SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| [X] | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July 31, 2004
Commission File No. 0-11682
S & K FAMOUS BRANDS, INC.
(Exact name of registrant as specified in its charter)
| Virginia | 54-0845694 | |
| (State or other jurisdiction of Incorporation or organization) |
(I.R.S. Employer Identification No.) |
11100 West Broad Street, P. O. Box 31800, Richmond, Virginia 23294-1800
(Address of principal executive offices)
Registrant’s telephone number, including area code: (804) 346-2500
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the Registrant is an accelerated filer as defined in Rule 12b-2 of the Act.
Yes No X
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock as of July 31, 2004.
2,490,298 shares of Common Stock, $0.50 par value
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
S & K FAMOUS BRANDS, INC.
Statements of Income
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended |
Six Months Ended |
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| July 31, 2004 |
August 2, 2003 |
July 31, 2004 |
August 2, 2003 |
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| Net sales |
$ | 40,479 | $ | 41,128 | $ | 91,389 | $ | 85,147 | |||||||||
| Cost of sales |
22,567 | 22,599 | 50,513 | 45,582 | |||||||||||||
| Gross profit |
17,912 | 18,529 | 40,876 | 39,565 | |||||||||||||
| Other costs and expenses: |
|||||||||||||||||
| Selling, general and administrative |
17,226 | 17,338 | 36,577 | 35,081 | |||||||||||||
| Interest |
66 | 124 | 109 | 218 | |||||||||||||
| Depreciation and amortization |
753 | 761 | 1,503 | 1,519 | |||||||||||||
| Other, net |
67 | (28 | ) | 29 | (53 | ) | |||||||||||
| Income (loss) before income taxes |
(200 | ) | 334 | 2,658 | 2,800 | ||||||||||||
| Provision (benefit) for income taxes |
(76 | ) | 127 | 1,010 | 1,064 | ||||||||||||
| Net income (loss) |
$ | (124 | ) | $ | 207 | $ | 1,648 | $ | 1,736 | ||||||||
| Earnings (loss) per common share: |
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| Basic |
$ | (0.05 | ) | $ | 0.08 | $ | 0.66 | $ | 0.71 | ||||||||
| Diluted |
$ | (0.05 | ) | $ | 0.08 | $ | 0.62 | $ | 0.68 | ||||||||
| Weighted average common shares outstanding – basic |
2,490 | 2,453 | 2,492 | 2,462 | |||||||||||||
| Dilutive effect of stock options and performance awards |
— | 123 | 165 | 78 | |||||||||||||
| Weighted average common shares outstanding including dilutive potential common shares |
2,490 | 2,576 | 2,657 | 2,540 | |||||||||||||
See Notes to Financial Statements.
2
S & K FAMOUS BRANDS, INC.
Balance Sheets
(In thousands, except per share amounts)
| July 31, 2004 |
August 2, 2003 |
January 31, 2004 |
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| (unaudited) | (unaudited) | |||||||||||
| Assets |
||||||||||||
| Current assets: |
||||||||||||
| Cash and cash equivalents |
$ | 2,002 | $ | 2,441 | $ | 2,384 | ||||||
| Accounts receivable |
550 | 392 | 407 | |||||||||
| Merchandise inventories |
55,165 | 53,186 | 48,477 | |||||||||
| Prepaid income taxes |
477 | 484 | — | |||||||||
| Other current assets |
3,981 | 3,011 | 3,981 | |||||||||
| Total current assets |
62,175 | 59,514 | 55,249 | |||||||||
| Property and equipment, at cost: |
||||||||||||
| Land and buildings |
6,607 | 6,607 | 6,607 | |||||||||
| Furniture, fixtures and equipment |
18,530 | 17,270 | 18,227 | |||||||||
| Leasehold improvements |
18,439 | 17,668 | 18,038 | |||||||||
| 43,576 | 41,545 | 42,872 | ||||||||||
| Less: Accumulated depreciation and amortization |
28,452 | 26,208 | 27,275 | |||||||||
| 15,124 | 15,337 | 15,597 | ||||||||||
| Other assets |
4,121 | 7,297 | 3,994 | |||||||||
| $ | 81,420 | $ | 82,148 | $ | 74,840 | |||||||
| Liabilities and Shareholders’ Equity |
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| Current liabilities: |
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| Current maturities of long-term debt |
$ | 403 | $ | 2,346 | $ | 403 | ||||||
| Book overdrafts |
1,916 | 1,887 | 1,977 | |||||||||
| Accounts payable |
11,280 | 10,217 | 11,686 | |||||||||
| Accrued compensation and related items |
1,595 | 1,435 | 2,887 | |||||||||
| Current and deferred income taxes |
92 | 91 | 92 | |||||||||
| Other current liabilities |
2,082 | 2,010 | 2,264 | |||||||||
| Total current liabilities |
17,368 | 17,986 | 19,309 | |||||||||
| Long-term debt |
10,810 | 14,395 | 4,161 | |||||||||
| Other long-term liabilities |
2,572 | 1,842 | 2,250 | |||||||||
| Deferred income taxes |
1,164 | 1,505 | 1,292 | |||||||||
| Commitments & Contingencies |
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| Shareholders’ equity: |
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| Preferred stock, $1 par value; authorized shares, 500; issued and outstanding shares, none |
||||||||||||
| Common stock, $.50 par value, authorized shares, 10,000; issued and outstanding shares, 2,490, 2,452 and 2,490, respectively |
1,245 | 1,226 | 1,245 | |||||||||
| Capital in excess of par value |
288 | — | 277 | |||||||||
| Notes receivable—Stock Purchase Loan Plan |
(885 | ) | (974 | ) | (904 | ) | ||||||
| Retained earnings |
48,858 | 46,168 | 47,210 | |||||||||
| 49,506 | 46,420 | 47,828 | ||||||||||
| $ | 81,420 | $ | 82,148 | $ | 74,840 | |||||||
See Notes to Financial Statements.
3
S & K FAMOUS BRANDS, INC.
Statements of Cash Flows
Increase (Decrease) in Cash
(In thousands) (unaudited)
| Six Months Ended |
||||||||
| 7/31/04 |
8/2/03 |
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| Cash flows from operating activities: |
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| Net income |
$ | 1,648 | $ | 1,736 | ||||
| Adjustments to reconcile net income to net cash (used for) provided by operating activities: |
||||||||
| Depreciation and amortization |
1,857 | 1,819 | ||||||
| Proceeds received on insurance claim |
— | 240 | ||||||
| Gain on insurance claim |
— | (11 | ) | |||||
| Loss on property dispositions, net |
98 | 26 | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
(144 | ) | (78 | ) | ||||
| Merchandise inventories |
(6,689 | ) | (7,342 | ) | ||||
| Other current and non-current assets |
(63 | ) | 218 | |||||
| Accounts payable and accrued expenses |
(1,770 | ) | (2,840 | ) | ||||
| Current and deferred income taxes |
(601 | ) | (247 | ) | ||||
| Other long-term liabilities |
322 | 152 | ||||||
| Net cash used for operating activities |
(5,342 | ) | (6,327 | ) | ||||
| Cash flows from investing activities: |
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| Capital expenditures |
(1,484 | ) | (1,051 | ) | ||||
| Proceeds from property dispositions |
23 | 11 | ||||||
| Premium payments under life insurance policies |
(84 | ) | (91 | ) | ||||
| Net cash used for investing activities |
(1,545 | ) | (1,131 | ) | ||||
| Cash flows from financing activities: |
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| Net borrowings under revolving bank loans |
6,850 | 6,150 | ||||||
| Repayment under line of credit and real estate debt |
(202 | ) | (687 | ) | ||||
| Repurchase of common stock |
(143 | ) | (678 | ) | ||||
| Net cash provided by financing activities |
6,505 | 4,785 | ||||||
| Net decrease in cash & cash equivalents |
(382 | ) | (2,673 | ) | ||||
| Cash & cash equivalents at beginning of period |
2,384 | 5,114 | ||||||
| Cash & cash equivalents at end of period |
$ | 2,002 | $ | 2,441 | ||||
| Supplemental disclosure of cash flow information: |
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| Cash paid during the period for interest |
$ | 98 | $ | 165 | ||||
| Cash paid during the period for income taxes, net |
1,611 | 1,388 | ||||||
| Non-cash financing activities – |
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| Principal forgiveness on Stock Purchase Loan Plan |
19 | 21 | ||||||
| Issuances of common stock |
150 | 155 | ||||||
| Reduction in income taxes payable from benefit of stock options |
4 | — | ||||||
See Notes to Financial Statements.
4
S & K FAMOUS BRANDS, INC.
Notes to Financial Statements
(unaudited)
| A. | Accounting Policies |
The accompanying unaudited interim financial statements have been prepared by S & K Famous Brands, Inc. (the “Company”) in accordance with the regulations of the Securities and Exchange Commission in regard to quarterly reporting. In the opinion of the Company’s management, the statements include all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair representation of the financial position and results of operations for interim periods. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s most recent annual report to shareholders (the “2003 Annual Report”) and its Annual Report on Form 10-K for the fiscal year ended January 31, 2004 (the “10-K”).
The Company’s significant accounting policies are described in Note 1 to the Financial Statements contained in the 2003 Annual Report. The application of these policies may require management to make judgments and estimates about the amounts reflected in the financial statements. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.
| B. | Interim Results of Operations |
The Company’s business is highly seasonal, with peak sales periods occurring during its fourth fiscal quarter, which includes the Christmas season. The net earnings of any interim quarter are seasonally disproportionate to net sales since administrative and certain operating expenses remain relatively constant during the year. Consequently, interim results should not be considered necessarily indicative of the results for the entire fiscal year.
| C. | Earnings per Share |
Options to purchase approximately 71,000 shares of common stock at prices ranging from $7.38 to $11.94 per share, and the related effects on income, were excluded from the diluted earnings per share calculation for the three months ended July 31, 2004 because the effect was anti-dilutive.
| D. | Stock Based Compensation |
In the fourth quarter of fiscal 2004, the Company adopted the fair value provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” on a prospective basis for all new grants of equity instruments (which would include performance awards and stock options) effective February 2, 2003. Prior to fiscal 2004, the Company accounted for those plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25) and related interpretations. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards for the three months ended July 31, 2004 and August 2, 2003.
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