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 1, 2004
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 x No ¨
The number of shares of common stock outstanding as of June 1, 2004 was 34,196,813.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CASUAL MALE RETAIL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| May 1, 2004 |
January 31, 2004 |
|||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 2,181 | $ | 4,179 | ||||
| Accounts receivable |
5,982 | 5,556 | ||||||
| Inventories |
109,822 | 98,673 | ||||||
| Prepaid expenses and other current assets |
9,583 | 5,275 | ||||||
| Total current assets |
127,568 | 113,683 | ||||||
| Property and equipment, net of accumulated depreciation and amortization |
69,933 | 68,345 | ||||||
| Other assets: |
||||||||
| Goodwill |
50,677 | 50,677 | ||||||
| Other intangible assets |
30,604 | 30,629 | ||||||
| Other assets |
9,565 | 9,408 | ||||||
| Total assets |
$ | 288,347 | $ | 272,742 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Current portion of long-term debt |
$ | 3,731 | $ | 3,710 | ||||
| Accounts payable |
37,135 | 32,125 | ||||||
| Accrued expenses and other current liabilities |
25,243 | 22,884 | ||||||
| Accrued liabilities for severance and store closings |
2,945 | 2,945 | ||||||
| Notes payable |
15,797 | 3,623 | ||||||
| Total current liabilities |
84,851 | 65,287 | ||||||
| Long-term liabilities: |
||||||||
| Long-term debt, net of current portion |
122,190 | 122,374 | ||||||
| Other long-term liabilities |
443 | 436 | ||||||
| Total long-term liabilities |
122,633 | 122,810 | ||||||
| Minority interest |
4,451 | 3,804 | ||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $0.01 par value, 1,000,000 shares authorized, none outstanding at May 1, 2004 and January 31, 2004 |
— | — | ||||||
| Common stock, $0.01 par value, 75,000,000 shares authorized, 39,365,130 and 39,246,364 shares issued at May 1, 2004 and January 31, 2004, respectively |
394 | 392 | ||||||
| Additional paid-in capital |
154,313 | 153,650 | ||||||
| Accumulated deficit |
(61,259 | ) | (56,165 | ) | ||||
| Treasury stock at cost, 4,171,930 shares |
(17,036 | ) | (17,036 | ) | ||||
| Total stockholders’ equity |
76,412 | 80,841 | ||||||
| Total liabilities and stockholders’ equity |
$ | 288,347 | $ | 272,742 | ||||
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 1, 2004 |
May 3, 2003 |
|||||||
| Sales |
$ | 103,812 | $ | 92,343 | ||||
| Cost of goods sold, including occupancy |
66,465 | 58,256 | ||||||
| Gross profit |
37,347 | 34,087 | ||||||
| Expenses: |
||||||||
| Selling, general and administrative |
37,071 | 31,884 | ||||||
| Depreciation and amortization |
2,569 | 1,985 | ||||||
| Total expenses |
39,640 | 33,869 | ||||||
| Operating income (loss) |
(2,293 | ) | 218 | |||||
| Interest expense, net |
2,179 | 2,885 | ||||||
| Loss from continuing operations before minority interest |
(4,472 | ) | (2,667 | ) | ||||
| Less: |
||||||||
| Minority interest |
(347 | ) | (72 | ) | ||||
| Loss from continuing operations |
$ | (4,125 | ) | $ | (2,595 | ) | ||
| Loss from discontinued operations |
(969 | ) | (160 | ) | ||||
| Net loss |
$ | (5,094 | ) | $ | (2,755 | ) | ||
| Net loss per share - basic and diluted |
||||||||
| Loss from continuing operations |
$ | (0.12 | ) | $ | (0.07 | ) | ||
| Loss from discontinued operations |
(0.03 | ) | (0.01 | ) | ||||
| Net loss |
$ | (0.15 | ) | $ | (0.08 | ) | ||
| Weighted average number of common shares outstanding | ||||||||
| - Basic and diluted |
35,126 | 35,754 | ||||||
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 1, 2004 |
May 3, 2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (5,094 | ) | $ | (2,755 | ) | ||
| Adjustments to reconcile net loss to net cash used for operating activities: |
||||||||
| Loss from discontinued operations |
969 | 160 | ||||||
| Depreciation and amortization |
2,569 | 1,985 | ||||||
| Accretion of warrants |
70 | 402 | ||||||
| Issuance of common stock to related party |
50 | 276 | ||||||
| Issuance of common stock to Board of Directors |
33 | 27 | ||||||
| Minority interest |
347 | 72 | ||||||
| Loss on disposal of fixed assets |
17 | — | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(426 | ) | (362 | ) | ||||
| Inventories |
(10,849 | ) | 212 | |||||
| Prepaid expenses |
(5,176 | ) | (5,563 | ) | ||||
| Other assets |
468 | (113 | ) | |||||
| Reserve for severance and store closings |
— | (329 | ) | |||||
| Accounts payable |
5,010 | (1,645 | ) | |||||
| Accrued expenses and other current liabilities |
1,833 | (3,105 | ) | |||||
| Net cash used for operating activities |
(10,179 | ) | (10,738 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Additions to property and equipment |
(4,343 | ) | (2,009 | ) | ||||
| Net cash used for investing activities |
(4,343 | ) | (2,009 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Net borrowings under credit facility |
12,174 | 12,634 | ||||||
| Principal payments on long-term debt |
(232 | ) | (98 | ) | ||||
| Repurchase of common stock |
— | (36 | ) | |||||
| Issuance of common stock under option program and warrants |
582 | 9 | ||||||
| Net cash provided by financing activities |
12,524 | 12,509 | ||||||
| Net change in cash and cash equivalents |
(1,998 | ) | (238 | ) | ||||
| Cash and cash equivalents: |
||||||||
| Beginning of the period |
4,179 | 4,692 | ||||||
| End of the period |
$ | 2,181 | $ | 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 (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 January 31, 2004 (included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on April 15, 2004).
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 accounting principles generally accepted in the United States 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 3, 2003 have been reclassified to conform to the presentation for the three months ended May 1, 2004. These adjustments relate to the reclassification for discontinued operations in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”). For further discussion regarding discontinued operations, see Note 5 below.
The Company’s fiscal year is a 52- or 53- week period ending on the Saturday closest to January 31. Fiscal 2004 is a 52-week period ending on January 29, 2005.
2. Debt
Credit Agreement with Fleet Retail Finance, Inc.
The Company has a credit facility (as amended from time to time, the “Credit Facility”) with Fleet Retail Finance Inc., (“Fleet”) which was most recently amended on November 3, 2003. The total commitment under the Credit Facility is $90.0 million, with a $20.0 million carve-out for standby and documentary letters of credit. Borrowings under the Credit Facility bear interest at variable rates based on FleetBoston, N.A.’s prime rate or the London Interbank Offering Rate (“LIBOR”) and vary depending on the Company’s levels of excess availability. The Company’s ability to borrow under the Credit Facility is determined using an availability formula based on eligible assets, with increased advance rates based on seasonality. Pursuant to the Credit Facility, which will expire on May 14, 2006, the Company is subject to prepayment penalties through May 14, 2005.
The Company’s obligations under the Credit Facility are secured by a lien on all of its assets. The Credit Facility includes certain covenants and events of default customary for credit facilities of this nature, including change of control provisions and limitations on payment of dividends by the Company. The Company is also subject to a financial covenant requiring minimum levels of EBITDA if certain minimum excess availability levels are not met. The Company was in compliance with all debt covenants under the Credit Facility at May 1, 2004.
At May 1, 2004, the Company had borrowings outstanding under the Credit Facility of $15.8 million and outstanding standby letters of credit of $850,000. Average borrowings outstanding under this facility during the first quarter of fiscal 2004 were approximately $11.6 million, resulting in an average unused excess availability of approximately $49.9 million.
The fair value of amounts outstanding under the Credit Facility approximate the carrying value at May 1, 2004. At the Company’s option, any portion of the outstanding borrowings can be converted to LIBOR-based contracts; the remainder bears interest based on prime. At May 1, 2004, the prime-based borrowings interest rate was 4.25% and the Company had no outstanding LIBOR contracts.
Other Long-Term Debt
Components of other long-term debt are as follows (in thousands):
| May 1, 2004 |
January 31, 2004 |
|||||||
| 5% convertible senior subordinated notes due 2024 |
$ | 100,000 | $ | 100,000 | ||||
| 12% senior subordinated notes due 2010 |
6,485 | 6,415 | ||||||
| 5% senior subordinated notes due 2007 |
8,938 | 8,938 | ||||||
| Mortgage note |
10,498 | 10,731 | ||||||
| Total other long-term debt |
125,921 | 126,084 | ||||||
| Less: current portion of long-term debt |
(3,731 | ) | (3,710 | ) | ||||
| Other long-term debt, less current portion |
$ | 122,190 | $ | 122,374 | ||||
5% convertible senior subordinated notes due 2024
During the fourth quarter of fiscal 2003, the Company completed the sale of $100 million principal amount of convertible senior subordinated notes due 2024 (the “Convertible Notes”). The Convertible Notes were sold in a private transaction to qualified institutional buyers (as such term is defined in Rule 144A under the Securities Act of 1933, as amended). The Convertible Notes, which bear interest at a rate of 5% per year, payable semi-annually, are convertible into the Company’s Common Stock at a conversion price of $10.65 per share and constitute general unsecured obligations of the Company, subordinate to all existing and future designated senior indebtedness.
12% senior subordinated notes due 2010
During fiscal 2003, the Company issued through private placements approximately $29.6 million principal amount of 12% senior subordinated notes due 2010. Interest on such notes is paid semi-annually. Together with these notes, the Company also issued, through such private placements, detachable warrants to purchase 1,182,400 million shares of Common Stock at exercise prices ranging from $4.76 to $7.32 per share. The assigned value of $5.6 million for these warrants was reflected as a component of stockholder’s equity to be amortized over the seven-year life of the notes as additional interest expense. Although the Company’s 12% senior subordinated notes due 2010 were not redeemable until July 3, 2004, the Company sought early redemption from the respective note holders in the fourth quarter of fiscal 2003. As a result, the Company prepaid approximately $21.8 million of such notes. Accordingly, at May 1, 2004, the carrying value of the remaining notes, which were not redeemed, was $6.5 million, and is net of the remaining unamortized assigned value of the related warrants of $1.3 million.
The Company intends to seek redemption of the remaining $7.8 million of the 12% senior subordinated notes when they become redeemable on July 3, 2004. In connection with the early redemption, the Company expects to incur $2.0 million of additional expense in the second quarter of fiscal 2004 related to prepayment charges and the write-off of remaining deferred costs.
5% senior subordinated notes due 2007
At May 1, 2004, the Company has $8.9 million principal amount of its 5% senior subordinated notes due 2007 outstanding. These notes were issued in May 2002 through a private placement with the Kellwood Company, with whom the Company also has a product sourcing agreement. The Company is required to make quarterly principal payments at the end of each fiscal quarter in the amount of $687,500 until the maturity of the notes. Accrued interest is payable quarterly.
Mortgage
The Company has an outstanding mortgage note for real estate and buildings located in Canton, Massachusetts. The mortgage note, which bears interest at 9%, had an outstanding principal balance of $10.5 million at May 1, 2004.
3. Equity
Earnings Per Share
SFAS No. 128, Earnings per Share, requires the computation of basic and diluted earnings per share. Basic earnings per share is computed by dividing net income (loss) by the weighted average number of shares of Common Stock outstanding during the respective period. Diluted earnings per share is determined by giving effect to the exercise of stock options and certain warrants using the treasury stock method. The following table provides a reconciliation of the number of shares outstanding for basic and diluted earnings per share:
| For the three months ended: |
May 1, 2004 |
May 3, 2003 | ||
| (in thousands)
|
||||
| Basic weighted average common shares outstanding |
35,126 | 35,754 | ||
| Stock options, excluding the effect of anti-dilutive options and warrants totaling 2,194 shares for the three months ended May 1, 2004 and 663 shares for the three months ended May 3, 2003 |
— | — | ||
| Diluted weighted average common shares outstanding |
35,126 | 35,754 |
In addition, the following potential Common Stock equivalents were also excluded from the computation of diluted earnings per share in each period because the exercise price of such options, warrants and convertible notes was greater than the average market price per share of Common Stock for the respective periods:
| For the three months ended | ||||||
| (in thousands)
|
May 1, 2004 |
May 3, 2003 | ||||
| Options |
469 | 2,156 | ||||
| Warrants |
— | 1,676 | ||||
| Convertible notes at $10.65/share |
9,390 | — | ||||
| Range of exercise prices of such options, warrants Convertible notes |
$ | 10.15 to $10.65 | $ | 3.15 to $17.75 | ||
The above options, warrants and convertible notes which were outstanding and out-of-the-money at May 1, 2004 expire from January 1, 2024 to April 27, 2024.
Stock-Based Compensation
The Company accounts for stock option plans in accordance with the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations in accounting for its plans.
The Company has elected the disclosure-only alternative prescribed in SFAS 123 and, accordingly, no compensation cost has been recognized. The Company has disclosed the pro forma net income or loss and per share amounts using the fair value based method. Had compensation costs for the Company’s grants for stock-based compensation been determined consistent with SFAS 123, the Company’s net loss and loss per share would have been as indicated below: