UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
| For the Quarterly Period Ended May 3, 2003 | Commission File Number 0-15898 |
CASUAL MALE RETAIL GROUP, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 04-2623104 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
| 555 Turnpike Street, Canton, MA | 02021 | |
| (Address of principal executive offices) | (Zip Code) | |
(781) 828-9300
(Registrant’s telephone number, including area code)
Indicate by “X” whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by “X” whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares of common stock outstanding as of June 13, 2003 was 35,794,837.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CASUAL MALE RETAIL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
May 3, 2003 and February 1, 2003
(In thousands, except share data)
| May 3, 2003 |
February 1, 2003 |
|||||||
| (unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 4,454 | $ | 4,692 | ||||
| Accounts receivable |
7,351 | 6,989 | ||||||
| Inventories |
104,013 | 103,222 | ||||||
| Prepaid expenses |
8,263 | 2,700 | ||||||
| Total current assets |
124,081 | 117,603 | ||||||
| Property and equipment, net of accumulated depreciation and amortization |
64,233 | 64,062 | ||||||
| Other assets: |
||||||||
| Goodwill |
50,699 | 50,698 | ||||||
| Intangible assets |
30,704 | 30,729 | ||||||
| Other assets |
3,766 | 3,853 | ||||||
| Total assets |
$ | 273,483 | $ | 266,945 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Current portion of long-term debt |
$ | 3,648 | $ | 2,940 | ||||
| Accounts payable |
32,257 | 33,902 | ||||||
| Accrued expenses and other current liabilities |
21,326 | 24,338 | ||||||
| Accrued liabilities for severance and store closings |
5,843 | 6,172 | ||||||
| Total current liabilities |
63,074 | 67,352 | ||||||
| Long-term liabilities: |
||||||||
| Notes payable |
68,213 | 55,579 | ||||||
| Long-term debt, net of current portion |
50,592 | 50,996 | ||||||
| Other long-term liabilities |
937 | 933 | ||||||
| Total long-term liabilities |
119,742 | 107,508 | ||||||
| Total liabilities |
182,816 | 174,860 | ||||||
| Minority interest |
2,079 | 1,018 | ||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $0.01 par value, 1,000,000 shares authorized, 180,162 shares of Series B Convertible Preferred Stock converted into common stock as of August 8, 2002, none outstanding at May 3, 2003 and February 1, 2003 |
— | — | ||||||
| Common stock, $0.01 par value, 75,000,000 shares authorized, 38,950,455 and 38,867,000 shares issued at May 3, 2003 and February 1, 2003, respectively |
390 | 389 | ||||||
| Additional paid-in capital |
147,205 | 146,892 | ||||||
| Accumulated deficit |
(46,861 | ) | (44,104 | ) | ||||
| Treasury stock at cost, 3,171,930 and 3,119,236 shares at May 3, 2003 and February 1, 2003, respectively |
(9,146 | ) | (8,913 | ) | ||||
| Loan to executive |
— | (197 | ) | |||||
| Accumulated other comprehensive loss |
(3,000 | ) | (3,000 | ) | ||||
| Total stockholders’ equity |
88,588 | 91,067 | ||||||
| Total liabilities and stockholders’ equity |
$ | 273,483 | $ | 266,945 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
CASUAL MALE RETAIL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| Three Months Ended |
||||||||
| May 3, 2003 |
May 4, 2002 |
|||||||
| Sales |
$ | 99,700 | $ | 32,317 | ||||
| Cost of goods sold, including occupancy |
64,305 | 25,059 | ||||||
| Gross profit |
35,396 | 7,258 | ||||||
| Expenses: |
||||||||
| Selling, general and administrative |
33,175 | 8,107 | ||||||
| Depreciation and amortization |
2,062 | 1,281 | ||||||
| Total expenses |
35,237 | 9,388 | ||||||
| Operating income (loss) |
159 | (2,129 | ) | |||||
| Interest expense, net |
2,885 | 354 | ||||||
| Loss from continuing operations before minority interest and income taxes |
(2,726 | ) | (2,483 | ) | ||||
| Less: |
||||||||
| Minority interest |
(72 | ) | — | |||||
| Benefit for income taxes |
— | (1,053 | ) | |||||
| Net loss from continuing operations |
(2,654 | ) | (1,430 | ) | ||||
| Loss from discontinued operations |
(101 | ) | (365 | ) | ||||
| Net loss |
$ | (2,755 | ) | $ | (1,795 | ) | ||
| Net loss per share—basic and diluted |
||||||||
| Loss from continuing operations |
$ | (0.07 | ) | $ | (0.10 | ) | ||
| Loss from discontinued operations |
(0.00 | ) | (0.03 | ) | ||||
| Net loss |
$ | (0.08 | ) | $ | (0.12 | ) | ||
| Weighted average number of common shares outstanding |
||||||||
| —Basic and diluted |
35,754 | 14,576 | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
CASUAL MALE RETAIL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands and unaudited)
| Three Months Ended |
||||||||
| May 3, 2003 |
May 4, 2002 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (2,755 | ) | $ | (1,795 | ) | ||
| Adjustments to reconcile net loss to net cash used for operating activities: |
||||||||
| Loss from discontinued operations |
101 | 365 | ||||||
| Depreciation and amortization |
2,062 | 1,281 | ||||||
| Accretion of warrants |
402 | — | ||||||
| Issuance of common stock to related party |
276 | — | ||||||
| Issuance of common stock to Board of Directors |
27 | 33 | ||||||
| Minority interest |
72 | — | ||||||
| Gain on sale or disposal of fixed assets |
— | (26 | ) | |||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(362 | ) | 213 | |||||
| Inventories |
(854 | ) | (10,802 | ) | ||||
| Prepaid expenses |
(5,563 | ) | (125 | ) | ||||
| Other assets |
(113 | ) | (202 | ) | ||||
| Reserve for severance and store closings |
(329 | ) | — | |||||
| Income taxes |
— | (430 | ) | |||||
| Accounts payable |
(1,645 | ) | 8,293 | |||||
| Accrued expenses and other current liabilities |
(3,046 | ) | (2,186 | ) | ||||
| Net cash used for operating activities |
(11,727 | ) | (5,381 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Additions to property and equipment |
(2,009 | ) | (523 | ) | ||||
| Net cash used for investing activities |
(2,009 | ) | (523 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Net borrowings under credit facility |
12,634 | 5,889 | ||||||
| Principal payments on long-term debt |
(98 | ) | — | |||||
| Proceeds from minority equityholder of joint venture |
989 | — | ||||||
| Repurchase of common stock |
(36 | ) | — | |||||
| Issuance of common stock under option program |
9 | 15 | ||||||
| Net cash provided by financing activities |
13,498 | 5,904 | ||||||
| Net change in cash and cash equivalents |
(238 | ) | — | |||||
| Cash and cash equivalents: |
||||||||
| Beginning of the period |
4,692 | — | ||||||
| End of the period |
$ | 4,454 | $ | — | ||||
The accompanying notes are an integral part of the consolidated financial statements.
CASUAL MALE RETAIL GROUP, INC,
Notes to Consolidated Financial Statements
1. Basis of Presentation
In the opinion of management of Casual Male Retail Group, Inc., a Delaware corporation formerly known as Designs, Inc. (the “Company”), the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the interim financial statements. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with the notes to the Company’s audited consolidated financial statements for the fiscal year ended February 1, 2003 (included in the Company’s Annual Report on Form 10-K which was filed with the Securities and Exchange Commission on May 5, 2003).
The interim financial statements contain the results of operations of the Company’s Casual Male business, which consists of substantially all of the assets of Casual Male Corp. and certain of its subsidiaries (“Casual Male”), which assets were acquired by the Company on May 14, 2002. For a complete description of the Casual Male acquisition, see Note 2 below.
The information set forth in these statements may be subject to normal year-end adjustments. The information reflects all adjustments that, in the opinion of management, are necessary to present fairly the Company’s results of operations, financial position and cash flows for the periods indicated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s business historically has been seasonal in nature, and the results of the interim periods presented are not necessarily indicative of the results to be expected for the full year.
Certain amounts for the three months ended May 4, 2002 have been reclassified to conform to the presentation for the three months ended May 3, 2003. These adjustments relate to the reclassification for discontinued operations in accordance with the provisions of Statement of Financial Accounting Standard (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”). For further discussion regarding discontinued operations see Note 6 below.
2. Casual Male Acquisition
On May 14, 2002, pursuant to an asset purchase agreement entered into as of May 2, 2002, the Company completed the acquisition of Casual Male for a purchase price of approximately $170 million, plus the assumption of certain operating liabilities. The Company was selected as the highest and best bidder for the acquired Casual Male assets at a bankruptcy court ordered auction commencing on May 1, 2002 and concluding on May 2, 2002. The U.S. Bankruptcy Court for the Southern District of New York subsequently granted its approval of the acquisition on May 7, 2002.
Casual Male, which was a leading independent specialty retailer of fashion, casual and dress apparel for big and tall men, had annual sales that exceeded $350 million. Casual Male sold its branded merchandise through various channels of distribution including full price and outlet retail stores, direct mail and the internet. Casual Male had been operating under the protection of the U.S. Bankruptcy Court since May 2001.
Under the terms of the asset purchase agreement, the Company acquired substantially all of Casual Male’s assets, including, but not limited to, the inventory and fixed assets of approximately 475 retail store locations and various intellectual property. In addition, the Company assumed certain operating liabilities, including, but not limited to, existing retail store lease arrangements and the existing mortgage for Casual Male’s corporate headquarters located in Canton, Massachusetts.
In view of the significance of the Casual Male acquisition to the growth and future identity of the Company, at the Annual Meeting of Stockholders held on August 8, 2002, the Company’s stockholders approved the Board of Directors’ recommendation to change the Company’s name from “Designs, Inc.” to “Casual Male Retail Group, Inc.” The Company believes that the Casual Male business will be a primary future contributor to the Company’s overall
business and that the name change was an important step to align the customer and investor identification of the Company with the Casual Male store concept. For the same reason, certain financial information for the Casual Male business is included in this Quarterly Report on Form 10-Q.
The allocation of the Casual Male purchase price as disclosed by the Company for the fourth quarter of fiscal 2003 and for the fiscal year ended February 1, 2003 has been adjusted to reflect further adjustments to certain asset valuations, which were revised during the first quarter of fiscal 2004. The allocation of purchase price as of May 3, 2003, subject to further adjustments, was as follows:
| Debit (Credit) |
||||
| (in thousands) | ||||
| Cash and cash equivalents |
$ | 193 | ||
| Accounts receivable |
1,397 | |||
| Merchandise inventory |
70,968 | |||
| Prepaid expenses |
2,129 | |||
| Property and equipment |
52,862 | |||
| Other assets |
3,424 | |||
| Goodwill |
50,699 | |||
| Casual Male trademark |
29,200 | |||
| Customer lists |
1,600 | |||
| Accounts payable |
(23,209 | ) | ||
| Accrued expenses and other current liabilities |
(6,863 | ) | ||
| Accrual for estimated transaction and severance costs |
(9,248 | ) | ||
| Mortgage note |
(12,151 | ) | ||
| Total cash paid for assets acquired and liabilities assumed |
$ | 161,001 | ||
The Casual Male acquisition, along with the payment of certain related fees and expenses, was completed with funds provided by: (i) approximately $30.2 million in additional borrowings from the Company’s amended three-year $120.0 million senior secured credit facility with the Company’s bank, Fleet Retail Finance, Inc. (“Fleet”), (ii) $15.0 million from a three-year term loan with a subsidiary of Fleet, (iii) proceeds from the private placement of $24.5 million principal amount of 12% senior subordinated notes due 2007 together with detachable warrants to acquire 1,715,000 shares of the Company’s common stock at an exercise price of $.01 per share, and additional detachable warrants to acquire 1,176,471 shares of common stock at an exercise price of $8.50 per share, (iv) proceeds from the private placement of $11.0 million principal amount of 5% senior subordinated notes due 2007, (v) approximately $82.5 million of proceeds from the private placement of approximately 1.4 million shares of common stock and 180,162 shares of newly designated Series B Convertible Preferred Stock, par value $0.01 per share (which shares were automatically converted on August 8, 2002 into 18,016,200 shares of common stock), and (vi) the assumption of a mortgage note in the principal amount of approximately $12.2 million.
Below are the operating results for the first quarter of fiscal 2004 compared to the pro forma results for the first quarter of fiscal 2003, assuming that the Casual Male acquisition had occurred on February 3, 2002:
| For the three months ended: |
May 3, 2003 |
May 4, 2002 |
||||||||||||||||||||||
| Actual Casual Male business |
Actual Other Branded Apparel businesses(1) |
Actual Combined Company |
Pro forma Casual Male business(2) |
Actual Other Branded Apparel businesses(1) |
Pro forma Combined Company |
|||||||||||||||||||
| (unaudited, dollars in millions) | ||||||||||||||||||||||||
| Sales |
$ | 72.8 | $ | 26.9 | $ | 99.7 | $ | 78.4 | $ | 32.3 | $ | 110.7 | ||||||||||||
| Gross margin, net of Occupancy costs |
30.3 | |||||||||||||||||||||||