United States Securities and Exchange Commission
Washington, DC 20549
FORM 10 - Q
x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended November 1, 1997
or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number 0-23874
Jos. A. Bank Clothiers, Inc.
Delaware 5611 36-3189198
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(State incorporation) (Primary Standard (I.R.S. Employer
Industrial Identification
Classification Number)
Code Number)
500 Hanover Pike, Hampstead, MD 21074-2095
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none
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(Former name or former address, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class Outstanding as of December 11, 1997
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Common stock. $.01 par value 6,791,152
Jos. A. Bank Clothiers, Inc.
Index
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Part I. Financial Information Page No.
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Item 1. Financial Statements
Condensed Consolidated Statements 3
of Income - Three and Nine Months
ended November 1, 1997 and
November 2, 1996
Condensed Consolidated Balance 4
Sheets - as of November 1, 1997 and
February 1, 1997
Condensed Consolidated Statements 5
of Cash Flows -Nine Months
ended November 1, 1997 and
November 2, 1996
Notes to Condensed Consolidated 6-7
Financial Statements
Item 2. Management's Discussion and Analysis 8-11
of Results of Operations and
Financial Condition
Part II. Other Information
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Item 6. Exhibits and Reports on Form 8-K 12
(a) Exhibits - Exhibit 27-Financial Data
Schedule (EDGAR filing only)
Signatures 13
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2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In thousands except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
--------------------- ------------------------
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
1997 1996 1997 1996
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Net sales $41,536 $36,817 $119,721 $107,933
Costs and expenses:
Cost of goods sold 21,509 19,542 62,674 58,599
General and administrative 4,653 3,588 13,357 11,806
Sales and marketing 13,821 12,847 39,900 36,478
Store opening costs 134 - 134 -
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40,117 35,977 116,065 106,883
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Operating income 1,419 840 3,656 1,050
Interest expense, net 738 662 1,995 1,414
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Income (loss) before provision
for income taxes 681 178 1,661 (364)
Provision for income taxes 279 69 681 (142)
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Net income (loss) $ 402 $ 109 $ 980 $ (222)
======= ======= ======== ========
Per share information:
Net income (loss) per share $ 0.06 $ 0.02 $ 0.14 $ (0.03)
======= ======= ======== ========
Weighted average number of
shares outstanding 6,889 6,828 6,846 6,790
======= ======= ======== ========
See accompanying notes.
3
JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
(In thousands) (Unaudited)
November 1, February 1,
1997 1997
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ASSETS
Current Assets:
Cash and cash equivalents $ 2,050 $ 719
Accounts receivable 4,474 3,300
Inventories:
Raw materials 3,266 4,062
Work-in-process 5,676 4,717
Finished goods 41,585 32,104
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Total inventories 50,527 40,883
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Prepaid expenses and other
current assets 4,763 4,874
Deferred and refundable income taxes 3,200 3,200
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Total current assets 65,014 52,976
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Property, plant and equipment,
at cost 50,042 48,078
Accumulated depreciation and
amortization (26,747) (25,238)
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Net property, plant and equipment 23,295 22,840
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Deferred income taxes 3,456 4,083
Other assets 1,031 1,511
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Total Assets $ 92,796 $ 81,410
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 14,593 $ 12,357
Accrued expenses 10,236 10,484
Current portion of long-term debt 2,104 1,504
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Total current liabilities 26,933 24,345
Long-term liabilities 29,184 21,366
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Total liabilities 56,117 45,711
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Shareholders' equity:
Common stock 70 70
Additional paid-in capital 56,336 56,336
Accumulated deficit (17,807) (18,787)
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38,599 37,619
Less treasury stock (1,920) (1,920)
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Total shareholders' equity 36,679 35,699
Total liabilities and shareholders' equity $ 92,796 $ 81,410
========= ==========
See accompanying notes.
4
JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
Nine Months Ended
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November 1, November 2,
1997 1996
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Cash flows from operating activities:
Net income (loss) $ 980 $ (222)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Decrease in deferred taxes 627 3,619
Depreciation and amortization 2,831 2,929
Net (increase) decrease in operating
working capital (8,623) 995
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Net cash provided by (used in) operating activities (4,185) 7,321
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Cash flows from investing activities:
Additions to property, plant and equipment (3,194) (599)
Proceeds from disposal of assets - 873
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Net cash provided by (used in)
investing activities (3,194) 274
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Cash flows from financing activities:
Borrowings under long-term Credit Agreement 31,379 21,527
Repayment under long-term Credit Agreement (22,756) (28,629)
Changes in other long-term debt, net 87 (727)
Payments related to debt financing - (147)
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Net cash provided by (used in) financing activities 8,710 (7,976)
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Net increase (decrease) in cash and cash equivalents 1,331 (381)
Cash and cash equivalents - beginning of period 719 644
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Cash and cash equivalents - end of period $ 2,050 $ 263
=========== =========
See accompanying notes.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
Jos. A. Bank Clothiers, Inc. (the Company) is a manufacturer and
nationwide retailer of classic men's clothing through conventional retail
stores and catalog direct marketing. The consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
The results of operations for the interim periods shown in this report are
not necessarily indicative of results to be expected for the fiscal year.
In the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim
periods a fair statement of such operations. These adjustments are of a
normal recurring nature.
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form
10-Q. Therefore, these financial statements should be read in conjunction
with the Company's February 1, 1997 Annual Report on Form 10-K.
2. SIGNIFICANT ACCOUNTING POLICIES
Inventories are stated at the lower of first-in, first-out, cost or market.
The Company capitalizes into inventories certain warehousing and delivery
costs associated with getting its manufactured and purchased inventory to
the point of sale.
Costs related to mail order catalogs and promotional materials are included
in prepaid expenses and other current assets. These costs are amortized
over the expected periods of benefit, not to exceed six months.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 - Accounting for Income Taxes (SFAS
109). This standard requires, among other things, recognition of future tax
benefits, measured by enacted tax rates attributable to deductible
temporary differences between financial statement and income tax basis of
assets and liabilities and to tax net operating loss carryforwards, to the
extent that realization of such benefits is more likely than not.
6
3. WORKING CAPITAL
The net change in operating working capital is composed of the following:
Nine Months Ended
-------------------------
Nov 1, Nov. 2,
1997 1996
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(in thousands)
Increase in accounts receivable $ (1,174) $ (1,904)
Increase in inventories (9,644) (484)
Decrease in prepaids and other assets 419 103
Increase in accounts payable 2,236 4,212
Decrease in accrued expenses and other liabilities (460) (932)
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Net (increase) decrease in operating working capital $ (8,623) $ 995
======== =========
4. FINANCING
In September, 1997, the Company amended its Credit Agreement (the "Credit
Agreement") with its primary lender to extend the Credit Agreement to April
2001 and which includes an additional term loan facility of $4,000,000
payable in monthly installments plus interest based on a five-year
amortization with any outstanding balance due in April 2001. The Credit
Agreement also includes financial covenants concerning net worth and EBITDA
coverage, among others, and limitations on capital expenditures and
additional indebtedness and a restriction on the payment of dividends.
Interest rates under the Credit Agreement range from prime to prime plus
2.0% or LIBOR plus 2.0% to LIBOR plus 3.5% depending on the EBITDA coverage
ratio. At November 1, 1997, the interest rate on the $4,000,000 term loan
and revolving portions of the Credit Agreement were 8.9% and 7.9%,
respectively. The Credit Agreement also includes an early termination fee
and provisions for a seasonal over-advance. Substantially all assets of the
Company are collateralized under the Credit Agreement.
5. RIGHTS OFFERING
In September, 1997, the Company adopted a Stockholder Rights Plan in which
preferred stock purchase rights were distributed as a dividend at the rate
of one Right for each share of Jos. A. Bank's outstanding Common Stock held
as of the close of business on September 30, 1997. Each Right will entitle
stockholders to buy one one-hundredth of a share of the newly designated
Series A Preferred Stock of Jos. A. Bank at an exercise price of $40. The
Rights will be exercisable only if a person or group acquires beneficial
ownership of 20 percent or more of the Company's outstanding Common Stock
(without the approval of the board of directors) or commences a tender or
exchange offer upon consummation of which a person or group would
beneficially own 20 percent or more of the Company's outstanding Common
Stock.
If any person becomes the beneficial owner of 20 percent or more of the
Company's outstanding common stock (without the approval of the board of
directors), or if a holder of 20 percent or more of the Company's common
stock engaged in certain self-dealing transactions
7
or a merger transaction in which the Company is the surviving corporation
and its Common Stock remains outstanding, then each Right not owned by such
person or certain related parties will entitle its holder to purchase, at
the Right's then-current exercise price, units of the Company's Series A
Preferred Stock (or, in certain circumstances, common stock, cash, property
or other securities of the Company) having a market value equal to twice
the then-current exercise price of the Rights. In addition, if the Company
is involved in a merger or other business combination transaction with
another person after which its common stock does not remain outstanding, or
sells 50 percent or more of its assets or earning power to another person,
each Right will entitle its holder to purchase, at the Right's then-current
exercise price, shares of common stock of such other person having a market
value equal to twice the then-current exercise price of the Rights.
The Company will generally be entitled to redeem the Rights at $.01 per
Right at any time until the tenth business day following the public
announcement that a person or group has acquired 20 percent or more of the
Company's common stock.
6. NEW ACCOUNTING STANDARDS
During early 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which becomes effective for fiscal years ending
after December 15, 1997, and as to which early adoption is not permitted.
Under SFAS No. 128, a company will be required to disclose basic earnings
per share (with the principal difference from current disclosure being that
common stock equivalents will not be considered in the compilation of basic
earnings per share) and diluted earnings per share. The adoption of this
pronouncement will require restatement of all prior period earnings per
share data presented; however, the Company does not expect this change to
be material to the historical earnings per share.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto and with the
Company's audited financial statements and notes thereto for the fiscal year
ended February 1, 1997.
Overview - The Company' net income for the quarter ended November 1, 1997
increased to $.4 million or $.06 per share compared to net income of $.1 million
or $.02 per share for the same period last year. For the nine months ended
November 1, 1997, net income increased to $1.0 million or $0.14 per share
compared to a net loss of $.2 million or $0.03 per share last year. This
improvement was due primarily to higher gross profit and increases in total
sales resulting from new store openings and increased comparable store sales.
The Company's expansion strategy, which includes clustering new stores in
existing markets, continues to perform well. Eight new stores were opened in
existing markets during 1997 with two new stores in the second quarter, four new
stores in the third quarter and two new stores in the fourth quarter. (Refer to
"Liquidity and Capital Resources" for a discussion of the Company's store
expansion strategy.)
8
In September, 1997, the Company amended its Credit Agreement to extend the term
to April, 2001 and obtained an additional $4 million term loan facility which
will be used to finance the opening of new stores.
Results of Operations - The following table is derived from the Company's
condensed consolidated statements of income and sets forth, for the periods
indicated, the items included in the condensed consolidated statements of
income, expressed as a percentage of net sales.
Percentage of Net Sales Percentage of Net Sales
Three Months Ended Nine Months Ended
----------------------- -----------------------
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
1997 1996 1997 1996
------- ------- ------- -------
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 51.8 53.1 52.4 54.3
----- ----- ----- -----
Gross profit 48.2 46.9 47.6 45.7
General and administrative expenses 11.2 9.8 11.2 10.9
Sales and marketing expenses 33.3 34.9 33.3 33.8
Store opening costs .3 -- .1 --
----- ----- ----- -----
Operating income 3.4 2.3 3.1 1.0
Interest expense, net 1.8 1.8 1.7 1.3
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Income (loss) before income taxes 1.6 .5 1.4 (.3)
Provision (benefit) for income taxes 0.6 .2 0.6 (.1)
----- ----- ----- -----
Net income (loss) 1.0% 0.3% 0.8% (0.2)%
===== ===== ===== =====
Net Sales - Total sales increased 12.8 percent to $41.5 million in the third
quarter of 1997 from $36.8 million in the same period last year. Total sales for
the first nine months of 1997 increased 10.9 percent to $119.7 million compared
to $107.9 million in the same period last year. Comparable store sales increased
2.0 percent during the third quarter and 3.5 percent for the nine months ended
November 1, 1997. Catalog sales for the third quarter of 1997 were consistent
with the sales in the third quarter of 1997 on comparable circulation, while
catalog sales increased 28% for the nine months ended November 1, 1997 on a 21%
increase in circulation.
Cost of Goods Sold - Gross profit improved by 130 and 190 basis points for the
third quarter and first nine months of 1997, respectively compared to the same
periods in the prior year, with all product categories showing improved results.
This improvement was due primarily to strong consumer demand, improved aging of
inventory and improved sourcing of products.
General and Administrative Expenses - General and administrative expenses
increased to 11.2 percent of sales in the third quarter of 1997 compared to 9.8
percent in the third quarter of 1996. The increase relates primarily to a)
professional fees for a rights offering that was completed in September, 1997,
b) an incentive credit in 1996 related to the relocation of a store, and c)
professional fees for a store expansion study along with union and other legal
matters.
9
Sales and Marketing Expenses - Sales and marketing expenses (which include store
and catalog payroll, advertising, rent, depreciation, among others, decreased as
a percentage of sales in the third quarter and nine months ended November 1,
1997, primarily as a result of increased leverage of advertising costs in the
markets where stores have been added and a reduction in store payroll costs.
Interest Expense - Interest expense increased $.1 million in the third quarter
ended November 1, 1997 as the Company obtained a $4 million term loan in
September, 1997 to finance new store openings in late 1997 and 1998. The
increase was partially offset by a lower interest rate compared to 1996.
Excluding $.6 million of interest income related to an income tax refund
received in the second quarter of 1996 from the Company's pre-1996 parent,
interest expense was comparable in the nine months ended November 1, 1997
compared to the nine months ended November 2, 1996.
Income Taxes - The Company has net tax operating loss carryforwards (NOLs) of
approximately $20 million which expire through 2011. The NOLs were generated
during periods in which the Company operated its women's business along with the
men's business, primarily in fiscal 1995. In 1995, the Company discontinued its
women's business to focus its efforts on its men's business. Realization of the
future tax benefits of the NOLs is dependent on the Company's ability to
generate taxable income within the carryforward period. Management has
determined, based on the Company's history of earnings, its recent operating
results and growth plans, that future earnings of the Company will more likely
than not be sufficient to utilize at least $15 million of the NOLs prior to
their expiration. Accordingly, the Company has recorded a deferred tax asset of
$5.8 million and a valuation allowance of $1.4 million relating to the NOLs.
The average minimum taxable income that the Company would need to generate prior
to the expiration of the NOLs would be less than the average taxable income that
the Company earned during fiscal years 1992 through 1994, as adjusted for
unusual charges. Management believes that although the recent earnings and
estimated future earnings might justify a higher amount, the $5.8 million
represents a reasonable estimate of the future utilization of the NOLs and will
continue to evaluate the likelihood of future profit and the necessity of future
adjustments to the deferred tax asset valuation allowance. No assurance can be
given that sufficient taxable income will be generated for full utilization of
the NOLs.
Liquidity and Capital Resources - At November 12, 1997 the Company had
outstanding borrowings of $20.9 million with $18.8 million of availability under
its Credit Agreement compared to borrowings of $21.7 million and availability of
$15.5 million at the same time last year. The increase in outstanding borrowings
was generated primarily by higher inventory levels and capital expenditures to
support new store openings.
10
The following table summarizes the Company's sources and uses of funds as
reflected in the condensed consolidated statements of cash flows:
Nine Months Ended
------------------------
Nov. 1, Nov. 2,
Cash provided by (used in): 1997 1996
-------- --------
Operating activities $(4,185) $ 7,321
Investing activities (3,194) 274
Financing activities 8,710 (7,976)
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Net increase (decrease) in cash and cash equivalents $ 1,331 $ (381)
======= =======
Cash used by operating activities was due primarily to higher inventory levels
to support new stores and to add product categories. Cash used in investing
activities relates primarily to the opening of new stores and for display
fixtures to improve merchandise presentations in our existing stores. Cash
provided by financing activities represents primarily borrowings on the
revolving loan and the new $4 million term loan under the Credit Agreement.
The Company expects to spend between $5.0 and $7.0 million in capital
expenditures in 1998, primarily to open twelve to fifteen new stores and to
relocate existing stores. The store expansion program is being financed through
operations and the Credit Agreement. The Company believes that its current
liquidity and its recently extended Credit Agreement will be adequate to support
its current working capital and investment needs.
The Company also expects to open at least 20 additional stores beyond 1998,
mostly in existing markets. The Company believes that its existing markets can
support these additional stores which will provide leverage for its management,
distribution, advertising and sourcing infrastructure. Further expansion beyond
1998 may necessitate revised financing arrangements for the Company. To support
this growth, the Company expects to upgrade certain information systems in 1998
and 1999.
The Company's plans and beliefs concerning 1997 contained herein are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may differ materially from those
forecast due to a variety of factors that can adversely affect the Company's
operating results, liquidity and financial condition, including the availability
of additional store sites, the performance of its suppliers, and general
economic conditions.
11
PART 2. OTHER INFORMATION
Item 6. Exhibit
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(a) Exhibit 27 - Financial Data Schedule
12
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: December 12, 1997 Jos. A. Bank Clothiers, Inc.
(Registrant)
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David E. Ullman
Executive Vice President, Chief Financial Officer
13