Annual Reports

  • 10-K (May 9, 2014)
  • 10-K (Apr 2, 2014)
  • 10-K (Apr 3, 2013)
  • 10-K (Mar 30, 2011)
  • 10-K (Mar 31, 2010)
  • 10-K (Apr 8, 2009)

 
Quarterly Reports

 
8-K

 
Other

BANK JOS A CLOTHIERS INC 10-K 2005

 

Securities and Exchange Commission

Washington, D.C. 20549

 

Form 10-K

 

 

ý

 

Annual Report Pursuant To Section 13 or 15(d) of The Securities Exchange Act of 1934 for the fiscal year ended January 29, 2005 (“Fiscal 2004”).

 

 

 

o

 

Transition Report Pursuant To Section 13 or 15(d) of The Securities Exchange Act of 1934 for the transition period from                     to                        .

 

[Commission file number 0-23874]

 

JOS. A. BANK CLOTHIERS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware 

 

36-3189198 

(State of Incorporation)

 

(I.R.S. Employer Identification No.)

 

 

 

500 Hanover Pike, Hampstead, MD

 

21074 

(Address of principal executive offices)

 

(zip code)

 

(410) 239-2700

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock (the “Common Stock”) par value $.01 per share; and Rights to purchase units of Series A Preferred Stock

 

Securities registered pursuant to Section 12(b) of the Act: None

 

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 ý

No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III for this Form 10-K or any amendment to this Form 10-K. o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)

 

Yes ý

No o

 

The aggregate market value of the voting and non-voting stock held by nonaffiliates of the registrant, based upon the closing price of shares of Common Stock on the National Association of Securities Dealers Automated Quotation (“NASDAQ”) National Market System at July 30, 2004 was approximately $284.8 million. The determination of the “affiliate” status for purposes of this report on Form 10-K shall not be deemed a determination as to whether an individual is an “affiliate” of the registrant for any other purposes.

 

The number of shares of Common Stock, par value $0.01 per share, outstanding on April 8, 2005 was 13,466,546.

 

DOCUMENTS INCORPORATED BY REFERENCE:

 

The Company will disclose the information required under Part III, Items 10-14 either by (a) incorporating the information by reference from the Company’s definitive proxy statement if filed by May 31, 2005 (the first business day following 120 days from the close of its fiscal year ended January 29, 2005) or (b) filing an amendment to this Form 10-K which contains the required information by May 31, 2005 (the first business day following 120 days from the close of the Company’s fiscal year ended January 29, 2005).

 

Index to the exhibits appears on Pages 27 through 29.

 

 



 

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

 

This Annual Report on Form 10-K 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 Annual Report on Form 10-K, 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. Actual results may differ materially from those forecast due to a variety of factors outside of the Company’s control that can affect the Company’s operating results, liquidity and financial condition.  Such factors include risks associated with economic, weather, public health and other factors affecting consumer spending, the ability of the Company to finance its expansion plans, the mix and pricing of goods sold, the market price of key raw materials such as wool and cotton, availability of lease sites for new stores, the ability to source product from its global supplier base and other competitive factors. 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, and assumes no obligation to update any of the forward-looking statements. Such risk factors are more fully described under the caption “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The Company cautions that the foregoing list of important factors is not exclusive.

 

Common Stock Dividends.  On January 13, 2004, the Company’s Board of Directors declared a 50% common stock dividend payable on February 18, 2004 to stockholders of record as of January 30, 2004.  On June 8, 2004, the Company’s Board of Directors declared a 25% common stock dividend payable on August 18, 2004 to stockholders of record as of July 30, 2004.  Unless otherwise indicated, all historical weighted average share and per share amounts and all references to the number of common shares elsewhere in the consolidated financial statements, and notes thereto, have been restated to reflect the two stock dividends.

 

PART I

 

Item 1.  BUSINESS

 

EXPLANATORY NOTE

 

On February 7, 2005, in a letter to the Center for Public Company Audit Firms-American Institute of Certified Public Accountants (the “SEC Letter”), the Chief Accountant of the Securities and Exchange Commission (the “SEC”) expressed the views of the SEC staff concerning certain operating lease accounting issues and their application under generally accepted accounting principles (“GAAP”).  Specifically, the SEC Letter addressed the appropriate accounting for: (1) the amortization of leasehold improvements by a lessee in an operating lease with lease renewals, (2) the pattern of recognition of rent when the lease term in an operating lease contains a period where there are free or reduced rents (commonly referred to as “rent holidays”), and (3) incentives related to leasehold improvements provided by a landlord/lessor to a tenant/lessee in an operating lease. Like many other companies in the retail industry, the Company has re-evaluated its lease accounting practices in light of the SEC Letter.

 

As previously disclosed in the Company’s Current Report on Form 8-K dated February 25, 2005, the Company’s Audit Committee concluded that the financial statements included in the Company’s Annual Report on Form 10-K for fiscal years 2002 and 2003, as well as those in the Company’s Quarterly Reports on Form 10-Q for the quarters ended May 1, 2004, July 31, 2004 and October 30, 2004, should no longer be relied upon and that the Company should restate its financial statements for the two-year period ended January 31, 2004 and for the first three quarters of fiscal 2004.

 

This Annual Report on Form 10-K gives effect to the restatement of the consolidated financial statements for the years ended February 3, 2001 (fiscal 2000), February 2, 2002 (fiscal 2001), February 1, 2003 (fiscal 2002) and January 31, 2004 (fiscal 2003), for the first three quarters of fiscal 2004 and for all four quarters of fiscal 2003 to reflect the revision to its historical practices of accounting for lease transactions, as discussed in Note 2 to the Consolidated Financial Statements.

 

Amortization of Leasehold Improvements- In order to comply with GAAP regarding amortization of leasehold improvements discussed in the SEC Letter, the Company revised the straight-line rent schedules for thirteen of its stores to achieve consistency with the corresponding leasehold amortization schedules.

 

1



 

Rent Holidays- In the SEC Letter, the SEC staff reiterated that GAAP requires rent holidays in an operating lease should be recognized by the lessee on a straight-line basis over the lease term (including any rent holiday period).  In prior periods, the Company had generally recognized the straight-line expense for a lease beginning on the date the store opened, which was generally the date the lease term commenced in accordance with the lease.  The period during which the store was being constructed was excluded from the straight-line rent schedule because the construction period was not considered to be part of the lease term in accordance with the lease.  Based on our re-evaluation, the Company has concluded that the construction period should be included in the straight-line rent schedule.

 

As a result of the change of its rent schedules, the Company has restated the Consolidated Financial Statements for fiscal 2000, fiscal 2001, fiscal 2002, fiscal 2003, for the first three quarters of fiscal 2004 and for all four quarters of fiscal 2003.  The changes are inclusive of the immaterial changes resulting from the modification of the rent schedules to achieve consistency with the corresponding leasehold amortization schedules, as set forth above.

 

Landlord Contributions- Leasehold improvement incentives provided by a landlord to the Company were previously recorded by the Company as a reduction of the property, plant and equipment account on its balance sheet and amortized as a reduction to depreciation expense in its income statement.  However, GAAP requires that such incentives should be recorded as deferred rent and amortized as reductions to lease expense.  As a result, the Company’s property, plant and equipment asset account and deferred rent liability account were increased which required increases to cash flows provided by operating activities and cash flows used for investing activities in equal amounts.  Accordingly, the Company has restated the consolidated financial statements for fiscal 2000, 2001, 2002, 2003, for the first three quarters of fiscal 2004 and for all four quarters of fiscal 2003.  These landlord contributions will be amortized over the life of the lease as a reduction to rent expense.

 

The impact of the restatement on the Consolidated Balance Sheet as of January 31, 2004 was an increase in the total property, plant and equipment account of $13.1 million and an increase in the deferred rent liability account of $14.8 million. The impact of the restatement is a decrease in net income of $.1 million, $.1 million, $.1 million and $.3 million for fiscal years 2000, 2001, 2002 and 2003, respectively, from amounts previously reported.  The restatement decreased reported diluted earnings per share by $0.01, $0.01, $0.01 and $0.03 for fiscal years 2000, 2001, 2002 and 2003, respectively.  The cumulative effect of the restatement for all years prior to fiscal 2000 was $.4 million, which was recorded as an adjustment to opening retained earnings at January 30, 2000.  The restatement also had a cumulative increase to deferred income taxes of $.7 million as of January 31, 2004.  The restatement did not have any impact on our previously reported sales or comparable store sales or on our compliance with any financial covenant under our line of credit facility or other debt instruments.  The restatement also decreased reported diluted earnings per share by $0.01, $0.01 and $0.02 for the first, second and third quarters of fiscal 2004, respectively.

 

The Company has not amended and does not intend to amend its previously-filed Annual Reports on Form 10-K or its Quarterly Reports on Form 10-Q for the periods affected by the restatement, including without limitation for the periods ended May 1, 2004, July 31, 2004 and October 30, 2004.  For this reason, the consolidated financial statements, auditors’ reports and related financial information for the affected periods contained in such reports should no longer be relied upon.

 

General

 

Jos. A. Bank Clothiers, Inc., a Delaware corporation (the “Company” or “Jos. A. Bank”), is a designer, retailer and direct marketer (through stores, catalog and internet) of men’s tailored and casual clothing and accessories. The Company sells substantially all of its products exclusively under the Jos. A. Bank label through its 269 retail stores (as of January 29, 2005 and including seven outlet stores and ten franchise stores) located throughout 37 states and the District of Columbia in the United States, as well as through the Company’s nationwide catalog and internet (www.josbank.com) operations.

 

The Company’s products are targeted at the male career professional and emphasize the Jos. A. Bank brand of high quality tailored and casual clothing and accessories. The Company’s products are offered at “Three Levels of Luxury,” which include the opening Jos. A. Bank collection as well as the more luxurious Signature and Signature Gold collections. The Company sources all of its products through third party vendors, suppliers and/or agents using Jos. A. Bank designs and specifications.

 

The Company operates on a 52-53 week fiscal year ending on the Saturday closest to January 31. Information presented for the fiscal years ended February 1, 2003, January 31, 2004 and January 29, 2005 are hereinafter referred to as fiscal 2002, fiscal 2003 and fiscal 2004, respectively.

 

2



 

Strategy

 

The Company, established in 1905, has reinvented itself over the past five years by focusing on its “Four Pillars of Success”:

 

1.             Quality

 

2.             Service

 

3.             Inventory In-stock

 

4.             Product Innovation

 

The Company instills these four factors into all aspects of its operation and believes they help create a unique specialty retail environment that develops customer loyalty. Examples of the Company’s commitment to this strategy includes:

 

      continually increasing the already high level of quality of its products by developing and maintaining stringent design and manufacturing specifications;

 

      developing its multi-channel retailing concept by opening more stores and expanding the catalog and internet operation, thus offering multiple convenient channels for customers to shop;

 

      expanding its product assortment, including developing the “Three Levels of Luxury” and continuing to add innovative new products;

 

      increasing its product design capabilities while eliminating the middleman in the sourcing of its products; and

 

      providing outstanding customer service and emphasizing high levels of inventory fulfillment for its customers.

 

The Brand.  The Company’s branding emphasizes very high levels of quality in all aspects of its interactions with customers, including merchandise and service. The Company has developed very stringent specifications in its product designs to ensure consistency in the fit and quality of the product. The merchandise assortment has “Three Levels of Luxury” and one unwavering level of quality. The “Three Levels of Luxury” range from the original Jos. A. Bank collection to the more luxurious Signature collection to the exclusive Signature Gold collection. Examples of the different levels of luxury include the wool used in suits, sport coats and slacks, ranging from Super 100’s fine wool to the rare 150’s wool, and the uniqueness of tie swatches, some of which are offered in pre-numbered, limited editions.

 

The Company emphasizes customer service in all aspects of the business. Sales associates focus on developing close business relations with their customers to help serve all of the customer’s clothing needs. Inventory availability is a key focus to ensure customers can purchase merchandise when requested, whether in the stores or through the catalog or internet. A tailor is staffed in each store to ensure prompt, high quality alteration service for our customers.

 

Multi-Channel Retailing.  The Company’s strategy is to operate its three channels of selling as an integrated business and to provide the same personalized service to its customers regardless of whether merchandise is purchased through its stores, the internet or catalog. The Company believes the synergy between its stores, its internet site and its catalog offers an important convenience to our customers and a competitive advantage to the Company. The Company believes it has significant opportunity to leverage the three channels of selling by promoting each channel together to create awareness of the brand. For example, the internet site provides store location listings and can be used as a promotional source for the stores and catalog. The Company also uses its catalog to communicate the Jos. A. Bank image, to provide customers with fashion guidance in coordinating outfits and to generate store and internet traffic.

 

As a customer convenience, the Company’s information systems enable customers to purchase all products that are offered in the catalog and internet while in a store. Conversely, customers may have catalog purchases shipped to a store for alteration and pickup and can return or exchange catalog and internet purchases at a store.

 

Store Growth.  The Company believes that it has substantial opportunity to increase its store base by adding stores in its existing markets and by entering new markets.  As part of its plan to increase the chain to approximately 500 stores by 2007, the Company opened 25 new stores in fiscal 2002, 50 new stores in fiscal 2003 and 60 new stores in fiscal 2004. The Company intends to open new stores in existing markets which should allow the Company to leverage its existing advertising, management, distribution and sourcing infrastructure, as well as in new markets such as the western part of the United States. The Company opened its first stores in the states of Washington and Nebraska in fiscal 2004 and in California, Nevada, Arkansas and West Virginia in fiscal 2003.

 

3



 

Product Design and Sourcing.  The Company has increased its design capabilities in the past five years and now designs substantially all of its products. The designs are provided to a world-wide vendor base to manufacture. In certain cases, the Company has eliminated the middlemen (e.g. agents, importers, brokers) in its sourcing process and contracts directly with manufacturers. The Company’s product design and sourcing strategies have resulted in reduced product costs, (which have enabled the Company to design additional quality into its products), increased gross profit margins and funding for the development of the infrastructure needed to grow the chain.

 

Segments

 

The Company has two reportable segments: Stores and Direct Marketing (internet and catalog). The Company has included information with regard to these segments for each of its last three fiscal years under Note 13 of its Consolidated Financial Statements.

 

Stores.  The Company’s store segment includes all Company-owned stores except for its seven factory stores. The Company has targeted specialty retail centers with certain co-tenancy for new store locations and has developed and implemented a new store prototype for all stores that have been opened since the beginning of fiscal 2001.

 

The Company opened 60 stores in fiscal 2004 and expects to accelerate the pace of store openings in subsequent years, including plans to open between 60 to 75 stores in fiscal 2005 as the Company increases the chain to approximately 500 stores. The Company’s real estate strategy focuses primarily on stores located in high-end, specialty retail centers with the proper co-tenancy that attracts customers with demographics that are similar to the Company’s target customer. The specialty centers include, but are not limited to, outdoor lifestyle centers, malls and financial districts. The Company prefers outdoor lifestyle centers as the key real estate environment for new stores.  As of January 29, 2005, the store mix of the 252 full-line Company-owned stores (excluding seven factory stores and ten franchise stores) consisted of 69 outdoor lifestyle centers, 63 malls, 20 financial districts and 100 strip centers, power centers or freestanding stores.

 

The Company’s new store prototype was designed in the second half of fiscal 2000 and was introduced in March 2001 in Charlottesville, Virginia. The design emphasizes an open shopping experience that coordinates the Company’s successful corporate casual and sportswear with its suits, shirts, ties and other products. The store design is based on the use of wooden fixtures with glass shelving, numerous tables to feature fashion merchandise, carpet and abundant accent lighting and is intended to promote a pleasant and comfortable shopping environment. In the stores that have been opened in the last two fiscal years, approximately 80% of a store’s space is dedicated to selling activities, with the remainder allocated to stockroom, tailoring and other support areas. The Company expects that substantially all future stores will vary in size from approximately 3,500 to 5,500 square feet depending on the market. The full-line stores averaged approximately 5,120 square feet at the end of fiscal 2004. The stores opened in fiscal 2003 and fiscal 2004 averaged approximately 4,400 and 4,350 square feet, respectively.

 

The cost to open a new store is based on store size and landlord construction allowances. In fiscal 2004, the average cost to build a new store was approximately $440,000, including leasehold improvements, fixtures, point-of-sale equipment and tailor shop equipment. The Company will be reimbursed approximately $205,000 per store of the new store build-out cost.  New stores also require an inventory investment of approximately $300,000 to offer a full range of products, with higher inventory levels during certain peak periods. The inventory levels in a new store are typically increased as the store’s sales mature.

 

Substantially all stores have a tailor shop which provides a range of tailoring services as a convenience to its customers. The stores are designed to utilize Company-owned regional overflow tailor shops which allow the use of smaller tailor shops within each store. Operating the regional tailor shops has allowed the Company to optimize the number of tailors in the stores by sending all overflow work to regional tailor shops. These overflow shops experience higher productivity as the tailors focus solely on alterations, whereas store tailors assist customers during the course of the day. In addition, the store managers and certain additional store staff have been trained to fit tailored clothing for alterations. The Company guarantees all of the tailoring work.

 

The Company has ten franchise locations. Generally, a franchise agreement between the Company and the franchisee provides for a ten-year term with an option, exercisable by the franchisee under certain circumstances, to extend the term for an additional ten-year period. Franchisees pay the Company an initial fixed franchise fee and then a percentage of its net sales. Franchisees are required to maintain and protect the Company’s reputation for high quality, classic clothing and customer service. Franchisees purchase substantially all merchandise offered for sale in their stores from the Company at an amount above cost.

 

The Company has seven outlet stores which are used to liquidate excess merchandise and offer certain first quality products at a reduced price. Because of the classic character of the Company’s merchandise and aggressive store clearance promotions, historically, the Company has been able to sell substantially all of its products through its stores and has not been required to sell significant amounts of inventory to third party liquidators.

 

4



 

At April 8, 2005, the Company operated 273 retail stores (including seven factory stores and ten franchise stores) in 37 states and the District of Columbia. The following table sets forth the stores that were open at such date.

 

JOS. A. BANK STORES

 

State

 

Total #
Of Stores

 

State

 

Total #
Of Stores

 

 

 

 

 

 

 

 

 

Alabama

 

5

(a)

Missouri

 

5

 

Arkansas

 

1

 

Nebraska

 

1

 

California

 

12

 

Nevada

 

2

 

Colorado

 

5

 

New Jersey

 

15

 

Connecticut

 

8

 

New York

 

12

 

Delaware

 

1

 

North Carolina

 

15

(a)

Florida

 

17

 

Ohio

 

14

 

Georgia

 

11

(a)(b)

Oklahoma

 

4

 

Illinois

 

15

(a)

Pennsylvania

 

14

(b)

Indiana

 

4

 

Rhode Island

 

2

 

Iowa

 

2

 

South Carolina

 

6

 

Kansas

 

3

 

Tennessee

 

6

(a)

Kentucky

 

3

 

Texas

 

24

 

Louisiana

 

3

(a)

Utah

 

2

 

Maryland

 

15

(b)

Virginia

 

17

(b)

Massachusetts

 

7

 

Washington

 

2

 

Michigan

 

8

 

Washington, D.C.

 

3

 

Minnesota

 

3

 

West Virginia

 

1

 

Mississippi

 

1

(a)

Wisconsin

 

4

 

 

 

 

 

Total

 

273

 

 


(a)           Includes one or more franchise stores

(b)           Includes one or more factory stores

 

Direct Marketing.  The Company’s direct marketing segment, consisting of its catalog and internet channels, is a key part of the Company’s multi-channel concept. The direct marketing segment accounted for approximately 11% of net sales in fiscal 2003 and 11% of net sales in fiscal 2004. The direct marketing segment recorded a sales increase of 22.7% in fiscal 2004. The Company’s direct marketing segment offers potential and existing customers convenience in ordering the Company’s merchandise. In fiscal 2003 and fiscal 2004, the Company distributed approximately 7.8 and 9.2 million catalogs, respectively, representing catalogs mailed to customers and catalogs distributed through stores.

 

The catalog and internet site offer potential and existing customers an easy way to order the full range of Jos. A. Bank products. They are significant resources used to communicate our high-quality image, providing customers with guidance in coordinating outfits, generating store traffic and providing useful market data on customers. The Company believes customers are becoming increasingly more comfortable purchasing traditional business attire through the catalog and internet, as suits represented approximately 20% of net sales in the direct marketing segment in fiscal 2004.

 

To make catalog shopping as convenient as possible, the Company maintains a toll-free telephone number accessible 24 hours a day, seven days a week. The Company uses on-line computer terminals to enter customer orders and to retrieve information about merchandise and its availability. Catalog sales associates can help customers select merchandise and can provide detailed information regarding size, color, fit and other merchandise features. In most cases, sample merchandise is available for catalog sales associates to view, thereby allowing them to better assist customers. Merchandise purchased from the catalog may be returned to any of the Company’s stores or to the Company by mail.

 

The Company has experienced strong growth in its internet sales in each of the past three fiscal years. The Company has established over 3,000 affiliate arrangements which has helped increase internet sales. The Company typically pays a fee to the affiliate based on a percentage of net sales generated through such affiliate. In November 2002, the Company created an affiliate arrangement with Amazon.com and in September 2004, the Company created an affiliate arrangement with QVC.com.  The Company expects to continue to pursue affiliate arrangements to help fuel future internet sales increases.

 

5



 

The Company’s internet site has many customer-friendly features such as high processing speed, real-time inventory status, order confirmation, product search capabilities and an on-line catalog, among others. The site has enabled the Company to be responsive to trends thereby affording the Company an opportunity to increase sales.

 

To process catalog orders, sales associates enter orders on-line into a computerized catalog order entry system, while internet orders are placed by the customer and are linked to the same order entry system. After an order is placed, it automatically updates all files, including the Company’s customer mailing list, and permits the Company to measure the response to individual catalog mailings and internet email promotions. Computer processing of orders is performed by the warehouse management system which permits efficient picking of inventory from the warehouse. The Company’s order entry and fulfillment systems permit the shipment of most orders no later than the day after the order is placed (assuming the merchandise is in stock). Orders are shipped primarily by second day delivery or, if requested, by expedited delivery services, such as United Parcel Service priority. Sales and inventory information is available to the Company’s merchants the next day.

 

Merchandising

 

The Company believes it fills a niche of providing upscale classic, professional men’s clothing with impeccable quality at a reasonable price. The Company’s merchandising strategy focuses on achieving an updated classic look with extreme attention to detail in quality materials and workmanship. The Company offers a distinctive collection of clothing and accessories necessary to dress the career man from head to toe, including formal, business and business casual, as well as sportswear and golf apparel, all sold under the Jos. A. Bank label. Its product offering includes tuxedos, suits, shirts, vests, ties, sport coats, pants, sportswear, overcoats, sweaters, belts and braces, socks and underwear. The Company also sells branded shoes from several vendors, which are the only products it sells not using the Jos. A. Bank brand.

 

The Company’s branding emphasizes very high levels of quality in all aspects of its interactions with customers, including merchandise and service. The Company has developed very stringent specifications in its product designs to ensure consistency in the fit and quality of the product. The merchandise assortment has “Three Levels of Luxury” and one unwavering level of quality. The “Three Levels of Luxury” range from the Company’s original Jos. A. Bank collection, to the more luxurious Signature collection to the exclusive Signature Gold collection. Examples of the different levels of luxury include the wool used in suits, sport coats and slacks, ranging from Super 100’s fine wool to the rare 150’s wool, and the uniqueness of tie swatches, some of which are offered in pre-numbered, limited editions.

 

The Company believes its merchandise offering is well positioned to meet the changing trends of business dress for its target customer. Suits accounted for 26% of the Company’s net sales in fiscal 2004 and 27% in 2003, and serve as the foundation to the Company’s extensive offering of other products. As the corporate work environment trended to casual wear in recent years, the Company’s product offering was modified to meet the needs of the Jos. A. Bank customer.

 

The Company has many unique products to serve its customers’ needs and believes that continued development of innovative products is one of its “Pillars of Success”.  The TRIO collection is one of the Company’s solutions to corporate casual attire. The TRIO consists of a tailored jacket with two pants, one matching the jacket and one in a coordinating pattern. Therefore, the outfit can be worn as a suit, sportcoat/slack combination or as a casual outfit. The Company also offers its customers its Separates line, a concept for purchasing suits that allows customers to customize their wardrobe by selecting separate, but perfectly matched, jackets and pants from one of three coat styles, plain front or pleated pants, and numerous updated fabric choices including Super 100’s wool and natural stretch wool. The Separates line allows a customer to buy a suit with minimal alteration that will fit his unique body size, similar to a custom-made suit. Jos. A. Bank is one of the few retailers in the country that has successfully developed this concept which the Company believes is a competitive advantage. The TRIO and Separate lines accounted for approximately 43% of suit sales in fiscal 2004.

 

The Company also has a very successful line of wrinkle resistant all cotton dress shirts that are made using a patented process that is owned by the vendor. The Company believes it has one of the most extensive selections of dress pants in the industry. The Company developed its Vacation-in-Paradise (“VIP”) line of casual vacation wear in fiscal 2002. Its David Leadbetter golf apparel offers sportshirts, sweaters and casual trousers and is a unique product in the sportswear category.

 

In early fiscal 2004, the Company introduced a wrinkle resistant, stain resistant traveler cotton pique polo shirt and machine washable traveler wool pants, as part of its successful “Traveler” collection of products.  In late fiscal 2004 it introduced a wrinkle resistant, stain-resistant suit as part of its Separates Collection.

 

6



 

Design and Purchasing

 

Jos. A. Bank merchandise is designed through the coordinated efforts of the Company’s buying and planning staffs, working in conjunction with suppliers, manufacturers and/or agents around the world. The process of creating a new garment begins up to 12 months before the product’s expected in-stock date. Substantially all products are made to the Company’s rigorous specifications, thus ensuring consistent fit and feel for the customer. The merchandise management staff oversees the development of each product in terms of style, color and fabrication. The Company’s planning staff is responsible for providing each channel of business with the correct amount of products.

 

The Company believes that it gains a distinct advantage over many of its competitors in terms of quality and price by designing its tailored and other products, selecting and, in certain cases, purchasing raw materials (finished wool) and then having merchandise manufactured to its own specifications by third party contract manufacturers, either domestically or abroad.  Since the Company’s designs are focused on updated classic clothing, the Company experiences much less fashion risk than other retailers.  All products manufactured must conform to the Company’s rigorous specifications with respect to standardized sizing and quality.

 

The Company buys its shirts from leading U.S. and overseas shirt manufacturers who also supply shirts to many of the Company’s competitors. In fiscal 2002, the Company began using one agent to source a significant portion of its product that comes from certain countries in or near Asia.

 

Approximately 10% of the total product purchases (including piece goods) in fiscal 2004 were sourced from United States suppliers, and approximately 90% were sourced from suppliers in other countries. In fiscal 2004, approximately 27% of the total product purchases were manufactured in China (including 12% from Hong Kong) and 18% in Mexico. No other country represented more than 10% of total product purchases in fiscal 2004.

 

Also as discussed above, the Company uses an agent to source a portion of its products from various companies that are located in or near Asia (China, including Hong Kong, Indonesia, Korea, Thailand, and Bangladesh). Purchases through this agent represented approximately 29% of the total product purchases in fiscal 2004. The Company also makes other purchases from manufacturers and suppliers in Asia.  Two other suppliers combined represent approximately 15% of total product purchases in fiscal 2004.

 

The total product purchases discussed above include direct purchases of raw materials by the Company that are subsequently sent to manufacturers for cutting and sewing. Total raw materials represented approximately 10% of the total product purchases made by the Company. In fiscal 2004, five vendors accounted for over 86% of the raw materials purchased by the Company.

 

The Company transacts substantially all of its business on an order-by-order basis and does not maintain any long-term or exclusive contracts, commitments or arrangements to purchase from any finished good supplier, piece goods vendor or contract manufacturer other than an agreement with one raw materials supplier to purchase up to approximately $9 million of wool through fiscal 2004 at a specified price. A portion of the commitment extended into 2005; however the total amount of the commitment did not change. The Company ordinarily places orders for the purchase of inventory approximately six to twelve months in advance.

 

In 2003, the Company implemented two new information systems that increased its ability to communicate design specifications to its worldwide vendor base and to increase its ability to manage the status of raw materials and production in plants around the world.

 

The Company does business with all of its vendors in U.S. currency and has not experienced any material difficulties as a result of any foreign political, economic or social instabilities. The Company believes that it has good relationships with its piece goods vendors, finished goods suppliers, contract manufacturers and agents and that there will be adequate sources to produce a sufficient supply of quality goods in a timely manner and on satisfactory economic terms, but it cannot guarantee such results.

 

Marketing, Advertising and Promotion

 

Strategy.  The Company has historically used mass media radio and direct mail marketing, advertising and promotion activities in support of its store and catalog/internet operations.  The Company has also begun sending email promotions to its store and internet customers in the past several years.  Core to each marketing campaign, while primarily promotional, is the identification of the Jos. A. Bank name as synonymous with high quality, upscale classic clothing offered at a value. The Company has a database of over 2.2 million names of people who have previously made a purchase from one of the Company’s retail stores, its internet site or catalog or have requested a catalog or other information from the Company. Of these, approximately 1.4 million individuals have made such purchases or information requests in the past 24 months. The Company evaluates its database for mailing and selects names based on expectations of response to specific promotions which allows the Company to efficiently use its advertising dollars.

 

7



 

In the fourth quarter of 2004, the Company began testing cable television as a method to increase its brand awareness and to drive customers to its stores.  The Company also began using national magazines to increase our brand awareness.  The Company expects to continue testing these channels as alternative methods to increase sales and brand awareness.

 

Throughout each season, the Company promotes specific items or categories at specific prices that are below the initial retail price originally offered to the customer. These sales are used to complement promotional events and to meet the needs of the customers. At the end of each season, the Company conducts clearance sales to promote the sale of that season’s merchandise.

 

Corporate Card.  Certain organizations and companies can participate in our corporate card program, through which all of their employees are eligible to receive a 20% discount off regularly-priced Jos. A. Bank merchandise. The card is honored at all full-line stores as well as for catalog and internet purchases. Over 75,000 companies nationally, from privately-owned small companies to large public companies, are now participating in the program. Participating companies are able to promote the card as a free benefit to their employees.

 

Apparel Incentive Program.  Jos. A. Bank Clothiers apparel incentive gift certificates are used by various companies as a reward for achievement for their employees. The Company also redeems proprietary gift certificates and gift cards marketed by major premium/incentive companies.

 

Distribution

 

The Company uses a centralized distribution system, under which all merchandise is received, processed and distributed through the Company’s distribution facility located in Hampstead, Maryland. Merchandise received at the distribution center is promptly inspected to insure expected quality in workmanship and conformity to Company specifications. The merchandise is then allocated to individual stores or to warehouse stock. As applicable, the merchandise is then packed for delivery and shipped to the stores, principally by common carrier. Each store generally receives a shipment of merchandise two to three times a week from the distribution center; however, when necessary because of a store’s size or volume, a store can receive shipments more frequently. Inventory of basic merchandise in stores is replenished regularly based on sales tracked through its point-of-sale terminals. Shipments to catalog/internet customers are also made from the central distribution facility.

 

To support the new store growth, the Company upgraded its distribution center over the past four years and it is now capable of handling up to 500 stores in most of its distribution center functions.  In late 2004, the Company increased its distribution center capacity by leasing and equipping approximately 289,000 square feet of space in a facility that is adjacent to its worldwide corporate headquarters.

 

Management Information Systems

 

Many of the Company’s information systems have been updated in the last six years. In August 1998, the Company installed and implemented the latest version of its merchandising, warehouse, sales audit, accounts payable and general ledger system.  In fiscal 1999, the Company upgraded its catalog system and replaced its point-of-sale (POS) system. In fiscal 2000 the Company designed and implemented a new internet site. In fiscal 2003, the Company implemented two new systems that increased their ability to communicate design specification to its worldwide vendor base and to increase its ability to manage status of raw materials and production in plants around the world. In 2004, the Company developed systems that allow increased management and reporting of pricing elements such as gross margins.  Additionally, the Company implemented a major web site upgrade to increase performance.  By using these systems, the Company is able to capture greater customer data and has increased its marketing efficiency using such data.

 

Competition

 

The Company competes primarily with other specialty retailers, department stores and other catalogers engaged in the retail sale of apparel, and to a lesser degree with other retailers of men’s apparel. The Company is one of only a few multi-channel retailers focusing exclusively on men’s apparel which the Company believes provides a competitive edge. The Company believes that it maintains its competitive position based not only on its ability to offer its high quality career clothing at reasonable prices, but also on greater selection of merchandise and superior customer service and product innovation as part of its “Four Pillars of Success”. The Company competes with, among others, Brooks Brothers, Nordstrom, Men’s Wearhouse and Lands End, as well as local and regional competitors in each store’s market. Many of these major competitors are considerably larger and have substantially greater financial, marketing and other resources than the Company.

 

8



 

Trademarks

 

The Company is the owner or exclusive licensee in the United States of the marks “Jos. A. Bank”, “The Miracle Collection”, and “Vacation-in-Paradise.”  These trademarks are registered in the United States Patent and Trademark Office.  A Federal registration is renewable indefinitely if the trademark is still in use at the time of renewal. The Company’s rights in the Jos. A. Bank trademark are a material part of the Company’s business. Accordingly, the Company intends to maintain its use of the trademark. The Company is not aware of any claims of infringement or other material challenges to the Company’s right to use its marks in the United States.

 

In addition, the Company has registered “josbank.com” and various other internet domain names. The Company intends to renew its registration of domain names from time to time for the conduct and protection of its e-commerce business.

 

Seasonality

 

Although variations in sales volumes do exist between quarters, the Company believes the nature of its merchandise helps to stabilize demand between the different periods of the year. However, as the Company’s merchandise continues to include more Corporate Casual and Sportswear and as more new stores are opened in the second half of the year, profits generated during the fourth quarter have become a larger portion of annual profits.

 

Employees

 

As of April 8, 2005, the Company had approximately 2,350 employees, consisting of 500 part-time employees and 1,850 full-time employees.

 

As of April 8, 2005, approximately 180 employees worked in the tailoring and distribution center, most of whom are represented by the Union of Needletrades Industrial & Textile Employees. The current collective bargaining agreement extends to February 28, 2006. The Company believes that union relations are good. During the past 50 years, the Company has had only one work stoppage, which occurred more than 20 years ago. The Company believes that its relations with its non-union employees are also good.

 

A small number of sales associates are union members under a separate contract which extends to April 30, 2006. The Company maintains an excellent relationship with these employees and their union.

 

Available Information

 

The Company’s principal executive offices are located at 500 Hanover Pike, Hampstead, Maryland 21074. The Company’s telephone number is (410) 239-2700 and its website address is www.josbank.com. The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports available on its website free of charge as soon as practicable after they are filed with the Securities and Exchange Commission. In addition, the public may read and copy any materials filed by the Company with the SEC at the SEC’s public reference room at 450 Fifth Street, N.W., Washington D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. Also, the SEC maintains an Internet Site that contains reports, proxy and information statements. Its web address is www.sec.gov.

 

Item 2.  DESCRIPTION OF PROPERTY

 

The Company owns its distribution and corporate office facility located in Hampstead, Maryland, subject to certain financing liens. (See Item 7, Managements’ Discussion and Analysis and “Consolidated Financial Statements—Note 6.”) The Company believes that its existing facility is well maintained and in good operating condition. The table below presents certain information relating to the Company’s corporate property as of April 8, 2005:

 

Location

 

Gross
Square Feet

 

Owned/
Leased

 

Primary Function

 

 

 

 

 

 

 

 

 

Hampstead, Maryland

 

315,000

 

Owned

(1)

Corporate offices, distribution center, catalog order and fulfillment and regional tailoring overflow shop (“Worldwide Corporate Headquarters”)

 

 

 

 

 

 

 

 

 

Hampstead, Maryland

 

289,000

 

Leased

 

Distribution center and offices

 

 

9



 


(1) This facility was upgraded in the past several years including the addition of several second level mezzanines, which increased the total floor space to approximately 315,000 square feet.

 

As of April 8, 2005, the Company had 263 Company-operated stores (including its seven outlet stores and excluding its ten franchise stores) all of which were leased. The full-line stores average approximately 5,120 square feet as of the end of fiscal 2004, including selling, storage, tailor shop and service areas. The full-line stores range in size from approximately 1,900 square feet to approximately 18,900 square feet. In most cases the Company pays a fixed annual base rent plus real estate taxes, insurance and utilities and, other than in freestanding locations, makes contributions toward the common area operating costs. Certain facility leases require contingent rental fees based on sales in addition to or in the place of annual rental fees. Most of the Company’s leases provide for an increase in annual fixed rental payments during the lease term.

 

The Company also leases one overflow tailoring facility in Atlanta, Georgia. This facility receives customers’ goods from full-line stores which are altered and returned to the store for customer pickup.

 

Item 3.  LEGAL PROCEEDINGS

 

The Company has been named as a defendant in legal actions arising from its normal business activities. Although the outcome of these lawsuits or other proceedings against the Company cannot be accurately predicted, the Company does not expect that any such liability will have a material adverse effect on the business, net assets or financial position of the Company.

 

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

No matters were submitted to a vote of the Company’s security holders during the quarter ended January 29, 2005.

 

PART II

 

Item 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

(a)             Market Information.

 

The Company’s Common Stock is listed on The Nasdaq National Market (“NASDAQ”) under the trading symbol “JOSB”. The following table sets forth, for the periods indicated, the range of high and low closing for the Common Stock, as reported on NASDAQ. The approximate high and low closing prices for the Common Stock tabulated below represent inter-dealer quotations which do not include retail mark-ups, mark-downs or commissions. Such prices do not necessarily represent actual transactions.

 

 

 

Fiscal 2003

 

Fiscal 2004

 

 

 

High

 

Low

 

High

 

Low

 

 

 

 

 

 

 

 

 

 

 

1st Quarter

 

$

15.39

 

$

10.72

 

$

31.32

 

$

23.28

 

2nd Quarter

 

22.40

 

12.87

 

26.94

 

22.87

 

3rd Quarter

 

27.39

 

20.32

 

32.50

 

22.96

 

4th Quarter

 

23.42

 

16.82

 

31.66

 

24.06

 

 

 

 

 

 

 

 

 

 

 

1st Quarter fiscal 2005 (through April 8, 2005)

 

 

 

 

 

$

34.51

 

$

27.10

 

 

On April 8, 2005 the closing sale price of the Common Stock was $33.36

 

(b)           Holders of Common Stock

 

As of April 8, 2005 there were 90 holders of record of the Company’s Common Stock.

 

(c)           Dividend Policy

 

The Company intends to retain its earnings to finance the development and expansion of its business and for working capital purposes, and therefore does not anticipate paying any cash dividends in the foreseeable future. The Company has not declared or paid any cash dividends in the last two fiscal years. In addition, the Company’s Credit Agreement prohibits the Company from paying cash dividends, without prior approval from the lender.

 

10



 

Item 6.  SELECTED CONSOLIDATED FINANCIAL DATA

 

The following selected consolidated financial data with respect to each of the fiscal years ended February 1, 2003 (fiscal 2002), January 31, 2004 (fiscal 2003) (restated in Note 2 of the Consolidated Financial Statements as set forth therein) and January 29, 2005 (fiscal 2004) have been derived from the Company’s audited Consolidated Financial Statements.  The amounts for fiscal 2000, fiscal 2001, fiscal 2002 and fiscal 2003 have been restated by the Company to reflect the applicable revisions to the lease accounting as discussed in Note 2 in the accompanying consolidated financial statements.  The data with respect to the years ended February 3, 2001 (fiscal 2000) and February 2, 2002 (fiscal 2001) prior to the restatement were derived from financial statements audited by Arthur Andersen which is no longer in operation and thus the restated data is unaudited.  Fiscal 2000 was a 53-week year and all other years consisted of 52 weeks, each of which ended on the Saturday closest to the end of January of the respective year. The information should be read in conjunction with the Consolidated Financial Statements and Notes thereto that appear elsewhere in the Annual Report on Form 10–K and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

 

 

 

Fiscal Years

 

 

 

2000

 

2001

 

2002

 

2003

 

2004

 

 

 

(As Restated)

 

(As Restated)

 

(As Restated)

 

(As Restated)

 

 

 

Consolidated Statements of Income Information:

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

206,252

 

$

211,029

 

$

243,436

 

$

299,663

 

$

372,500

 

Cost of goods sold

 

104,943

 

101,676

 

109,836

 

127,364

 

147,674

 

Gross profit

 

101,309

 

109,353

 

133,600

 

172,299

 

224,826

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

71,397

 

76,166

 

89,186

 

110,230

 

143,586

 

General and administrative

 

20,609

 

21,290

 

24,310

 

30,554

 

38,003

 

Store opening costs

 

363

 

405

 

528

 

1,539

 

1,184

 

One-time charges

 

 

210(a

)

 

 

 

Total operating expenses

 

92,369

 

98,071

 

114,024

 

142,323

 

182,773

 

Operating income

 

8,940

 

11,282

 

19,576

 

29,976

 

42,053

 

Interest expense, net

 

1,034

 

1,364

 

1,098

 

1,623

 

1,696

 

Income before provision for income taxes

 

7,906

 

9,918

 

18,478

 

28,353

 

40,357

 

Provision for income taxes

 

2,965

 

3,520

 

7,635

 

12,073

 

15,876

 

Net income

 

$

4,941

 

$

6,398

 

$

10,843

 

$

16,280

 

$

24,481

 

 

 

 

 

 

 

 

 

 

 

 

 

Per share information (diluted)(b):

 

 

 

 

 

 

 

 

 

 

 

Net income per share

 

$

0.42

 

$

0.55

 

$

0.82

 

$

1.17

 

$

1.72

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average number of shares outstanding(b)

 

11,718

 

11,633

 

13,234

 

13,883

 

14,231

 

Balance Sheet Information (as of end of fiscal year):

 

 

 

 

 

 

 

 

 

 

 

Working capital

 

$

28,650

 

$

37,757

 

$

43,626

 

$

76,214

 

$

68,146

 

Cash and cash equivalents

 

3,126

 

827

 

8,389

 

875

 

1,425

 

Total assets

 

91,678

 

113,467

 

146,004

 

200,645

 

231,830

 

Total debt

 

6,869

 

16,638

 

10,519

 

29,863

 

6,859

 

Total noncurrent liabilities (including debt)

 

13,115

 

24,634

 

26,370

 

51,521

 

38,951

 

Stockholders’ equity

 

45,210

 

51,631

 

64,923

 

86,454

 

114,324

 

Other Data (as of end of fiscal year):

 

 

 

 

 

 

 

 

 

 

 

Number of stores

 

116

 

135

 

160

 

210

 

269

 

 


(a)           Represents primarily professional fees incurred in fiscal 2001 in conjunction with a strategic action considered by the Board of Directors.

 

(b)           On January 13, 2004, the Company’s Board of Directors declared a 50% common stock dividend payable on February 18, 2004 to stockholders of record as of January 30, 2004.  On June 8, 2004, the Company’s Board of Directors declared a 25% common stock dividend payable on August 18, 2004 to stockholders of record as of July 30, 2004.  Unless otherwise indicated, all historical weighted average share and per share amounts and all references to the number of common shares elsewhere in the consolidated financial statements, and notes thereto, have been restated to reflect the two stock dividends.

 

11



 

Item 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The information that follows should be read in conjunction with the Consolidated Financial Statements and Notes thereto that appear elsewhere in this Form 10-K.

 

Restatement of Financial Statements

 

The accompanying management discussion and analysis in this Annual Report on Form 10-K gives effect to the restatement of the Consolidated Financial Statements for the years ended February 1, 2003 (fiscal 2002) and January 31, 2004 (fiscal 2003) and for the first three quarters of fiscal 2004 and for all four quarters of fiscal 2003 to reflect the revision to its historical practices of accounting for lease transactions, as discussed in the Explanatory Note to this Annual Report on Form 10-K and Note 2 to the Consolidated Financial Statements.

 

The impact of the restatement on the Consolidated Balance Sheet as of January 31, 2004 was an increase in the total property, plant and equipment account of $13.1 million and an increase in the deferred rent liability account of $14.8 million.  The impact of the restatement on the Consolidated Statements of Income is a decrease in net income of $.1 million and $.3 million for fiscal years 2002 and 2003, respectively, from amounts previously reported.  The restatement decreased previously reported diluted earnings per share by $0.01 and $0.03 for fiscal 2002 and fiscal 2003, respectively.  The cumulative effect of the restatement for all years prior to fiscal 2002 was $.6 million.  The restatement also had a cumulative increase to deferred income taxes of $.7 million as of January 31, 2004.  The restatement did not have any impact on our previously reported sales or comparable store sales or on our compliance with any financial covenant under our line of credit facility or other debt instruments.

 

The financial statements and related notes thereto that were originally filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2004 on Form 10-K (the “Original Filing”) have been restated in this Form 10-K.  For a detailed description of the restatement, see “Restatement of Financial Statements” in Note 2 to the accompanying consolidated financial statements.  As previously disclosed on February 25, 2005, our Audit Committee concluded to restate the Company’s financial statements for the years ended February 1, 2003 (fiscal year 2002) and January 31, 2004 (fiscal year 2003), for the first three quarters of fiscal 2004 and for all four quarters of fiscal 2003 to reflect the revision to its historical practices of accounting for lease transactions.

 

The Company has not amended and does not intend to amend our previously-filed Annual Reports on Form 10-K or our Quarterly Reports on Form 10-Q for the periods affected by the restatement that ended prior to January 29, 2005.  For this reason, the consolidated financial statements, auditors’ reports and related financial information for the affected periods contained in such reports should no longer be relied upon.

 

Overview

 

Net income in fiscal 2004 increased 50.3% to approximately $24.5 million compared with approximately $16.3 million in fiscal 2003.  The increased earnings in fiscal 2004 were primarily attributable to:

 

              24.3% increase in net sales with increases in both the stores and direct marketing (catalog and internet) segments;

 

              290 basis point increase in gross profit margins; and

 

              the opening of 60 new stores.

 

Management believes that the chain can grow to approximately 500 stores from the fiscal 2004 year-end base of 269 stores. The Company plans to open between 60 to 75 stores in fiscal 2005 as part of its plan to grow the chain to the 500 store level. The store growth is part of a strategic plan the Company initiated in fiscal 2000. In the past five years, the Company has continued to increase the number of store openings as infrastructure and performance has improved. As such, there were ten new stores opened in fiscal 2000 (including two factory stores), 21 new stores in fiscal 2001, 25 new stores in fiscal 2002, 50 new stores in fiscal 2003 and 60 new stores in fiscal 2004.

 

Capital expenditures should be approximately $35 million in fiscal 2005, primarily to fund the opening of approximately 60 to 75 new stores, the renovation and/or relocation of several stores, and the implementation of various systems initiatives.  The capital expenditures include the cost of the construction of leasehold improvements for new stores of which $12-$15 million is expected to be reimbursed through landlord contributions.  The Company also expects inventories to increase in 2005 to support new store openings, sales growth in existing segments and other initiatives.

 

12



 

The Company ended fiscal 2004 with no revolver debt, $6.9 million of term debt and $1.4 million of cash.  The Company generated $51.5 million of cash from operating activities in fiscal 2004, which was used to fund a 28% increase in the number of stores and to reduce total debt by approximately $23 million.  The Company’s Credit Agreement with its bank extends to April 2008 and allows the Company to borrow a maximum revolving amount under the facility up to $100 million.  In addition, the Company has the option to increase the amount borrowed to $125 million, if requested by April 30, 2006, if needed and if supported by its borrowing base formula under the Credit Agreement.  The Company’s availability in excess of outstanding borrowings, as supported by the existing borrowing base under its Credit Agreement, was $74.6 million at January 29, 2005 compared with $52.4 million at the same time in fiscal 2003.

 

Common Stock Dividends.  On January 13, 2004, the Company’s Board of Directors declared a 50% common stock dividend payable on February 18, 2004 to stockholders of record as of January 30, 2004.  On June 8, 2004, the Company’s Board of Directors declared a 25% common stock dividend payable on August 18, 2004 to stockholders of record as of July 30, 2004.  Unless otherwise indicated, all historical weighted average share and per share amounts and all references to the number of common shares elsewhere in the consolidated financial statements, and notes thereto, have been restated to reflect the two stock dividends.

 

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 on the application of this and other accounting policies, see Note 1 in the Consolidated Financial Statements in this Annual Report on Form 10-K.

 

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.

 

Management’s sales assumptions are based on the Company’s experience that most of the Company’s inventory is sold through the Company’s primary sales channels with virtually no inventory being liquidated through bulk sales to third parties. The Company’s LCM reserve estimates for inventory that have been made in the past have been very reliable as a significant portion of its sales (approximately 67% in fiscal 2004) are classic traditional products that are on-going programs and that bear low risk of write-down.  These products include items such as navy and gray suits, navy blazers, white and blue button-down shirts, etc.  The portion of the products that have seasonal or fashion elements are monitored closely to ensure that aging goals are achieved to limit the need to sell significant amounts of product below cost.  In addition, the Company’s strong gross profit margins enable the Company to sell substantially all of its products at levels above cost.

 

To calculate the estimated market value, the Company periodically performs a detailed review of all of its major inventory classes and stock-keeping units.  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 units sold below cost are sold in the Company’s factory stores within twenty-four months of purchase.  In fiscal 2003 and 2004, the Company’s costs in excess of selling price plus the cost of disposal in its factory stores was $1.1 million and $1.1 million, respectively.  The inventory component of these costs is recorded in cost of goods sold whereas the related costs of disposal are recorded as selling and marketing expenses.  The Company anticipates similar results in fiscal year 2005.  If the inventory required to be sold through the factory stores or liquidated through other means varies from the estimate, the Company’s LCM reserve could change.

 

Asset Valuation. Long-lived assets, such as property, plant and equipment subject to depreciation, are periodically 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 fair value of the asset.  The asset valuation estimate is principally dependent on the Company’s 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.  In each of fiscal years 2003 and 2004, the asset valuation charges have been less than $100,000 as sales and profits have increased throughout this period.

 

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 depreciation 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

 

13



 

and straight-line rent expense commences on the date when the Company takes possession and has the right to control use of the leased premises. Funds received from the lessor intended to reimburse the Company for the costs of leasehold improvements is recorded as a deferred credit 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 the estimates.  Management believes any difference in the actual results from the estimates will not have a material effect upon the Company’s financial position or results of operations.

 

New Accounting Pronouncements—In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment, (“FAS 123(R)”).  This Statement requires companies to expense the estimated fair value of stock options and similar equity instruments issued to employees.  Currently, companies are required to calculate the estimated fair value of these share-based payments and can elect to either include the estimated cost in earnings or disclose the pro forma effect in the footnotes to their financial statements.  The Company has chosen to disclose the pro forma effect.  The fair value concepts were not changed significantly in FAS 123(R); however, in adopting this Standard, companies must choose among alternative valuation models and amortization assumptions.  The valuation model and amortization assumption we have used continues to be available, but we have not yet completed our assessment of the alternatives.  FAS 123(R) will be effective for the company beginning with the third quarter of 2005.  Transition options allow companies to choose whether to adopt prospectively, restate results to the beginning of the year, or to restate prior periods with the amounts that have been included in their footnotes.  The Company has not yet concluded on which transition option will be selected.  See Proforma Disclosures of Stock-Based Compensation discussion above for the pro forma effect of a full year application, using our existing valuation and amortization assumptions.

 

In November 2004, the FASB issued SFAS No.151, “Inventory Costs – an amendment of ARB No. 43, Chapter 4”.  SFAS No. 151 amends Accounting Research Bulletin (“ARB”) No. 43, Chapter 4, “Inventory Pricing,” to clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) should be recognized as current period charges.  In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.  The provisions of this Statement shall be effective for inventory costs incurred during fiscal years beginning after June 15, 2005.  The adoption of this statement is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

 

Results of Operations

 

The following table is derived from the Company’s Consolidated Statements of Income and sets forth, for the periods indicated, the items included in the Consolidated Statements of Income expressed as a percentage of net sales.

 

 

 

Percentage of
Net Sales
Fiscal Year

 

 

 

2002

 

2003

 

2004

 

 

 

(As Restated)

 

(As Restated)

 

 

 

Net sales

 

100

%

100

%

100

%

Cost of goods sold

 

45.1

 

42.5

 

39.6

 

Gross profit

 

54.9

 

57.5

 

60.4

 

Sales and marketing expenses

 

36.6

 

36.8

 

38.6

 

General and administrative expenses

 

10.0

 

10.2

 

10.2

 

Store opening costs

 

0.2

 

0.5

 

0.3

 

Operating income

 

8.0

 

10.0

 

11.3

 

Interest expense, net

 

0.5

 

0.6

 

0.5

 

Income before provision for income taxes

 

7.6

 

9.4

 

10.8

 

Provision for income taxes

 

3.1

 

4.0

 

4.2

 

Net income

 

4.5

%

5.4

%

6.6

%

 

Fiscal 2004 Compared to Fiscal 2003

 

Net Sales—Net sales increased 24.3% to $372.5 million in fiscal 2004 compared with $299.7 million in fiscal 2003. Total full-line store sales increased 25.2% in fiscal 2004 due primarily to an 8.4% increase in comparable store sales and the opening of new stores as shown below. Direct marketing sales increased 22.7% due primarily to increased catalog circulation and an increase in the internet customer database and internet affiliates. The catalog circulation was 9.2 million in fiscal 2004 compared with 7.8 million in fiscal 2003.

 

14



 

Comparable store sales increased 8.4% in fiscal 2004.  For comparable stores, the average dollars per transaction (“DPT”) increased in fiscal 2004 partially as the result of increased sales of higher-priced Signature and Signature Gold products and the development of new products.  Traffic (as measured by transactions) in comparable stores also increased in fiscal 2004, while items per transaction decreased.

 

All major product categories generated sales increases in fiscal 2004, lead by sales of sportswear which increased over 36%.  Sales of the more luxurious Signature and Signature Gold suits, which represented 37% of suit sales in fiscal 2004, increased over 29% in that period as compared with the same period last year.  For fiscal 2004 and 2003, suits represented approximately 26% and 27% of total merchandise sales, respectively.

 

The Company expects fiscal 2005 sales to increase over the same periods of fiscal 2004 as a result of the additional new stores and the opportunity for comparable store and direct marketing sales increases.

 

Net sales also increased as a result of the opening of new stores as follows:

 

 

 

Fiscal 2003

 

Fiscal 2004

 

 

 

Stores

 

Square
Feet*

 

Stores

 

Square
Feet*

 

 

 

 

 

 

 

 

 

 

 

Stores open at the beginning of the year

 

160

 

846

 

210

 

1,062

 

Stores opened

 

50

 

216

 

60

 

261

 

Stores closed

 

 

 

(1

)

(5

)

Stores open at the end of the year

 

210

 

1,062

 

269

 

1,318

 

 


* Square feet is presented in thousands and excludes franchise stores

 

Historically, JoS. A. Bank has included new stores in its comparable store base at the end of the first full fiscal year after opening.  Existing stores have been excluded from the comparable store sales if a new store has opened in their immediate market area (within zero to ten miles) during the previous twelve months.  Because of the Company’s store expansion strategy, which emphasizes the opening of stores in existing as well as new markets, management believes this method of calculating comparable store sales accurately reflects relevant sales trends.  Beginning in fiscal 2005, comparable store sales will include merchandise sales generated in all full-line stores that have been open for at least thirteen full months, including retail locations that have had a new JoS. A. Bank store open in their immediate market area (within zero to ten miles) during the previous twelve months, similar to other specialty stores.

 

If the Company had calculated its comparable store sales using this new methodology, the comparable store sales increase for fiscal year 2004 would have approximated 7.5%, versus the 8.4% noted above, a difference of nine-tenths of one percentage point.  For fiscal year 2003, the Company previously reported a gain of 8.2% in comparable store sales.  If the Company had calculated its comparable store sales using the new methodology, the increase in comparable store sales for fiscal year 2003 would have been approximately 7.5%, a difference of seven-tenths of one percentage point.  Total sales would remain the same under either method, an increase of 24.3% in 2004 and 23.1% in 2003.

 

Gross Profit—Gross profit (net sales less cost of goods sold) increased to $224.8 million or 60.4% of net sales in fiscal 2004 from $172.3 million or 57.5% of net sales in fiscal 2003, an increase of 290 basis points. The increased gross profit percentage is primarily due to the continued improvement in sourcing of merchandise, thus reducing the cost of items purchased and increases in retail prices primarily as sales of its new products and the more luxurious Signature and Signature Gold products increased. Gross profit margins increased in substantially all major product categories.

 

The Company’s gross profit classification may not be comparable to the classification used by certain other entities. Some entities include distribution, 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 & administrative and/or sales & marketing expenses.

 

Sales and Marketing Expenses—Sales and marketing expenses, which consist primarily of a)  full-line store, factory store and direct marketing occupancy, payroll, selling and other variable costs and b) total Company advertising and marketing expenses, increased to $143.6 million or 38.6% of sales in fiscal 2004 from $110.2 million or 36.8% of sales in fiscal 2003. The $33.4 million increase in sales and marketing expenses relates primarily to a) $22.3 million of additional costs incurred in the 50 stores opened in fiscal 2003 and the 60 stores which opened in fiscal 2004, b) $8.7 million additional costs related to expenses in the stores which were open prior to fiscal 2003 and c) the remainder relates primarily to costs of the direct channel for higher circulation and sales-related costs. The Company expects sales and marketing expenses to increase in fiscal 2005 primarily as a result of opening 60 to 75 new stores, the full year operation of stores that were opened during fiscal 2004, and an increase in advertising expenditures.

 

15



 

In the fourth quarter of 2004, the Company began testing cable television as a method to increase its brand awareness and to drive customers to its stores.  We also began using national magazines to increase our brand awareness.  The Company expects to continue testing these channels as alternative methods to increase sales and brand awareness.

 

General and Administrative Expenses— General and administrative expenses, which consist primarily of corporate payroll and overhead costs and distribution center costs, increased $7.4 million in fiscal 2004.  Total corporate payroll including incentive compensation and corporate overhead costs increased $2.5 million and $3.6 million, respectively, in fiscal 2004.  The increases in corporate overhead costs were primarily due to a) higher travel costs and other expenses related to business expansion, b) professional fees principally related to approximately $1.5 million spent for internal control documentation efforts in compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and c) the payment of approximately $.5 million to the State of New York as discussed in Note 10 to the Consolidated Financial Statements.

 

Total distribution center costs were $6.3 million and $5.2 million in 2004 and 2003, respectively.  The Company expects distribution center costs to increase in the future as it has leased additional warehouse space and it expects to process an increasing amount of inventory units to support future growth.  Continued growth in the stores and direct marketing segments may result in additional increases in these expenses.

 

Store Opening Costs—Store opening costs, which include the initial promotional advertising costs as well as other start-up costs such as travel for recruitment, training and setup of new stores, decreased $.4 million due primarily to the location of new store openings (which impact the travel incurred for the stores) and planned reduced advertising for new stores in fiscal 2004 versus fiscal 2003.

 

Interest Expense, net—Interest expense increased $.1 million due primarily to slightly higher borrowing levels due to higher capital expenditures related to the opening of new stores.  Average revolver loan borrowings increased $3.3 million to $23.3 million in fiscal 2004 compared with $20.0 million in fiscal 2003. Management expects peak borrowing levels and interest to increase in fiscal 2005 to fund the opening of additional stores and growth in inventory levels.

 

Income Taxes— The fiscal 2004 effective income tax rate decreased to 39.3% compared with 42.6% in the fiscal 2003.  The decrease was primarily due to non-deductible compensation under Section 162 (m) of Internal Revenue Code representing a smaller percentage of the full year profitability of the Company.  The income tax rate for fiscal 2004 includes a reduction of previously recorded income tax liabilities settled or otherwise resolved in 2004 of approximately $.9 million.

 

Fiscal 2003 Compared to Fiscal 2002

 

Net Sales—Net sales increased 23.1% to $299.7 million in fiscal 2003 compared with $243.4 million in fiscal 2002. Total full-line store sales increased 24.9% in fiscal 2003 due primarily to an 8.2% increase in comparable store sales and the opening of new stores as shown below. Direct marketing sales increased 13.9% due primarily to improved targeting of catalog recipients, an increase in the internet customer database and internet affiliates. The catalog circulation was 7.8 million in fiscal 2003 compared to 8.0 million in fiscal 2002.

 

The increase in net sales were driven primarily by increases in sales of suits, shirts and ties and increases in sales of more luxurious Signature and Signature Gold products. For fiscal 2003 and 2002, suits represented approximately 27% of total merchandise sales. Net sales also increased as a result of the opening of new stores as follows:

 

 

 

Fiscal 2002

 

Fiscal 2003

 

 

 

Stores

 

Square
Feet*

 

Stores

 

Square
Feet*

 

 

 

 

 

 

 

 

 

 

 

Stores open at the beginning of the year

 

135

 

735

 

160

 

846

 

Stores opened

 

25

 

111

 

50

 

216

 

Stores closed

 

 

 

 

 

Stores open at the end of the year

 

160

 

846

 

210

 

1,062

 

 


*              Square feet is presented in thousands and excludes franchise stores

 

Gross Profit—Gross profit (net sales less cost of goods sold) increased to $172.3 million or 57.5% of net sales in fiscal 2003 from $133.6 million or 54.9% of net sales in fiscal 2002, an increase of 260 basis points. The increased gross profit percentage is primarily due to the continued improvement in sourcing of merchandise, thus reducing the cost of items purchased and increases in retail prices primarily as sales of more luxurious Signature and Signature Gold products increased. Gross profit margins increased in substantially all major product categories.

 

16



 

Sales and Marketing Expenses—Sales and marketing expenses, which consist primarily of a)  full-line store, factory store and direct marketing occupancy, payroll, selling and other variable costs and b) total Company advertising and marketing expenses, increased to $110.2 million or 36.8% of sales in fiscal 2003 from $89.2 million or 36.6% of sales in fiscal 2002. The $21.0 million increase in sales and marketing expenses relates primarily to a) $17.9 million of additional costs incurred in the 25 stores opened in fiscal 2002 and the 50 stores which opened in fiscal 2003 and b) $2.5 million additional costs related to expenses in the stores which were open prior to fiscal 2002.

 

General and Administrative Expenses—General and administrative expenses, which consist primarily of corporate payroll costs and overhead and distribution center costs, increased to $30.6 million or 10.2% of sales in fiscal 2003 from $24.3 million or 10.0% in fiscal 2002. The increases were primarily due to higher payroll and payroll related costs, travel related costs and other expenses related to business expansion and higher distribution center costs as the volume of units processed increased.

 

Store Opening Costs—Store opening costs, which include the initial promotional advertising costs as well as other start-up costs such as travel for recruitment, training and setup of new stores, increased $1.0 million due primarily to the opening of 50 stores in fiscal 2003 compared with 25 stores in fiscal 2002. The increase was also due to the Company spending more on marketing new store openings to support several new store grand opening events to increase new store awareness.

 

Interest Expense, net—Interest expense increased $0.5 million due primarily to higher borrowing levels due to higher inventory and capital expenditures related to the opening of new stores and growth of inventory. Average revolver loan borrowings increased $5.5 million to $20.0 million in fiscal 2003 compared with $14.5 million in fiscal 2002.

 

Provision for Income Taxes—The effective income tax rate for fiscal 2003 increased to 42.6% as compared with 41.3% for fiscal 2002 as a result of higher non-deductible compensation under Section 162(m) of the Internal Revenue Code and higher state taxes.

 

Liquidity and Capital Resources

 

The Company maintains a bank credit agreement (the “Credit Agreement”), which provides for a revolving loan whose limit is determined by a formula based on the Company’s inventories and accounts receivable. The Credit Agreement allows the Company to borrow a maximum revolving amount under the facility up to $100 million. In addition, the Company has the option to increase the amount borrowed to $125 million if requested prior to April 30, 2006, if needed and if supported by its borrowing base formula under the Credit Agreement. The Credit Agreement also includes a) financial covenants concerning minimum EBITDA, b) limitations on capital expenditures and additional indebtedness and c) a restriction on the payment of dividends. The financial covenants are in effect only if the Company’s availability in excess of outstanding borrowings is less than $7.5 million. The Company does not believe its availability in excess of borrowings will be less than $7.5 million during fiscal 2005. As of January 29, 2005, the Company was in compliance with all loan covenants. Interest rates under the credit agreement are either at the prime rate or at LIBOR plus 1.5% which are variable rates and are the same basis as the rates that existed in fiscal 2003 and fiscal 2002. The agreement also includes provisions for a seasonal over-advance.  The Company also has $6.9 million of term debt to be repaid as noted in the contractual obligations table below.

 

The Company’s availability in excess of outstanding borrowings, as supported by the existing borrowing base under its Credit Agreement, was $74.6 million at January 29, 2005 compared with $52.4 million at the same time in fiscal 2003.

 

The following table summarizes the Company’s sources and uses of funds as reflected in the Consolidated Statements of Cash Flows (in thousands):

 

 

 

Fiscal 2002

 

Fiscal 2003

 

Fiscal 2004

 

 

 

(As Restated)

 

(As Restated)

 

 

 

 

 

 

 

 

 

 

 

Cash provided by (used in):

 

 

 

 

 

 

 

Operating activities

 

$

26,034

 

$

(7,336

)

51,453

 

Investing activities

 

(14,135

)

(23,245

)

(29,032

)

Financing activities

 

(4,337

)

23,067

 

(21,871

)

Net increase (decrease) in cash and cash equivalents

 

$

7,562

 

$

(7,514

)

$

550

 

 

Cash provided by the Company’s operating activities in fiscal 2004 increased compared with fiscal 2003 primarily due to lower expenditures for inventory compared with the same period of fiscal 2003 and increased net income.  The net increase in inventory was $6.9 million in fiscal 2004 compared with $42.5 million for fiscal 2003.  Cash used in investing activities in fiscal 2004 relates primarily to capital expenditures for new stores, distribution center and systems projects and was partially offset by the proceeds from the disposal of

 

17



 

certain equipment.  Cash used by financing activities relates primarily to $23 million of net payments under the Company’s revolving loan under the Credit Agreement offset by $1.1 million from the proceeds of the exercise of stock options.

 

Cash used by the Company’s operating activities in fiscal 2003 was primarily the result of higher inventory levels offset, in part, by higher net income before depreciation and amortization. Finished goods inventories increased by $39.8 million primarily to support new store expansion. Raw material inventories (wool) increased $2.7 million as a result of the Company’s continuing effort to contract directly with clothing manufacturers and cut out the middleman. Cash used in investing activities in fiscal 2003 relates to capital expenditures in 50 new stores, renovating four major stores, and the expanding of the distribution center.  In fiscal 2003, $23.1 million of cash was provided by financing activities primarily to support the increase in inventories necessitated by the Company’s expansion and to build the basic inventory levels. The source of these funds was $20.5 million from the Company’s revolving loan under the Credit Agreement and $3.7 million from the proceeds of the exercise of stock options. Also, the Company used $1.1 million for the repayment of long-term debt.

 

Cash provided by the Company’s operating activities in fiscal 2002 was primarily the result of higher net income before depreciation and amortization and higher accounts payable offset, impart, by higher inventory levels. Inventories increased by $13.6 million to support new store expansion and higher raw material balance as the Company is expanding the use of direct contract manufacturers.  Accounts payable increased $12.8 million due primarily to the increase and timing of purchases. Cash used in investing activities in fiscal 2002 relates to capital expenditures in 25 new stores, purchase of a used corporate aircraft to facilitate visiting the increasing number of stores and expansion of the capacity of the distribution center and corporate office. Cash used in financing activities in fiscal 2002 relates primarily to paying down the revolving loan under the Credit Agreement, net of the issuance of term debt of $4.7 million.

 

For fiscal 2005, the Company expects to spend approximately $35 million on capital expenditures, primarily to fund the opening of approximately 60 to 75 new stores, the renovation and/or relocation of several stores and the implementation of various systems initiatives. Management believes that the Company’s cash flow from operating activities and availability under its Credit Agreement will be sufficient to fund its planned capital expenditures and operating expenses for fiscal 2005. The capital expenditures include the cost of the construction of leasehold improvements for new stores of which $12-$15 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. For the stores opened and renovated in 2004, the Company negotiated approximately $12.6 million of landlord contributions of which $5.2 million were collected by year-end. The balance is expected to be received in 2005.  Also, in fiscal 2004, the Company collected approximately $4.8 million of landlord contributions related to fiscal 2003 store openings, which was recorded within the operating activities section of the Consolidated Statement of Cash Flows.

 

Off-Balance Sheet Arrangements-The Company has no off-balance sheet arrangements other than its operating lease agreements and letters of credit outstanding under its bank credit activity as discussed below.

 

Disclosures about Contractual Obligations and Commercial Commitments

 

The Company’s principal commitments are non-cancelable operating leases in connection with its retail stores, certain tailoring spaces and equipment. Under the terms of certain of these leases, the Company is required to pay a base annual rent plus a contingent amount based on sales. In addition, many of these leases include scheduled rent increases. The operating leases are used by the Company to help fund store growth. Historically, the Company has not purchased its stores, but does fund the buildout of the leased property.

 

The following table reflects a summary of the Company’s contractual cash obligations and other commercial commitments as of January 29, 2005:

 

 

 

Payments Due by Fiscal Year
(in thousands)

 

 

 

 

 

2005

 

2006-2008

 

2009-2010

 

Beyond 2010

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

$

917

 

$

3,150

 

$

1,317

 

$

1,475

 

$

6,859

 

Operating leases (a)

 

$

32,278

 

$

91,271

 

$

49,347

 

$

69,350

 

$

242,246

 

Stand-by Letter-of-credit (b)

 

 

$

400

 

 

 

$

400

 

Purchase Commitment (c)

 

$

361

 

 

 

 

$

361

 

Scheduled Interest Payments (d)

 

$

832

 

$

1,834

 

$

333

 

$

413

 

$

3,412

 

License Agreement

 

$

150

 

$

495

 

$

330

 

 

$

975

 

 


(a)           Includes various lease agreements for stores to be opened and equipment placed in service subsequent to January 29, 2005.  See Note 10 to the Consolidated Financial Statements.

 

18



 

(b)           To secure the payment of rent at one leased location included in “Operating Leases” above and is renewable each year through the end of the lease term (2009).

 

(c)           The Company generally does not make unconditional, noncancelable purchase commitments.  In fiscal 2003, the Company entered into an agreement with one raw material supplier to purchase a specified quantity of fabric into 2005.

 

(d)           These scheduled interest payments consist of interest payments on the outstanding long term debt.  For borrowings under the Company’s revolving loan agreement, projected interest is calculated based on the outstanding principal balance as of January 29, 2005.  For borrowings under the Company’s variable rate debt instruments (including the revolving loan agreement), interest is calculated based on the interest rates in effect on January 29, 2005.  The principal balance of the revolver and all variable interest rates may, and probably will, vary in future periods.

 

Certain Additional Business Risk Factors

 

This Annual Report on Form 10-K 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 Annual Report on Form 10-K, 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. Actual results may differ materially from those forecast due to a variety of factors outside of the Company’s control that can affect the Company’s operating results, liquidity and financial condition such as risks associated with economic, weather, public health and other factors affecting consumer spending, the ability of the Company to finance its expansion plans, the mix and pricing of goods sold, the market price of key raw materials such as wool and cotton, availability of lease sites for new stores, the ability to source product from its global supplier base and other competitive factors. 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, and assumes no obligation to update any of the forward-looking statements.  The Company cautions that the foregoing list of important factors is not exclusive.

 

Growth Risks.  A significant portion of the Company’s growth has resulted and is expected to continue to result from the opening of new stores. While the Company believes that it will continue to be able to obtain suitable locations for new stores, negotiate acceptable lease terms, hire qualified personnel and open and operate new stores on a timely and profitable basis, no such assurances can be made. As the Company continues its expansion program, the opening of stores may adversely affect catalog and internet sales in such markets, and the opening of additional stores in existing markets may adversely affect sales and profits of established stores.

 

Competition.  The retail apparel business is highly competitive and is expected to remain so. The Company competes primarily with specialty and discount store chains, independent retailers, national and local department stores, internet retail stores and other catalogers engaged in the retail sale of apparel, and to a lesser degree with other apparel retailers. Many of these competitors are much larger than the Company and have significantly greater financial, marketing and other resources than the Company. The Company believes that its emphasis on classic styles makes it less vulnerable to changes in fashion trends than many apparel retailers; however, the Company’s sales and profitability depend upon the continued demand for its classic styles. The Company faces a variety of competitive challenges including:

 

      anticipating and quickly responding to changing consumer demands;

 

      maintaining favorable brand recognition and effectively marketing its products to consumers in several diverse market segments;

 

      developing innovative, high-quality products in sizes, colors and styles that appeal to consumers of varying age groups and tastes;

 

      competitively pricing its products and achieving customer perception of value; and

 

19



 

      providing strong and effective marketing support.

 

Consumer Spending.  The Company’s business is sensitive to a number of factors that influence the levels of consumer spending, including political and economic conditions such as the levels of disposable consumer income, consumer debt, interest rates and consumer confidence. Declines in consumer spending on apparel and accessories could have an adverse effect on the Company’s operating results.

 

Reliance on Key Suppliers.  Historically, the Company has bought a substantial portion of its products from a limited number of suppliers throughout the world. The loss of any one of these suppliers could cause a delay in the Company’s sales process. Any significant interruption in the Company’s product supply could have an adverse effect on its business due to delays in finding alternative sources and could result in increased costs to the Company.

 

The Company expects to continue to spread its sourcing to suppliers throughout the world, with additional concentrations of sourcing to be done in certain countries.  In addition, certain apparel quotas on imports from China have been removed or increased by January 1, 2005.  The change could potentially provide opportunities for lower product costs if the Company increases the amount of products sourced from China or elsewhere in the region.  The Company has not experienced any material disruptions in its sourcing in the past several years.  However, long-term disruptions of supply from any of these sources could have a material impact on the Company.

 

Market Price of Raw Materials.  The Company’s products are manufactured using several key raw materials, including wool and cotton, which are subject to fluctuations in price and availability. Historically, the Company has not experienced significant fluctuations in price or availability. However, any significant increase in the price or decrease in the availability of certain raw materials could have an adverse impact on the Company’s business.

 

Disaster Causing Disruption of Normal Operations.  Factors such as an interruption of key business systems, any disaster or casualty resulting in the interruption of service from our distribution center, changes in weather patterns, world health concerns such as the SARS virus, and international and domestic acts of terror could negatively affect the Company’s financial performance.

 

Fashion Trends and Changing Consumer Preferences.  The Company must successfully gauge fashion trends and changing consumer preferences to succeed. The Company’s success is dependent upon its ability to gauge the fashion tastes of its customers and to provide merchandise that satisfies customer demand in a timely manner. The retail business fluctuates according to changes in consumer preferences dictated, in part, by fashion and season. To the extent the Company misjudges the market for its merchandise, its sales will be adversely affected and the markdowns required to move the resulting excess inventory will adversely affect its operating results. While the Company believes its current strategies and initiatives appropriately address these issues, merchandise misjudgments could have a material adverse effect on its image with its customers and on its operating results.

 

The Company’s ability to anticipate and effectively respond to changing fashion trends depends in part on its ability to attract and retain key personnel in its design, merchandising, marketing and other staff. Competition for these personnel is intense, and the Company cannot be sure that it will be able to attract and retain a sufficient number of qualified personnel in future periods.

 

Fluctuations in the demand for tailored and casual clothing and accessories affect the inventory levels, since merchandise usually must be ordered well in advance of the season and frequently before fashion trends are evidenced by customer purchases. In addition, as the Company’s business is becoming more cyclical in nature, the Company must carry a significant amount of inventory, especially prior to peak selling seasons when the Company builds up its inventory levels. The Company issues purchase orders for the purchase and manufacture of merchandise well in advance of the applicable selling season. As a result, the Company is vulnerable to demand and pricing shifts and to suboptimal selection and timing of merchandise purchases. In addition, lead times for many of the Company’s purchases are long, which may make it more difficult for the Company to respond rapidly to new or changing fashion trends or consumer acceptance for the Company’s products.

 

Growth by Acquisition, etc.  The Company may from time to time hold discussions and negotiations with (i) potential investors who express an interest in making an investment in or acquiring the Company, (ii) potential joint venture partners looking toward the formation of strategic alliances and (iii) companies that represent potential acquisition or investment opportunities for the Company. There can be no assurance any definitive agreement will be reached regarding the foregoing, nor does the Company believe that at this time any such agreement is necessary to implement successfully its strategic plans.

 

Seasonality

 

Although variations in sales volumes do exist between quarters, the Company believes the nature of its merchandise helps to stabilize demand between the different periods of the year. However, as the Company’s merchandise continues to include more Corporate Casual and Sportswear and as more new stores are opened in the second half of the year, profits generated during the fourth quarter have

 

20



 

become a larger portion of annual profits.

 

Item 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

At January 29, 2005, there were no derivative financial instruments. In addition, the Company does not believe it is materially at risk for changes in market interest rates or foreign currency fluctuations. The Company’s interest on borrowings under its Credit Agreement is at a variable rate based on the prime rate or a spread over the LIBOR. A 100 basis point change in interest rate would have changed interest expense, net by approximately $.2 million in fiscal 2004.

 

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The financial statements listed in Item 15(a) 1 and 2 are included in the Report beginning on page F-1.

 

21



 

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

Item 9A.  CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures and Changes in Internal Control Over Financial Reporting

 

Limitations on Controls and Procedures.  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 Company’s 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 Company’s Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), does not expect that the Company’s Control Systems will prevent all error 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. These reports by management, including the CEO and CFO, on the effectiveness of the Company’s 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 Company’s 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 SEC’s 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.

 

Like many other companies in the retail industry, the Company’s evaluation of its Control Systems included a review of its lease accounting practices in light of the February 7, 2005 letter to the Center for Public Company Audit Firms-American Institute of Certified Public Accountants from the Chief Accountant of the Securities and Exchange Commission (the “SEC Letter”). The SEC Letter expressed the views of the SEC staff concerning certain operating lease accounting issues and their application under generally accepted accounting principles (“GAAP”).  Specifically, the SEC Letter addressed the appropriate accounting for: (1) the amortization of leasehold improvements by a lessee in an operating lease with lease renewals, (2) the pattern of recognition of rent when the lease term in an operating lease contains a period where there are free or reduced rents (commonly referred to as “rent holidays”), and (3) incentives related to leasehold improvements provided by a landlord/lessor to a tenant/lessee in an operating lease. The SEC Letter was issued after the close of the Company’s fiscal 2004. Therefore, the Company did not have the opportunity, prior to the effective date of management’s evaluation of the Company’s Control Systems, to incorporate into its accounting policies the SEC’s clarifications of the appropriate accounting for operating leases under GAAP. Subsequent to the effective date of such evaluation, and prior to the date hereof, the Company has revised its accounting policies in light of the SEC Letter.

 

Amortization of Leasehold Improvements- In order to comply with the accounting standards regarding amortization of leasehold improvements discussed in the SEC Letter, the Company revised the straight-line rent schedules for thirteen of its stores to achieve consistency with the corresponding leasehold amortization schedules. The resulting change to rent expense was immaterial.

 

Rent Holidays- In the SEC Letter, the SEC staff reiterated that GAAP requires rent holidays in an operating lease to be recognized by the lessee on a straight-line basis over the lease term (including any rent holiday period).  In prior periods, the Company had generally recognized the straight line expense for a lease beginning on the date the store opened, which was generally the date the lease term commenced in accordance with the lease.  The period during which the store was being constructed was excluded from the straight-line rent schedule because the construction period was not considered to be part of the lease term in accordance with the lease. Based on our re-evaluation, the Company has concluded that the construction period should be included in the straight-line rent schedule.

 

As a result of the change to its rent schedules, the previously reported financial statements included in this Annual Report on Form 10-K have been restated.  The foregoing changes are inclusive of the immaterial changes resulting from the modification of the rent schedules to achieve consistency with the corresponding leasehold

 

22



 

amortization schedules, as set forth above.

 

Landlord/Tenant Incentives- Leasehold improvement incentives provided by a landlord to the Company were previously recorded by the Company as a reduction of the property, plant and equipment account on its balance sheet and amortized as a reduction to depreciation expense in its income statement.  However, the SEC Letter states that such incentives should be “recorded as deferred rent and amortized as reductions to lease expense.”  As a result, the Company’s property, plant and equipment asset account and deferred rent liability account must be increased. The previously reported financial statements included in this Annual Report on Form 10-K have been restated to reflect these increases.

 

Appropriate changes to the Company's deferred tax accounts were made as a result of the changes to the Company's amortization schedules, rent schedules and accounting for leasehold improvement incentives, as discussed above.

 

Management, with the participation of the CEO and CFO, has evaluated the effectiveness, as of January 29, 2005, of the Company’s disclosure controls and procedures. Based on that evaluation, and solely for the reasons set forth above with respect to the Company’s lease accounting practices, the CEO and CFO have concluded that the Company’s disclosure controls and procedures were not effective as of January 29, 2005.

 

In connection with the Company’s evaluation of the effectiveness of its disclosure controls and procedures, the Company (a) has conducted a review of its accounting related to operating leases, (b) has corrected such accounting, where appropriate, and (c) is developing additional review procedures over the selection and monitoring of appropriate assumptions and factors affecting such accounting.

 

Management’s Annual Report on Internal Control over Financial Reporting- Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act).  Management, with the participation of the CEO and CFO, has evaluated the effectiveness, as of January 29, 2005, of the Company’s internal control over financial reporting. In making this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in its publication Internal Control-Integrated Framework.

 

Auditing Standard No. 2 of the Public Company Accounting Oversight Board (“PCAOB”) states that a “material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.” In light of the SEC Letter, the Company concluded that its accounting for operating leases did not prevent the material misstatement of the financial statements being restated herein.

 

The amortization schedules, rent schedules and method for accounting for leasehold improvement incentives used by the Company prior to the issuance of the SEC Letter were all part of the books and records of the Company reflected in previously issued financial statements which received unqualified audit opinions from the respective independent accountants which were engaged as the principal accountants to audit such statements. Nevertheless, as more fully set forth in the Company’s Current Report on Form 8-K, dated February 25, 2005, and in this Annual Report on Form 10-K, the Company’s Audit Committee has concluded that the financial statements included in the Company’s Annual Report on Form 10-K for fiscal years 2002 and 2003, as well as those in the Company’s Quarterly Reports on Form 10-Q for the quarters ended May 1, 2004, July 31, 2004 and October 30, 2004, should no longer be relied upon. PCAOB Auditing Standard No. 2 states that “restatement of previously issued financial statements to reflect the correction of a misstatement” is a “strong indicator” of the existence of a material weakness in the internal control over financial reporting.  Since the Company has restated in this Annual Report on Form 10-K certain prior filings, management has concluded that a material weakness existed in the Company’s internal control over financial reporting as a result of its lease accounting practices and that such control was therefore not effective as of January 29, 2005.

 

In connection with the Company’s evaluation of the effectiveness of its internal control over financial reporting, the Company (a) has conducted a review of its accounting related to operating leases, (b) has corrected such accounting, where appropriate, and (c) is developing additional review procedures over the selection and monitoring of appropriate assumptions and factors affecting such accounting.

 

Changes in Internal Control over Financial Reporting- There were no changes in the Company’s 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 Company’s last fiscal quarter (the Company’s fourth quarter in the case of an annual report) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Attestation Report of the Registered Public Accounting Firm- The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has issued the following attestation report on the Company’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting:

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of Jos. A. Bank Clothiers, Inc.:

 

23



 

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, that Jos. A. Bank Clothiers, Inc. and subsidiaries (the “Company”) did not maintain effective internal control over financial reporting as of January 29, 2005 because of the effect of the material weakness identified in management’s assessment based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.  Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinions.

 

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.  Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.  The following material weakness has been identified and included in management’s assessment: In its assessment as of January 29, 2005, management identified as a material weakness the Company’s insufficient controls over the selection and monitoring of appropriate assumptions and factors affecting lease accounting. As a result of this material weakness in internal control, the Company concluded that its previously issued financial statements should be restated giving effect to the adjustments to the reported annual depreciation expense, rent expense, property, plant and equipment, deferred taxes and deferred rent. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements as of and for the year ended January 29, 2005, of the Company and this report does not affect our report on such financial statements.

 

In our opinion, management’s assessment that the Company did not maintain effective internal control over financial reporting as of January 29, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Also in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of January 29, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

24



 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended January 29, 2005, of the Company and our report dated April 13, 2005 expressed an unqualified opinion on those financial statements.

 

DELOITTE & TOUCHE LLP

 

Baltimore, MD
April 13, 2005

 

25



 

Item 9B.  OTHER INFORMATION

 

None.

 

PART III

 

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

 

Item 10, other than the following information concerning the Company’s code of ethics, is omitted by the Company in accordance with General Instruction G to Form 10-K. The Company will disclose the information required under this item either by (a) incorporating the information by reference from the Company’s definitive proxy statement if filed by May 29, 2005 (the first business day following 120 days from the close of its fiscal year ended January 29, 2005) or (b) filing an amendment to this Form 10-K which contains the required information by May 31, 2005.

 

The Company has adopted a “code of ethics” as defined by applicable rules of the Securities and Exchange Commission and the NASDAQ Stock Market, which is applicable to, among others, its chief executive officer, chief financial officer, principal accounting officer and other senior financial and reporting persons and its directors. If the Company makes any amendments to the code of ethics for its senior officers, financial and reporting persons or directors (other than technical, administrative, or other non-substantive amendments), or grants any waivers, including implicit waivers, from a provision of this code to such persons, the Company will disclose the nature of the amendment or waiver, its effective date and to whom it applies on its website or in a report on Form 8-K filed with the Securities and Exchange Commission.  The Company has posted the text of its code of ethics on its internet website at www.josbank.com.

 

Item 11.  EXECUTIVE COMPENSATION

 

Item 11 is omitted by the Company in accordance with General Instruction G to Form 10-K. The Company will disclose the information required under this item either by (a) incorporating the information by reference from the Company’s definitive proxy statement if filed by May 31, 2005 (the first business day following 120 days from the close of its fiscal year ended January 29, 2005) or (b) filing an amendment to this Form 10-K which contains the required information by May 31, 2005.

 

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

Item 12 is omitted by the Company in accordance with General Instruction G to Form 10-K. The Company will disclose the information required under this item either by (a) incorporating the information by reference from the Company’s definitive proxy statement if filed by May 31, 2005 (the first business day following 120 days from the close of its fiscal year ended January 29, 2005) or (b) filing an amendment to this Form 10-K which contains the required information by May 31, 2005.

 

26



 

Item 13.  CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS

 

Item 13 is omitted by the Company in accordance with General Instruction G to Form 10-K. The Company will disclose the information required under this item either by (a) incorporating the information by reference from the Company’s definitive proxy statement if filed by May 31, 2005 (the first business day following 120 days from the close of its fiscal year ended January 29, 2005) or (b) filing an amendment to this Form 10-K which contains the required information by May 31, 2005.

 

Item 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Item 14 is omitted by the Company in accordance with General Instruction G to Form 10-K. The Company will disclose the information required under this item either by (a) incorporating the information by reference from the Company’s definitive proxy statement if filed by May 31, 2005 (the first business day following 120 days from the close of its fiscal year ended January 29, 2005) or (b) filing an amendment to this Form 10-K which contains the required information by May 31, 2005.

 

 

PART IV

 

Item 15.  EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES

 

(b)           Exhibits

 

3.1

 

 

Restated Certificate of Incorporation of the Company. *1

3.2

 

 

By-laws of the Company, together with all amendments thereto. *1

3.2(a)

 

 

Amended and Restated By-Laws of the Company, as of April 15, 2003. *16

4.1

 

 

Form of Common Stock certificate. *1

4.2

 

 

Amended and Restated Stockholders Agreement, dated as of January 29, 1994, among the parties named therein. *1

4.3

 

 

Rights Agreement, dated as of September 19, 1997, including Exhibit C thereto (the Certificate of Designation governing the Company’s Series A Preferred Stock) *5

10.1

 

 

1994 Incentive Plan. *1

10.1(a)

 

 

Amendments, dated as of October 6, 1997, to 1994 Incentive Plan. *6

10.4

 

 

Fourth Amended and Restated Credit Agreement, April 30, 1996, by and among the Company, Wells Fargo Bank, N.A. *2

10.4(a)

 

 

Combined Amendment Number One to Fourth Amended and Restated Credit Agreement, December 18, 2000, by and between the Company and Foothill Capital Corporation. *10

10.4(b)

 

 

Amendment Number Three to Fourth Amended and Restated Credit Agreement, December 17, 2001, by and between the Company and Foothill Capital Corporation. *12

10.4(c)

 

 

Amendment Number Four to Fourth Amended and Restated Credit Agreement, January 27, 2003, by and between the Company and Foothill Capital Corporation. *16

10.4(d)

 

 

Amended and Restated Credit Agreement, dated as of January 6, 2004, by and among Jos. A. Bank Clothiers, Inc., certain Lenders which are signatories thereto and Wells Fargo Retail Finance II, LLC, as agent for such Lenders. *18

10.8

 

 

Amended and Restated Employment Agreement, dated as of September 19, 1997, between David E. Ullman and Jos. A. Bank Clothiers, Inc. *6

10.8(a)

 

 

Amended and Restated Employment Agreement, dated as of May 15, 2002, by and between David E. Ullman and Jos. A. Bank Clothiers, Inc. *13

10.8(b)

 

 

First Amendment, dated as of April 30, 2003, to Amended and Restated Employment Agreement, dated as of May 15, 2002, by and between David E. Ullman and Jos. A. Bank Clothiers, Inc. *16

10.8(c)

 

 

Second Amendment, dated as of April 4, 2005, to Amended and Restated Employment Agreement, dated as of May 15, 2002, by and between David E. Ullman and Jos. A. Bank Clothiers, Inc. *21

10.9

 

 

Jos. A. Bank Clothiers, Inc. Nonqualified Deferred Compensation Trust Agreement, dated January 20, 2004. (Filed herewith)

10.12

 

 

Employment Agreement, dated as of September 19, 1997, between Gary W. Cejka and Jos. A. Bank Clothiers, Inc. *6

10.13

 

 

Employment Agreement, dated as of September 19, 1997, between Charles D. Frazer and Jos. A. Bank Clothiers, Inc. *6

10.13(a)

 

 

First Amendment, dated as of February 14, 1999, to Employment Agreement, dated as of September 19, 1997, by and between Charles D. Frazer and Jos. A. Bank Clothiers, Inc. *7

10.13(b)

 

 

Amended and Restated Employment Agreement, dated as of May 15, 2002, by and between Charles D. Frazer and Jos. A. Bank Clothiers, Inc. *13

10.13(c)

 

 

First Amendment, dated as of April 30, 2003, to Amended and Restated Employment Agreement, dated as of May 15, 2002, by and between Charles D. Frazer and Jos. A. Bank Clothiers, Inc. *16

10.13(d)

 

 

Second Amendment, dated as of April 4, 2005, to Amended and Restated Employment Agreement, dated as of May 15, 2002, by and between Charles D. Frazer and Jos. A. Bank Clothiers, Inc. (Filed herewith)

10.16

 

 

Employment Agreement, dated as of November 1, 1999, between Robert N. Wildrick and Jos. A. Bank Clothiers, Inc. *8

10.16(a)

 

 

First Amendment, dated as of March 6, 2000, to Employment Agreement, dated as of November 1, 1999, by and between Robert N. Wildrick and Jos. A. Bank Clothiers, Inc. *9

10.16(b)

 

 

Second Amendment, dated as of May 25, 2001, to Employment Agreement, dated as of November 1, 1999, by and between Robert N. Wildrick and Jos. A. Bank Clothiers, Inc. *11

10.16(c)

 

 

Third Amendment, dated as of October 2, 2003, to Employment Agreement, dated as of November 1, 1999, by and between Robert N. Wildrick and Jos. A. Bank Clothiers, Inc. *17

 

27



 

10.17

 

 

Employment Agreement, dated as of November 30, 1999, by and between Robert Hensley and Jos. A. Bank Clothiers, Inc. *8

10.17(a)

 

 

First Amendment, dated as of January 1, 2000, to Employment Agreement, dated as of November 30, 1999, by and between Robert Hensley and Jos. A. Bank Clothiers, Inc. *10

10.17(b)

 

 

Second Amendment, dated as of March 16, 2001, to Employment Agreement, dated as of November 30, 1999, by and between Robert Hensley and Jos. A. Bank Clothiers, Inc. *10

10.17(c)

 

 

Third Amendment, dated as of April 15, 2002, to Employment Agreement, dated as of November 30, 1999, by and between Robert Hensley and Jos. A. Bank Clothiers, Inc. *12

10.17(d)

 

 

Fourth Amendment, dated as of May 28, 2002, to Employment Agreement, dated as of November 30, 1999, by and between Robert Hensley and Jos. A. Bank Clothiers, Inc. *13

10.17(e)

 

 

Fifth Amendment, dated as of April 30, 2003, to Employment Agreement, dated as of November 30, 1999, by and between Robert Hensley and Jos. A. Bank Clothiers, Inc. *16

10.17(f)

 

 

Sixth Amendment, dated as of April 4, 2005, to Employment Agreement, dated as of November 30, 1999, by and between Robert Hensley and Jos. A. Bank Clothiers, Inc. *21

10.18

 

 

Employment Agreement, dated as of December 21, 1999, by and between R. Neal Black and Jos. A. Bank Clothiers, Inc. *9

10.18(a)

 

 

First Amendment, dated as of March 16, 2001, to Employment Agreement, dated as of December 21, 1999, by and between R. Neal Black and Jos. A. Bank Clothiers, Inc. *10

10.18(b)

 

 

Second Amendment, dated as of April 15, 2002, to Employment Agreement, dated as of December 21, 1999, by and between R. Neal Black and Jos. A. Bank Clothiers, Inc. *12

10.18(c)

 

 

Third Amendment, dated as of May 29, 2002, to Employment Agreement, dated as of December 21, 1999, by and between R. Neal Black and Jos. A. Bank Clothiers, Inc. *13

10.18(d)

 

 

Fourth Amendment, dated as of April 30, 2003, to Employment Agreement, dated as of December 21, 1999, by and between R. Neal Black and Jos. A. Bank Clothiers, Inc. *16

10.18(e)

 

 

Fifth Amendment, dated as of April 4, 2005, to Employment Agreement, dated as of December 21, 1999, by and between R. Neal Black and Jos. A. Bank Clothiers, Inc. *21

10.19

 

 

Collective Bargaining Agreement, dated March 1, 2000, by and between the Joseph A. Bank Mfg. Co., Inc. and Baltimore Regional Joint Board, UNITE. *10

10.20

 

 

Employment offer letter, dated November 20, 2000, from Jos. A. Bank Clothiers, Inc. to Jerry DeBoer. *10

10.20 (a)

 

 

Written description of 2005 base salary for Jerry DeBoer. *21

10.21

 

 

Employment offer letter, dated September 18, 2000, from Jos. A. Bank Clothiers, Inc. to Gary Merry. *13

10.22

 

 

2002 Long-Term Incentive Plan. *15

10.23

 

 

Form of stock option agreement under the 2002 Long-Term Incentive Plan. *21

16.1

 

 

Letter from Arthur Andersen LLP to the Securities and Exchange Commission, dated May 1, 2002. *14

16.2

 

 

Letter from KPMG LLP to the Securities and Exchange Commission, dated April 20, 2004. *19

16.3

 

 

Letter from Ernst & Young LLP to the Securities and Exchange Commission, dated May 14, 2004. *20

21.1(b)

 

 

Company subsidiaries. (Filed herewith)

23.1

 

 

Consent of Deloitte & Touche LLP.

23.2

 

 

Consent of KPMG LLP.

31.1

 

 

Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

 

 

Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

 

 

Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

 

 

Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*1

 

 

Incorporated by reference to the Company’s Registration Statement on Form S-1 filed May 3, 1994.

*2

 

 

Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended February 3, 1996.

 

28



 

*3

 

 

Intentionally omitted.

*4

 

 

Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended February 1, 1997.

*5

 

 

Incorporated by reference to the Company’s Form 8-K dated September 22, 1997.

*6

 

 

Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended January 31, 1998.

*7

 

 

Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended January 30, 1999.

*8

 

 

Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 30, 1999.

*9

 

 

Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended January 29, 2000.

*10

 

 

Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended February 3, 2001.

*11

 

 

Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 5, 2001.

*12

 

 

Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended February 2, 2002.

*13

 

 

Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 4, 2002.

*14

 

 

Incorporated by reference to the Company’s Current Report on Form 8-K, dated May 8, 2002.

*15

 

 

Incorporated by reference to the Company’s Definitive Proxy Statement on Schedule 14(A) filed May 20, 2002.

*16

 

 

Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended February 1, 2003.

*17

 

 

Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 1, 2003.

*18

 

 

Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended January 31, 2004.

*19

 

 

Incorporated by reference to the Company’s Current Report on Form 8-K, dated April 20, 2004.

*20

 

 

Incorporated by reference to the Company’s Current Report on Form 8-K, dated May 14, 2004.

*21

 

 

Incorporated by reference to the Company’s Current Report on Form 8-K, dated April 7, 2005.

 

29



 

JOS. A. BANK CLOTHIERS, INC.

(registrant)

By:

/s/ ROBERT N. WILDRICK

 

ROBERT N. WILDRICK

CHIEF EXECUTIVE OFFICER AND PRESIDENT

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons in the capacities and on the dates indicated.

 

Name

 

Title

 

Date

 

 

 

 

 

/s/ ROBERT N. WILDRICK

 

Director, Chief Executive Officer and President (Principal Executive

 

 

 

 

Officer)

 

April 13, 2005

 

 

 

 

 

/s/ R. NEAL BLACK

 

 

 

 

 

 

Executive Vice President, Marketing & Merchandising

 

April 13, 2005

 

 

 

 

 

/s/ ROBERT B. HENSLEY

 

 

 

 

 

 

Executive Vice President, Stores & Operations

 

April 13, 2005

 

 

 

 

 

/s/ DAVID E. ULLMAN

 

Executive Vice President, Chief Financial Officer (Principal Financial

 

 

 

 

Officer and Principal Accounting Officer)

 

April 13, 2005

 

 

 

 

 

/s/ ANDREW A. GIORDANO

 

 

 

 

 

 

Director, Chairman of the Board

 

April 13, 2005

 

 

 

 

 

/s/ GARY S. GLADSTEIN

 

 

 

 

 

 

Director

 

April 13, 2005

 

 

 

 

 

/s/ WILLIAM E. HERRON

 

 

 

 

 

 

Director

 

April 13, 2005

 

 

 

 

 

/s/ DAVID A. PREISER

 

 

 

 

 

 

Director

 

April 13, 2005

 

30



 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of Jos. A. Bank Clothiers, Inc.:

 

We have audited the accompanying consolidated balance sheet of Jos. A. Banks Clothiers, Inc. and subsidiaries (the “Company”) as of January 29, 2005 and the related consolidated statements of income, stockholders’ equity, and cash flows for year ended January 29, 2005.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on the financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Jos. A. Bank Clothiers, Inc. and subsidiaries as of January 29, 2005, and the results of their operations and their cash flows for the year ended January 29, 2005, in conformity with accounting principles generally accepted in the United States of America.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of January 29, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 13, 2005, expressed an unqualified opinion on management’s assessment that the Company’s internal control over financial reporting is not effective and an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.

 

/s/ DELOITTE & TOUCHE LLP

 

 

Baltimore, MD

April 13, 2005

 

F-1



 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors

of Jos. A. Bank Clothiers, Inc.:

 

We have audited the accompanying consolidated balance sheet of Jos. A. Bank Clothiers, Inc. and subsidiaries as of January 31, 2004 and the related consolidated statements of income, stockholders’ equity and cash flows for each of the years in the two-year period ended January 31, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Jos. A. Bank Clothiers, Inc. and subsidiaries as of January 31, 2004, and the results of their operations and their cash flows for each of the years in the two-year period ended January 31, 2004, in conformity with U.S. generally accepted accounting principles.

 

As described in Note 2 to the consolidated financial statements, the Company has restated its consolidated financial statements in order to correct certain errors in its accounting for leases.

 

 

/s/ KPMG LLP

 

 

Baltimore, Maryland

March 25, 2004 (April 13, 2005, as to effects of Note 2)

 

F-2



 

JOS. A. BANK CLOTHIERS, INC.

CONSOLIDATED BALANCE SHEETS

JANUARY 31, 2004 AND JANUARY 29, 2005

(In Thousands, Except Share and Per Share Information)

 

 

 

January 31, 2004

 

January 29, 2005

 

 

 

(As Restated, See Note 2)

 

 

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

875

 

$

1,425

 

Accounts receivable, net

 

4,201

 

4,798

 

Inventories, net

 

120,788

 

127,693

 

Prepaid expenses and other current assets

 

10,323

 

11,892

 

Deferred income taxes

 

2,697

 

893

 

Total current assets

 

138,884

 

146,701

 

NONCURRENT ASSETS:

 

 

 

 

 

Property, plant and equipment, net

 

60,526

 

83,621

 

Other noncurrent assets

 

1,235

 

1,508

 

Total assets

 

$

200,645

 

$

231,830

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

 

$

28,748

 

$

40,133

 

Accrued expenses

 

32,677

 

37,505

 

Current portion of long-term debt

 

1,245

 

917

 

Total current liabilities

 

62,670

 

78,555

 

NONCURRENT LIABILITIES:

 

 

 

 

 

Long-term debt, net of current portion

 

28,618

 

5,942

 

Noncurrent lease obligations

 

20,052

 

30,318

 

Noncurrent deferred tax liability

 

1,651

 

1,753

 

Other noncurrent liabilities

 

1,200

 

938

 

Total liabilities

 

114,191

 

117,506

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

Preferred stock, $1.00 par, 500,000 shares authorized, none issued or outstanding

 

 

 

Common stock, $.01 par, 20,000,000 shares authorized, 15,258,805 issued and 13,185,401 outstanding at January 31, 2004, 15,533,700 issued and 13,460,296 outstanding at January 29, 2005

 

122

 

124

 

Additional paid-in capital

 

64,207

 

67,594

 

Retained earnings

 

27,183

 

51,664

 

Treasury stock, 2,073,404 shares of common stock, at cost

 

(5,058

)

(5,058

)

Total stockholders’ equity

 

86,454

 

114,324

 

Total liabilities and stockholders’ equity

 

$

200,645

 

$

231,830

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-3



 

JOS. A. BANK CLOTHIERS, INC.

CONSOLIDATED STATEMENTS OF INCOME

FISCAL 2002, 2003 AND 2004

(In Thousands, Except Per Share Information)

 

 

 

Fiscal 2002

 

Fiscal 2003

 

Fiscal 2004

 

 

 

(As Restated,
See Note 2)

 

(As Restated,
See Note 2)

 

 

 

NET SALES

 

$

243,436

 

$

299,663

 

$

372,500

 

Cost of goods sold

 

109,836

 

127,364

 

147,674

 

GROSS PROFIT

 

133,600

 

172,299

 

224,826

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

Sales and marketing

 

89,186

 

110,230

 

143,586

 

General and administrative

 

24,310

 

30,554

 

38,003

 

Store opening costs

 

528

 

1,539

 

1,184

 

Total operating expenses

 

114,024

 

142,323

 

182,773

 

OPERATING INCOME

 

19,576

 

29,976

 

42,053

 

Interest expense, net

 

1,098

 

1,623

 

1,696

 

Income before provision for income taxes

 

18,478

 

28,353

 

40,357

 

Provision for income taxes

 

7,635

 

12,073

 

15,876

 

NET INCOME

 

$

10,843

 

$

16,280

 

$

24,481

 

EARNINGS PER SHARE

 

 

 

 

 

 

 

Net income:

 

 

 

 

 

 

 

Basic

 

$

0.94

 

$

1.33

 

$

1.83

 

Diluted

 

$

0.82

 

$

1.17

 

$

1.72

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic

 

11,531

 

12,248

 

13,344

 

Diluted

 

13,234

 

13,883

 

14,231

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-4



 

JOS. A. BANK CLOTHIERS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FISCAL 2002, 2003 AND 2004

(In Thousands, Except Share Information)

 

 

 

Common
stock

 

Additional
paid-in
capital

 

Retained
earnings

 

Treasury
stock

 

Total
stockholders’
equity

 

BALANCE, FEBRUARY 2, 2002 (as previously reported)

 

$

107

 

$

56,522

 

$

681

 

$

(5,058

)

$

52,252

 

Cumulative effect of prior year adjustments (as restated, see Note 2)

 

 

 

(621

)

 

(621

)

BALANCE, FEBRUARY 2, 2002 (as restated, see Note 2)

 

$

107

 

$

56,522

 

$

60

 

$

(5,058

)

$

51,631

 

Net income (as restated, see Note 2)