United States Securities and Exchange Commission
Washington, DC 20549
FORM 10-Q
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þ
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the quarterly period ended May 1, 2010.
or
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o
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Commission File Number 0-23874
Jos. A. Bank Clothiers, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of incorporation or organization)
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36-3189198
(I.R.S. Employer Identification Number)
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500 Hanover Pike, Hampstead, MD
(Address of Principal Executive Offices)
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21074-2095
(Zip Code)
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410-239-2700
(Registrants telephone number including area code)
None
(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
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company (See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange
Act)(check one):
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Large accelerated filer
o
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Accelerated filer
þ
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Non-accelerated filer
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(Do not check if smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act):
Yes
o
No
þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date:
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Class
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Outstanding as of May 26, 2010
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Common Stock, $.01 par value
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18,351,162
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JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES
2
PART I. FINANCIAL INFORMATION
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Item 1.
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Unaudited Condensed Consolidated Financial Statements
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JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In thousands except per share data)
(Unaudited)
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Three Months Ended
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May 2, 2009
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May 1, 2010
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Net sales
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$
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161,925
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$
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178,125
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Cost of goods sold
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63,471
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64,809
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Gross profit
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98,454
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113,316
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Operating expenses:
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Sales and marketing, including occupancy costs
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64,945
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70,519
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General and administrative
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14,660
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16,736
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Total operating expenses
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79,605
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87,255
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Operating income
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18,849
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26,061
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Other income (expense):
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Interest income
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69
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115
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Interest expense
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(98
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(90
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)
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Total other income (expense)
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(29
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)
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25
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Income before provision for income taxes
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18,820
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26,086
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Provision for income taxes
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7,365
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10,278
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Net income
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$
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11,455
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$
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15,808
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Per share information:
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Earnings per share:
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Basic
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$
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0.63
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$
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0.86
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Diluted
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$
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0.62
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$
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0.85
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Weighted average shares outstanding:
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Basic
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18,291
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18,351
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Diluted
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18,504
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18,545
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See accompanying notes.
3
JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In Thousands)
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January 30, 2010
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May 1, 2010
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(Audited)
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(Unaudited)
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ASSETS
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CURRENT ASSETS:
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Cash and cash equivalents
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$
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21,853
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$
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46,649
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Short-term investments
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169,736
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139,689
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Accounts receivable, net
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5,860
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15,481
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Inventories:
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Finished goods
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209,443
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213,364
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Raw materials
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8,878
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8,838
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Total inventories
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218,321
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222,202
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Prepaid expenses and other current assets
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16,035
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16,303
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Total current assets
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431,805
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440,324
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NONCURRENT ASSETS:
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Property, plant and equipment, net
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124,139
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126,259
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Other noncurrent assets
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420
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524
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Total assets
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$
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556,364
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$
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567,107
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LIABILITIES AND STOCKHOLDERS EQUITY
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CURRENT LIABILITIES:
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Accounts payable
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$
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18,225
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$
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30,701
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Accrued expenses
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85,256
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69,665
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Deferred tax liability current
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5,064
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5,064
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Total current liabilities
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108,545
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105,430
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NONCURRENT LIABILITIES:
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Deferred rent
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51,853
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50,582
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Deferred tax liability noncurrent
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1,608
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795
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Other noncurrent liabilities
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1,048
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1,182
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Total liabilities
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163,054
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157,989
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COMMITMENTS AND CONTINGENCIES
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STOCKHOLDERS EQUITY:
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Common stock
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183
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183
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Additional paid-in capital
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83,249
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83,249
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Retained earnings
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309,823
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325,631
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Accumulated other comprehensive income
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55
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55
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Total stockholders equity
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393,310
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409,118
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Total liabilities and stockholders equity
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$
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556,364
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$
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567,107
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See accompanying notes.
4
JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
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Three Months Ended
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May 2, 2009
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May 1, 2010
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Cash flows from operating activities:
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Net income
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$
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11,455
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$
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15,808
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Adjustments
to reconcile net income to net cash used in operating activities:
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Depreciation and amortization
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5,433
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5,856
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Loss on disposals of property, plant and equipment
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36
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23
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Increase (decrease) in deferred taxes
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192
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(813
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Net increase in operating working capital and other components
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(23,066
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(22,147
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Net cash used in operating activities
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(5,950
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(1,273
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Cash flows from investing activities:
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Capital expenditures
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(4,942
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(3,978
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Proceeds from disposal of fixed assets
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Net proceeds from short-term investments
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30,047
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Net cash provided by (used in) investing activities
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(4,942
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26,069
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Cash flows from financing activities:
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Income tax benefit from exercise of stock options
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Net proceeds from exercise of stock options
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Net cash provided by financing activities
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Net increase (decrease) in cash and cash equivalents
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(10,892
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24,796
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Cash and cash equivalents beginning of period
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122,875
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21,853
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Cash and cash equivalents end of period
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$
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111,983
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$
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46,649
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See accompanying notes.
5
JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in Thousands Except Per Share Amounts and the Number of Stores, or as Otherwise Noted)
1. BASIS OF PRESENTATION
Jos. A. Bank Clothiers, Inc. (the Company) is a nationwide designer, manufacturer,
retailer and direct marketer (through stores, catalog and Internet) of mens tailored and
casual clothing and accessories. The condensed consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All 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 the operating results for
these periods. These adjustments are of a normal recurring nature.
The Company operates on a 52-53 week fiscal year ending on the Saturday closest to
January 31. The following fiscal years ended or will end on the dates indicated and will be
referred to herein by their fiscal year designations:
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Fiscal year 2005
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January 28, 2006
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Fiscal year 2006
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February 3, 2007
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Fiscal year 2007
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February 2, 2008
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Fiscal year 2008
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January 31, 2009
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Fiscal year 2009
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January 30, 2010
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Fiscal year 2010
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January 29, 2011
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Each fiscal year noted above consists of 52 weeks except fiscal year 2006, which
consisted of 53 weeks.
The accompanying unaudited condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles in the United States of America
(GAAP) for interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X and therefore do not include all of the information and footnotes
required by GAAP for comparable annual financial statements. 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 Companys Annual Report on Form 10-K for fiscal year 2009.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents include bank deposit
accounts, money market accounts and other highly liquid investments with original maturities
of 90 days or less. At May 1, 2010, substantially all of the cash and cash equivalents was
invested in U.S. Treasury bills with original maturities of 90 days or less and overnight
federally-sponsored agency notes.
Short-term Investments
Short-term investments consist of investments in
securities with maturities of less than one year, excluding investments with original
maturities of 90 days or less. At May 1, 2010, short-term investments consisted solely of
U.S. Treasury bills with remaining maturities ranging from three to eleven months. These
investments are classified as held-to-maturity and their market values approximate their
carrying values.
Inventories
The Company records inventory at the lower of cost or market
(LCM). Cost is determined using the first-in, first-out method. The Company capitalizes into
inventory certain warehousing and freight delivery costs associated with shipping its
merchandise to the point of sale. The Company periodically reviews quantities of inventories
on hand and compares these amounts to the expected sales of each product. The Company records
a charge to cost of goods sold for the amount required to reduce the carrying value of
inventory to net realizable value.
6
Vendor Rebates
The Company receives credits from vendors in connection with
inventory purchases. The credits are separately negotiated with each vendor. Substantially all
of these credits are earned in one of two ways: a) as a fixed percentage of the purchase price
when an invoice is paid or b) as an agreed-upon amount in the month a new store is opened.
There are no contingent minimum purchase amounts, milestones or other contingencies that are
required to be met to earn the credits. The credits described in a) above are recorded as
a reduction to inventories in the Consolidated Balance Sheets as the inventories are purchased
and the credits described in b) above are recorded as a reduction to inventories as new stores
are opened. In both cases, the credits are recognized as reductions to cost of goods sold as
the product is sold.
Landlord Contributions
The Company typically receives reimbursement from
landlords for a portion of the cost of leasehold improvements for new stores and,
occasionally, for renovations and relocations. These landlord contributions are initially
accounted for as an increase to deferred rent and as an increase to prepaid expenses and other
current assets when the related store is opened. When collected, the Company records cash and
reduces the prepaid expenses and other current assets account. The collection of landlord
contributions is presented in the Condensed Consolidated Statements of Cash Flows as an
operating activity. The deferred rent is amortized over the lease term in a manner that is
consistent with the Companys policy to straight-line rent expense over the term of the lease.
The amortization is recorded as a reduction to sales and marketing expense which is consistent
with the classification of lease expense.
Recently Issued Accounting Standards
In June 2009, the Financial Accounting
Standards Board (FASB) issued FASB Accounting Standards Codification (ASC) effective for
financial statements issued for interim and annual periods ending after September 15, 2009. The
ASC is an aggregation of previously issued authoritative GAAP in one comprehensive set of
guidance organized by subject area. In accordance with the ASC, references to previously issued
accounting standards have been replaced by ASC references. Subsequent revisions to GAAP will be
incorporated into the ASC through Accounting Standards Updates (ASU).
In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements
(ASU 2009-13). ASU 2009-13 addresses revenue recognition of multiple-element sales
arrangements. It establishes a selling price hierarchy for determining the selling price of
each product or service, with vendor-specific objective evidence (VSOE) at the highest level,
third-party evidence of VSOE at the intermediate level, and a best estimate at the lowest
level. It replaces fair value with selling price in revenue allocation guidance. It also
significantly expands the disclosure requirements for such arrangements. ASU 2009-13 will be
effective prospectively for sales entered into or materially modified in fiscal years beginning
on or after June 15, 2010, with early adoption permitted. The Company is currently evaluating
the impact ASU 2009-13 will have on its consolidated financial statements.
7
3. SUPPLEMENTAL CASH FLOW DISCLOSURE
The net changes in operating working capital and other components consist of the
following:
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Three Months Ended
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May 2, 2009
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May 1, 2010
|
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Increase in accounts receivable
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$
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(2,163
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)
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$
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(9,621
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)
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Increase in inventories
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(826
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)
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(3,881
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)
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(Increase) decrease in prepaids and other assets
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937
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(372
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)
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Increase (decrease) in accounts payable
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(3,815
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)
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12,476
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Decrease in accrued expenses
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(16,558
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)
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(19,612
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)
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Decrease in deferred rent and other noncurrent liabilities
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(641
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)
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|
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(1,137
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)
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|
|
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Net increase in operating working capital and other components
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$
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(23,066
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)
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$
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(22,147
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)
|
|
|
|
|
|
|
|
Interest and income taxes paid were as follows:
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|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
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|
|
May 2, 2009
|
|
|
May 1, 2010
|
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|
|
|
|
|
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Interest paid
|
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$
|
92
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$
|
86
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|
Income taxes paid
|
|
$
|
19,490
|
|
|
$
|
26,585
|
|
As of May 2, 2009 and May 1, 2010, included in Property, plant and equipment, net
and Accrued expenses in the Condensed Consolidated Balance Sheets are $2.2 million and $4.6
million, respectively, of accrued property, plant and equipment additions that have been
incurred but not completely invoiced by vendors, and therefore, not paid by the respective
period-ends. The net changes in these amounts are excluded from payments for capital expenditures and changes in
accrued expenses in the Condensed Consolidated Statements of Cash Flows.
4. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the weighted average
number of common shares outstanding for the period. Diluted earnings per share is calculated
by dividing net income by the diluted weighted average common shares, which reflects the
potential dilution of stock options. The weighted average shares used to calculate basic and
diluted earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
May 2, 2009
|
|
|
May 1, 2010
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding for basic EPS
|
|
|
18,291
|
|
|
|
18,351
|
|
Dilutive effect of common stock
equivalents
|
|
|
213
|
|
|
|
194
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding for diluted EPS
|
|
|
18,504
|
|
|
|
18,545
|
|
|
|
|
|
|
|
|
The Company uses the treasury stock method for calculating the dilutive effect of
stock options. For the quarters ended May 1, 2010 and May 2, 2009, there were no
anti-dilutive options.
8
5. INCOME TAXES
Income taxes are accounted for under the asset and liability method in accordance with
FASB ASC 740, Income Taxes, (ASC 740), formerly SFAS No. 109, Accounting for Income
Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and tax credit carry
forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the Consolidated Statements of Income in the period that includes the
enactment date.
The Company accounts for uncertainties in income taxes pursuant to ASC 740, formerly FASB
Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes, which clarifies
the accounting for uncertainty in income taxes recognized in the financial statements under
SFAS 109. The Company recognizes tax liabilities for uncertain income tax positions
(unrecognized tax benefits) pursuant to ASC 740 where an evaluation has indicated that it is
more likely than not that the tax positions will not be sustained in an audit. The Company
estimates the unrecognized tax benefits as the largest amount that is more than 50% likely to
be realized upon ultimate settlement. The Company reevaluates these uncertain tax positions on
a quarterly basis or when new information becomes available to management. The reevaluations
are based on many factors, including but not limited to, changes in facts or circumstances,
changes in tax law, successfully settled issues under audit, expirations due to statutes of
limitations, and new federal or state audit activity. The Company also recognizes accrued
interest and penalties related to these unrecognized tax benefits which are included in the
provision for income taxes in the Condensed Consolidated Statements of Income.
The effective income tax rate for the first quarter of fiscal year 2010 was 39.4% as
compared with 39.1% for the first quarter of fiscal year 2009. The increase is primarily
related to higher state taxes in fiscal year 2010.
The Company files a federal income tax return and state and local income tax returns in
various jurisdictions. The Internal Revenue Service (IRS) has audited tax returns through
fiscal year 2005, including its examination of the tax return for fiscal year 2005 in fiscal
year 2008. No significant adjustments were required to the fiscal year 2005 tax return as a
result of the examination by the IRS. In November 2009, the IRS began an examination of the
Companys tax returns for fiscal years 2007 and 2008, which is currently in progress. For the
years before fiscal year 2006, the majority of the Companys state and local income tax returns are
no longer subject to examinations by taxing authorities.
6. SEGMENT REPORTING
The Company has two reportable segments: Stores and Direct Marketing. The Stores segment
includes all Company-owned stores excluding outlet stores (Full-line Stores). The Direct
Marketing segment includes the Companys catalog call center and Internet operations. While
each segment offers a similar mix of mens clothing to the retail customer, the Stores segment
also provides complete alterations, while the Direct Marketing segment provides certain
limited alterations.
The accounting policies of the segments are the same as those described in the summary of
significant policies. The Company evaluates performance of the segments based on four wall
contribution, which excludes any allocation of overhead from the corporate office and the
distribution centers (except order fulfillment costs, which are allocated to Direct
Marketing), interest and income taxes.
The Companys segments are strategic business units that offer similar products to the
retail customer by two distinctively different methods. In the Stores segment, a typical
customer travels to the store and purchases mens clothing and/or alterations and takes the
purchases with him or her. The Direct Marketing customer receives a catalog in his or her home
and/or office and/or visits our Internet web site and places an order by phone, mail, fax or
online. The merchandise is then shipped to the customer.
9
Segment data is presented in the following tables:
Three months ended May 1, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and
|
|
|
|
|
|
|
Stores
|
|
|
Direct Marketing
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
(a)
|
|
$
|
159,812
|
|
|
$
|
15,336
|
|
|
$
|
2,977
|
|
|
$
|
178,125
|
|
Depreciation and amortization
|
|
|
5,069
|
|
|
|
115
|
|
|
|
672
|
|
|
|
5,856
|
|
Operating income (loss)
(b)
|
|
|
37,855
|
|
|
|
6,321
|
|
|
|
(18,115
|
)
|
|
|
26,061
|
|
Capital expenditures
(c)
|
|
|
2,404
|
|
|
|
47
|
|
|
|
1,527
|
|
|
|
3,978
|
|
Three months ended May 2, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and
|
|
|
|
|
|
|
Stores
|
|
|
Direct Marketing
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
(a)
|
|
$
|
143,771
|
|
|
$
|
15,426
|
|
|
$
|
2,728
|
|
|
$
|
161,925
|
|
Depreciation and amortization
|
|
|
4,780
|
|
|
|
11
|
|
|
|
642
|
|
|
|
5,433
|
|
Operating income (loss)
(b)
|
|
|
27,496
|
|
|
|
6,452
|
|
|
|
(15,099
|
)
|
|
|
18,849
|
|
Capital expenditures
(c)
|
|
|
3,978
|
|
|
|
664
|
|
|
|
300
|
|
|
|
4,942
|
|
|
|
|
(a)
|
|
Stores net sales represent all Full-line Store sales. Direct Marketing net sales
represent catalog call center and Internet sales. Net sales from segments below the GAAP
quantitative thresholds are attributable primarily to three operating segments of the
Company. Those segments are outlet stores, franchise stores and regional tailor shops. None
of these segments have ever met any of the quantitative thresholds for determining
reportable segments and are included in Corporate and Other.
|
|
(b)
|
|
Operating income (loss) for the Stores and Direct Marketing segments represents profit
before allocations of overhead from the corporate office and the distribution centers,
interest and income taxes (four wall contribution). Total Company shipping costs to
customers of approximately $1.8 million and $2.3 million for the first quarter of fiscal
years 2009 and 2010, respectively, which primarily related to the Direct Marketing segment,
were recorded to Sales and marketing, including occupancy costs in the Consolidated
Statements of Income. Operating income (loss) for Corporate and Other consists primarily
of costs included in general and administrative costs. Total operating income represents
profit before interest and income taxes.
|
|
(c)
|
|
Capital expenditures include payments for property, plant and equipment made for the
reportable segment.
|
7. LEGAL MATTERS
On July 24, 2006, a lawsuit was filed against the Company and Robert N. Wildrick (then
the Companys Chief Executive Officer and now its Chairman of the Board) in the United States
District Court for the District of Maryland (the U.S. District Court for Maryland) by Roy T.
Lefkoe, Civil Action Number 1:06-cv-01892-WMN (the Class Action). On August 3, 2006, a
lawsuit substantially similar to the Class Action was filed in the U.S. District Court for
Maryland by Tewas Trust UAD 9/23/86, Civil Action Number 1:06-cv-02011-WMN (the Tewas Trust
Action). The Tewas Trust Action was filed against the same defendants as those in the Class
Action and purported to assert the same claims and seek the same relief. On November 20, 2006,
the Class Action and the Tewas Trust Action were consolidated under the Class Action case
number (1:06-cv-01892-WMN) and the Tewas Trust Action was administratively closed.
10
Massachusetts Laborers Annuity Fund (MLAF) was appointed the lead plaintiff in the
Class Action and filed a Consolidated Class Action Complaint. R. Neal Black (then the
Companys Executive Vice President for Merchandising and Marketing and now its President and
Chief Executive Officer) and David E. Ullman (the Companys Executive Vice President and Chief
Financial Officer) were added as defendants. On behalf of purchasers of the Companys stock
between December 5, 2005 and June 7, 2006 (the Class Period), the Class Action purports to
make claims under Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of
1934, based on the Companys disclosures during the Class Period. The Class Action seeks
unspecified damages, costs and attorneys fees. The Companys Motion to Dismiss the Class
Action was not granted.
In late October 2009, the Company and MLAF agreed to settle the Class Action for an
amount that is within the limits of the Companys insurance coverage. The settlement is
therefore not expected to have any impact on the Companys financial statements. The
Stipulation of Settlement (the Stipulation) entered into by the Company and MLAF includes a
statement that, at the time of the settlement, the substantial discovery completed did not
substantiate any of the claims asserted against the individual defendants. The U.S. District
Court for Maryland has preliminarily approved the Stipulation and the settlement set forth
therein, subject to further consideration at a settlement hearing scheduled for July 8, 2010.
At the settlement hearing, the U.S. District Court for Maryland is expected to determine
whether the proposed settlement of the Class Action on the terms and conditions provided for
in the Stipulation is fair, reasonable, and adequate and should be approved. Although we
expect that the U.S. District Court for Maryland will approve the proposed settlement of the
Class Action, we cannot provide any assurance that such approval will occur.
On October 20, 2006, Glenn Hutton, derivatively and on behalf of the Company, filed an
Amended Shareholder Derivative Complaint against the Companys directors and, as nominal
defendant, the Company in the U.S. District Court for Maryland, Civil Action Number
1:06-cv-02095-BEL (the 2006 Derivative Action). The 2006 Derivative Action was based on
factual allegations similar to those made in the Class Action. The Amended Shareholder
Derivative Complaint alleged that the defendants violated various state laws from January 5,
2006 through October 20, 2006. It sought on behalf of the Company unspecified damages,
equitable relief, costs and attorneys fees. The Companys Motion to Dismiss the 2006
Derivative Action was granted on September 13, 2007.
On October 16, 2009, Norfolk County Retirement System (NCRS), derivatively and on
behalf of the Company, filed a Verified Shareholder Derivative Complaint against the Companys
directors, one of its former directors, its Chief Financial Officer (collectively, the
Individual Defendants) and, as nominal defendant, the Company, in the U.S. District Court
for Maryland, Civil Action Number 1:09-cv-0269-BEL (the 2009 Derivative Action). NCRS filed
an Amended Verified Shareholder Derivative Complaint (the Amended Derivative Complaint) on
or about March 10, 2010 and the Company and Individual Defendants moved to dismiss that
complaint. The 2009 Derivative Action is based on factual allegations similar to those made in
the Class Action and in the 2006 Derivative Action. The Amended Derivative Complaint alleges
that the defendants breached various fiduciary duties and misappropriated corporate
information from December 5, 2005 through the date of the complaint. It also asserts that (a)
the Companys Board breached its fiduciary duty in the fall of 2007 by appointing to the
Companys Special Litigation Committee individuals who, NCRS alleges, should not have served
on that Committee; and (b) the Companys Board breached its fiduciary duties in approving the
settlement of the Class Action. It seeks on behalf of the Company unspecified damages,
equitable relief, restitution and costs and attorneys fees.
11
The 2009 Derivative Action has been dismissed with prejudice as to NCRS, and dismissed
without prejudice as to the Company and Company shareholders other than NCRS (the
Dismissal). Neither NCRS nor its attorneys received or will receive from the Company, the
individual defendants or their insurers payment of any kind with respect to the Dismissal.
On November 12, 2009, Casey J. Stewart, a former employee of the Company, on behalf of
himself and all others similarly situated, filed a Complaint against the Company in the United
States District Court for the Northern District of California (Case number CV 09 5348 PJH)
alleging racial discrimination by the Company with respect to hiring and terms and conditions
of employment. Pursuant to a Motion to Transfer Venue filed by the Company, the Complaint is
now pending in the United States District Court for the Eastern District of California as Case
number 2:10-cv-00481-GEB-DAD. The Complaint seeks, among other things, certification of the
case as a class action, declaratory and injunctive relief, an order mandating corrective
action, reinstatement, back pay, front pay, general damages, exemplary and punitive damages,
costs and attorneys fees. The Company intends to defend this lawsuit vigorously.
The Company is also a party to routine litigations that are incidental to its business.
From time to time, other legal matters in which the Company may be named as a defendant are
expected to arise in the normal course of the Companys business activities. The resolution of
the Companys litigation matters cannot be accurately predicted and there is no estimate of
costs or potential losses, if any. Accordingly, the Company cannot determine whether its
insurance coverage would be sufficient to cover such costs or potential losses, if any, and
has not recorded any provision for cost or loss associated with these actions. It is possible
that the Companys consolidated financial statements could be materially impacted in a
particular fiscal quarter or year by an unfavorable outcome or settlement of these actions.
12
Item 2.
|
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion should be read in conjunction with the unaudited consolidated
financial statements and notes thereto included in this Quarterly Report on Form 10-Q and with
the Companys audited financial statements and notes thereto included in its Annual Report on
Form 10-K for fiscal year 2009.
Overview
For the first quarter of fiscal year 2010, the Companys net income
was $15.8 million, an increase of 37.4% as compared with $11.5 million for the first quarter
of fiscal year 2009. The Company earned $0.85 per diluted share in the first quarter of fiscal
year 2010, as compared with $0.62 per diluted share in the first quarter of fiscal year 2009.
As such, diluted earnings per share increased 37.1% as compared with the prior year period.
The results of the first quarter of fiscal year 2010, as compared to the first quarter of
fiscal year 2009, were primarily driven by:
|
|
|
10.0% increase in net sales, driven by a 11.2% increase in the Stores segment
partially offset by a 0.6% decrease in the Direct Marketing segment;
|
|
|
|
|
10.4% increase in comparable store sales;
|
|
|
|
|
280 basis point increase in gross profit margins, with the Direct Marketing
Segment increasing more than the overall Company;
|
|
|
|
|
50 basis point decrease in sales and marketing costs as a percentage of sales
driven primarily by the leveraging of occupancy and payroll costs, partially offset by
higher advertising and marketing costs and other variable selling costs as a percentage
of sales; and
|
|
|
|
|
30 basis point increase in general and administrative costs as a percentage of
sales.
|
As of the end of the first quarter of fiscal year 2010, the Company had 476 stores,
consisting of 456 Company-owned Full-line Stores, seven Company-owned outlet stores and 13
stores owned and operated by franchisees. The Company opened three stores in the first three months of
fiscal year 2010. In the past five years, the Company has opened over 200 stores.
Specifically, there were 56 new stores opened in fiscal year 2005, 52 new stores opened in
fiscal year 2006, 48 new stores opened in fiscal year 2007, 40 new stores opened in fiscal
year 2008 and 14 new stores opened in fiscal year 2009. The lower number of store openings in
fiscal year 2009 compared to previous years was due primarily to the impact of the national
economic crisis that occurred during late 2008 and into 2009, including but not limited to a
resulting lack of quality real estate opportunities.
The Company expects to open approximately 30 to 40 stores in fiscal year 2010, including
the three stores opened in the first three months of fiscal year 2010. This range includes
approximately five stores the Company plans to open under its new Company-owned factory store concept. The
increase in store openings over fiscal year 2009 is primarily the result of the emergence of
quality real estate opportunities in the marketplace and the Companys desire to return to its
more normal store expansion pace. In the future, the Company believes that it can grow the
chain to approximately 600 Full-line Stores in the United States (excluding stores opened under the
factory store concept).
Capital expenditures in fiscal year 2010 are expected to be approximately $27 to $35
million, primarily to fund the opening of approximately 30 to 40 new stores, the renovation
and/or relocation of several stores, the expansion of the Companys distribution and office
space, expenditures related to new business initiatives including
tuxedo rentals and factory stores and the implementation of various
systems projects. The capital expenditures include the cost of the construction of leasehold
improvements for new stores and the renovation or relocation of several stores, of which
approximately $4 to $5 million is expected to be reimbursed through landlord contributions.
For fiscal year 2010, the Company expects inventories to increase over fiscal year 2009
as a result of new store openings, sales growth and new business
initiatives such as factory stores.
Critical Accounting Policies and Estimates
In preparing the consolidated
financial statements, a number of assumptions and estimates are made that, in the judgment of
management, are proper in light of existing general economic and company-specific
circumstances. For a detailed discussion of the application of these and other accounting
policies, see Note 1 to the Consolidated Financial Statements in the Companys Annual Report
on Form 10-K for fiscal year 2009.
13
Inventory.
The Company records inventory at the lower of cost or market (LCM). Cost is
determined using the first-in, first-out method. The estimated market value is based on
assumptions for future demand and related pricing. The Company reduces the carrying value of
inventory to net realizable value where cost exceeds estimated selling price less costs of
disposal.
Managements sales assumptions regarding sales below cost are based on the Companys
experience that most of the Companys inventory is sold through the Companys primary sales
channels, with virtually no inventory being liquidated through bulk sales to third parties.
The Companys LCM reserve estimates for inventory that have been made in the past have been
very reliable as a significant portion of its sales (over two-thirds in fiscal year 2009) are
of classic traditional products that are part of on-going programs and that bear low risk of
declines in value below cost. These products include items such as navy and gray suits, navy
blazers, white and blue dress shirts, etc. To limit the need to sell significant amounts of
product below cost, all product categories are closely monitored in an attempt to identify and
correct situations in which aging goals have not been, or are reasonable likely to not be,
achieved. In addition, the Companys strong gross profit margins enable the Company to sell
substantially all of its products at levels above cost.
To calculate the estimated market value of its inventory, the Company periodically
performs a detailed review of all of its major inventory classes and stock-keeping units and
performs an analytical evaluation of aged inventory on a quarterly basis. Semi-annually, the
Company compares the on-hand units and season-to-date unit sales (including actual selling
prices) to the sales trend and estimated prices required to sell the units in the future,
which enables the Company to estimate the amount which may have to be sold below cost.
Substantially all of the units sold below cost are sold in the Companys outlet stores,
through the Companys Internet web site or on clearance at the Full-line Stores, typically
within 24 months of purchase. The Companys costs in excess of selling price for units sold
below cost totaled $1.4 million and $1.2 million in fiscal year 2008 and fiscal year 2009,
respectively. The Company reduces the carrying amount of its current inventory value for
product in its inventory that may be sold below its cost. If the amount of inventory which is
sold below its cost differs from the estimate, the Companys inventory valuation adjustment
could change.
Asset Valuation.
Long-lived assets, such as property, plant and equipment subject to
depreciation, are reviewed for impairment to determine whether events or changes in
circumstances indicate that 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 estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized in the amount by which the carrying amount of the asset
exceeds the estimated fair value of the asset. The asset valuation estimate is principally
dependent on the Companys ability to generate profits at both the Company and store levels.
These levels are principally driven by the sales and gross profit trends that are closely
monitored by the Company. While the Company performs a quarterly review of its long-lived
assets to determine if an impairment exists, the fourth quarter is typically the most
significant quarter to make such a determination since it provides the best indication of
performance trends in the individual stores. There were no asset valuation charges in either
the first quarter of fiscal year 2010 or the first quarter of fiscal year 2009.
Lease Accounting.
The Company uses a consistent lease period (generally, the initial
non-cancelable lease term plus renewal option periods provided for in the lease that can be
reasonably assured) when calculating amortization of leasehold improvements and in determining
straight-line rent expense and classification of its leases as either an operating lease or a
capital lease. The lease term and straight-line rent expense commence on the date when the
Company takes possession and has the right to control the use of the leased premises. Funds
received from the lessor intended to reimburse the Company for the costs of leasehold
improvements are recorded as a deferred rent resulting from a lease incentive and amortized
over the lease term as a reduction to rent expense.
While the Company has taken reasonable care in preparing these estimates and making these
judgments, actual results could and probably will differ from these estimates. Management
believes any difference in the actual results from the estimates will not have a material
effect upon the Companys financial position or results of operations. These estimates, among
other things, were discussed by management with the Companys Audit Committee.
14
Recently Issued Accounting Standards
In June 2009, the Financial Accounting Standards
Board (FASB) issued FASB Accounting Standards Codification (ASC) effective for financial
statements issued for interim and annual periods ending after September 15, 2009. The ASC is an
aggregation of previously issued authoritative GAAP in one comprehensive set of guidance
organized by subject area. In accordance with the ASC, references to previously issued
accounting standards have been replaced by ASC references. Subsequent revisions to GAAP will be
incorporated into the ASC through Accounting Standards Updates (ASU).
In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements
(ASU 2009-13). ASU 2009-13 addresses revenue recognition of multiple-element sales
arrangements. It establishes a selling price hierarchy for determining the selling price of
each product or service, with vendor-specific objective evidence (VSOE) at the highest level,
third-party evidence of VSOE at the intermediate level, and a best estimate at the lowest
level. It replaces fair value with selling price in revenue allocation guidance. It also
significantly expands the disclosure requirements for such arrangements. ASU 2009-13 will be
effective prospectively for sales entered into or materially modified in fiscal years beginning
on or after June 15, 2010, with early adoption permitted. The Company is currently evaluating
the impact ASU 2009-13 will have on its consolidated financial statements.
Results of Operations
The following table is derived from the Companys 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
|
|
|
|
Three Months Ended
|
|
|
|
May 2, 2009
|
|
|
May 1, 2010
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of goods sold
|
|
|
39.2
|
|
|
|
36.4
|
|
Gross profit
|
|
|
60.8
|
|
|
|
63.6
|
|
Sales and marketing expenses
|
|
|
40.1
|
|
|
|
39.6
|
|
General and administrative expenses
|
|
|
9.1
|
|
|
|
9.4
|
|
Total operating expenses
|
|
|
49.2
|
|
|
|
49.0
|
|
Operating income
|
|
|
11.6
|
|
|
|
14.6
|
|
Total other income
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes
|
|
|
11.6
|
|
|
|
14.6
|
|
Provision for income taxes
|
|
|
4.5
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
Net income
|
|
|
7.1
|
%
|
|
|
8.9
|
%
|
|
|
|
|
|
|
|
Net Sales
Net sales increased 10.0% to $178.1 million in the first quarter of
fiscal year 2010, as compared with $161.9 million in the first quarter of fiscal year 2009.
The sales increases were primarily related to increases in Stores sales of 11.2% for the first
quarter of fiscal year 2010, including a comparable store sales increase of 10.4%. Comparable
store sales include merchandise sales generated in all Company-owned stores that have been
open for at least thirteen full months. The 10.4% increase in comparable store sales for the
first quarter of fiscal year 2010 was led by increased traffic (as measured by number of
transactions), higher items per transaction and higher dollars per transaction.
Direct Marketing sales decreased 0.6% for the first quarter of fiscal year 2010, driven
by a slight decrease in sales in the Internet channel, which represents the major portion of
this reportable segment, partially offset by an increase in sales through the catalog call
center.
Of the major product categories, tailored clothing (excluding suits) and dress shirts
generated strong unit sales growth during the first quarter of fiscal year 2010, while suits
and sportswear units grew modestly.
15
The following table summarizes store opening and closing activity during the respective
periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
May 2, 2009
|
|
|
May 1, 2010
|
|
|
|
|
|
|
|
Square
|
|
|
|
|
|
|
Square
|
|
|
|
Stores
|
|
|
Feet*
|
|
|
Stores
|
|
|
Feet*
|
|
|
Stores open at the
beginning of the period
|
|
|
460
|
|
|
|
2,091
|
|
|
|
473
|
|
|
|
2,131
|
|
Stores opened
|
|
|
3
|
|
|
|
13
|
|
|
|
3
|
|
|
|
11
|
|
Stores closed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores open at the
end of the period
|
|
|
463
|
|
|
|
2,104
|
|
|
|
476
|
|
|
|
2,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Square feet is presented in thousands and excludes the square footage of the Companys
franchise stores.
|
Gross profit
Gross profit (net sales less cost of goods sold) totaled $113.3
million or 63.6% of net sales in the first quarter of fiscal year 2010, as compared with $98.5
million or 60.8% of net sales in the first quarter of fiscal year 2009, an increase in gross
profit dollars of $14.8 million and an increase in the gross profit margin (gross profit as a
percent of net sales) of 280 basis points. The increase in the gross profit margin was mainly
due to higher merchandise gross margins primarily as a result of higher initial mark-ups as
compared to the prior year period driven by improved sourcing. In addition, the improvement in
merchandise gross margins was due in part to a change in the product mix with a lower
proportion of clearance items as compared to fiscal year 2009. As stated in the Companys
Annual Report on Form 10-K for fiscal year 2009, the Company is subject to certain risks that
may affect its gross profit, including risks of doing business on an international basis,
increased costs of raw materials and other resources and changes in economic conditions. The
Company expects to continue to be subject to these gross profit risks in the future.
Additionally, the Companys gross margin may be negatively impacted during the development
phase of some of its new business initiatives such as the newly-launched tuxedo rental
business and the factory store concept.
The Companys gross profit represents net sales less cost of goods sold. Cost of goods
sold primarily includes the cost of merchandise, the cost of tailoring and freight from
vendors to the distribution center and from the distribution center to the stores. This gross
profit classification may not be comparable to the classification used by certain other
entities. Some entities include distribution (including depreciation), store occupancy, buying
and other costs in cost of goods sold. Other entities (including the Company) exclude such
costs from gross profit, including them instead in general and administrative and/or sales and
marketing expenses.
Sales and Marketing Expenses
Sales and marketing expenses increased to $70.5
million or 39.6% of sales in the first quarter of fiscal year 2010 from $64.9 million or 40.1%
of sales in the first quarter of fiscal year 2009. The decrease as a percentage of sales for
the first quarter of fiscal year 2010 was driven primarily by the leveraging of occupancy
costs and payroll costs, partially offset by higher advertising and marketing costs and other
variable selling costs as a percentage of sales. The overall improved leverage was achieved
primarily as a result of cost control initiatives and strong sales growth. Sales and
marketing expenses consist primarily of a) Full-line Store, outlet store and Direct Marketing
occupancy, payroll, selling and other variable selling costs (which include such costs as
shipping costs to customers and credit card processing fees) and b) total Company advertising
and marketing expenses.
The increase in sales and marketing expenses relates primarily to the strong sales growth
and the opening of 14 new stores and the closing of one store since the end of the first
quarter of fiscal year 2009. For the first quarter of fiscal year 2010, the increase of
approximately $5.6 million consists of a) $2.0 million related to additional store employee
compensation costs, b) $1.7 million related to additional advertising and marketing expenses,
c) $1.2 million related to additional other variable selling costs, and d) $0.7 million
related to additional occupancy costs. The Company expects sales and marketing expenses to
increase for the remainder of fiscal year 2010 as compared to fiscal year 2009 primarily as a
result of opening new stores (30 to 40 stores) in fiscal year 2010, the full year operation of
stores that were opened during fiscal year 2009, an increase in advertising expenditures and
costs related to new business initiatives.
16
General and Administrative Expenses
General and administrative expenses
(G&A), which consist primarily of corporate and distribution center costs, were $16.7
million and $14.7 million for the first quarter of fiscal year 2010 and the first quarter of
fiscal year 2009, respectively. As a percent of net sales, G&A expenses were 9.4% and 9.1%
for the first quarters of fiscal years 2010 and 2009, respectively. The increase as a
percentage of sales for the first quarter of fiscal year 2010 was driven primarily by higher
corporate compensation costs (which include all company incentive compensation), group medical
costs and higher professional fees.
The increase in G&A expenses of approximately $2.0 million for the first quarter of
fiscal year 2010 was primarily due to a) $1.0 million of higher corporate compensation costs
and group medical costs, b) $0.4 million of higher professional fees, c) $0.5 million of
higher other corporate overhead costs, and d) $0.1 million of higher distribution center
costs. Growth in the Stores and Direct Marketing segments may result in further increases in
G&A expenses in the future.
Other Income (Expense)
Other income (expense) for the first quarter of fiscal
year 2010 was less than $0.1 million of income compared to less than $0.1 million of expense
for the first quarter of fiscal year 2009. The slight improvement over fiscal year 2009 was
due primarily to higher average cash and cash equivalents and short-term investment balances
during the fiscal year 2010 period.
Income Taxes
The effective income tax rate for the first quarter of fiscal year
2010 was 39.4% as compared with 39.1% for the first quarter of fiscal year 2009. The increase
is primarily related to higher state taxes in fiscal year 2010.
Seasonality
The Companys net sales, net income and inventory levels fluctuate
on a seasonal basis and therefore the results for one quarter are not necessarily indicative
of the results that may be achieved for a full fiscal year. The increased customer traffic
during the holiday season and the Companys increased marketing efforts during this peak
selling time have resulted in sales and profits generated during the fourth quarter being a substantial portion of annual sales and profits as compared to the other three quarters.
Seasonality is also impacted by growth as more new stores have historically been opened in the
second half of the year. During the fourth quarters of fiscal years 2007, 2008 and 2009, the
Company generated approximately 35%, 36% and 36%, respectively, of its annual net sales and
approximately 53%, 52% and 50%, respectively, of its annual net income.
Liquidity and Capital Resources
During the past several years and through the first quarter of fiscal year 2010,
pursuant to an Amended and Restated Credit Agreement, the Company maintained a $100 million
credit facility with a maturity date of April 30, 2010. Based on the Companys current cash
and short-term investment positions, current and projected cash needs and market conditions,
the Company elected not to negotiate a renewal or replacement of the credit agreement. As a
result, the credit agreement expired on April 30, 2010 in accordance with its terms.
The following table summarizes the Companys sources and uses of funds as reflected in
the Condensed Consolidated Statements of Cash Flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
May 2, 2009
|
|
|
May 1, 2010
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(5,950
|
)
|
|
$
|
(1,273
|
)
|
Investing activities
|
|
|
(4,942
|
)
|
|
|
26,069
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and
cash equivalents
|
|
$
|
(10,892
|
)
|
|
$
|
24,796
|
|
|
|
|
|
|
|
|
The Companys cash and cash equivalents consist primarily of U.S. Treasury bills with
original maturities of 90 days or less and overnight federally-sponsored agency notes. The
Companys short-term investments consist of U.S. Treasury bills with maturities of less than
one year, excluding investments with original maturities of 90 days or less. At May 1, 2010,
the Companys cash and cash equivalents balance was $46.6 million and its short-term investments were $139.7
million, for a total of $186.3 million, as compared with a cash
and cash equivalents balance of $112.0 million at
May 2, 2009. The Company had no short-term investments at May 2, 2009.
The Companys cash and cash equivalents
balance was $21.9 million and short-term investments were $169.7 million, for a total of
$191.6 million at the end of fiscal year 2009. The Company had no debt outstanding
at May 1, 2010, May 2, 2009 or at the end of fiscal year 2009. The significant changes in
sources and uses of funds through May 1, 2010 are discussed below.
17
Cash used in the Companys operating activities of $1.3 million in the first quarter of
fiscal year 2010 was primarily impacted by an increase in operating working capital and other
operating items of $22.1 million, substantially offset by net income of $15.8 million and
depreciation and amortization of $5.9 million. The increase in operating working capital and
other operating items included an increase in accounts receivable of $9.6 million due to
higher credit card receivables from transactions through American Express, MasterCard and Visa
as a result of increased sales near the end of the first quarter of fiscal year 2010 as
compared with the end of the fourth quarter of fiscal year 2009. In addition, the increase in
operating working capital and other operating items included a reduction in accrued expenses
totaling $19.6 million (excluding accrued property, plant and equipment) related primarily to
the payment of income taxes and incentive compensation that had been accrued at the end of
fiscal year 2009, partially offset by an increase in accounts payable of $12.5 million due
primarily to the timing of payments to vendors. Accrued expenses represent all other
short-term liabilities related to, among other things, vendors from whom invoices have not
been received, employee compensation, federal and state income taxes and unearned gift cards
and gift certificates. Accounts payable represent all short-term liabilities for which the
Company has received a vendor invoice prior to the end of the reporting period. The increase
in operating working capital and other operating items also included an increase in inventory
of $3.9 million related largely to new store openings.
Cash provided by investing activities in the first quarter of fiscal year 2010 relates to
$4.0 million of payments for capital expenditures, as described below, and $30.1 million of
net proceeds from short-term investments.
For fiscal year 2010, the Company expects to spend approximately $27 to $35 million on
capital expenditures, primarily to fund the opening of approximately 30 to 40 new stores, the
renovation and/or relocation of several stores, the expansion of the Companys distribution
and office space, expenditures related to new business initiatives
including tuxedo rentals and factory stores and the implementation of
various systems projects. The capital expenditures include the cost of the construction of
leasehold improvements for new stores and several stores to be renovated or relocated, of
which approximately $4 to $5 million is expected to be reimbursed through landlord
contributions. These amounts are typically paid by the landlords after the completion of
construction by the Company and the receipt of appropriate lien waivers from contractors. The
Company spent $4.0 million on capital expenditures in the first quarter of fiscal year 2010
largely related to partial payments for the three stores opened during the first three months
of the fiscal year, plus expenditures related to the expansion of its distribution and office
space and expenditures related to the tuxedo rental initiative. In addition, capital
expenditures for the period include payments for property, plant and equipment additions
accrued at year-end fiscal year 2009 related to stores opened in fiscal year 2009. For the
stores opened and renovated in the first quarter of fiscal year 2010, the Company negotiated
approximately $0.3 million of landlord contributions. The table below summarizes the landlord
contributions that were negotiated and collected related to the stores opened in fiscal years
2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
|
|
Amounts
|
|
|
Collected
|
|
|
|
|
|
|
|
|
|
|
Collected in
|
|
|
YTD in
|
|
|
Amounts
|
|
|
|
Negotiated
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Outstanding
|
|
|
|
Amounts
|
|
|
2009
|
|
|
2010
|
|
|
May 1, 2010
|
|
|
|
(in thousands)
|
|
Full Fiscal Year 2009 Store
Openings (14 Stores)
|
|
$
|
2,829
|
|
|
$
|
2,170
|
|
|
$
|
572
|
|
|
$
|
87
|
|
First Quarter Fiscal Year 2010
Store Openings (3 Stores)
|
|
|
338
|
|
|
|
|
|
|
|
30
|
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,167
|
|
|
$
|
2,170
|
|
|
$
|
602
|
|
|
$
|
395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The outstanding amounts of the landlord contributions for the stores opened and renovated
in fiscal year 2009 and fiscal year 2010 are primarily expected to be received in fiscal year
2010.
For fiscal year 2010, the Company expects inventories to increase over fiscal year 2009
to support new store openings, sales growth, and new business
initiatives such as factory stores.
18
Management believes that the Companys cash from operations, existing cash and cash
equivalents and short-term investments will be sufficient to fund its planned capital
expenditures and operating expenses through at least the next 12 months.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet
arrangements other than its operating lease agreements.
Disclosures about Contractual Obligations and Commercial Commitments
The Companys principal commitments are non-cancellable operating leases in connection
with its retail stores, certain tailoring facilities and equipment. Under the terms of
certain of the retail store leases, the Company is required to pay a base annual rent, plus a
contingent amount based on sales (contingent rent). In addition, many of these leases
include scheduled rent increases. Base annual rent and scheduled rent increases are included
in the contractual obligations table below for operating leases, as these are the only
rent-related commitments that are determinable at this time.
The following table reflects a summary of the Companys contractual cash obligations and
other commercial commitments for the periods indicated, including amounts paid in the first
quarter of fiscal year 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Fiscal Year
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beyond
|
|
|
|
|
|
|
2010
|
|
|
2011-2013
|
|
|
2014-2015
|
|
|
2015
|
|
|
Total
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
(a) (b)
|
|
$
|
58,224
|
|
|
$
|
165,396
|
|
|
$
|
74,619
|
|
|
$
|
65,827
|
|
|
$
|
364,066
|
|
Related Party Agreement
(c)
|
|
|
825
|
|
|
|
825
|
|
|
|
|
|
|
|
|
|
|
|
1,650
|
|
License agreement
(e)
|
|
|
165
|
|
|
|
495
|
|
|
|
330
|
|
|
|
|
|
|
|
990
|
|
|
|
|
(a)
|
|
Includes various lease agreements for stores to be opened and equipment placed in
service subsequent to May 1, 2010.
|
|
(b)
|
|
Excludes contingent rent and other lease costs.
|
|
(c)
|
|
Relates to consulting agreement with the Companys current Chairman of the Board to
consult on matters of strategic planning and initiatives.
|
|
(d)
|
|
Obligations related to unrecognized tax benefits and related penalties and interest
of $0.8 million have been excluded from the above table as the amount to be settled in
cash and the specific payment dates are not known.
|
|
(e)
|
|
Related to an agreement with David Leadbetter, a golf professional, which allows
the Company to produce golf and other apparel under his name.
|
Cautionary Statement
This Quarterly Report on Form 10-Q includes and incorporates by reference certain
statements that may be deemed to be forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The Private Securities Litigation Reform
Act of 1995 provides a safe harbor for certain forward-looking statements so long as such
information is identified as forward-looking and is accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to differ materially
from those projected in the information. When used in this Quarterly Report on Form 10-Q, the
words estimate, project, plan, will, anticipate, expect, intend, outlook,
may, believe, and other similar expressions are intended to identify forward-looking
statements and information.
19
Actual results may differ materially from those forecast due to a variety of factors
outside of the Companys control that can affect the Companys operating results, liquidity
and financial condition. Such factors include risks associated with economic, weather, public
health and other factors affecting consumer spending, including negative changes to consumer
confidence and other recessionary pressures, higher energy and security costs, the successful
implementation of the Companys growth strategy, including the ability of the Company to
finance its expansion plans, the mix and pricing of goods sold, the effectiveness and
profitability of new concepts, the market price of key raw materials such as wool and cotton,
seasonality, merchandise trends and changing consumer preferences, the
effectiveness of the Companys marketing programs, the availability of suitable lease
sites for new stores, doing business on an international basis, the ability to source product
from its global supplier base, legal matters and other competitive factors. The identified
risk factors and other factors and risks that may affect the Companys business or future
financial results are detailed in the Companys filings with the Securities and Exchange
Commission, including, but not limited to, those described under Risk Factors in the
Companys Annual Report on Form 10-K for fiscal year 2009 and Managements Discussion and
Analysis of Financial Condition and Results of Operations in this Quarterly Report on Form
10-Q. These cautionary statements qualify all of the forward-looking statements the Company
makes herein. The Company cannot assure you that the results or developments anticipated by
the Company will be realized or, even if substantially realized, that those results or
developments will result in the expected consequences for the Company or affect the Company,
its business or its operations in the way the Company expects. The Company cautions you not to
place undue reliance on these forward-looking statements, which speak only as of their
respective dates. The Company does not undertake an obligation to update or revise any
forward-looking statements to reflect actual results or changes in the Companys assumptions,
estimates or projections.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At May 1, 2010, the Company was not a party to any derivative financial instruments. The
Company does business with all of its product vendors in U.S. currency and does not have
direct foreign currency risk. However, a devaluation of the U.S. dollar against the foreign
currencies of its suppliers could have a material adverse effect on the Companys product
costs and resulting gross profit. The Company currently invests substantially all of its
excess cash in short-term investments, primarily in U.S. Treasury bills with original
maturities of less than one year, overnight federally-sponsored agency notes and money market
accounts, where returns effectively reflect current interest rates. As a result, market
interest rate changes may impact the Companys net interest income or expense. The impact will
depend on variables such as the magnitude of rate changes and the level of excess cash
balances. A 100 basis point change in interest rates would have changed net interest income
by approximately $1.4 million in fiscal year 2009.
Item 4. Controls and Procedures
Limitations on Control Systems.
Because of their inherent limitations, disclosure
controls and procedures and internal control over financial reporting (collectively, Control
Systems) may not prevent or detect all failures or misstatements of the type sought to be
avoided by Control Systems. Also, projections of any evaluation of the effectiveness of the
Companys Control Systems to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Management, including the Companys Chief Executive
Officer (the CEO) and Chief Financial Officer (the CFO), does not expect that the
Companys Control Systems will prevent all errors or all fraud. A Control System, no matter
how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the Control System are met. Further, the design of a Control System must reflect
the fact that there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all Control Systems, no
evaluation can provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. Reports by management, including the CEO and CFO,
on the effectiveness of the Companys Control Systems express only reasonable assurance of the
conclusions reached.
Disclosure Controls and Procedures.
The Company maintains disclosure controls and
procedures that are designed to ensure that information required to be disclosed in the
Companys reports under the Securities Exchange Act of 1934, as amended (the Exchange Act),
is recorded, processed, summarized, and reported within the time periods specified in the
SECs rules and forms, and that such information is accumulated and communicated to
management, including the CEO and CFO, as appropriate, to allow timely decisions regarding
required disclosure.
Management, with the participation of the CEO and CFO, has evaluated the effectiveness,
as of May 1, 2010, of the Companys disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, the CEO and CFO
have concluded that the Companys disclosure controls and procedures were effective as of May
1, 2010.
Changes in Internal Control over Financial Reporting
. There were no changes in the
Companys internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Section 240.13a-15 of the Exchange Act that occurred
during the Companys last fiscal quarter (the Companys fourth quarter in the case of an
annual report) that have materially affected, or are reasonably likely to materially affect,
the Companys internal control over financial reporting.
20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On July 24, 2006, a lawsuit was filed against the Company and Robert N. Wildrick (then
the Companys Chief Executive Officer and now its Chairman of the Board) in the United States
District Court for the District of Maryland (the U.S. District Court for Maryland) by Roy T.
Lefkoe, Civil Action Number 1:06-cv-01892-WMN (the Class Action). On August 3, 2006, a
lawsuit substantially similar to the Class Action was filed in the U.S. District Court for
Maryland by Tewas Trust UAD 9/23/86, Civil Action Number 1:06-cv-02011-WMN (the Tewas Trust
Action). The Tewas Trust Action was filed against the same defendants as those in the Class
Action and purported to assert the same claims and seek the same relief. On November 20, 2006,
the Class Action and the Tewas Trust Action were consolidated under the Class Action case
number (1:06-cv-01892-WMN) and the Tewas Trust Action was administratively closed.
Massachusetts Laborers Annuity Fund (MLAF) was appointed the lead plaintiff in the
Class Action and filed a Consolidated Class Action Complaint. R. Neal Black (then the
Companys Executive Vice President for Merchandising and Marketing and now its President and
Chief Executive Officer) and David E. Ullman (the Companys Executive Vice President and Chief
Financial Officer) were added as defendants. On behalf of purchasers of the Companys stock
between December 5, 2005 and June 7, 2006 (the Class Period), the Class Action purports to
make claims under Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of
1934, based on the Companys disclosures during the Class Period. The Class Action seeks
unspecified damages, costs and attorneys fees. The Companys Motion to Dismiss the Class
Action was not granted.
In late October 2009, the Company and MLAF agreed to settle the Class Action for an
amount that is within the limits of the Companys insurance coverage. The settlement is
therefore not expected to have any impact on the Companys financial statements. The
Stipulation of Settlement (the Stipulation) entered into by the Company and MLAF includes a
statement that, at the time of the settlement, the substantial discovery completed did not
substantiate any of the claims asserted against the individual defendants. The U.S. District
Court for Maryland has preliminarily approved the Stipulation and the settlement set forth
therein, subject to further consideration at a settlement hearing scheduled for July 8, 2010.
At the settlement hearing, the U.S. District Court for Maryland is expected to determine
whether the proposed settlement of the Class Action on the terms and conditions provided for
in the Stipulation is fair, reasonable, and adequate and should be approved. Although we
expect that the U.S. District Court for Maryland will approve the proposed settlement of the
Class Action, we cannot provide any assurance that such approval will occur.
On October 20, 2006, Glenn Hutton, derivatively and on behalf of the Company, filed an
Amended Shareholder Derivative Complaint against the Companys directors and, as nominal
defendant, the Company in the U.S. District Court for Maryland, Civil Action Number
1:06-cv-02095-BEL (the 2006 Derivative Action). The 2006 Derivative Action was based on
factual allegations similar to those made in the Class Action. The Amended Shareholder
Derivative Complaint alleged that the defendants violated various state laws from January 5,
2006 through October 20, 2006. It sought on behalf of the Company unspecified damages,
equitable relief, costs and attorneys fees. The Companys Motion to Dismiss the 2006
Derivative Action was granted on September 13, 2007.
On October 16, 2009, Norfolk County Retirement System (NCRS), derivatively and on
behalf of the Company, filed a Verified Shareholder Derivative Complaint against the Companys
directors, one of its former directors, its Chief Financial Officer (collectively, the
Individual Defendants) and, as nominal defendant, the Company, in the U.S. District Court
for Maryland, Civil Action Number 1:09-cv-0269-BEL (the 2009 Derivative Action). NCRS filed
an Amended Verified Shareholder Derivative Complaint (the Amended Derivative Complaint) on
or about March 10, 2010 and the Company and Individual Defendants moved to dismiss that
complaint. The 2009 Derivative Action is based on factual allegations similar to those made in
the Class Action and in the 2006 Derivative Action. The Amended Derivative Complaint alleges
that the defendants breached various fiduciary duties and misappropriated corporate
information from December 5, 2005 through the date of the complaint. It also asserts that (a)
the Companys Board breached its fiduciary duty in the fall of 2007 by appointing to the
Companys Special Litigation Committee individuals who, NCRS alleges, should not have served
on that Committee; and (b) the Companys Board breached its fiduciary duties in approving the
settlement of the Class Action. It seeks on behalf of the Company unspecified damages,
equitable relief, restitution and costs and attorneys fees.
21
The 2009 Derivative Action has been dismissed with prejudice as to NCRS, and dismissed
without prejudice as to the Company and Company shareholders other than NCRS (the
Dismissal). Neither NCRS nor its attorneys received or will receive from the Company, the
individual defendants or their insurers payment of any kind with respect to the Dismissal.
On November 12, 2009, Casey J. Stewart, a former employee of the Company, on behalf of
himself and all others similarly situated, filed a Complaint against the Company in the United
States District Court for the Northern District of California (Case number CV 09 5348 PJH)
alleging racial discrimination by the Company with respect to hiring and terms and conditions
of employment. Pursuant to a Motion to Transfer Venue filed by the Company, the Complaint is
now pending in the United States District Court for the Eastern District of California as Case
number 2:10-cv-00481-GEB-DAD. The Complaint seeks, among other things, certification of the
case as a class action, declaratory and injunctive relief, an order mandating corrective
action, reinstatement, back pay, front pay, general damages, exemplary and punitive damages,
costs and attorneys fees. The Company intends to defend this lawsuit vigorously.
The Company is also a party to routine litigations that are incidental to its business.
From time to time, other legal matters in which the Company may be named as a defendant are
expected to arise in the normal course of the Companys business activities. The resolution of
the Companys litigation matters cannot be accurately predicted and there is no estimate of
costs or potential losses, if any. Accordingly, the Company cannot determine whether its
insurance coverage would be sufficient to cover such costs or potential losses, if any, and
has not recorded any provision for cost or loss associated with these actions. It is possible
that the Companys consolidated financial statements could be materially impacted in a
particular fiscal quarter or year by an unfavorable outcome or settlement of these actions.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully
consider the factors discussed under the caption Item 1A. Risk Factors in the Companys
Annual Report on Form 10-K for fiscal year 2009, which could materially affect the Companys
business, financial condition or future results. The risks described in the Companys Annual
Report on Form 10-K are not the only risks facing the Company. Additional risks and
uncertainties, including those not currently known to the Company or that the Company
currently deems to be immaterial also could materially adversely affect the Companys
business, financial condition and/or operating results. There have been no material changes in
our risk factors from those disclosed in our Annual Report on Form 10-K for fiscal year 2009.
Item 6. Exhibits
Exhibits
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31.1
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Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2
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Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.2
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Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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22
SIGNATURE
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.
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Dated: June 2, 2010
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Jos. A. Bank Clothiers, Inc.
(Registrant)
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/s/ R. NEAL BLACK
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R. Neal Black
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President and Chief Executive Officer
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23
Exhibit Index
Exhibits
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31.1
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Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2
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Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.2
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Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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24
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