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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 FEBRUARY 3, 2001 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 1-16097
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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Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 New
York Stock Exchange on April 27, 2001, was approximately $786.1 million.
The number of shares of common stock of the Registrant outstanding on April
27, 2001 was 40,906,897, excluding 1,365,364 shares classified as Treasury
Stock.
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 7,
2001.
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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........................................................ 19
Item 8. Financial Statements and Supplementary Data................... 20
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 February 3, 2001, our U.S. operations included 538 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 February 3, 2001, 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 February
3, 2001, we operated 473 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 1999. 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 2000, we offered tuxedo rentals in 128 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). Prior to
the combination, our Value Priced Clothing ("VPC") subsidiary targeted the
market for the more price sensitive customer. At February 3, 2001, we operated
60 K&G stores in 21 states and, through VPC, four Suit Warehouse stores in
metropolitan Detroit and one in Ohio. Four of the K&G stores offer ladies'
career apparel that is also targeted to the more price sensitive customer.
We believe that K&G's more basic, value-oriented superstore approach
appeals to certain customers in the apparel market. K&G offers first-quality,
current-season apparel and accessories comparable in quality to that of
traditional department and fine specialty stores, at everyday low prices we
believe are 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 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 customers in each of its markets. As with the Men's
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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 a transaction accounted for as a
pooling of interests (see Note 2 of Notes to Consolidated Financial Statements).
Moores is one of Canada's leading specialty retailers of menswear, with 113
stores in 10 Canadian provinces at February 3, 2001. Moores focuses on
conservative, basic tailored apparel. This limits exposure to changes in fashion
trends and the need for significant markdowns. Moores' merchandise consists of
suits, sport coats, slacks, business casual, dress shirts, sportswear,
outerwear, shoes and accessories. Moores typically offers a full assortment of
suits and sport coats with prices of suits generally ranging from Can$149 to
Can$349.
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 13,000 units per week and the pant shop can produce 23,000 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,
- expanding our distribution facility with a new center to handle tuxedo
rental and e-commerce fulfillment,
- identifying strategic acquisition opportunities, including but not
limited to international 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 25 new Men's Wearhouse stores and up to 15 new K&G stores in
2001, to close one Men's Wearhouse store and one K&G store, to expand and
relocate up to 23 existing Men's Wearhouse stores and 13 existing K&G 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.
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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, colors and sizes. 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 products 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 an annual 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. In 2001, we plan to have a comparable sales event in
mid-summer.
During 1998, 1999 and 2000, 65.5%, 62.2% and 59.3%, respectively, of our
total net sales were attributable to tailored clothing (suits, sport coats and
slacks) and 34.5%, 37.8% and 40.7% respectively, were attributable to casual
attire, sportswear, shoes, shirts, ties, outerwear and other.
In addition to accepting cash, checks or nationally recognized credit
cards, we offer 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 2000, our customers used
the private label credit card for approximately 12% 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 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
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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 specifically 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 $60.8 million, $64.5
million and $69.7 million in 1998, 1999 and 2000, 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 700 vendors. In 2000, 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. and Canadian stores. Arrangements for fabric and assembly
have been with both domestic and foreign mills and factories. During 1998, 1999
and 2000, product procured through the direct sourcing program represented
approximately 23%, 26% and 28%, respectively, of total inventory purchases for
stores operating in the U.S. We expect that purchases through the direct
sourcing program will represent approximately 29% of total purchases in 2001.
During 1998, 1999 and 2000, our manufacturing operations at Golden Brand
provided 55%, 56% and 45%, respectively, of inventory purchases for Moores
stores and 2% and 6% during 1999 and 2000, respectively, of inventory purchases
for Men's Wearhouse stores (none in 1998).
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 Euro), we enter
into forward exchange contracts. In addition, many of the purchases from foreign
vendors are financed by letters of credit.
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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(R),"
"Gary Player(R)", "Pronto Uomo(R)" and "Linea Uomo(R)" and nationally recognized
brand labels such as "Botany(R)" and "Botany 500(R)", 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(R)," "Joseph & Feiss(R)," "Baracuta(R)," and "Country Britches(R),"
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 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 28 long-haul tractors and 59 trailers, which, together
with common carriers, are used to transport 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 64 smaller van-like trucks,
which are used to deliver 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. During 2001, we expect to complete the roll-out
of a new, enhanced front-end point-of-sale system in our Men's Wearhouse stores.
This system will enable us to provide better customer service at checkout and
will enhance communications with the stores.
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 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
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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
2010, 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. We are also
the owner of "Men's Wearhouse (and design)(R)". Our rights in the "The Men's
Wearhouse(R)" 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 "K&G", which is a tradename 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, T&C MenSmart, and
K&G Ladies. We own the registrations for "K&G(R)" and "K&G (stylized)(R)". The
applications for the servicemarks "K&G Men's Superstore" and K&G Men's
Superstore (and design) and K&G Ladies 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(R)", "Moores Vetements Pour Hommes(R)" and "Moores Vetements Pour Hommes
(and design)(R)", 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 February 3, 2001, we had approximately 12,000 employees, of whom
approximately 8,900 were full-time and approximately 3,100 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 960
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 February 3, 2001, we operated 538 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........................................ 86 6
Texas............................................. 46 12
Florida........................................... 33 2
Illinois.......................................... 23 1
Michigan.......................................... 20 4
New York.......................................... 19 2
Pennsylvania...................................... 19 2
Ohio.............................................. 16 5
Virginia.......................................... 16 1
Georgia........................................... 13 7
Washington........................................ 13 1
Massachusetts..................................... 12 3
North Carolina.................................... 12 1
New Jersey........................................ 12 5
Colorado.......................................... 11 2
Maryland.......................................... 11 4
Arizona........................................... 10
Minnesota......................................... 10 2
Tennessee......................................... 9 1
Indiana........................................... 8 1
Missouri.......................................... 8
Connecticut....................................... 7 1
Oregon............................................ 6
Wisconsin......................................... 6
Alabama........................................... 5
Nevada............................................ 5
Utah.............................................. 5
Louisiana......................................... 4 1
South Carolina.................................... 3
Kentucky.......................................... 3
Nebraska.......................................... 3
New Hampshire..................................... 3
Oklahoma.......................................... 3
Kansas............................................ 2 1
New Mexico........................................ 2
Delaware.......................................... 2
Arkansas.......................................... 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................................... 473 65 113
=== == ===
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Men's Wearhouse and Moores stores vary in size from approximately 2,850 to
15,100 total square feet (average square footage at February 3, 2001 was 5,380
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 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 February 3, 2001 was 17,119 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 30,000 to 35,000 square foot prototype
men's and ladies' 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 a large selection and assortment in each category. We seek to make K&G
stores "customer friendly" by utilizing store signage and grouping merchandise
by 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 are building additional
new distribution facilities. The first phase of construction of an approximately
385,000 square foot distribution center to support our tuxedo rental program, as
well as flat-packed merchandise, began in early 2000. The facility became
operational in March 2001 for the tuxedo rental program and is expected to be
operational for flat-packed activities in summer 2001.
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
11
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.
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 February 3, 2001.
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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 New York Stock Exchange under the symbol
"MW." Prior to October 2, 2000, the Company's stock was traded on the NASDAQ
National Market System under the symbol "MENS." Prior to April 3, 2000, the
Company's stock was traded on the NASDAQ National Market System 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 the New York Stock Exchange and the NASDAQ National Market System.
HIGH LOW
------ ------
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
FISCAL YEAR 2000
First quarter ended April 29, 2000........................ $30.00 $20.00
Second quarter ended July 29, 2000........................ 26.50 17.25
Third quarter ended October 28, 2000...................... 34.00 24.50
Fourth quarter ended February 3, 2001..................... 33.07 21.00
On April 30, 2001, there were approximately 975 holders of record and
approximately 7,100 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 "2000"
mean the fiscal year ended February 3, 2001. All fiscal years for which
financial information is included herein had 52 weeks, except 2000 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.
("K&G"), 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
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
1996 1997 1998 1999 1999 2000
--------- --------- ----------- ----------- ----------- -----------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AND PER SQUARE FOOT DATA)
STATEMENT OF EARNINGS DATA:
Net sales........................ $571,651 $875,319 $1,037,831 $1,186,748 $1,186,748 $1,333,501
Gross margin..................... 207,209 315,169 377,834 438,966 438,966 514,666
Operating income................. 45,015 74,333 95,045 100,931 115,638 141,158
Earnings before extraordinary
item........................... 25,727 37,334 50,142 55,957 67,188 84,661
Earnings per share of common
stock before extraordinary
item(1):
Basic.......................... $ 0.72 $ 0.95 $ 1.23 $ 1.34 $ 1.61 $ 2.03
Diluted........................ $ 0.72 $ 0.93 $ 1.19 $ 1.32 $ 1.58 $ 2.00
Weighted average shares
outstanding(1)................. 35,517 39,194 40,738 41,848 41,848 41,769
Weighted average shares
outstanding plus dilutive
potential common shares(1)..... 38,309 42,275 42,964 42,452 42,452 42,401
OPERATING INFORMATION:
Percentage increase in comparable
U.S. store sales(2)............ 4.8% 9.2% 9.6% 7.7% 3.3%
Percentage increase in comparable
Canadian store sales(2)........ -- 4.5% 2.1% 0.3% 8.3%
Average square footage -- all
stores(3)...................... 5,422 5,868 6,146 6,193 6,520
Average sales per square foot of
selling space(4)............... $ 416 $ 378 $ 384 $ 400 $ 406
NUMBER OF STORES:
Open at beginning of the
period......................... 289 460 526 579 614
Opened........................... 56 65 65 54 39
Acquired(5)...................... 115 6 4 -- 1
Closed........................... -- (5) (16) (19) (3)
-------- -------- ---------- ---------- ----------
Open at end of the period........ 460 526 579 614 651
CAPITAL EXPENDITURES............... $ 27,350 $ 31,825 $ 53,474 $ 47,506 $ 79,411
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FEBRUARY 1, JANUARY 31, JANUARY 30, JANUARY 29, FEBRUARY 3,
1997 1998 1999 2000 2001
----------- ----------- ----------- ----------- -----------
BALANCE SHEET INFORMATION:
Working capital..................... $181,133 $234,376 $230,624 $280,251 $318,584
Total assets........................ 414,979 500,371 535,076 611,195 707,734
Long-term debt(6)................... 112,250 107,800 44,870 46,697 42,645
Shareholders' equity................ 192,045 261,357 351,455 408,973 494,987
- ---------------
(1) Adjusted to give effect to 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. Fiscal year 2000 is calculated on a 52-week
basis.
(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 Note 4 of Notes to Consolidated
Financial Statements for a discussion of the redemption of the Notes.
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 February 3, 2001, the Company operated 538 stores in
the United States and 113 stores in Canada. The Company opened 65 stores in
1998, 54 stores in 1999 and 39 stores in 2000; in addition, the Company acquired
four stores in 1998 and one in 2000. 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 25 new Men's Wearhouse stores and 15 new
K&G stores in 2001 and to expand and relocate approximately 23 existing Men's
Wearhouse stores and 13 existing K&G stores. 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 $585,000 for a K&G store in 2001.
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 3.3% increase for U.S. stores and an
8.3% increase for Canadian stores for fiscal year 2000 calculated on a 52 week
basis.
The Company has closed 38 stores in the three years ended February 3, 2001.
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
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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 1998, the Company closed three stores due to substandard
performance or the proximity to 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. In 2000, 3 stores were
closed due to substandard performance.
The following table sets forth the Company's results of operations
expressed as a percentage of net sales for the periods indicated:
FISCAL YEAR
-----------------------
1998 1999 2000
----- ----- -----
Net sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold, including buying and occupancy costs.... 63.6 63.0 61.4
----- ----- -----
Gross margin................................................ 36.4 37.0 38.6
Selling, general and administrative expenses................ 27.2 27.2 28.0
Combination expenses........................................ -- 1.3 --
----- ----- -----
Operating income............................................ 9.2 8.5 10.6
Interest expense, net....................................... 0.8 0.2 0.1
----- ----- -----
Earnings before income taxes................................ 8.4 8.3 10.5
Income taxes................................................ 3.6 3.6 4.2
----- ----- -----
Earnings before extraordinary item.......................... 4.8% 4.7% 6.3%
===== ===== =====
RESULTS OF OPERATIONS
2000 Compared with 1999
The following table presents a breakdown of 1999 and 2000 net sales of the
Company by stores open in each of these periods (in millions):
NET SALES
------------------------------
STORES 1999 2000 INCREASE
- ------ -------- -------- --------
40 stores opened or acquired in 2000.................... $ -- $ 37.6 $ 37.6
54 stores opened in 1999................................ 49.5 126.3 76.8
Stores opened before 1999............................... 1,137.2 1,169.6 32.4
-------- -------- ------
Total......................................... $1,186.7 $1,333.5 $146.8
======== ======== ======
The Company's net sales increased $146.8 million, or 12.4%, to $1,333.5
million for 2000 due primarily to sales resulting from the increased number of
stores and increased sales at existing stores. Sales also increased as a result
of the additional week in 2000, a 53-week year. 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) for
2000, calculated on a 52-week to 52-week basis, increased 3.3% in the US and
8.3% in Canada from 1999.
Gross margin increased $75.7 million, or 17.2%, to $514.7 million in 2000.
As a percentage of sales, gross margin increased from 37.0% in 1999 to 38.6% in
2000. This increase in gross margin resulted mainly from a decrease in product
costs as a percentage of sales, offset partially by an increase in occupancy
costs.
Selling, general and administrative ("SG&A") expenses, as a percentage of
sales, were 28.0% in 2000, a 0.8% increase from the prior year, while SG&A
expenditures increased by $50.2 million to $373.5 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 5.4% to 5.2% of net sales,
while store salaries
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increased from 10.6% to 11.1% of net sales and other SG&A expenses increased
from 11.2% to 11.7% of net sales.
Interest expense, net of interest income, decreased from $2.6 million in
1999 to $0.8 million in 2000. Weighted average borrowings outstanding decreased
$11.1 million from the prior year to $49.9 million in 2000, and the weighted
average interest rate on outstanding indebtedness increased from 6.8% to 7.1%.
The decrease in the weighted average borrowings resulted primarily from payments
on long-term debt and reduced short-term borrowings under the Company's credit
facilities. The increase in the weighted average interest rate was due primarily
to increases during 2000 in the LIBOR rate. Interest expense was offset by
interest income of $1.6 million in 1999 and $2.8 million in 2000, which resulted
from the investment of excess cash.
The Company's effective income tax rate for the year ended February 3, 2001
was 39.7% and 43.1% 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 1999, nondeductible transaction costs.
These factors resulted in 2000 earnings before extraordinary item of $84.7
million or 6.3% of net sales, compared with 1999 earnings before extraordinary
item of $56.0 million or 4.7% 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 in 1999, were as follows (in
thousands, except per share amounts):
FISCAL YEAR
-----------------
1999 2000
------- -------
Earnings before extraordinary item, as reported............. $55,957 $84,661
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................................................... $67,188 $84,661
======= =======
Diluted earnings per share before extraordinary item, as
reported.................................................. $ 1.32 $ 2.00
======= =======
Diluted earnings per share before extraordinary item and
non-recurring charges..................................... $ 1.58 $ 2.00
======= =======
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 (in millions):
NET SALES
------------------------------
STORES 1998 1999 INCREASE
- ------ -------- -------- --------
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 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
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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 remained flat at 10.6% of net sales and other SG&A expenses
increased from 10.7% to 11.2% 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 in 1999. 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 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 in 1999. 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.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has a revolving credit agreement with a group of banks (the
"Credit Agreement") that 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 from 0.75% to
1.25%. The Credit Agreement provides for fees applicable to unused commitments
of 0.125% to 0.225%. As of February 3, 2001, 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 addition, the Company has two Canadian credit facilities which 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 under which
the Company borrowed Can$75 million (US$50 million) in February 1999. The term
credit borrowing is payable 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. 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 and to fund operating and other requirements of Moores.
As of February 3, 2001, there was US$45.2 million outstanding under the term
credit agreement and no indebtedness outstanding under the revolving credit
agreement.
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 $230.6 million, $280.3 million and $318.6 million at the end of 1998,
1999 and 2000, 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 $35.6 million, $101.3
million and $94.7 million in 1998, 1999 and 2000, 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 $46.4 million in 1998, $15.7 million in 1999 and
$36.6 million in 2000 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 $53.5 million, $47.5 million and $79.4 million
in 1998, 1999 and 2000, respectively. The following table details capital
expenditures (in millions):
1998 1999 2000
----- ----- -----
New store construction...................................... $22.7 $17.2 $15.9
Relocation and remodeling of existing stores................ 7.7 13.5 28.9
Information technology...................................... 13.6 9.3 18.2
Distribution facilities..................................... 3.6 4.0 10.0
Other....................................................... 5.9 3.5 6.4
----- ----- -----
Total............................................. $53.5 $47.5 $79.4
===== ===== =====
Property additions relating to new stores include stores in various stages
of completion at the end of the fiscal year (two stores at the end of 1998, one
store at the end of 1999 and two stores at the end of 2000). New store
construction cost 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.
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19
The Company acquired certain other assets in connection with various
transactions including, but not limited to, trademarks, tradenames and license
agreements, for $6.7 million in 1998, $0.3 million in 1999 and $4.0 million in
2000. In addition, in 1999 the Company purchased the minority interests in
certain K&G stores for $2.1 million. Net maturities of short-term investments
provided cash of $11.7 million in 1998 and $6.0 million in 1999.
Net cash used in financing activities was $19.7 million and $10.5 million
in 1998 and 1999, respectively, due mainly to the net payments of long-term
debt. In 2000, net cash used in financing activities was $4.7 million due mainly
to the payments of long-term debt and purchases of treasury stock. In January
2000, the Board of Directors authorized a stock repurchase program for up to
1,000,000 shares of the Company's common stock. Under this authorization, the
Company may purchase shares from time to time in the open market or in private
transactions, depending on market price and other considerations. On January 31,
2001, the Board of Directors authorized an expansion of the stock repurchase
program for up to an additional 2,000,000 shares of the Company's common stock.
Through February 23, 2001, the Company had repurchased 1,235,000 shares of its
common stock under this program at a cost of $31.8 million.
During 2000, in connection with the share repurchase program, the Company
issued three separate option contracts under which the contract counterparties
have the option to require the Company to purchase an agreed-upon number of
shares of its common stock at a specific strike price per share. The first
option contract was issued in July 2000 and required the Company to purchase
250,000 shares of its common stock on October 25, 2000. The Company received a
premium of $0.4 million for issuing this contract which expired unexercised on
October 25, 2000. The remaining two contracts, both issued in December 2000,
require the Company to purchase 200,000 shares of its common stock on March 15,
2001 and 200,000 shares of its common stock on June 12, 2001 at an aggregate
cost of approximately $8.6 million. The Company received premiums, in aggregate,
of $0.5 million for issuing these contracts. As of February 23, 2001, the market
value of the Company's common stock exceeded the strike prices under the two
open contracts.
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 $60 million for 2001. This amount includes the
anticipated costs of opening approximately 25 new Men's Wearhouse stores and 15
new K&G stores in 2001 at an expected average cost per store of approximately
$350,000 for the Men's Wearhouse stores and approximately $585,000 for the K&G
stores (excluding telecommunications and point-of-sale equipment and inventory).
It also includes approximately $8.0 million for the first phase of construction
of a new distribution center. The balance of the capital expenditures for 2001
will be used for telecommunications, point-of-sale and other computer equipment
and systems and store relocations, remodeling and expansion. The Company
anticipates that each of the approximately 25 new Men's Wearhouse stores and
each of the approximately 15 new K&G stores will require, on average, an initial
inventory costing approximately $550,000 and $1,500,000, 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 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 Euro). 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 five
financial institutions. Therefore, the Company is
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20
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
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. Upon adoption of SFAS 133 in the first
quarter of 2001, the Company will recognize a cumulative loss adjustment of $0.6
million ($0.4 million, net of tax) in accumulated other comprehensive income
related primarily to unrealized losses on foreign currency forward exchange
contracts.
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 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 clothing, market trends in the retail 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.
18
21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to exposure from fluctuations in U.S. dollar/Euro
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 February
3, 2001, the Company had 30 contracts maturing in monthly increments to purchase
an aggregate notional amount of $26.5 million in foreign currency. These forward
contracts do not extend beyond July 31, 2002. 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. Unrealized pretax losses
on these forward contracts totaled approximately $0.6 million at February 3,
2001 and approximately $1.8 million at January 29, 2000. A hypothetical 10%
change in applicable February 3, 2001 forward rates would increase or decrease
this pretax loss by approximately $2.6 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. Upon adoption of SFAS 133 in the
first quarter of 2001, the Company will recognize a cumulative loss adjustment
of $0.6 million ($0.4 million, net of tax) in accumulated other comprehensive
income related primarily to unrealized losses on foreign currency forward
exchange contracts.
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 $45.2 million at February 3, 2001 (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.
19
22
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 29, 2000 and February 3,
2001 and the related consolidated statements of earnings, shareholders' equity,
and cash flows for each of the three years in the period ended February 3, 2001.
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 consolidated statements of income and comprehensive income,
stockholders' equity, and cash flows of Moores for the year ended January 31,
1999, which statements reflect revenues of $130,675,000 for the year ended
January 31, 1999. 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 1998, is based solely on the report of such other
auditors. We did not audit the consolidated statement of operations,
stockholders' equity, and cash flows of K&G for the year ended January 31, 1999,
which statements reflects total revenues of $139,234,000 for the year ended
January 31, 1999. 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 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 29, 2000 and February 3, 2001, and the results of their operations
and their cash flows for each of the three years in the period ended February 3,
2001 in conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
Houston, Texas
February 23, 2001
20
23
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Moores Retail Group Inc.
We have audited the consolidated statements of income and comprehensive
income, stockholders' equity and cash flows of Moores Retail Group Inc. for the
year ended January 31, 1999 (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 results of the Company's operations and the changes in its cash
flows for the year ended January 31, 1999 in accordance with accounting
principles generally accepted in the United States.
ERNST & YOUNG LLP
Chartered Accountants
Montreal, Canada,
March 5, 1999
21
24
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
K&G Men's Center, Inc.:
We have audited the consolidated statements of operations, shareholders'
equity, and cash flows of K&G Men's Center, Inc. (a Georgia corporation) and
subsidiaries for the year ended January 31, 1999 (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 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 results of K&G Men's Center, Inc. and subsidiaries
operations and their cash flows for the year ended January 31, 1999 in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 17, 1999
22
25
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
JANUARY 29, FEBRUARY 3,
2000 2001
----------- -----------
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 77,798 $ 84,426
Inventories............................................... 319,940 355,284
Other current assets...................................... 25,727 29,371
--------- ---------
Total current assets.............................. 423,465 469,081
--------- ---------
PROPERTY AND EQUIPMENT, AT COST:
Land...................................................... 5,253 5,778
Buildings................................................. 12,854 20,665
Leasehold improvements.................................... 99,843 130,117
Furniture, fixtures and equipment......................... 131,973 168,700
--------- ---------
249,923 325,260
Less accumulated depreciation and amortization............ (111,497) (139,343)
--------- ---------
Net property and equipment............................. 138,426 185,917
--------- ---------
OTHER ASSETS, Net........................................... 49,304 52,736
--------- ---------
TOTAL............................................. $ 611,195 $ 707,734
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 76,420 $ 77,502
Accrued expenses.......................................... 53,301 49,894
Current portion of long-term debt......................... 2,594 2,508
Income taxes payable...................................... 10,899 20,593
--------- ---------
Total current liabilities.............................. 143,214 150,497
LONG-TERM DEBT.............................................. 46,697 42,645
OTHER LIABILITIES........................................... 12,311 19,605
--------- ---------
Total liabilities...................................... 202,222 212,747
--------- ---------
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, 41,943,143 and 42,231,869 shares issued or
issuable............................................... 409 422
Capital in excess of par.................................. 182,662 189,656
Retained earnings......................................... 227,191 311,852
Accumulated other comprehensive (loss) income............. 59 (316)
--------- ---------
Total.................................................. 410,321 501,614
Treasury stock, 55,373 and 286,746 shares at cost......... (1,348) (6,627)
--------- ---------
Total shareholders' equity............................. 408,973 494,987
--------- ---------
TOTAL............................................. $ 611,195 $ 707,734
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
23
26
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED
JANUARY 30, 1999, JANUARY 29, 2000 AND FEBRUARY 3, 2001
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR
------------------------------------
1998 1999 2000
---------- ---------- ----------
Net sales................................................ $1,037,831 $1,186,748 $1,333,501
Cost of goods sold, including buying and occupancy
costs.................................................. 659,997 747,782 818,835
---------- ---------- ----------
Gross margin............................................. 377,834 438,966 514,666
Selling, general and administrative expenses............. 282,789 323,328 373,508
Combination expenses:
Transaction costs...................................... -- 7,707 --
Duplicate facility costs............................... -- 6,070 --
Litigation costs....................................... -- 930 --
---------- ---------- ----------
Operating income......................................... 95,045 100,931 141,158
Interest expense (net of interest income of $2,060,
$1,568 and $2,845, respectively)....................... 7,993 2,580 839
---------- ---------- ----------
Earnings before income taxes............................. 87,052 98,351 140,319
Provision for income taxes............................... 36,910 42,394 55,658
---------- ---------- ----------
Earnings before extraordinary item....................... 50,142 55,957 84,661
Extraordinary item, net of tax........................... 701 2,912 --
---------- ---------- ----------
Net earnings............................................. $ 49,441 $ 53,045 $ 84,661
========== ========== ==========
Net earnings per basic share:
Earnings before extraordinary item..................... $ 1.23 $ 1.34 $ 2.03
Extraordinary item, net of tax......................... (0.02) (0.07) --
---------- ---------- ----------
$ 1.21 $ 1.27 $ 2.03
========== ========== ==========
Net earnings per diluted share:
Earnings before extraordinary item..................... $ 1.19 $ 1.32 $ 2.00
Extraordinary item, net of tax......................... (0.02) (0.07) --
---------- ---------- ----------
$ 1.17 $ 1.25 $ 2.00
========== ========== ==========
Weighted average shares outstanding:
Basic.................................................. 40,738 41,848 41,769
========== ========== ==========
Diluted................................................ 42,964 42,452 42,401
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
24
27
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 30, 1999,
JANUARY 29, 2000 AND FEBRUARY 3, 2001
(IN THOUSANDS, EXCEPT SHARES)
ACCUMULATED
CAPITAL OTHER
COMMON IN EXCESS RETAINED COMPREHENSIVE TREASURY
STOCK OF PAR EARNINGS (LOSS) INCOME STOCK TOTAL
------ --------- -------- ------------- -------- --------
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.................. 49,396
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.................. 53,337
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 exchangable 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
Comprehensive income:
Net earnings.................................... -- -- 84,661 -- -- 84,661
Translation adjustment.......................... -- -- -- (375) -- (375)
--------
Total comprehensive income.................. 84,286
Common stock issued to stock discount plan --
44,713 shares................................... -- 1,020 -- -- -- 1,020
Common stock issued upon exercise of stock
options -- 248,653 shares....................... 3 3,874 -- -- -- 3,877
Common stock withheld to satisfy tax Withholding
liabilities of optionees -- 3,890 shares........ -- (109) -- -- -- (109)
Conversion of exchangable shares to common
stock -- 984,353 shares......................... 10 (10) -- -- -- --
Tax benefit recognized upon exercise of stock
options......................................... -- 1,382 -- -- -- 1,382
Proceeds from sale of option contracts............ -- 929 -- -- -- 929
Treasury stock purchased -- 335,000 shares........ -- -- -- -- (7,871) (7,871)
Treasury stock issued to profit sharing plan --
103,627 shares.................................. -- (92) -- -- 2,592 2,500
---- --------- -------- ----- ------- --------
BALANCE -- February 3, 2001......................... $422 $ 189,656 $311,852 $(316) $(6,627) $494,987
==== ========= ======== ===== ======= ========
The accompanying notes are an integral part of these consolidated financial
statements.
25
28
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
JANUARY 30, 1999, JANUARY 29, 2000 AND FEBRUARY 3, 2001
(IN THOUSANDS)
1998 1999 2000
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.............................................. $ 49,441 $ 53,045 $ 84,661
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Extraordinary item, net of tax.......................... 701 2,912 --
Depreciation and amortization........................... 26,761 30,082 34,689
Deferred tax provision (benefit)........................ 2,194 (256) 7,225
Stock option compensation expense....................... 137 889 --
Duplicate facility costs................................ -- 4,004 --
Increase in inventories................................. (46,428) (15,737) (36,632)
Increase in other assets................................ (1,285) (1,227) (7,636)
Increase in accounts payable and accrued expenses....... 4,705 23,858 829
Increase (decrease) in income taxes payable............. (1,343) 3,271 11,065
Increase in other liabilities........................... 684 444 500
-------- -------- --------
Net cash provided by operating activities........... 35,567 101,285 94,701
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net................................. (53,474) (47,506) (79,411)
Investment in trademarks, tradenames and other assets..... (6,718) (321) (3,989)
Maturities of short-term investments...................... 29,698 8,525 --
Purchases of short-term investments....................... (18,045) (2,500) --
Purchases of minority interest............................ -- (2,135) --
-------- -------- --------
Net cash used in investing activities............... (48,539) (43,937) (83,400)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 3,649 2,212 4,897
Proceeds from revolving credit facility................... 4,443 -- --
Long-term borrowings...................................... 42,500 49,688 --
Principal payments on long-term debt...................... (45,809) (60,113) (2,518)
Repayment of convertible debt............................. (21,473) -- --
Deferred financing and merger costs....................... (1,010) (625) --
Distributions to minority interest........................ (176) -- --
Proceeds from sale of put options......................... -- -- 929
Tax payments related to options exercised................. (905) (413) (109)
Purchase of treasury stock................................ (926) (1,273) (7,871)
-------- -------- --------
Net cash used in financing activities............... (19,707) (10,524) (4,672)
-------- -------- --------
Effect of exchange rate changes on cash..................... 123 (38) (1)
-------- -------- --------
INCREASE (DECREASE) IN CASH................................. (32,556) 46,786 6,628
CASH:
Beginning of period....................................... 63,568 31,012 77,798
-------- -------- --------
End of period............................................. $ 31,012 $ 77,798 $ 84,426
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest................................................ $ 10,367 $ 4,339 $ 3,353
======== ======== ========
Income taxes............................................ $ 36,428 $ 39,417 $ 38,341
======== ======== ========
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....... $ 1,458 $ 418 $ 1,382
======== ======== ========
Additional capital in excess of par resulting from
conversion of stock options upon combination with
Moores.................................................. $ -- $ 1,237 $ --
======== ======== ========
Treasury stock contributed to employee stock plan......... $ 1,500 $ 2,000 $ 2,500
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
26
29
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 30, 1999,
JANUARY 29, 2000 AND FEBRUARY 3, 2001
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 1998 ended on
January 30, 1999, fiscal year 1999 ended on January 29, 2000 and fiscal year
2000 ended on February 3, 2001. Both fiscal years 1998 and 1999 included 52
weeks. Fiscal year 2000 included 53 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 original 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 29, 2000 and February
3, 2001, 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.
27
30
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 $60.8 million, $64.5 million and $69.7 million in fiscal 1998,
1999 and 2000, 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 Euro). 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 -- 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 considers its business as one operating
segment based on the similar economic characteristics of its three brands.
Revenues of Canadian retail operations were $130.7 million, $133.2 million and
$145.7 million for fiscal 1998, 1999 and 2000, respectively. Long-lived assets
of the Company's Canadian operations were $32.7 million and $33.9 million as of
the end of fiscal 1999 and 2000, respectively.
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. Upon adoption of
SFAS 133 in the first quarter of 2001, the Company will recognize a cumulative
loss adjustment of $0.6 million ($0.4 million, net of tax) in accumulated other
comprehensive income related primarily to the unrealized losses on foreign
currency forward exchange contracts.
28
31
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. As of
February 3, 2001, all Exchangeable Shares, which had substantially identical
economic and legal rights as shares of the Company's common stock, had been
converted on a one-on-one basis to 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. As of January 29, 2000, there were 1.0
million Exchangeable Shares that had not yet been converted but were 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 store 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.
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.
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 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
---------------------------
1998 1999 2000
------- ------- -------
Earnings before extraordinary item...................... $50,142 $55,957 $84,661
Extraordinary item, net of tax.......................... 701 2,912 --
------- ------- -------
Net earnings............................................ $49,441 $53,045 $84,661
======= ======= =======
Weighted average number of common shares outstanding.... 40,738 41,848 41,769
======= ======= =======
Basic EPS
Earnings before extraordinary item.................... $ 1.23 $ 1.34 $ 2.03
Extraordinary item, net of tax........................ (0.02) (0.07) --
------- ------- -------
Net earnings.......................................... $ 1.21 $ 1.27 $ 2.03
======= ======= =======
Earnings before extraordinary item...................... $50,142 $55,957 $84,661
Interest on notes, net of taxes......................... 1,144 -- --
------- ------- -------
As adjusted............................................. 51,286 55,957 84,661
Extraordinary item, net of tax.......................... 701 2,912 --
------- ------- -------
As adjusted............................................. $50,585 $53,045 $84,661
======= ======= =======
Weighted average number of common shares outstanding.... 40,738 41,848 41,769
Assumed exercise of stock options....................... 684 604 632
Assumed conversion of notes............................. 1,542 -- --
------- ------- -------
As adjusted............................................. 42,964 42,452 42,401
======= ======= =======
Diluted EPS
Earnings before extraordinary item.................... $ 1.19 $ 1.32 $ 2.00
Extraordinary item, net of tax........................ (0.02) (0.07) --
------- ------- -------
Net earnings.......................................... $ 1.17 $ 1.25 $ 2.00
======= ======= =======
4. LONG-TERM DEBT
The Company has a revolving credit agreement with a group of banks (the
"Credit Agreement") that 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 from 0.75% to
1.25%. The Credit Agreement provides for fees applicable to unused commitments
of 0.125% to 0.225%. As of February 3, 2001, there was no indebtedness
outstanding under the Credit Agreement.
In addition, the Company entered into two Canadian credit facilities in
conjunction with the combination with Moores (see Note 2). 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
under which the Company borrowed Can$75 million (US$50 million) in February
1999. The term credit borrowing is payable 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
credit borrowing was 6.0% and 6.3% at January 29, 2000 and February 3, 2001,
respectively. Covenants and interest rates are substantially similar to those
contained in the Company's Credit Agreement. Borrowings under these
30
33
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreements were used to repay approximately US$57 million in outstanding
indebtedness of Moores and to fund operating and other requirements of Moores.
As of January 29, 2000 and February 3, 2001, there was US$49.3 and US$45.2
million outstanding under these credit agreements, respectively.
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 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 four fiscal years are as follows:
2001 -- $2.5 million; 2002 -- $2.5 million; 2003 -- $2.5 million; 2004 -- $37.7
million.
The Company utilizes letters of credit primarily for inventory purchases.
At February 3, 2001, letters of credit totaling approximately $8.0 million were
issued and outstanding.
5. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
FISCAL YEAR
---------------------------
1998 1999 2000
------- ------- -------
Current tax expense:
Federal............................................... $25,715 $32,338 $36,038
State................................................. 4,558 5,486 4,753
Foreign............................................... 4,443 4,826 7,642
Deferred tax expense (benefit):
Federal and state..................................... 2,594 125 7,277
Foreign............................................... (400) (381) (52)
------- ------- -------
Total......................................... $36,910 $42,394 $55,658
======= ======= =======
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
$25.8 million at February 3, 2001) 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
------------------
1998 1999 2000
---- ---- ----
Federal statutory rate...................................... 35% 35% 35%
State income taxes, net of federal benefit.................. 5 4 3
Nondeductible transaction costs............................. -- 3 --
Other....................................................... 2 1 2
-- -- --
42% 43% 40%
== == ==
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). At February 3, 2001, the Company
had net deferred tax liabilities of $2.6 million with $10.4 million classified
as other current assets and $13.0 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 29, 2000 and February 3, 2001 were as follows (in thousands):
JANUARY 29, FEBRUARY 3,
2000 2001
----------- -----------
Deferred tax assets:
Accrued rent and other expenses........................... $ 6,615 $ 4,887
Accrued compensation...................................... 1,272 1,554
Accrued markdowns......................................... 3,088 3,031
Deferred intercompany profits............................. 1,963 2,422
Other..................................................... 621 1,217
------- --------
13,559 13,111
------- --------
Deferred tax liabilities:
Capitalized inventory costs............................... (2,085) (2,282)
Property and equipment.................................... (3,981) (9,785)
Intangibles............................................... (1,044) (846)
Deferred intercompany interest............................ (1,174) (2,371)
Other..................................................... (604) (454)
------- --------
(8,888) (15,738)
------- --------
Net deferred tax assets (liabilities)....................... $ 4,671 $ (2,627)
======= ========
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 29, FEBRUARY 3,
2000 2001
----------- -----------
Goodwill and other intangibles.............................. $51,541 $ 53,995
Accumulated amortization.................................... (8,422) (11,301)
------- --------
43,119 42,694
Deposits and other.......................................... 6,185 10,042
------- --------
Total............................................. $49,304 $ 52,736
======= ========
Accrued expenses consist of the following (in thousands):
Sales, payroll and property taxes payable................... $11,084 $ 10,343
Accrued salary, bonus and vacation.......................... 15,397 14,834
Other....................................................... 26,820 24,717
------- --------
Total............................................. $53,301 $ 49,894
======= ========
7. CAPITAL STOCK, STOCK OPTIONS AND BENEFIT PLANS
On June 19, 1998, the Company effected a 50% stock dividend. 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 0.43. In January 2000, the Board of Directors authorized the
repurchase of up to one million shares in the open market or in private
transactions, dependent on the market price and other considerations. On January
31, 2001, the Board of Directors authorized an expansion of the adopted stock
repurchase program for up to an additional two million shares of its common
stock. As of February 3, 2001, the Company had repurchased 335,000 shares at a
cost of $7.9 million and had options outstanding for the repurchase of an
additional 400,000 shares under this program (see Note 8). Through February 23,
2001, the Company had purchased an additional 900,000 shares at a cost of $23.9
million.
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, as amended, provides
for the grant of options to purchase up to 1,850,000 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 117,500 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
33
36
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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, 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
=========
Granted......................................... 741,745 23.72
Exercised....................................... (248,653) 15.59
Forfeited....................................... (111,653) 22.74
--------- ------
Options outstanding, February 3, 2001............. 2,434,399 $20.76 1,262,993
========= ====== =========
Grants of stock options outstanding as of February 3, 2001 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........................ 374,383 3.7 Years $10.75 318,133 $10.81
15.01 to 25.00........................ 1,757,551 7.6 Years 21.00 816,987 19.34
25.01 to 50.00........................ 302,465 7.7 Years 31.81 127,873 34.58
--------- ---------
3.85 to 50.00........................ 2,434,399 20.76 1,262,993 18.73
========= =========
As of February 3, 2001, 2,059,727 options were available for grant under
existing plans and 4,494,126 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 135,590, 67,201 and 248,653
shares of common stock were exercised during 1998, 1999 and 2000, respectively,
resulted in a tax benefit to the Company of $1.5 million in 1998, $0.4 million
in 1999 and $1.4 million in 2000, which has been recognized as capital in excess
of par. In addition, the Company withheld 26,050 shares, 11,368 shares and 3,890
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 profit sharing plan are made at the
34
37
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
discretion of the Board of Directors. During 1998, 1999 and 2000, contributions
charged to operations were $2.1 million, $2.8 million and $2.9 million,
respectively, for the plans.
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 lesser of the fair market value on the first day of the offering period or
the fair market value on the last day of the offering period. 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 1999 and 2000 employees purchased 47,481 and
44,713 shares, respectively, under the ESDP, the weighted-average fair value of
which was $21.89 and $22.82 per share, respectively. As of February 3, 2001,
1,311,218 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
---------------------------
1998 1999 2000
------- ------- -------
Earnings before extraordinary item:
As reported............................................. $50,142 $55,957 $84,661
Pro forma............................................... $48,325 $53,623 $81,505
Earnings per share before extraordinary item:
As reported:
Basic................................................. $ 1.23 $ 1.34 $ 2.03
Diluted............................................... $ 1.19 $ 1.32 $ 2.00
Pro forma:
Basic................................................. $ 1.19 $ 1.28 $ 1.95
Diluted............................................... $ 1.15 $ 1.26 $ 1.92
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 $13.76, $14.61 and $13.82 for grants made during fiscal 1998, 1999
and 2000, respectively. The following assumptions were used for option grants in
1998, 1999 and 2000, respectively: expected volatility of 52.07%, 52.92% and
54.71%, risk-free interest rates (U.S. Treasury five year notes) of 4.78%, 5.31%
and 6.67%, and an expected life of six 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 2015. Rent expense for fiscal 1998, 1999 and
2000 was $52.9 million, $61.5 million and $71.8 million, respectively, and
includes contingent rentals of $0.1 million, $0.4 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
February 3, 2001 for each of the next five years and in the aggregate are as
follows (in thousands):
FISCAL YEAR AMOUNT
- ----------- --------
2001...................................................... $ 71,654
2002...................................................... 67,652
2003...................................................... 61,837
2004...................................................... 53,861
2005...................................................... 43,764
Thereafter................................................ 110,657
--------
Total........................................... $409,425
========
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
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 Euro). 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 February 3, 2001, the Company held forward exchange
contracts with notional amounts totaling $26.5 million. All such contracts
expire within 18 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 February 3, 2001, the
contracts outstanding had a fair value of $0.6 million less than their notional
value. Upon adoption of SFAS 133 in the first quarter of 2001, the Company will
recognize a cumulative loss adjustment of $0.6 million ($0.4 million, net of
tax) in accumulated other comprehensive income related primarily to unrealized
losses on foreign currency forward exchange contracts (see Note 1).
The majority of the forward exchange contracts are with five 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.
Option contracts
During 2000, the Company issued three separate option contracts under which
the contract counterparties have the option to require the Company to purchase
an agreed-upon number of shares of its common stock at a specific strike price
per share. The first option contract was issued in July 2000 and required the
36
39
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company to purchase 250,000 shares of its common stock on October 25, 2000. The
Company received a premium of $0.4 million for issuing this contract which
expired unexercised on October 25, 2000. The remaining two contracts, both
issued in December 2000, require the Company to purchase 200,000 shares of its
common stock on March 15, 2001 and 200,000 shares of its common stock on June
12, 2001 at an aggregate cost of approximately $8.6 million. The Company
received premiums, in aggregate, of $0.5 million for issuing these two
contracts. As of February 23, 2001, the market value of the Company's common
stock exceeded the strike prices under the two open option contracts.
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
1999 and 2000 fiscal years are presented below (in thousands, except per share
amounts):
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
FISCAL 2000
QUARTERS ENDED
------------------------------------------------
APRIL 29, JULY 29, OCTOBER 28, FEBRUARY 3,
2000 2000 2000 2001
--------- -------- ----------- -----------
Net sales................................. $287,876 $294,505 $304,198 $446,922
Gross margin.............................. 104,313 110,652 115,180 184,521
Earnings before extraordinary item........ 13,428 15,965 17,008 38,260
Net earnings.............................. $ 13,428 $ 15,965 $ 17,008 $ 38,260
Basic................................... $ 0.32 $ 0.38 $ 0.41 $ 0.91
Diluted................................. $ 0.32 $ 0.38 $ 0.40 $ 0.90
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 (see Note 2).
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 7, 2001.
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 7, 2001.
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 7, 2001.
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 7, 2001.
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 29, 2000 and February 3, 2001
Consolidated Statements of Earnings for the years ended January 30,
1999, January 29, 2000 and February 3, 2001
Consolidated Statements of Shareholders' Equity for the years ended
January 30, 1999, January 29, 2000 and February 3, 2001
Consolidated Statements of Cash Flows for the years ended January 30,
1999, January 29, 2000 and February 3, 2001
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
------- -------
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 -- 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 -- Articles of Amendment to the Restated Articles of
Incorporation (included Exhibit 3.3).
4.5 -- 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).
4.6 -- Term Credit Agreement dated as of February 5, 1999, by
and among the Company, Golden Moores Finance 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).
4.7 -- Revolving Credit Agreement dated as of February 10, 1999,
by and among the Company, Moores Retail Group Inc. 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).
4.8 -- First Amendment to Revolving Credit Agreement dated
September 14, 1999, by and among the Company and Bank of
America, N.A. and the Banks listed therein (filed
herewith).
4.9 -- First Amendment to Term Credit Agreement dated September
14, 1999, by and among the Company, Golden Moores Finance
Company and Bank of America, N.A. and the Banks listed
therein (filed herewith).
4.10 -- First Amendment to Revolving Credit Agreement dated
September 14, 1999, by and among the Company, Moores
Retail Group Inc. and Bank of America Canada and the
Banks listed therein (filed herewith).
4.11 -- Second Amendment to Revolving Credit Agreement dated
January 28, 2000, by and among the Company and Bank of
America, N.A. and the Banks listed therein (filed
herewith).
4.12 -- Second Amendment to Term Credit Agreement dated January
28, 2000, by and among the Company, Golden Moores Finance
Company and Bank of America, N.A. and the Banks listed
therein (filed herewith).
39
42
EXHIBIT
NUMBER EXHIBIT
------- -------
4.13 -- Second Amendment to Revolving Credit Agreement dated
January 28, 2000, by and among the Company, Moores Retail
Group, Inc. and Bank of America Canada and the Banks
listed therein (filed herewith).
4.14 -- Third Amendment to Revolving Credit Agreement dated
February 13, 2001, by and among the Company and Bank of
America, N.A. and the Banks listed therein (filed
herewith).
4.15 -- Third Amendment to Term Credit Agreement dated February
13, 2001, by and among the Company, Golden Moores Finance
Company and Bank of America, N.A. and the Banks listed
therein (filed herewith).
4.16 -- Third Amendment to Revolving Credit Agreement dated
February 13, 2001, by and among the Company, Moores
Retail Group Inc. and Bank of America Canada and the
Banks listed therein (filed herewith).
*10.1 -- 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)).
*10.2 -- 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)).
*10.3 -- 1992 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)).
*10.4 -- First Amendment to 1992 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)).
10.5 -- 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).
10.6 -- 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)).
*10.7 -- 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)).
*10.8 -- 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).
*10.9 -- 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).
*10.10 -- Second Amendment to 1992 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).
*10.11 -- 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).
40
43
EXHIBIT
NUMBER EXHIBIT
------- -------
*10.12 -- 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)).
*10.13 -- 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).
10.14 -- Lease dated October 1, 1994, by and between Stephen H.
Greenspan, Paul Ruben and Richard M. Vehon and T&C
Liquidators, Inc. (incorporated by reference to Exhibit
10.17 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 29, 2000).
10.15 -- Amendment to Lease dated April 15, 1996, by and between
Stephen H. Greenspan, Paul Ruben and Richard M. Vehon and
T&C Liquidators, Inc. (incorporated by reference to
Exhibit 10.18 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 29, 2000).
10.16 -- Lease Agreement dated November 20, 1995, by and between
Ellsworth Realty, L.L.C. and K&G Men's Center, Inc.
(incorporated by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 29, 2000).
10.17 -- Amendment to Lease Agreement dated November 29, 1995, by
and between Ellsworth Realty, L.L.C. and K&G Men's
Center, Inc. (incorporated by reference to Exhibit 10.20
to the Company's Annual Report on Form 10-K for the
fiscal year ended January 29, 2000).
10.18 -- Second Amendment to Lease Agreement dated July 1, 1999,
by and between Ellsworth Realty, L.L.C. and K&G Men's
Center, Inc. (incorporated by reference to Exhibit 10.21
to the Company's Annual Report on Form 10-K for the
fiscal year ended January 29, 2000).
*10.19 -- Second Amendment to 1998 Key Employee Stock Option Plan
(incorporated by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 29, 2000).
10.20 -- 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
(incorporated by reference to Exhibit 10.23 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 29, 2000).
10.21 -- Software Development Agreement dated January 3, 2000, by
and between the Company and Chelsea Market Systems,
L.L.C. (incorporated by reference to Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 29, 2000).
*10.22 -- Third Amendment to The Men's Wearhouse, Inc. 1992
Non-Employee Director Stock Option Plan (incorporated by
reference from Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 29, 2000).
*10.23 -- Second Amendment [sic] to The Men's Wearhouse, Inc. 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 July 29, 2000).
41
44
EXHIBIT
NUMBER EXHIBIT
------- -------
10.24 -- Amendment No. 1 to the Limited Liability Company
Agreement of Chelsea Market Systems, L.L.C. dated as of
July 31, 2000, between and among Renwick Technologies,
Inc. and Harry M. Levy (incorporated by reference from
Exhibit 10.3 to the Company's Quarterly Report on Form
10-Q for the quarter ended July 29, 2000).
10.25 -- Lease Agreement dated May 1, 1999, by and between G&R,
Inc. and MALG, Inc. (filed herewith).
10.26 -- Assignment and Assumption of and Amendment to Lease
Agreement dated May 24, 2000, by and among G&R, Inc.,
MALG, Inc. and K&G Men's Center, Inc. (filed herewith).
10.27 -- Office Lease dated September 15, 2000, by and between
Britmoore Interests and Chelsea Market Systems, LLC
(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).
- ---------------
* Management Compensation or Incentive Plan
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 2001 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
None.
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 30, 2001
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 30, 2001
- ----------------------------------------------------- Executive Officer and Director
George Zimmer
/s/ ERIC J. LANE President and Chief Operating April 30, 2001
- ----------------------------------------------------- Officer
Eric J. Lane
/s/ NEILL P. DAVIS Senior Vice President, Chief April 30, 2001
- ----------------------------------------------------- Financial Officer, Treasurer and
Neill P. Davis Principal Financial Officer
/s/ GARY G. CKODRE Senior Vice President and April 30, 2001
- ----------------------------------------------------- Principal Accounting Officer
Gary G. Ckodre
/s/ RICHARD E. GOLDMAN Executive Vice President and April 30, 2001
- ----------------------------------------------------- Director
Richard E. Goldman
/s/ HARRY M. LEVY Executive Vice President -- April 30, 2001
- ----------------------------------------------------- Planning and Systems, Assistant
Harry M. Levy Secretary and Director
/s/ JAMES E. ZIMMER Senior Vice President -- April 30, 2001
- ----------------------------------------------------- Merchandising and Director
James E. Zimmer
/s/ ROBERT E. ZIMMER Senior Vice President -- Real April 30, 2001
- ----------------------------------------------------- Estate and Director
Robert E. Zimmer
/s/ STEPHEN H. GREENSPAN Chief Executive Officer -- K&G April 30, 2001
- ----------------------------------------------------- Men's Company and Director
Stephen H. Greenspan
/s/ DAVID EDWAB Vice Chairman of the Board and April 30, 2001
- ----------------------------------------------------- Director
David Edwab
/s/ RINALDO S. BRUTOCO Director April 30, 2001
- -----------------------------------------------------
Rinaldo S. Brutoco
43
46
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MICHAEL L. RAY Director April 30, 2001
- -----------------------------------------------------
Michael L. Ray
/s/ SHELDON I. STEIN Director April 30, 2001
- -----------------------------------------------------
Sheldon I. Stein
/s/ KATHLEEN MASON Director April 30, 2001
- -----------------------------------------------------
Kathleen Mason
44
47
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT
------- -------
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 -- 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 -- Articles of Amendment to the Restated Articles of
Incorporation (included Exhibit 3.3).
4.5 -- 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).
4.6 -- Term Credit Agreement dated as of February 5, 1999, by
and among the Company, Golden Moores Finance 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).
4.7 -- Revolving Credit Agreement dated as of February 10, 1999,
by and among the Company, Moores Retail Group Inc. 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).
4.8 -- First Amendment to Revolving Credit Agreement dated
September 14, 1999, by and among the Company and Bank of
America, N.A. and the Banks listed therein (filed
herewith).
4.9 -- First Amendment to Term Credit Agreement dated September
14, 1999, by and among the Company, Golden Moores Finance
Company and Bank of America, N.A. and the Banks listed
therein (filed herewith).
4.10 -- First Amendment to Revolving Credit Agreement dated
September 14, 1999, by and among the Company, Moores
Retail Group Inc. and Bank of America Canada and the
Banks listed therein (filed herewith).
4.11 -- Second Amendment to Revolving Credit Agreement dated
January 28, 2000, by and among the Company and Bank of
America, N.A. and the Banks listed therein (filed
herewith).
4.12 -- Second Amendment to Term Credit Agreement dated January
28, 2000, by and among the Company, Golden Moores Finance
Company and Bank of America, N.A. and the Banks listed
therein (filed herewith).
48
EXHIBIT
NUMBER EXHIBIT
------- -------
4.13 -- Second Amendment to Revolving Credit Agreement dated
January 28, 2000, by and among the Company, Moores Retail
Group, Inc. and Bank of America Canada and the Banks
listed therein (filed herewith).
4.14 -- Third Amendment to Revolving Credit Agreement dated
February 13, 2001, by and among the Company and Bank of
America, N.A. and the Banks listed therein (filed
herewith).
4.15 -- Third Amendment to Term Credit Agreement dated February
13, 2001, by and among the Company, Golden Moores Finance
Company and Bank of America, N.A. and the Banks listed
therein (filed herewith).
4.16 -- Third Amendment to Revolving Credit Agreement dated
February 13, 2001, by and among the Company, Moores
Retail Group Inc. and Bank of America Canada and the
Banks listed therein (filed herewith).
*10.1 -- 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)).
*10.2 -- 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)).
*10.3 -- 1992 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)).
*10.4 -- 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)).
10.5 -- 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).
10.6 -- 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)).
*10.7 -- 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)).
*10.8 -- 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).
*10.9 -- 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).
*10.10 -- Second Amendment to 1992 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).
*10.11 -- 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).
49
EXHIBIT
NUMBER EXHIBIT
------- -------
*10.12 -- 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)).
*10.13 -- 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).
10.14 -- Lease dated October 1, 1994, by and between Stephen H.
Greenspan, Paul Ruben and Richard M. Vehon and T&C
Liquidators, Inc. (incorporated by reference to Exhibit
10.17 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 29, 2000).
10.15 -- Amendment to Lease dated April 15, 1996, by and between
Stephen H. Greenspan, Paul Ruben and Richard M. Vehon and
T&C Liquidators, Inc. (incorporated by reference to
Exhibit 10.18 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 29, 2000).
10.16 -- Lease Agreement dated November 20, 1995, by and between
Ellsworth Realty, L.L.C. and K&G Men's Center, Inc.
(incorporated by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 29, 2000).
10.17 -- Amendment to Lease Agreement dated November 29, 1995, by
and between Ellsworth Realty, L.L.C. and K&G Men's
Center, Inc. (incorporated by reference to Exhibit 10.20
to the Company's Annual Report on Form 10-K for the
fiscal year ended January 29, 2000).
10.18 -- Second Amendment to Lease Agreement dated July 1, 1999,
by and between Ellsworth Realty, L.L.C. and K&G Men's
Center, Inc. (incorporated by reference to Exhibit 10.21
to the Company's Annual Report on Form 10-K for the
fiscal year ended January 29, 2000).
*10.19 -- Second Amendment to 1998 Key Employee Stock Option Plan
(incorporated by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 29, 2000).
10.20 -- 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
(incorporated by reference to Exhibit 10.23 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 29, 2000).
10.21 -- Software Development Agreement dated January 3, 2000, by
and between the Company and Chelsea Market Systems,
L.L.C. (incorporated by reference to Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 29, 2000).
*10.22 -- Third Amendment to The Men's Wearhouse, Inc. 1992
Non-Employee Director Stock Option Plan (incorporated by
reference from Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 29, 2000).
*10.23 -- Second Amendment [sic] to The Men's Wearhouse, Inc. 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 July 29, 2000).
50
EXHIBIT
NUMBER EXHIBIT
------- -------
10.24 -- Amendment No. 1 to the Limited Liability Company
Agreement of Chelsea Market Systems, L.L.C. dated as of
July 31, 2000, between and among Renwick Technologies,
Inc. and Harry M. Levy (incorporated by reference from
Exhibit 10.3 to the Company's Quarterly Report on Form
10-Q for the quarter ended July 29, 2000).
10.25 -- Lease Agreement dated May 1, 1999, by and between G&R,
Inc. and MALG, Inc. (filed herewith).
10.26 -- Assignment and Assumption of and Amendment to Lease
Agreement dated May 24, 2000, by and among G&R, Inc.,
MALG, Inc. and K&G Men's Center, Inc. (filed herewith).
10.27 -- Office Lease dated September 15, 2000, by and between
Britmoore Interests and Chelsea Market Systems, LLC
(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).
- ---------------
* Management Compensation or Incentive Plan