**Securitiesand 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)

 

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

 

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

 

Indicate bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject tosuch filing requirements for the past 90 days.

 
| Yes ý | No o |
|-----------------|-----------|

 

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

 

Indicate bycheck mark whether the registrant is an accelerated filer (as defined inExchange Act Rule 12b-2)

 
| Yes ý | No o |
|-----------------|------|

 

The aggregatemarket value of the voting and non-voting stock held by nonaffiliates of theregistrant, based upon the closing price of shares of Common Stock on theNational 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-Kshall not be deemed a determination as to whether an individual is an “affiliate”of the registrant for any other purposes.

 

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

 

**DOCUMENTS INCORPORATED BY REFERENCE:**

 

The Companywill disclose the information required under Part III, Items 10-14 eitherby (a) incorporating the information by reference from the Company’sdefinitive proxy statement if filed by May 31, 2005 (the first businessday 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 therequired information by May 31, 2005 (the first business day following120 days from the close of the Company’s fiscal year ended January 29,2005).

 

Index to the exhibits appearson Pages 27 through 29.

 

 

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**CAUTIONARYSTATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATESECURITIES LITIGATION REFORM ACT OF 1995**

 

This AnnualReport on Form 10-K includes and incorporates by reference certainstatements that may be deemed to be forward-looking statements within themeaning of the Private Securities Litigation Reform Act of 1995. The PrivateSecurities Litigation Reform Act of 1995 provides a “safe harbor” for certainforward-looking statements so long as such information is identified as forward-lookingand is accompanied by meaningful cautionary statements identifying importantfactors that could cause actual results to differ materially from thoseprojected 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 toidentify forward-looking statements and information. Actual results may differmaterially from those forecast due to a variety of factors outside of theCompany’s control that can affect the Company’s operating results, liquidityand financial condition.  Such factorsinclude risks associated with economic, weather, public health and otherfactors affecting consumer spending, the ability of the Company to finance itsexpansion plans, the mix and pricing of goods sold, the market price of key rawmaterials such as wool and cotton, availability of lease sites for new stores,the ability to source product from its global supplier base and othercompetitive factors. These cautionary statements qualify all of the forward-lookingstatements the Company makes herein. The Company cannot assure you that theresults or developments anticipated by the Company will be realized or, even ifsubstantially realized, that those results or developments will result in theexpected consequences for the Company or affect the Company, its business orits operations in the way the Company expects. The Company cautions you not toplace undue reliance on these forward-looking statements, which speak only asof their respective dates, and assumes no obligation to update any of theforward-looking statements. Such risk factors are more fully described underthe caption “Item 7. Management’s Discussion and Analysis of FinancialCondition and Results of Operations.” The Company cautions that the foregoinglist of important factors is not exclusive.

 

*Common Stock Dividends.*  On January 13,2004, the Company’s Board of Directors declared a 50% common stock dividendpayable on February 18, 2004 to stockholders of record as of January 30,2004.  On June 8, 2004, the Company’sBoard 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 historicalweighted average share and per share amounts and all references to the numberof common shares elsewhere in the consolidated financial statements, and notesthereto, have been restated to reflect the two stock dividends.

 

**PART I**

 

**Item1.  BUSINESS**

 

**EXPLANATORY NOTE**

 

OnFebruary 7, 2005, in a letter to the Center for Public Company AuditFirms-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 leaseaccounting issues and their application under generally accepted accountingprinciples (“GAAP”).  Specifically, theSEC Letter addressed the appropriate accounting for: (1) the amortizationof leasehold improvements by a lessee in an operating lease with leaserenewals, (2) the pattern of recognition of rent when the lease term in anoperating lease contains a period where there are free or reduced rents (commonlyreferred to as “rent holidays”), and (3) incentives related to leaseholdimprovements provided by a landlord/lessor to a tenant/lessee in an operatinglease. Like many other companies in the retail industry, the Company hasre-evaluated its lease accounting practices in light of the SEC Letter.

 

Aspreviously disclosed in the Company’s Current Report on Form 8-K dated February 25,2005, the Company’s Audit Committee concluded that the financial statementsincluded in the Company’s Annual Report on Form 10-K for fiscal years 2002and 2003, as well as those in the Company’s Quarterly Reports on Form 10-Qfor 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 itsfinancial statements for the two-year period ended January 31, 2004 andfor the first three quarters of fiscal 2004.

 

ThisAnnual Report on Form 10-K gives effect to the restatement of theconsolidated financial statements for the years ended February 3, 2001 (fiscal2000), February 2, 2002 (fiscal 2001), February 1, 2003 (fiscal 2002)and January 31, 2004 (fiscal 2003), for the first three quarters of fiscal2004 and for all four quarters of fiscal 2003 to reflect the revision to itshistorical practices of accounting for lease transactions, as discussed in Note2 to the Consolidated Financial Statements.

 

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

 

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

 

Asa result of the change of its rent schedules, the Company has restated theConsolidated Financial Statements for fiscal 2000, fiscal 2001, fiscal 2002,fiscal 2003, for the first three quarters of fiscal 2004 and for all fourquarters of fiscal 2003.  The changes areinclusive of the immaterial changes resulting from the modification of the rentschedules to achieve consistency with the corresponding leasehold amortizationschedules, as set forth above.

 

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

 

Theimpact 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 $13.1million and an increase in the deferred rent liability account of $14.8million. The impact of the restatement is a decrease in net income of $.1million, $.1 million, $.1 million and $.3 million for fiscal years 2000, 2001,2002 and 2003, respectively, from amounts previously reported.  Therestatement 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 forall years prior to fiscal 2000 was $.4 million, which was recorded as anadjustment to opening retained earnings at January 30, 2000.  Therestatement also had a cumulative increase to deferred income taxes of $.7million as of January 31, 2004.  Therestatement did not have any impact on our previously reported sales orcomparable store sales or on our compliance with any financial covenant underour line of credit facility or other debt instruments.  The restatement also decreased reporteddiluted earnings per share by $0.01, $0.01 and $0.02 for the first, second andthird quarters of fiscal 2004, respectively.

 

The Company has not amended and does notintend to amend its previously-filed Annual Reports on Form 10-K or its QuarterlyReports 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 thisreason, the consolidated financial statements, auditors’ reports and relatedfinancial information for the affected periods contained in such reports shouldno longer be relied upon.

 

**General**

 

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

 

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

 

The Company operates on a 52-53 week fiscalyear ending on the Saturday closest to January 31. Information presentedfor 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.

 

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**Strategy**

 

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

 

1.             Quality

 

2.             Service

 

3.             InventoryIn-stock

 

4.             ProductInnovation

 

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

 

•      continuallyincreasing the already high level of quality of its products by developing andmaintaining stringent design and manufacturing specifications;

 

•      developingits multi-channel retailing concept by opening more stores and expanding thecatalog and internet operation, thus offering multiple convenient channels forcustomers to shop;

 

•      expandingits product assortment, including developing the “Three Levels of Luxury” andcontinuing to add innovative new products;

 

•      increasingits product design capabilities while eliminating the middleman in the sourcingof its products; and

 

•      providingoutstanding customer service and emphasizing high levels of inventoryfulfillment for its customers.

 

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

 

The Companyemphasizes customer service in all aspects of the business. Sales associatesfocus on developing close business relations with their customers to help serveall of the customer’s clothing needs. Inventory availability is a key focus toensure customers can purchase merchandise when requested, whether in the storesor through the catalog or internet. A tailor is staffed in each store to ensureprompt, high quality alteration service for our customers.

 

*Multi-Channel Retailing.*  The Company’s strategy is to operate itsthree channels of selling as an integrated business and to provide the samepersonalized service to its customers regardless of whether merchandise ispurchased through its stores, the internet or catalog. The Company believes thesynergy between its stores, its internet site and its catalog offers animportant convenience to our customers and a competitive advantage to theCompany. The Company believes it has significant opportunity to leverage thethree channels of selling by promoting each channel together to createawareness of the brand. For example, the internet site provides store locationlistings 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, toprovide customers with fashion guidance in coordinating outfits and to generatestore and internet traffic.

 

As a customerconvenience, the Company’s information systems enable customers to purchase allproducts that are offered in the catalog and internet while in a store.Conversely, customers may have catalog purchases shipped to a store foralteration and pickup and can return or exchange catalog and internet purchasesat a store.

 

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

 

3

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*Product Design and Sourcing.*  The Company has increased its designcapabilities in the past five years and now designs substantially all of itsproducts. 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 withmanufacturers. The Company’s product design and sourcing strategies haveresulted in reduced product costs, (which have enabled the Company to designadditional quality into its products), increased gross profit margins and fundingfor the development of the infrastructure needed to grow the chain.

 

**Segments**

 

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

 

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

 

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

 

The Company’snew store prototype was designed in the second half of fiscal 2000 and wasintroduced in March 2001 in Charlottesville, Virginia. The designemphasizes an open shopping experience that coordinates the Company’s successfulcorporate casual and sportswear with its suits, shirts, ties and otherproducts. The store design is based on the use of wooden fixtures with glassshelving, numerous tables to feature fashion merchandise, carpet and abundantaccent lighting and is intended to promote a pleasant and comfortable shoppingenvironment. 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, withthe remainder allocated to stockroom, tailoring and other support areas. TheCompany expects that substantially all future stores will vary in size fromapproximately 3,500 to 5,500 square feet depending on the market. The full-linestores averaged approximately 5,120 square feet at the end of fiscal 2004. Thestores opened in fiscal 2003 and fiscal 2004 averaged approximately 4,400 and 4,350square feet, respectively.

 

The cost toopen 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 tailorshop equipment. The Company will be reimbursed approximately $205,000 per storeof the new store build-out cost.  Newstores also require an inventory investment of approximately $300,000 to offera full range of products, with higher inventory levels during certain peakperiods. The inventory levels in a new store are typically increased as thestore’s sales mature.

 

Substantiallyall stores have a tailor shop which provides a range of tailoring services as aconvenience to its customers. The stores are designed to utilize Company-ownedregional overflow tailor shops which allow the use of smaller tailor shopswithin each store. Operating the regional tailor shops has allowed the Companyto optimize the number of tailors in the stores by sending all overflow work toregional tailor shops. These overflow shops experience higher productivity asthe tailors focus solely on alterations, whereas store tailors assist customersduring the course of the day. In addition, the store managers and certainadditional store staff have been trained to fit tailored clothing foralterations. The Company guarantees all of the tailoring work.

 

The Companyhas ten franchise locations. Generally, a franchise agreement between theCompany and the franchisee provides for a ten-year term with an option, exercisableby the franchisee under certain circumstances, to extend the term for anadditional ten-year period. Franchisees pay the Company an initial fixedfranchise fee and then a percentage of its net sales. Franchisees are requiredto maintain and protect the Company’s reputation for high quality, classicclothing and customer service. Franchisees purchase substantially allmerchandise offered for sale in their stores from the Company at an amountabove cost.

 

The Companyhas seven outlet stores which are used to liquidate excess merchandise andoffer certain first quality products at a reduced price. Because of the classiccharacter of the Company’s merchandise and aggressive store clearancepromotions, historically, the Company has been able to sell substantially allof its products through its stores and has not been required to sellsignificant amounts of inventory to third party liquidators.

 

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At April 8,2005, the Company operated 273 retail stores (including seven factory storesand ten franchise stores) in 37 states and the District of Columbia. Thefollowing 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                    |       |

 

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(a)           Includes one or morefranchise stores

(b)           Includes one or morefactory stores

 

*Direct Marketing.*  The Company’s direct marketing segment,consisting of its catalog and internet channels, is a key part of the Company’smulti-channel concept. The direct marketing segment accounted for approximately11% of net sales in fiscal 2003 and 11% of net sales in fiscal 2004. The directmarketing segment recorded a sales increase of 22.7% in fiscal 2004. TheCompany’s direct marketing segment offers potential and existing customersconvenience in ordering the Company’s merchandise. In fiscal 2003 and fiscal2004, the Company distributed approximately 7.8 and 9.2 million catalogs,respectively, representing catalogs mailed to customers and catalogsdistributed through stores.

 

The catalogand internet site offer potential and existing customers an easy way to orderthe full range of Jos. A. Bank products. They are significant resources used tocommunicate our high-quality image, providing customers with guidance incoordinating outfits, generating store traffic and providing useful market dataon customers. The Company believes customers are becoming increasingly morecomfortable purchasing traditional business attire through the catalog andinternet, as suits represented approximately 20% of net sales in the directmarketing segment in fiscal 2004.

 

To makecatalog shopping as convenient as possible, the Company maintains a toll-freetelephone number accessible 24 hours a day, seven days a week. The Companyuses on-line computer terminals to enter customer orders and to retrieveinformation about merchandise and its availability. Catalog sales associatescan help customers select merchandise and can provide detailed informationregarding size, color, fit and other merchandise features. In most cases,sample merchandise is available for catalog sales associates to view, thereby allowingthem to better assist customers. Merchandise purchased from the catalog may bereturned to any of the Company’s stores or to the Company by mail.

 

The Companyhas experienced strong growth in its internet sales in each of the past threefiscal years. The Company has established over 3,000 affiliate arrangementswhich has helped increase internet sales. The Company typically pays a fee tothe affiliate based on a percentage of net sales generated through suchaffiliate. In November 2002, the Company created an affiliate arrangementwith Amazon.com and in September 2004, the Company created an affiliate arrangementwith QVC.com.  The Company expects tocontinue to pursue affiliate arrangements to help fuel future internet salesincreases.

 

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The Company’sinternet site has many customer-friendly features such as high processingspeed, real-time inventory status, order confirmation, product searchcapabilities and an on-line catalog, among others. The site has enabled theCompany to be responsive to trends thereby affording the Company an opportunityto increase sales.

 

To processcatalog orders, sales associates enter orders on-line into a computerizedcatalog order entry system, while internet orders are placed by the customerand are linked to the same order entry system. After an order is placed, itautomatically updates all files, including the Company’s customer mailing list,and permits the Company to measure the response to individual catalog mailingsand internet email promotions. Computer processing of orders is performed bythe warehouse management system which permits efficient picking of inventoryfrom the warehouse. The Company’s order entry and fulfillment systems permitthe 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 secondday delivery or, if requested, by expedited delivery services, such as UnitedParcel Service priority. Sales and inventory information is available to theCompany’s merchants the next day.

 

**Merchandising**

 

The Companybelieves it fills a niche of providing upscale classic, professional men’sclothing with impeccable quality at a reasonable price. The Company’smerchandising strategy focuses on achieving an updated classic look withextreme attention to detail in quality materials and workmanship. The Companyoffers a distinctive collection of clothing and accessories necessary to dressthe career man from head to toe, including formal, business and businesscasual, as well as sportswear and golf apparel, all sold under the Jos. A. Banklabel. Its product offering includes tuxedos, suits, shirts, vests, ties, sportcoats, pants, sportswear, overcoats, sweaters, belts and braces, socks andunderwear. The Company also sells branded shoes from several vendors, which arethe only products it sells not using the Jos. A. Bank brand.

 

The Company’sbranding emphasizes very high levels of quality in all aspects of itsinteractions with customers, including merchandise and service. The Company hasdeveloped very stringent specifications in its product designs to ensureconsistency in the fit and quality of the product. The merchandise assortmenthas “Three Levels of Luxury” and one unwavering level of quality. The “ThreeLevels of Luxury” range from the Company’s original Jos. A. Bank collection, tothe 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’swool, and the uniqueness of tie swatches, some of which are offered inpre-numbered, limited editions.

 

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

 

The Companyhas many unique products to serve its customers’ needs and believes thatcontinued development of innovative products is one of its “Pillars of Success”. The TRIO collection is one of theCompany’s solutions to corporate casual attire. The TRIO consists of a tailoredjacket with two pants, one matching the jacket and one in a coordinatingpattern. Therefore, the outfit can be worn as a suit, sportcoat/slackcombination or as a casual outfit. The Company also offers its customers itsSeparates line, a concept for purchasing suits that allows customers tocustomize their wardrobe by selecting separate, but perfectly matched, jacketsand pants from one of three coat styles, plain front or pleated pants, andnumerous updated fabric choices including Super 100’s wool and natural stretchwool. The Separates line allows a customer to buy a suit with minimalalteration 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 successfullydeveloped this concept which the Company believes is a competitive advantage.The TRIO and Separate lines accounted for approximately 43% of suit sales infiscal 2004.

 

The Companyalso has a very successful line of wrinkle resistant all cotton dress shirtsthat are made using a patented process that is owned by the vendor. The Companybelieves it has one of the most extensive selections of dress pants in theindustry. The Company developed its Vacation-in-Paradise (“VIP”) line of casualvacation wear in fiscal 2002. Its David Leadbetter golf apparel offerssportshirts, sweaters and casual trousers and is a unique product in thesportswear category.

 

In early fiscal2004, the Company introduced a wrinkle resistant, stain resistant travelercotton pique polo shirt and machine washable traveler wool pants, as part ofits successful “Traveler” collection of products.  In late fiscal 2004 it introduced a wrinkleresistant, stain-resistant suit as part of its Separates Collection.

 

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**Designand Purchasing**

 

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

 

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

 

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

 

Approximately 10%of the total product purchases (including piece goods) in fiscal 2004 weresourced from United States suppliers, and approximately 90% were sourced fromsuppliers in other countries. In fiscal 2004, approximately 27% of the totalproduct purchases were manufactured in China (including 12% from Hong Kong) and18% in Mexico. No other country represented more than 10% of total productpurchases in fiscal 2004.

 

Also asdiscussed above, the Company uses an agent to source a portion of its productsfrom various companies that are located in or near Asia (China, including HongKong, Indonesia, Korea, Thailand, and Bangladesh). Purchases through this agentrepresented 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 representapproximately 15% of total product purchases in fiscal 2004.

 

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

 

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

 

In 2003, theCompany implemented two new information systems that increased its ability tocommunicate design specifications to its worldwide vendor base and to increaseits ability to manage the status of raw materials and production in plantsaround the world.

 

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

 

**Marketing,Advertising and Promotion**

 

*Strategy.*  The Company has historically used mass mediaradio and direct mail marketing, advertising and promotion activities insupport of its store and catalog/internet operations.  The Company has also begun sending emailpromotions to its store and internet customers in the past several years.  Core to each marketing campaign, whileprimarily promotional, is the identification of the Jos. A. Bank name assynonymous with high quality, upscale classic clothing offered at a value. TheCompany has a database of over 2.2 million names of people who have previouslymade a purchase from one of the Company’s retail stores, its internet site orcatalog or have requested a catalog or other information from the Company. Ofthese, approximately 1.4 million individuals have made such purchases orinformation requests in the past 24 months. The Company evaluates itsdatabase for mailing and selects names based on expectations of response tospecific promotions which allows the Company to efficiently use its advertisingdollars.

 

7

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In the fourthquarter of 2004, the Company began testing cable television as a method toincrease its brand awareness and to drive customers to its stores.  The Company also began using nationalmagazines to increase our brand awareness. The Company expects to continue testing these channels as alternativemethods to increase sales and brand awareness.

 

Throughouteach season, the Company promotes specific items or categories at specificprices 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 ofthe customers. At the end of each season, the Company conducts clearance salesto promote the sale of that season’s merchandise.

 

*Corporate Card.*  Certain organizations and companies canparticipate in our corporate card program, through which all of their employeesare eligible to receive a 20% discount off regularly-priced Jos. A. Bankmerchandise. The card is honored at all full-line stores as well as for catalogand internet purchases. Over 75,000 companies nationally, from privately-ownedsmall companies to large public companies, are now participating in theprogram. Participating companies are able to promote the card as a free benefitto their employees.

 

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

 

**Distribution**

 

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

 

To support thenew store growth, the Company upgraded its distribution center over the pastfour years and it is now capable of handling up to 500 stores in most of itsdistribution center functions.  In late2004, the Company increased its distribution center capacity by leasing andequipping approximately 289,000 square feet of space in a facility that isadjacent to its worldwide corporate headquarters.

 

**ManagementInformation Systems**

 

Many of theCompany’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 itscatalog system and replaced its point-of-sale (POS) system. In fiscal 2000 theCompany designed and implemented a new internet site. In fiscal 2003, theCompany implemented two new systems that increased their ability to communicatedesign specification to its worldwide vendor base and to increase its abilityto manage status of raw materials and production in plants around the world. In2004, the Company developed systems that allow increased management andreporting of pricing elements such as gross margins.  Additionally, the Company implemented a majorweb site upgrade to increase performance. By using these systems, the Company is able to capture greater customerdata and has increased its marketing efficiency using such data.

 

**Competition**

 

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

 

8

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**Trademarks**

 

The Company isthe 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 UnitedStates Patent and Trademark Office.  AFederal registration is renewable indefinitely if the trademark is still in useat the time of renewal. The Company’s rights in the Jos. A. Bank trademark area material part of the Company’s business. Accordingly, the Company intends tomaintain its use of the trademark. The Company is not aware of any claims ofinfringement or other material challenges to the Company’s right to use itsmarks in the United States.

 

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

 

**Seasonality**

 

Althoughvariations in sales volumes do exist between quarters, the Company believes thenature of its merchandise helps to stabilize demand between the differentperiods of the year. However, as the Company’s merchandise continues to includemore Corporate Casual and Sportswear and as more new stores are opened in thesecond half of the year, profits generated during the fourth quarter havebecome a larger portion of annual profits.

 

**Employees**

 

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

 

As of April 8,2005, approximately 180 employees worked in the tailoring and distributioncenter, 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 past50 years, the Company has had only one work stoppage, which occurred morethan 20 years ago. The Company believes that its relations with itsnon-union employees are also good.

 

A small numberof sales associates are union members under a separate contract which extendsto April 30, 2006. The Company maintains an excellent relationship withthese employees and their union.

 

**AvailableInformation**

 

The Company’sprincipal executive offices are located at 500 Hanover Pike, Hampstead,Maryland 21074. The Company’s telephone number is (410) 239-2700 and itswebsite 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, andamendments to these reports available on its website free of charge as soon aspracticable after they are filed with the Securities and Exchange Commission.In addition, the public may read and copy any materials filed by the Companywith the SEC at the SEC’s public reference room at 450 Fifth Street, N.W., WashingtonD.C. 20549. The public may obtain information on the operation of the PublicReference 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.

 

**Item2.  DESCRIPTION OF PROPERTY**

 

The Companyowns 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 goodoperating condition. The table below presents certain information relating tothe 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

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(1) Thisfacility was upgraded in the past several years including the addition ofseveral second level mezzanines, which increased the total floor space toapproximately 315,000 square feet.

 

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

 

The Companyalso leases one overflow tailoring facility in Atlanta, Georgia. This facilityreceives customers’ goods from full-line stores which are altered and returnedto the store for customer pickup.

 

**Item3.  LEGAL PROCEEDINGS**

 

The Companyhas been named as a defendant in legal actions arising from its normal businessactivities. Although the outcome of these lawsuits or other proceedings againstthe Company cannot be accurately predicted, the Company does not expect thatany such liability will have a material adverse effect on the business, netassets or financial position of the Company.

 

**Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**

 

No matterswere submitted to a vote of the Company’s security holders during the quarterended January 29, 2005.

 

**PART II**

 

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

 

(a)*             MarketInformation.*

 

The Company’sCommon Stock is listed on The Nasdaq National Market (“NASDAQ”) under thetrading symbol “JOSB”. The following table sets forth, for the periodsindicated, the range of high and low closing for the Common Stock, as reportedon NASDAQ. The approximate high and low closing prices for the Common Stocktabulated below represent inter-dealer quotations which do not include retailmark-ups, mark-downs or commissions. Such prices do not necessarily representactual 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 theclosing 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 Companyintends to retain its earnings to finance the development and expansion of itsbusiness and for working capital purposes, and therefore does not anticipatepaying any cash dividends in the foreseeable future. The Company has notdeclared or paid any cash dividends in the last two fiscal years. In addition,the Company’s Credit Agreement prohibits the Company from paying cashdividends, without prior approval from the lender.

 

10

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**Item6.  SELECTED CONSOLIDATED FINANCIAL DATA**

 

The followingselected consolidated financial data with respect to each of the fiscal years endedFebruary 1, 2003 (fiscal 2002), January 31, 2004 (fiscal 2003) (restatedin 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 ConsolidatedFinancial Statements.  The amounts forfiscal 2000, fiscal 2001, fiscal 2002 and fiscal 2003 have been restated by theCompany to reflect the applicable revisions to the lease accounting asdiscussed 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 therestatement were derived from financial statements audited by Arthur Andersenwhich is no longer in operation and thus the restated data is unaudited.  Fiscal 2000 was a 53-week year and all otheryears consisted of 52 weeks, each of which ended on the Saturday closestto the end of January of the respective year. The information should beread in conjunction with the Consolidated Financial Statements and Notesthereto that appear elsewhere in the Annual Report on Form 10–K and Item7, “Management’s Discussion and Analysis of Financial Condition and Results ofOperations”.

 
| ** **                                                | ** ** | **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 |   |

 

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(a)           Represents primarilyprofessional fees incurred in fiscal 2001 in conjunction with a strategicaction considered by the Board of Directors.

 

(b)           On January 13, 2004, the Company’s Board of Directors declared a50% common stock dividend payable on February 18, 2004 to stockholders ofrecord as of January 30, 2004.  On June 8,2004, the Company’s Board of Directors declared a 25% common stock dividendpayable on August 18, 2004 to stockholders of record as of July 30, 2004.  Unless otherwise indicated, all historicalweighted average share and per share amounts and all references to the numberof common shares elsewhere in the consolidated financial statements, and notesthereto, have been restated to reflect the two stock dividends.

 

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

 

The information that followsshould be read in conjunction with the Consolidated Financial Statements andNotes thereto that appear elsewhere in this Form 10-K.

 

**Restatementof Financial Statements**

 

Theaccompanying management discussion and analysis in this Annual Report on Form 10-Kgives effect to the restatement of the Consolidated Financial Statements forthe 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 fourquarters of fiscal 2003 to reflect the revision to its historical practices ofaccounting for lease transactions, as discussed in the Explanatory Note to thisAnnual Report on Form 10-K and Note 2 to the Consolidated Financial Statements.

 

Theimpact 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 $13.1million and an increase in the deferred rent liability account of $14.8million.  The impact of the restatement onthe Consolidated Statements of Income is a decrease in net income of $.1million and $.3 million for fiscal years 2002 and 2003, respectively, fromamounts previously reported.  The restatement decreased previouslyreported diluted earnings per share by $0.01 and $0.03 for fiscal 2002 andfiscal 2003, respectively.  Thecumulative effect of the restatement for all years prior to fiscal 2002 was $.6million.  The restatement also had acumulative increase to deferred income taxes of $.7 million as of January 31,2004.  The restatement did not have anyimpact on our previously reported sales or comparable store sales or on ourcompliance with any financial covenant under our line of credit facility orother debt instruments.

 

The financial statements andrelated notes thereto that were originally filed with the Securities andExchange Commission (the “SEC”) on April 15, 2004 on Form 10-K (the “OriginalFiling”) have been restated in this Form 10-K.  For a detailed description of therestatement, see “Restatement of Financial Statements” in Note 2 to theaccompanying consolidated financial statements. As previously disclosed on February 25, 2005, our Audit Committeeconcluded 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 thefirst three quarters of fiscal 2004 and for all four quarters of fiscal 2003 toreflect the revision to its historical practices of accounting for leasetransactions.

 

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

 

**Overview**

 

Net income infiscal 2004 increased 50.3% to approximately $24.5 million compared withapproximately $16.3 million in fiscal 2003.  The increased earnings in fiscal 2004 wereprimarily attributable to:

 

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

 

•              290basis point increase in gross profit margins; and

 

•              theopening of 60 new stores.

 

Managementbelieves that the chain can grow to approximately 500 stores from the fiscal2004 year-end base of 269 stores. The Company plans to open between 60 to 75stores in fiscal 2005 as part of its plan to grow the chain to the 500 storelevel. The store growth is part of a strategic plan the Company initiated infiscal 2000. In the past five years, the Company has continued to increase thenumber of store openings as infrastructure and performance has improved. Assuch, 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 infiscal 2003 and 60 new stores in fiscal 2004.

 

Capitalexpenditures should be approximately $35 million in fiscal 2005, primarily tofund the opening of approximately 60 to 75 new stores, the renovation and/orrelocation of several stores, and the implementation of various systemsinitiatives.  The capital expenditures includethe 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 toincrease in 2005 to support new store openings, sales growth in existingsegments and other initiatives.

 

12

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The Companyended fiscal 2004 with no revolver debt, $6.9 million of term debt and $1.4million of cash.  The Company generated $51.5million of cash from operating activities in fiscal 2004, which was used tofund a 28% increase in the number of stores and to reduce total debt byapproximately $23 million.  The Company’sCredit Agreement with its bank extends to April 2008 and allows theCompany to borrow a maximum revolving amount under the facility up to $100million.  In addition, the Company hasthe 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 CreditAgreement.  The Company’s availability inexcess of outstanding borrowings, as supported by the existing borrowing baseunder its Credit Agreement, was $74.6 million at January 29, 2005compared 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 dividendpayable on February 18, 2004 to stockholders of record as of January 30,2004.  On June 8, 2004, the Company’sBoard 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 historicalweighted average share and per share amounts and all references to the numberof common shares elsewhere in the consolidated financial statements, and notesthereto, have been restated to reflect the two stock dividends.

 

**CriticalAccounting Policies and Estimates**

 

In preparing theconsolidated financial statements, a number of assumptions and estimates aremade that, in the judgment of management, are proper in light of existinggeneral economic and company-specific circumstances. For a detailed discussionon the application of this and other accounting policies, see Note 1 in theConsolidated Financial Statements in this Annual Report on Form 10-K.

 

*Inventory.* The Company records inventory at the lowerof cost or market (“LCM”). Cost is determined using the first-in, first-outmethod.  The estimated market value isbased on assumptions for future demand and related pricing. The Company reducesthe carrying value of inventory to net realizable value where cost exceedsestimated selling price less costs of disposal.

 

Management’s salesassumptions are based on the Company’s experience that most of the Company’sinventory is sold through the Company’s primary sales channels with virtuallyno inventory being liquidated through bulk sales to third parties. The Company’sLCM reserve estimates for inventory that have been made in the past have beenvery reliable as a significant portion of its sales (approximately 67% infiscal 2004) are classic traditional products that are on-going programs andthat bear low risk of write-down.  Theseproducts include items such as navy and gray suits, navy blazers, white andblue button-down shirts, etc.  Theportion of the products that have seasonal or fashion elements are monitoredclosely to ensure that aging goals are achieved to limit the need to sellsignificant amounts of product below cost. In addition, the Company’s strong gross profit margins enable theCompany to sell substantially all of its products at levels above cost.

 

To calculate the estimatedmarket value, the Company periodically performs a detailed review of all of itsmajor inventory classes and stock-keeping units.  The Company compares the on-hand units andseason-to-date unit sales (including actual selling prices) to the sales trendand estimated prices required to sell the units in the future, which enablesthe Company to estimate the amount which may have to be sold below cost.  Substantially all units sold below cost are soldin the Company’s factory stores within twenty-four months of purchase.  In fiscal 2003 and 2004, the Company’s costsin 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 soldwhereas the related costs of disposal are recorded as selling and marketingexpenses.  The Company anticipatessimilar results in fiscal year 2005.  Ifthe inventory required to be sold through the factory stores or liquidatedthrough other means varies from the estimate, the Company’s LCM reserve couldchange.

 

*Asset Valuation.* Long-lived assets, such as property, plantand equipment subject to depreciation, are periodically reviewed for impairmentto determine whether events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable. Recoverability of assets tobe held and used is measured by a comparison of the carrying amount of an assetto estimated undiscounted future cash flows expected to be generated by theasset. If the carrying amount of an asset exceeds its estimated future cashflows, an impairment charge is recognized in the amount by which the carryingamount of the asset exceeds the fair value of the asset.  The asset valuation estimate is principallydependent on the Company’s ability to generate profits at both the Company andstore levels.  These levels areprincipally driven by the sales and gross profit trends that are closelymonitored by the Company.  In each offiscal 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*.  TheCompany uses a consistent lease period (generally, the initial non-cancelablelease term plus renewal option periods provided for in the lease that can bereasonably assured) when calculating depreciation of leasehold improvements andin determining straight-line rent expense and classification of its leases aseither an operating lease or a capital lease. The lease term 

 

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and straight-line rent expense commences onthe date when the Company takes possession and has the right to control use ofthe leased premises. Funds received from the lessor intended to reimburse theCompany for the costs of leasehold improvements is recorded as a deferredcredit resulting from a lease incentive and amortized over the lease term as areduction to rent expense.

 

While the Company has takenreasonable care in preparing these estimates and making these judgments, actualresults could and probably will differ from the estimates.  Management believes any difference in theactual results from the estimates will not have a material effect upon theCompany’s financial position or results of operations.

 

**New Accounting Pronouncements**—InDecember 2004, the FASB issued Statement of Financial Accounting StandardsNo. 123 (Revised 2004), *Share-BasedPayment*, (“FAS 123(R)”).  ThisStatement requires companies to expense the estimated fair value of stockoptions and similar equity instruments issued to employees.  Currently, companies are required tocalculate the estimated fair value of these share-based payments and can electto either include the estimated cost in earnings or disclose the pro formaeffect in the footnotes to their financial statements.  The Company has chosen to disclose the proforma effect.  The fair value conceptswere not changed significantly in FAS 123(R); however, in adopting thisStandard, companies must choose among alternative valuation models andamortization assumptions.  The valuationmodel and amortization assumption we have used continues to be available, butwe have not yet completed our assessment of the alternatives.  FAS 123(R) will be effective for the companybeginning with the third quarter of 2005. Transition options allow companies to choose whether to adoptprospectively, restate results to the beginning of the year, or to restateprior periods with the amounts that have been included in their footnotes.  The Company has not yet concluded on whichtransition option will be selected.  SeeProforma Disclosures of Stock-Based Compensation discussion above for the proforma effect of a full year application, using our existing valuation andamortization assumptions.

 

In November 2004, the FASB issued SFASNo.151, “Inventory Costs – an amendment of ARB No. 43, Chapter 4”.  SFAS No. 151 amends Accounting ResearchBulletin (“ARB”) No. 43, Chapter 4, “Inventory Pricing,” to clarify thatabnormal amounts of idle facility expense, freight, handling costs, and wastedmaterial (spoilage) should be recognized as current period charges.  In addition, this Statement requires thatallocation of fixed production overheads to the costs of conversion be based onthe normal capacity of the production facilities.  The provisions of this Statement shall beeffective for inventory costs incurred during fiscal years beginning after June 15,2005.  The adoption of this statement isnot expected to have a material impact on the Company’s consolidated financialposition or results of operations.

 

**Resultsof Operations**

 

The followingtable is derived from the Company’s Consolidated Statements of Income and setsforth, for the periods indicated, the items included in the ConsolidatedStatements 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** | **%** |

 

**Fiscal2004 Compared to Fiscal 2003**

 

*Net Sales*—Net salesincreased 24.3% to $372.5 million in fiscal 2004 compared with $299.7 millionin fiscal 2003. Total full-line store sales increased 25.2% in fiscal 2004 dueprimarily to an 8.4% increase in comparable store sales and the opening of newstores as shown below. Direct marketing sales increased 22.7% due primarily to increasedcatalog circulation and an increase in the internet customer database andinternet affiliates. The catalog circulation was 9.2 million in fiscal2004 compared with 7.8 million in fiscal 2003.

 

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

 

Allmajor product categories generated sales increases in fiscal 2004, lead bysales of sportswear which increased over 36%. Sales of the more luxurious Signature and Signature Gold suits, whichrepresented 37% of suit sales in fiscal 2004, increased over 29% in that periodas compared with the same period last year. For fiscal 2004 and 2003, suits represented approximately 26% and27% of total merchandise sales, respectively.

 

The Company expects fiscal2005 sales to increase over the same periods of fiscal 2004 as a result of theadditional new stores and the opportunity for comparable store and direct marketingsales increases.

 

Net sales alsoincreased 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 |   |

 

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* Square feetis presented in thousands and excludes franchise stores

 

Historically,JoS. A. Bank has included new stores in its comparable store base at the end ofthe first full fiscal year after opening. Existing stores have been excluded from the comparable store sales if anew 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 theopening of stores in existing as well as new markets, management believes thismethod of calculating comparable store sales accurately reflects relevant salestrends.  Beginning in fiscal 2005,comparable store sales will include merchandise sales generated in allfull-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 theirimmediate market area (within zero to ten miles) during the previous twelvemonths, similar to other specialty stores.

 

If theCompany had calculated its comparable store sales using this new methodology,the comparable store sales increase for fiscal year 2004 would haveapproximated 7.5%, versus the 8.4% noted above, a difference of nine-tenths ofone percentage point.  For fiscal year2003, the Company previously reported a gain of 8.2% in comparable store sales.  If the Company had calculated its comparablestore sales using the new methodology, the increase in comparable store salesfor fiscal year 2003 would have been approximately 7.5%, a difference ofseven-tenths of one percentage point. Total sales would remain the same under either method, an increase of24.3% in 2004 and 23.1% in 2003.

 

*Gross Profit*—Grossprofit (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 infiscal 2003, an increase of 290 basis points. The increased gross profitpercentage is primarily due to the continued improvement in sourcing ofmerchandise, thus reducing the cost of items purchased and increases in retailprices primarily as sales of its new products and the more luxurious Signatureand Signature Gold products increased. Gross profit margins increased insubstantially all major product categories.

 

TheCompany’s gross profit classification may not be comparable to theclassification used by certain other entities. Some entities includedistribution, store occupancy, buying and other costs in cost of goodssold.  Other entities (including theCompany) exclude such costs from gross profit, including them instead ingeneral & administrative and/or sales & marketing expenses.

 

*Sales and Marketing Expenses*—Salesand marketing expenses, which consist primarily of a)  full-line store,factory store and direct marketing occupancy, payroll, selling and othervariable 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 millionor 36.8% of sales in fiscal 2003. The $33.4 million increase in sales andmarketing expenses relates primarily to a) $22.3 million of additionalcosts incurred in the 50 stores opened in fiscal 2003 and the 60 stores whichopened in fiscal 2004, b) $8.7 million additional costs related toexpenses in the stores which were open prior to fiscal 2003 and c) theremainder relates primarily to costs of the direct channel for higher circulationand sales-related costs. The Company expects sales and marketing expenses toincrease 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 anincrease in advertising expenditures.

 

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

 

*General and Administrative Expenses*—General and administrative expenses,which consist primarily of corporate payroll and overhead costs anddistribution center costs, increased $7.4 million in fiscal 2004.  Total corporate payroll including incentivecompensation and corporate overhead costs increased $2.5 million and $3.6million, respectively, in fiscal 2004. The increases in corporate overhead costs were primarily due to a) highertravel costs and other expenses related to business expansion, b) professionalfees principally related to approximately $1.5 million spent for internal controldocumentation efforts in compliance with Section 404 of the Sarbanes-OxleyAct of 2002 and c) the payment of approximately $.5 million to the State of NewYork as discussed in Note 10 to the Consolidated Financial Statements.

 

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

 

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

 

*Interest Expense, net*—Interestexpense increased $.1 million due primarily to slightly higher borrowinglevels 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 millionin fiscal 2003. Management expects peak borrowing levels and interest toincrease in fiscal 2005 to fund the opening of additional stores and growth ininventory levels.

 

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

 

**Fiscal2003 Compared to Fiscal 2002**

 

*Net Sales*—Net salesincreased 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 andthe opening of new stores as shown below. Direct marketing sales increased 13.9%due primarily to improved targeting of catalog recipients, an increase in theinternet customer database and internet affiliates. The catalog circulation was7.8 million in fiscal 2003 compared to 8.0 million in fiscal 2002.

 

The increasein net sales were driven primarily by increases in sales of suits, shirts andties and increases in sales of more luxurious Signature and Signature Goldproducts. For fiscal 2003 and 2002, suits represented approximately 27% oftotal merchandise sales. Net sales also increased as a result of the opening ofnew 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 |   |

 

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*              Square feet ispresented in thousands and excludes franchise stores

 

*Gross Profit*—Grossprofit (net sales less cost of goods sold) increased to $172.3 million or57.5% of net sales in fiscal 2003 from $133.6 million or 54.9% of netsales in fiscal 2002, an increase of 260 basis points. The increased grossprofit percentage is primarily due to the continued improvement in sourcing ofmerchandise, thus reducing the cost of items purchased and increases in retailprices primarily as sales of more luxurious Signature and Signature Goldproducts increased. Gross profit margins increased in substantially all majorproduct categories.

 

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*Sales and Marketing Expenses*—Salesand marketing expenses, which consist primarily of a)  full-line store,factory store and direct marketing occupancy, payroll, selling and othervariable 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 millionor 36.6% of sales in fiscal 2002. The $21.0 million increase in sales andmarketing expenses relates primarily to a) $17.9 million ofadditional costs incurred in the 25 stores opened in fiscal 2002 and the 50stores which opened in fiscal 2003 and b) $2.5 million additionalcosts related to expenses in the stores which were open prior to fiscal 2002.

 

*General and Administrative Expenses*—Generaland administrative expenses, which consist primarily of corporate payroll costsand overhead and distribution center costs, increased to $30.6 million or10.2% 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 andhigher distribution center costs as the volume of units processed increased.

 

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

 

*Interest Expense, net*—Interestexpense increased $0.5 million due primarily to higher borrowing levelsdue to higher inventory and capital expenditures related to the opening of newstores and growth of inventory. Average revolver loan borrowings increased $5.5 millionto $20.0 million in fiscal 2003 compared with $14.5 million in fiscal2002.

 

*Provision for Income Taxes*—Theeffective income tax rate for fiscal 2003 increased to 42.6% as compared with41.3% for fiscal 2002 as a result of higher non-deductible compensation under Section 162(m)of the Internal Revenue Code and higher state taxes.

 

**Liquidityand Capital Resources**

 

The Companymaintains a bank credit agreement (the “Credit Agreement”), which provides fora revolving loan whose limit is determined by a formula based on the Company’s inventoriesand accounts receivable. The Credit Agreement allows the Company to borrow a maximumrevolving amount under the facility up to $100 million. In addition, theCompany has the option to increase the amount borrowed to $125 million ifrequested prior to April 30, 2006, if needed and if supported by itsborrowing base formula under the Credit Agreement. The Credit Agreement alsoincludes a) financial covenants concerning minimum EBITDA,b) limitations on capital expenditures and additional indebtedness andc) a restriction on the payment of dividends. The financial covenants arein effect only if the Company’s availability in excess of outstandingborrowings is less than $7.5 million. The Company does not believe itsavailability in excess of borrowings will be less than $7.5 million duringfiscal 2005. As of January 29, 2005, the Company was in compliance withall loan covenants. Interest rates under the credit agreement are either at theprime rate or at LIBOR plus 1.5% which are variable rates and are the samebasis as the rates that existed in fiscal 2003 and fiscal 2002. The agreementalso includes provisions for a seasonal over-advance.  The Company also has $6.9 million of termdebt to be repaid as noted in the contractual obligations table below.

 

The Company’savailability in excess of outstanding borrowings, as supported by the existingborrowing 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 followingtable summarizes the Company’s sources and uses of funds as reflected in theConsolidated 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 providedby the Company’s operating activities in fiscal 2004 increased compared withfiscal 2003 primarily due to lower expenditures for inventory compared with thesame period of fiscal 2003 and increased net income.  The net increase in inventory was $6.9 millionin fiscal 2004 compared with $42.5 million for fiscal 2003.  Cash used in investing activities in fiscal2004 relates primarily to capital expenditures for new stores, distributioncenter and systems projects and was partially offset by the proceeds from thedisposal of

 

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

 

Cash used bythe Company’s operating activities in fiscal 2003 was primarily the result ofhigher inventory levels offset, in part, by higher net income beforedepreciation and amortization. Finished goods inventories increased by$39.8 million primarily to support new store expansion. Raw materialinventories (wool) increased $2.7 million as a result of the Company’scontinuing effort to contract directly with clothing manufacturers and cut outthe middleman. Cash used in investing activities in fiscal 2003 relates tocapital expenditures in 50 new stores, renovating four major stores, and theexpanding of the distribution center.  Infiscal 2003, $23.1 million of cash was provided by financing activitiesprimarily to support the increase in inventories necessitated by the Company’sexpansion and to build the basic inventory levels. The source of these fundswas $20.5 million from the Company’s revolving loan under the CreditAgreement and $3.7 million from the proceeds of the exercise of stockoptions. Also, the Company used $1.1 million for the repayment oflong-term debt.

 

Cash providedby the Company’s operating activities in fiscal 2002 was primarily the resultof higher net income before depreciation and amortization and higher accountspayable offset, impart, by higher inventory levels. Inventories increased by$13.6 million to support new store expansion and higher raw materialbalance as the Company is expanding the use of direct contract manufacturers.  Accounts payable increased $12.8 milliondue primarily to the increase and timing of purchases. Cash used in investingactivities in fiscal 2002 relates to capital expenditures in 25 new stores,purchase of a used corporate aircraft to facilitate visiting the increasingnumber of stores and expansion of the capacity of the distribution center andcorporate office. Cash used in financing activities in fiscal 2002 relatesprimarily to paying down the revolving loan under the Credit Agreement, net ofthe 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, therenovation and/or relocation of several stores and the implementation ofvarious systems initiatives. Management believes that the Company’s cash flowfrom operating activities and availability under its Credit Agreement will besufficient to fund its planned capital expenditures and operating expenses forfiscal 2005. The capital expenditures include the cost of the construction ofleasehold improvements for new stores of which $12-$15 million is expected tobe reimbursed through landlord contributions.  These amounts are typically paid by the landlordsafter the completion of construction by the Company and the receipt ofappropriate lien waivers from contractors. For the stores opened and renovatedin 2004, the Company negotiated approximately $12.6 million of landlordcontributions of which $5.2 million were collected by year-end. Thebalance is expected to be received in 2005. Also, in fiscal 2004, the Company collected approximately $4.8 millionof landlord contributions related to fiscal 2003 store openings, which wasrecorded within the operating activities section of the ConsolidatedStatement of Cash Flows.

 

*Off-Balance Sheet Arrangements-*TheCompany has no off-balance sheet arrangements other than its operating leaseagreements and letters of credit outstanding under its bank credit activity asdiscussed below.

 

**Disclosuresabout Contractual Obligations and Commercial Commitments**

 

The Company’sprincipal commitments are non-cancelable operating leases in connection withits retail stores, certain tailoring spaces and equipment. Under the terms ofcertain of these leases, the Company is required to pay a base annual rent plusa contingent amount based on sales. In addition, many of these leases includescheduled rent increases. The operating leases are used by the Company to helpfund store growth. Historically, the Company has not purchased its stores, butdoes fund the buildout of the leased property.

 

The followingtable reflects a summary of the Company’s contractual cash obligations andother 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 |   |

 

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(a)           Includes various leaseagreements for stores to be opened and equipment placed in service subsequent toJanuary 29, 2005.  See Note 10 to theConsolidated Financial Statements.

 

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

 

(c)           The Company generallydoes not make unconditional, noncancelable purchase commitments.  In fiscal 2003, the Company entered into anagreement with one raw material supplier to purchase a specified quantity offabric into 2005.

 

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

 

**CertainAdditional Business Risk Factors**

 

This AnnualReport on Form 10-K includes and incorporates by reference certainstatements that may be deemed to be forward-looking statements within themeaning of the Private Securities Litigation Reform Act of 1995. The PrivateSecurities Litigation Reform Act of 1995 provides a “safe harbor” for certainforward-looking statements so long as such information is identified as forward-lookingand is accompanied by meaningful cautionary statements identifying importantfactors that could cause actual results to differ materially from thoseprojected 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 toidentify forward-looking statements and information. Actual results may differmaterially from those forecast due to a variety of factors outside of theCompany’s control that can affect the Company’s operating results, liquidityand financial condition such as risks associated with economic, weather, publichealth and other factors affecting consumer spending, the ability of theCompany to finance its expansion plans, the mix and pricing of goods sold, themarket price of key raw materials such as wool and cotton, availability oflease sites for new stores, the ability to source product from its globalsupplier base and other competitive factors. These cautionary statementsqualify all of the forward-looking statements the Company makes herein. TheCompany cannot assure you that the results or developments anticipated by theCompany will be realized or, even if substantially realized, that those resultsor developments will result in the expected consequences for the Company oraffect the Company, its business or its operations in the way the Companyexpects. The Company cautions you not to place undue reliance on these forward-lookingstatements, which speak only as of their respective dates, and assumes noobligation to update any of the forward-looking statements.  The Company cautions that the foregoing listof important factors is not exclusive.

 

*Growth Risks*.  A significant portion of the Company’s growthhas resulted and is expected to continue to result from the opening of newstores. While the Company believes that it will continue to be able to obtainsuitable locations for new stores, negotiate acceptable lease terms, hirequalified personnel and open and operate new stores on a timely and profitablebasis, no such assurances can be made. As the Company continues its expansionprogram, the opening of stores may adversely affect catalog and internet salesin such markets, and the opening of additional stores in existing markets mayadversely affect sales and profits of established stores.

 

*Competition.*  The retail apparel business is highlycompetitive and is expected to remain so. The Company competes primarily withspecialty and discount store chains, independent retailers, national and localdepartment stores, internet retail stores and other catalogers engaged in theretail sale of apparel, and to a lesser degree with other apparel retailers.Many of these competitors are much larger than the Company and havesignificantly greater financial, marketing and other resources than theCompany. The Company believes that its emphasis on classic styles makes it lessvulnerable to changes in fashion trends than many apparel retailers; however,the Company’s sales and profitability depend upon the continued demand for itsclassic styles. The Company faces a variety of competitive challengesincluding:

 

•      anticipating and quicklyresponding to changing consumer demands;

 

•      maintaining favorable brandrecognition and effectively marketing its products to consumers in severaldiverse market segments;

 

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

 

•      competitively pricing itsproducts and achieving customer perception of value; and

 

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•      providingstrong and effective marketing support.

 

*Consumer Spending.*  TheCompany’s business is sensitive to a number of factors that influence thelevels of consumer spending, including political and economic conditions suchas the levels of disposable consumer income, consumer debt, interest rates andconsumer confidence. Declines in consumer spending on apparel and accessoriescould have an adverse effect on the Company’s operating results.

 

*Reliance on Key Suppliers.* Historically, the Company has bought a substantial portion of itsproducts from a limited number of suppliers throughout the world. The loss ofany 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 anadverse effect on its business due to delays in finding alternative sources andcould result in increased costs to the Company.

 

The Company expects to continue to spread its sourcing to suppliersthroughout the world, with additional concentrations of sourcing to be done incertain countries.  In addition, certainapparel quotas on imports from China have been removed or increased by January1, 2005.  The change could potentiallyprovide opportunities for lower product costs if the Company increases theamount of products sourced from China or elsewhere in the region.  The Company has not experienced any materialdisruptions in its sourcing in the past several years.  However, long-term disruptions of supply fromany of these sources could have a material impact on the Company.

 

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

 

*Disaster Causing Disruption of NormalOperations.*  Factors such as an interruption of keybusiness systems, any disaster or casualty resulting in the interruption ofservice from our distribution center, changes in weather patterns, world healthconcerns such as the SARS virus, and international and domestic acts of terrorcould negatively affect the Company’s financial performance.

 

*Fashion Trends and Changing ConsumerPreferences.*  The Company must successfully gauge fashiontrends and changing consumer preferences to succeed. The Company’s success isdependent upon its ability to gauge the fashion tastes of its customers and toprovide merchandise that satisfies customer demand in a timely manner. Theretail business fluctuates according to changes in consumer preferencesdictated, in part, by fashion and season. To the extent the Company misjudgesthe market for its merchandise, its sales will be adversely affected and themarkdowns required to move the resulting excess inventory will adversely affectits operating results. While the Company believes its current strategies andinitiatives appropriately address these issues, merchandise misjudgments couldhave a material adverse effect on its image with its customers and on itsoperating results.

 

The Company’s ability to anticipate and effectively respond to changingfashion trends depends in part on its ability to attract and retain keypersonnel in its design, merchandising, marketing and other staff. Competitionfor these personnel is intense, and the Company cannot be sure that it will beable to attract and retain a sufficient number of qualified personnel in futureperiods.

 

Fluctuations in the demand for tailored and casual clothing andaccessories affect the inventory levels, since merchandise usually must beordered well in advance of the season and frequently before fashion trends areevidenced by customer purchases. In addition, as the Company’s business isbecoming more cyclical in nature, the Company must carry a significant amountof inventory, especially prior to peak selling seasons when the Company buildsup its inventory levels. The Company issues purchase orders for the purchaseand manufacture of merchandise well in advance of the applicable sellingseason. As a result, the Company is vulnerable to demand and pricing shifts andto suboptimal selection and timing of merchandise purchases. In addition, leadtimes for many of the Company’s purchases are long, which may make it moredifficult for the Company to respond rapidly to new or changing fashion trendsor consumer acceptance for the Company’s products.

 

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

 

**Seasonality**

 

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

 

20

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become a larger portion ofannual profits.

 

**Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

At January 29, 2005, there were no derivative financialinstruments. In addition, the Company does not believe it is materially at riskfor changes in market interest rates or foreign currency fluctuations. TheCompany’s interest on borrowings under its Credit Agreement is at a variablerate based on the prime rate or a spread over the LIBOR. A 100 basis pointchange in interest rate would have changed interest expense, net byapproximately $.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 inthe Report beginning on page F-1.

 

21

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

 

None.

 

**Item 9A.  CONTROLS ANDPROCEDURES**

 

**Disclosure Controls and Procedures and Changes in InternalControl Over Financial Reporting**

 

*Limitations on Controls and Procedures. *Because oftheir inherent limitations, disclosure controls and procedures and internalcontrol over financial reporting (collectively, “Control Systems”) may notprevent or detect all failures or misstatements of the type sought to beavoided by Control Systems. Also, projections of any evaluation of theeffectiveness of the Company’s Control Systems to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.  Management, including theCompany’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 orall fraud.  A Control System, no matterhow 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 mustreflect the fact that there are resource constraints, and the benefits ofcontrols must be considered relative to their costs.  Because of the inherent limitations in allControl Systems, no evaluation can provide absolute assurance that all controlissues and instances of fraud, if any, within the Company have been detected.These reports by management, including the CEO and CFO, on the effectiveness ofthe Company’s Control Systems express only reasonable assurance of theconclusions reached.

 

*Disclosure Controls and Procedures-*The Company maintains disclosure controls andprocedures that are designed to ensure that information required to bedisclosed in the Company’s reports under the Securities Exchange Act of 1934,as amended (the “Exchange Act”), is recorded, processed, summarized, andreported within the time periods specified in the SEC’s rules and forms, andthat such information is accumulated and communicated to management, includingthe CEO and CFO, as appropriate, to allow timely decisions regarding requireddisclosure.

 

Likemany other companies in the retail industry, the Company’s evaluation of its ControlSystems included a review of its lease accounting practices in light of theFebruary 7, 2005 letter to the Center for Public Company Audit Firms-AmericanInstitute of Certified Public Accountants from the Chief Accountant of theSecurities and Exchange Commission (the “SEC Letter”). The SEC Letter expressedthe views of the SEC staff concerning certain operating lease accounting issuesand their application under generally accepted accounting principles (“GAAP”).  Specifically, the SEC Letter addressed theappropriate accounting for: (1) the amortization of leasehold improvements by alessee in an operating lease with lease renewals, (2) the pattern ofrecognition of rent when the lease term in an operating lease contains a periodwhere there are free or reduced rents (commonly referred to as “rent holidays”),and (3) incentives related to leasehold improvements provided by alandlord/lessor to a tenant/lessee in an operating lease. The SEC Letter wasissued after the close of the Company’s fiscal 2004. Therefore, the Company didnot have the opportunity, prior to the effective date of management’sevaluation of the Company’s Control Systems, to incorporate into its accountingpolicies the SEC’s clarifications of the appropriate accounting for operatingleases under GAAP. Subsequent to the effective date of such evaluation, andprior to the date hereof, the Company has revised its accounting policies inlight of the SEC Letter.

 

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

 

RentHolidays- In the SEC Letter, the SEC staff reiterated that GAAP requires rentholidays in an operating lease to be recognized by the lessee on astraight-line basis over the lease term (including any rent holidayperiod).  In prior periods, the Companyhad generally recognized the straight line expense for a lease beginning on thedate the store opened, which was generally the date the lease term commenced inaccordance with the lease.  The periodduring which the store was being constructed was excluded from the straight-linerent schedule because the construction period was not considered to be part ofthe lease term in accordance with the lease. Based on our re-evaluation, theCompany has concluded that the construction period should be included in thestraight-line rent schedule.

 

Asa result of the change to its rent schedules, the previously reported financialstatements included in this Annual Report on Form 10-K have been restated.  The foregoing changes are inclusive of theimmaterial changes resulting from the modification of the rent schedules toachieve consistency with the corresponding leasehold

 

22

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amortizationschedules, as set forth above.

 

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

 

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

 

Management, with theparticipation of the CEO and CFO, has evaluated the effectiveness, as ofJanuary 29, 2005, of the Company’s disclosure controls and procedures. Based onthat evaluation, and solely for the reasons set forth above with respect to theCompany’s lease accounting practices, the CEO and CFO have concluded that theCompany’s disclosure controls and procedures were not effective as of January29, 2005.

 

Inconnection with the Company’s evaluation of the effectiveness of its disclosurecontrols and procedures, the Company (a) has conducted a review of itsaccounting related to operating leases, (b) has corrected such accounting,where appropriate, and (c) is developing additional review procedures over theselection and monitoring of appropriate assumptions and factors affecting suchaccounting.

 

*Management’s Annual Report on Internal Control overFinancial Reporting-*Managementis responsible for establishing and maintaining adequate internal control overfinancial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under theExchange Act).  Management, with theparticipation of the CEO and CFO, has evaluated the effectiveness, as ofJanuary 29, 2005, of the Company’s internal control over financial reporting.In making this evaluation, management used the criteria set forth by theCommittee of Sponsoring Organizations of the Treadway Commission in itspublication *Internal Control-IntegratedFramework*.

 

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

 

Theamortization schedules, rent schedules and method for accounting for leaseholdimprovement incentives used by the Company prior to the issuance of the SECLetter were all part of the books and records of the Company reflected inpreviously issued financial statements which received unqualified auditopinions from the respective independent accountants which were engaged as theprincipal accountants to audit such statements. Nevertheless, as more fully setforth in the Company’s Current Report on Form 8-K, dated February 25, 2005, andin this Annual Report on Form 10-K, the Company’s Audit Committee has concludedthat the financial statements included in the Company’s Annual Report on Form10-K for fiscal years 2002 and 2003, as well as those in the Company’sQuarterly 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 AuditingStandard No. 2 states that “restatement of previously issued financialstatements to reflect the correction of a misstatement” is a “strong indicator”of the existence of a material weakness in the internal control over financialreporting.  Since the Company hasrestated in this Annual Report on Form 10-K certain prior filings, managementhas concluded that a material weakness existed in the Company’s internalcontrol over financial reporting as a result of its lease accounting practices andthat such control was therefore not effective as of January 29, 2005.

 

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

 

*Changes in Internal Control over Financial Reporting-* There were no changes in the Company’sinternal control over financial reporting identified in connection with theevaluation required by paragraph (d) of Section 240.13a-15 of the Exchange Actthat occurred during the Company’s last fiscal quarter (the Company’s fourthquarter in the case of an annual report) that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

*Attestation Report of the Registered Public Accounting Firm*- The Company’s independent registered publicaccounting firm, Deloitte & Touche LLP, has issued the followingattestation report on the Company’s assessment and an opinion on theeffectiveness of the Company’s internal control over financial reporting:

 

REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM

 

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

 

23

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We have audited management’sassessment, included in the accompanying Management’s Annual Report on InternalControl over Financial Reporting, that Jos. A. Bank Clothiers, Inc. andsubsidiaries (the “Company”) did not maintain effective internal control overfinancial reporting as of January 29, 2005 because of the effect of thematerial 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 internalcontrol over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting.  Our responsibility is toexpress an opinion on management’s assessment and an opinion on theeffectiveness of the Company’s internal control over financial reporting basedon our audit.

 

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

 

A company’s internal controlover financial reporting is a process designed by, or under the supervision of,the company’s principal executive and principal financial officers, or personsperforming similar functions, and effected by the company’s board of directors,management, and other personnel to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples.  A company’s internal control over financial reportingincludes those policies and procedures that (1) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the Company arebeing made only in accordance with authorizations of management and directorsof the Company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the Company’sassets that could have a material effect on the financial statements.

 

Because of the inherentlimitations of internal control over financial reporting, including thepossibility of collusion or improper management override of controls, materialmisstatements due to error or fraud may not be prevented or detected on atimely basis.  Also, projections of any evaluation of the effectiveness ofthe internal control over financial reporting to future periods are subject tothe risk that the controls may become inadequate because of changes inconditions, or that the degree of compliance with the policies or proceduresmay deteriorate.

 

A material weakness is asignificant deficiency, or combination of significant deficiencies, thatresults in more than a remote likelihood that a material misstatement of theannual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in management’sassessment: In its assessment as of January 29, 2005, management identified asa material weakness the Company’s insufficient controls over the selection andmonitoring of appropriate assumptions and factors affecting lease accounting.As a result of this material weakness in internal control, the Companyconcluded that its previously issued financial statements should be restatedgiving 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, andextent of audit tests applied in our audit of the consolidated financialstatements as of and for the year ended January 29, 2005, of the Company andthis report does not affect our report on such financial statements.

 

In our opinion, management’sassessment that the Company did not maintain effective internal control overfinancial reporting as of January 29, 2005, is fairly stated, in all materialrespects, based on the criteria established in *InternalControl—Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission.  Also in our opinion, because ofthe effect of the material weakness described above on the achievement of theobjectives of the control criteria, the Company has not maintained effectiveinternal control over financial reporting as of January 29, 2005, based on thecriteria established in *InternalControl—Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission.

 

24

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

 

*DELOITTE& TOUCHE LLP*

 

Baltimore, MDApril 13, 2005

 

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**Item 9B.  OTHER INFORMATION**

 

None.

 

**PART III**

 

**Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THEREGISTRANT**

 

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 toForm 10-K. The Company will disclose the information required under thisitem either by (a) incorporating the information by reference from theCompany’s definitive proxy statement if filed by May 29, 2005 (the firstbusiness day following 120 days from the close of its fiscal year endedJanuary 29, 2005) or (b) filing an amendment to this Form 10-Kwhich contains the required information by May 31, 2005.

 

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

 

**Item 11.  EXECUTIVE COMPENSATION**

 

Item 11 isomitted by the Company in accordance with General Instruction G toForm 10-K. The Company will disclose the information required under thisitem either by (a) incorporating the information by reference from theCompany’s definitive proxy statement if filed by May 31, 2005 (the firstbusiness day following 120 days from the close of its fiscal year endedJanuary 29, 2005) or (b) filing an amendment to this Form 10-Kwhich contains the required information by May 31, 2005.

 

**Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

 

Item 12 isomitted by the Company in accordance with General Instruction G toForm 10-K. The Company will disclose the information required under thisitem either by (a) incorporating the information by reference from theCompany’s definitive proxy statement if filed by May 31, 2005 (the firstbusiness 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 therequired information by May 31, 2005.

 

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**Item 13.  CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS**

 

Item 13 isomitted by the Company in accordance with General Instruction G toForm 10-K. The Company will disclose the information required under thisitem either by (a) incorporating the information by reference from theCompany’s definitive proxy statement if filed by May 31, 2005 (the firstbusiness 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 therequired information by May 31, 2005.

 

**Item 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES**

 

Item 14 isomitted 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’sdefinitive proxy statement if filed by May 31, 2005 (the firstbusiness 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 therequired 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                                                                    |

 

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| 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** |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this Report hasbeen signed below by the following persons in the capacities and on the datesindicated.

 
| **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 ofJos. A. Bank Clothiers, Inc.:

 

Wehave audited the accompanying consolidated balance sheet of Jos. A. BanksClothiers, Inc. and subsidiaries (the “Company”) as of January 29, 2005 and therelated consolidated statements of income, stockholders’ equity, and cash flowsfor year ended January 29, 2005.  These financial statements are theresponsibility of the Company’s management.  Our responsibility is toexpress an opinion on the financial statements based on our audit.

 

Weconducted our audit in accordance with the standards of the Public CompanyAccounting Oversight Board (United States).  Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation.  We believe thatour audit provides a reasonable basis for our opinion.

 

Inour opinion, such consolidated financial statements present fairly, in allmaterial 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 yearended January 29, 2005, in conformity with accounting principles generallyaccepted in the United States of America.

 

We have alsoaudited, in accordance with the standards of the Public Company Accounting OversightBoard (United States), the effectiveness of the Company’s internal control overfinancial reporting as of January 29, 2005, based on the criteria establishedin *Internal Control—Integrated Framework* issuedby the Committee of Sponsoring Organizations of the Treadway Commission and ourreport dated April 13, 2005, expressed an unqualified opinion on management’sassessment that the Company’s internal control over financial reporting is noteffective and an adverse opinion on the effectiveness of the Company’s internalcontrol 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 haveaudited the accompanying consolidated balance sheet of Jos. A. BankClothiers, Inc. and subsidiaries as of January 31, 2004 and therelated consolidated statements of income, stockholders’ equity and cash flowsfor each of the years in the two-year period ended January 31, 2004. Theseconsolidated financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audits.

 

Weconducted our audits in accordance with standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

 

In ouropinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of Jos. A. BankClothiers, Inc. and subsidiaries as of January 31, 2004, and theresults of their operations and their cash flows for each of the years in the two-yearperiod ended January 31, 2004, in conformity with U.S. generally acceptedaccounting principles.

 

Asdescribed in Note 2 to the consolidated financial statements, the Company hasrestated its consolidated financial statements in order to correct certainerrors 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.**

**CONSOLIDATEDBALANCE 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 anintegral part of these consolidated financial statements.

 

F-3

----

 

**JOS. A. BANKCLOTHIERS, INC.**

**CONSOLIDATEDSTATEMENTS 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 consolidatedfinancial statements.

 

F-4

----

 

**JOS. A. BANK CLOTHIERS, INC.**

**CONSOLIDATEDSTATEMENTS 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)                                                                                             |       | —            |       | —                           |       | 10,843                 |       | —              |       | 10,843                                |       |
| Net proceeds from issuance of common stock  (446,009 shares) pursuant to Incentive Option Plan                                   |       | 3                 |       | 1,779                            |       | —                 |       | —              |       | 1,782                                 |       |
| Income tax benefit from exercise of non-qualified  stock options                                                                 |       | —            |       | 667                              |       | —                 |       | —              |       | 667                                   |       |
| **BALANCE, FEBRUARY 1, 2003 (as restated, see  Note 2)**                                                                         | ** ** | **$**             | **110**    | ** **                       | **$**      | **58,968**             | ** ** | **$**               | **10,903** | ** **                            | **$**      | **(5,058** | **)** | **$** | **64,923** | ** ** |
| Net income (as restated, see Note 2)                                                                                             |       | —            |       | —                           |       | 16,280                 |       | —              |       | 16,280                                |       |
| Net proceeds from issuance of common stock  (1,562,561 shares) pursuant to Incentive Option Plan and stock compensation  expense |       | 12                |       | 3,711                            |       | —                 |       | —              |       | 3,723                                 |       |
| Income tax benefit from exercise of non-qualified  stock options                                                                 |       | —            |       | 1,528                            |       | —                 |       | —              |       | 1,528                                 |       |
| **BALANCE, JANUARY 31, 2004 (as restated, see  Note 2)**                                                                         | ** ** | **$**             | **122**    | ** **                       | **$**      | **64,207**             | ** ** | **$**               | **27,183** | ** **                            | **$**      | **(5,058** | **)** | **$** | **86,454** | ** ** |
| Net income                                                                                                                       |       | —            |       | —                           |       | 24,481                 |       | —              |       | 24,481                                |       |
| Net proceeds from issuance of common stock  (276,361 shares) pursuant to Incentive Option Plan                                   |       | 2                 |       | 1,166                            |       | —                 |       | —              |       | 1,168                                 |       |
| Income tax benefit from exercise of non-qualified  stock options                                                                 |       | —            |       | 2,256                            |       | —                 |       | —              |       | 2,256                                 |       |
| Stock dividend fractional share repurchase  (1,466 shares)                                                                       |       | —            |       | (35                              | )          | —                 |       | —              |       | (35                                   | )          |
| **BALANCE, JANUARY 29, 2005**                                                                                                    | ** ** | **$**             | **124**    | ** **                       | **$**      | **67,594**             | ** ** | **$**               | **51,664** | ** **                            | **$**      | **(5,058** | **)** | **$** | **114,324** | ** ** |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

F-5

----

 

**JOS. A. BANK CLOTHIERS, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**FISCAL 2002, 2003 AND 2004**

**(In Thousands)**

 
| ** **                                                                                   | ** ** | **Fiscal 2002**                | ** ** | **Fiscal 2003**                | ** ** | **Fiscal 2004** | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|-----------------|------------|
| ** **                                                                                   | ** ** | **(As Restated,  See Note 2)** | ** ** | **(As Restated,  See Note 2)** | ** ** | ** **      | ** ** |
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                                    |       |                           |       |                           |       |            |       |
| Net income                                                                                   |       | $                              | 10,843     |                           | $          | 16,280          |       | $ | 24,481 |   |
| Adjustments to reconcile net income to net  cash provided by (used in) operating activities: |       |                           |       |                           |       |            |       |
| Deferred tax expense                                                                         |       | 2,246                          |       | 886                            |       | 1,906           |       |
| Depreciation and amortization                                                                |       | 6,692                          |       | 9,382                          |       | 10,498          |       |
| Loss on disposition of assets                                                                |       | 50                             |       | 29                             |       | 4               |       |
| Income tax benefit from exercise of non-qualified  stock options                             |       | 667                            |       | 1,528                          |       | 2,256           |       |
| Changes in assets and liabilities:                                                           |       |                           |       |                           |       |            |       |
| Increase in accounts receivable                                                              |       | (466                           | )          | (1,371                         | )          | (597            | )          |
| Increase in inventories                                                                      |       | (13,614                        | )          | (42,532                        | )          | (6,905          | )          |
| Increase in prepaid expenses and other  assets                                               |       | (1,296                         | )          | (3,653                         | )          | (1,569          | )          |
| Increase in non-current assets                                                               |       | —                         |       | —                         |       | (273            | )          |
| Increase (decrease) in accounts payable                                                      |       | 12,845                         |       | (625                           | )          | 11,385          |       |
| Increase in accrued expenses and other  liabilities                                          |       | 2,114                          |       | 8,534                          |       | 263             |       |
| Increase in noncurrent lease obligations                                                     |       | 4,966                          |       | 5,771                          |       | 10,266          |       |
| (Decrease) increase in other noncurrent  liabilities                                         |       | 987                            |       | (1,565                         | )          | (262            | )          |
| Net cash provided by (used in) operating  activities                                         |       | 26,034                         |       | (7,336                         | )          | 51,453          |       |
| **CASH FLOWS USED FOR INVESTING ACTIVITIES:**                                                |       |                           |       |                           |       |            |       |
| Payments for capital expenditures                                                            |       | (14,135                        | )          | (23,245                        | )          | (29,939         | )          |
| Proceeds from disposal of assets                                                             |       | —                         |       | —                         |       | 907             |       |
| Net cash used for investing activities                                                       |       | (14,135                        | )          | (23,245                        | )          | (29,032         | )          |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                                                    |       |                           |       |                           |       |            |       |
| Borrowings under revolving loan agreement                                                    |       | 40,412                         |       | 87,165                         |       | 80,360          |       |
| Repayment of borrowings under revolving  loan agreement                                      |       | (50,190                        | )          | (66,688                        | )          | (100,947        | )          |
| Borrowing of other long-term debt                                                            |       | 4,675                          |       | —                         |       | —          |       |
| Repayment of other long-term debt                                                            |       | (1,016                         | )          | (1,133                         | )          | (2,417          | )          |
| Proceeds from issuance of common stock, net  of fractional share repurchase                  |       | 1,782                          |       | 3,723                          |       | 1,133           |       |
| Net cash provided by (used in) financing  activities                                         |       | (4,337                         | )          | 23,067                         |       | (21,871         | )          |
| Net increase (decrease) in cash and cash  equivalents                                        |       | 7,562                          |       | (7,514                         | )          | 550             |       |
| **CASH AND CASH EQUIVALENTS, beginning of  year**                                            | ** ** | **827**                        | ** ** | **8,389**                      | ** ** | **875**         | ** ** |
| **CASH AND CASH EQUIVALENTS, end of year**                                                   | ** ** | **$**                          | **8,389**  | ** **                     | **$**      | **875**         | ** ** | **$** | **1,425** | ** ** |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

F-6

----

 

**JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS**

**FISCAL 2002, 2003 AND 2004**

**(Amounts in Thousands, Except Per Share Amounts)**

 

**1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:**

 

**Description of Business**—Jos. A. Bank Clothiers, Inc. is a nationwide retailer of classicmen’s clothing through conventional retail stores, catalog and internet directmarketing and franchisees.

 

**Principles of Consolidation**—The consolidated financial statements include theaccounts of Jos. A. Bank Clothiers, Inc. and its wholly-owned subsidiaries(collectively referred to as the “Company”). All significant intercompanybalances and transactions have been eliminated in consolidation.

 

**Common StockDividend**— On January 13, 2004, the Company’sBoard of Directors declared a 50% common stock dividend payable onFebruary 18, 2004 to stockholders of record as of January 30,2004.  On June 8, 2004, theCompany’s Board of Directors declared a 25% common stock dividend payable onAugust 18, 2004 to stockholders of record as of July 30, 2004.  Unless otherwise indicated, all historicalweighted average share and per share amounts and all references to the numberof common shares elsewhere in the consolidated financial statements, and notesthereto, have been restated to reflect the two stock dividends.

 

**Fiscal Year**—TheCompany maintains its accounts on a fifty-two/fifty-three week fiscal yearending on the Saturday nearest to January 31. The fiscal years endedFebruary 1, 2003 (fiscal 2002), January 31, 2004 (fiscal 2003) andJanuary 29, 2005 (fiscal 2004) each contained fifty-two weeks.

 

**Seasonality**—Althoughvariations in sales volumes do exist between quarters, the Company believes thenature of its merchandise helps to stabilize demand between the different periodsof the year. However, as the Company’s merchandise continues to include moreCorporate Casual and Sportswear and as more new stores are opened in the secondhalf of the year, profits generated during the fourth quarter have become alarger portion of annual profits.

 

**Use of Estimates**—The preparation of the consolidated financial statements in conformitywith accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differfrom those estimates.  Significantestimates in these financial statements include net realizable value ofinventory, estimates of future cash flows associated with asset impairments anduseful lives for depreciation and amortization.

 

**Reclassifications**—Certain amounts for fiscal 2003 have been reclassified to conform withthe presentation in fiscal 2004.  TheCompany reclassified sales and related costs for new stores between the Storesand Direct Marketing segments in Note 13 to the Consolidated FinancialStatements.  The Company also reclassifiedcertain amounts of deferred income taxes in fiscal 2003 to conform with thepresentation in 2004.

 

**Cash and Cash Equivalents**—Cash and cash equivalents include overnightinvestments with maturities of 90 days or less.

 

**Interest Expense**—Interest expense, net includes interest income of approximately $39,$16, and $129 in fiscal 2002, 2003 and 2004, respectively.

 

**Supplemental Cash Flow Information**—Interest and income taxes paid were as follows:

 
| ** **        | ** ** | **Fiscal 2002** | ** ** | **Fiscal 2003** | ** ** | **Fiscal 2004** | ** ** |
|-------------------|------------|-----------------|------------|-----------------|------------|-----------------|------------|
| Interest paid     |       | $               | 1,021      |            | $          | 1,474           |       | $ | 1,616 |   |
| Income taxes paid |       | $               | 4,748      |            | $          | 6,785           |       | $ | 13,918 |   |

 

**Inventories** - The Company records inventory at the lowerof cost or market (“LCM”). Cost is determined using the first-in, first-outmethod. The Company capitalizes into inventory certain warehousing and freightdelivery costs associated with shipping its merchandise to the point ofsale.  The Company periodically reviewsquantities of inventories on hand and compares these amounts to the expectedsale of each product.  The Companyrecords a charge to cost of goods sold for the amount required to reduce thecarrying value of inventory to net realizable value.  In fiscal 2004, five vendors accounted forover 86% of the raw materials purchased by the Company.

 

F-7

----

 

**Franchise Fees**– Monthly franchise fees are recognized when earned under the franchiseagreements, which is at the time the franchisee generates a sale.  The fees are based on a percentage of salesgenerated by the franchise stores and are included in net sales in theConsolidated Statements of Income. Initial franchise fees are fully earned upon execution of the franchiseagreements and there are no further obligations on the part of the Company inorder to earn the initial franchise fee.

 

The Company does not have any controlling interest in any of itsfranchisees through voting rights or any other means and, in accordance withthe revised Financial Accounting Standards Board Interpretation No. 46,“Consolidation of Variable Interest Entities”, does not consolidate theseentities.  The Company sells inventory toits franchise stores at prices above cost and the franchise stores have theright to return inventory to the Company.

 

**Gift Certificates and Cards** – The Company sells gift certificates to individuals and companies inits stores segment and through its direct marketing segment.  The Company’s apparel incentive giftcertificates are used by various companies as a reward for achievement for theiremployees. The Company also redeems proprietary gift certificates and giftcards marketed by major premium/incentive companies.  The Company records a liability when a giftcertificate/card is purchased.  As thegift certificate/card is redeemed by a customer, the Company reduces theliability and credits revenue.

 

**Vendor Rebates**-The Company receives credits from vendors in connection with inventorypurchases.  The credits are separatelynegotiated with each vendor. Substantially all of these credits are earned in one of two ways: a) asa fixed percentage of purchases when an invoice is paid or b) as an agreed-uponamount in the month a new store is opened. There are no contingent minimum purchase amounts, milestones or othercontingencies that are required to be met to earn the credits.  The credits described in a) above arerecorded as a reduction to inventories in the Consolidated Balance Sheet as theinventories are purchased and the credits described in b) above are recorded asa reduction to inventories as new stores are opened.  In both cases, the credits are recognized asreductions to cost of goods sold as the product is sold.

 

**Landlord Contributions** - Landlord contributions are accounted for as an increase tononcurrent lease obligations and as an increase to prepaid and other currentassets until collected.  When collected,the Company records cash and reduces the prepaid and other current assetsaccount.  The landlord contributions arepresented in the consolidated statements of cash flows as an operatingactivity.  The noncurrent leaseobligations are amortized over the life of the lease in a manner that isconsistent with the Company’s policy to straight-line rent expense over theterm of the lease.  The amortization isrecorded as a reduction to sales and marketing expense which is consistent withthe classification of lease expense.  Theamortization of noncurrent lease obligations recognized in the ConsolidatedStatements of Income were $1.1 million, $2.0 million and $2.8 million in fiscalyears 2002, 2003 and 2004, respectively.

 

**Catalog** - Costs related to mail order catalogs, including design,printing and distribution, are included in prepaid expenses and other currentassets consistent with Statement of Position No. 93-7, “Reporting onAdvertising Costs”.  These costs areamortized based on actual revenue for the period as compared to aggregateprojected revenue over the benefit period in which customers order from aparticular catalog, which is typically four months.  The benefit period is based on historicalordering patterns.  As ofJanuary 31, 2004 and January 29, 2005, the amounts included in prepaidexpenses and other current assets related to catalog costs were $1.1 millionand $.9 million, respectively.

 

**Marketing Expenses**—Marketing expenses, excluding catalog costs, areexpensed the first time the marketing takes place. Marketing expense, excludingcatalog costs, was approximately $16.5 million, $18.6 million and $25.9 millionin fiscal 2002, 2003 and 2004, respectively. These amounts exclude catalogproduction costs of approximately $5.1 million, $5.1 million and $5.9 millionfor fiscal 2002, 2003 and 2004. Marketing and catalog costs are included in “Sales and Marketing” in theaccompanying Consolidated Statements of Income.

 

**Contingent Rental Expense** – The Company hascertain store leases that determine all or a portion of its rent based onannual aggregate sales from that store. The Company recognizes contingent rental expense prior to achievement ofthe specified target that triggers the contingent rental provided thatachievement of that target is probable. The amount is recorded on a straight-line basis throughout the year.

 

**Property, Plant and Equipment**—Property, plant and equipment are stated at cost.The Company depreciates and amortizes

 

F-8

----

 

property, plant and equipment ona straight-line basis over the following estimated useful lives:

 
| **Asset Class**            | ** ** | **Estimated  Useful Lives** |
|----------------------------|------------|-----------------------------|
| Buildings and improvements |       | 25 years                    |
| Equipment                  |       | 3-10 years                  |
| Furniture and fixtures     |       | 10 years                    |
| Leasehold improvements     |       | Generally 10 years          |

 

The Company amortizes leasehold improvementsover the shorter of the lease term or the useful life of the improvements.  Depreciation and amortization expense of property,plant, and equipment for fiscal 2002, 2003 and 2004 was approximately $6,692,$9,382 and $10,498, respectively. Maintenance and repairs that do not extendthe lives of the assets are expensed as incurred.

 

**Other Noncurrent Assets**—Other noncurrent assets includes deferred financing costs and deposits.Deferred financing costs are amortized as additional interest expense over theremaining term of the debt agreements using the effective interest method.Amortization expense for fiscal 2002, 2003 and 2004 was $26, $40 and $68,respectively.

 

**Long-Lived Assets**—Long-lived assets, such as property, plant, and equipment, subject todepreciation and amortization, are reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount of an asset may notbe recoverable. Recoverability of assets to be held and used is measured by acomparison of the carrying amount of an asset to estimated undiscounted futurecash flows expected to be generated by the asset. If the carrying amount of anasset exceeds its estimated future cash flows, an impairment charge isrecognized by the amount by which the carrying amount of the asset exceeds thefair value of the asset.

 

**Fair Value of Financial Instruments**—For cash and cash equivalents, accountsreceivable and accounts payable, the carrying amount is a reasonable estimateof fair value. For long-term debt, rates available for debt with similar termsand remaining maturities are used to estimate the fair value of existing debt.As January 31, 2004 and January 29, 2005, the fair value of the Company’sdebt approximated the carrying value.

 

**Net Sales**—Netsales are recognized at the point-of-sale in the Company’s store segment andwhen product is shipped to the customer for its direct marketing segment andare presented net of customer returns and exchanges.  The Company provides for sales returns basedon estimated returns in future periods. The sales return reserve for fiscal years 2002, 2003 and 2004 were $310,$405 and $473, respectively.

 

**Classification of Expenses**—Cost of goods sold includes cost of merchandise,cost of tailoring and freight from vendors to the distribution center and fromthe distribution center to the stores. Merchandise management, distribution,warehousing and corporate overhead costs are included in General andAdministrative expenses.

 

**Lease Expense**—Rentexpense on leases, including the amortization of landlord contributions, isrecorded on a straight-line basis over the term of the lease and the excess ofexpense over cash amounts paid are included in “noncurrent lease obligations”in the accompanying Consolidated Balance Sheets.  The term of the lease begins on the date theCompany has the right to control the use of the leased property, generallyapproximately five to eight weeks prior to opening the store.

 

**Store Opening Costs**—Costs incurred in connection with initial promotion and other start-upcosts, such as travel for recruitment, training and setup of new storeopenings, are expensed as incurred.

 

**Income Taxes**—Incometaxes are accounted for under the asset and liability method. Deferred taxassets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases and operatingloss and tax credit carry forwards. Deferred tax assets and liabilities aremeasured using enacted tax rates expected to apply to taxable income in theyears in which those temporary differences are expected to be recovered orsettled. The effect on deferred tax assets and liabilities of a change in taxrates is recognized in income in the period that includes the enactment date.

 

F-9

----

 

TheCompany establishes an estimated liability for federal and state income taxexposures that arise and meet the criteria for accrual under SFAS No. 5,“Accounting for Contingencies”.  Thisliability addresses a number of issues for which the Company may have to payadditional taxes (and interest) when all examinations by taxing authorities areconcluded.  The liability amounts forsuch matters are based on an evaluation of the underlying facts andcircumstances, a thorough research of the technical merits of the Company’sfiling positions and an assessment of the chances of the Company prevailing inits positions.  The Company operates in37 states and significantly more local tax jurisdictions and has unaudited opentax years with many of these taxing authorities.

 

**Earnings Per Share** (“EPS”)—Basic net income per share is calculated by dividing net incomeby the weighted average number of common shares outstanding for the year.Diluted net income per share is calculated by dividing net income by thediluted weighted average common shares, which reflect the potential dilution ofstock options. The weighted average shares used to calculate basic and dilutedearnings per share are as follows:

 
| ** **                                           | ** ** | **Fiscal 2002** | ** ** | **Fiscal 2003** | ** ** | **Fiscal 2004** | ** ** |
|------------------------------------------------------|------------|-----------------|------------|-----------------|------------|-----------------|------------|
| Weighted average shares outstanding for  basic EPS   |       | 11,531          |       | 12,248          |       | 13,344          |       |
| Dilutive effect of stock options                     |       | 1,703           |       | 1,635           |       | 887             |       |
| Weighted average shares outstanding for  diluted EPS |       | 13,234          |       | 13,883          |       | 14,231          |       |

 

TheCompany uses the treasury method for calculating the dilutive effect of stockoptions. The effects on weighted average shares outstanding of options topurchase common stock of the Company were included in the computation ofdiluted net income per share in all years presented.  As of January 29, 2005 there were 24 stockoptions which were antidilutive and have been excluded from the calculation of dilutive EPS.

 

**Proforma Disclosures of Stock-Based Compensation**—The Company applies the intrinsic-value-basedmethod of accounting prescribed by Accounting Principles Board (“APB”) OpinionNo. 25, “Accounting for Stock Issued to Employees”, and relatedinterpretations including Financial Accounting Standards Board InterpretationNo. 44, “Accounting for Certain Transactions Involving StockCompensation”, issued in March 2000, to account for its fixed-plan stockoptions. Under this method, compensation expense is recorded on the date ofgrant only if the current market price of the underlying stock exceeds theexercise price. Historically, the Company has issued all options at themarket price on the date of grant. Statement of Financial Accounting Standards (“SFAS”) No. 123,“Accounting for Stock-Based Compensation” as amended by SFAS No. 148,“Accounting for Stock Based Compensation-Transition and Disclosure”,established accounting and disclosure requirements using a fair-value-basedmethod of accounting for stock-based employee compensation plans.  As allowed by SFAS No. 123, the Companyhas elected to continue to apply the intrinsic-value-based method of accountingdescribed above, and has adopted only the disclosure requirements of SFASNo. 123, as amended by SFAS No. 148. The following table illustrates theeffect on net income if the fair-value-based method had been applied to alloutstanding and unvested awards in each year.

 

TheCompany recognized $230 in fiscal 2003 related to certain variable plan stockoptions.  No further compensation expensewill be recognized with respect to these options.  The following table illustrates the effect onnet income if the fair-value-based method had been applied to all outstandingand unvested awards in each year.

 

F-10

----

 
| ** **                                                                                                                                                                                                       | ** ** | **Fiscal 2002**   | ** ** | **Fiscal 2003**   | ** ** | **Fiscal 2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-------------------|------------|-----------------|------------|
| ** **                                                                                                                                                                                                       | ** ** | **(as restated)** | ** ** | **(as restated)** | ** ** | ** **      | ** ** |
| Net income, as reported                                                                                                                                                                                          |       | $                 | 10,843     |              | $          | 16,280          | ** ** | **$** | **24,481** | ** ** |
| Deduct total stock-based employee  compensation expense determined under fair-value-based method for all awards  in excess of compensation recognized under intrinsic method of $230 in fiscal  2003, net of tax |       | $                 | (2,318     | )                 | $          | (3,191          | )          | **(442** | **)** |
| ** **                                                                                                                                                                                                       | ** ** | ** **        | ** ** | ** **        | ** ** | ** **      | ** ** |
| Pro forma net income                                                                                                                                                                                             |       | $                 | 8,525      |              | $          | 13,089          | ** ** | **$** | **24,039** | ** ** |
|                                                                                                                                                                                                             |       |              |       |              | ** ** | ** **      | ** ** |
| Basic net income per common share, as  reported                                                                                                                                                                  |       | $                 | 0.94       |              | $          | 1.33            | ** ** | **$** | **1.83** | ** ** |
|                                                                                                                                                                                                             |       |              |       |              | ** ** | ** **      | ** ** |
| Pro forma basic net income per common share                                                                                                                                                                      |       | $                 | 0.74       |              | $          | 1.07            | ** ** | **$** | **1.80** | ** ** |
|                                                                                                                                                                                                             |       |              |       |              | ** ** | ** **      | ** ** |
| Diluted net income per common share, as  reported                                                                                                                                                                |       | $                 | 0.82       |              | $          | 1.17            | ** ** | **$** | **1.72** | ** ** |
| Pro forma diluted net income per common  share                                                                                                                                                                   |       | $                 | 0.64       |              | $          | 0.94            | ** ** | **$** | **1.69** | ** ** |

 

The fairvalue of each stock option granted is estimated on the date of grant using theBlack-Scholes option pricing model with the following weighted averageassumption used for grants in fiscal 2002, 2003 and 2004:

 
| ** **                      | ** ** | **Fiscal 2002** | ** ** | **Fiscal 2003** | ** ** | **Fiscal 2004** | ** ** |
|---------------------------------|------------|-----------------|------------|-----------------|------------|-----------------|------------|
| Risk free interest rate         |       | 2.3-3.9         | %          | 3.3-3.8         | %          | 2.9-3.2         | %          |
| Expected volatility             |       | 69-81           | %          | 44-58           | %          | 49-50           | %          |
| Expected life                   |       | 2.5 to 7 years  |       | 3 to 7 years    |       | 3 to 7 years    |       |
| Contractual life                |       | 2.5 to 10 years |       | 3 to 10 years   |       | 1 to 10 years   |       |
| Expected dividend yield         |       | —          | %          | —          | %          | —          | %          |
| Fair value of options granted   |       | $               | 5.40       |            | $          | 12.72           |       | $ | 9.81 |   |
| Options granted                 |       | 550             |       | 659             |       | 29              |       |
| Weighted average exercise price |       | $               | 6.63       |            | $          | 16.81           |       | $ | 27.02 |   |

 

**New Accounting Pronouncements**—In December 2004, the FASB issued Statement ofFinancial Accounting Standards No. 123 (Revised 2004), *Share-Based Payment*, (“FAS 123(R)”).  This Statement requires companies to expensethe estimated fair value of stock options and similar equity instruments issuedto employees.  Currently, companies arerequired to calculate the estimated fair value of these share-based paymentsand can elect to either include the estimated cost in earnings or disclose thepro forma effect in the footnotes to their financial statements.  The Company has chosen to disclose the proforma effect.  The fair value conceptswere not changed significantly in FAS 123(R); however, in adopting thisStandard, companies must choose among alternative valuation models andamortization assumptions.  The valuationmodel and amortization assumption the Company has used continues to beavailable, but we have not yet completed our assessment of thealternatives.  FAS 123(R) will be effectivefor the Company beginning with the third quarter of 2005.  Transition options allow companies to choosewhether to adopt prospectively, restate results to the beginning of the year,or to restate prior periods with the amounts that have been included in theirfootnotes.  The Company has not yetconcluded on which transition option will be selected.  See Proforma Disclosures of Stock-BasedCompensation discussion above for the pro forma effect of a full yearapplication, using our existing valuation and amortization assumptions.

 

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

 

F-11

----

 

**IncentivePlans**–Incentive plansprovide cash incentive compensation to certain employees based upon theattainment of certain earnings and performance goals, as well as certaindiscretionary goals.  At eachquarter-end, the Company estimates the probability that such goals will beattained based on results-to-date and the likelihood of discretionary paymentsand records incentive compensation accordingly. Any additional incentive compensation which is likely to be paid for theyear is expensed based on the proportion of the earnings-to-date to projectedannual earnings.

 

**2. RESTATEMENT OF****FINANCIALSTATEMENTS**

 

On February 7, 2005, in aletter to the Center for Public Company Audit Firms-American Institute ofCertified Public Accountants (the “SEC Letter”), the Chief Accountant of theSecurities and Exchange Commission (the “SEC”) expressed the views of the SECstaff concerning certain operating lease accounting issues and theirapplication under generally accepted accounting principles (“GAAP”).  Specifically, the SEC Letter addressed theappropriate accounting for: (1) the amortization of leasehold improvements by alessee in an operating lease with lease renewals, (2) the pattern ofrecognition of rent when the lease term in an operating lease contains a periodwhere there are free or reduced rents (commonly referred to as “rent holidays”),and (3) incentives related to leasehold improvements provided by alandlord/lessor to a tenant/lessee in an operating lease. Like many othercompanies in the retail industry, the Company has re-evaluated its leaseaccounting practices in light of the SEC Letter.

 

Amortization of LeaseholdImprovements- In order to comply with GAAP regarding amortization of leaseholdimprovements discussed in the SEC Letter, the Company revised the straight-linerent schedules for thirteen of its stores to achieve consistency with thecorresponding leasehold amortization schedules.

 

Rent Holidays- In the SECLetter, the SEC staff reiterated that GAAP requires rent holidays in anoperating lease should be recognized by the lessee on a straight-line basisover the lease term (including any rent holiday period).  In prior periods, the Company had generallyrecognized the straight line expense for a lease beginning on the date thestore opened, which was generally the date the lease term commenced inaccordance with the lease.  The periodduring which the store was being constructed was excluded from thestraight-line rent schedule because the construction period was not consideredto be part of the lease term in accordance with the lease. Based on ourre-evaluation, the Company has concluded that the construction period should beincluded in the straight-line rent schedule.

 

As a result of the change of its rentschedules, the Company has restated the Consolidated Financial Statements for fiscal2002, fiscal 2003, for the first three quarters of fiscal 2004 and for all fourquarters of fiscal 2003.  The foregoing correctionsare inclusive of the immaterial changes resulting from the modification of therent schedules to achieve consistency with the corresponding leaseholdamortization schedules, as set forth above.

 

LandlordContributions- Leasehold improvement incentives provided by a landlord to theCompany were previously recorded by the Company as a reduction of the property,plant and equipment account on its balance sheet and amortized as a reductionto depreciation expense in its income statement.  However, GAAP requires that such incentivesshould be recorded as deferred rent and amortized as reductions to leaseexpense.  As a result, the Company’sproperty, plant and equipment asset account and deferred rent liability accountwere increased which required increases to cash flows provided by operatingactivities and cash flows used for investing activities in equal amounts.  Accordingly, the Company has restated the consolidatedfinancial statements for fiscal 2002, fiscal 2003, for the first three quartersof fiscal 2004 and for all four quarters of fiscal 2003.  These landlord contributions will beamortized over the life of the lease as a reduction to rent expense.

 

The impact of the restatement on the Consolidated Balance Sheet as ofJanuary 31, 2004 was an increase in the total property, plant and equipmentaccount of $13,125 and an increase in the deferred rent liability account of $14,839. The impact of the restatement is adecrease in net income of $104 and $323 for fiscal years 2002 and 2003,respectively, from amounts previously reported.  The restatement decreasedreported diluted earnings per share by $0.01 and $0.03 for fiscal 2002 andfiscal 2003, respectively.  Thecumulative effect of the restatement for all years prior to fiscal 2002 was $621. The restatement also had a cumulative increase to deferred income taxes of $666as of January 31, 2004.  The restatementdid not have any impact on our previously reported, sales or comparable store salesor on our compliance with any financial covenant under our line of creditfacility or other debt instruments.  Therestatement also decreased reported diluted earnings per share by $0.01, $0.01and $0.02 for the first, second and third fiscal quarters of 2004,respectively.

 

F-12

----

 

Thefollowing is a summary of the significant effects of the restatement on (a) theCompany’s consolidated balance sheet as of January 31, 2004, and (b) theconsolidated statements of income and cash flows for the years ended February1, 2003 and January 31, 2004.

 

**Consolidated Balance Sheets**

 
| ** **                                             | ** ** | **January 31, 2004**          | ** ** |
|--------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                             | ** ** | **As Reported****Previously** | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
| ** **                                             | ** ** | ** **                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash and cash equivalents                              |       | $                             | 875        |   | $ | — |   | $ | 875 |   |
| Accounts receivable, net                               |       | 4,201                         |       | — |   | 4,201 |   |
| Inventories, net                                       |       | 120,788                       |       | — |   | 120,788 |   |
| Prepaid expenses and other  current  assets       |       | 10,323                        |       | — |   | 10,323 |   |
| Deferred income taxes                                  |       | —                        |       | 2,697 |   | 2,697 |   |
|                                                   |       |                          |       |   |   |   |   |
| Total current assets                                   |       | 136,187                       |       | 2,697 |   | 138,884 |   |
|                                                   |       |                          |       |   |   |   |   |
| Property, plant and equipment,  net                    |       | $                             | 47,401     |   | 13,125 |   | $ | 60,526 |   |
| Other noncurrent assets                                |       | 1,235                         |       | — |   | 1,235 |   |
| Deferred income taxes                                  |       | 1,688                         |       | (1,688 | ) | — |   |
| Total assets                                           |       | $                             | 186,511    |   | $ | 14,134 |   | $ | 200,645 |   |
|                                                   |       |                          |       |   |   |   |   |
| Accounts payable                                       |       | $                             | 28,748     |   | $ | — |   | $ | 28,748 |   |
| Accrued expenses and other                             |       | 32,677                        |       | — |   | 32,677 |   |
| Current portion of long-term  debt                     |       | 1,245                         |       | — |   | 1,245 |   |
| Deferred income tax                                    |       | 1,308                         |       | (1,308 | ) | — |   |
| Total current liabilities                              |       | 63,978                        |       | (1,308 | ) | 62,670 |   |
|                                                   |       |                          |       |   |   |   |   |
| Long-term debt, net of current  portion                |       | 28,618                        |       | — |   | 28,618 |   |
| Noncurrent lease obligations                           |       | 5,213                         |       | 14,839 |   | 20,052 |   |
| Noncurrent deferred tax  liability                     |       | —                        |       | 1,651 |   | 1,651 |   |
| Other noncurrent liabilities                           |       | 1,200                         |       | — |   | 1,200 |   |
| Total liabilities                                      |       | 99,009                        |       | 15,182 |   | 114,191 |   |
|                                                   |       |                          |       |   |   |   |   |
| Preferred stock                                        |       | —                        |       | — |   | — |   |
| Common stock                                           |       | 122                           |       | — |   | 122 |   |
| Additional paid-in capital                             |       | 64,207                        |       | — |   | 64,207 |   |
| Retained earnings                                      |       | 28,231                        |       | (1,048 | ) | 27,183 |   |
|                                                   |       |                          |       |   |   |   |   |
| Treasury stock                                         |       | (5,058                        | )          | — |   | (5,058 | ) |
| Total stockholders’ equity                        |       | 87,502                        |       | (1,048 | ) | 86,454 |   |
| Total liabilities and  stockholders’  equity |       | $                             | 186,511    |   | $ | 14,134 |   | $ | 200,645 |   |

 

F-13

----

 

**Consolidated Statements of Income**

 
| ** **                                | ** ** | **Year Ended**                 | ** **  | **Year Ended**       | ** ** |
|-------------------------------------------|------------|--------------------------------|-------------|----------------------|------------|
| ** **                                | ** ** | **February 1, 2003**           | ** **  | **January 31, 2004** | ** ** |
| ** **                                | ** ** | **As  Reported****Previously** | ** **  | **Adjustments**      | ** ** | **As  Restated** | ** ** | **As  Reported****Previously** | ** ** | **Adjustments** | ** ** | **As  Restated** | ** ** |
| ** **                                | ** ** | ** **                     | ** **  | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **NET SALES**                             | ** ** | **$**                          | **243,436** |                 | $          | — | ** ** | **$** | **243,436** | ** ** | **$** | **299,663** |   | $ | — | ** ** | **$** | **299,663** | ** ** |
| Cost of goods sold                        |       | 109,836                        |        | —               |       | 109,836 |   | 127,364 |   | — |   | 127,364 |   |
|                                      |       |                           |        |                 |       |   |   |   |   |   |   |   |   |
| **GROSS PROFIT**                          | ** ** | **133,600**                    |        | —               | ** ** | **133,600** | ** ** | **172,299** | ** ** | **—** | ** ** | **172,299** | ** ** |
|                                      |       |                           |        |                 |       |   |   |   |   |   |   |   |   |
| OPERATING EXPENSES:                       |       |                           |        |                 |       |   |   |   |   |   |   |   |   |
| Sales and marketing                       |       | 89,015                         |        | 171                  |       | 89,186 |   | 109,699 |   | 531 |   | 110,230 |   |
| General and administrative                |       | 24,310                         |        | —               |       | 24,310 |   | 30,554 |   | — |   | 30,554 |   |
| Store opening costs                       |       | 528                            |        | —               |       | 528 |   | 1,539 |   | — |   | 1,539 |   |
| Total operating expenses                  |       | 113,853                        |        | 171                  |       | 114,024 |   | 141,792 |   | 531 |   | 142,323 |   |
|                                      |       |                           |        |                 |       |   |   |   |   |   |   |   |   |
| **OPERATING INCOME**                      | ** ** | **19,747**                     | ** **  | **(171**             | **)**      | **19,576** | ** ** | **30,507** | ** ** | **(531** | **)** | **29,976** | ** ** |
|                                      |       |                           |        |                 |       |   |   |   |   |   |   |   |   |
| Interest expense, net                     |       | 1,098                          |        | —               |       | 1,098 |   | 1,623 |   | — |   | 1,623 |   |
| Income before provision for  income taxes |       | 18,649                         |        | (171                 | )          | 18,478 |   | 28,884 |   | (531 | ) | 28,353 |   |
| Provision for income taxes                |       | 7,702                          |        | (67                  | )          | 7,635 |   | 12,281 |   | (208 | ) | 12,073 |   |
| **NET INCOME**                            | ** ** | **$**                          | **10,947**  | ** **           | **$**      | **(104** | **)** | **$** | **10,843** | ** ** | **$** | **16,603** | ** ** | **$** | **(323** | **)** | **$** | **16,280** | ** ** |
|                                      |       |                           |        |                 |       |   |   |   |   |   |   |   |   |
| **EARNINGS PER SHARE**                    |       |                           |        |                 |       |   |   |   |   |   |   |   |   |
| **Net Income:**                           |       |                           |        |                 |       |   |   |   |   |   |   |   |   |
| **Basic**                                 | ** ** | **$**                          | **0.95**    | ** **           | **$**      | **(0.01** | **)** | **$** | **0.94** | ** ** | **$** | **1.36** | ** ** | **$** | **(0.03** | **)** | **$** | **1.33** | ** ** |
| **Diluted**                               | ** ** | **$**                          | **0.83**    | ** **           | **$**      | **(0.01** | **)** | **$** | **0.82** | ** ** | **$** | **1.20** | ** ** | **$** | **(0.03** | **)** | **$** | **1.17** | ** ** |
|                                      |       |                           |        |                 |       |   |   |   |   |   |   |   |   |
| Weighted average shares  outstanding      |       |                           |        |                 |       |   |   |   |   |   |   |   |   |
| Basic                                     |       | 11,531                         |        | —               |       | 11,531 |   | 12,248 |   | — |   | 12,248 |   |
| Diluted                                   |       | 13,234                         |        | —               |       | 13,234 |   | 13,883 |   | — |   | 13,883 |   |

 

F-14

----

 

**Consolidated Statements of Cash Flows**

 
| ** **                                                                                   | ** ** | **Year Ended**                 | ** ** | **Year Ended**       | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------------------|------------|----------------------|------------|
| ** **                                                                                   | ** ** | **February 1, 2003**           | ** ** | **January 31, 2004** | ** ** |
| ** **                                                                                   | ** ** | **As  Reported****Previously** | ** ** | **Adjustments**      | ** ** | **As  Restated** | ** ** | **As  Reported****Previously** | ** ** | **Adjustments** | ** ** | **As  Restated** | ** ** |
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                                    | ** ** | ** **                     | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income                                                                                   |       | $                              | 10,947     |                 | $          | (104 | ) | $ | 10,843 |   | $ | 16,603 |   | $ | (323 | ) | $ | 16,280 |   |
|                                                                                         |       |                           |       |                 |       |   |   |   |   |   |   |   |   |
| Adjustments to reconcile net income to net  cash provided by (used in) operating activities: |       |                           |       |                 |       |   |   |   |   |   |   |   |   |
| Deferred tax expense                                                                         |       | 2,313                          |       | (67                  | )          | 2,246 |   | 1,094 |   | (208 | ) | 886 |   |
| Depreciation and amortization                                                                |       | 5,642                          |       | 1,050                |       | 6,692 |   | 7,575 |   | 1,807 |   | 9,382 |   |
| Loss on disposition of assets                                                                |       | 50                             |       | —               |       | 50 |   | 29 |   | — |   | 29 |   |
| Income tax benefit from  exercise of non-qualified stock options                             |       | 667                            |       | —               |       | 667 |   | 1,528 |   | — |   | 1,528 |   |
| Changes in assets and  liabilities:                                                          |       |                           |       |                 |       |   |   |   |   |   |   |   |   |
| Increase in accounts receivable                                                              |       | (466                           | )          | —               |       | (466 | ) | (1,371 | ) | — |   | (1,371 | ) |
| Increase in inventories                                                                      |       | (13,614                        | )          | —               |       | (13,614 | ) | (42,532 | ) | — |   | (42,532 | ) |
| Increase in prepaid expenses  and other assets                                               |       | (1,296                         | )          | —               |       | (1,296 | ) | (3,653 | ) | — |   | (3,653 | ) |
| Increase (decrease) in accounts  payable                                                     |       | 12,845                         |       | —               |       | 12,845 |   | (625 | ) | — |   | (625 | ) |
| Increase in accrued expenses                                                                 |       | 2,114                          |       | —               |       | 2,114 |   | 8,534 |   | — |   | 8,534 |   |
| (Decrease) increase in other  noncurrent liabilities                                         |       | 987                            |       | 4,966                |       | 5,953 |   | (36 | ) | 4,242 |   | 4,206 |   |
|                                                                                         |       |                           |       |                 |       |   |   |   |   |   |   |   |   |
| Net cash provided by (used in) operating  activities                                         |       | 20,189                         |       | 5,845                |       | 26,034 |   | (12,854 | ) | 5,518 |   | (7,336 | ) |
|                                                                                         |       |                           |       |                 |       |   |   |   |   |   |   |   |   |
| **CASH FLOWS USED FOR INVESTING ACTIVITIES:**                                                | ** ** | ** **                     | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Payments for capital  expenditures                                                           |       | (8,290                         | )          | (5,845               | )          | (14,135 | ) | (17,727 | ) | (5,518 | ) | (23,245 | ) |
|                                                                                         |       |                           |       |                 |       |   |   |   |   |   |   |   |   |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                                                    | ** ** | ** **                     | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Borrowings under revolving loan  agreement                                                   |       | 40,412                         |       | —               |       | 40,412 |   | 87,165 |   | — |   | 87,165 |   |
| Repayment of borrowings under  revolving loan agreement                                      |       | (50,190                        | )          | —               |       | (50,190 | ) | (66,688 | ) | — |   | (66,688 | ) |
| Borrowings of other long-term  debt                                                          |       | 4,675                          |       | —               |       | 4,675 |   | — |   | — |   | — |   |
| Repayment of other long-term  debt                                                           |       | (1,016                         | )          | —               |       | (1,016 | ) | (1,133 | ) | — |   | (1,133 | ) |
| Net  proceeds from issuance of common stock                                                  |       | 1,782                          |       | —               |       | 1,782 |   | 3,723 |   | — |   | 3,723 |   |
| Net cash provided by (used in)  financing activities                                         |       | (4,337                         | )          | —               |       | (4,337 | ) | 23,067 |   | — |   | 23,067 |   |
| Net increase (decrease) in cash  and cash equivalents                                        |       | 7,562                          |       | —               |       | 7,562 |   | (7,514 | ) | — |   | (7,514 | ) |
| **CASH AND CASH EQUIVALENTS,  beginning of year**                                            |       | 827                            |       | —               |       | 827 |   | 8,389 |   | — |   | 8,389 |   |
| **CASH AND CASH EQUIVALENTS,  end of year**                                                  |       | $                              | 8,389      |                 | —     |   | $ | 8,389 |   | $ | 875 |   | — |   | $ | 875 |   |
|                                                                                              |            |                                |            |                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-15

----

 

**3.  INVENTORIES:**

 

Inventoriesas of January 31, 2004 and January 29, 2005, consist of the following:

 
| ** **                        | ** ** | **January 31, 2004** | ** ** | **January 29, 2005** | ** ** |
|-----------------------------------|------------|----------------------|------------|----------------------|------------|
|                              |       |                 |       |                 |       |
| Finished goods                    |       | $                    | 109,136    |                 | $          | 119,143 |   |
| Raw materials and work-in-process |       | 11,652               |       | 8,550                |       |
| Total inventories, net            |       | $                    | 120,788    |                 | $          | 127,693 |   |

 

**4.  PREPAID EXPENSES AND OTHER CURRENT ASSETS:**

 

Prepaidexpenses and other current assets as of January 31, 2004 and January 29, 2005,consist of the following:

 
| ** **                                            | ** ** | **January 31, 2004** | ** ** | **January 29, 2005** | ** ** |
|-------------------------------------------------------|------------|----------------------|------------|----------------------|------------|
|                                                  |       |                 |       |                 |       |
| Landlord contribution receivable                      |       | $                    | 4,788      |                 | $          | 7,442 |   |
| Prepaid expenses and other current assets             |       | 5,535                |       | 4,450                |       |
| Total prepaid expenses and other current  assets, net |       | $                    | 10,323     |                 | $          | 11,892 |   |

 

**5.  PROPERTY, PLANT AND EQUIPMENT:**

 

Property,plant and equipment as of January 31, 2004 and January 29, 2005, consistsof the following:

 
| ** **                                       | ** ** | **January 31, 2004** | ** ** | **January 29, 2005** | ** ** |
|--------------------------------------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                       | ** ** | **(as restated)**    | ** ** | ** **           | ** ** |
| Land                                             |       | $                    | 349        |                 | $          | 349 |   |
| Buildings and improvements                       |       | 11,322               |       | 11,588               |       |
| Leasehold improvements                           |       | $                    | 52,023     |                 | 68,480     |   |
| Equipment, furniture and fixtures                |       | 47,140               |       | 62,493               |       |
|                                             |       | 110,834              |       | 142,910              |       |
| Less: accumulated depreciation and  amortization |       | (50,308              | )          | (59,289              | )          |
| Property, plant and equipment, net               |       | $                    | 60,526     |                 | $          | 83,621 |   |

 

As ofJanuary 31, 2004 and January 29, 2005, payments for capital expendituresincluded in the Consolidated Statements of Cash Flows excludes $2,148 and $6,714of accrued property, plant and equipment additions that have been incurred buthave not been completely invoiced by vendors, and therefore, not paid by therespective year-ends.

 

**6.  ACCRUED EXPENSES:**

 

Accruedexpenses as of January 31, 2004 and January 29, 2005, consist of thefollowing:

 
| ** **                            | ** ** | **January 31, 2004** | ** ** | **January 29, 2005** | ** ** |
|---------------------------------------|------------|----------------------|------------|----------------------|------------|
|                                  |       |                 |       |                 |       |
| Accrued compensation and benefits     |       | $                    | 11,663     |                 | $          | 10,915 |   |
| Accrued advertising                   |       | 1,496                |       | 1,483                |       |
| Gift certificate payable              |       | 4,404                |       | 5,807                |       |
| Accrued property, plant and equipment |       | 2,148                |       | 6,714                |       |
| Accrued federal income tax            |       | 5,243                |       | 2,275                |       |
| Other accrued expenses                |       | 7,723                |       | 10,311               |       |
| Total                                 |       | $                    | 32,677     |                 | $          | 37,505 |   |

 

F-16

----

 

Otheraccrued expenses consist primarily of liabilities related to state incometaxes, interest, sales taxes, property taxes, customer deposits, and otherstore opening costs.

 

**7.  LONG-TERM DEBT:**

 

Long-termdebt as of January 31, 2004 and January 29, 2005, consists of thefollowing:

 
| ** **                                                                                                                                                            | ** ** | **January 31, 2004** | ** ** | **January 29, 2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                                                                                                                                            | ** ** | ** **           | ** ** | ** **           | ** ** |
| Bank credit agreement—                                                                                                                                           | ** ** | ** **           | ** ** | ** **           | ** ** |
| Borrowings under revolving loan agreement                                                                                                                             |       | $                    | 20,587     |                 | $          | — |   |
| Mortgage loan secured by corporate office  and distribution center, interest at 8.15% payable in monthly installments  through April 1, 2013                          |       | 4,666                |       | 4,283                |       |
| Loan payable secured by certain  distribution center equipment, variable interest (5.43% at January 29, 2005)  payable in monthly installments through August 1, 2009 |       | 2,547                |       | 2,103                |       |
| Other notes payable                                                                                                                                                   |       | 2,063                |       | 473                  |       |
| Total long-term debt                                                                                                                                                  |       | 29,863               |       | 6,859                |       |
| Less: current portion                                                                                                                                                 |       | 1,245                |       | 917                  |       |
| Long-term debt, net of current portion                                                                                                                                |       | $                    | 28,618     |                 | $          | 5,942 |   |

 

**Bank Credit Agreement**—The Company has a line of credit agreement with an available maximumborrowing amount up to $100,000 (the “Credit Agreement”) and which extends toApril 2008.  In addition, the Company hasthe option to increase the amount borrowed to $125,000 if requested prior toApril 30, 2006, if needed and if supported by the borrowing base formulaunder the Credit Agreement.  Borrowingsare limited by a formula, which considers certain of the Company’s assetvalues, including inventories and accounts receivable. Aggregate borrowingsoutstanding bear interest at Prime or LIBOR plus 1.5% and are secured bysubstantially all assets of the Company with the exception of its distributioncenter and certain equipment. The Credit Agreement also includes provisions forseasonal over-advances.

 

Under theprovisions of the Credit Agreement, the Company must comply with certaincovenants, if the availability under the line of credit in excess ofoutstanding borrowings is less than $7,500. The covenants include a minimum Earnings Before Interest, Taxes,Depreciation and Amortization (“EBITDA”), limitations on capital expendituresand additional indebtedness, and restrictions on dividend payments.  Borrowings outstanding under the line ofcredit were $20,587 and $0 as of January 31, 2004 and January 29, 2005,respectively.

 

As ofJanuary 29, 2005, the Company’s available borrowings under the CreditAgreement were $74,600.  The averagedaily outstanding balances under the Credit Agreement for fiscal 2003 and 2004were approximately $20,000 and $23,400, respectively. The Company had a standbyletter of credit of $400 at January 31, 2004 and January 29, 2005, whichsecures the payment of rent at one leased location.

 

Theaggregate maturities of the Company’s long-term debt as of January 29,2005, are as follows for fiscal years: 2005—$917, 2006—$1,135, 2007—$1,030,2008—$985, 2009—$788, and thereafter—$2,004.

 

F-17

----

 

**8.  INCOME TAXES:**

 

Theprovision for income taxes consisted of the following:

 
| ** **                 | ** ** | **Fiscal 2002**   | ** ** | **Fiscal 2003**   | ** ** | **Fiscal 2004** | ** ** |
|----------------------------|------------|-------------------|------------|-------------------|------------|-----------------|------------|
| ** **                 | ** ** | **(as restated)** | ** ** | **(as restated)** | ** ** | ** **      | ** ** |
| ** **                 | ** ** | ** **        | ** ** | ** **        | ** ** | ** **      | ** ** |
| Federal:                   | ** ** | ** **        | ** ** | ** **        | ** ** | ** **      | ** ** |
| Current                    |       | $                 | 4,474      |              | $          | 9,011           |       | $ | 11,444 |   |
| Deferred                   |       | 1,780             |       | 887               |       | 2,014           |       |
| State:                     |       |              |       |              |       |            |       |
| Current                    |       | 915               |       | 2,176             |       | 2,526           |       |
| Deferred                   |       | 466               |       | (1                | )          | (108            | )          |
| Provision for income taxes |       | $                 | 7,635      |              | $          | 12,073          |       | $ | 15,876 |   |

 

Provisionfor income tax is reconciled to the amount computed by applying the statutoryFederal income tax rate of 35% for fiscal 2002, 2003 and 2004 to income beforeprovision for income taxes as follows:

 
| ** **                                            | ** ** | **Fiscal 2002**   | ** ** | **Fiscal 2003**   | ** ** | **Fiscal 2004** | ** ** |
|-------------------------------------------------------|------------|-------------------|------------|-------------------|------------|-----------------|------------|
| ** **                                            | ** ** | **(as restated)** | ** ** | **(as restated)** | ** ** | ** **      | ** ** |
| ** **                                            | ** ** | ** **        | ** ** | ** **        | ** ** | ** **      | ** ** |
| Computed federal tax provision at statutory  rates    |       | $                 | 6,467      |              | $          | 9,923           |       | $ | 14,125 |   |
| State income taxes, net of federal income  tax effect |       | 898               |       | 1,414             |       | 1,621           |       |
| Non-deductible compensation                           |       | 721               |       | 916               |       | 755             |       |
| Resolution of tax matters                             |       | —            |       | —            |       | (861            | )          |
| Other, net                                            |       | (451              | )          | (180              | )          | 236             |       |
| Provision for income taxes                            |       | $                 | 7,635      |              | $          | 12,073          |       | $ | 15,876 |   |

 

The taxeffects of temporary differences that give rise to significant positions ofdeferred tax assets and deferred tax liabilities as of January 31, 2004 andJanuary 29, 2005 are as follows:

 
| ** **                                | ** ** | **January 31, 2004** | ** ** | **January 29, 2005** | ** ** |
|-------------------------------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                | ** ** | **(as restated)**    | ** ** | ** **           | ** ** |
| ** **                                | ** ** | ** **           | ** ** | ** **           | ** ** |
| Deferred tax assets:                      | ** ** | ** **           | ** ** | ** **           | ** ** |
| Inventories                               |       | $                    | 991        |                 | $          | 1,146 |   |
| Accrued liabilities and other             |       | 10,498               |       | 14,898               |       |
|                                      |       | 11,489               |       | 16,044               |       |
| Deferred tax liabilities:                 |       |                 |       |                 |       |
| Property, plant and equipment             |       | (9,927               | )          | (16,202              | )          |
| Prepaid expenses and other current assets |       | (516                 | )          | (702                 | )          |
|                                      |       | (10,443              | )          | (16,904              | )          |
| Net deferred tax assets (liability)       |       | $                    | 1,046      |                 | $          | (860 | ) |

 

Inassessing the realizability of deferred tax assets, management consideredwhether it was more likely than not that some portion or all of the deferredtax assets will be realized. The ultimate realization of the deferred taxassets is dependent upon existence of taxable income in carryback periods andthe generation of future taxable income during periods in which temporarydifferences become deductible. Management considered income taxes paid duringthe previous two years and projected future taxable income in making thisassessment. Based upon the level of historical taxable income and projectionsfor future taxable income over the periods in which the temporary differencesare deductible, management has determined that no valuation allowance wasrequired at January 31, 2004 and January 29, 2005.

 

F-18

----

 

Prior toJanuary 29, 2005 the Company filed a request with the Internal Revenue Serviceto change its tax return method of accounting for inventory to the retailmethod from the lower of first-in first-out, cost or market. If the Company andthe Internal Revenue Service agree upon the terms and conditions under whichsuch change is to be effected, the impact on the Company’s tax position wouldbe to decrease taxes currently payable and increase deferred taxliabilities.  The Company expects toreceive additional current tax deductions under the retail method for taxpurposes.

 

**9.  BENEFIT PLANS:**

 

**Defined Benefit Pension & Post-Retirement Plans**—The Company maintains a noncontributory definedbenefit pension plan and a post-retirement benefit plan which cover certainunion employees. The annual contributions are not less than the minimum fundingstandards set forth in the Employee Retirement Income Security Act of 1974, asamended. The plans provide for eligible employees to receive benefits basedprincipally on years of service with the Company. The Company does not pre-fundthe benefits from the post-retirement benefit plan. The Company records theexpected cost of these benefits as expense during the years that employeesrender service.

 

Thefollowing table sets forth the plans’ benefit obligations, fair value of planassets, and funded status at December 31, 2003 and 2004: 

 
| ** **                                                       | ** ** | **Pension benefits** | ** ** | **Postretirement  benefits** | ** ** |
|------------------------------------------------------------------|------------|----------------------|------------|------------------------------|------------|
| ** **                                                       | ** ** | **2003**             | ** ** | **2004**                     | ** ** | **2003** | ** ** | **2004** | ** ** |
|                                                             |       |                 |       |                         |       |   |   |   |   |
| Projected benefit obligation                                     |       | $                    | 401        |                         | $          | 449 |   | $ | 242 |   | $ | 326 |   |
| Fair value of plan assets                                        |       | 358                  |       | 450                          |       | — |   | — |   |
| Funded status                                                    |       | $                    | (43        | )                            | $          | 1 |   | $ | (242 | ) | $ | (326 | ) |
|                                                             |       |                 |       |                         |       |   |   |   |   |   |   |
| Accrued (prepaid) benefit cost recognized  in the balance sheets |       | $                    | 95         |                         | $          | (246 | ) | $ | 495 |   | $ | 510 |   |

 

Weighted-averagediscount rate assumption used to determine benefit obligations as ofDecember 31, 2003 and 2004 were 6.00% and 6.00%, respectively. Weighted-averageassumptions used to determine net cost for fiscal 2003 and 2004 includeddiscount rate of 6.75% and 6.00%, respectively, and return on plan assetsassumption of 8.0% for both years.

 

TheCompany’s overall expected long-term rate of return on assets is eight percent.Plan assets of the Company’s pension benefits as of December 31, 2003 andDecember 31, 2004 consisted primarily of balanced mutual funds and short-terminvestment funds.

 

Pension expenserecognized in the Company’s statements of income for fiscal 2002, 2003 and 2004was $22, $49 and $46, respectively. The Company contributed $61 and $44 infiscal 2003 and fiscal 2004, respectively, to the pension plan. The Companydoes not expect to be required to contribute significant amounts of cash infiscal 2005 to the pension plan.

 

**Profit Sharing Plan**—The Company maintains a defined contribution 401(k) profit sharing planfor its employees. All non-union and certain union employees are eligible to participate at the beginningof the month after 90 days of service. Employee contributions to the planare limited based on applicable sections of the Internal Revenue Code. TheCompany’s contribution to the 401(k) plan is discretionary based on achievingcertain earnings per share goals. Amounts expensed by the Company related tothe plan were approximately $414, $434 and $456 for fiscal 2002, 2003, and2004, respectively.

 

**Deferred Compensation Plan**—The Company also maintains a non-qualifieddeferred compensation plan designed to provide certain highly- compensatedemployees with retirement benefits. All assets of the plan are fully subject tothe Company’s creditors. There were no contributions by the Company for fiscal2002, 2003 and 2004. Included in the Company’s Consolidated Balance Sheets isan equal asset and liability of $337 at January 31, 2004 and $563 atJanuary 29, 2005.

 

F-19

----

 

**10.  COMMITMENTS AND CONTINGENCIES:**

 

**Litigation**—Lawsuitsand claims are filed from time to time against the Company in its ordinarycourse of business. Management, after reviewing developments to date with legalcounsel, is of the opinion that the outcome of such matters will not have amaterial adverse effect on the Company’s net assets, results of operations orthe accompanying consolidated financial statements taken as a whole.

 

OnSeptember 15, 2004, the Company disclosed that it entered into an agreementwith the New York State Attorney General to comply with applicable lawregarding its advertising practices in New York and to pay the amount of$475.  The Company recorded $475 as ageneral and administrative expense in its Statement of Income in fiscal2004.  The $475 was also paid in fiscal2004.

 

**Employment Agreements**—The Company has employment agreements with certain of its executivesexpiring at various points through January 2009, aggregating basecompensation of $6,921 (not including annual adjustments) over the terms. Theseexecutives would also be entitled to aggregate severance ranging fromapproximately $3,254 to $3,554 (not including annual adjustments) depending onthe circumstances of termination. The contracts also provide for additionalincentive payments subject to performance standards. In addition, otheremployees are eligible for incentive payments based on performance. The Companyexpensed approximately $3,840, $4,616 and $4,765 for incentive compensation forall eligible employees in fiscal 2002, 2003 and 2004, respectively.

 

**Lease Obligations**—The Company has numerous noncancelable operating leases for retailstores, certain tailoring space and equipment. Certain facility leases providefor annual base minimum rentals plus contingent rentals based on sales. Renewaloptions are available under the majority of the leases.

 

Futureminimum lease payments, including rent escalations, under noncancelableoperating leases for stores opened and equipment placed in service as ofJanuary 29, 2005, were as follows:

 
| **Fiscal  Year** | ** ** | **Amount** | ** ** |
|------------------|------------|------------|------------|
|             |       |       |       |
| 2005             |       | $          | 31,204     |   |
| 2006             |       | 30,137     |       |
| 2007             |       | 28,872     |       |
| 2008             |       | 26,594     |       |
| 2009             |       | 23,673     |       |
| Thereafter       |       | 81,177     |       |
| Total            |       | $          | 221,657    |   |

 

Theminimum rentals above do not include additional payments for percentage rent,insurance, property taxes and maintenance costs that may be due as provided forin the leases. Many of the noncancelable operating leases include scheduledrent escalations.

 

Totalrental expense for operating leases, including contingent rentals, wasapproximately $16,427, $19,779 and $25,680 for fiscal 2002, 2003 and 2004,respectively.  Contingent rent expense infiscal 2002, 2003 and 2004, which are based on a percentage of net sales, wasapproximately $612, $1,107 and $1,534, respectively.

 

As ofJanuary 29, 2005, the Company has also entered into various leaseagreements for stores to be opened and equipment placed in service subsequentto year end. The future minimum lease payments under these agreements were $1,074in fiscal 2005, $1,785 in fiscal 2006, $1,926 in fiscal 2007, $1,957 in fiscal2008, $1,965 in fiscal 2009 and $11,882 thereafter.

 

F-20

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**Inventories**—TheCompany ordinarily places orders for the purchases of inventory at least one totwo seasons in advance. In addition, the Company agreed to purchaseapproximately $9,000 of raw material from a supplier through fiscal 2004 at aspecified price, of which approximately $400 of the commitment extended into2005; however the amount of the commitment did not change. In fiscal 2004, theCompany purchased approximately 29% of its finished product through an agentwho sources the products from various vendors that are principally concentratedin Asia.  In addition, the Companypurchased approximately 18% of its finished product from companies concentratedin Mexico.

 

**Other**—TheCompany has an agreement with David Leadbetter, a golf professional, whichallows the Company to produce golf and other apparel under Leadbetter’s name,which expires in January 2011. The minimum annual commitment under thisagreement through fiscal 2005 is $150 and represents the amount paid in each offiscal 2002, 2003 and 2004.  Beginning infiscal 2006 through fiscal 2010 the minimum annual commitment is $165.

 

**11.  INCENTIVE STOCK OPTION PLAN:**

 

EffectiveJanuary 28, 1994, the Company adopted an Incentive Plan (“the 1994 Plan”).The 1994 Plan generally provides for the granting of stock, stock options,stock appreciation rights, restricted shares or any combination of theforegoing to the eligible participants, as defined for issuance of up to 1,791shares of common stock in the aggregate of which all had been granted as ofJanuary 29, 2005.  On September 14,1999, the Company adopted an Incentive Plan (“the 1999 Plan”) which providesfor the issuance of up to 1,125 shares of common stock in the aggregate ofwhich all had been granted as of January 29, 2005.  In March 2002, the Company adopted anIncentive Plan (“the 2002 Plan”) which provides for the issuance of up to 750shares of common stock in the aggregate. As of January 29, 2005, therewere 35 additional shares available for grant under the 2002 Plan.  The exercise price of an option granted underboth the 1994 Plan and the 2002 Plan may not be less than the fair market valueof the underlying shares of Common Stock on the date of grant and employeeoptions expire at the earlier of termination of employment or ten years fromthe date of grant. All options covered under both the 1994 Plan and the 2002Plan vest in full upon a change of control of the Company.

 

Theaggregate number of shares of Common Stock as to which awards may be grantedunder any of the Company’s Option Plans, the number of shares of Common Stockcovered by each outstanding award under the Option Plans and the price pershare of Common Stock in each outstanding award, shall all be proportionatelyadjusted for any increase or decrease in the number of issued shares of CommonStock resulting from a subdivision or consolidation of shares or other capitaladjustment, or the payment of a stock dividend or other increase or decrease insuch shares, effected without receipt of consideration by the Company, or otherchange in corporate or capital structure; provided, however, that anyfractional shares resulting from any such adjustment shall be eliminated.

 

Changes in options outstanding were asfollows: 

 
| ** **                       | ** ** | **Fiscal 2002** | ** ** | **Fiscal 2003**                        | ** ** | **Fiscal 2004** | ** ** |
|----------------------------------|------------|-----------------|------------|----------------------------------------|------------|-----------------|------------|
| ** **                       | ** ** | **Shares**      | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Shares**      | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|                             |       |            |       |                                   |       |            |       |   |   |   |   |   |   |
| Outstanding at beginning of year |       | 2,549           |       | $                                      | 2.55       |            | 2,649      |   | $ | 3.16 |   | 1,660 |   | $ | 8.97 |   |
| Granted                          |       | 550             |       | $                                      | 6.63       |            | 659        |   | $ | 16.81 |   | 29 |   | $ | 27.02 |   |
| Exercised                        |       | (450            | )          | $                                      | 3.99       |            | (1,563     | ) | $ | 2.23 |   | (277 | ) | $ | 3.63 |   |
| Canceled                         |       | —          |       | —                                 |       | (85             | )          | $ | 12.35 |   | (6 | ) | $ | 12.35 |   |
| Outstanding at end of year       |       | 2,649           |       | $                                      | 3.16       |            | 1,660      |   | $ | 8.97 |   | 1,406 |   | $ | 10.27 |   |

 

Optionsexercised in fiscal 2004 resulted in an increase of $3,424 in stockholders’equity, consisting of $1,168 of cash proceeds and $2,256 of tax benefit,related to compensation deductions for income tax purposes.

 

F-21

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Thefollowing table summarizes information about stock options outstanding andexercisable as of January 29, 2005: 

 
| ** **                   | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**                           | ** ** |
|------------------------------|------------|-------------------------|------------|---------------------------------------------------|------------|
| **Range of Exercise Prices** | ** ** | **Number  Outstanding** | ** ** | **Weighted Average  Remaining  Contractual Life** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Number  Exercisable** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|                         |       |                    |       |                                              |       |   |   |   |   |   |   |
| $1.60-$2.20                  |       | 154                     |       | 3.22                                              |       | $ | 1.90 |   | 154 |   | $ | 1.90 |   |
| $2.53-$3.50                  |       | 202                     |       | 5.53                                              |       | $ | 2.83 |   | 202 |   | $ | 3.56 |   |
| $5.73-$7.94                  |       | 480                     |       | 7.37                                              |       | $ | 6.61 |   | 480 |   | $ | 6.61 |   |
| $12.35-$12.35                |       | 263                     |       | 8.23                                              |       | $ | 12.35 |   | 168 |   | $ | 12.35 |   |
| $20.52-$20.73                |       | 90                      |       | 8.94                                              |       | $ | 20.54 |   | 90 |   | $ | 20.54 |   |
| $24.08-$24.44                |       | 193                     |       | 8.82                                              |       | $ | 24.09 |   | 193 |   | $ | 24.09 |   |
| $27.62-$27.62                |       | 24                      |       | 9.74                                              |       | $ | 27.62 |   | 24 |   | $ | 27.62 |   |
|                         |       | 1,406                   |       |                                              |       |   |   | 1,311 |   |   |   |

 

In fiscal 2003, the Companygranted certain stock options (the “Contingent Options”) at an exercise price(dividend-adjusted) of $12.35, the vesting of which was contingent on thegrantees meeting annual goals as stated in the option agreements.  Due to the contingent vesting mechanism, theCompany concluded that variable plan accounting was proper in accordance withSFAS No. 123.  Accordingly, the Companyrecorded $230 of compensation expense relating to the Contingent Options.  The expense was recorded from the date ofgrant to the date the Contingent Options were cancelled in 2003.  Since the Contingent Options were cancelledin 2003, no future expense is required.

 

**12.  RIGHTS OFFERING:**

 

TheCompany maintains a Stockholder Rights Plan in which preferred stock purchaserights were distributed as a dividend at the rate of one Right for each shareof the Company’s outstanding Common Stock held as of the close of business onSeptember 30, 1997.  As of April 8,2005 there were 13,467 stock purchase rights outstanding under the StockholderRights Plan, one for each outstanding share of the Company’s common stock.  Each Right will entitle stockholders to buyone one-hundredth of a share of the newly designated Series A PreferredStock of Jos. A. Bank at an exercise price of $40. The Rights will beexercisable only if a person or group acquires beneficial ownership of20 percent or more of the Company’s outstanding Common Stock (without theapproval of the board of directors) or commences a tender or exchange offerupon consummation of which a person or group would beneficially own20 percent or more of the Company’s outstanding Common Stock.

 

If anyperson becomes the beneficial owner of 20 percent or more of the Company’soutstanding common stock (without the approval of the board of directors), orif a holder of 20 percent or more of the Company’s Common Stock engaged incertain self-dealing transactions or a merger transaction in which the Companyis the surviving corporation and its Common Stock remains outstanding, then eachRight not owned by such person or certain related parties will entitle itsholder to purchase, at the Right’s then-current exercise price, units of theCompany’s Series A Preferred Stock (or, in certain circumstances, CommonStock, cash, property or other securities of the Company) having a market valueequal to twice the then-current exercise price of the Rights. In addition, ifthe Company is involved in a merger or other business combination transactionwith another person after which its Common Stock does not remain outstanding,or sells 50 percent or more of its assets or earning power to anotherperson, each Right will entitle its holder to purchase, at the Right’sthen-current exercise price, shares of common stock of such other person havinga market value equal to twice the then-current exercise price of theRights.  The Company will generally beentitled to redeem the Rights at $0.01 per Right at any time until the tenthbusiness day following the public announcement that a person or group hasacquired 20 percent or more of the Company’s Common Stock.

 

F-22

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**13.  SEGMENT REPORTING:**

 

TheCompany has two reportable segments: stores and direct marketing. The storessegment includes all Company owned stores excluding factory stores. The directmarketing segment includes catalog and internet.  While each segment offers a similar mix ofmen’s clothing to the retail customer, the stores also provide complete alterationsand the direct marketing segment provides certain alterations.

 

Theaccounting policies of the segments are the same as those described in thesummary of significant policies. The Company evaluates performance of thesegments based on “four wall” contribution which excludes any allocation of “managementcompany” costs, distribution center costs (except order fulfillment costs whichare allocated to direct marketing), interest and income taxes.

 

TheCompany’s segments are strategic business units that offer similar products tothe retail customer by two distinctively different methods. In stores thetypical customer travels to the store and purchases men’s clothing and/oralterations and takes their purchases with them. The catalog/direct marketingcustomer receives a catalog in his or her home, office and/or visits our webpage via the internet and either calls, mails, faxes or places an order online.The merchandise is then shipped to the customer.

 

Segment data as restated for the change inlease accounting described in Note 2 is presented in the following table: 

 
| **Fiscal  2002 (as restated)** | ** ** | **Stores** | ** ** | **Direct  Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
|--------------------------------|------------|------------|------------|-----------------------|------------|-----------|------------|-----------|------------|
|                           |       |       |       |                  |       |      |       |      |       |
| Net sales(a)                   |       | $          | 206,100    |                  | $          | 28,290    |       | $         | 9,046      |   | $ | 243,436 |   |
| Depreciation and amortization  |       | 5,149      |       | 63                    |       | 1,480     |       | 6,692     |       |
| Operating income(b)            |       | 39,271     |       | 7,460                 |       | (27,155   | )          | 19,576    |       |
| Interest expense, net          |       | —     |       | —                |       | 1,098     |       | 1,098     |       |
| Total assets(c)                |       | 117,284    |       | 13,040                |       | 15,680    |       | 146,004   |       |
| Capital expenditures(d)        |       | 11,001     |       | 14                    |       | 3,120     |       | 14,135    |       |
|                                |            |            |            |                       |            |           |            |           |            |  |  |  |  |

 
| **Fiscal  2003 (as restated)** | ** ** | **Stores** | ** ** | **Direct  Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
|--------------------------------|------------|------------|------------|-----------------------|------------|-----------|------------|-----------|------------|
|                           |       |       |       |                  |       |      |       |      |       |
| Net sales(a)                   |       | $          | 257,365    |                  | $          | 32,229    |       | $         | 10,069     |   | $ | 299,663 |   |
| Depreciation and amortization  |       | 6,863      |       | 65                    |       | 2,454     |       | 9,382     |       |
| Operating income(b)            |       | 54,683     |       | 9,524                 |       | (34,231   | )          | 29,976    |       |
| Interest expense, net          |       | —     |       | —                |       | 1,623     |       | 1,623     |       |
| Total assets(c)                |       | 162,162    |       | 24,116                |       | 14,367    |       | 200,645   |       |
| Capital expenditures(d)        |       | 21,108     |       | 41                    |       | 2,096     |       | 23,245    |       |
|                                |            |            |            |                       |            |           |            |           |            |  |  |  |  |

 
| **Fiscal  2004**              | ** ** | **Stores** | ** ** | **Direct Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
|-------------------------------|------------|------------|------------|----------------------|------------|-----------|------------|-----------|------------|
|                          |       |       |       |                 |       |      |       |      |       |
| Net sales(a)                  |       | $          | 322,266    |                 | $          | 39,551    |       | $         | 10,683     |   | $ | 372,500 |   |
| Depreciation and amortization |       | 8,720      |       | 69                   |       | 1,709     |       | 10,498    |       |
| Operating income(b)           |       | 69,342     |       | 12,449               |       | (39,738   | )          | 42,053    |       |
| Interest expense, net         |       | —     |       | —               |       | 1,696     |       | 1,696     |       |
| Total assets(c)               |       | 196,414    |       | 18,664               |       | 16,752    |       | 231,830   |       |
| Capital expenditures(d)       |       | 25,056     |       | 18                   |       | 4,865     |       | 29,939    |       |
|                               |            |            |            |                      |            |           |            |           |            |  |  |  |  |

 

F-23

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(a)           Direct marketing net sales represent catalog andinternet sales including catalog orders placed in new stores. Net sales fromsegments below the quantitative thresholds are attributable primarily to threeoperating segments of the Company. Those segments are factory stores, sales tofranchisees franchise stores and regional tailor shops. None of these segmentshave ever met any of the quantitative thresholds for determining reportablesegments and are included in “Other”.

 

(b)           Operating income for Stores and Direct Marketingsegments represents profit before allocations of overhead from the corporateoffice and the distribution center (which are included in the “Other” segment),interest and income taxes. Total Operating Income represents profit beforeinterest and income taxes.

 

(c)           Identifiable assets include cash and cashequivalents, accounts receivable, inventories, prepaid expenses and othercurrent assets and property, plant and equipment residing in or related to thereportable segment. Assets included in “Other” are primarily cash and cashequivalents, property, plant and equipment associated with the corporate officeand distribution center, deferred tax assets, and inventories, which have notbeen assigned to one of the reportable segments.

 

(d)           Capital expenditures include purchases ofproperty, plant and equipment made for the reportable segment.

 

F-24

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**14.  QUARTERLY FINANCIAL INFORMATION (Unaudited):**

 

Summarizedquarterly financial information in fiscal 2003 and 2004 restated for theCompany’s revisions to its lease accounting practices as discussed in Note 2herein is as follows:

 
| ** **                                                | ** ** | **FIRST  QUARTER**                           | ** ** | **SECOND  QUARTER** | ** ** | **THIRD  QUARTER** | ** ** | **FOURTH  QUARTER** | ** ** | **TOTAL** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|-----------|------------|
| ** **                                                |       | **(In Thousands, Except Per Share Amounts)** |       |
| **FISCAL 2003**                                           |       |                                         |       |                |       |               |       |                |       |      |       |
| Net sales (no change)                                     |       | $                                            | 62,272     |                | $          | 64,442             |       | $                   | 72,011     |      | $          | 100,938 |   | $ | 299,663 |   |
| Gross profit (no change)                                  |       | 35,600                                       |       | 35,602              |       | 41,105             |       | 59,992              |       | 172,299   |       |
| Operating income (as previously reported)                 |       | 4,077                                        |       | 3,786               |       | 5,502              |       | 17,142              |       | 30,507    |       |
| Operating income (as restated)                            |       | 3,986                                        |       | 3,664               |       | 5,222              |       | 17,104              |       | 29,976    |       |
| Net income (as previously reported)                       |       | 2,174                                        |       | 1,986               |       | 2,863              |       | 9,580               |       | 16,603    |       |
| Net income (as restated)                                  |       | 2,118                                        |       | 1,912               |       | 2,693              |       | 9,557               |       | 16,280    |       |
| Diluted income per common share (as  previously reported) |       | $                                            | 0.16       |                | $          | 0.14               |       | $                   | 0.20       |      | $          | 0.68 |   | $ | 1.20 |   |
| Diluted income per common share (as  restated)            |       | $                                            | 0.16       |                | $          | 0.14               |       | $                   | 0.19       |      | $          | 0.68 |   | $ | 1.17 |   |
|                                                      |       |                                         |       |                |       |               |       |                |       |      |       |
| **FISCAL 2004**                                           |       |                                         |       |                |       |               |       |                |       |      |       |
| Net sales (no change)                                     |       | $                                            | 79,929     |                | $          | 81,994             |       | $                   | 82,634     |      | $          | 127,943 |   | $ | 372,500 |   |
| Gross profit (no change)                                  |       | 49,035                                       |       | 49,111              |       | 48,540             |       | 78,140              |       | 224,826   |       |
| Operating income (as previously reported)                 |       | 9,569                                        |       | 6,578               |       | 5,492              |       |                | (a)        |      | (a)        |
| Operating income (as restated)                            |       | 9,463                                        |       | 6,418               |       | 5,142              |       | 21,030              |       | 42,053    |       |
| Net income (as previously reported)                       |       | 5,335                                        |       | 3,529               |       | 3,414              |       |                | (a)        |      | (a)        |
| Net income (as restated)                                  |       | 5,271                                        |       | 3,432               |       | 3,202              |       | 12,576              |       | 24,481    |       |
| Diluted income per common share (as  previously reported) |       | $                                            | 0.38       |                | $          | 0.25               |       | $                   | 0.24       |      |       | (a) |   | (a) |
| Diluted income per common share (as  restated)            |       | $                                            | 0.37       |                | $          | 0.24               |       | $                   | 0.22       |      | $          | 0.88 |   | $ | 1.72 |   |

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(a)  Amounts for the fourthquarter and fiscal year 2004 were not previously reported.

 

F-25

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