts payable at January 29, 2000
from January 30, 1999. The $29.8 million increase in accounts payable in fiscal
2000 was primarily due to payables related to the acquisition of the Repp
business in May 1999, coupled with an increase in accounts payable in the
Company's footwear business. The smaller increase in accounts payable in fiscal
2001 versus fiscal 2000 was primarily due to the Company's decision to purchase
a larger percentage of its merchandise inventories from foreign sources which
provide less trade credit than domestic sources. The Company believes the
pricing available from its foreign sources for certain product classifications
to be favorable to that of domestic sources. Additionally, the smaller increase
in accounts payable reflects a larger amount of branded merchandise acquired
from domestic sources in its inventory at February 3, 2001 as compared to
January 29, 2000, which vendors often offer less favorable credit terms than
vendors of non-branded product.
Net cash provided by investing activities for fiscal 2001 was $34.6
million, as compared to net cash used in investing activities of $40.3 million
in fiscal 2000. The $74.9 million change was primarily due to the receipt of
proceeds of $53.0 million from the disposal of the Company's Footwear Business
in fiscal 2001, as compared to the use of $27.0 million for the Repp acquisition
in fiscal 2000. The change was partially offset by the use of $15.4 million for
capital expenditures in fiscal 2001, as compared to $10.7 million used for
capital expenditures in fiscal 2000.
The Company invested $15.4 million, $10.7 million and $9.6 million in
capital expenditures (excluding footwear related additions) during fiscal 2001,
fiscal 2000 and fiscal 1999, respectively. The Company's capital expenditures
generally relate to new store openings and the remodeling of existing stores,
coupled with expenditures in support of management information systems and other
general corporate purposes.
Net cash used in financing activities for fiscal 2001 was $12.2 million, as
compared to net cash provided by financing activities of $13.1 million in fiscal
2000. The $25.3 million change was primarily due to the net repayment of loans
in fiscal 2001, reflecting application of a portion of the proceeds from the
sale of the footwear segment, as compared to net proceeds from loans in fiscal
2000, reflecting the incurrence of additional debt primarily to finance the Repp
acquisition.
Liquidity and Capital Resources
The Company's primary cash needs have historically been for operating
expenses, working capital, interest payments, capital expenditures for ongoing
operations and acquisitions. These cash needs have in the past been met through
cash generated from operations, borrowings and asset sales.
25
DIP Financing
Upon commencement of the Chapter 11 Case, the Debtors filed a motion
seeking the authority of the Bankruptcy Court to enter into a debtor-in-
possession revolving credit arrangement with a group of lenders led by Fleet
Retail Finance Inc. and Tranche B and C term loans with a group of lenders led
by Back Bay Capital Funding LLC (the "DIP Facility"). On May 18, 2001, the
Bankruptcy Court approved the DIP Facility on an interim basis pursuant to
Section 364(c) of the Bankruptcy Code, and on July 18, 2001, approved the DIP
Facility on a final basis.
The DIP Facility provides the Debtors with a $100 million revolving credit
facility, which facility contains a $15.0 million sub-limit for issuances of
letters of credit (the "DIP Revolver"), for the Debtors' general working capital
needs and for certain capital expenditures. Aggregate borrowings under the DIP
Revolver are limited to an amount determined by a formula based on various
percentages of eligible inventory and accounts receivable. Borrowings under the
DIP Revolver bear interest at variable rates.
The Tranche B term loan provided $20 million to be applied solely towards
the retirement of the Prepetition Credit Facility (as defined below). The
unpaid balance of the Tranche B term loan bears interest at a fixed rate of
17.5% per annum (of which 15.5% is payable monthly in arrears and the remaining
2% may be paid monthly or paid-in-kind, at the option of the Debtors).
The Tranche C term loan provides $15 million to the Debtors, the proceeds
of which must be applied solely towards the retirement of the Prepetition Credit
Facility and for the Company's working capital needs. The unpaid balance of the
Tranche C term loan bears interest at a fixed rate of 22% per annum (of which
19% is payable monthly in arrears and the remaining 3% may be paid monthly or
paid-in-kind, at the option of the Debtors).
The DIP Facility is secured by a first priority lien on, and security
interest in, substantially all of the Debtors' personal property except
equipment as to which Fleet Leasing Inc.'s lien has priority and property
subject to other permitted liens (as defined in the DIP Facility), in which case
the lenders have a perfected junior lien.
As of December 10, 2001, the Debtors had aggregate borrowings outstanding
under the DIP Revolver totaling $58.2 million, consisting of loans and
obligations under letters of credit.
Debt Instruments and Other Credit Facilities
Effective February 3, 2001 (simultaneously with the closing of the Footstar
Transaction), the Company established a total of $130 million in bank financing
arrangements, comprised of a $110 million revolving credit facility and a $20
million term loan (the "Prepetition Credit Facility"). The Prepetition Credit
Facility, which was to have matured in January 2004, amended and restated the
$185 million previously existing bank credit facility which would have otherwise
expired in May 2002. The Prepetition Credit Facility was superseded and
replaced by the DIP Facility.
As of December 10, 2001, the Company has $1.3 million remaining of its $9
million chattel loan which was provided by Fleet Leasing Inc. (the "Chattel
Loan"). The Chattel Loan is payable in equal monthly installments of principal
and interest, bears interest at 10.35% and matures in May 2002.
On May 21, 1999, the Company's JBI Apparel, Inc. subsidiary issued $10
million of 13% Senior Subordinated Notes (the "JBI Apparel Notes") to a group of
investors, which included investment funds affiliated with Donaldson, Lufkin and
Jenrette, Inc. (the "Investor Group"). Detachable warrants were issued in
connection with the JBI Apparel Notes, which enable the holders to purchase
1,200,000 shares of Casual Male Corp. common stock at $5.00 per share. On
February 5, 2001, 120,000 warrants were exercised. The principal outstanding on
the JBI Apparel Notes is $10 million. For financial reporting purposes, however,
the amount of indebtedness shown on the consolidated balance sheet in respect of
the JBI Apparel Notes at February 3, 2001 has been reduced by $1.3 million,
which represents the remaining balance of the $3.3 million value paid by the
Investor Group allocated to the detachable warrants. The value of the detachable
warrants is included in additional paid-in capital in stockholders' equity on
the consolidated balance sheet, and is being amortized using the interest
method. The JBI Apparel Notes mature on December 31, 2001, and the warrants
expire on May 21, 2004.
On December 30, 1996, JBAK Canton Realty, Inc. ("JBAK Realty"), a wholly-
owned subsidiary of JBAK Holding, Inc. ("JBAK Holding") and an indirect, wholly-
owned subsidiary of Casual Male Corp., obtained a $15.5 million mortgage loan
from The Chase Manhattan Bank (the "Mortgage Loan") secured by the real estate,
buildings and other improvements owned by JBAK Realty at 555 Turnpike Street,
Canton, Massachusetts (the "Canton Property"). JBAK Realty leases the Canton
Property to JBI,
26
Inc., a wholly-owned subsidiary of Casual Male Corp. The Canton Property is used
as the Company's corporate headquarters. Proceeds of the Mortgage Loan were used
to pay down loans under the Company's revolving credit facility. Neither JBAK
Realty nor JBAK Holding, Inc. is a party to the Chapter 11 Case.
In June 1992, Casual Male Corp. issued $70 million of 7% convertible
subordinated notes due June 2002 (the "Convertible Notes"). The Convertible
Notes are convertible at a conversion price of $16.125 per share, subject to
adjustment in certain events.
Liquidity Outlook
Under the DIP Facility, the Company is prohibited from incurring capital
expenditures in excess of $6.9 million and $6.0 million in fiscal 2002 and
fiscal 2003, respectively. As of December 10, 2001, in fiscal 2002 the Company
has opened nine new stores, remodeled nine existing stores, and has converted 20
stores. See "Business - Repp Big & Tall - Conversion and Elimination of Repp
Stores" and "Business - Store Closings." In fiscal 2003, the Company currently
expects to open three new stores and remodel between 50 and 90 existing stores.
In addition, the Company expects to incur capital expenditures (i) in connection
with the consolidation of the Alpharetta Facility into the Canton Facility in
February 2002 and (ii) in information technology, distribution equipment and
other general operating equipment in the ordinary course of business. See
"Business - Consolidation of Catalog and E-Commerce Call and Fulfillment
Center."
The Company currently anticipates that amounts available under its DIP
Facility, along with other potential sources of funds and cash flows from
operations, will be sufficient to meet its operating and capital requirements
for the foreseeable future. See "Risk Factors and Uncertainties--Leverage."
The statements under this subsection are forward-looking statements. For a
discussion of certain factors and uncertainties that may affect future results
see "Risk Factors and Uncertainties" beginning on page 11 of this Annual Report
on Form 10-K and "Business--Bankruptcy Case" beginning on page 1 of this Annual
Report on Form 10-K.
Item 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
27
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CASUAL MALE CORP. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Consolidated Financial Statements: PAGE
----
Independent Auditors' Report 29
Consolidated balance sheets as of February 3, 2001 and January 29, 2000 30
Consolidated statements of operations for the years ended February 3, 2001 31
January 29, 2000 and January 30, 1999.
Consolidated statements of stockholders' equity (deficit) for the years ended 32
February 3, 2001, January 29, 2000, and January 30, 1999.
Consolidated statements of cash flows for the years ended February 3, 2001 33
January 29, 2000 and January 30, 1999.
Notes to consolidated financial statements 34
All schedules have been omitted as they are inapplicable or not required, or the
information has been included in the consolidated financial statements or in the
notes thereto.
28
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
Casual Male Corp:
We have audited the accompanying consolidated balance sheets of Casual Male
Corp. (formerly J. Baker, Inc.) and subsidiaries as of February 3, 2001 and
January 29, 2000, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the years in the
three-year period ended February 3, 2001. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 the Company's 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Casual Male Corp.
and subsidiaries as of February 3, 2001 and January 29, 2000, and the results of
their operations and their cash flows for each of the years in the three-year
period ended February 3, 2001, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 12 to
the consolidated financial statements, the Company filed a petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code on May 18, 2001. In
addition, the Company has a net capital deficiency that raises substantial doubt
about its ability to continue as a going concern. The Company's ability to
continue as a going concern is dependent upon, among other things, (i)
acceptance of a Plan of Reorganization by the Company's creditors with
confirmation by the Bankruptcy Court, (ii) compliance with all debt covenants
under the debtor-in-possession financing, (iii) the success of future
operations, including maintaining profitability and adequate post bankruptcy
financing and liquidity, and (iv) the resolution of the uncertainties of the
reorganization case discussed in Note 12. Management's plans in regard to these
matters are also described in Note 12. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
KPMG llp
Boston, Massachusetts
March 21, 2001, except for Note 12, as to which the date is December 10, 2001
29
CASUAL MALE CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
As of February 3, 2001 and January 29, 2000
Assets 2001 2000
------ ---- ----
Current assets:
Cash and cash equivalents $ 5,619,983 $ 5,330,465
Accounts receivable:
Trade, net 2,453,460 3,020,262
Other 3,112,402 3,584,984
------------- ------------
5,565,862 6,605,246
Merchandise inventories 136,200,960 119,322,198
Prepaid expenses 3,902,692 3,987,154
Deferred income taxes, net - 2,924,000
Current assets of discontinued operations 13,462,139 97,176,637
------------- ------------
Total current assets 164,751,636 235,345,700
------------- ------------
Property, plant and equipment, at cost:
Land and buildings 20,041,636 19,726,648
Furniture, fixtures and equipment 56,464,492 47,655,830
Leasehold improvements 36,664,206 32,734,616
------------- ------------
113,170,334 100,117,094
Less accumulated depreciation and amortization 47,778,229 39,875,199
------------- ------------
Net property, plant and equipment 65,392,105 60,241,895
------------- ------------
Deferred income taxes, net - 53,423,000
Other assets, at cost, less accumulated amortization 14,939,857 14,911,068
Non-current assets of discontinued operations - 12,705,500
------------- ------------
$ 245,083,598 $376,627,163
============= ============
Liabilities and Stockholders' Equity (Deficit)
----------------------------------------------
Current liabilities:
Current portion of long-term debt $ 12,328,921 $ 13,867,302
Accounts payable 64,459,990 84,089,991
Accrued expenses 15,216,423 12,052,606
Income taxes payable - 352,302
------------- ------------
Total current liabilities 92,005,334 110,362,201
------------- ------------
Other liabilities 1,926,660 2,474,540
Long-term debt, net of current portion 93,788,679 96,211,132
Senior subordinated debt - 7,500,000
Convertible subordinated debt 70,300,000 70,353,000
Stockholders' equity (deficit):
Common stock, par value $.50 per share, authorized 40,000,000 shares,
14,069,185 shares issued and outstanding in 2001 (14,067,526 in 2000) 7,034,593 7,033,763
Additional paid-in capital 120,902,446 120,866,660
Accumulated deficit (140,874,114) (38,174,133)
------------- ------------
Total stockholders' equity (deficit) (12,937,075) 89,726,290
------------- ------------
$ 245,083,598 $376,627,163
============= ============
See accompanying notes to consolidated financial statements.
30
CASUAL MALE CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended February 3, 2001, January 29, 2000 and January 30, 1999
2001 2000 1999
---- ---- ----
53 Weeks
Net sales $ 471,816,979 $411,106,660 $324,336,423
Cost of sales 245,121,479 212,154,023 169,974,007
------------- ------------ ------------
Gross profit 226,695,500 198,952,637 154,362,416
Selling, administrative and general expenses 188,578,819 164,600,184 132,374,739
Depreciation and amortization 11,973,599 12,012,716 10,240,210
------------- ------------ ------------
Operating income 26,143,082 22,339,737 11,747,467
Interest expense, net 11,971,995 10,075,227 7,485,896
------------- ------------ ------------
Earnings from continuing operations before income taxes 14,171,087 12,264,510 4,261,571
Income tax expense 57,216,000 4,047,000 1,534,000
------------- ------------ ------------
Earnings (loss) from continuing operations (43,044,913) 8,217,510 2,727,571
Discontinued operations:
Earnings (loss) from discontinued operations, net of income
tax expense (benefit) of $322,000 and ($390,000) in
fiscal 2000 and fiscal 1999, respectively 1,594,940 655,100 (694,053)
Loss on disposal of discontinued operations (60,405,902) - -
------------- ------------ ------------
Earnings (loss) from discontinued operations (58,810,962) 655,100 (694,053)
------------- ------------ ------------
Net earnings (loss) $(101,855,875) $ 8,872,610 $ 2,033,518
============= ============ ============
Earnings (loss) per common share:
Basic
Continuing operations $ (3.06) $ 0.58 $ 0.19
Discontinued operations (4.18) 0.05 (0.04)
------------- ------------ ------------
Net earnings (loss) per common
share, basic $ (7.24) $ 0.63 $ 0.15
============= ============ ============
Diluted
Continuing operations $ (3.06) $ 0.57 $ 0.19
Discontinued operations (4.18) 0.05 (0.05)
------------- ------------ ------------
Net earnings (loss) per common
share, diluted $ (7.24) $ 0.62 $ 0.14
============= ============ ============
Number of shares used to compute
earnings (loss) per common share:
Basic 14,067,998 14,065,734 14,006,478
============= ============ ============
Diluted 14,067,998 14,373,272 14,139,735
============= ============ ============
See accompanying notes to consolidated financial statements.
31
CASUAL MALE CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
For the years ended February 3, 2001, January 29, 2000 and January 30, 1999
Additional Total
Common Stock Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity (Deficit)
------ ------ ---------- ----------- ----------------
Balance, January 31, 1998 13,919,577 $6,959,789 $115,697,467 $ (47,394,742) $ 75,262,514
Net earnings for the year ended
January 30, 1999 - - - 2,033,518 2,033,518
Exercise of stock options 23,199 11,599 442,941 - 454,540
Shares issued to certain employees 121,750 60,875 1,213,438 - 1,274,313
Dividends paid ($.06 per share) - - - (841,570) (841,570)
---------- ---------- ------------ ------------- -------------
Balance, January 30, 1999 14,064,526 7,032,263 117,353,846 (46,202,794) 78,183,315
Net earnings for the year ended
January 29, 2000 - - - 8,872,610 8,872,610
Warrants issued on subordinated debt - - 3,300,000 - 3,300,000
Exercise of stock options 3,000 1,500 212,814 - 214,314
Dividends paid ($.06 per share) - - - (843,949) (843,949)
---------- ---------- ------------ ------------- -------------
Balance, January 29, 2000 14,067,526 7,033,763 120,866,660 (38,174,133) 89,726,290
Net loss for the year ended
February 3, 2001 - - - (101,855,875) (101,855,875)
Exercise of stock options 1,659 830 35,786 - 36,616
Dividends paid ($.06 per share) - - - (844,106) (844,106)
---------- ---------- ------------ ------------- -------------
Balance, February 3, 2001 14,069,185 $7,034,593 $120,902,446 $(140,874,114) $ (12,937,075)
========== ========== ============ ============= =============
See accompanying notes to consolidated financial statements.
32
CASUAL MALE CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended February 3, 2001, January 29, 2000 and January 30, 1999
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Earnings (loss) from continuing operations $(43,044,913) $ 8,217,510 $ 2,727,571
Adjustments to reconcile earnings (loss) from
continuing operations to net cash
provided by operating activities:
Depreciation and amortization:
Fixed assets 9,973,289 9,921,179 8,739,666
Deferred charges, intangible assets and
deferred financing costs 3,164,310 2,891,537 1,500,544
Deferred income taxes, net 56,347,000 3,592,641 1,240,359
Change in:
Accounts receivable 270,384 (1,717,710) 1,196,829
Merchandise inventories (16,878,762) (14,824,425) (5,158,851)
Prepaid expenses 84,462 (208,071) 852,320
Accounts payable 1,194,531 29,831,089 2,772,144
Accrued expenses 3,163,817 3,280,458 (5,403,900)
Income taxes payable/receivable 416,698 (1,459,399) 832,141
Other liabilities (428,216) (147,387) (1,368,545)
------------ ------------- ------------
Net cash provided by operating activities 14,262,600 39,377,422 7,930,278
------------ ------------- ------------
Cash flows from investing activities:
Capital expenditures for:
Property, plant and equipment (15,424,938) (10,747,218) (9,638,384)
Other assets (3,009,735) (2,534,280) (652,341)
Net cash paid in acquisition of Repp Ltd. Big &
Tall businesses - (27,021,980) -
Proceeds received from sale of footwear business 53,007,456 - -
------------ ------------- ------------
Net cash provided by (used in)
investing activities 34,572,783 (40,303,478) (10,290,725)
------------ ------------- ------------
Cash flows from financing activities:
Repayment of senior debt - (1,500,000) (1,500,000)
Proceeds from revolving credit facilities - 94,957,430 -
Repayment of revolving credit facilities (1,497,749) (122,114,352) (6,790,111)
Proceeds from (repayment of) senior subordinated debt (53,000) 10,000,000 -
Proceeds from term and chattel loans - 34,000,000 -
Repayment of term and chattel loans (9,292,629) (994,470) -
Repayment of mortgage payable (670,456) (612,954) (560,388)
(Payment) reduction of mortgage escrow, net 71,145 (28,966) (61,933)
Proceeds from issuance of common stock 36,615 214,314 710,103
Payment of dividends (844,106) (843,949) (841,570)
------------ ------------- ------------
Net cash provided by (used in)
financing activities (12,250,180) 13,077,053 (9,043,899)
------------ ------------- ------------
Net cash provided by (used in) discontinued operations (36,295,685) (10,333,501) 11,068,760
------------ ------------- ------------
Net increase (decrease) in cash and cash equivalents 289,518 1,817,496 (335,586)
Cash and cash equivalents at beginning of year 5,330,465 3,512,969 3,848,555
------------ ------------- ------------
Cash and cash equivalents at end of year $ 5,619,983 $ 5,330,465 $ 3,512,969
============ ============= ============
See accompanying notes to consolidated financial statements.
33
CASUAL MALE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
February 3, 2001, January 29, 2000 and January 30, 1999
(1) Summary of Significant Accounting Policies
------------------------------------------
Nature of Operations
Casual Male Corp. and subsidiaries (the "Company"), formerly J. Baker,
Inc., is engaged in the retail sale of apparel. As of February 3, 2001, the
Company's Casual Male Big & Tall, Repp Big & Tall and Work 'n Gear businesses
operated a total of 668 stores in 47 states and the District of Columbia. At
February 3, 2001, the Company operated the 393 store chain of Casual Male Big &
Tall stores, the 72 store chain of outlet stores, and the 133 store chain of
Repp Big & Tall stores, which sell fashion, casual and dress clothing and
footwear to the big and tall man; and the Work 'n Gear chain, comprised of 70
stores that sell utility workwear, healthcare apparel and custom uniforms for
industry and service businesses. The Company also operates catalog, e-commerce
and other direct selling and marketing businesses. Through February 3, 2001, the
Company also operated self-service licensed footwear departments in discount
department stores (see Note 2).
On May 18, 2001, the Company filed petitions for relief under Chapter 11
of the United States Bankruptcy Code ("Chapter 11"). The Company is presently
operating its business as a debtor-in-possession subject to the jurisdiction of
the United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court"). See Note 12.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Fiscal Year
The Company's fiscal year ends the Saturday closest to January 31. Fiscal
years 2001, 2000 and 1999 ended on February 3, 2001, January 29, 2000 and
January 30, 1999, respectively. Fiscal 2001 included 53 weeks and fiscal 2000
and fiscal 1999 each included 52 weeks. References to years in these financial
statements and notes relate to fiscal years rather than calendar years.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 ("SFAS No. 107"),
"Disclosures About Fair Value of Financial Instruments," requires disclosure of
the fair value of certain financial instruments. The estimated fair values of
the Company's financial instruments as of February 3, 2001 are summarized below.
(shown net of current portion)
Carrying Amount Fair Value
--------------- ----------
Revolving credit facilities $60,596,824 $60,596,824
Mortgage note 12,410,527 13,540,278
Term loan 20,000,000 20,000,000
Chattel loan 781,328 781,328
----------- -----------
Total $93,788,679 $94,918,430
Convertible subordinated debt:
7% convertible subordinated notes $70,000,000 $56,000,000
Convertible debentures 300,000 300,000
----------- -----------
Total senior debt $70,300,000 $56,300,000
The carrying amounts for cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and short-term borrowings approximate fair
value because of the short maturity of these instruments. Fair value of the
Company's long-term instruments are estimated based on market values for similar
instruments. Discounted cash flows are used to determine the fair value of the
mortgage. At February 3, 2001, the Company has no investments in derivative
financial instruments.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid instruments with maturities of
three months or less and are stated at cost, which approximates market.
34
CASUAL MALE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Merchandise Inventories
Except for the direct marketing business, which accounts for its
inventory by the average cost method, merchandise inventories, which consist
entirely of finished goods, are valued at the lower of cost or market,
principally by the retail inventory method.
Depreciation and Amortization of Property, Plant and Equipment and Other
Assets
Depreciation and amortization of the Company's property, plant and
equipment and other assets are provided on the straight-line method over the
following periods:
Furniture and fixtures 7 years
Machinery and equipment 7 years
Leasehold improvements 10 years
Building, building improvements and
land improvements 40 years
Systems development costs, goodwill
and other intangible assets 3 to 15 years
Maintenance and repairs are charged to expense as incurred. Major renewals or
replacements are capitalized. When properties are retired or otherwise disposed
of, the asset and related reserve account are relieved and the resulting gain or
loss, if any, is credited or charged to operations.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
Goodwill
Goodwill, which represents the excess of the purchase price over the fair
value of net assets acquired, is amortized on a straight-line basis over a
period of 15 years. The Company evaluates goodwill for impairment whenever
events or circumstances indicate that the carrying amount may not be
recoverable. If the carrying amount of the goodwill exceeds the expected
undiscounted future cash flows, the Company would record an impairment loss.
Earnings Per Common Share
Basic Earnings Per Share ("EPS") is computed by dividing income available
to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted EPS is computed by dividing income
available to common shareholders by the weighted average number of common
shares, after giving effect to all potentially dilutive common shares
outstanding during the period. The number of total shares excluded from one
calculation for fiscal 2001 was 1,899,941. All potentially dilutive securities
were excluded in the calculation for fiscal 2001 because their effect would be
anti-dilutive. The common stock issuable under the 7% convertible subordinated
notes due 2002 and the convertible debentures were not included in the
calculations for fiscal 2000 and 1999 because their effects would be
antidilutive.
Earnings (loss) from continuing operations and shares used to compute
earnings (loss) per share, basic and diluted, are reconciled below:
2001 2000 1999
------------ ----------- -----------
Earnings (loss) from continuing operations,
basic and diluted $(43,044,913) $ 8,217,510 $ 2,727,571
============ =========== ===========
Weighted average common shares:
Basic 14,067,998 14,065,734 14,006,478
Effect of dilutive securities:
Stock options, warrants and
performance share awards - 307,538 133,257
------------ ----------- -----------
Diluted 14,067,998 14,373,272 14,139,735
============ =========== ===========
35
CASUAL MALE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Revenue Recognition
The Company recognizes revenue in its retail stores at the time of sale
and in its catalog and e-commerce business at the time orders are shipped.
Shipping and Handling Costs
Shipping and handling costs are included in cost of sales.
Store Opening and Closing Costs
Store opening costs are expensed as incurred. All costs related to store
closings are expensed at the time the decision is reached to close the store.
Advertising Costs
The Company expenses in-store advertising costs as incurred. Direct
response advertising costs, which consist of catalog production and postage
costs, are deferred and amortized over the period of expected direct marketing
revenue, which is less than one year. The amount of deferred direct response
advertising cost was $868,820 and $1,023,026 at February 3, 2001 and January 29,
2001 respectively. Advertising expense was approximately $18.7 million, $14.1
million and $9.2 million for the years ended February 3, 2001, January 29, 2000
and January 30, 1999, respectively.
Stock Options
SFAS No. 123, "Accounting for Stock-Based Compensation" permits entities
to recognize as expense over the vesting period the fair value on the date of
grant of all stock-based awards. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25, "Accounting
for Stock Issued to Employees" and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in fiscal
1996 and future years as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company continues to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
Income Taxes
Deferred taxes are provided for using the asset and liability method for
temporary differences between financial and tax reporting.
Reclassifications
Certain reclassifications have been made to the consolidated financial
statements of prior years to conform to the fiscal 2001 presentation.
New Accounting Pronouncements
Effective in fiscal 2001, the Company adopted SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended by SFAS 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities
(an amendment to FASB Statement No. 133)." These statements, which establish
the accounting and financial reporting requirements for derivative instruments,
require companies to recognize derivatives as either assets or liabilities on
the balance sheet and measure those instruments at fair value. The adoption of
this standard did not have a material effect on the Company's consolidated
financial statements.
During the first quarter of fiscal 2001, the Company adopted Staff Accounting
Bulletin 101, "Revenue Recognition in Financial Statements." This bulletin
summarizes the application of accounting principles generally accepted in the
United States of America to revenue recognition in financial statements. The
adoption of this standard did not have a material effect on the Company's
consolidated financial statements.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
Financial Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation," an Interpretation of APB No. 25, ("FIN No. 44"). FIN No.
44 provides further guidance related to accounting for stock-based compensation,
in particular to changes in stock-based awards after the grant date. In the
first quarter of fiscal 2001, the Company adopted FIN No. 44, which did not have
an impact on its financial statements.
In July and September 2000, the EITF reached consensus on Issue No. 00-10,
"Accounting for Shipping and Handling Fees and Costs." This issue addresses the
income statement classification for shipping and handling fees and costs. The
Company adopted the consensus in the fourth quarter of fiscal 2001. The
adoption of EITF Issue No. 00-10 did not have a material impact on the
consolidated financial statements.
36
CASUAL MALE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Discontinued Operations
-----------------------
In November 2000, the Company announced it had entered into an agreement
with an affiliate of Footstar, Inc. ("Footstar") to sell substantially
all of the assets of its JBI, Inc. and Morse Shoe, Inc. subsidiaries,
which are the entities that comprised its footwear segment. Pursuant to
the terms of the Asset Purchase Agreement between the Company and
Footstar, the Company retained the obligation to operate certain footwear
departments in the following stores scheduled to close: (i) all 105
stores operated by Bradlees Stores, Inc., a debtor in possession under
Chapter 11 of the United States Bankruptcy Code, which stores closed
during February 2001, (ii) 32 stores operated by Ames Department Stores,
Inc., which stores closed during March 2001 and (iii) six stores operated
by Ann & Hope, Inc., which stores closed during the Spring of 2001. On
February 3, 2001 the sale of the footwear segment to Footstar was
finalized. The sale resulted in a loss from discontinued operations of
$58.8 million or $4.18 in net loss per common share, fully diluted. The
net loss from the disposal of the footwear segment included the book loss
on the transaction, the operating loss of the business in fiscal 2001 and
other costs directly associated in the decision to divest. Proceeds of
the sale to Footstar were $59 million, including $6 million placed in
escrow at February 3, 2001. All of the proceeds held in escrow were
received in full in the first quarter of fiscal 2002.
The footwear segment is accounted for as a discontinued operation.
Accordingly, its net assets have been segregated from continuing
operations in the accompanying consolidated balance sheets, and its
operating results are segregated and reported as discontinued operations
in the accompanying consolidated statements of operations and cash flows,
and related notes. For the periods ended February 3, 2001, January 29,
2000 and January 30, 1999, the results of discontinued operations were as
follows:
(amounts in thousands)
2001 2000 1999
-------- -------- --------
Net sales $303,622 $254,350 $259,940
======== ======== ========
Earnings (loss) before income taxes $( 1,595) $ 977 $ (1,084)
Loss on disposal of discontinued operations (60,406) - -
Income tax expense (benefit) - 322 (390)
-------- -------- --------
Earnings (loss) from discontinued operations $(58,811) $ 655 $ (694)
======== ======== ========
The Company allocated interest expense to discontinued operations based on
debt that was attributed to the footwear segment. The loss on disposal of
discontinued operations included interest costs of $6.3 million. Results
from discontinued operations in fiscal 2001, 2000 and 1999 included
interest costs of $3.8 million, $6.8 million and $7.1 million,
respectively.
The assets identified as part of the disposition of the footwear segment
are recorded as current and non-current assets of discontinued operations;
the cash flow of the business is reported as net cash provided by (used
in) discontinued operations; and the results of operations of the segment
are reported as earnings (loss) from discontinued operations.
Current and non-current assets of discontinued operations as of February
3, 2001 and January 29, 2000 consist of the following:
(amounts in thousands)
2001 2000
------- -------
Current assets:
Accounts receivable $ 7,371 $ 8,809
Amounts held in escrow 6,000 -
Inventory - 66,643
Other 91 900
------- -------
Current assets of discontinued operations $13,462 $76,352
======= =======
Non-current assets:
Net property, plant and equipment $ - $10,291
Other - 2,415
------- -------
Non-current assets of discontinued operations $ - $12,706
======= =======
37
CASUAL MALE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Shoe Corporation of America
On February 11, 2000, the Company entered into an agreement to purchase
the ongoing assets of Shoe Corporation of America ("SCOA") and, on
February 29, 2000, the transaction was consummated. The purchase price
paid by the Company to acquire the ongoing assets of SCOA was
approximately $14 million. As part of this acquisition, the Company
acquired the rights to operate 204 licensed footwear departments for
moderate department and specialty store chains nationwide. All assets and
rights of this division were included in the sale to Footstar, Inc.
(3) Acquisition of Repp Ltd. And Repp Ltd. By Mail
----------------------------------------------
On May 23, 1999, the Company acquired substantially all of the assets of
the Repp Ltd. Big & Tall and Repp Ltd. By Mail divisions of Edison
Brothers. The Company paid cash, as described below, for the acquisition
of 175 United States and Canadian Repp Ltd. Big & Tall retail locations
and the Repp Ltd. By Mail catalog business. The Company immediately sold
Repp's Canadian operation, 16 stores, to Grafton-Fraser, Inc., a Canadian
men's retailer, and commenced the closing of 31 stores in the United
States. The Company operates the remaining retail stores in the United
States and the Repp Ltd. By Mail catalogs through a new subsidiary, JBI
Apparel, Inc. The transaction was financed primarily through (a) a new $20
million credit facility and a $5 million term loan provided to JBI
Apparel, Inc. by BankBoston Retail Finance Inc. and Back Bay Capital
Funding LLC, respectively, (both of which were amended on August 30, 1999
through a refinancing - see Note 4, (b) the issuance by JBI Apparel, Inc.
of $10 million of senior subordinated notes to a group of investors, which
included investment funds affiliated with Donaldson, Lufkin & Jenrette,
Inc. (the "Investor Group") (see Note 4), and (c) the sale of the Canadian
operations and the liquidation of the inventories in the 31 closing
stores. The net purchase price for the acquired assets, which primarily
consisted of inventory and fixed assets for the 128 retail stores in the
United States and the Repp Ltd. By Mail catalogs, was $27.0 million. In
connection with the $10 million financing provided by the Investor Group,
the Company issued 5-year warrants enabling holders to purchase 1,200,000
shares of the Company's common stock at $5.00 per share.
The acquisition was accounted for under the purchase method of accounting
and, accordingly, the results of operations of Repp Big & Tall are
included in the consolidated statements of operations since the date of
acquisition.
The net purchase price of $27.0 million was allocated as follows:
Property, plant and equipment $ 3,000,000
Prepaid expenses 892,775
Merchandise inventories 16,901,370
Goodwill 6,227,835
-----------
$ 27,021,980
============
Goodwill of $6.2 million is included in other assets and is being
amortized on a straight line basis over fifteen years. Accumulated
amortization was $718,000 and $277,000 as of February 3, 2001 and January
29, 2000, respectively.
For fiscal 2001 and for the period from May 24, 1999 through January 29,
2000, Repp Ltd. and Repp Ltd. By Mail generated sales of $108.1 million
and $72.6 million, respectively. At February 3, 2001, JBI Apparel, Inc.
operated 133 Repp Ltd. Big & Tall retail locations.
38
CASUAL MALE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Debt
----
Long-Term Debt
Long-term debt at February 3, 2001 and January 29, 2000 was comprised
of:
2001 2000
---- ----
Revolving credit facilities (weighted average
interest rate of 8.8% in fiscal 2001 and 7.9% in
fiscal 2000) $60,596,824 $ 63,258,573
Term loan, net of current portion
(interest rate of 17.0% in 2001 and 16.0% in 2000) 20,000,000 25,000,000
Chattel Loan, net of current portion
(interest rate of 10.35%) 781,328 4,808,683
Mortgage note, net of current portion
(interest rate of 9.0%) 12,410,527 13,143,876
----------- ------------
$93,788,679 $106,211,132
=========== ============
Effective February 3, 2001, the Company established a total of $130 million
in bank financing arrangements, comprised of a $110 million revolving
credit facility and a $20 million term loan. These two facilities, each of
which would have matured in January 2004, amended and restated the $185
million previously existing bank credit facility which would have otherwise
expired in May 2002.
The $110 million revolving line of credit (the "Revolver") was provided by
a group of lenders led by Fleet Retail Finance, Inc. Aggregate borrowings
under the Revolver are limited to an amount determined by a formula based
on various percentages of eligible inventory and accounts receivable.
Borrowings under the Revolver bear interest at variable rates and can be in
the form of loans and letters of credit. As of February 3, 2001, the
Company had aggregate borrowings outstanding under the Revolver totaling
$62.5 million, consisting of loans and obligations under letters of credit.
The Company's revolving credit facility contains various covenants and
restrictive provisions, including restrictions on the incurrence of
additional indebtedness and liens, the payment of dividends, the
maintenance of specified financial ratios and other financial criteria. As
of February 3, 2001, the Company was in compliance with all such covenants.
The $20 million term loan (the "Term Loan") was provided by Back Bay
Capital Funding LLC. Borrowings under the Term Loan bore interest at 17%
per year until December 15, 2002 and 16.5% thereafter.
At February 3, 2001 the Company had $3.7 remaining of its $9 million
chattel loan which was provided by Fleet Leasing Inc. (the "Chattel Loan").
The Chattel Loan is payable in equal monthly installments of principal and
interest, bears interest at 10.35% and matures in May 2002.
Each of the Revolver, the Term Loan and the Chattel Loan is secured by
substantially all of the assets of the Company. The Revolver and Term Loan
amended and restated the following previously existing credit facilities:
. A $160 million revolving credit facility which was used to finance the
Company's Casual Male Big & Tall, outlet stores, Repp Ltd. Big & Tall
and Work 'n Gear apparel businesses and the Company's footwear business;
. A $25 million term loan which was used to finance the Company's Casual
Male Big & Tall, Repp Ltd. Big & Tall, outlet stores and Work 'n Gear
apparel businesses and the Company's footwear business.
On December 30, 1996, JBAK Canton Realty, Inc. ("JBAK Realty"), a wholly-
owned subsidiary of JBAK Holding, Inc. ("JBAK Holding") and an indirect, wholly-
owned subsidiary of the Company, obtained a $15.5 million mortgage loan from The
Chase Manhattan Bank (the "Mortgage Loan") secured by the real estate, buildings
and other improvements located at 555 Turnpike Street, Canton, Massachusetts
(the "Canton Property") owned by JBAK Realty. JBAK Realty leases the Canton
39
CASUAL MALE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Property to JBI, Inc. ("JBI"), a wholly-owned subsidiary of the Company. The
Canton Property was previously used as the Company's corporate headquarters.
Neither JBAK Holding nor JBAK Realty have agreed to pay or make their assets
available to pay creditors of the Company or of JBI. Neither the Company nor JBI
have agreed to make their assets available to pay creditors of JBAK Holding or
of JBAK Realty. This loan is being repaid in equal monthly payments of
principal and interest over 15 years.
Senior Subordinated Debt
In May 1999, to facilitate the purchase of the Repp Ltd. and Repp Ltd. By
Mail businesses (See Note 3), a group of investors, which included investment
funds affiliated with Donaldson, Lufkin and Jenrette, Inc. provided $10 million
to the Company through the issuance of 13% Senior Subordinated Notes by JBI
Apparel, Inc. Detachable warrants were issued in connection with the 13% Senior
Subordinated Notes, which enable the holders to purchase 1,200,000 shares of
Casual Male Corp. common stock at $5.00 per share. The amount of the 13% Senior
Subordinated Notes at February 3, 2001 has been reduced by $1.3 million, the
unamortized balance of the $3.3 million value assigned to the detachable
warrants. The value of the detachable warrants was recorded as additional paid-
in capital in stockholders' equity (deficit), and is being amortized using the
effective interest method. The 13% Senior Subordinated Notes mature on December
31, 2001, and the warrants expire on May 21, 2004.
Convertible Subordinated Debt
Convertible subordinated debt at February 3, 2001 and January 29, 2000 was
comprised of:
2001 2000
---- ----
7% convertible subordinated notes $70,000,000 $70,000,000
Convertible debentures 300,000 353,000
----------- -----------
$70,300,000 $70,353,000
=========== ===========
In June 1992, Casual Male Corp. issued $70 million of 7% convertible
subordinated notes due June 2002. The notes are convertible into common
stock at a conversion price of $16.125 per share, subject to adjustment in
certain events.
The convertible debentures began accruing interest on January 15, 1997 at
a rate of 8% and no principal will be payable until January 15, 2002. The
debt is subject, under certain circumstances, to mandatory conversion.
Approximately 6,500 shares of Casual Male common stock are reserved for
any future conversions of the convertible debentures.
Scheduled principal repayments of long-term debt, 13% Senior Subordinated
Notes and convertible subordinated debt for the next five fiscal years and
thereafter are as follows:
Fiscal year
ending January
--------------
2002 $ 13,964,921
2003 71,583,469
2004 81,474,211
2005 959,693
2006 1,049,718
Thereafter 8,721,588
See Note 12 for changes related to the Company's Chapter 11 filing.
40
CASUAL MALE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Taxes on Earnings
-----------------
Earnings from continuing operations before income taxes and income tax
expense (benefit) are summarized below:
2001 2000 1999
---- ---- ----
Earnings from continuing operations before
income taxes $14,171,087 $12,264,510 $ 4,261,571
=========== =========== ===========
Income tax expense attributable to earnings from continuing operations
consists of:
Current Deferred Total
------- -------- -----
Year ended February 3, 2001:
Federal $ 354,135 $55,992,407 $56,346,542
State and city 869,458 - 869,458
----------- ----------- -----------
$ 1,223,593 $55,992,407 $57,216,000
=========== =========== ===========
Year ended January 29, 2000:
Federal $ 315,965 $ 3,510,035 $ 3,826,000
State and city 221,000 - 221,000
----------- ----------- -----------
$ 536,965 $ 3,510,035 $ 4,047,000
=========== =========== ===========
Year ended January 30, 1999:
Federal $ 117,000 $ 1,357,000 $ 1,474,000
State and city 60,000 - 60,000
----------- ----------- -----------
$ 177,000 $ 1,357,000 $ 1,534,000
=========== =========== ===========
The following is a reconciliation between the statutory federal income
tax rate and the Company's effective rate for the years ended February
3, 2001, January 29, 2000 and January 30, 1999:
2001 2000 1999
----- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal
income tax benefit 4.0% 1.2% 0.9%
Adjustment to valuation
allowance for deferred tax assets 364.8% (3.2%) 0.1%
----- ---- ----
403.8% 33.0% 36.0%
===== ==== ====
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at
February 3, 2001 and January 29, 2000 are presented below:
2001 2000
---- ----
Deferred tax assets:
Accounts receivable $ 88,000 $ 88,000
Inventory 556,000 1,991,000
Intangible assets 4,018,000 4,057,000
Nondeductible accruals and reserves 1,016,000 -
Operating loss and credit carryforwards 96,428,000 86,787,000
------------- ------------
Total gross deferred tax assets 102,106,000 92,923,000
Less valuation allowance (100,070,000) (27,671,000)
------------- ------------
Net deferred tax asset 2,036,000 65,252,000
------------- ------------
Deferred tax liabilities:
Property, plant and equipment $ (1,682,000) $ (4,425,000)
Intangible assets (354,000) (345,000)
Nondeductible accruals and reserves - (4,135,000)
------------- ------------
Total gross deferred tax liabilities (2,036,000) (8,905,000)
------------- ------------
Net deferred tax asset $ - $ 56,347,000
============= ============
41
CASUAL MALE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At February 3, 2001 and January 29, 2000, net deferred tax asset
consisted of the following:
2001 2000
----- ----
Deferred tax asset, net - current $ - $ 2,924,000
Deferred tax asset, net - non-current - 53,423,000
----------- -----------
$ - $56,347,000
=========== ===========
At February 3, 2001, the Company has net operating loss carryforwards
general business credit carryforwards for federal income tax purposes of
approximately $229.0 million and $1.3 million, respectively, which expire in
years ended January 2002 through January 2021. The Company also has minimum tax
credit carryforwards of approximately $4.0 million available to reduce future
regular income taxes, if any, over an indefinite period. Such carryforwards are
defined herein as "NOLs."
SFAS No. 109, "Accounting for Income Taxes," requires that the tax benefit
of such NOLs be recorded for financial reporting purposes as an asset to the
extent that the Company assesses the utilization of such NOLs to be "more likely
than not". At January 29, 2000, the Company established a valuation allowance
against its deferred tax assets of $27,671,000.
In the year ended February 3, 2001, the Company disposed of its footwear
business, and subsequent to year-end the Company began certain efforts to
undertake a financial restructuring in order to secure additional future
liquidity to satisfy ongoing operations and repay debt that was scheduled to
mature during the next year. In accordance with current accounting literature,
the Company considered its changing financial circumstances, and the related
risks, in assessing whether at February 3, 2001 it is more likely than not that
some portion or all of the NOLs will be realized. In considering the likelihood
of realizing the value of the NOLs, the Company was required to consider the
likelihood of the generation of future taxable income during the periods in
which the NOLs may be utilized. In addition, the Company considered Section 382
of the Internal Revenue Code, which serves to limit a taxpayer's ability to
utilize NOLs as a result of changes in stock ownership of the Company over a
three year period. The Company's financial circumstances and the possible
limitation which would be caused by a change in ownership have caused management
to conclude that none of the Company's deferred tax assets are more likely than
not to be realized. The Company has therefore increased the valuation allowance
to eliminate its net deferred tax assets in the year ending February 3, 2001.
The elimination of this asset resulted in income tax expense allocable to
continuing operations of $56,347,000. See Note 12 for additional information
related to the Company's Chapter 11 filing.
(6) Pension and Profit Sharing Plans
--------------------------------
The Company has a noncontributory pension plan (the "Pension Plan"), which
covers substantially all employees and is administered by Trustees who are
officers of the Company. In March 1997, the Board of Directors of the Company
approved an amendment to the Pension Plan, which resulted in the freezing of all
future benefits under the plan as of May 3, 1997.
The following table sets forth the Pension Plan's funded status at February
3, 2001 and January 29, 2000:
2001 2000
---- ----
Change in benefit obligation:
Balance at beginning of year $14,629,000 $14,858,000
Benefits and expenses paid (933,000) (776,000)
Service and interest costs 1,108,000 1,124,000
Actuarial loss (gain) 1,077,000 (577,000)
----------- -----------
Balance at end of year 15,881,000 14,629,000
Change in fair value of plan assets:
Balance at beginning of year 23,050,000 23,297,000
Actual return on plan assets 1,909,000 529,000
Employer contributions - -
Benefits and expenses paid (933,000) (776,000)
----------- -----------
Balance at end of year 24,026,000 23,050,000
----------- -----------
Plan assets in excess of benefit obligations: 8,145,000 8,421,000
Unrecognized net gain (3,902,000) (4,887,000)
----------- -----------
Prepaid pension cost $ 4,243,000 $ 3,534,000
=========== ===========
42
CASUAL MALE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Assumptions used to develop the Plans' funded status were a discount rate
of 7.25% and an increase in compensation level of 4.0%.
Plan assets of the Pension Plan consist primarily equity securities, U.S.
government obligations, mutual funds and insurance contracts.
Net pension benefit for the years ended February 3, 2001, January 29, 2000,
and January 30, 1999 include the following components:
2001 2000 1999
---- ---- ----
Service cost earned during the year $ - $ 27,000 $ 296,000
Interest cost on projected benefit obligation 1,107,000 1,098,000 1,059,000
Expected return on plan assets (1,802,000) (1,599,000) (1,423,000)
Effect of curtailment (14,000) - (250,000)
----------- ----------- -----------
Net pension benefit $ (709,000) $ (474,000) $ (318,000)
=========== =========== ===========
Assumptions used to develop the net periodic pension cost were a discount
rate of 7.75%, expected long-term return on assets of 9% and an increase in
compensation levels of 4.0%.
In December 1993, the Board of Directors of the Company established a
Supplemental Retirement plan (the "Supplemental Plan") to provide benefits
attributable to compensation in excess of $160,000 but less than $267,326.
In December 1998, the Board of Directors of the Company approved an
amendment to the Supplemental Plan, which resulted in the freezing of all
future benefits under the Plan as of December 31, 1998. As a result, the
Company recognized a curtailment gain of $250,000 which is included in
selling, administrative and general expenses for the fiscal year ended
January 30, 1999. The following table sets forth the Supplemental Plan's
funded status at February 3, 2001 and January 29, 2000:
2001 2000
---- ----
Change in benefit obligation:
Balance at beginning of year $ 286,000 $ 333,000
Benefits and expenses paid (2,000) (2,000)
Service and interest costs 22,000 23,000
Actuarial loss/(gain) 27,000 (68,000)
--------- ---------
Balance at end of year 333,000 286,000
Change in fair value of plan assets:
Balance at beginning of year - -
Employer contributions 2,000 2,000
Benefits and expenses paid (2,000) (2,000)
--------- ---------
Balance at end of year - -
Benefit obligation in excess of plan assets (333,000) (286,000)
Unrecognized net gain (148,000) (188,000)
--------- ---------
Accrued pension cost $(481,000) $(474,000)
========= =========
In January 1992, the Company implemented a qualified 401(k) profit sharing
plan available to eligible full-time employees. Under the 401(k) plan, the
Company matches 50% of the qualified employee's contribution up to 6% of
the employee's salary. The total cost of the matching contribution was
$1,149,000, $989,000 and $867,000 for the years ended February 3, 2001,
January 29, 2000 and January 30, 1999, respectively.
The Company has established incentive bonus plans for certain executives
and employees. The bonus calculations are generally based on achievement of
certain profit levels, as defined in the plans. For the years ended
February 3, 2001, January 29, 2000 and January 30, 1999, $0, $1.1 million
and $180,000, respectively, was provided under the bonus plans.
The Company does not provide post-retirement benefits, other than pensions
as defined under SFAS No. 106.
43
CASUAL MALE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Stock Options, Performance Share Awards and Restricted Stock Awards
-------------------------------------------------------------------
The Company has options outstanding under the Amended and Restated 1985
Stock Option Plan, the 1992 Directors' Stock Option Plan and the 1994
Equity Incentive Plan (the "Stock Option Plans"). In addition, the
Company has granted options which are not part of any Stock Option Plan.
The Amended and Restated 1985 Stock Option Plan provided for the issuance
of incentive and non-qualified stock options to officers and employees at
an option price of not less than 100% of the fair market value of a share
on the date of grant. Under this plan, no shares of common stock are
available for grant at February 3, 2001, as no options could be granted
thereunder after June 1995.
In fiscal 1995, the Company established the 1994 Equity Incentive Plan,
which provides for the issuance of one million shares of common stock to
officers and employees in the form of stock options (both incentive
options and non-qualified options), grants of restricted stock, grants of
performance shares and unrestricted grants of stock. Under this plan, at
February 3, 2001, there are 59,102 shares of common stock available for
all types of grants.
Options granted under the Amended and Restated 1985 Stock Option Plan and
the 1994 Equity Incentive Plan generally become exercisable either ratably
over four years or as otherwise determined by the Board of Directors, and
generally expire seven to ten years from date of grant.
The 1992 Directors' Stock Option Plan provides for the automatic grant of
2,500 shares of the Company's common stock upon a director's initial
election to the Board of Directors and at the close of business on the
fifth business day following the Company's annual meeting of stockholders.
Options under the Directors' Plan are granted at a price equal to the
closing price of the Company's common stock on the date of grant. Options
granted under the 1992 Directors' Plan are exercisable in full upon grant
and expire ten years from date of grant. Under this plan, at February 3,
2001, there are 42,500 shares of common stock available for grants.
The Company applied APB Opinion No. 25 and related interpretations in
accounting for its stock options. Accordingly, $29,232, $199,219 and
$275,112 of compensation cost has been recognized for stock options in the
Company's results of operations in fiscal 2001, fiscal 2000 and fiscal
1999, respectively. Had the Company recorded a charge for the fair value
of options granted consistent with SFAS No. 123, net earnings and earnings
per common share would have decreased by $1,630,000 and $0.11 in fiscal
2001, $1,827,250 and $0.13 in fiscal 2000 and $1,786,500 and $0.13 in
fiscal 1999, respectively.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes options pricing model, with the following weighted
average assumptions used for grants in fiscal 2001, 2000 and 1999:
2001 2000 1999
---- ---- ----
Risk-free interest rate 4.7% 6.9% 5.2%
Expected option lives 7.7 years 7.7 years 7.7 years
Expected volatility 69.2% 70.0% 56.8%
Expected dividend yield 1.1% 1.0% 1.4%
The effect of applying SFAS No. 123 is not representative of the pro forma
effect on net earnings in future years because it does not take into
consideration pro forma compensation expense related to grants made prior
to fiscal 1996.
44
CASUAL MALE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Data with respect to stock options for fiscal 2001, 2000 and 1999 is as
follows:
2001 2000 1999
---------------------- -------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- ---------- ---------- ------ --------- ------
Outstanding at beginning of year 1,565,497 $ 7.58 1,249,840 $ 8.23 1,184,923 $ 8.37
Granted 476,400 6.18 381,456 5.33 264,686 7.61
Exercised (850) 4.17 (3,000) 5.03 (23,199) 7.86
Canceled (141,106) 7.42 (62,799) 10.24 (176,570) 6.92
--------- ---------- ---------
Options outstanding at end of year 1,899,941 $ 7.24 1,565,497 $ 7.58 1,249,840 $ 8.23
========= ========== =========
Options exercisable at end of year 1,024,900 769,472 585,751
Weighted average fair-value of
options granted during the year $ 6.18 $5.33 $5.06
The following table sets forth a summary of the stock options outstanding
at February 3, 2001:
Options Outstanding Options Exercisable
--------------------- -------------------
Weighted Average
Remaining
Range of Number Years of Weighted Average Number Weighted Average
Exercise price Outstanding Contractual Life Exercise Price Exercisable Exercise Price
-------------- ---------- ---------------- ---------------- ----------- ------------
$ 1.00-$ 8.63 1,263,750 4.4 $ 5.72 493,576 $ 5.76
$ 8.88-$ 9.88 508,691 4.4 $ 9.12 425,074 $ 9.12
$ 10.31-$17.00 92,500 6.0 $ 12.43 71,250 $ 12.60
$ 19.25-$22.38 35,000 2.8 $ 20.95 35,000 $ 20.95
---------- ----------
$ 1.00- $22.38 1,899,941 4.4 $ 7.24 1,024,900 $ 8.14
========= ==========
During fiscal 1997 and fiscal 1998, the Company granted Performance Share
Awards, which entitled certain officers to shares of the Company's common
stock in fiscal 1999 if the price of the common stock attained a "Target
Price" (the average closing price of the Company's common stock for
certain defined periods) between $10.00 and $15.00. In fiscal 1999, the
Company granted 21,750 shares of the Company's common stock to eligible
officers.
During fiscal 1999, the Company granted certain officers stock price
performance based restricted stock awards, pursuant to which the officers
purchased, in the aggregate, 100,000 shares of the Company's common stock
at a purchase price of $10.18 per share. Each of such officers executed a
promissory note with the Company as consideration for the aggregate
purchase price. The remaining principal and interest obligations under
each note will be forgiven in its entirety on July 8, 2003 provided the
respective officer remains employed by the Company at such time.
(8) Commitments and Contingent Liabilities
--------------------------------------
Leases
The Company leases its retail stores, computers, vehicles and certain of
its offices and warehouse facilities.
The Company remains liable under certain leases and lease guaranties for
premises previously leased by the Company for the operation of Parade of
Shoes and Fayva footwear stores (the "Excess Property Leases"). The total
liability under the Excess Property Leases is approximately $16.1 million
as of February 3, 2001. The Company has reduced its actual liability by
assigning or subleasing substantially all of the Excess Property Leases to
unaffiliated third parties.
45
CASUAL MALE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At February 3, 2001, minimum rental commitments under operating leases are
as follows:
Fiscal Year
ending January Net minimum rentals Minimum sub-rentals
-------------- ------------------- -------------------
(in thousands)
2002 $ 46,299 $ 850
2003 41,156 378
2004 29,951 135
2005 21,910 61
2006 13,362 46
Thereafter 22,912 -
-------- -------
$175,590 $ 1,470
======== =======
Rent expense for the years ended February 3, 2001, January 29, 2000, and
January 30, 1999 was as follows:
2001 2000 1999
---- ---- ----
(in thousands)
Minimum rentals $ 43,671 $ 38,403 $ 32,356
Contingent rentals 196 142 60
-------- -------- --------
43,867 38,545 32,416
Less sublease rentals 901 921 821
-------- -------- --------
Net rentals $ 42,966 $ 37,624 $ 31,595
======== ======== ========
Other Commitments and Contingencies
At February 3, 2001, the Company had employed agreements with certain of
its officers under which it is committed to pay an aggregate of
approximately $1.9 million through April 2002.
During fiscal 2000, the Company's Board of Directors adopted executive
severance agreements, which create certain liabilities in the event of
termination of the covered executives within three years following either
a change of control of the Company or termination of certain key
executives of the Company. At February 3, 2001, the aggregate commitment
amount under these executive severance agreements, should all nine covered
employees be terminated in a manner triggering severance payment, is
approximately $2.7 million.
At February 3, 2001 and January 29, 2000, the Company was contingently
liable under letters of credit totaling $1.9 million and $3.0 million,
respectively. These letters of credit, which have terms ranging from one
month to one year, are used primarily to collateralize obligations to
third parties for the purchase of the Company's inventory. The fair value
of these letters of credit is estimated to be the same as the contract
values based on the nature of fee arrangements with the issuing banks. No
material loss is anticipated due to non-performance by counterparties to
these arrangements.
See Note 12 for a discussion of store closings and executive retention
agreements.
(9) Stockholders' Equity
--------------------
The Board of Directors of the Company is authorized by vote or votes, from
time to time adopted, to provide for the issuance of Preferred Stock in
one or more series and to fix and state the voting powers, designations,
preferences and relative participating, optional or other special rights
of the shares of each series and the qualifications, limitations and
restrictions thereof.
On December 15, 1994, the Company's Board of Directors adopted a
Shareholder Rights Agreement (the "Rights Agreement") designed to enhance
the Company's ability to protect shareholder interests and to ensure
shareholders receive fair treatment in the event any future coercive
takeover attempt of the Company is made. Pursuant to the Rights Agreement,
the Board of Directors declared a dividend distribution of one preferred
stock purchase right (the "Right") for each outstanding share of the
Company's common stock to shareholders of record as of the close of
business on January 6, 1995. Each right entitles the holder to purchase
from the Company a unit consisting of one ten thousandth (1/10,000) of a
share of Series A Junior Participating Cumulative Preferred Stock, par
value $1.00 per
46
CASUAL MALE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
share, at a cash exercise price of $70 per unit, subject to adjustment,
upon the occurrence of certain events as set forth in the Rights
Agreement. These events include the earliest to occur of: (i) the
acquisition of 15% or more of the Company's outstanding common stock by
any person or group; (ii) the commencement of a tender or exchange offer
that would result upon its consummation in a person or a group becoming
the beneficial owner of 15% or more of the Company's outstanding common
stock; or (iii) the determination by the Board of Directors that any
person is an "Adverse Person", as defined in the Rights Agreement. The
Rights are not exercisable until or following the occurrence of one of the
above events and will expire on December 14, 2004 unless previously
redeemed or exchanged by the Company, as provided in the Rights Agreement.
47
CASUAL MALE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Selected Quarterly Financial Data (Unaudited)
---------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-------- -------- --------- ---------- ----------
(In thousands, except per share data)
Year ended February 3, 2001
Net sales $103,485 $110,422 $104,439 $153,471 $ 471,817
Gross profit 51,234 54,391 51,818 69,252 226,695
Operating income from
continuing operations 4,967 7,558 5,152 8,466 26,143
Earnings from continuing operations
before taxes 1,927 4,296 1,739 6,209 14,171
Earnings (loss) from continuing operations,
net of taxes 1,234 2,750 1,112 (48,141) (43,045)
Earnings (loss) from discontinued
operations, net of taxes 311 710 (26,221) (33,611) (58,811)
-------- -------- -------- -------- ---------
Net earnings (loss) $ 1,545 $ 3,460 $(25,109) $(81,752) $(101,856)
======== ======== ======== ======== =========
Earnings (loss) per common share:
Basic: (a)
Continuing operations $ 0.09 $ 0.20 $ 0.08 $ (3.42) $ (3.06)
======== ======== ======== ======== =========
Discontinued operations $ 0.02 $ 0.05 $ (1.86) $ (2.39) $ (4.18)
======== ======== ======== ======== =========
Net earnings (loss) per
common share, basic $ 0.11 $ 0.25 $ (1.78) $ (5.81) $ (7.24)
======== ======== ======== ======== =========
Earnings (loss) per common share:
Diluted: (a)
Continuing operations $ 0.09 $ 0.19 $ 0.08 $ (3.42) $ (3.06)
======== ======== ======== ======== =========
Discontinued operations $ 0.02 $ 0.04 $ (1.85) $ (2.39) $ (4.18)
======== ======== ======== ======== =========
Net earnings (loss) per
common share, diluted $ 0.11 $ 0.23 $ (1.77) $ (5.81) $ (7.24)
======== ======== ======== ======== =========
(a) Earnings per common share are computed independently for each of the
periods presented and, therefore, may not add up to the total for the
year.
48
CASUAL MALE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
(In thousands, except per share data)
Year ended January 29, 2000
Net sales $74,198 $97,761 $99,460 $139,688 $411,107
Gross profit 36,491 47,470 49,826 65,166 198,953
Operating income from
continuing operations 3,843 5,227 4,401 8,869 22,340
Earnings from continuing operations
before taxes 2,107 2,693 1,590 5,874 12,264
Earnings from continuing operations,
net of taxes 1,349 1,724 1,019 4,126 8,218
Earnings (loss) from discontinued
operations, net of taxes (369) 1,650 410 (1,036) 655
------- ------- ------- -------- --------
Net earnings $ 980 $ 3,374 $ 1,429 $ 3,090 $ 8,873
======= ======= ======= ======== ========
Earnings (loss) per common share:
Basic: (a)
Continuing operations $ 0.10 $ 0.12 $ 0.07 $ 0.29 $ 0.58
======= ======= ======= ======== ========
Discontinued operations $ (0.03) $ 0.12 $ 0.03 $ (0.07) $ 0.05
======= ======= ======= ======== ========
Net earnings (loss) per
common share, basic $ 0.07 $ 0.24 $ 0.10 $ 0.22 $ 0.63
======= ======= ======= ======== ========
Earnings (loss) per common share:
Diluted: (a)
Continuing operations $ 0.10 $ 0.12 $ 0.07 $ 0.27 $ 0.57
======= ======= ======= ======== ========
Discontinued operations $ (0.03) $ 0.11 $ 0.03 $ (0.06) $ 0.05
======= ======= ======= ======== ========
Net earnings (loss) per
common share, diluted $ 0.07 $ 0.23 $ 0.10 $ 0.21 $ 0.62
======= ======= ======= ======== ========
(a) Earnings per common share are computed independently for each of the
periods presented and, therefore, may not add up to the total for the
year.
(11) Supplemental Schedules
----------------------
Supplemental schedules to consolidated statements of cash flows
2001 2000 1999
---- ---- ----
Cash paid for:
Interest $21,612,192 $16,141,233 $14,190,926
Income taxes 1,373,971 2,235,758 438,299
=========== =========== ============
Schedule of non-cash financing activity:
Warrants issued with senior subordinated debt $ - $ 3,300,000 $ -
=========== =========== ============
Supplemental schedule for the allowance for doubtful accounts
2001 2000 1999
---- ---- ----
Balance, beginning of year $ 200,000 $ 185,000 $ 577,458
Additions charged to expense 80,000 107,000 10,000
Write-offs, net of recoveries (60,000) (92,000) (402,458)
---------- --------- ---------
Balance, end of year $ 220,000 $ 200,000 $ 185,000
========== ========= =========
49
(12) Bankruptcy Filing and Reorganization
------------------------------------
On May 18, 2001 (the "Filing Date"), Casual Male Corp. and 15 of its
direct and indirect subsidiaries (collectively, the "Debtors") filed
voluntary petitions to reorganize their businesses under Chapter 11
(the "Chapter 11 Case") in the Bankruptcy Court. JBAK Holding and
Realty, a direct and indirect subsidiary of Casual Male Corp.,
respectively, are not debtors in the Chapter 11 Case. The Debtors
continue to operate their businesses and manage their properties as
debtors-in-possession pursuant to sections 1107(a) and 1108 of the
Bankruptcy Code. On May 24, 2001, the United States Trustee for the
Southern District of New York appointed an Official Committee of
Unsecured Creditors (the "Creditors' Committee") pursuant to Section
1102 of the Bankruptcy Code.
As of the Filing Date, actions to collect pre-petition indebtedness
are stayed, and other pre-petition contractual obligations may not be
enforced against the Company. In addition, the Company may reject
executory contracts and lease obligations, and parties affected by
these rejections may file claims with the Bankruptcy Court in
accordance with the reorganization process. In addition, the Company
filed schedules of assets and liabilities on or about August 1, 2001.
Moreover, pursuant to an order of the Bankruptcy Court, the last date
for filing claims against the Company as of the Filing Date was
established as December 17, 2001. The Company's liabilities at the
Filing Date are subject to allowance in the Chapter 11 cases and shall
receive the distribution, if any, provided for under a plan of
reorganization.
Under Section 1121(b) of the Bankruptcy Code, a debtor has the
exclusive right to file a plan of reorganization during the initial
120 days after the date of the commencement of a Chapter 11 case. The
Debtors have not yet proposed a plan of reorganization. On August 20,
2001, the Debtors filed with the Bankruptcy Court a motion to extend
the exclusive period and the time within which to solicit acceptances
of a plan for approximately six months. On October 10, 2001, the
Bankruptcy Court granted the extension. With this grant, the Debtors
retain the exclusive right to file a plan of reorganization until
March 25, 2002 and to solicit acceptance of a plan of reorganization
until May 22, 2002.
The consolidated financial statements have been prepared under
accounting principles generally accepted in the United States of
America applicable to a going concern, which principles assume that
assets will be realized and liabilities will be discharged in the
normal course of business. The Company's ability to continue as a
going concern is dependent upon, among other things, acceptance of a
Plan of Reorganization by the Company's creditors with confirmation by
the Bankruptcy Court, compliance with all debt covenants under the
debtor-in-possession financing, the success of future operations,
including maintaining profitability and adequate post bankruptcy
financing and liquidity, and the resolution of the uncertainties of
the reorganization case. A confirmed plan of reorganization could
materially change the amounts reported in the accompanying
consolidated financial statements. The accompanying consolidated
financial statements do not include any adjustments relating to the
recoverability of the value of recorded asset amounts or the amounts
and classification of liabilities that might be necessary as a
consequence of a filing for reorganization under Chapter 11.
The Company has made key modifications to its business to enhance
profitability, including closing certain stores and consolidating its
catalog and e-commerce operations. On July 11, 2001, the Company,
after consulting with the Creditors' Committee, filed a motion with
the Bankruptcy Court requesting authorization to close certain of its
locations which no longer contributed to the Company's overall
business objectives. The Company requested approval to commence store
closing sales at 80 of its locations, consisting of 21 Casual Male Big
& Tall stores, 43 Repp Ltd. Big & Tall stores and 16 outlet stores. On
August 22, 2001, the Bankruptcy Court authorized the Company's store
closings. Store closing sales commenced at the end of August and the
Company anticipates that sale will continue through December 29, 2001
for approximately 25 stores. Store closing sales at 55 stores have
terminated. The Company is evaluating further store closing
opportunities.
The Company has elected to consolidate the catalog and e-commerce
operations currently located in its facility in Alpharetta, Georgia
into its facility in Canton, Massachusetts. This consolidation will
allow the Company to utilize space in the Canton facility made
available as a result of the disposal of the footwear business (see
Note 2). It will also eliminate occupancy and related expenses
associated with the Alpharetta facility. In order to ensure a smooth
transition of the Company's catalog and e-commerce business from
Alpharetta to Canton, the Company has received authorization from the
Bankruptcy Court to allow it to establish a retention program that
will provide economic incentives to its Alpharetta-based employees to
remain with the Company through the
50
transition period. Consolidation activities are expected to conclude
by the end of February 2002. The Company expects that cash expenses
associated with this consolidation, including retention and severance
expenses, moving costs and capital costs for improvements to the
Canton facility, will not exceed $2.0 million.
Upon commencement of the Chapter 11 Case, the Debtors filed a motion
seeking the authority of the Bankruptcy Court to enter into a debtor-
in-possession revolving credit arrangement with a group of lenders led
by Fleet Retail Finance Inc. and Tranche B and C term loans with a
group of lenders led by Back Bay Capital Funding LLC (the "DIP
Facility"). On May 18, 2001, the Bankruptcy Court approved the DIP
Facility on an interim basis pursuant to Section 364(c) of the
Bankruptcy Code, and on July 18, 2001, approved the DIP Facility on a
final basis. The DIP facility superseded and replaced the Company's
$130 million in bank financing arrangements comprised of the Revolver
and Term Loan (the "Pre-petition Credit Facility").
The DIP Facility provides the Debtors with a $100 million revolving
credit facility, which facility contains a $15.0 million sub-limit for
issuances of letters of credit (the "DIP Revolver"), for the Debtors'
general working capital needs and for certain capital expenditures.
Aggregate borrowings under the DIP Revolver are limited to an amount
determined by a formula based on various percentages of eligible
inventory and accounts receivable. Borrowings under the DIP Revolver
bear interest at variable rates.
The Tranche B term loan provided $20 million to be applied solely
towards the retirement of the Prepetition Credit Facility. The unpaid
balance of the Tranche B term loan bears interest at a fixed rate of
17.5% per annum (of which 15.5% is payable monthly in arrears and the
remaining 2% may be paid monthly or paid-in-kind, at the option of the
Debtors).
The Tranche C term loan provides $15 million to the Debtors, the
proceeds of which must be applied solely towards the retirement of the
Pre-petition Credit Facility and for the Debtors' working capital
needs. The unpaid balance of the Tranche C term loan bears interest at
a fixed rate of 22% per annum (of which 19% is payable monthly in
arrears and the remaining 3% may be paid monthly or paid-in-kind, at
the option of the Debtors).
The DIP Facility is secured by a first priority lien on, and security
interest in, substantially all of the Debtors' assets except equipment
as to which Fleet Leasing Inc.'s lien has priority and property
subject to other permitted liens (as defined in the DIP Facility), in
which case the lenders have a perfected junior lien.
As of December 10, 2001, the Debtors had aggregate borrowings
outstanding under the DIP Revolver totaling $58.2 million, consisting
of loans and obligations under letters of credit.
In connection with the Chapter 11 Case, the Bankruptcy Court entered
an order that enables the Company to take advantage of the automatic
injunction (that commenced immediately upon the Chapter 11 filings) to
protect its substantial net operating loss tax carryforward. The
Bankruptcy Court approved certain notice procedures that limit the
buying and selling of the Company's common stock and convertible notes
and the trading of claims that could effect an "ownership change" for
tax purposes, thereby adversely affecting the Company's NOL tax
carryforward. In order to make sure that no violations of the
automatic stay occur by claims or securities trading, the Bankruptcy
Court approved certain procedures to govern and restrict trading.
The Bankruptcy Court approved retention agreements for certain key
employees on August 22, 2001. Under the retention program, certain
employees are entitled to receive retention payments if they remain
employed and in good standing on three milestone dates: (i) three
months after the filing of the Chapter 11 petition (i.e. August 18,
2001), (ii) nine months after the filing of the Chapter 11 petition
(i.e. February 18, 2002) or upon "emergence" from the chapter 11 Case,
as defined in the retention program, if earlier and (iii) upon
"emergence" from the Chapter 11 Case.
For the purposes of the retention program, the term "emergence"
includes (i) the confirmation of a plan of reorganization pursuant to
the Bankruptcy Code (which plan does not provide for the liquidation
of all or substantially all of the Company's assets) or (ii) the
confirmation of a transaction involving the sale of the stock or
substantially all of the assets of the Company as a going concern.
These agreements, when signed by the executive, supersede and replace
all employment, severance and change of control severance agreements
in place prior to August 22, 2001 for such executives.
51
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
- --------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Pursuant to Massachusetts law, the Board of Directors of the Company has
voted to fix the number of directors at ten. The Board of Directors is divided
into three classes of approximately equal size. The members of each class are
elected for terms to continue until the annual meeting of stockholders held in
the third year following the year of their election and until their respective
successors are elected and qualified.
After the commencement of the Chapter 11 Case, the Company's Board of
Directors elected not to have an Annual Meeting of Stockholders. As a result,
Class III Directors were not re-elected. Pursuant to Article II, Section II of
the Company's By-Laws, such Class III Directors will remain in office until
their respective successors are elected and qualified.
The following table sets forth information regarding each of the directors
in each of the three classes.
Present Principal Employment and Director
Name Age Prior Business Experience Since
---- --- ---------------------------------------- ------------
(Class I Directors--Term to Expire in 2002)
Sherman N. Baker................ 81 Chairman Emeritus of the Board of the 1985
Company since February 2001. Chairman
of the Board of the Company from March
1990 until February 2001. Chief Executive
Officer of the Company and its predecessor
from 1970 until March 1990.
Theodore M. Ronick.............. 67 Since 1994 retail consultant. Prior to 1998
1994, held a number of managerial
positions at R. H. Macy & Co.,
including Chairman and Chief Executive
Officer of R. H. Macy & Co., Inc.'s
corporate buying division.
Melvin M. Rosenblatt............ 71 Certified public accountant and past 1993
Chairman of the Board and Chief
Executive Officer of Greenberg,
Rosenblatt, Kull & Bitsoli, P.C., a
public accounting firm with which he
has been associated since 1957.
Trustee of Clark University in
Worcester, Massachusetts. Director and
Chairman of the Asset Development
Committee of the Greater Worcester
Community Foundation. Formerly a
Director of Ames Department Stores,
Inc. from 1979 through 1992.
52
Present Principal Employment and Director
Name Age Prior Business Experience Since
---- --- ---------------------------------------- ------------
(Class II Directors--Term to Expire in 2003)
Nancy Ryan...................... 52 Since 1980 President of Pro Media, Inc., 1995
a provider of advertising and media
buying services. Prior to 1980, Vice
President/ Media Director of S & N
Advertising. Trustee of Emerson
College, Boston, Massachusetts.
Douglas J. Kahn................. 45 Since 2001, Chief Operating Officer of 1995
Croscill, Inc. and since 1993 President
of the Royal Home Fashions Division of
Croscill Home. Prior to 1993, Senior Vice
President, Merchant Banking Group, Donaldson,
Lufkin and Jenrette Securities Corporation.
Harold Leppo.................... 64 Chief Executive Officer of Harold Leppo 1997
and Company, a retail consulting firm in
Stamford, Connecticut, since 1988.
Prior to 1988, held a number of
managerial positions at Lord & Taylor
and Allied Stores, Inc., including
President and Chief Operating Officer
of Lord & Taylor (1987) and Executive
Vice President of Allied Stores
(1988). Mr. Leppo is also a Director
of Homebase, Inc., a warehouse-style
home improvement retailer.
Stuart M. Glasser............... 54 President and Chief Operating Officer 1999
of the Company since February 2001 and
Senior Executive Vice President of the
Company from June 1998 until February
2001 and President and Chief Executive Officer
of The Casual Male, Inc. from September 1997
until February 2001. From January 1991 until
September 1997, served as Executive Vice
President and General Merchandise Manager of
the men's, boy's, children's and cosmetics
divisions of Bloomingdales, a division
of Federated Department Stores, Inc. Prior
to 1991, served as President and Chief
Executive of the department store division
of Elder-Beerman Stores Corp. and, prior to
that, served as an Executive Vice President
of Lord & Taylor. Member of the Board of
Directors of Allou Health & Beauty Care, Inc.,
a distributor of nationally advertised health
and beauty aid products, pharmaceuticals,
fragrances, cosmetics and non-perishable foods,
since March 2000.
(Class III Directors--Term to Expire in 2001)
J. Christopher Clifford......... 56 Managing Director of Berkshire Partners 1985
LLC, a private investment firm. From
1986 until 1999, served as general
Partner of Berkshire Partners LLP, the
Predecessor of Berkshire Partners LLC.
53
Alan I. Weinstein...............
58 Chairman of the Board and Chief 1996
Executive Officer of the Company since
February 2001 and March 1997, respectively;
President of the Company from November 1996
until February 2001. Acting President and
Chief Executive Officer, September 1996 until
November 1996 and March 1997, respectively;
Joined the Company in 1968 and for the past
33 years has held various senior level
management positions; including serving as
Senior Executive Vice President, Chief Financial
Officer, Chief Administrative Officer and
Secretary from September 1988 until September 1996.
David Pulver.................... 60 President of Cornerstone Capital, Inc. 1993
Chairman of the Board of Directors of
Morse Shoe, Inc., March 1992 through
January 1993. Chairman of the Board
and Co-Chief Executive Officer of The
Children's Place, 1968-1984. Director
of Hearst-Argyle Television, Inc., an
owner and manager of television and
radio stations. Trustee of Colby College in
Waterville, Maine.
54
Information About Board of Directors
Directors who are not employees of the Company are eligible to participate
in the Company's 1992 Directors' Stock Option Plan (the "Directors' Plan") and
if they are not otherwise compensated by the Company, currently receive an
annual fee of $20,000 to serve on the Board of Directors and an annual fee of
$2,500 for each committee of the Board on which they serve. Pursuant to the
Directors' Plan, each eligible director is automatically granted an option to
purchase 2,500 shares of the Company's Common Stock upon his or her initial
election to the Board of Directors and at the close of business on the fifth
business day following the Company's annual meeting of stockholders, at an
exercise price equal to the closing price of the Company's Common Stock on the
date of grant. In fiscal 2001, pursuant to the Directors' Plan, each of Messrs.
Clifford, Kahn, Leppo, Pulver, Rosenblatt, Ronick and Ms. Ryan were granted an
option to purchase 2,500 shares of the Company's Common Stock at a per share
exercise price of $5.5625, the fair market value of the Company's Common Stock
on the date of grant.
55
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission ("SEC") initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater than ten percent beneficial owners
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file. To the Company's knowledge, based solely on its review of
the copies of such reports furnished to the Company and written representations
that no other reports were required, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with during the fiscal year ended February 3, 2001.
Item 11. EXECUTIVE COMPENSATION
The following table discloses compensation received by the Company's Chief
Executive Officer and the four next most highly compensated executive officers
for the fiscal years ended February 3, 2001, January 29, 2000 and January 30,
1999.
SUMMARY COMPENSATION TABLE
Long-Term
Name and Other Annual Compensation Awards
Principal Position (1) Year Salary($) Bonus($) Compensation($) Securities Underlying Options (Shares)
- --------------------------------- ---- --------- ---------- --------------- --------------------------------------
Sherman N. Baker................. 2001 190,764 -0- -0- -0-
Chairman of the Board 2000 210,647 46,036(2) -0- -0-
1999 232,089 -0- -0- -0-
Alan I. Weinstein................ 2001 661,538 -0- -0- 100,000
President, Chief Executive 2000 596,154 154,688(2) -0- 25,000
Officer 1999 546,154 -0- -0- -0-
Stuart M. Glasser................ 2001 636,538 0- -0- -0-
Senior Executive Vice President, 2000 569,231 290,250(2) -0- 125,100
President and Chief Executive 1999 519,231 180,820(3) -0- 25,000
Officer of The Casual Male, Inc.
Michael J. Fine.................. 2001 435,961 -0- -0- 8,000
Former Executive Vice President, 2000 409,616 9,563(2) -0- 7,600
President of JBI Footwear 1999 157,692* -0- -0- 125,000
Elizabeth C. White (9)........... 2001 197,307 10,000(4) -0- 15,000
Chief Financial Officer and 2000 139,849 20,790(2) -0- 5,100
Treasurer 1999 126,305 -0- -0- 3,000
Name and All Other
Principal Position (1) Compensation($)
- --------------------------------- ---------------
Sherman N. Baker................. 86,098 (5)
Chairman of the Board 86,098 (5)
86,098 (5)
Alan I. Weinstein................ 129,134 (6)(7)
President, Chief Executive 129,204 (6)(7)
Officer 18,026 (6)(7)
Stuart M. Glasser................ 129,134 (6)(7)
Senior Executive Vice President, 129,204 (6)(7)
President and Chief Executive 20,908 (6)(7)(8)
Officer of The Casual Male, Inc.
Michael J. Fine.................. 5,100 (6)
Former Executive Vice President, 95,427 (6)(8)
President of JBI Footwear -0-
Elizabeth C. White (9)........... 5,100 (6)
Chief Financial Officer and 4,128 (6)
Treasurer 3,842 (6)
(*) Amount shown reflects partial year salary.
(1) On February 26, 2001, the Board of Directors appointed Mr. Baker as
Chairman, Emeritus, Mr. Weinstein as Chairman of the Board and Mr.
Glasser as President and Chief Operating Officer of the Company.
(2) Amounts shown reflect payments under the Company's Incentive Plan.
(3) Amounts shown reflect guaranteed bonus under employment agreement.
(4) Amount shown reflects a discretionary bonus paid to Ms. White.
(5) Amount shown reflects payments made to Mr. Baker under the Company's
Retirement Plan.
(6) Amounts shown include contributions made by the Company under its
401(k) Profit Sharing Plan based upon the officer's contributions.
(7) Amounts shown reflect the reduction of $124,034, $124,404 and $13,526,
including imputed interest, of the amount outstanding under a
forgivable note dated July 8, 1998 in favor of the Company for fiscal
2001, fiscal 2000 and fiscal 1999, respectively. See "Certain
Relationships and Related Transactions."
(8) Amount shown includes payments for moving and other expenses in
connection with Mr. Glasser's and Mr. Fine's relocation.
(9) Ms. White has served as Chief Financial Officer since March 2000 and
served as Interim Chief Financial Officer from January 2000 through
March 2000. During the fiscal year ended January 30, 1999, she served
as Senior Vice President and Controller of the Company.
56
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in the fiscal
year ended February 3, 2001 to the named executive officers.
Individual Grants
- -----------------------------------------------------------------------------------------------
Potential Realizable Value
at Assumed Annual Rate
% of Total of Stock Price
Options Appreciation
Granted to For Option Term(4)
--------------------------
Employees Exercise
Name Options in Fiscal Price Expiration
- ----
Granted(1) Year(2) ($/Sh)(3) Date 5%($) 10%($)
---------- ------- --------- ----------- ----- ------
Sherman N. Baker -- -- -- -- -- --
Alan I. Weinstein 100,000 21.3% 6.375 03/14/10 400,920 1,016,011
Stuart M. Glasser -- -- -- -- -- --
Michael J. Fine 8,000 1.7% 6.375 03/14/10 32,073 81,280
Elizabeth C. White 10,000 2.1% 6.375 03/14/10 40,092 101,601
2,500 .05% 7.8125 12/12/07 4,866 11,340
2,500 .05% 6.875 02/02/08 6,997 16,306
__________
(1) These options become exercisable as to 25% of the underlying shares on each
of the first four anniversaries of the date of grant.
(2) The Company granted options representing 467,750 shares to employees in
fiscal 2001.
(3) The exercise price may be paid in cash or in shares of Common Stock valued
at fair market value on the date of exercise.
(4) The dollar amount under these columns shows the hypothetical gain or option
spreads of options granted based on assumed annual compound stock
appreciation rates of 5% and 10% as mandated by the SEC and therefore are
not intended to forecast possible appreciation, if any, of the Company's
stock price. The Company did not use an alternative formula for grant date
valuation, as the Company is not aware of any formula which will determine
with reasonable accuracy a present value based on future unknown or
volatile factors. The calculation of stock price appreciation hereunder is
based upon an option term of ten (10) years (seven years in the case of
each of Ms. White's grants of options to purchase 2,500 shares).
57
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
The following table provides information on option exercises in fiscal 2001
by the named executive officers and the value of such officers' unexercised
options at February 3, 2001.
Number of Value of Unexercised
Unexercised Options In-The-Money Options
at Fiscal Year End(#) at Fiscal Year End($)(1)
Shares ------------------------------ ----------------------------
Acquired on Value
Exercise Realized
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --- --- ----------- ------------- ----------- -------------
Sherman N. Baker 0 0 38,396 0 2,188 0
Alan I. Weinstein 0 0 131,449 145,000 35,125 103,625
Stuart M. Glasser 0 0 216,350 143,750 410,659 185,110
Michael J. Fine 0 0 64,475 76,125 78,717 93,720
Elizabeth C. White 0 0 8,700 20,700 8,188 15,871
__________
(1) The value of unexercised in-the-money options at fiscal year end assumes a
fair market value of the Company's Common Stock of $6.8125, the average of
the high and low prices of the Company's Common Stock on February 2, 2001,
the last trading day preceding the Company's fiscal year end.
RETIREMENT PLANS
The following table shows the annual benefits payable under the Company's
Retirement Plan and Supplemental Plan to persons in specified compensation and
years of service classifications, based on a straight life annuity form of
retirement income.
Average of Highest Representative Years of Service
Five Years of -------------------------------------
Compensation 10 20 30(maximum)
------------ --------- --------- -------------
$ 50,000 $ 4,977 $ 9,953 $ 14,930
100,000 11,977 23,953 35,930
150,000 18,977 37,953 56,930
200,000 25,977 51,953 77,930
250,000* 32,977 65,953 98,930
267,326* 35,402 70,805 106,207
300,000* 39,977 79,953 119,930
__________
(*) The maximum compensation that may be used to calculate benefits under the
Retirement Plan and the Supplemental Plan is $267,326.
In December 1993, the Board of Directors of the Company established a
Supplemental Retirement Plan (the "Supplemental Plan") to provide benefits
attributable to compensation in excess of the qualified plan limit, which is
$160,000, but less than $267,326. The benefit provided by the Retirement Plan
and the Supplemental Plan is equal to (i) the sum of 0.75% of the executive's
highest consecutive five-year average annual compensation plus 0.65% of the
excess of the executive's highest consecutive five-year average annual
compensation over the average of the Social Security taxable wage bases,
multiplied by (ii) the executive's years of "benefit service" with the Company
(not to exceed 30 years). Effective February 1, 1995, compensation for such
purposes means all compensation reported on Form W-2 (excluding such items as
bonuses and stock options) up to a maximum of $267,326 for the calendar year
ended December 31, 1998. Annual benefits are payable under the Company's
Retirement Plan for retirees at age 65, prior to the offset, if any, for
benefits accrued under the retirement plan of the Company's predecessor and for
Social Security benefits.
58
Effective as of May 3, 1997, the Board of Directors voted to amend the
Retirement Plan to cease all benefit accruals under the Retirement Plan as of
such date. Effective as of December 31, 1998, the Board of Directors voted to
cease all benefit accruals under the Supplemental Plan.
As of February 3, 2001, the number of years of "benefit service" for each
of the following individuals was as follows: Sherman N. Baker -- 30 years; Alan
I. Weinstein -- 30 years; Stuart M. Glasser -- 0 years; Michael J. Fine -- 0
years and Elizabeth C. White - 12 years.
Employment and Severance Arrangements
Chapter 11 Retention and Severance Programs. In an effort to retain the
focus and dedication of certain key employees who possess knowledge about the
Company's business and to provide proper incentives for such employees to
continue their employment with the Company during the Chapter 11 Case, the Board
of Directors voted to establish retention and severance programs for certain key
employees on July 24, 2001. These programs were approved by Order of the
Bankruptcy Court on August 22, 2001 (the "Retention Order"). Under the
retention program, certain employees, including Messrs. Weinstein and Glasser
and Ms. White, are entitled to receive retention payments if they remain
employed and in good standing on three milestone dates: (i) three months after
the filing of the Chapter 11 petition (i.e., August 18, 2001), (ii) nine months
after the filing of the Chapter 11 petition (i.e., February 18, 2002) or upon
"emergence" from the Chapter 11 Case, if earlier and (iii) upon "emergence" from
the Chapter 11 Case.
Under the approved severance program, Messrs. Weinstein and Glasser would
be entitled to severance payments as follows: (i) if either executive is
terminated without cause or terminates his own employment for "good reason" (as
defined in the severance agreement), he shall receive base salary continuation
for a period of 18 months paid in accordance with existing salary policy, except
that the first six months of such payments are to be offset by income earned or
deferred in the first six (6) months of the severance period, (ii) if the
executive is terminated in connection with a change of control (as defined), the
executive may choose either a continuation of his base salary over 18 months
paid in accordance with existing salary policy, except that the first six months
of such payments are to be offset by income earned or deferred in the first six
(6) months of the severance period, or a one-time lump sum payment equal to 12
months of his base salary and (iii) if the executive is terminated in connection
with a liquidation of the Company, he shall receive a one-time lump sum payment
equal to 12 months of his base salary.
Ms. White's severance agreement would pay her severance payments as
follows: (i) if she is terminated without cause or terminates her own employment
for "good reason" (as defined in the severance agreement), Ms. White shall
receive base salary continuation for a period of 14 months paid in accordance
with existing salary policy, except that such payments are to be offset by
income earned or deferred during the severance period, (ii) if she is terminated
in connection with a change of control (as defined), Ms. White may choose either
a continuation of her base salary over 14 months paid in accordance with
existing salary policy, except that such payments are to be offset by income
earned or deferred during the severance period, or a one-time lump sum payment
equal to 8 months of her base salary and (iii) if she is terminated in
connection with a liquidation of the Company, Ms. White shall receive a one-time
lump sum payment equal to 8 months of her base salary.
Pre-Chapter 11 Employment and Severance Agreements. The following sets
forth the terms of the Employment and Severance Agreements for certain of the
named executive officers which, in the case of Messrs. Weinstein and Glasser and
Ms. White, were superseded and replaced by the above described Chapter 11
Retention and Severance Programs
Mr. Weinstein was employed pursuant to an agreement dated April 1, 1997
which, as amended on March 14, 2000, provided for an annual salary of not less
than $675,000 plus incentive bonus compensation to which he may have been
entitled pursuant to the Incentive Plan. The agreement (as amended) was
scheduled to expire on April 30, 2002. In the event his employment was
terminated without cause prior to a Change of Control (as defined in the
agreement), the agreement provided for the payment to Mr. Weinstein of the
greater of his base salary for one year or the amount of base salary he would
have received for the remainder of his employment term. Mr. Weinstein's
agreement further provided that, in the event of a termination of his employment
without cause during the term of his agreement (except in the event of a change
of control), any salary continuation payments, which were in excess of the
amount of his base salary for one year, would be offset by any salary or other
compensation earned by Mr. Weinstein from other employment. Further, in the
event his employment was terminated within one year after a Change of Control,
the agreement provided for the payment to him of up to three years base salary,
offset, subject to certain conditions, by any amounts earned by him from
subsequent employment. The agreement also contained certain non-competition
restrictions upon termination of employment.
Mr. Glasser was employed pursuant to an agreement effective as of September
15, 1997, as amended on April 17,
59
2000, which provided for an annual salary of not less than $700,000 plus
incentive bonus compensation to which he may have been entitled pursuant to the
terms of the Incentive Plan. The Company also guaranteed Mr. Glasser a bonus of
$250,000 paid on the first anniversary of his employment. In the event Mr.
Glasser's employment was terminated without cause, or in the event he resigned
for "good reason", as defined in the agreement, he would receive his base salary
(offset by any amounts earned by him from subsequent employment) and any amounts
payable under the Incentive Plan with respect to the fiscal year in which such
termination occurred which otherwise would have been paid on the basis of the
results for such fiscal year (prorated to the termination date) from the date
immediately following the termination date to and including the date immediately
preceding the fourth anniversary of the effective date of Mr. Glasser's
employment date ("Basic Severance"). Additionally, and in such events, all
unvested stock options previously granted to Mr. Glasser would immediately vest
and be exercisable within 90 days of such termination. The agreement further
provided that in the event of a Change of Control and the reassignment of Mr.
Glasser such that he ceased reporting to Mr. Weinstein, Mr. Glasser may resign
within six months of such reassignment and would be entitled to receive Basic
Severance. The agreement also contained certain non-competition restrictions
upon termination of employment and further provided that in the event Mr.
Glasser's employment was terminated due to disability or death, the Company
would pay him or his estate an amount equal to his annual base salary for a
period of one year after termination of employment and any incentive
compensation amount which otherwise would have been paid to him on the basis of
the results for such fiscal year pro-rated through the date of termination of
employment.
The Company entered into a Change of Control agreement with Ms. White which
provided that in the event her employment with the Company was terminated either
by the Company or by Ms. White for "good reason" within three (3) years after a
Change of Control had occurred or the employment of Mr. Weinstein with the
Company had terminated for any reason, then Ms. White would receive an amount
equal to one and one half times her annual base salary.
Mr. Baker is employed pursuant to an employment agreement dated March 25,
1993 which, as amended on April 1, 2001, provides for an annual base salary of
not less than $150,000. The agreement contains certain non-competition
restrictions upon termination of employment and further provides that in the
event Mr. Baker's employment terminates due to his disability or death, the
Company will pay him or his estate an amount equal to his annual base salary for
a period of one year after termination of employment with respect to such fiscal
year pro-rated through the date of termination of employment. The agreement is
effective through April 1, 2002.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are J. Christopher Clifford
(Chairman), Douglas J. Kahn, Harold Leppo, Theodore M. Ronick, and Melvin M.
Rosenblatt. None of these individuals is an executive officer or employee of the
Company or any of its subsidiaries and no "compensation committee interlocks"
existed during the last fiscal year.
Mr. Clifford is a managing director of Berkshire Partners LLC
("Berkshire"), which receives fees from the Company for consulting and
management services in the areas of financial and strategic corporate planning
under a Management Agreement dated as of June 30, 1995 (the "Management
Agreement"). For the fiscal year ended February 3, 2001, the Company paid
Berkshire $60,000 for services under the Management Agreement. The Company
believes the terms of the Management Agreement are no less favorable as could be
obtained from an unaffiliated entity.
The Company pays Greenberg, Rosenblatt, Kull & Bitsoli, P.C. $60,000
annually for consulting and management services provided to the Company in the
areas of financial and strategic corporate planning. Mr. Rosenblatt is a
principal of such firm and a Director and stockholder of the Company. The
Company believes the terms of this arrangement are no less favorable as could be
obtained from an unaffiliated entity.
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
comprised of five outside Directors. The Board of Directors generally delegates
to the Committee the responsibility for developing and administering the
policies which govern the total compensation program for executive officers of
the Company. During the pendency of the Chapter 11 Case, however, decisions
concerning most material executive compensation items, such as the adoption of
the retention and
60
severance arrangements described under the heading "--Employment and Severance
Agreements - Chapter 11 Retention and Severance Programs," have been made by the
independent members of the Board of Directors as a group in consultation with
the Creditors Committee.
The Committee administers the Company's Amended and Restated 1985 Stock
Option Plan (the "1985 Plan"), the Amended and Restated 1994 Equity Incentive
Plan (the "1994 Plan") and the Cash Incentive Compensation Plan (the "Incentive
Plan") for all plan participants, including awards made to the executive
officers of the Company. In making pay decisions for the named executive
officers whose compensation is detailed in this proxy statement (other than the
Chairman and Chief Executive Officer), the Committee also takes into
consideration the views and recommendations of the Chairman and Chief Executive
Officer concerning each executive's overall contribution to the Company's
performance. The Committee has prepared the following report to summarize the
executive compensation approach of the Company and describe specific decisions
made by the Committee with respect to the Chairman and Chief Executive Officer's
compensation and future compensation guidelines.
As a result of the Chapter 11 Case, the Company's executive compensation
programs have been directed toward the effective management and operation of the
Company's businesses as a debtor-in-possession under Chapter 11 of the U.S.
Bankruptcy Code. In particular, the Board of Directors has established
retention and severance programs to provide management with incentives to emerge
from Chapter 11 after the development of an optimal business structure, a long-
term operating plan and a plan of reorganization.
The general philosophy of the Committee is to link overall executive
compensation with the performance of the Company and the individual executive,
with operating division performance also emphasized for division executives. The
focus of the performance is on the achievement of both annual and long-term
business objectives that contribute to the creation of long-term stockholder
value. This philosophy is reflected in the Company's executive compensation
approach, which provides a major portion of total compensation in pay-for-
performance programs that consist of long-term stock-based incentives, an annual
incentive plan and merit salary increases. The combination of these compensation
elements is intended to produce a total compensation package that enables the
Company to attract, retain and provide incentives for appropriately skilled
executives. In determining the scope of these compensation packages, the
Committee takes into account compensation programs offered by similar-sized
specialty store retailers and, where appropriate, those of other businesses in
the local market.
With respect to the compensation arrangement for the Company's Chairman and
Chief Executive Officer, Mr. Weinstein, the components of his total compensation
program generally are base salary, bonus opportunities under the Incentive Plan
and grants of stock options. In addition to these components, the Bankruptcy
Court has approved the establishment of a retention program for the benefit of
certain members of management including Mr. Weinstein. The specific elements of
Mr. Weinstein's compensation are discussed in further detail below.
Base Salary
Base salaries for the Company's executive officers are reviewed annually
and are determined through an assessment of individual performance against
assigned objectives and key qualitative factors, which include personal
accomplishments, strategic impact and career contribution to the Company. As a
guide for setting salaries, the Committee relies on competitive salary ranges
developed by the Company's human resources department and, from time-to-time,
outside compensation consultants. These ranges reflect median market practice
for positions of comparable responsibility and scope in the specialty-retailing
marketplace.
On an annual basis, each executive of the Company engages in an assessment
program whereby profitability goals and other objectives for each performance
period are established which are subject to periodic review during the
performance period. At the conclusion of the performance period, a review of the
executive's performance is conducted by the evaluating manager. The assessment
of Mr. Weinstein's performance as Chairman and Chief Executive Officer is the
responsibility of the Committee. The base salary established for Mr. Weinstein
for fiscal year 2002 is $675,000. In setting Mr. Weinstein's base salary, the
Committee considered (i) his effective role in leading the disposition of the
Footwear Business to an affiliate of Footstar Inc., (ii) his recruitment of
talented and experienced executives and (iii) his performance in managing the
Company's overall financial and operating results. The Committee also considered
competitive salary ranges for comparably sized companies, as well as the
opportunities Mr. Weinstein has been offered to enhance total compensation
through the Incentive Plan and the equity incentive arrangements implemented by
the Committee.
61
Cash Incentive Compensation Plan
The Company's Incentive Plan represents an annual incentive opportunity
designed to reward certain key employees for the performance of the Company
relative to the achievement of pre-determined profit goals established for the
year. Such goals are based on the Company's budgeted corporate pre-tax income
from operations as well as on each operating division's pre-tax operating
income, prior to allocation of corporate overhead. Payments under the Incentive
Plan are based on the achievement of such corporate and divisional profit goals.
These goals are subject to review by the Committee and are then recommended to
the full Board for approval.
The Incentive Plan is linked to relative achievement of goals that are
defined by a scale of threshold, target and superior profit results for the
fiscal year, with target performance linked to a target award size that
approximates median bonus opportunity in the marketplace. For the Incentive Plan
participants, the target award guidelines range by position level from 12% to
60% of base salary, with the Chairman and Chief Executive Officer at the 60%
level. The threshold guideline for awards represents a percentage of each
position's target goal, as determined by the Committee from year to year, and
the maximum guideline (which ties to superior profit results) represents 175% of
the target goal. Each executive's award opportunity is also allocated on a
weighted basis across the operating units for which the executive has
responsibility, including a portion allocated to corporate profit results. For
Mr. Weinstein, the award opportunity is based on consolidated corporate results
and the results of the individual business units. In addition to these award
funding guidelines, the Incentive Plan provides for an individual performance
modifier that can adjust a participant's funded award by as much as 25% upward
or downward to reflect all aspects of the participant's performance for the
fiscal year. No awards were granted to the Company's executive officers under
the Incentive Plan in respect of fiscal year 2001.
1985 Stock Option Plan and 1994 Equity Incentive Plan
The Company's 1985 Plan terminated, according to its terms, in June 1995.
Although stock option grants are still outstanding under this Plan, no future
grants can be made from the Plan. However, on June 7, 1994, the stockholders of
the Company voted to adopt the 1994 Plan which allows for the issuance of
incentive and non-qualified stock options, restricted stock grants, unrestricted
stock grants and performance share awards to executives and other key employees
of the Company. The 1994 Plan provides increased flexibility in the award of
equity-based compensation through a combination of the incentive vehicles
authorized under the Plan and furthers the Committee's objective of aligning
executive compensation closely with long-term stockholder interests. As with the
1985 Plan, the 1994 Plan is administered by the Committee, which has full power
to select, from among the employees eligible for awards, the individuals to whom
awards will be granted, to make any combination of awards to participants, and
to determine the specific terms of each award, subject to the provisions of the
1994 Plan.
Grants of incentive or non-qualified stock options are made to executives
and other key employees of the Company under the 1994 Plan. As referenced,
grants of stock options under the 1994 Plan are made to such executives and
other key employees to enable them to participate in the creation of stockholder
value in the Company as well as to permit the accumulation of an equity interest
in the Company, thereby aligning the interests of executives with those of
stockholders. Options granted under the 1985 Plan and the 1994 Plan generally
vest at the rate of 25% per year and the term of each option is generally ten
years. In some instances the term of the option is seven years. Individual
grants under the 1985 Plan and the 1994 Plan have been and are based upon the
level of position held, individual contribution to the achievement of the
Company's financial goals and such other performance factors as management and
the Committee may consider.
The Committee may also award shares of Common Stock to officers and other
eligible employees under the 1994 Plan subject to such conditions and
restrictions as the Committee may determine ("Restricted Stock"). Such
conditions and restrictions may include the achievement of certain performance
goals and/or continued employment with the Company through specified periods of
time. The purchase price, if any, of shares of Restricted Stock will be
determined by the Committee and failure to achieve performance goals or other
restrictions as determined by the Committee may result in employee forfeiture of
such awards.
Under the 1994 Plan, the Committee may also award shares of Common Stock
which are free from any restrictions ("Unrestricted Stock"). Unrestricted Stock
may be issued to eligible employees under the 1994 Plan in recognition of past
services or other valid consideration and may be issued in lieu of cash bonuses
paid to such employees. Unrestricted Stock may be issued at no cost or for a
purchase price determined by the Committee. Finally, the Committee may also
grant performance share awards ("Performance Share Awards") to eligible
employees under the 1994 Plan entitling the recipient to receive shares of
Common Stock upon the achievement of individual or Company performance goals or
such other criteria as
62
the Committee shall determine.
With respect to Mr. Weinstein's compensation, stock option grants are made
at fair market value, generally with seven-year or ten-years term for each
option granted. Vesting of such options are in accordance with the provisions of
the 1985 Plan and the 1994 Plan, respectively, generally with 25% of any such
options vesting on each grant anniversary date beginning on the first
anniversary date after the date of grant and ending on the fourth anniversary
date. In some instances, vesting of such options is over a five-year period with
20% of any such options vesting annually over the period. Mr. Weinstein was
granted a non-qualified stock option pursuant to the 1994 Plan for 25,000 shares
of Common Stock of the Company on March 11, 1997, at an exercise price of $8.94,
in connection with his being elected Chief Executive Officer and the removal of
his "acting" title. This stock option vests at the rate of 20% per year
beginning on the first anniversary date after the date of grant and ending on
the fifth anniversary date. Mr. Weinstein was also granted a non-qualified stock
option for 75,000 shares of Common Stock of the Company on September 9, 1997 at
an exercise price of $9.50, a non-qualified stock option for 5,000 shares on
January 5, 1998 at an exercise price of $5.75 per share, a non-qualified stock
option for 25,000 shares on March 30, 1999 at an exercise price of $3.69 per
share and a non-qualified stock option for 100,000 shares on March 14, 2000 at
an exercise price of $6.35 per share. Each of these stock options vests at the
rate of 25% per year beginning on the first anniversary date after the date of
grant and ending on the fourth anniversary.
During fiscal 1997, the Committee granted Mr. Weinstein a Performance Share
Award that would have entitled him to receive between 25,000 and 50,000 shares
of the Company's Common Stock in fiscal year 1999 if the price of the Common
Stock attained certain targeted levels and remained at such levels for a fixed
period by a date certain. Specifically, the award was linked to a performance
term which began on March 26, 1996 and was originally scheduled to end on April
30, 1998, which term was subsequently extended until April 30, 1999. On July 8,
1998, Mr. Weinstein's performance share award was terminated and in substitution
thereof he was granted a performance based restricted stock award under the 1994
Plan for 50,000 shares of the Company's common stock at a purchase price of
$10.18 per share. Pursuant to the award, Mr. Weinstein purchased the shares
underlying the award and executed a promissory note in the amount of $509,000,
which note originally provided for ratable forgiveness over five years provided
Mr. Weinstein remains employed by the Company during such time. During fiscal
2002, the note was amended to defer the forgiveness of the remaining balance of
the note until July 8, 2003, the expiration thereof. The award originally
provided that if the twenty (20) day average trading price of the Company's
common stock culminating on the vesting date, September 15, 1999, is less than
$14.00 per share, the Company shall have the right to repurchase a portion of
the shares, up to a maximum of 40,000 shares, at the lower of $10.18 per share
or the fair market value of such shares on the vesting date. During fiscal 2000,
the Committee agreed to extend the vesting date of its repurchase right until
September 15, 2000 in consideration of Mr. Weinstein's agreement to extend the
trading restrictions with respect to such Common Stock until such date. During
fiscal 2001, the Committee agreed to eliminate the Board's repurchase right in
consideration of Mr. Weinstein's agreement to modify the trading restrictions
with respect to the Common Stock such that they will lapse on a pro-rata basis
annually on each anniversary of the date of the forgivable promissory note.
Chapter 11 Retention Program
In an effort to retain the focus and dedication of certain key employees
who possess knowledge about the Company's business and to provide proper
incentives for such employees to continue their employment with the Company
during the Chapter 11 Case, the Board of Directors voted to establish retention
and severance programs for certain key employees on July 24, 2001. These
programs were approved by Order of the Bankruptcy Court on August 22, 2001
pursuant to the Retention Order. Under the retention program, certain
employees, including Mr. Weinstein, are entitled to receive retention payments
if they remain employed and in good standing on three milestone dates: (i) three
months after the filing of the Chapter 11 petition (i.e., August 18, 2001), (ii)
nine months after the filing of the Chapter 11 petition (i.e., February 18,
2002) or upon "emergence" from the Chapter 11 Case, if earlier and (iii) upon
"emergence" from the Chapter 11 Case. For the purposes of the retention
program, the term "emergence" includes (i) the confirmation of a plan of
reorganization pursuant to the Bankruptcy Code (which plan does not provide for
the liquidation of all or substantially all of the Company's assets) or (ii) the
confirmation of a transaction involving the sale of the stock or substantially
all of the assets of the Company as a going concern.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code (the "Code") generally limits
the Company's ability to deduct compensation expense in excess of $1 million
paid to the Company's Chief Executive Officer or other executive officers named
in the Summary Compensation Table contained in this proxy statement. Generally,
the Committee expects to attempt to structure compensation payments to executive
officers so as to be deductible under Section 162(m). In the event, however,
63
the Committee determines that so structuring a compensation payment would not be
in the best interests of the Company, the Committee would adjust its
compensation policies and payments to provide incentives to the executive
officers to achieve the performance measures or goals the Committee believes to
be in the best interests of the Company.
COMPENSATION COMMITTEE
J. Christopher Clifford, Chairman
Douglas J. Kahn
Harold Leppo
Theodore M. Ronick
Melvin M. Rosenblatt
64
Performance Graph
The following graph compares the cumulative total stockholder return (stock
price appreciation plus dividends) on the Company's Common Stock with the
cumulative total return of the NASDAQ Stock Market -- U.S. Index, and the Dow
Jones Retailer -- Specialty Apparel Index for the five years ending February 3,
2001.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG CASUAL MALE CORP., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE DOW JONES RETAILERS, APPAREL INDEX
[GRAPH]
* $100 INVESTED ON 2/3/96 IN STOCK OR ON 1/31/96 IN INDEX - INCLUDING
REINVESTMENT OF DIVIDENDS.
2/3/96 2/1/97 1/31/98 1/30/99 1/29/00 2/3/01
- ------------------------------------------------------------------------------------------------
Casual Male Corp. (f/k/a J. Baker, $100.00 $137.03 $ 90.46 $ 120.36 $ 115.19 $142.08
Inc.)
- ------------------------------------------------------------------------------------------------
Nasdaq Stock Market (U.S.) $100.00 $131.10 $ 154.68 $ 242.09 $ 378.32 $265.00
- ------------------------------------------------------------------------------------------------
Dow Jones Retailers-Specialty-Apparel $100.00 $123.07 $ 195.47 $ 329.33 $ 296.85 $346.28
- ------------------------------------------------------------------------------------------------
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of December 10, 2001,
with respect to the shares of Common Stock of the Company beneficially owned by
(i) any person who is known to the Company to be the beneficial owner of more
than 5% of the outstanding Common Stock of the Company, (ii) each Director of
the Company, (iii) each of the executive officers named in the Summary
Compensation Table and (iv) the current Directors and executive officers as a
group.
65
Amount and
Nature of
Name and (with respect to owners of 5% or more Beneficial Percent
of Common Stock) address Ownership(1) of Class
------------------------ ------------ --------
Putnam Investments, Inc........................................... 1,240,855(2) 8.7%
One Post Office Square
Boston, MA 02109
Dimensional Fund Advisors, Inc.................................... 1,168,872(3) 8.2%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
1,056,950(4)
Wynnefield Partners Small Cap Value LP............................ 7.4%
450 Seventh Avenue, Suite 509
New York, NY 10123
925,750(5)
Buckingham Capital Management Inc................................. 6.5%
630 Third Avenue - 6/th/ Floor
New York, NY 10017
887,800(6)
Schneider Capital Management Corporation.......................... 6.2%
460 E. Swedesford Road, Suite 1080
Wayne, PA 19087
840,930(7)
FMR Corp.......................................................... 5.6%
82 Devonshire Street
Boston, MA 02109
Sherman N. Baker.................................................. 382,264(8) 2.7%
J. Christopher Clifford........................................... 34,500(9) *
Douglas J. Kahn................................................... 26,500(10) *
Harold Leppo...................................................... 36,400(11) *
David Pulver...................................................... 113,693(12) *
Theodore M. Ronick................................................ 13,000(13) *
Melvin M. Rosenblatt.............................................. 38,600(14) *
Nancy Ryan........................................................ 18,500(10) *
Alan I. Weinstein................................................. 318,437(15) 2.2%
Stuart M. Glasser................................................. 394,350(16) 2.7%
Michael J. Fine................................................... 101,600(17) *
Elizabeth C. White................................................ 17,800(18) *
Directors and Executive Officers as a Group (13 persons).......... 1,484,467(19) 9.9%
_____________
* Less than 1%
66
(1) Unless otherwise noted each person has sole voting and investment
power with respect to such shares.
(2) Information based solely on Schedule 13G of Putnam Investments, LLC on
behalf of itself and Marsh & McLennan Companies, Inc., Putnam
Investment Management, LLC and The Putnam Advisory Company, LLC dated
February 13, 2001. The information provided indicates that Putnam
Investments, LLC, through its investment advisory subsidiaries, Putnam
Investment Management, LLC and The Putnam Advisory Company, LLC, have
shared dispositive power with respect to 611, 355 and 629,500 shares
respectively. The information provided also indicates that Putnam
Investments, LLC and The Putnam Advisory Company, LLC have shared
voting power with respect to 205,800 shares.
(3) Information based solely on Schedule 13G of Dimensional Fund Advisors,
Inc., dated February 2, 2001. The beneficial owner has reported that
it serves as investor advisor or manager to certain investment
companies and other co-mingled group trusts (the "Fund") and in such
capacity has sole voting and dispositive power over the shares owned
by the Fund.
(4) Information based solely on Amendment No. 2 to Schedule 13D of
Wynnefield Partners Small Cap Value, LP (the "Partnership"), on behalf
of itself, Wynnefield Partners Small Cap Value Offshore Fund, Ltd.
(the "Fund") and Wynnefield Partners Small Cap Value, L.P.I. (the
"Partnership-I") dated November 29, 2000. Such information indicates
that the Partnership has sole voting and dispositive power with
respect to 387,800 shares, the Fund has sole voting dispositive power
with respect to 191,300 shares and the Partnership-I has sole voting
and dispositive power with respect to 477,850 shares.
(5) Information based solely on Schedule 13G of Buckingham Capital
Management, Inc. dated May 7, 2001. The beneficial owner has reported
that it has sole voting and dispositive power with respect to all of
such shares.
(6) Information based solely on Schedule 13G of Schneider Capital
Management Corporation, dated February 9, 2001. The beneficial owner
has reported it has sole voting power with respect to 387,000 shares
and sole dispositive power with respect to 887,800 shares.
(7) Information based solely on Schedule 13G of FMR Corp., Edward C.
Johnson, III, Chairman of FMR Corp. and Abigail P .Johnson, a Director
of FMR Corp., dated June 11, 2001. The beneficial owner has reported
that it has sole voting power with respect to 16,124 shares and sole
dispositive power with respect to 840,930 shares. According to such
information, Mr. Johnson, Ms. Johnson and various Johnson family
members, through their ownership of voting common stock of FMR Corp.
and the execution of a shareholders' agreement, may be deemed to form
a controlling group with respect to FMR Corp. The information
indicates that Fidelity Management & Research Company ("Fidelity"), a
wholly owned subsidiary of FMR Corp., is the beneficial owner of
824,806 shares of the Company's Common Stock as a result of acting as
investment advisor to several registered investment companies (the
"Fidelity Funds") which represents shares of the Company's Common
Stock issuable upon the conversion of the Company's 7% Convertible
Subordinated Debentures (the "Convertible Notes"). Each of Mr. Johnson
and FMR Corp., through its control of Fidelity and the Fidelity Funds,
have sole dispositive power over such 829,806 shares. Neither Mr.
Johnson nor FMR Corp. has sole or shared voting power over such shares
as such power resides with the Boards of Trustees of the Fidelity
Funds and is carried out by Fidelity under written guidelines
established by the Boards of Trustees. In addition, the information
indicates that one investment company, Fidelity Equity -- Income Fund,
is the beneficial owner of 16,124 shares of the Company's Common
Stock. Such information further indicates that Fidelity Management
Trust Company ("Fidelity Trust"), a bank and a wholly owned subsidiary
of FMR Corp., is the beneficial owner of 16,124 shares of the
Company's Common Stock as a result of its serving as investment
manager of certain institutional accounts, all of which shares are
issuable upon conversion of the Company's Convertible Notes. Mr.
Johnson and FMR Corp., through its control of Fidelity Trust, each
have sole voting and sole dispositive power over all such shares and
notes.
(8) Includes currently exercisable options with respect to 3,396 shares.
(9) Includes 2,000 shares held by a charitable trust of which Mr. Clifford
is trustee and as to which Mr. Clifford disclaims beneficial ownership
and currently exercisable options with respect to 32,500 shares.
(10) Includes currently exercisable options with respect to 17,500 shares.
(11) Includes currently exercisable options with respect to 12,500 shares.
(12) Includes 67,193 shares and currently exercisable warrants to purchase
24,000 shares owned by Cornerstone Capital, Inc., a corporation of
which Mr. Pulver is the sole stockholder. Includes currently
exercisable options with respect to 22,500 shares.
(13) Includes 4,000 shares held by Mr. Ronick as trustee of a trust and
currently exercisable options with respect to 7,500 shares.
(14) Includes 1,000 shares owned by Mr. Rosenblatt's wife as to which Mr.
Rosenblatt disclaims beneficial ownership, currently exercisable
options with respect to 25,000 shares and 3,100 shares underlying
Convertible Notes, 1,550 shares of which are owned by Mr. Rosenblatt's
wife and as to which Mr. Rosenblatt disclaims beneficial ownership.
(15) Includes currently exercisable options with respect to 177,949 shares.
(16) Includes currently exercisable options with respect to 266,350 shares
and 25,000 shares subject to options that are exercisable within sixty
(60) days.
(17) Includes currently exercisable options with respect to 99,600 shares.
(18) Includes currently exercisable options with respect to 13,650 shares
and 2750 shares subject to options that are exercisable within sixty
(60) days.
67
(19) Includes currently exercisable options with respect to 664,523 shares,
30,625 shares subject to options that are exercisable within 60 days,
24,000 shares underlying currently exercisable warrants and 3,100
shares underlying Convertible Notes.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and Berkshire are parties to the Management Agreement. Mr.
Clifford is a managing director of Berkshire and a Director and stockholder of
the Company. The Management Agreement provides for an initial term of one year
with automatic extensions of one year unless otherwise terminated by either
party. Pursuant to the Management Agreement, Berkshire provides consulting and
management services to the Company in the areas of financial and strategic
corporate planning. In exchange for such services, the Company has agreed to pay
Berkshire a monthly fee of $5,000 plus expenses, subject to change by mutual
agreement for any extension of the Management Agreement. For the fiscal year
ended February 3, 2001, the Company paid Berkshire $60,000 for services under
the Management Agreement. The Company believes the terms of the Management
Agreement are as favorable as could be obtained from an unaffiliated entity.
The Company pays Greenberg, Rosenblatt, Kull & Bitsoli, P.C. $60,000
annually for consulting and management services provided to the Company in the
areas of financial and strategic corporate planning. Mr. Rosenblatt is a
principal of such firm and a Director and stockholder of the Company. The
Company believes the terms of this arrangement are as favorable as could be
obtained from an unaffiliated entity.
On July 8, 1998, Mr. Weinstein and Mr. Glasser were each granted a
performance based restricted stock award under the 1994 Plan for 50,000 shares
of the Company's common stock at a purchase price of $10.18 per share. Pursuant
to the awards, each of Mr. Weinstein and Mr. Glasser purchased the shares
underlying the awards and executed a promissory note in the amount of $509,000,
which notes originally provided for ratable forgiveness over five years provided
Mr. Weinstein and Mr. Glasser remain employed by the Company during such time.
During fiscal 2002, the notes were amended to defer the forgiveness of the
remaining balance until July 8, 2003, the expiration thereof. The awards
originally provided that if the twenty (20) day average trading price of the
Company's common stock culminating on the vesting date, September 15, 2000, was
less than $14.00 and $15.00 per share in the case of Mr. Weinstein and Mr.
Glasser, respectively, the Company shall have the right to repurchase a portion
of the shares, up to a maximum of 40,000 shares, at the lower of $10.18 per
share or the fair market value of such shares on the vesting date. During fiscal
2001, the Committee agreed to eliminate the Board's repurchase right in
consideration of each of Messrs. Weinstein's and Glasser's agreement to modify
the trading restrictions with respect to the Common Stock such that they will
lapse on a pro-rata basis annually on each anniversary of the date of the
forgivable promissory note.
The Company has entered into an agreement with Pro Media, Inc., an
advertising company of which Ms. Ryan is the President, pursuant to which Pro
Media provides advertising and media buying services to the Company.
Organizations such as Pro Media, Inc. typically receive a percentage of their
clients' advertising and media service expenditures as compensation for their
services. For the fiscal year ended February 3, 2001, the Company paid Pro Media
$106,687.00 for services under the Pro Media agreement. The Company believes the
terms of agreement are as favorable as could otherwise be obtained from an
unaffiliated entity
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements. The following documents are filed as part of this
--------------------
report:
1,2. The financial statements, notes thereto, and independent auditors'
report listed in the Index to Consolidated Financial Statements set
forth in Item 8.
3. Exhibits. The Exhibits listed in the Exhibit Index. Exhibits 10.11
--------
through 10.37 constitute all the management contracts and
compensation plans and arrangements of the Company required to be
filed as exhibits to this Annual Report.
(b) Reports on Form 8-K
-------------------
68
There were no current reports on Form 8-K filed during the fourth quarter of
fiscal 2001.
69
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 to be signed on
its behalf by the undersigned, thereunto duly authorized.
Casual Male Corp.
-----------------
(Registrant)
By /s/Elizabeth C. White By /s/ Alan I. Weinstein
-------------------------------- ------------------------------
Elizabeth C. White Alan I. Weinstein
First Senior Vice President Chief Executive Officer
and Principal Financial Officer
December 14, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
/s/Sherman N. Baker /s/J. Christopher Clifford
- ------------------------------------ ------------------------------------
Sherman N. Baker, Director J. Christopher Clifford, Director
/s/Douglas Kahn /s/Harold Leppo
- ------------------------------------ ------------------------------------
Douglas Kahn, Director Harold Leppo, Director
/s/David Pulver /s/Theodore M. Ronick
- ------------------------------------ ------------------------------------
David Pulver, Director Theodore M. Ronick, Director
/s/Melvin M. Rosenblatt /s/Nancy Ryan
- ------------------------------------ ------------------------------------
Melvin M. Rosenblatt, Director Nancy Ryan, Director
/s/Alan I. Weinstein /s/Stuart M. Glasser
- ------------------------------------ ------------------------------------
Alan I. Weinstein, Director Stuart M. Glasser, Director
All as of December 14, 2001
70
EXHIBITS
Filed with
Annual Report on Form 10-K
of
CASUAL MALE CORP.
555 Turnpike Street
Canton, MA 02021
For the Year Ended February 3, 2001
71
EXHIBIT INDEX
-------------
Exhibit Page No.
- ------- --------
3. Articles of Organization and By-Laws
------------------------------------
(.01) Amended and Restated Articles of Organization of the Company, *
as filed with the Secretary of the Commonwealth of Massachusetts
on September 26, 1990 (filed as Exhibit 3.01 to the Company's
Report on Form 10-K for the year ended February 2, 1991).
(.02) Articles of Amendment to Amended and Restated Articles of **
Organization of the Company as filed with the Secretary of the
Commonwealth of Massachusetts on February 26, 2001, attached.
(.03) By-Laws of the Company, as amended by the Board of Directors *
on September 11, 1990 (filed as Exhibit 19.01 to the Company's
Report on Form 10-Q for the quarter ended November 3, 1990).
4. Instruments Defining the Rights of Security Holders, Including Indentures
-------------------------------------------------------------------------
(.01) Indenture dated as of January 15, 1992 by and between Morse Shoe, *
Inc. and State Street Bank and Trust Company as Trustee with
respect to Convertible Subordinated Debentures due 2002 (filed as
Exhibit 4.12 to the Company's Report on Form 10-K for the year ended
January 30, 1993).
(.02) First Supplemental Indenture dated as of January 30, 1993 to *
the Indenture dated January 15, 1992 under which Convertible
Subordinated Debentures Due 2002 were issued by Morse Shoe, Inc.
(filed as Exhibit 4.01 to the Company's Report on Form 10-Q for the
quarter ended May 1, 1993).
(.03) Indenture dated as of June 12, 1992 by and between J. Baker, Inc. *
and State Street Bank and Trust Company as Trustee with respect to
7% Convertible Subordinated Notes due 2002 (filed as Exhibit
4.08 to the Company's Report on Form 10-Q for the quarter ended
August 1, 1992).
(.04) Shareholder Rights Agreement between J. Baker, Inc. and *
EquiServe Trust Company, N.A., dated as of December 15, 1994
(filed as Exhibit 4.01 to the Company's Report on Form 8-K dated
December 15, 1994).
(.05) Securities Purchase Agreement by and among J. Baker, Inc., *
JBI, Inc, and JBI Apparel, Inc. as Guarantor, and DLJ Fund
Investment Partners II, L.P. and others (the "Investor Group"),
as Purchasers, dated as of May 19, 1999 (filed as Exhibit 4.01 to
the Company's Report on Form 10-Q for the quarter ended May 1,
1999).
* Incorporated herein by reference
** Included herein
72
Exhibit Page No.
- ------- --------
(.06) Form of 13% Senior Subordinated Note dated as of May 21, 1999 (filed *
as Exhibit 4.02 to the Company's Report on Form 10-Q for the quarter
ended May 1, 1999).
(.07) Form of Warrant, dated as of May 21, 1999 (filed as Exhibit 4.03 to
the * Company's Report on Form 10-Q for the quarter ended May 1,
1999).
(.08) Guaranty by JBI, Inc. in favor of the Investor Group, *
dated as of May 21, 1999 (filed as Exhibit 4.04 to the
Company's Report on Form 10-Q for the quarter ended May 1, 1999).
(.09) Registration Rights Agreement by and among J. Baker, Inc., *
JBI, Inc. and JBI Apparel, Inc. and the Investor Group, dated as of
May 21, 1999 (filed as Exhibit 4.05 to the Company's Report on
Form 10-Q for the quarter ended May 1, 1999).
10. Material Contracts
------------------
(.01) Asset Purchase Agreement dated as of January 13, 1997 by and between *
Payless ShoeSource, Inc., JBI, Inc. and J. Baker, Inc. (filed as
Exhibit 2.2 to the Company's Report on Form 8-K dated March 20, 1997).
(.02) Asset Purchase Agreement by and among J. Baker, Inc. as Purchaser *
and Edison Brothers, Stores, Inc., Edison Brothers Apparel Stores, Inc.
and Repp Ltd. Big & Tall as Sellers, dated as of April 30, 1999 (filed as
Exhibit 10.01 to the Company's Report on Form 10-Q for the quarter
ended May 1, 1999).
(.03) Asset Purchase Agreement dated as of November 16, 2000 by and between *
J. Baker, Inc., JBI, Inc. Morse Shoe, Inc. and Footstar Corporation (filed as
Exhibit 10.01 to the Company's Report on Form 10-Q for the quarter
ended October 28, 2000).
(.04) Debtor in Possession Loan and Security Agreement by and among **
Casual Male Corp. (as Borrower's representative), JBI, Inc., Morse
Shoe, Inc., JBI Apparel, Inc., The Casual Male, Inc., WGS Corp.,
TCMB&T, Inc., LP Innovations, Inc., Spencer Companies, Inc., TCM
Holding Company, Inc., JBI Holding Company, Inc., Buckmin, Inc.,
Elm Equipment Corp., Isab, Inc., Morse Shoe International, Inc. and
White Cap Footwear, Inc. and Fleet Retail Finance Inc., et.al. and Back
Bay Capital Funding LLC, dated May 18, 2001, attached.
* Incorporated herein by reference
** Included herein
73
Exhibit Page No.
- ------- --------
(.05) First Amendment to Debtor in Possession Loan and Security Agreement by **
and among Casual Male Corp. (as Borrower's representative), JBI, Inc.,
Morse Shoe, Inc., JBI Apparel, Inc., The Casual Male, Inc., WGS Corp.,
TCMB&T, Inc., LP Innovations, Inc., Spencer Companies, Inc., TCM
Holding Company, Inc., JBI Holding Company, Inc., Buckmin, Inc.,
Elm Equipment Corp., Isab, Inc., Morse Shoe International, Inc. and
White Cap Footwear, Inc. and Fleet Retail Finance Inc. et.al. and Back Bay
Capital Funding LLC, effective as of July 18, 2001, attached.
(.06) Second Amendment to Debtor in Possession Loan and Security Agreement **
by and among Casual Male Corp. (as Borrower's representative), JBI, Inc.,
Morse Shoe, Inc., JBI Apparel, Inc., The Casual Male, Inc., WGS Corp.,
TCMB&T, Inc. LP Innovations, Inc., Spencer Companies, Inc., TCM
Holding Company, Inc., JBI Holding Company, Inc., Buckmin, Inc.,
Elm Equipment Corp., Isab, Inc., Morse Shoe International, Inc. and
White Cap Footwear, Inc. and Fleet Retail Finance Inc. et.al. and
Back Bay Capital Funding LLC, effective as of September 17, 2001, attached.
(.07) Chattel Promissory Note made by Morse Shoe, Inc., JBI, Inc., The *
Casual Male, Inc., WGS Corp. and TCMB&T, Inc. in favor of
BancBoston Leasing Inc. dated August 26, 1999 (filed as Exhibit 10.02 to the
Company's Report on Form 10-Q for the quarter ended July 31, 1999).
(.08) Master Security Agreement by Morse Shoe, Inc., JBI, Inc., The Casual *
Male, Inc., WGS Corp. and TCMB&T, Inc. in favor of BancBoston Leasing, Inc.
dated August 26, 1999 (filed as Exhibit 10.03 to the Company's Report on
Form 10-Q for the quarter ended July 31, 1999).
(.09) Security Agreement by Morse Shoe, Inc., JBI, Inc., The Casual *
Male, Inc., WGS Corp. and TCMB&T, Inc. in favor of BancBoston Leasing, Inc.
dated August 26, 1999 (filed as Exhibit 10.04 to the Company's Report on
Form 10-Q for the quarter ended July 31, 1999).
(.10) First Amendment to 1999 Master Security Agreement by and among BankBoston *
Leasing, Inc. and General Electric Capital Corporation, CIT Group, Inc. and Andover
Capital Group, Inc. and Morse Shoe, Inc., JBI Inc., The Casual Male, Inc., WGS
Corp. and TCMB&T, Inc. dated November 16, 2000 (filed as Exhibit 10.03 to the
Company's Report on Form 10-Q for the quarter ended October 28, 2000).
(.11) Executive Employment Agreement dated March 25, 1993 between Sherman N. *
Baker and J. Baker, Inc. (filed as Exhibit 10.01 to the Company's Report
on Form 10-Q for the quarter ended July 31, 1993).
(.12) Amendment to Executive Employment Agreement between J. Baker, Inc. and *
Sherman N. Baker, dated March 31, 1995 (filed as Exhibit 4.10 to the
Company's Report on Form 10-K for the year ended January 28, 1995).
(.13) Amendment to Executive Employment Agreement between J. Baker, Inc. and *
Sherman N. Baker, dated March 31, 1996 (filed as Exhibit 10.09 to the
Company's Report on Form 10-K for the year ended February 3, 1996).
* Incorporated herein by reference
** Included herein
74
Exhibit Page No.
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(.14) Third Amendment to Executive Employment Agreement between J. Baker, Inc. *
and Sherman N. Baker dated March 31, 1997 (filed as Exhibit 10.10 to
the Company's Report on Form 10-K for the year ended February 1, 1997).
(.15) Fourth Amendment to Executive Employment Agreement between J. Baker, Inc. *
and Sherman N. Baker dated March 31, 1998 (filed as Exhibit 10.01 to
the Company's Report on Form 10-Q for the quarter ended October 31, 1998).
(.16) Fifth Amendment to Executive Employment Agreement between J. Baker, Inc. *
and Sherman N. Baker dated April 10, 1999 (filed as Exhibit 10.21 to the
Company's Report on Form 10-K for the year ended January 30, 1999).
(.17) Sixth Amendment to Executive Employment Agreement between J. Baker, Inc. *
and Sherman N. Baker dated April 19, 2000 (filed as Exhibit 10.18 to the
Company's Report on Form 10-K for the year ended January 29, 2000).
(.18) Severance Compensation Agreement between Casual Male Corp. and Alan I. **
Weinstein effective as of August 22, 2001, attached.
(.19) Restricted Stock Award Agreement between Alan I. Weinstein and J. Baker, *
Inc., dated July 8, 1998 (filed as Exhibit 10.01 to the Company's Report
on Form 10-Q for the quarter ended August 1, 1998).
(.20) Forgivable Promissory Note made by Alan I. Weinstein in favor of J. Baker *
Inc., dated July 8, 1998, issued in connection with Restricted Stock
Award (filed as Exhibit 10.02 to the Company's Report on Form 10-Q
for the quarter ended August 1, 1998).
(.21) Letter Agreement dated December 28, 1999 between J. Baker, Inc.'s *
Compensation Committee and Alan I. Weinstein (filed as Exhibit 10.02 to
the Company's Report on Form 10-Q for the quarter ended April 29, 2000).
(.22) Letter Agreement dated as of December 12, 2000 between Casual Male Corp.'s **
Compensation Committee and Alan I. Weinstein, attached.
(.23) Letter Agreement dated as of July 1, 2001 between Casual Male **
Corp.'s Compensation Committee and Alan I. Weinstein, attached.
(.24) Severance Compensation Agreement between Casual Male Corp. and Stuart M. **
Glasser effective as of August 22, 2001, attached.
(.25) Restricted Stock Award Agreement between Stuart M. Glasser and J. Baker, *
Inc., dated July 8, 1998 (filed as Exhibit 10.03 to the Company's Report on
Form 10-Q for the quarter ended August 1, 1998).
(.26) Forgivable Promissory Note made by Stuart M. Glasser in favor of J. Baker *
Inc., dated July 8, 1998, issued in connection with Restricted Stock
Award (filed as Exhibit 10.04 to the Company's Report on Form 10-Q
for the quarter ended August 1, 1998).
(.27) Letter Agreement dated as of December 12, 2000 between Casual Male Corp.'s Compensation **
Committee and Stuart M. Glasser, attached.
* Incorporated herein by reference
** Included herein
75
Exhibit Page No.
- ------- --------
(.28) Letter Agreement dated as of July 1, 2001 between Casual Male Corp.'s **
Compensation Committee and Stuart M. Glasser, attached.
(.29) Executive Employment Agreement between J. Baker, Inc. and Michael J. *
Fine, dated September 9, 1998 (filed as Exhibit 10.01 to the Company's
Report on Form 10-Q for the quarter ended October 31, 1998).
(.30) First Amendment to Executive Employment Agreement between J. Baker, *
Inc. and Michael J. Fine, dated April 12, 1999 (filed as Exhibit 10.38 to
the Company's Report on Form 10-K for the year ended January 30, 1999).
(.31) Second Amendment to Executive Employment Agreement between J. Baker, *
Inc. and Michael J. Fine, dated April 4, 2000 (filed as Exhibit 10.36 to the
Company's Report on Form 10-K for the year ended January 29, 2000).
(.32) Severance Compensation Agreement between Casual Male Corp. **
and Elizabeth C. White, effective as of August 22, 2001, attached.
(.33) Severance Compensation Agreement between Casual Male Corp. **
and Jay M Scheiner effective as of August 22, 2001, attached.
(.34) J. Baker, Inc. Amended and Restated 1985 Stock Option Plan (filed *
as Exhibit 19.02 to the Company's Report on Form 10-Q for the quarter
ended August 1, 1992).
(.35) J. Baker, Inc. 1994 Equity Incentive Plan dated March 29, 1994 *
(filed as Exhibit 10.23 to the Company's Report on Form 10-K
for the year ended January 29, 1994).
(.36) J. Baker, Inc. 1992 Directors Stock Option Plan dated April 13, 1992 *
(filed as Exhibit 19.03 to the Company's Report on Form 10-Q
for the quarter ended August 1, 1992).
(.37) Retention Plan dated as of August 22, 2001, attached. **
(.38) Mortgage and Security Agreement by JBAK Canton Realty, Inc. to *
The Chase Manhattan Bank dated as of December 30, 1996 (filed as
Exhibit 10.69 to the Company's Report on Form 10-K for the year
ended February 1, 1997).
11. Statement re: Computation of Net Earnings Per Common **
-----------------------------------------------------
Share, attached.
-----
12. Statement re: Computation of Ratio of Earnings to Fixed Charges, **
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attached.
21. Subsidiaries of the Registrant, attached. **
------------------------------
23. Consent of KPMG LLP, attached. **
-------------------
* Incorporated herein by reference
** Included herein
76
* Incorporated herein by reference
** Included herein
77