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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 29, 2000 OR
[ ] 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 0-20036
THE MEN'S WEARHOUSE, INC.
(Exact name of Registrant as Specified in its Charter)
TEXAS 74-1790172
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
5803 GLENMONT DRIVE
HOUSTON, TEXAS 77081-1701
(Address of Principal Executive Offices) (Zip Code)
(713) 592-7200
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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NONE
Securities Registered Pursuant to Section 12(g) of the Act: COMMON STOCK, PAR
VALUE $.01 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the closing price of shares of common stock on the
NASDAQ National Market System on April 24, 2000, was approximately $692.4
million.
The number of shares of common stock of the Registrant outstanding on April
24, 2000 was 41,131,259, excluding 161,746 shares classified as Treasury Stock.
In addition, there were 683,605 Exchangeable Shares outstanding at April 24,
2000.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT INCORPORATED AS TO
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Notice and Proxy Statement for the Annual Meeting Part III: Items 10, 11, 12 and 13
of
Shareholders scheduled to be held June 21,
2000.
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FORM 10-K REPORT INDEX
10-K PART AND ITEM NO. PAGE NO.
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 7
Item 3. Legal Proceedings........................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......... 9
PART II
Item 5. Market for the Company's Common Equity and Related
Stockholder Matters......................................... 10
Item 6. Selected Financial Data..................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 12
Item 7A Quantitative and Qualitative Disclosures About Market
Risk........................................................ 18
Item 8. Financial Statements and Supplementary Data................. 19
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 38
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 38
Item 11. Executive Compensation...................................... 38
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 38
Item 13. Certain Relationships and Related Transactions.............. 38
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 38
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PART I
ITEM 1. BUSINESS
GENERAL
The Men's Wearhouse began operations in 1973 as a partnership and was
incorporated as The Men's Wearhouse, Inc. (the "Company") under the laws of
Texas in May 1974. Our principal corporate and executive offices are located at
5803 Glenmont Drive, Houston, Texas 77081-1701 (telephone number 713/592-7200),
and at 40650 Encyclopedia Circle, Fremont, California 94538-2453 (telephone
number 510/657-9821), respectively.
THE COMPANY
We are one of the largest specialty retailers of menswear in the United
States and Canada. At January 29, 2000, our U.S. operations included 501 stores
in 42 states and the District of Columbia, primarily operating under the brand
names of Men's Wearhouse and K&G, with approximately 28% of our locations in
Texas and California. At January 29, 2000, our Canadian operations included 113
stores in 10 provinces operating under the brand name of Moores.
Men's Wearhouse
Under the Men's Wearhouse brand, we target middle and upper middle income
men by offering quality merchandise at everyday low prices. In addition to
value, we provide a superior level of customer service. Men's Wearhouse stores
offer a broad selection of designer, brand name and private label merchandise at
prices we believe are typically 20% to 30% below the regular prices found at
traditional department and specialty stores. Our merchandise includes suits,
sport coats, slacks, business casual, sportswear, outerwear, dress shirts, shoes
and accessories. We concentrate on business attire that is characterized by
infrequent and more predictable fashion changes. Therefore, we believe we are
not as exposed to trends typical of more fashion-forward apparel retailers,
where significant markdowns and promotional pricing are more common. At January
29, 2000, we operated 450 Men's Wearhouse stores in 42 states and the District
of Columbia. These stores are referred to as "Men's Wearhouse stores" or
"traditional stores".
We also began a tuxedo rental program in selected Men's Wearhouse stores
during the year. We believe this program generates incremental business for us
without significant incremental personnel or real estate costs and broadens our
customer base by drawing first-time and younger customers into our stores. At
the end of fiscal 1999, we offered tuxedo rentals in 43 Men's Wearhouse stores.
K&G
Under the K&G brand, we target the more price sensitive customer. The K&G
brand was acquired as a result of our combination with K&G Men's Center, Inc.
("K&G Inc.") in June 1999 in a transaction accounted for as a pooling of
interests (see Note 2 of Notes to Consolidated Financial Statements). Under the
terms of the combination with K&G Inc., we issued 4.4 million shares of our
common stock in exchange for 10.3 million shares of K&G Inc. common stock based
on an exchange ratio of 0.43. K&G operated 34 stores at the time of the
combination. Prior to the combination, our Value Priced Clothing ("VPC")
subsidiary targeted the market for the more price sensitive customer with 20
stores in five states operating under the names "C&R", "SuitMax" and "Suit
Warehouse". The four C&R stores were closed in early 1999 as had been previously
planned. Following the combination, ten SuitMax stores were transferred and
renamed to operate under the K&G brand, while four SuitMax stores (and one K&G
Inc. store) that represented duplicative store sites were closed. At January 29,
2000, we operated 47 K&G stores in 18 states and, through VPC, the four Suit
Warehouse stores in metropolitan Detroit.
We believe that K&G's more basic, value-oriented superstore approach
appeals to certain customers in the menswear market. K&G offers first-quality,
current-season men's apparel and accessories comparable in quality to that of
traditional department and fine specialty stores, at everyday low prices we
believe are
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typically 30% to 70% below the regular prices charged by such stores. K&G's
merchandising strategy emphasizes broad and deep assortments across all major
menswear categories, including tailored clothing, casual sportswear, dress
furnishings, footwear and accessories. This merchandise selection, which
includes brand name as well as private label merchandise, positions K&G to
attract a wide range of menswear customers in each of its markets. As with the
Men's Wearhouse brand, K&G's philosophy of delivering everyday value
distinguishes K&G from other retailers that adopt a more promotional pricing
strategy.
Moores
On February 10, 1999, we combined with Moores Retail Group Inc. ("Moores"),
a privately owned Canadian corporation, in exchange for securities
("Exchangeable Shares") exchangeable for 2.5 million shares of our common stock
(see Note 2 of Notes to Consolidated Financial Statements). Moores is one of
Canada's leading specialty retailers of menswear, with 113 stores in ten
Canadian provinces at January 29, 2000. Moores focuses on conservative, basic
tailored apparel. This limits exposure to changes in fashion trends and the need
for significant markdowns. Approximately 60% of Moores' merchandise consists of
men's tailored clothing. The remaining 40% includes dress shirts, sportswear,
outerwear and accessories. Moores typically offers a full assortment of suits
and sport coats with prices of suits generally ranging from Can$149 to Can$299.
At the time of its combination with the Company, Moores also operated eight
stores in the United States. These stores were closed in order to eliminate
duplicate store sites in existing Men's Wearhouse markets.
Moores distinguishes itself from other Canadian retailers of menswear by
manufacturing a significant portion of the tailored clothing for sale in its
stores. Moores conducts its manufacturing operations through its wholly owned
subsidiary, Golden Brand Clothing (Canada) Ltd. ("Golden Brand"), which is the
second largest manufacturer of men's suits and sport coats in Canada. Golden
Brand's manufacturing facility in Montreal, Quebec, includes a cutting room,
fusing department, pant shop and coat shop. At full capacity, the coat shop can
produce 12,000 units per week and the pant shop can produce 25,000 units per
week. As a result of the vertical integration and the related cost savings,
Moores is able to provide greater value to its customer by offering a broad
selection of quality merchandise at everyday low prices, which the Company
believes typically range from 20% to 30% below the regular prices charged by
traditional Canadian department and specialty stores. Beginning in 1999, Golden
Brand also manufactures product for Men's Wearhouse stores.
EXPANSION STRATEGY
Our expansion strategy includes:
- opening additional Men's Wearhouse and K&G stores in new and existing
markets,
- increasing the size of certain existing Men's Wearhouse stores,
- expanding our tuxedo rental program to additional Men's Wearhouse stores,
- launching an enhanced and expanded internet presence for e-commerce,
- expanding our distribution facility with a new center to handle tuxedo
rental and e-commerce fulfillment,
- identifying strategic acquisition opportunities, and
- testing expanded merchandise categories in selected stores.
In general terms, we consider a geographic area served by a common group of
television stations as a single market.
On a limited basis, we have acquired store locations, inventories, customer
lists, trademarks and tradenames from existing menswear retailers in both new
and existing markets. We may do so again in the future. At present, we plan to
open an additional 35 new Men's Wearhouse stores and 10 new K&G stores in 2000,
to close approximately two Men's Wearhouse stores and one K&G store in 2000, to
expand and relocate
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approximately 36 existing Men's Wearhouse stores and to continue expansion in
subsequent years. We believe that our ability to increase the number of
traditional stores in the United States above 525 will be limited. However, we
believe that additional growth opportunities exist through selectively expanding
existing stores, improving and diversifying the merchandise mix, relocating
stores and expanding our K&G brand.
MERCHANDISING
Our stores offer a broad selection of designer, brand name and private
label men's business attire, including a consistent stock of core items (such as
navy blazers, tuxedos and basic suits). Although basic styles are emphasized,
each season's merchandise reflects current fabric and color trends, and a small
percentage of inventory, accessories in particular, are usually more fashion
oriented. The broad merchandise selection creates increased sales opportunities
by permitting a customer to purchase substantially all of his tailored wardrobe
and accessory requirements, including shoes, at our stores. Within our tailored
clothing, we offer an assortment of styles from a variety of manufacturers and
maintain a broad selection of fabrics and colors. We believe that the depth of
selection offered provides us with an advantage over most of our competitors.
The Company's inventory mix includes "business casual" merchandise designed
to meet increased demand for such product resulting from the trend toward more
relaxed dress codes in the workplace. This merchandise consists of tailored and
non-tailored clothing (sport coats, casual slacks, knits and woven sports
shirts, sweaters and casual shoes) that complements the existing product mix and
provides opportunity for enhanced sales without significant inventory risk.
We do not purchase significant quantities of merchandise overruns or
close-outs. We provide recognizable quality merchandise at consistent prices
that assist the customer in identifying the value available at our stores. We
believe that the merchandise at Men's Wearhouse and Moores stores is generally
offered 20% to 30% below traditional department and specialty store regular
prices and that merchandise at K&G stores is generally 30% to 70% below retail
prices typically charged by such stores. A ticket is affixed to each item, which
displays our selling price alongside the price we regard as the regular retail
price of the item. At the checkout counter, the customer's receipt reflects the
savings from what we consider the regular retail price.
By targeting men's business attire, a category of men's clothing
characterized by infrequent and more predictable fashion changes, we believe we
are not as exposed to trends typical of more fashion-forward apparel retailers.
This allows us to carry basic merchandise over to the following season and
reduces the need for markdowns; for example, a navy blazer or gray business suit
may be carried over to the next season. Our Men's Wearhouse and Moores stores
have a once-a-year sale after Christmas that runs through the month of January,
during which prices on many items are reduced 20% to 50% off the everyday low
prices. This sale reduces stock at year-end and prepares for the arrival of the
new season's merchandise.
During 1997, 1998 and 1999, 67.6%, 65.5% and 62.2%, respectively, of our
total net sales were attributable to tailored clothing (suits, sport coats and
slacks) and 32.4%, 34.5% and 37.8%, respectively, were attributable to casual
attire, sportswear, shoes, shirts, ties, outerwear and other accessories.
In addition to accepting cash, checks or nationally recognized credit
cards, beginning in October 1998 we started offering our own private label
credit card to Men's Wearhouse customers. We have contracted with a third-party
vendor to provide all necessary servicing, processing and to assume all credit
risks associated with our private label credit card program. We believe that the
private label credit card provides us with an important tool for targeted
marketing and presents an excellent opportunity to communicate with our
customers. During 1999, our customers used the private label credit card for
approximately 10% of our sales.
CUSTOMER SERVICE AND MARKETING
The Men's Wearhouse and Moores sales personnel are trained as clothing
consultants to provide customers with assistance and advice on their apparel
needs, including product style, color coordination, fabric and garment fit. For
example, clothing consultants at Men's Wearhouse stores attend an intensive
training program at our training facility in Fremont, California, which is
further supplemented with weekly store
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meetings, periodic merchandise meetings and frequent interaction with multi-unit
managers and merchandise managers.
We encourage our clothing consultants to be friendly and knowledgeable and
to promptly greet each customer entering the store. Consultants are encouraged
to offer guidance to the customer at each stage of the decision-making process,
making every effort to earn the customer's confidence and to create a
professional relationship that will continue beyond the initial visit. Clothing
consultants are also encouraged to contact customers after the purchase or
pick-up of tailored clothing to determine whether customers are satisfied with
their purchases and, if necessary, to take corrective action. Store personnel
have full authority to respond to customer complaints and reasonable requests,
including the approval of returns, exchanges, refunds, re-alterations and other
special requests, all of which we believe helps promote customer satisfaction
and loyalty.
K&G stores are designed to allow customers to select and purchase apparel
by themselves. For example, each merchandise category is clearly marked and
organized by size, and suits are specially tagged "Athletic Fit,"
"Double-Breasted," "Three Button," etc., as a means of further assisting
customers to easily select their styles and sizes. K&G employees assist
customers with merchandise selection, including correct sizing.
Each of our stores provides on-site tailoring services to facilitate timely
alterations at a reasonable cost to customers. Tailored clothing purchased at a
Men's Wearhouse store will be pressed and re-altered (if the alterations were
performed at a Men's Wearhouse store) free of charge for the life of the
garment.
Because management believes that men prefer direct and easy store access,
we attempt to locate our stores in neighborhood strip and specialty retail
centers or in freestanding buildings to enable customers to park near the
entrance of the store.
Our total annual advertising expenditures, which were $53.3 million, $60.8
million and $64.5 million in 1997, 1998 and 1999, respectively, are significant.
The Company advertises principally on television and radio, which we consider
the most effective means of attracting and reaching potential customers, and our
advertising campaign is designed to reinforce our various brands.
PURCHASING AND DISTRIBUTION
We purchase merchandise from approximately 800 vendors. In 1999, no vendor
accounted for 10% or more of purchases. Management does not believe that the
loss of any vendor would significantly impact us. While we have no material
long-term contracts with our vendors, we believe that we have developed an
excellent relationship with our vendors, which is supported by consistent
purchasing practices.
We believe we obtain favorable buying opportunities relative to many of our
competitors. We do not request cooperative advertising support from
manufacturers, which reduces the manufacturers' costs of doing business and
enables them to offer us lower prices. Further, we believe we obtain better
discounts by entering into purchase arrangements that provide for limited return
policies, although we always retain the right to return goods that are damaged
upon receipt or determined to be improperly manufactured. Finally, volume
purchasing of specifically planned quantities purchased well in advance of the
season enables more efficient production runs by manufacturers, who, in turn,
are provided the opportunity to pass some of the cost savings back to us.
We purchase a significant portion of our inventory through a direct
sourcing program. In addition to finished product, we purchase fabric from mills
and contract with certain factories for the assembly of the finished product to
be sold in our U.S. stores. Arrangements for fabric and assembly have been with
both domestic and foreign mills and factories. Product for stores operating in
the U.S. acquired during 1997, 1998 and 1999 through the direct sourcing program
represented approximately 20%, 23% and 26%, respectively, of total U.S.
inventory purchases. We expect that purchases through the direct sourcing
program will represent approximately 27% of total purchases in 2000. During
1997, 1998 and 1999, our manufacturing operations at Golden Brand provided 54%,
55% and 56%, respectively, of inventory purchases for Moores stores and 2%
during 1999 of inventory purchases for Men's Wearhouse stores (none in 1997 and
1998).
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To protect against currency exchange risks associated with certain firmly
committed and certain other probable, but not firmly committed inventory
transactions denominated in a foreign currency (primarily the Italian lira), we
enter into forward exchange contracts. In addition, many of the purchases from
foreign vendors are financed by letters of credit.
We have entered into license agreements with a limited number of parties
under which we are entitled to use designer labels, such as "Vito Rufolo" and
"Gary Player", and nationally recognized brand labels such as "Botany" and
"Botany 500", in return for royalties paid to the licensor based on the costs of
the relevant product. These license agreements generally limit the use of the
individual label to products of a specific nature (such as men's suits, men's
formal wear or men's shirts). The labels licensed under these agreements will
continue to be used in connection with a portion of the purchases under the
direct sourcing program described above, as well as purchases from other
vendors. We monitor the performance of these licensed labels compared to their
cost and may elect to selectively terminate any license. We have also purchased
several trademarks, including "Cricketeer," "Joseph & Feiss International,"
"Baracuta," and "Country Britches," which are used similarly to our licensed
labels. Because of the continued consolidation in the men's tailored clothing
industry, we may be presented with opportunities to acquire or license other
designer or nationally recognized brand labels.
All merchandise for Men's Wearhouse stores is received into our central
warehouse located in Houston, Texas. Merchandise for a store is picked and then
moved to the appropriate staging area for shipping. In addition to the central
distribution center in Houston, we have additional space within certain Men's
Wearhouse stores in the majority of our markets, which function as
redistribution facilities for their respective areas. Most merchandise for
Moores and K&G stores is direct shipped by vendors to the stores.
We lease and operate 29 long-haul tractors and 58 trailers, which, together
with common carriers, ship merchandise from the vendors to our distribution
facilities and from the distribution facilities to Men's Wearhouse stores within
each market. We also lease or own 55 smaller van-like trucks, which are used to
ship merchandise locally or within a given geographic region.
MANAGEMENT INFORMATION AND TELECOMMUNICATION SYSTEMS
We have aggressively pursued the implementation of technology which
provides the opportunity for competitive advantage and which leverages human
resources. By using sophisticated management information systems, and by
integrating them with highly functional telecommunication systems, we have
effectively managed the operation of our business and inventory while
experiencing substantial growth.
To date, the Company has incurred approximately $2.3 million in
expenditures to address the Year 2000 issue. No significant additional
expenditures are expected. The conversion to the Year 2000 occurred without any
significant impact on the Company's operations and none is anticipated in the
future.
COMPETITION
We believe that the unit demand for men's tailored clothing has declined.
Our primary competitors include specialty men's clothing stores, traditional
department stores, off-price retailers, manufacturer-owned and independently
owned outlet stores and three-day stores. Over the past several years market
conditions have resulted in consolidation of the industry. We believe that the
principal competitive factors in the menswear market are merchandise assortment,
quality, price, garment fit, merchandise presentation, store location and
customer service. We attempt to distinguish ourselves from our competitors by
providing what we believe to be the best features of each competing shopping
alternative.
We believe that strong vendor relationships, our direct sourcing program
and our buying power are the principal factors enabling us to obtain quality
merchandise at attractive prices. We believe that our vendors rely on our
predictable payment record and history of honoring promises, including our
promise not to advertise names of labeled and unlabeled designer merchandise,
when requested. Certain of our competitors (principally department stores) are
larger and have substantially greater financial, marketing and other
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resources than we have and there can be no assurance that we will be able to
compete successfully with them in the future.
SEASONALITY
Like most retailers, our business is subject to seasonal fluctuations.
Historically, over 30% of our net sales and over 45% of our net earnings have
been generated during the fourth quarter of each year. Because of the
seasonality of our business, results for any quarter are not necessarily
indicative of the results that may be achieved for the full year. See Note 9 of
Notes to Consolidated Financial Statements.
TRADEMARKS AND SERVICEMARKS
We are the owner in the United States of the trademark and servicemark,
"The Men's Wearhouse(R)", and of federal registrations therefor expiring in 2009
and 2002, respectively, subject to renewal. We have also been granted
registrations for that trademark and servicemark in 40 states (including Texas
and California) of the 42 states in which we do business and have used those
marks. Applications for the remaining two states have been filed. Our rights in
the "The Men's Wearhouse" mark are a significant part of our business, as the
mark has become well known through our television and radio advertising
campaigns. Accordingly, we intend to maintain our mark and the related
registrations.
We are also the owner in the United States of the servicemarks "The Suit
Warehouse" and The Suit Warehouse and logo, which are tradenames used by the
stores operated by VPC, and "MenSmart" and "K&G", which are tradenames used by
some of the stores operated by K&G. K&G stores operate under the tradenames K&G
Men's Superstore, K&G Men's Center, K&G MenSmart, T&C Men's Center and T&C
MenSmart. We own the registrations for K&G and K&G (stylized). The applications
for the servicemarks "K&G Men's Superstore" and K&G Men's Superstore (and
design) are in process. In addition, we own or license other
trademarks/servicemarks used in the business, principally in connection with the
labeling of product purchased through the direct sourcing program.
We own Canadian trademark registrations for the marks "Moores The Suit
People", "Moores Vetements Pour Hommes" and Moores Vetements Pour Hommes (and
design). Moores stores operate under the tradenames Moores The Suit People and
Moores Clothing for Men. The applications for the servicemarks for "Moores
Clothing for Men" and Moores Clothing for Men (and design) have also been filed.
EMPLOYEES
At January 29, 2000, we had approximately 10,700 employees, of whom
approximately 8,000 were full-time and approximately 2,700 were part-time
employees. Seasonality affects the number of part-time employees as well as the
number of hours worked by full-time and part-time personnel. Approximately 900
of our employees at Golden Brand belong to the Union of Needletrades, Industrial
and Textile Employees. Golden Brand is part of a collective bargaining unit, of
which it is the largest company.
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ITEM 2. PROPERTIES
As of January 29, 2000, we operated 501 stores in 42 states and the
District of Columbia and 113 stores in 10 Canadian provinces. The following
table sets forth the location, by state or province, of these stores:
MEN'S WEARHOUSE K&G/VPC MOORES
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UNITED STATES
California........................................ 84 5
Texas............................................. 44 9
Florida........................................... 31
Illinois.......................................... 22
Michigan.......................................... 19 4
New York.......................................... 19 1
Ohio.............................................. 16 3
Pennsylvania...................................... 16 2
Virginia.......................................... 15 1
Washington........................................ 13 2
Georgia........................................... 12 5
North Carolina.................................... 12 1
Massachusetts..................................... 11 3
Colorado.......................................... 10 2
Minnesota......................................... 10 2
New Jersey........................................ 10 4
Maryland.......................................... 9 3
Arizona........................................... 8
Indiana........................................... 8 1
Tennessee......................................... 8 1
Connecticut....................................... 7
Missouri.......................................... 7
Oregon............................................ 6
Wisconsin......................................... 6
Alabama........................................... 5
Nevada............................................ 5
Utah.............................................. 5
Louisiana......................................... 4 1
South Carolina.................................... 4
Kentucky.......................................... 3
Nebraska.......................................... 3
New Hampshire..................................... 3
Oklahoma.......................................... 3
Kansas............................................ 2 1
New Mexico........................................ 2
Arkansas.......................................... 1
Delaware.......................................... 1
District of Columbia.............................. 1
Idaho............................................. 1
Iowa.............................................. 1
Mississippi....................................... 1
Rhode Island...................................... 1
South Dakota...................................... 1
CANADA
Ontario........................................... 49
Quebec............................................ 23
British Columbia.................................. 14
Alberta........................................... 12
Manitoba.......................................... 5
New Brunswick..................................... 3
Nova Scotia....................................... 3
Saskatchewan...................................... 2
Newfoundland...................................... 1
Prince Edward Island.............................. 1
--- -- ---
Total................................... 450 51 113
=== == ===
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Men's Wearhouse and Moores stores vary in size from approximately 2,800 to
15,100 total square feet (average square footage at January 29, 2000 was 5,238
square feet). Men's Wearhouse and Moores stores are primarily located in middle
and upper middle income neighborhood strip and specialty retail shopping
centers. We believe our customers generally prefer to limit the amount of time
they spend shopping for menswear and seek easily accessible store sites.
Men's Wearhouse and Moores stores are designed to further our strategy of
facilitating sales while making the shopping experience pleasurable. We attempt
to create a specialty store atmosphere in these stores through effective
merchandise presentation and sizing, attractive in-store signs and efficient
checkout procedures. Most of these stores have similar floor plans and
merchandise presentation to facilitate the shopping experience and sales
process. Designer, brand name and private label garments are intermixed, and
emphasis is placed on the fit of the garment rather than on a particular label
or manufacturer. Each store is staffed with clothing consultants and sales
associates and has a tailoring facility with at least one tailor.
K&G stores vary in size from approximately 7,900 to 30,000 total square
feet (average square footage at January 29, 2000 was 17,425 square feet). K&G
stores are "destination" stores located primarily in low-cost warehouses and
secondary strip shopping centers that are easily accessible from major highways
and thoroughfares. K&G has created a 15,000 to 20,000 square foot prototype
superstore with fitting rooms and convenient check-out, customer service and
tailoring areas. K&G stores are organized to convey the impression of a dominant
assortment of first-quality merchandise and to project a no-frills,
value-oriented warehouse atmosphere. Each element of store layout and
merchandise presentation is designed to reinforce K&G's strategy of providing
unparalleled selection and assortment in each category. We seek to make K&G
stores "customer friendly" by utilizing store signage and grouping merchandise
by menswear categories and sizes, with brand name and private label merchandise
intermixed. We also seek to instill a sense of urgency for the customer to
purchase by opening K&G stores for business on Fridays, Saturdays and Sundays
only, except for a limited number of Monday holidays and an expanded schedule
for the holiday season when stores are open every day. Each store is typically
staffed with a manager, assistant manager and other employees who serve as
customer service and sales personnel and cashiers. Each store also has a
tailoring facility with at least one tailor.
We lease our stores on terms generally from five to ten years with renewal
options at higher fixed rates in most cases. Leases typically provide for
percentage rent over sales break points. Additionally, most leases provide for a
base rent as well as "triple net charges", including but not limited to common
area and maintenance expenses, property taxes, utilities, center promotions and
insurance. In certain markets, we lease between 1,000 and 5,000 additional
square feet in a Men's Wearhouse store to be utilized as a redistribution
facility in that geographic area.
We own a 240,000 square foot facility situated on approximately seven acres
of land in Houston, Texas which serves as our principal office, warehouse and
distribution facility. Approximately 65,000 square feet of this facility is used
as office space for our financial, information technology and merchandising
departments with the remaining 175,000 square feet serving as a warehouse and
distribution center. We also own a 150,000 square foot facility, situated on an
adjacent six acres, comprised of approximately 9,000 square feet of office space
and 141,000 square feet serving as a warehouse and distribution center. During
1999, we purchased a 46-acre site in Houston on which we will build additional
new distribution facilities. The first phase of construction of an approximately
380,000 square foot distribution center to support our e-commerce and tuxedo
rental programs, as well as staging for direct sourced merchandise and
out-of-season merchandise, will begin in early 2000.
Our executive offices in Fremont, California are housed in a 35,500 square
foot facility which we own. This facility serves as an office and training
facility.
K&G leases a 100,000 square foot facility in Atlanta, Georgia which serves
as an office, distribution and store facility. Approximately 47,000 square feet
of this facility is used as office space for financial, information technology
and merchandising personnel, 23,000 square feet is used as a distribution center
for direct sourced merchandise and the remaining 30,000 square feet is used as a
store.
8
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Moores leases a 37,700 square foot facility in Toronto, Ontario, comprised
of approximately 17,900 square feet of office space and 19,800 square feet used
as a warehouse and distribution center. Moores also leases a 70,000 square foot
warehouse facility in Montreal, Quebec, and a 230,000 square foot facility in
Montreal, Quebec, comprised of approximately 10,000 square feet of office space,
70,000 square feet of warehouse space and 150,000 square feet of manufacturing
space.
We lease certain of our properties from certain principal shareholders and
officers and directors of the Company. These properties are (1) a one acre
facility in Houston, Texas used as a supply depot, (2) the 100,000 square foot
K&G facility in Atlanta, Georgia, (3) a K&G store in Irving, Texas and (4) the
land underlying a Men's Wearhouse store in Dallas, Texas. Management believes
that these leases are on terms that are no less favorable than could be obtained
from an independent third party.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various routine legal proceedings, including ongoing
litigation, incidental to the conduct of our business. Management believes that
none of these matters will have a material adverse effect on our financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended January 29, 2000.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the NASDAQ under the symbol "MENS." Prior to
April 3, 2000 the Company's stock was traded on the NASDAQ under the symbol
"SUIT". The following table sets forth, on a per share basis for the periods
indicated, the high and low sale prices per share for our common stock as
reported by NASDAQ. The prices set forth below for periods prior to June 19,
1998 have been adjusted to give retroactive effect to the 50% stock dividend
paid on that date.
HIGH LOW
------ ------
FISCAL YEAR 1998
First quarter ended May 2, 1998........................... $29.67 $22.33
Second quarter ended August 1, 1998....................... 36.88 26.67
Third quarter ended October 31, 1998...................... 34.63 14.00
Fourth quarter ended January 30, 1999..................... 32.50 22.00
FISCAL YEAR 1999
First quarter ended May 1, 1999........................... $34.94 $21.63
Second quarter ended July 31, 1999........................ 28.38 23.06
Third quarter ended October 30, 1999...................... 25.13 19.50
Fourth quarter ended January 29, 2000..................... 31.00 21.94
On April 24, 2000, there were approximately 1,000 holders of record and
approximately 6,700 beneficial holders of our common stock.
We have not paid cash dividends on our common stock and for the foreseeable
future we intend to retain all of our earnings for the future operation and
expansion of our business. Our credit agreement prohibits the payment of cash
dividends on our common stock. See Note 4 of Notes to Consolidated Financial
Statements.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected statement of earnings and balance sheet information
for the fiscal years indicated has been derived from The Men's Wearhouse, Inc.
(the "Company") audited consolidated financial statements. The Selected
Financial Data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and notes thereto. References herein to years are to the
Company's 52-week or 53-week fiscal year, which ends on the Saturday nearest
January 31 in the following calendar year. For example, references to "1999"
mean the fiscal year ended January 29, 2000. All fiscal years for which
financial information is included herein had 52 weeks, except 1995 which had 53
weeks.
Financial and operating data for all periods presented reflect the
retroactive effect of the February 1999 combination with Moores Retail Group
Inc. ("Moores") and the June 1999 combination with K&G Men's Center, Inc., both
accounted for as a pooling of interests (see Note 2 of Notes to Consolidated
Financial Statements). The pro forma 1999 statement of earnings data excludes
the non-recurring charges related to these combinations. The combination with
Moores did not affect the statement of earnings data for fiscal 1995 or 1996 as
Moores commenced operations on December 23, 1996 and operating results for the
40-day period in fiscal 1996 were not significant.
PRO FORMA
1995 1996 1997 1998 1999 1999
-------- -------- -------- ---------- ---------- ----------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT
PER SHARE AND PER SQUARE FOOT DATA)
STATEMENT OF EARNINGS DATA:
Net sales..................................... $466,370 $571,651 $875,319 $1,037,831 $1,186,748 $1,186,748
Gross margin.................................. 170,786 207,209 315,169 377,834 438,966 438,966
Operating income.............................. 35,706 45,015 74,333 95,045 100,931 115,638
Earnings before extraordinary item............ 19,694 25,727 37,334 50,142 55,957 67,188
Earnings per share of common stock before
extraordinary item(1):
Basic....................................... $ 0.59 $ 0.72 $ 0.95 $ 1.23 $ 1.34 $ 1.61
Diluted..................................... $ 0.58 $ 0.72 $ 0.93 $ 1.19 $ 1.32 $ 1.58
Weighted average shares outstanding(1)........ 33,207 35,517 39,194 40,738 41,848 41,848
Weighted average shares outstanding
plus dilutive potential common shares(1).... 33,725 38,309 42,275 42,964 42,452 42,452
OPERATING INFORMATION:
Percentage increase in comparable U.S. store
sales(2).................................... 7.5% 4.8% 9.2% 9.6% 7.7%
Percentage increase in comparable Canadian
store sales(2).............................. -- -- 4.5% 2.1% 0.3%
Average square footage -- all stores(3)....... 5,156 5,422 5,868 6,146 6,193
Average sales per square foot of selling
space(4).................................... $ 427 $ 416 $ 378 $ 384 $ 400
NUMBER OF STORES:
Open at beginning of the period............... 239 289 460 526 579
Opened........................................ 51 56 65 65 54
Acquired(5)................................... -- 115 6 4 --
Closed........................................ (1) -- (5) (16) (19)
-------- -------- -------- ---------- ----------
Open at end of the period..................... 289 460 526 579 614
CAPITAL EXPENDITURES............................ $ 23,423 $ 27,350 $ 31,825 $ 53,474 $ 47,506
FEBRUARY 3, FEBRUARY 1, JANUARY 31, JANUARY 30, JANUARY 29,
1996 1997 1998 1999 2000
----------- ----------- ----------- ----------- -----------
BALANCE SHEET INFORMATION:
Working capital.............................. $ 96,611 $181,133 $234,376 $230,624 $280,251
Total assets................................. 221,308 414,979 500,371 535,076 611,195
Long-term debt(6)............................ 4,455 112,250 107,800 44,870 46,697
Shareholders' equity......................... 146,080 192,045 261,357 351,455 408,973
- ---------------
(1) Adjusted to give effect to a 50% stock dividend effected on November 15,
1995 and a 50% stock dividend effected on June 19, 1998.
(2) Comparable store sales data is calculated by excluding the net sales of a
store for any month of one period if the store was not open throughout the
same month of the prior period.
(3) Average square footage -- all stores is calculated by dividing the total
square footage for all stores open at the end of the period by the number of
stores open at the end of such period.
(4) Average sales per square foot of selling space is calculated by dividing
total selling square footage for all stores open the entire year into total
sales for those stores.
(5) Stores acquired in fiscal 1996 include 98 Canadian stores acquired by Moores
upon the commencement of its operations on December 23, 1996.
(6) February 1, 1997 and January 31, 1998 balances include the 5 1/4%
Convertible Subordinated Notes Due 2003. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" for a discussion of the redemption of the Notes.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company opened its first store in Houston, Texas in August 1973. The
Company combined with Moores Retail Group Inc. ("Moores") in February 1999 and
with K&G Men's Center, Inc. ("K&G") in June 1999, with both combinations
accounted for as a pooling of interests (see Note 2 of Notes to Consolidated
Financial Statements). At January 29, 2000, the Company operated 501 stores in
the United States and 113 stores in Canada. The Company opened 65 stores in
1997, 65 stores in 1998 and 54 stores in 1999; in addition, the Company acquired
six stores in May 1997 and four stores in February 1998. This growth has
resulted in significant increases in net sales and has also contributed to
increased net earnings for the Company. Expansion is generally continued within
a market as long as management believes it will provide profitable incremental
sales volume.
Like most retailers, our business is subject to seasonal fluctuations.
Historically, over 30% of our net sales and over 45% of our net earnings have
been generated during the fourth quarter of each year. Because of the
seasonality of our business, results for any quarter are not necessarily
indicative of the results that may be achieved for the full year.
The Company currently intends to continue its expansion in new and existing
markets and plans to open approximately 35 new Men's Wearhouse stores and 10 new
K&G stores in 2000. The average cost (excluding telecommunications and
point-of-sale equipment and inventory) of opening a new store is expected to be
approximately $350,000 for a Men's Wearhouse store and approximately $325,000
for a K&G store in 2000.
In addition to increases in net sales resulting from new stores and
acquisitions, the Company has experienced comparable store sales increases in
each of the past five years, including a 7.7% increase for U.S. stores and a
0.3% increase for Canadian stores for 1999.
The Company has closed 40 stores in the three years ended January 29, 2000.
Generally, in determining whether to close a store, the Company considers the
store's historical and projected performance and the continued desirability of
the store's location. In determining store contribution, the Company considers
net sales, cost of sales and other direct store costs, but excludes buying
costs, corporate overhead, depreciation and amortization, financing costs and
advertising. Store performance is continually monitored and, occasionally, as
neighborhoods and shopping areas change, management may determine that it is in
the best interest of the Company to close or relocate a store. In 1997, the
Company closed five stores due to substandard performance and/or the proximity
of a newly opened or acquired store. In 1998, the Company closed three stores
due to substandard performance or the proximity of another store. The remaining
13 stores closed in 1998 and four of the stores closed in 1999 were stores
acquired in January 1997 that were closed as part of the Company's efforts to
integrate and develop its operations that target the more price sensitive
clothing customer. Of the remaining 15 stores closed in 1999, two were closed
due to substandard performance or lease expiration and 13 were closed to
eliminate duplicate store sites following the combinations with Moores and K&G.
The following table sets forth the Company's results of operations
expressed as a percentage of net sales for the periods indicated:
FISCAL YEAR
---------------------
1997 1998 1999
----- ----- -----
Net sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold, including buying and occupancy costs.... 64.0 63.6 63.0
----- ----- -----
Gross margin................................................ 36.0 36.4 37.0
Selling, general and administrative expenses................ 27.3 27.2 27.2
Combination expenses........................................ 0.2 -- 1.3
----- ----- -----
Operating income............................................ 8.5 9.2 8.5
Interest expense............................................ 1.0 0.8 0.2
----- ----- -----
Earnings before income taxes................................ 7.5 8.4 8.3
Income taxes................................................ 3.2 3.6 3.6
----- ----- -----
Earnings before extraordinary item.......................... 4.3% 4.8% 4.7%
===== ===== =====
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RESULTS OF OPERATIONS
1999 Compared with 1998
The following table presents a breakdown of 1998 and 1999 net sales of the
Company by stores open in each of these periods:
NET SALES
------------------------------
STORES 1998 1999 INCREASE
- ------ -------- -------- --------
(IN MILLIONS)
54 stores opened in 1999................................ $ -- $ 49.5 $ 49.5
69 stores opened or acquired in 1998(1)................. 66.8 124.5 57.7
Stores opened before 1998............................... 971.0 1,012.7 41.7
-------- -------- ------
Total......................................... $1,037.8 $1,186.7 $148.9
======== ======== ======
- ---------------
(1) Sales include $16.1 million and $18.2 million for 1998 and 1999,
respectively, attributable to the four stores acquired in February 1998.
The Company's net sales increased $148.9 million, or 14.3%, to $1,186.7
million for 1999 due primarily to sales resulting from the increased number of
stores and increased sales at existing stores. Comparable store sales (which are
calculated by excluding the net sales of a store for any month of one period if
the store was not open throughout the same month of the prior period) increased
7.7% in the US and 0.3% in Canada from 1998.
Gross margin increased $61.1 million, or 16.2%, to $439.0 million in 1999.
As a percentage of sales, gross margin increased from 36.4% in 1998 to 37.0% in
1999. This increase in gross margin resulted mainly from decreases in product
and occupancy costs as a percentage of sales, offset by the lower product
margins realized in the K&G stores as compared to the traditional Men's
Wearhouse stores.
Selling, general and administrative ("SG&A") expenses, as a percentage of
sales, were 27.2% in 1999, remaining unchanged from the prior year, while SG&A
expenditures increased by $40.5 million to $323.3 million. On an absolute dollar
basis, the principal components of SG&A expenses increased primarily due to the
Company's growth. Advertising expense decreased from 5.9% to 5.4% of net sales,
while store salaries increased from 10.6% to 10.8% of net sales and other SG&A
expenses increased from 10.7% to 11.0% of net sales.
As a result of the Moores and K&G combinations, the Company recorded
transaction costs of $7.7 million, duplicative stores closing costs of $6.1
million and litigation costs of $0.9 million. The transaction costs were
composed primarily of investment banking fees, professional fees and contract
termination payments, while the duplicative store closing costs consisted
primarily of lease termination payments and the write-off of fixed assets
associated with the closing of duplicate store sites in existing markets. The
litigation charge resulted from the settlement of a lawsuit filed by a former
K&G employee related to his employment relationship with K&G.
Interest expense, net of interest income, decreased from $8.0 million in
1998 to $2.6 million in 1999. Weighted average borrowings outstanding decreased
$42.8 million from the prior year to $61.0 million in 1999, and the weighted
average interest rate on outstanding indebtedness decreased from 9.7% to 6.8%.
The decrease in weighted average borrowings resulted primarily from the
redemption of the 5 1/4% Convertible Subordinated Notes in the third quarter of
1998. The decrease in the weighted average interest rate was due primarily to
the refinancing of debt concurrent with the Moores combination. Interest expense
was offset by interest income of $2.1 million in 1998 and $1.6 million in 1999,
which resulted from the investment of excess cash.
The Company's effective income tax rate for the year ended January 29, 2000
was 43.1% and 42.4% for the prior year. The effective tax rate was higher than
the statutory federal rate of 35% primarily due to the
13
16
effect of state income taxes, the nondeductibility of a portion of meal and
entertainment expenses and, in 1999, nondeductible transaction costs.
These factors resulted in 1999 earnings before extraordinary item of $56.0
million or 4.7% of net sales, compared with 1998 earnings before extraordinary
item of $50.1 million or 4.8% of net sales. The Company's earnings before
extraordinary item, as reported and after the effect of non-recurring charges
related to the combinations with Moores and K&G, were as follows (in thousands,
except per share amounts):
FISCAL YEAR
-----------------
1998 1999
------- -------
Earnings before extraordinary item, as reported............. $50,142 $55,957
Combination expenses:
Transaction costs, net of tax benefit of $633............. -- 7,074
Duplicative store closing costs, net of tax benefit of
$2,471................................................. -- 3,599
Litigation costs, net of tax benefit of $372.............. -- 558
------- -------
Earnings before extraordinary item and non-recurring
charges................................................... $50,142 $67,188
======= =======
Diluted earnings per share before extraordinary item, as
reported.................................................. $ 1.19 $ 1.32
======= =======
Diluted earnings per share before extraordinary item and
non-recurring charges..................................... $ 1.19 $ 1.58
======= =======
The Company recorded an extraordinary charge of $2.9 million, net of a $1.4
million tax benefit, related to the write-off of deferred financing costs and
prepayment penalties for the refinancing of approximately US$57 million of
Moores indebtedness. The extraordinary charge of $0.7 million, net of a $0.5
million tax benefit, in the third quarter of 1998 resulted from the early
retirement of the Company's $57.5 million of 5 1/4% Convertible Subordinated
Notes.
1998 Compared with 1997
The following table presents a breakdown of 1997 and 1998 net sales of the
Company by stores open in each of these periods:
NET SALES
----------------------------
STORES 1997 1998 INCREASE
- ------ ------ -------- --------
(IN MILLIONS)
69 stores opened or acquired in 1998(1)................... $ -- $ 66.8 $ 66.8
71 stores opened or acquired in 1997(2)................... 60.5 117.6 57.1
Stores opened before 1997................................. 814.8 853.4 38.6
------ -------- ------
Total........................................... $875.3 $1,037.8 $162.5
====== ======== ======
- ---------------
(1) Sales include $16.1 million attributable to the four stores acquired in
February 1998.
(2) Sales include $10.6 million and $15.4 million for 1997 and 1998,
respectively, attributable to the six stores acquired in May 1997.
The Company's net sales increased $162.5 million, or 18.6%, to $1,037.8
million for 1998 due primarily to sales resulting from the increased number of
stores and increased sales at existing stores. Comparable store sales increased
9.6% in the US and 2.1% in Canada from 1997.
Gross margin increased $62.7 million, or 19.9%, to $377.8 million in 1998.
As a percentage of sales, gross margin increased from 36.0% in 1997 to 36.4% in
1998. This increase in gross margin predominantly related to a decrease in
product and occupancy costs as a percentage of sales for the traditional Men's
Wearhouse stores. This increase was partially offset by the lower product
margins realized in the K&G stores as compared to the traditional Men's
Wearhouse stores.
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SG&A expenses decreased, as a percentage of sales, from 27.3% in 1997 to
27.2% in 1998, while SG&A expenditures increased by $43.5 million to $282.8
million. On an absolute dollar basis, the principal components of SG&A expenses
increased primarily due to the Company's growth. The decrease in SG&A expenses
as a percentage of sales was related primarily to the impact of comparable sales
increases. Advertising expense decreased from 6.1% to 5.9% of net sales and
store salaries increased from 10.5% to 10.6% of net sales, while other SG&A
expenses decreased from 10.8% to 10.7% of net sales.
Interest expense, net of interest income, decreased from $8.5 million in
1997 to $8.0 million in 1998. Weighted average borrowings outstanding decreased
$16.5 million from the prior year to $103.8 million in 1998, while the weighted
average interest rates on outstanding indebtedness increased from 9.1% to 9.7%.
The change in weighted average borrowings resulted from the early retirement of
the $57.5 million of 5 1/4% Convertible Subordinated Notes in the third quarter
of 1998, of which $36.8 million was converted to common stock. The impact of the
decrease in weighted average borrowings was partially offset by higher interest
rate borrowings under the Company's revolving credit facility during the last
half of 1998. Interest expense was offset by interest income of $2.5 million in
1997 and $2.1 million in 1998, which resulted from the investment of excess
cash.
The Company's effective income tax rate for the year ended January 30, 1999
was 42.4% and 43.3% for the prior year. The effective tax rate was higher than
the statutory federal rate of 35% primarily due to the effect of state income
taxes, the nondeductibility of a portion of meal and entertainment expenses and,
in 1997, nondeductible transaction costs. This, combined with the factors
discussed above, resulted in 1998 earnings before extraordinary item of $50.1
million, or 4.8% of net sales, compared with 1997 earnings before extraordinary
item of $37.3 million, or 4.3% of net sales.
The extraordinary item of $0.7 million, net of a $0.5 million tax benefit,
related to the early retirement of the Company's 5 1/4% Subordinated Notes.
LIQUIDITY AND CAPITAL RESOURCES
In July 1997, the Company issued 1,500,000 shares of common stock for net
proceeds of $30.0 million. The Company used the proceeds from such offering to
fund its continued expansion and upgrade its information technology
infrastructure. The remaining cash was invested in short-term securities.
In August 1998, the Company gave notice to the holders of its outstanding
5 1/4% Convertible Subordinated Notes (the "Notes") that the Company would
redeem the Notes on September 14, 1998. As a result, $36.8 million principal
amount of the Notes was converted into 1.6 million shares of the Company's
common stock and $20.7 million principal amount was redeemed for an aggregate of
$21.5 million.
In February 1999, the Company amended and restated its revolving credit
agreement with a group of banks (the "Credit Agreement"). This agreement
provides for borrowings of up to $125 million through February 5, 2004. Advances
under the Credit Agreement bear interest at a rate per annum equal to, at the
Company's option, the agent's prime rate or the reserve adjusted LIBOR rate plus
an interest rate margin varying between .75% to 1.25%. The Credit Agreement
provides for fees applicable to unused commitments of .125% to .225%. As of
January 29, 2000, there was no indebtedness outstanding under the Credit
Agreement.
The Credit Agreement contains various restrictive and financial covenants,
including the requirement to maintain a minimum level of net worth and certain
financial ratios. The Credit Agreement also prohibits payment of cash dividends
on the common stock of the Company. The Company is in compliance with the
covenants in the Credit Agreement.
In February 1999, the Company also entered into two Canadian credit
facilities in conjunction with the combination with Moores. These facilities
include a revolving credit agreement which provides for borrowings up to Can$30
million (US$20 million) through February 5, 2004 and a term credit agreement
which provides for borrowings of Can$75 million (US$50 million) to be repaid in
quarterly installments of Can$0.9 million (US$0.6 million) beginning May 1,
1999; remaining unpaid principal is payable on February 5, 2004. Covenants and
interest rates are substantially similar to those contained in the Company's
Credit Agreement. Borrowings under these agreements were used to repay
approximately US$57 million in outstanding
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indebtedness of Moores with the remaining availability used to fund operating
and other requirements of Moores.
The Company's primary sources of working capital are cash flow from
operations and borrowings under the Credit Agreement. The Company had working
capital of $234.4 million, $230.6 million and $280.3 million at the end of 1997,
1998 and 1999, respectively. Historically, the Company's working capital has
been at its lowest level in January and February, and has increased through
November as inventory buildup is financed with both short-term and long-term
borrowings in preparation for the fourth quarter selling season.
Net cash provided by operating activities amounted to $33.8 million, $35.6
million and $101.3 million in 1997, 1998 and 1999, respectively. These amounts
primarily represent net earnings plus depreciation and amortization and
increases in current liabilities, offset by increases in inventories. The
increase in inventories of $48.4 million in 1997, $46.4 million in 1998 and
$15.7 million in 1999 resulted from the addition of inventory for new and
acquired stores and stores expected to be opened shortly after the year-end,
backstocking and the purchase of fabric used in the direct sourcing of
inventory.
Capital expenditures totaled $31.8 million, $53.5 million and $47.5 million
in 1997, 1998 and 1999, respectively. The following table details capital
expenditures (in millions):
1997 1998 1999
----- ----- -----
New store construction...................................... $11.0 $22.7 $17.2
Relocation and remodeling of existing stores................ 6.7 7.7 13.5
Information technology...................................... 6.0 13.6 9.3
Distribution facilities..................................... 4.8 3.6 4.0
Other....................................................... 3.3 5.9 3.5
----- ----- -----
Total............................................. $31.8 $53.5 $47.5
===== ===== =====
Property additions relating to new stores include stores in various stages
of completion at the end of the fiscal year (three stores at the end of 1997,
two stores at the end of 1998 and one store at the end of 1999). New store
construction cost is net of $2.8 million in 1997 related to proceeds from sale
and leaseback transactions and includes $2.2 million in 1998 for land costs that
the Company recovered from a sale and leaseback transaction in 1999. New store
construction costs were higher in 1998 and 1999 due in part to the Company's
entering higher cost markets in the northeastern U.S.
The Company had net purchases of short-term investments of $1.9 million in
1997 and net maturities of $11.7 million in 1998 and $6.0 million in 1999. The
Company acquired certain other assets in connection with various transactions
including, but not limited to, trademarks, tradenames, customer lists,
non-compete agreements and license agreements, for $3.9 million in 1997, $6.7
million in 1998 and $0.3 million in 1999. In addition, in 1999 the Company
purchased the minority interests in certain K&G stores for $2.1 million.
Net cash provided by financing activities was $28.1 million in 1997 and
includes the net proceeds of the public offering of common stock of $31.5
million in 1997. Net cash used in financing activities was $19.7 million in 1998
and $10.5 million in 1999 due mainly to the net payments of long-term debt.
The Company's primary cash requirements are to finance working capital
increases as well as to fund capital expenditure requirements which are
anticipated to be approximately $72 million for 2000. This amount includes the
anticipated costs of opening approximately 35 new Men's Wearhouse stores and 10
new K&G stores in 2000 at an expected average cost per store of approximately
$350,000 for the Men's Wearhouse stores and approximately $325,000 for the K&G
stores (excluding telecommunications and point-of-sale equipment and inventory).
It also includes approximately $14 million for the first phase of construction
of a new distribution center. The balance of the capital expenditures for 2000
will be used for telecommunications, point-of-sale and other computer equipment
and store remodeling and expansion. The Company anticipates that each of the
approximately 35 new Men's Wearhouse stores and each of the approximately 10 new
K&G stores will require, on average, an initial inventory costing approximately
$550,000 and $880,000, respectively (subject to the same seasonal patterns
affecting inventory at all stores), which will be funded by the Company's
revolving credit facility, trade credit and cash from operations. The actual
amount of future
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19
capital expenditures and inventory purchases will depend in part on the number
of new stores opened and the terms on which new stores are leased. Additionally,
the continuing consolidation of the men's tailored clothing industry and recent
financial difficulties of significant menswear retailers may present the Company
with opportunities to acquire retail chains significantly larger than the
Company's past acquisitions. Any such acquisitions may be undertaken as an
alternative to opening new stores. The Company may use cash on hand, together
with its cash flow from operations, borrowings under the Credit Agreement and
issuances of equity securities, to take advantage of significant acquisition
opportunities.
The Company anticipates that its existing cash and cash flow from
operations, supplemented by borrowings under its various credit agreements, will
be sufficient to fund planned store openings, other capital expenditures and
operating cash requirements for at least the next 12 months.
In connection with the Company's direct sourcing program, the Company may
enter into purchase commitments that are denominated in a foreign currency
(primarily the Italian lira). The Company generally enters into forward exchange
contracts to reduce the risk of currency fluctuations related to such
commitments. The majority of the forward exchange contracts are with two
financial institutions. Therefore, the Company is exposed to credit risk in the
event of nonperformance by these parties. However, due to the creditworthiness
of these major financial institutions, full performance is anticipated. The
Company may also be exposed to market risk as a result of changes in foreign
exchange rates. This market risk should be substantially offset by changes in
the valuation of the underlying transactions.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income." For the three years ended January 29,
2000, the accompanying consolidated financial statements are presented in
accordance with this statement.
The Company has adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information," and
reports its operations in one business segment -- retail sales of menswear.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which requires that an entity recognize all derivative instruments as
either assets or liabilities on its balance sheet at their fair value. Gains and
losses resulting from changes in the fair value of derivatives are recorded each
period in current earnings or comprehensive earnings, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. Gains and losses on derivative instruments reported in
comprehensive earnings will be reclassified as earnings in the period in which
earnings are affected by the hedged item. In June 1999, the Financial Accounting
Standards Board issued Statement No. 137, "Accounting for Derivatives
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133", which defers the effective date of SFAS 133 until the
Company's year ending February 2, 2002. The Company is currently evaluating the
impact, if any, of SFAS 133 on its financial position and results of operations.
YEAR 2000 RISKS
To date, the Company has incurred approximately $2.3 million in
expenditures to address the Year 2000 issue. No significant additional
expenditures are expected. The conversion to the Year 2000 occurred without any
significant impact on the Company's operations and none is anticipated in the
future.
INFLATION
The impact of inflation on the Company has been minimal.
FORWARD-LOOKING STATEMENTS
Certain statements made herein and in other public filings and releases by
the Company contain "forward-looking" information (as defined in the Private
Securities Litigation Reform Act of 1995) that
17
20
involve risk and uncertainty. These forward-looking statements may include, but
are not limited to, future capital expenditures, acquisitions (including the
amount and nature thereof), future sales, earnings, margins, costs, number and
costs of store openings, demand for men's clothing, market trends in the retail
men's clothing business, currency fluctuations, inflation and various economic
and business trends. Forward-looking statements may be made by management orally
or in writing, including, but not limited to, this Management's Discussion and
Analysis of Financial Condition and Results of Operations section and other
sections of the Company's filings with the Securities and Exchange Commission
under the Securities Exchange Act of 1934 and the Securities Act of 1933.
Actual results and trends in the future may differ materially depending on
a variety of factors including, but not limited to, domestic and international
economic activity and inflation, the Company's successful execution of internal
operating plans and new store and new market expansion plans, performance issues
with key suppliers, severe weather, foreign currency fluctuations, government
export and import policies and legal proceedings. Future results will also be
dependent upon the ability of the Company to continue to identify and complete
successful expansions and penetrations into existing and new markets, and its
ability to integrate such expansions with the Company's existing operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to exposure from fluctuations in U.S. dollar/Italian
lira exchange rates. As further described in Note 8 of Notes to Consolidated
Financial Statements, the Company utilizes foreign currency forward exchange
contracts to limit exposure to changes in currency exchange rates. At January
29, 2000, the Company had 25 contracts maturing in monthly increments to
purchase an aggregate notional amount of $24.3 million in foreign currency.
These forward contracts do not extend beyond June 29, 2001. At January 30, 1999,
the Company had 15 contracts maturing in monthly increments to purchase an
aggregate notional amount of $9.6 million in foreign currency. Unrealized pretax
losses on these forward contracts totaled approximately $1.8 million at January
29, 2000 and approximately $0.1 million at January 30, 1999. A hypothetical 10%
change in applicable January 29, 2000 forward rates would increase or decrease
this pretax loss by approximately $2.2 million related to these positions.
However, it should be noted that any change in the value of these contracts,
whether real or hypothetical, would be significantly offset by an inverse change
in the value of the underlying hedged item.
Moores conducts its business in Canadian dollars. The exchange rate between
Canadian dollars and U.S. dollars has fluctuated over the last ten years. If the
value of the Canadian dollar against the U.S. dollar weakens, then the revenues
and earnings of the Company's Canadian operations will be reduced when they are
translated to U.S. dollars. Also, the value of the Company's Canadian net assets
in U.S. dollars may decline.
The Company is also subject to market risk due to its long-term floating
rate term loan of $49.3 million at January 29, 2000 (see Note 4 of Notes to
Consolidated Financial Statements). An increase in market interest rates would
increase the Company's interest expense and its cash requirements for interest
payments. For example, an average increase of 0.5% in the variable interest rate
would increase the Company's interest expense and payments by approximately $0.2
million.
18
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
The Men's Wearhouse, Inc.
Houston, Texas
We have audited the consolidated balance sheets of The Men's Wearhouse,
Inc. and its subsidiaries (the "Company") as of January 30, 1999 and January 29,
2000 and the related consolidated statements of earnings, shareholders' equity,
and cash flows for each of the three years in the period ended January 29, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements based on
our audits. The consolidated financial statements give retroactive effect to the
mergers of the Company and Moores Retail Group Inc. ("Moores") and K&G Men's
Center, Inc. ("K&G") in 1999, each of which has been accounted for as a pooling
of interests as described in Note 2 to the consolidated financial statements. We
did not audit the balance sheet of Moores as of January 31, 1999, or the related
statements of earnings, stockholders' equity, and cash flows of Moores for the
years ended January 31, 1998 and 1999, which statements reflect total assets of
$74,263,000 as of January 31, 1999, and total revenues of $131,414,000 and
$130,675,000 for the years ended January 31, 1998 and 1999, respectively. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Moores for
fiscal 1997 and 1998, is based solely on the report of such other auditors. We
did not audit the balance sheet of K&G as of January 30, 1999, or the related
statements of earnings, stockholders' equity, and cash flows of K&G for the
years ended February 1, 1998 and January 31, 1999, which statements reflect
total assets of $57,230,000 as of January 31, 1999, and total revenues of
$112,795,000 and $139,234,000 for the years ended February 1, 1998 and January
31, 1999, respectively. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for K&G for fiscal 1997 and 1998, is based solely on the report
of such other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company and its subsidiaries as
of January 30, 1999 and January 29, 2000, and the results of their operations
and their cash flows for each of the three years in the period ended January 29,
2000 in conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
Houston, Texas
February 28, 2000
19
22
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Moores Retail Group Inc.
We have audited the consolidated balance sheets of Moores Retail Group Inc.
as at January 31, 1999 and 1998, and the consolidated statements of income and
comprehensive income, stockholders' equity and cash flows for the years then
ended (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Canada. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at January 31, 1999 and 1998,
and the results of its operations and the changes in its cash flows for the
years then ended in accordance with accounting principles generally accepted in
the United States.
ERNST & YOUNG LLP
Chartered Accountants
Montreal, Canada,
March 5, 1999
20
23
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
K&G Men's Center, Inc.:
We have audited the accompanying balance sheet of K&G Men's Center, Inc. (a
Georgia corporation) and subsidiaries as of January 31, 1999 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the two years in the period ended January 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of K&G Men's Center, Inc. and
subsidiaries as of January 31, 1999 and the results of their operations and
their cash flows for each of the two years in the period ended January 31, 1999
in conformity with accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 17, 1999
21
24
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES) (NOTE 1)
JANUARY 30, JANUARY 29,
1999 2000
----------- -----------
ASSETS
CURRENT ASSETS
Cash...................................................... $ 31,012 $ 77,798
Inventories............................................... 302,717 319,940
Other current assets...................................... 25,903 25,727
-------- ---------
Total current assets.............................. 359,632 423,465
-------- ---------
PROPERTY AND EQUIPMENT, AT COST
Land...................................................... 4,598 5,253
Buildings................................................. 12,069 12,854
Leasehold improvements.................................... 84,911 99,843
Furniture, fixtures and equipment......................... 110,492 131,973
-------- ---------
212,070 249,923
Less accumulated depreciation and amortization............ (88,299) (111,497)
-------- ---------
Net property and equipment............................. 123,771 138,426
-------- ---------
OTHER ASSETS, Net........................................... 51,673 49,304
-------- ---------
TOTAL............................................. $535,076 $ 611,195
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 64,878 $ 76,420
Accrued expenses.......................................... 43,748 53,301
Short-term borrowings..................................... 7,568 --
Current portion of long-term debt......................... 3,644 2,594
Income taxes payable...................................... 9,170 10,899
-------- ---------
Total current liabilities.............................. 129,008 143,214
LONG-TERM DEBT.............................................. 44,870 46,697
OTHER LIABILITIES........................................... 9,743 12,311
-------- ---------
Total liabilities...................................... 183,621 202,222
-------- ---------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000,000 shares
authorized, 1 share issued............................. -- --
Common stock, $.01 par value, 100,000,000 shares
authorized, 41,839,829 and 41,943,143 shares issued or
issuable............................................... 393 409
Capital in excess of par.................................. 178,144 182,662
Retained earnings......................................... 174,146 227,191
Accumulated comprehensive (loss) income................... (233) 59
-------- ---------
Total.................................................. 352,450 410,321
Treasury stock, 71,384 and 55,373 shares at cost.......... (995) (1,348)
-------- ---------
Total shareholders' equity............................. 351,455 408,973
-------- ---------
TOTAL............................................. $535,076 $ 611,195
======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
22
25
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED
JANUARY 31, 1998, JANUARY 30, 1999 AND JANUARY 29, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (NOTE 1)
FISCAL YEAR
----------------------------------
1997 1998 1999
-------- ---------- ----------
Net sales................................................. $875,319 $1,037,831 $1,186,748
Cost of goods sold, including buying and occupancy
costs................................................... 560,150 659,997 747,782
-------- ---------- ----------
Gross margin.............................................. 315,169 377,834 438,966
Selling, general and administrative expenses.............. 239,315 282,789 323,328
Combination expenses:
Transaction costs....................................... 1,521 -- 7,707
Duplicate facility costs................................ -- -- 6,070
Litigation costs........................................ -- -- 930
-------- ---------- ----------
Operating income.......................................... 74,333 95,045 100,931
Interest expense (net of interest income of $2,517, $2,060
and $1,568, respectively)............................... 8,464 7,993 2,580
-------- ---------- ----------
Earnings before income taxes.............................. 65,869 87,052 98,351
Provision for income taxes................................ 28,535 36,910 42,394
-------- ---------- ----------
Earnings before extraordinary item........................ 37,334 50,142 55,957
Extraordinary item, net of tax............................ -- 701 2,912
-------- ---------- ----------
Net earnings.............................................. $ 37,334 $ 49,441 $ 53,045
======== ========== ==========
Net earnings per basic share:
Earnings before extraordinary item...................... $ 0.95 $ 1.23 $ 1.34
Extraordinary item, net of tax.......................... -- (0.02) (0.07)
-------- ---------- ----------
$ 0.95 $ 1.21 $ 1.27
======== ========== ==========
Net earnings per diluted share:
Earnings before extraordinary item...................... $ 0.93 $ 1.19 $ 1.32
Extraordinary item, net of tax.......................... -- (0.02) (0.07)
-------- ---------- ----------
$ 0.93 $ 1.17 $ 1.25
======== ========== ==========
Weighted average shares outstanding:
Basic................................................... 39,194 40,738 41,848
======== ========== ==========
Diluted................................................. 42,275 42,964 42,452
======== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
23
26
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 1998,
JANUARY 30, 1999 AND JANUARY 29, 2000
(IN THOUSANDS, EXCEPT SHARES) (NOTE 1)
CAPITAL ACCUMULATED
COMMON IN EXCESS RETAINED COMPREHENSIVE TREASURY
STOCK OF PAR EARNINGS (LOSS) INCOME STOCK TOTAL
------ --------- -------- ------------- -------- --------
BALANCE -- February 1, 1997................... $239 $ 104,990 $87,371 $ 24 $ (579) $192,045
Comprehensive income:
Net earnings.............................. -- -- 37,334 -- -- 37,334
Translation adjustment.................... -- -- -- (212) -- (212)
--------
Total comprehensive income............ 229,167
Common stock issued in public offering --
1,500,000 shares.......................... 10 29,951 -- -- -- 29,961
Common stock issued upon exercise of stock
options -- 268,268 shares................. 1 1,563 -- -- -- 1,564
Common stock withheld to satisfy tax
withholding liabilities of
optionees -- 84,921 shares................ -- (1,949) -- -- -- (1,949)
Tax benefit recognized upon exercise of
stock options............................. -- 1,614 -- -- -- 1,614
Treasury stock issued to profit sharing
plan -- 56,339 shares..................... -- 762 -- -- 238 1,000
---- --------- -------- ----- ------- --------
BALANCE -- January 31, 1998................... 250 136,931 124,705 (188) (341) 261,357
Comprehensive income:
Net earnings.............................. -- -- 49,441 -- -- 49,441
Translation adjustment.................... -- -- -- (45) -- (45)
--------
Total comprehensive income............ 310,753
Stock dividend --50%........................ 126 (126) -- -- -- --
Common stock issued upon conversion of
subordinated notes --1,615,501 shares..... 16 35,909 -- -- -- 35,925
Common stock issued to stock discount
plan -- 21,588 shares..................... -- 428 -- -- -- 428
Common stock issued in public offering --
37,953 shares............................. -- 1,564 -- -- -- 1,564
Common stock issued upon exercise of stock
options -- 135,590 shares................. 1 1,657 -- -- -- 1,658
Common stock withheld to satisfy tax
withholding liabilities of
optionees -- 26,050 shares................ -- (905) -- -- -- (905)
Tax benefit recognized upon exercise of
stock options............................. -- 1,458 -- -- -- 1,458
Treasury stock purchased -- 55,000 shares... -- -- -- -- (926) (926)
Treasury stock issued to profit sharing
plan -- 64,218 shares..................... -- 1,228 -- -- 272 1,500
---- --------- -------- ----- ------- --------
BALANCE -- January 30, 1999................... 393 178,144 174,146 (233) (995) 351,455
Comprehensive income:
Net earnings.............................. -- -- 53,045 -- -- 53,045
Translation adjustment.................... -- -- -- 292 -- 292
--------
Total comprehensive income............ 404,792
Common stock issued to stock discount
plan -- 47,481 shares..................... -- 1,301 -- -- -- 1,301
Common stock issued upon exercise of stock
options -- 67,201 shares.................. 1 910 -- -- -- 911
Common stock withheld to satisfy tax
withholding liabilities of
optionees -- 11,368 shares................ -- (413) -- -- -- (413)
Conversion of stock options upon combination
with Moores............................... -- 1,237 -- -- -- 1,237
Conversion of exchangeable shares to common
stock -- 1,515,629 shares................. 15 (15) -- -- -- --
Tax benefit recognized upon exercise of
stock options............................. -- 418 -- -- -- 418
Treasury stock purchased -- 50,000 shares... -- -- -- -- (1,273) (1,273)
Treasury stock issued to profit sharing
plan -- 66,011 shares..................... -- 1,080 -- -- 920 2,000
---- --------- -------- ----- ------- --------
BALANCE -- January 29, 2000................... $409 $ 182,662 $227,191 $ 59 $(1,348) $408,973
==== ========= ======== ===== ======= ========
The accompanying notes are an integral part of these consolidated financial
statements.
24
27
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
JANUARY 31, 1998, JANUARY 30, 1999 AND JANUARY 29, 2000
(IN THOUSANDS) (NOTE 1)
1997 1998 1999
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings.............................................. $ 37,334 $ 49,441 $ 53,045
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Extraordinary item, net of tax.......................... -- 701 2,912
Depreciation and amortization........................... 21,884 26,761 30,082
Deferred tax provision (benefit)........................ (3,810) 2,194 (256)
Stock option compensation expense....................... 211 137 889
Duplicate facility costs................................ -- -- 4,004
Increase in inventories................................. (48,431) (46,428) (15,737)
Increase in other current assets........................ (1,982) (1,285) (1,227)
Increase in accounts payable and accrued expenses....... 23,377 4,705 23,858
Increase (decrease) in income taxes payable............. 5,041 (1,343) 3,271
Increase in other liabilities........................... 170 684 444
-------- -------- --------
Net cash provided by operating activities........... 33,794 35,567 101,285
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net................................. (31,825) (53,474) (47,506)
Investment in trademarks, tradenames and other
intangibles............................................. (3,931) (6,718) (321)
Maturities of short-term investments...................... 15,774 29,698 8,525
Purchases of short-term investments....................... (17,658) (18,045) (2,500)
Purchases of minority interest............................ -- -- (2,135)
-------- -------- --------
Net cash used in investing activities............... (37,640) (48,539) (43,937)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock.................... 31,525 3,649 2,212
Proceeds from (repayment of) revolving credit facility.... (4,421) 4,443 --
Long-term borrowings...................................... 3,773 42,500 49,688
Principal payments on long-term debt...................... (423) (45,809) (60,113)
Repayment of convertible debt............................. -- (21,473) --
Deferred financing and merger costs....................... (270) (1,010) (625)
Distributions to minority interest........................ (114) (176) --
Tax payments related to options exercised................. (1,949) (905) (413)
Purchase of treasury stock................................ -- (926) (1,273)
-------- -------- --------
Net cash provided by (used in) financing
activities.......................................... 28,121 (19,707) (10,524)
-------- -------- --------
Effect of exchange rate changes on cash..................... (2,109) 123 (38)
-------- -------- --------
INCREASE (DECREASE) IN CASH................................. 22,166 (32,556) 46,786
CASH:
Beginning of period....................................... 41,402 63,568 31,012
-------- -------- --------
End of period............................................. $ 63,568 $ 31,012 $ 77,798
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest................................................ $ 8,644 $ 10,367 $ 1,445
======== ======== ========
Income taxes............................................ $ 27,526 $ 36,428 $ 39,417
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Additional capital in excess of par, net of unamortized
deferred financing costs, resulting from conversion of
long-term debt into common stock........................ $ -- $ 35,909 $ --
======== ======== ========
Additional capital in excess of par resulting from tax
benefit recognized upon exercise of stock options....... $ 1,614 $ 1,458 $ 418
======== ======== ========
Additional capital in excess of par resulting from
conversion of stock options upon combination with
Moores.................................................. $ -- $ -- $ 1,237
======== ======== ========
Treasury stock contributed to employee stock ownership
plan.................................................... $ 1,000 $ 1,500 $ 2,000
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
25
28
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business -- The Men's Wearhouse, Inc. and its subsidiaries
(the "Company") is a specialty retailer of menswear. The Company operates
throughout the United States primarily under the brand names of Men's Wearhouse
and K&G and in Canada under the brand name of Moores. The Company follows the
standard fiscal year of the retail industry, which is a 52-week or 53-week
period ending on the Saturday closest to January 31. Fiscal year 1997 ended on
January 31, 1998, fiscal year 1998 ended on January 30, 1999 and fiscal year
1999 ended on January 29, 2000. Each of these fiscal years included 52 weeks.
Principles of Consolidation -- The consolidated financial statements
include the accounts of The Men's Wearhouse, Inc. and its wholly owned
subsidiaries. Intercompany accounts and transactions have been eliminated in the
Company's consolidated financial statements. Financial data for all periods
presented reflect the retroactive effect of the February 1999 combination with
Moores Retail Group Inc. ("Moores") and the June 1999 combination with K&G Men's
Center, Inc. ("K&G"), both accounted for as a pooling of interests (see Note 2).
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash -- For purposes of the statement of cash flows, the Company considers
all highly liquid investments with maturities of three months or less to be cash
equivalents.
Inventories -- Inventories are valued at the lower of cost or market, with
cost determined primarily on the retail first-in, first-out method.
Property and Equipment -- Property and equipment are stated at cost. Normal
repairs and maintenance costs are charged to earnings as incurred and additions
and major improvements are capitalized. The cost of assets retired or otherwise
disposed of and the related allowances for depreciation are eliminated from the
accounts in the year of disposal and the resulting gain or loss is credited or
charged to earnings.
Buildings are depreciated using the straight-line method over their
estimated useful lives of 20 to 25 years. Depreciation of leasehold improvements
is computed on the straight-line method over the term of the lease or useful
life of the assets, whichever is shorter. Furniture, fixtures and equipment are
depreciated using primarily the straight-line method over their estimated useful
lives of three to ten years.
Other Assets -- Other assets consist primarily of goodwill and the cost of
trademarks, tradenames and other intangibles acquired. These assets are being
amortized over estimated useful lives of 15 to 30 years using the straight-line
method.
Impairment of Long-Lived Assets -- The Company evaluates the carrying value
of long-lived assets, such as property and equipment and goodwill and other
intangibles, for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If it is
determined, based on estimated undiscounted future cash flows, that an
impairment has occurred, a loss is recognized currently for the impairment.
Fair Value of Financial Instruments -- As of January 30, 1999 and January
29, 2000, management estimates that the fair value of cash and cash equivalents,
receivables, accounts payable, accrued expenses and long-term debt are carried
at amounts that reasonably approximate their fair value.
26
29
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
New Store Costs -- Promotion and other costs associated with the opening of
new stores are expensed as incurred.
Advertising -- Advertising costs are expensed as incurred. Advertising
expenses were $53.3 million, $60.8 million and $64.5 million in fiscal 1997,
1998 and 1999, respectively.
Revenue Recognition -- The Company records revenue at the time of sale and
delivery.
Stock Based Compensation -- As permitted by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"), the Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." The disclosures required by SFAS No.
123 are included in Note 7.
Stock Dividend -- In June 1998, the Company effected a three-for-two common
stock split by paying a 50% stock dividend to stockholders of record as of June
12, 1998. All share and per share information included in the accompanying
consolidated financial statements and related notes have been restated to
reflect the stock dividend.
Derivative Financial Instruments -- The Company enters into foreign
currency forward exchange contracts to hedge against foreign exchange risks
associated with certain firmly committed, and certain other probable, but not
firmly committed, inventory purchase transactions that are denominated in a
foreign currency (primarily the Italian lira). Gains and losses associated with
these contracts are accounted for as part of the underlying inventory purchase
transactions.
Foreign Currency Translation -- Assets and liabilities of foreign
subsidiaries are translated into U.S. dollars at the exchange rates in effect at
each balance sheet date. Shareholders' equity is translated at applicable
historical exchange rates. Income, expense and cash flow items are translated at
average exchange rates during the year. Resulting translation adjustments are
reported as a separate component of shareholders' equity.
Comprehensive Income -- The Company has adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income", which
establishes standards for the reporting of comprehensive income in a company's
financial statements. Comprehensive income includes all changes in equity during
the period presented that result from transactions and other economic events
other than transactions with shareholders.
Segment Information -- The Company has adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information," which requires disclosure of certain information about
operating segments. The Company considers its business as one operating
segment -- retail sales of menswear -- based on the similar economic
characteristics of its three brands. Revenues of Canadian retail operations were
$131.4 million, $130.7 million and $133.2 million for fiscal 1997, 1998 and
1999, respectively. Long-lived assets of the Company's Canadian operations were
$32.4 million and $32.7 million as of the end of fiscal 1998 and 1999,
respectively.
27
30
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
New Accounting Pronouncements -- In June 1998, the Financial Accounting
Standards Board issued Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that an entity recognize
all derivative instruments as either assets or liabilities on its balance sheet
at their fair value. Gains and losses resulting from changes in the fair value
of derivatives are recorded each period in current earnings or comprehensive
earnings, depending on whether a derivative is designated as part of a hedge
transaction, and if it is, the type of hedge transaction. Gains and losses on
derivative instruments reported in comprehensive earnings will be reclassified
as earnings in the period in which earnings are affected by the hedged item. In
June 1999, the Financial Accounting Standards Board issued Statement No. 137,
"Accounting for Derivatives Instruments and Hedging Activities -- Deferral of
the Effective Date of FASB Statement No. 133", which defers the effective date
of SFAS 133 until the Company's year ending February 2, 2002. The Company is
currently evaluating the impact, if any, of SFAS 133 on its financial position
and results of operations.
2. BUSINESS COMBINATIONS AND ACQUISITIONS
On February 10, 1999, the Company combined with Moores, a privately owned
Canadian corporation, in exchange for securities ("Exchangeable Shares")
exchangeable for 2.5 million shares of the Company's common stock. The
Exchangeable Shares have substantially identical economic and legal rights as,
and will ultimately be exchanged on a one-on-one basis for, shares of the
Company's common stock. The Exchangeable Shares were issued to the shareholders
and option holders of Moores in exchange for all of the outstanding shares of
capital stock and options of Moores because of Canadian tax law considerations.
All Exchangeable Shares must be converted into common stock of the Company
within five years of the combination. As of January 29, 2000, there were 1.0
million Exchangeable Shares that have not yet been converted but are reflected
as common stock outstanding for financial reporting purposes by the Company. The
combination with Moores has been accounted for as a pooling of interests.
On June 1, 1999, the Company combined with K&G, a superstore retailer of
men's apparel and accessories operating 34 stores in 16 states, with K&G
becoming a wholly owned subsidiary of the Company. The Company issued
approximately 4.4 million shares of its common stock to K&G shareholders based
on an exchange ratio of 0.43 of a share of the Company's common stock for each
share of K&G common stock outstanding. In addition, the Company converted the
outstanding options to purchase K&G common stock, whether vested or unvested,
into options to purchase 228,000 shares of the Company's common stock based on
the exchange ratio of 0.43. The combination has been accounted for as a pooling
of interests.
In conjunction with the Moores and K&G combinations, the Company recorded
transaction costs of $7.7 million, duplicative stores closing costs of $6.1
million and litigation costs of $0.9 million. The transaction costs were
composed primarily of investment banking fees, professional fees and contract
termination payments, while the duplicative store closing costs consisted
primarily of lease termination payments and the write-off of fixed assets
associated with the closing of duplicate store sites in existing markets. The
litigation charge resulted from the settlement of a lawsuit filed by a former
K&G employee related to his employment relationship with K&G. In addition, the
Company recorded an extraordinary charge of $2.9 million, net of a $1.4 million
tax benefit, related to the write-off of deferred financing costs and prepayment
penalties for the refinancing of approximately US$57 million of Moores'
indebtedness.
28
31
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation of the amounts of revenues and net
earnings previously reported by the Company to the combined amounts of revenues
and earnings after giving effect to the combinations with Moores on February 10,
1999 and K&G on June 1, 1999 (in thousands):
THREE MONTHS
FISCAL YEAR ENDED
--------------------- MAY 1,
1997 1998 1999
-------- ---------- ------------
Revenues
The Men's Wearhouse (as previously reported)... $631,110 $ 767,922 $222,183
Moores......................................... 131,414 130,675 --
K&G............................................ 112,795 139,234 36,681
-------- ---------- --------
Combined............................... $875,319 $1,037,831 $258,864
======== ========== ========
Net earnings (loss)
The Men's Wearhouse (as previously reported)... $ 28,883 $ 40,219 $ (500)
Moores......................................... 2,068 2,993 --
K&G............................................ 6,383 6,229 1,338
-------- ---------- --------
Combined............................... $ 37,334 $ 49,441 $ 838
======== ========== ========
The separate results of Moores' operations during the 10 day period from
February 1, 1999 through February 10, 1999 were not material to the Company's
operations as a whole, and therefore, are not disclosed separately in the table
above.
The separate results of operations for K&G in fiscal 1999 for the period
prior to its combination with the Company are reflected in the table above for
the three months ended May 1, 1999. The fiscal 1999 extraordinary item of
$2,912, net of tax, reported by the Company was not affected by the combination
with K&G.
In May 1997, the Company acquired six men's tailored clothing stores,
including inventory, operating in Texas and Louisiana. In February 1998, the
Company acquired four stores, including inventory, operating in Detroit,
Michigan. Also acquired were trademarks, trade names and other intangible assets
associated with these businesses.
Transaction costs in fiscal 1997 consist of professional fees, regulatory
fees and other costs related to a withdrawn financing initiative by Moores.
29
32
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. EARNINGS PER SHARE
Basic EPS is computed using the weighted average number of common shares
outstanding during the period and net earnings. Diluted EPS gives effect to the
potential dilution which would have occurred if additional shares were issued
for stock options exercised under the treasury stock method and, in fiscal 1997
and 1998, conversion of convertible debt, with net earnings adjusted for
interest expense associated with the convertible debt. The following table
reconciles the earnings and shares used in the basic and diluted EPS
computations (in thousands, except per share amounts):
FISCAL YEAR
---------------------------
1997 1998 1999
------- ------- -------
Earnings before extraordinary item...................... $37,334 $50,142 $55,957
Extraordinary item, net of tax.......................... -- 701 2,912
------- ------- -------
Net earnings............................................ $37,334 $49,441 $53,045
======= ======= =======
Weighted average number of common shares outstanding.... 39,194 40,738 41,848
======= ======= =======
Basic EPS
Earnings before extraordinary item.................... $ 0.95 $ 1.23 $ 1.34
Extraordinary item, net of tax........................ -- (0.02) (0.07)
------- ------- -------
Net earnings.......................................... $ 0.95 $ 1.21 $ 1.27
======= ======= =======
Earnings before extraordinary item...................... $37,334 $50,142 $55,957
Interest on notes, net of taxes......................... 1,943 1,144 --
------- ------- -------
As adjusted............................................. 39,277 51,286 55,957
Extraordinary item, net of tax.......................... -- 701 2,912
------- ------- -------
As adjusted............................................. $39,277 $50,585 $53,045
======= ======= =======
Weighted average number of common shares outstanding.... 39,194 40,738 41,848
Assumed exercise of stock options....................... 553 684 604
Assumed conversion of notes............................. 2,528 1,542 --
------- ------- -------
As adjusted............................................. 42,275 42,964 42,452
======= ======= =======
Diluted EPS
Earnings before extraordinary item.................... $ 0.93 $ 1.19 $ 1.32
Extraordinary item, net of tax........................ -- (0.02) (0.07)
------- ------- -------
Net earnings.......................................... $ 0.93 $ 1.17 $ 1.25
======= ======= =======
4. LONG-TERM DEBT
In February 1999, the Company amended and restated its revolving credit
agreement with a group of banks (the "Credit Agreement"). This agreement
provides for borrowing of up to $125 million through February 5, 2004. Advances
under the Credit Agreement bear interest at a rate per annum equal to, at the
Company's option, the agent's prime rate or the reserve adjusted LIBOR rate plus
an interest rate margin varying between .75% to 1.25%. The Credit Agreement
provides for fees applicable to unused commitments of .125% to .225%. As of
January 29, 2000, there was no indebtedness outstanding under the Credit
Agreement.
The Credit Agreement contains various restrictive and financial covenants,
including the requirement to maintain a minimum level of net worth and certain
financial ratios. The Credit Agreement also prohibits payment of cash dividends
on the common stock of the Company. The Company is in compliance with the
covenants in the Credit Agreement.
In February 1999, the Company also entered into two Canadian credit
facilities in conjunction with the combination with Moores (see Note 2). These
facilities include a revolving credit agreement (the "Canadian Credit
Agreement"), which provides for borrowings up to Can$30 million (US$20 million)
through
30
33
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
February 5, 2004 and a term credit agreement (the "Term Loan"), which provides
for borrowings of Can$75 million (US$50 million). The Company's total
indebtedness of US$49.3 million as of January 29, 2000 consists of Term Loan
borrowings. The Term Loan is to be repaid in quarterly installments of Can$0.9
million (US$0.6 million) beginning May 1, 1999, with the remaining unpaid
principal payable on February 5, 2004. The effective interest rate for the Term
Loan at January 29, 2000 was 6.0%. Covenants and interest rates are
substantially similar to those contained in the Company's Credit Agreement.
Borrowings under these agreements were used to repay approximately US$57 million
in outstanding indebtedness of Moores with the remaining availability used to
fund cash operating and other requirements of Moores. The refinanced Moore's
debt, which totaled US$55.9 million at January 30, 1999, consisted of a
revolving credit facility and three notes payable with effective interest rates
ranging from 8.7% to 15.7%.
In June 1999, the Company, in conjunction with the combination with K&G,
repaid $0.2 million in outstanding notes payable of K&G. This indebtedness,
which was outstanding at January 30, 1999, consisted of two notes payable with
fixed interest rates ranging from 6% to 12%.
In August 1998, the Company gave notice to the holders of its outstanding
5 1/4% Convertible Subordinated Notes (the "Notes") that the Company would
redeem the Notes on September 14, 1998. As a result, $36.8 million principal
amount of the Notes was converted into 1.6 million shares of the Company's
common stock and $20.7 million principal amount was redeemed for an aggregate of
$21.5 million. An extraordinary charge of $0.7 million, net of tax benefit of
$0.5 million, related to the early retirement of the Notes was recognized.
Maturities of long-term debt for the next five fiscal years are as follows:
2000 -- $2.6 million; 2001 -- $2.6 million; 2002 -- $2.6 million; 2003 -- $2.6
million and 2004 -- $38.9 million.
The Company utilizes letters of credit for inventory purchases. At January
29, 2000, letters of credit totaling approximately $13.2 million were issued and
outstanding.
5. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
FISCAL YEAR
---------------------------
1997 1998 1999
------- ------- -------
Current tax expense:
Federal............................................... $23,526 $25,715 $32,338
State................................................. 4,498 4,558 5,486
Foreign............................................... 4,321 4,443 4,826
Deferred tax expense (benefit):
Federal and state..................................... (3,554) 2,594 125
Foreign............................................... (256) (400) (381)
------- ------- -------
Total......................................... $28,535 $36,910 $42,394
======= ======= =======
The table above does not include the tax benefit of $0.5 million in fiscal
1998 and $1.4 million in fiscal 1999 related to extraordinary items. In
addition, no provision for U.S. income taxes or Canadian withholding taxes has
been made on the cumulative undistributed earnings of Moores (approximately
$13.6 million at January 29, 2000) since such earnings are considered to be
permanently invested in Canada. The determination of any unrecognized deferred
tax liability for the cumulative undistributed earnings of Moores is not
considered practicable since such liability, if any, will depend on a number of
factors that cannot be known until such time as a decision to repatriate the
earnings might be made by management.
31
34
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:
FISCAL YEAR
------------------
1997 1998 1999
---- ---- ----
Federal statutory rate...................................... 35% 35% 35%
State income taxes, net of federal benefit.................. 5 5 4
Nondeductible transaction costs............................. 1 -- 3
Other....................................................... 2 2 1
-- -- --
43% 42% 43%
== == ==
At January 30, 1999 the Company had net deferred tax assets of $3.9 million
with $7.5 million classified as other current assets and $3.6 million classified
as other liabilities (noncurrent). At January 29, 2000, the Company had net
deferred tax assets of $4.7 million with $10.9 million classified as other
current assets and $6.2 million classified as other liabilities (noncurrent). No
valuation allowance was required for the deferred tax assets. Total deferred tax
assets and liabilities and the related temporary differences as of January 30,
1999 and January 29, 2000 were as follows (in thousands):
JANUARY 30, JANUARY 31,
1999 2000
----------- -----------
Deferred tax assets:
Accrued rent and other expenses........................... $ 5,759 $ 6,615
Accrued compensation...................................... 1,034 1,272
Accrued markdowns......................................... 1,826 3,088
Deferred intercompany profits............................. 1,486 1,963
Other..................................................... 437 621
------- -------
10,542 13,559
------- -------
Deferred tax liabilities:
Capitalized inventory costs............................... (2,557) (2,085)
Property and equipment.................................... (2,555) (3,981)
Intangibles............................................... (1,024) (1,044)
Deferred intercompany interest............................ -- (1,174)
Other..................................................... (522) (604)
------- -------
(6,658) (8,888)
------- -------
Net deferred tax assets..................................... $ 3,884 $ 4,671
======= =======
32
35
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. OTHER ASSETS AND ACCRUED EXPENSES
Other assets consist of the following (in thousands):
JANUARY 30, JANUARY 29,
1999 2000
----------- -----------
Goodwill and other intangibles.............................. $48,796 $51,541
Accumulated amortization.................................... (5,363) (8,422)
------- -------
43,433 43,119
Deposits and other.......................................... 8,240 6,185
------- -------
Total............................................. $51,673 $49,304
======= =======
Accrued expenses consist of the following (in thousands):
Sales, payroll and property taxes payable................... $11,440 $11,084
Accrued salary, bonus and vacation.......................... 11,472 15,397
Other....................................................... 20,836 26,820
------- -------
Total............................................. $43,748 $53,301
======= =======
7. CAPITAL STOCK, STOCK OPTIONS AND BENEFIT PLANS
In July 1997, the Company sold 1,500,000 shares of common stock with net
proceeds to the Company of $30.0 million. In addition, the Company effected a
50% stock dividend on June 19, 1998. All share and per share amounts reflected
in the financial statements give retroactive effect to the stock dividend. In
July 1998, K&G issued 88,263 shares of its common stock in a public offering
with net proceeds of $1.6 million. As a result of the June 1999 merger (see Note
2), the shares of K&G common stock issued were converted into 37,953 shares of
the Company's common stock based upon an Exchange Ratio of .43.
The Company has adopted the 1992 Stock Option Plan ("1992 Plan") which, as
amended, provides for the grant of options to purchase up to 1,071,507 shares of
the Company's common stock to full-time key employees (excluding certain
officers), the 1996 Stock Option Plan ("1996 Plan") which provides for the grant
of options to purchase up to 1,125,000 shares of the Company's common stock to
full-time key employees (excluding certain officers), and the 1998 Key Employee
Stock Option Plan ("1998 Plan") which, as amended, provides for the grant of
options to purchase up to 2,100,000 shares of the Company's common stock to
full-time key employees (excluding certain officers). Each of the plans will
expire at the end of ten years and no option may be granted pursuant to the
plans after the expiration date. In fiscal 1992, the Company also adopted a
Non-Employee Director Stock Option Plan ("Director Plan") which, as amended,
provides for the grant of options to purchase up to 67,500 shares of the
Company's common stock to non-employee directors of the Company. Options granted
under these plans must be exercised within ten years of the date of grant.
Generally, options granted under the 1992 Plan, 1996 Plan and 1998 Plan
vest at the rate of 1/3 of the shares covered by the grant on each of the first
three anniversaries of the date of grant and may not be issued at a price less
than 50% of the fair market value of the Company's stock on the date of grant.
However, a significant portion of options granted under these Plans vest
annually in varying increments over a period from one to ten years. Options
granted under the Director Plan vest one year after the date of grant and are
issued at a price equal to the fair market value of the Company's stock on the
date of grant.
In connection with an employment agreement entered into in January 1991
with an officer of the Company, that officer was granted options to acquire
796,705 shares of common stock of the Company at a price of $1.57 per share.
Among other things, the employment agreement provides that upon the exercise of
any of these options, the Company will pay the officer an amount which, after
the payment of income taxes by the officer on such amount, will equal the $1.57
per share purchase price for the shares purchased upon
33
36
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exercise of the options. The Company recognized compensation expense as the
options vested. The officer exercised 110,654 options in fiscal 1997. As of
January 31, 1998, all stock options granted in connection with this employment
agreement have been exercised.
As discussed in Note 2, the Company converted options to purchase K&G
common stock into options to purchase shares of the Company's common stock in
connection with the combination with K&G. The following table is a summary of
the Company's stock option activity:
WEIGHTED
SHARES UNDER AVERAGE OPTIONS
OPTION EXERCISE PRICE EXERCISABLE
------------ -------------- -----------
Options outstanding, February 1, 1997........... 1,457,668 $11.63 534,770
=========
Granted....................................... 723,910 23.87
Exercised..................................... (268,268) 5.14
Forfeited..................................... (8,155) 14.27
---------
Options outstanding, January 31, 1998........... 1,905,155 17.18 548,685
=========
Granted....................................... 312,390 29.94
Exercised..................................... (135,590) 11.46
Forfeited..................................... (24,977) 20.15
---------
Options outstanding, January 30, 1999........... 2,056,978 19.46 740,635
=========
Granted....................................... 142,557 23.46
Exercised..................................... (67,201) 13.08
Forfeited..................................... (79,374) 39.19
---------
Options outstanding, January 29, 2000........... 2,052,960 19.18 1,063,649
========= =========
Grants of stock options outstanding as of January 29, 2000 are summarized
as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- --------- ----------- ---------
$ 3.85 to 15.00........................ 454,665 4.7 Years $10.53 363,538 $ 8.69
15.01 to 25.00........................ 1,304,361 7.6 Years 19.31 620,218 15.56
25.01 to 50.00........................ 293,934 8.5 Years 31.99 79,893 25.64
--------- ---------
3.85 to 50.00........................ 2,052,960 19.18 1,063,649 16.76
========= =========
As of January 29, 2000, 1,314,819 options were available for grant under
existing plans and 3,367,779 shares of common stock were reserved for future
issuance under these plans.
The difference between the option price and the fair market value of the
Company's common stock on the dates that options for 268,268, 135,590 and 67,201
shares of common stock were exercised during 1997, 1998 and 1999, respectively,
resulted in a tax benefit to the Company of $1.6 million in 1997, $1.5 million
in 1998 and $0.4 million in 1999, which has been recognized as capital in excess
of par. In addition, the Company withheld 84,921 shares, 26,050 shares and
11,368 shares, respectively, of such common stock for withholding payments made
to satisfy the optionees' income tax liabilities resulting from the exercises.
The Company has a profit sharing plan, in the form of an employee stock
plan, which covers all eligible employees, and an employee tax-deferred savings
plan. Contributions to the plans are made at the discretion of the Board of
Directors. During 1997, 1998 and 1999, contributions charged to operations were
$1.5 million, $2.1 million and $2.8 million, respectively, for the plans.
34
37
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1998, the Company adopted an Employee Stock Discount Plan ("ESDP"),
which allows employees to authorize after-tax payroll deductions to be used for
the purchase of up to 1,425,000 shares of the Company's common stock at 85% of
the then fair market value. The Company makes no contributions to this plan but
pays all brokerage, service and other costs incurred. A participant may not
purchase more than $2,500 in value of shares during any calendar quarter. During
1998 and 1999, employees purchased 21,588 and 47,481 shares, respectively, under
the ESDP, the weighted-average fair value of which was $19.86 and $21.89 per
share, respectively. As of January 29, 2000, 1,355,931 shares were reserved for
future issuance under the ESDP.
The Company has adopted the disclosure-only provisions of SFAS No. 123 and
continues to apply APB Opinion 25 and related interpretations in accounting for
the stock option plans and the employee stock purchase plan. Had the Company
elected to apply the accounting standards of SFAS No. 123, the Company's net
earnings and net earnings per share would have approximated the pro forma
amounts indicated below (in thousands, except per share data):
FISCAL YEAR
---------------------------
1997 1998 1999
------- ------- -------
Earnings before extraordinary item:
As reported............................................. $37,334 $50,142 $55,957
Pro forma............................................... $36,178 $48,325 $53,623
Earnings per share before extraordinary item:
As reported:
Basic................................................. $ 0.95 $ 1.23 $ 1.34
Diluted............................................... $ 0.93 $ 1.19 $ 1.32
Pro forma:
Basic................................................. $ 0.92 $ 1.19 $ 1.28
Diluted............................................... $ 0.90 $ 1.15 $ 1.26
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model, which resulted in a weighted-average
fair value of $10.90, $13.76 and $14.61 for grants made during fiscal 1997, 1998
and 1999, respectively. The following assumptions were used for option grants in
1997, 1998 and 1999, respectively: expected volatility of 52.15%, 52.07% and
52.92%, risk-free interest rates (U.S. Treasury five year notes) of 5.48%, 4.78%
and 5.31%, and an expected life of five years.
8. COMMITMENTS AND CONTINGENCIES
Lease commitments
The Company leases retail business locations, office and warehouse
facilities, computer equipment and automotive equipment under operating leases
expiring in various years through 2019. Rent expense for fiscal 1997, 1998 and
1999 was $44.7 million, $52.9 million and $61.5 million, respectively, and
includes contingent rentals of $0.3 million, $0.1 million and $0.4 million,
respectively.
35
38
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum future rental payments under noncancelable operating leases as of
January 29, 2000 for each of the next five years and in the aggregate are as
follows (in thousands):
FISCAL YEAR AMOUNT
- ----------- --------
2000........................................................ $ 65,107
2001........................................................ 61,581
2002........................................................ 56,525
2003........................................................ 50,334
2004........................................................ 42,194
Thereafter.................................................. 106,205
--------
Total............................................. $381,946
========
Leases on retail business locations specify minimum rentals plus common
area maintenance charges and possible additional rentals based upon percentages
of sales. Most of the retail business location leases provide for renewal
options at rates specified in the leases. In the normal course of business,
these leases are generally renewed or replaced by other leases.
Legal matters
The Company is a defendant in various lawsuits and subject to various
claims and proceedings encountered in the normal conduct of its business. In the
opinion of management, any uninsured losses that might arise from these lawsuits
and proceedings would not have a material adverse effect on the business or
consolidated financial position or results of operations of the Company.
Currency contracts
The Company routinely enters into inventory purchase commitments that are
denominated in a foreign currency (primarily the Italian lira). To protect
against currency exchange risks associated with certain firmly committed and
certain other probable, but not firmly committed inventory transactions, the
Company enters into foreign currency forward exchange contracts. At January 29,
2000, the Company held forward exchange contracts with notional amounts totaling
$24.3 million. All such contracts expire within 17 months. Gains and losses
associated with these contracts are accounted for as part of the underlying
inventory purchase transactions. The fair value of the forward exchange
contracts is estimated by comparing the cost of the foreign currency to be
purchased under the contracts using the exchange rates obtained under the
contracts (adjusted for forward points) to the hypothetical cost using the spot
rate at year end. At January 29, 2000, the contracts outstanding had a fair
value of $1.8 million less than their notional value.
The majority of the forward exchange contracts are with two financial
institutions. Therefore, the Company is exposed to credit risk in the event of
nonperformance by these parties. However, due to the creditworthiness of these
major financial institutions, full performance is anticipated. The Company may
also be exposed to market risk as a result of changes in foreign exchange rates.
This market risk should be substantially offset by changes in the valuation of
the underlying transactions.
36
39
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's quarterly results of operations reflect all adjustments,
consisting only of normal, recurring adjustments, which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods presented. The consolidated results of operations by quarter for the
1998 and 1999 fiscal years are presented below (in thousands, except per share
amounts):
FISCAL 1998
QUARTERS ENDED
------------------------------------------------
MAY 2, AUGUST 1, OCTOBER 31, JANUARY 30,
1998 1998 1998 1999
-------- --------- ----------- -----------
Net sales................................. $229,830 $226,580 $234,273 $347,148
Gross margin.............................. 80,546 82,990 83,651 130,194
Earnings before extraordinary item........ 8,126 10,389 8,828 22,799
Net earnings.............................. $ 8,126 $ 10,389 $ 8,127 $ 22,799
Earnings per share before extraordinary
item:
Basic................................... $ 0.20 $ 0.26 $ 0.22 $ 0.55
Diluted................................. $ 0.20 $ 0.25 $ 0.21 $ 0.54
FISCAL 1999
QUARTERS ENDED
------------------------------------------------
MAY 1, JULY 31, OCTOBER 30, JANUARY 29,
1999 1999 1999 2000
-------- --------- ----------- -----------
Net sales................................. $258,864 $256,567 $272,836 $398,481
Gross margin.............................. 91,435 93,294 99,593 154,644
Earnings before extraordinary item........ 3,750 8,750 12,972 30,485
Net earnings.............................. $ 838 $ 8,750 $ 12,972 $ 30,485
Earnings per share before extraordinary
item :
Basic................................... $ 0.09 $ 0.21 $ 0.31 $ 0.73
Diluted................................. $ 0.09 $ 0.21 $ 0.31 $ 0.72
In the first quarter of 1999, the Company recorded an extraordinary charge
of $2.9 million, net of a $1.4 million tax benefit, related to the write-off of
deferred financing costs and prepayment penalties for the refinancing of
approximately US$57 million of Moores' indebtedness.
An extraordinary charge of $0.7 million, net of tax benefit of $0.5
million, related to the early retirement of the Notes (Note 4) was recognized in
the third quarter of 1998.
Due to the method of calculating weighted average common shares
outstanding, the sum of the quarterly per share amounts may not equal earnings
per share for the respective years.
37
40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference
from the Company's Proxy Statement for its Annual Meeting of Shareholders to be
held June 21, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
from the Company's Proxy Statement for its Annual Meeting of Shareholders to be
held June 21, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference
from the Company's Proxy Statement for its Annual Meeting of Shareholders to be
held June 21, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference
from the Company's Proxy Statement for its Annual Meeting of Shareholders to be
held June 21, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS.
The following consolidated financial statements of the Company are included
in Part II, Item 8.
Independent Auditors' Reports
Consolidated Balance Sheets as of January 30, 1999 and January 29, 2000
Consolidated Statements of Earnings for the years ended January 31,
1998, January 30, 1999 and January 29, 2000
Consolidated Statements of Shareholders' Equity for the years ended
January 31, 1998, January 30, 1999 and January 29, 2000
Consolidated Statements of Cash Flows for the years ended January 31,
1998, January 30, 1999 and January 29, 2000
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
All such schedules are omitted because they are not applicable or because
the required information is included in the Consolidated Financial Statements or
Notes thereto.
38
41
3. EXHIBITS
EXHIBIT
NUMBER EXHIBIT INDEX
------- -------------
3.1 -- Restated Articles of Incorporation (incorporated by
reference from Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 30, 1994).
3.2 -- By-laws, as amended (incorporated by reference from
Exhibit 3.2 to the Company's Annual Report on Form 10-K
for the fiscal year ended February 1, 1997).
3.3 -- Certificate of Designation, Preferences, Limitations and
Relative Rights of the Series A Special Voting Preferred
Stock. (incorporated by reference from Exhibit 3.3 to the
Company's Annual Report of Form 10-K for the fiscal year
ended January 20, 1999).
3.4 -- Articles of Amendment to the Restated Articles of
Incorporation (incorporated by reference from Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the
quarter ended July 31, 1999).
4.1 -- Restated Articles of Incorporation (included as Exhibit
3.1).
4.2 -- By-laws (included as Exhibit 3.2).
4.3 -- Form of Common Stock certificate (incorporated by
reference from Exhibit 4.3 to the Company's Registration
Statement on Form S-1 (Registration No. 33-45949)).
*4.4 -- Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab, including the
First Amendment thereto dated as of September 30, 1991
(incorporated by reference from Exhibit 4.4 to the
Company's Registration Statement on Form S-1
(Registration No. 33-45949)).
*4.5 -- Second Amendment effective as of January 1, 1993, to
Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab (incorporated by
reference from Exhibit 4.5 to the Company's Registration
Statement on Form S-1 (Registration No. 33-60516)).
*4.6 -- Second [sic] Amendment dated as of April 12, 1994, to
Employment Agreement dated as of January 31, 1991
(incorporated by reference to Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1995).
4.7 -- Registration Rights Agreement dated as of November 18,
1998, by and among The Men's Wearhouse, Inc. and Marpro
Holdings, Inc., MGB Limited Partnership, Capital
D'Amerique CDPQ Inc., Cerberus International, Ltd., Ultra
Cerberus Fund, Ltd., Styx International Ltd., The Long
Horizons Overseas Fund Ltd., The Long Horizons Fund, L.P.
and Styx Partners, L.P. (incorporated by reference from
Exhibit 4.13 to the Company's Registration Statement on
Form S-3 (Registration No. 333-69979)).
4.8 -- Support Agreement dated February 10, 1999, between The
Men's Wearhouse, Inc., Golden Moores Company, Moores
Retail Group Inc. and Marpro Holdings, Inc., MGB Limited
Partnership, Capital D'Amerique CDPQ Inc., Cerberus
International, Ltd., Ultra Cerberus Fund, Ltd., Styx
International Ltd., The Long Horizons Overseas Fund Ltd.,
The Long Horizons Fund, L.P. and Styx Partners, L.P.
(incorporated by reference from Exhibit 4.2 to the
Company's Current Report on Form 8-K (Registration No.
333-72549)).
39
42
EXHIBIT
NUMBER EXHIBIT INDEX
------- -------------
4.9 -- Revolving Credit Agreement dated as of February 5, 1999,
by and among the Company and NationsBank of Texas N.A.
and the Banks listed therein, including form of Revolving
Note. (incorporated by reference from Exhibit 4.13 to the
Company's Annual Report of Form 10-K for the fiscal year
ended January 30, 1999.)
4.10 -- Term Credit Agreement dated as of February 5, 1999, by
and among the Company, certain subsidiaries of the
Company and NationsBank of Texas N.A. and the Banks
listed therein, including form of Term Note.
(incorporated by reference from Exhibit 4.14 to the
Company's Annual Report of Form 10-K for the fiscal year
ended January 30, 1999).
4.11 -- Revolving Credit Agreement dated as of February 10, 1999,
by and among the Company, certain subsidiaries of the
Company and Bank of America Canada and the Banks listed
therein, including form of Revolving Note. (incorporated
by reference from Exhibit 4.15 to the Company's Annual
Report of Form 10-K for the fiscal year ended January
30,1999).
4.12 -- Certificate of Designation, Preferences, Limitations and
Relative Rights of the Series A Special Voting Preferred
Stock (included as Exhibit 3.3).
9.1 -- Voting Trust Agreement dated February 10, 1999, by and
between The Men's Wearhouse, Inc., Golden Moores Company,
Moores Retail Group Inc. and The Trust Company of Bank of
Montreal (incorporated by reference from Exhibit 9.1 to
the Company's Current Report on Form 8-K (Registration
No. 333-72579)).
*10.1 -- Employment Agreement dated as of January 31, 1991,
including the First Amendment thereto dated as of
September 30, 1991 by and between the Company and David
H. Edwab (included as Exhibit 4.4).
*10.2 -- Second Amendment effective as of January 1, 1993, to
Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab (included as
Exhibit 4.5).
*10.3 -- Second [sic] Amendment dated as of April 12, 1994, to
Employment Agreement dated as of January 31, 1991
(incorporated by reference to Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1995).
*10.4 -- 1992 Stock Option Plan (incorporated by reference from
Exhibit 10.5 to the Company's Registration Statement on
Form S-1 (Registration No. 33-45949)).
*10.5 -- First Amendment to 1992 Stock Option Plan (incorporated
by Reference from Exhibit 10.9 to the Company's
Registration Statement on Form S-1 (Registration No.
33-60516)).
*10.6 -- Non-Employee Director Stock Option Plan (incorporated by
reference from Exhibit 10.7 to the Company's Registration
Statement on Form S-1 (Registration No. 33-45949)).
*10.7 -- First Amendment to Non-Employee Director Stock Option
Plan (incorporated by reference from Exhibit 10.16 to the
Company's Registration Statement on Form S-1
(Registration No. 33-45949)).
10.8 -- Commercial Lease dated September 1, 1995, by and between
the Company and Zig Zag, A Joint Venture (incorporated by
reference from Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended May 4, 1996).
40
43
EXHIBIT
NUMBER EXHIBIT INDEX
------- -------------
10.9 -- Commercial Lease dated April 5, 1989, by and between the
Company and Preston Road Partnership (incorporated by
reference from Exhibit 10.10 to the Company's
Registration Statement on Form S-1 (Registration No.
33-45949)).
*10.10 -- Stock Agreement dated as of March 23, 1992, between the
Company and George Zimmer (incorporated by reference from
Exhibit 10.13 to the Company's Registration Statement on
Form S-1 (Registration No. 33-45949)).
*10.11 -- Split-Dollar Agreement and related Split-Dollar
Collateral Assignment dated November 25, 1994 between the
Company, George Zimmer and David Edwab, Co-Trustee of the
Zimmer 1994 Irrevocable Trust (incorporated by reference
to Exhibit 10.20 to the Company's Annual Report on Form
10-K for the fiscal year ended January 28, 1995).
*10.12 -- 1996 Stock Option Plan (incorporated by reference from
Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended August 3, 1996).
*10.13 -- Second Amendment to Non-Employee Director Stock Option
Plan (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended August 3, 1996).
10.14 -- 1998 Key Employee Stock Option Plan (incorporated by
reference from Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31,
1998).
10.15 -- First amendment to 1998 Key Employee Stock Option Plan
(incorporated by reference from Exhibit 4.1 to the
Company's registration Statement on Form S-8
(registration No. 333-80033)).
10.16 -- Amended and Restated Employment Agreement dated as of
June 1, 1999, by and between K&G Men's Center, Inc. and
Stephen H. Greenspan (incorporated by reference from
Exhibit 10.1 of the Company's Current Report on Form 8-K
dated June 11, 1999).
10.17 -- Lease dated October 1, 1994, by and between Stephen H.
Greenspan, Paul Ruben and Richard M. Vehon and T&C
Liquidators, Inc. (Filed herewith.)
10.18 -- Amendment to Lease dated April 15, 1996, by and between
Stephen H. Greenspan, Paul Ruben and Richard M. Vehon and
T&C Liquidators, Inc. (Filed herewith.)
10.19 -- Lease Agreement dated November 20, 1995, by and between
Ellsworth Realty, L.L.C. and K&G Men's Center, Inc.
(Filed herewith.)
10.20 -- Amendment to Lease Agreement dated November 29, 1995, by
and between Ellsworth Realty, L.L.C. and K&G Men's
Center, Inc. (Filed herewith.)
10.21 -- Second Amendment to Lease Agreement dated July 1, 1999,
by and between Ellsworth Realty, L.L.C. and K&G Men's
Center, Inc. (Filed herewith.)
10.22 -- Second Amendment to 1998 Key Employee Stock Option Plan.
(Filed herewith.)
10.23 -- Limited Liability Company Agreement of Chelsea Market
Systems, L.L.C. dated January 3, 2000, between and among
Renwick Technologies, Inc. and Harry M. Levy. (Filed
herewith.)
10.24 -- Software Development Agreement dated January 3, 2000, by
and between the Company and Chelsea Market Systems,
L.L.C. (Filed herewith.)
21.1 -- Subsidiaries of the Company. (Filed herewith.)
23.1 -- Consent of Deloitte & Touche LLP, independent auditors.
(Filed herewith.)
23.2 -- Consent of Ernst & Young LLP, independent auditors.
(Filed herewith.)
23.3 -- Consent of Arthur Andersen LLP, independent auditors.
(Filed herewith.)
41
44
EXHIBIT
NUMBER EXHIBIT INDEX
------- -------------
27.1 -- Financial Data Schedule. (Filed herewith.)
27.2 -- Restated financial data schedule for the first, second
and third quarters in fiscal years 1997 and for fiscal
years 1996 and 1997 (incorporated by reference from
Exhibit 27.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended July 31, 1999).
27.3 -- Restated financial data schedule for the first, second
and third quarters in fiscal years 1998, for the first
quarter in fiscal year 1999 and for fiscal year 1998
(incorporated by reference from Exhibit 27.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1999).
27.4 -- Restated financial data schedule, as amended, for the
first quarter in fiscal year 1999. (Filed herewith.)
- ---------------
* Management Compensation or Incentive Plan
As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant
has not filed with this Annual Report on Form 10-K certain instruments defining
the rights of holders of long-term debt of the Registrant and its subsidiaries
because the total amount of securities authorized under any of such instruments
does not exceed 10% of the total assets of the Registrant and its subsidiaries
on a consolidated basis. The Registrant agrees to furnish a copy of any such
agreements to the Securities and Exchange Commission upon request.
The Company will furnish a copy of any exhibit described above to any
beneficial holder of its securities upon receipt of a written request therefor,
provided that such request sets forth a good faith representation that, as of
the record date for the Company's 2000 Annual Meeting of Shareholders, such
beneficial holder is entitled to vote at such meeting, and provided further that
such holder pays to the Company a fee compensating the Company for its
reasonable expenses in furnishing such exhibits.
(b) REPORTS ON FORM 8-K.
On February 25, 1999, the Company filed a report on Form 8-K related to the
February 10, 1999 closing of the Moores combination. Moores consolidated
financial statements, including a consolidated balance sheet as of January 31,
1998 and October 31, 1998, a consolidated statement of income and comprehensive
income, a consolidated statement of stockholders' equity and a consolidated
statement of cash flows, each for the year ended January 31, 1998 and for the
nine months ended October 31, 1997 and October 31, 1998, as well as pro forma
financial statements including a combined balance sheet as of October 31, 1998
and combined statements of earnings for the years ended January 31, 1998 and for
the nine months ended November 1, 1997 and October 31, 1998, were included in
this current report on Form 8-K.
On March 5, 1999, the Company filed a current report on Form 8-K related to
the signing of the merger agreement with K&G.
On April 26, 1999, the Company filed a report on Form 8-K pursuant to the
terms of the combination agreement with Moores. The Company's consolidated
statements of earnings for each of the two month periods ended April 4, 1998 and
April 3, 1999, as well as pro forma statements of earnings for each of the same
periods excluding one-time transaction costs, duplicative store closing costs
and extraordinary charges associated with Moores, were included in this current
report on Form 8-K.
On June 11, 1999, the Company filed a report on Form 8-K related to the
June 1, 1999 closing of the K&G merger. K&G consolidated financial statements,
including a consolidated balance sheet as of February 1, 1998 and January 31,
1999, a consolidated statement of operations, a consolidated statement of
stockholders' equity and a consolidated statement of cash flows, each for the
year ended February 2, 1997, February 1,1998 and January 31, 1999, as well as
pro forma financial statements including a combined balance sheet as of January
30, 1999 and combined statements of earnings for the years ended February 1,
1997, January 31, 1998 and January 30, 1999, were included in this current
report on Form 8-K.
42
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE MEN'S WEARHOUSE, INC.
By: /s/ GEORGE ZIMMER
----------------------------------
George Zimmer
Chairman of the Board and
Chief Executive Officer
Dated: April 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacity and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ GEORGE ZIMMER Chairman of the Board, Chief April 28, 2000
- ----------------------------------------------------- Executive Officer and Director
George Zimmer
/s/ DAVID EDWAB President and Director April 28, 2000
- -----------------------------------------------------
David Edwab
/s/ GARY G. CKODRE Vice President -- Finance and April 28, 2000
- ----------------------------------------------------- Principal Financial and
Gary G. Ckodre Accounting Officer
/s/ RICHARD E. GOLDMAN Executive Vice President and April 28, 2000
- ----------------------------------------------------- Director
Richard E. Goldman
/s/ HARRY M. LEVY Executive Vice President -- April 28, 2000
- ----------------------------------------------------- Planning and Systems, Assistant
Harry M. Levy Secretary and Director
/s/ ROBERT E. ZIMMER Senior Vice President -- Real April 28, 2000
- ----------------------------------------------------- Estate and Director
Robert E. Zimmer
/s/ JAMES E. ZIMMER Senior Vice President -- April 28, 2000
- ----------------------------------------------------- Merchandising and Director
James E. Zimmer
/s/ RINALDO S. BRUTOCO Director April 28, 2000
- -----------------------------------------------------
Rinaldo S. Brutoco
/s/ MICHAEL L. RAY Director April 28, 2000
- -----------------------------------------------------
Michael L. Ray
/s/ SHELDON I. STEIN Director April 28, 2000
- -----------------------------------------------------
Sheldon I. Stein
/s/ STEPHEN H. GREENSPAN Chief Executive Officer -- Value April 28, 2000
- ----------------------------------------------------- Priced Clothing Division and
Stephen H. Greenspan Director
43
46
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT INDEX
------- -------------
3.1 -- Restated Articles of Incorporation (incorporated by
reference from Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 30, 1994).
3.2 -- By-laws, as amended (incorporated by reference from
Exhibit 3.2 to the Company's Annual Report on Form 10-K
for the fiscal year ended February 1, 1997).
3.3 -- Certificate of Designation, Preferences, Limitations and
Relative Rights of the Series A Special Voting Preferred
Stock. (incorporated by reference from Exhibit 3.3 to the
Company's Annual Report of Form 10-K for the fiscal year
ended January 20, 1999).
3.4 -- Articles of Amendment to the Restated Articles of
Incorporation (incorporated by reference from Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the
quarter ended July 31, 1999).
4.1 -- Restated Articles of Incorporation (included as Exhibit
3.1).
4.2 -- By-laws (included as Exhibit 3.2).
4.3 -- Form of Common Stock certificate (incorporated by
reference from Exhibit 4.3 to the Company's Registration
Statement on Form S-1 (Registration No. 33-45949)).
*4.4 -- Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab, including the
First Amendment thereto dated as of September 30, 1991
(incorporated by reference from Exhibit 4.4 to the
Company's Registration Statement on Form S-1
(Registration No. 33-45949)).
*4.5 -- Second Amendment effective as of January 1, 1993, to
Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab (incorporated by
reference from Exhibit 4.5 to the Company's Registration
Statement on Form S-1 (Registration No. 33-60516)).
*4.6 -- Second [sic] Amendment dated as of April 12, 1994, to
Employment Agreement dated as of January 31, 1991
(incorporated by reference to Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1995).
4.7 -- Registration Rights Agreement dated as of November 18,
1998, by and among The Men's Wearhouse, Inc. and Marpro
Holdings, Inc., MGB Limited Partnership, Capital
D'Amerique CDPQ Inc., Cerberus International, Ltd., Ultra
Cerberus Fund, Ltd., Styx International Ltd., The Long
Horizons Overseas Fund Ltd., The Long Horizons Fund, L.P.
and Styx Partners, L.P. (incorporated by reference from
Exhibit 4.13 to the Company's Registration Statement on
Form S-3 (Registration No. 333-69979)).
4.8 -- Support Agreement dated February 10, 1999, between The
Men's Wearhouse, Inc., Golden Moores Company, Moores
Retail Group Inc. and Marpro Holdings, Inc., MGB Limited
Partnership, Capital D'Amerique CDPQ Inc., Cerberus
International, Ltd., Ultra Cerberus Fund, Ltd., Styx
International Ltd., The Long Horizons Overseas Fund Ltd.,
The Long Horizons Fund, L.P. and Styx Partners, L.P.
(incorporated by reference from Exhibit 4.2 to the
Company's Current Report on Form 8-K (Registration No.
333-72549)).
4.9 -- Revolving Credit Agreement dated as of February 5, 1999,
by and among the Company and NationsBank of Texas N.A.
and the Banks listed therein, including form of Revolving
Note. (incorporated by reference from Exhibit 4.13 to the
Company's Annual Report of Form 10-K for the fiscal year
ended January 30, 1999.)
47
EXHIBIT
NUMBER EXHIBIT INDEX
------- -------------
4.10 -- Term Credit Agreement dated as of February 5, 1999, by
and among the Company, certain subsidiaries of the
Company and NationsBank of Texas N.A. and the Banks
listed therein, including form of Term Note.
(incorporated by reference from Exhibit 4.14 to the
Company's Annual Report of Form 10-K for the fiscal year
ended January 30, 1999).
4.11 -- Revolving Credit Agreement dated as of February 10, 1999,
by and among the Company, certain subsidiaries of the
Company and Bank of America Canada and the Banks listed
therein, including form of Revolving Note. (incorporated
by reference from Exhibit 4.15 to the Company's Annual
Report of Form 10-K for the fiscal year ended January
30,1999).
4.12 -- Certificate of Designation, Preferences, Limitations and
Relative Rights of the Series A Special Voting Preferred
Stock (included as Exhibit 3.3).
9.1 -- Voting Trust Agreement dated February 10, 1999, by and
between The Men's Wearhouse, Inc., Golden Moores Company,
Moores Retail Group Inc. and The Trust Company of Bank of
Montreal (incorporated by reference from Exhibit 9.1 to
the Company's Current Report on Form 8-K (Registration
No. 333-72579)).
*10.1 -- Employment Agreement dated as of January 31, 1991,
including the First Amendment thereto dated as of
September 30, 1991 by and between the Company and David
H. Edwab (included as Exhibit 4.4).
*10.2 -- Second Amendment effective as of January 1, 1993, to
Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab (included as
Exhibit 4.5).
*10.3 -- Second [sic] Amendment dated as of April 12, 1994, to
Employment Agreement dated as of January 31, 1991
(incorporated by reference to Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1995).
*10.4 -- 1992 Stock Option Plan (incorporated by reference from
Exhibit 10.5 to the Company's Registration Statement on
Form S-1 (Registration No. 33-45949)).
*10.5 -- First Amendment to 1992 Stock Option Plan (incorporated
by Reference from Exhibit 10.9 to the Company's
Registration Statement on Form S-1 (Registration No.
33-60516)).
*10.6 -- Non-Employee Director Stock Option Plan (incorporated by
reference from Exhibit 10.7 to the Company's Registration
Statement on Form S-1 (Registration No. 33-45949)).
*10.7 -- First Amendment to Non-Employee Director Stock Option
Plan (incorporated by reference from Exhibit 10.16 to the
Company's Registration Statement on Form S-1
(Registration No. 33-45949)).
10.8 -- Commercial Lease dated September 1, 1995, by and between
the Company and Zig Zag, A Joint Venture (incorporated by
reference from Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended May 4, 1996).
10.9 -- Commercial Lease dated April 5, 1989, by and between the
Company and Preston Road Partnership (incorporated by
reference from Exhibit 10.10 to the Company's
Registration Statement on Form S-1 (Registration No.
33-45949)).
*10.10 -- Stock Agreement dated as of March 23, 1992, between the
Company and George Zimmer (incorporated by reference from
Exhibit 10.13 to the Company's Registration Statement on
Form S-1 (Registration No. 33-45949)).
48
EXHIBIT
NUMBER EXHIBIT INDEX
------- -------------
*10.11 -- Split-Dollar Agreement and related Split-Dollar
Collateral Assignment dated November 25, 1994 between the
Company, George Zimmer and David Edwab, Co-Trustee of the
Zimmer 1994 Irrevocable Trust (incorporated by reference
to Exhibit 10.20 to the Company's Annual Report on Form
10-K for the fiscal year ended January 28, 1995).
*10.12 -- 1996 Stock Option Plan (incorporated by reference from
Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended August 3, 1996).
*10.13 -- Second Amendment to Non-Employee Director Stock Option
Plan (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended August 3, 1996).
10.14 -- 1998 Key Employee Stock Option Plan (incorporated by
reference from Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31,
1998).
10.15 -- First amendment to 1998 Key Employee Stock Option Plan
(incorporated by reference from Exhibit 4.1 to the
Company's registration Statement on Form S-8
(registration No. 333-80033)).
10.16 -- Amended and Restated Employment Agreement dated as of
June 1, 1999, by and between K&G Men's Center, Inc. and
Stephen H. Greenspan (incorporated by reference from
Exhibit 10.1 of the Company's Current Report on Form 8-K
dated June 11, 1999).
10.17 -- Lease dated October 1, 1994, by and between Stephen H.
Greenspan, Paul Ruben and Richard M. Vehon and T&C
Liquidators, Inc. (Filed herewith.)
10.18 -- Amendment to Lease dated April 15, 1996, by and between
Stephen H. Greenspan, Paul Ruben and Richard M. Vehon and
T&C Liquidators, Inc. (Filed herewith.)
10.19 -- Lease Agreement dated November 20, 1995, by and between
Ellsworth Realty, L.L.C. and K&G Men's Center, Inc.
(Filed herewith.)
10.20 -- Amendment to Lease Agreement dated November 29, 1995, by
and between Ellsworth Realty, L.L.C. and K&G Men's
Center, Inc. (Filed herewith.)
10.21 -- Second Amendment to Lease Agreement dated July 1, 1999,
by and between Ellsworth Realty, L.L.C. and K&G Men's
Center, Inc. (Filed herewith.)
10.22 -- Second Amendment to 1998 Key Employee Stock Option Plan.
(Filed herewith.)
10.23 -- Limited Liability Company Agreement of Chelsea Market
Systems, L.L.C. dated January 3, 2000, between and among
Renwick Technologies, Inc. and Harry M. Levy. (Filed
herewith.)
10.24 -- Software Development Agreement dated January 3, 2000, by
and between the Company and Chelsea Market Systems,
L.L.C. (Filed herewith.)
21.1 -- Subsidiaries of the Company. (Filed herewith.)
23.1 -- Consent of Deloitte & Touche LLP, independent auditors.
(Filed herewith.)
23.2 -- Consent of Ernst & Young LLP, independent auditors.
(Filed herewith.)
23.3 -- Consent of Arthur Andersen LLP, independent auditors.
(Filed herewith.)
27.1 -- Financial Data Schedule. (Filed herewith.)
49
EXHIBIT
NUMBER EXHIBIT INDEX
------- -------------
27.2 -- Restated financial data schedule for the first, second
and third quarters in fiscal years 1997 and for fiscal
years 1996 and 1997 (incorporated by reference from
Exhibit 27.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended July 31, 1999).
27.3 -- Restated financial data schedule for the first, second
and third quarters in fiscal years 1998, for the first
quarter in fiscal year 1999 and for fiscal year 1998
(incorporated by reference form Exhibit 27.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1999).
27.4 -- Restated financial data schedule, as amended, for the
first quarter in fiscal year 1999. (Filed herewith.)
- ---------------
* Management Compensation or Incentive Plan