MENS WEARHOUSE INC - 10-Q Quarterly Report

Back to GetFilings.com

================================================================================

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 1, 2003 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 (I.R.S. 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)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]. No [ ].

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes [X]. No [ ].

The number of shares of common stock of the Registrant, par value $.01 per
share, outstanding at December 12, 2003 was 37,131,270, excluding 5,896,623
shares classified as Treasury Stock.

================================================================================

REPORT INDEX

PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
GENERAL INFORMATION

The consolidated financial statements herein include the accounts of The
Men's Wearhouse, Inc. and its wholly owned or controlled subsidiaries (the
"Company") and have been prepared without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). As applicable
under such regulations, certain information and footnote disclosures have been
condensed or omitted. We believe that the presentation and disclosures herein
are adequate to make the information not misleading, and the financial
statements reflect all elimination entries and normal adjustments which are
necessary for a fair statement of the results for the three and nine months
ended November 2, 2002 and November 1, 2003.

Operating results for interim periods are not necessarily indicative of the
results for full years. It is suggested that these consolidated financial
statements be read in conjunction with the consolidated financial statements for
the year ended February 1, 2003 and the related notes thereto included in the
Company's Annual Report on Form 10-K for the year then ended filed with the SEC.

Unless the context otherwise requires, "Company", "we", "us" and "our"
refer to The Men's Wearhouse, Inc. and its wholly owned or controlled
subsidiaries.

1

THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

See Notes to Consolidated Financial Statements.

2

THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

See Notes to Consolidated Financial Statements.

3

THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

See Notes to Consolidated Financial Statements.

4

THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. SIGNIFICANT ACCOUNTING POLICIES--

Basis of Presentation - The consolidated financial statements include the
accounts of The Men's Wearhouse, Inc. and its wholly owned or controlled
subsidiaries (the "Company"). Except for those discussed below, there have been
no significant changes in the accounting policies of the Company during the
periods presented. For a description of these policies, see Note 1 of Notes to
Consolidated Financial Statements in the Company's Annual Report on Form 10-K
for the year ended February 1, 2003.

Stock Based Compensation -- As permitted by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"), we account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." We have adopted the disclosure-only provisions of
SFAS No. 123 and continue to apply APB Opinion 25 and related interpretations in
accounting for the stock option plans and the employee stock purchase plan. Had
we elected to apply the accounting standards of SFAS No. 123, our net earnings
and net earnings per share would have approximated the pro forma amounts
indicated below (in thousands, except per share data):

Accounting Change -- We adopted Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards No. 143, "Accounting for
Asset Retirement Obligations" ("SFAS 143"), on February 2, 2003. SFAS 143
addresses the accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated retirement costs.
The adoption of this statement did not have a material impact on our financial
position, results of operations or cash flows.

We adopted Statement of Financial Accounting Standards No. 145, "Rescission
of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections" ("SFAS 145"), on February 2, 2003. SFAS 145 rescinds FASB
Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and
an amendment of that Statement, FASB Statement No. 64, "Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements". SFAS 145 also rescinds FASB
Statement No. 44, "Accounting for Intangible Assets of Motor Carriers". In
addition, SFAS 145 amends FASB Statement No. 13, "Accounting for Leases," to
eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. This
statement also makes non-substantive technical corrections to existing
pronouncements. The adoption of this statement did not have a material impact on
our financial position, results of operations or cash flows.

We adopted Statement of Financial Accounting Standards No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities" ("SFAS 146"), on November
3, 2002. SFAS 146 replaces Emerging Issues Task Force ("EITF")

5

No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS 146 requires, among other things, that a liability for
costs associated with an exit or disposal activity be recognized when the
liability is incurred rather than when a company commits to such an activity and
also establishes fair value as the objective for initial measurement of the
liability. The adoption of this statement did not have a material impact on our
financial position, results of operations or cash flows.

We adopted Statement of Financial Accounting Standards No. 148, "Accounting
for Stock-Based Compensation-Transition and Disclosure" ("SFAS 148"), as of
February 1, 2003. SFAS 148 amends FASB Statement No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. Additionally, SFAS 148 amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The adoption of the disclosure requirements of SFAS 148 did not have a
material effect on the Company's financial position, results of operations or
cash flows. The disclosures required by SFAS 148 are included as part of this
note under the caption "Stock Based Compensation."

We adopted Statement of Financial Accounting Standards No. 149, "Amendment
of Statement No. 133 on Derivative Instruments and Hedging Activities" ("SFAS
149"), as of June 30, 2003. SFAS 149 amends and clarifies accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), and is effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after June
30, 2003. The adoption of this statement did not have a material impact on our
financial position, results of operations or cash flows.

We adopted Statement of Financial Accounting Standards No. 150, "Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity" ("SFAS 150") as of August 3, 2003. SFAS 150 establishes standards for
how an issuer classifies and measures certain financial instruments, many of
which were previously classified as equity. This statement is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of this statement did not have a material impact on our
financial position, results of operations or cash flows.

In November 2002, the FASB issued Financial Interpretation No. 45 ("FIN
45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires that
upon issuance of a guarantee, the guarantor must disclose and recognize a
liability for the fair value of the obligation it assumes under that guarantee.
The initial recognition and measurement requirement of FIN 45 is effective for
guarantees issued or modified after December 31, 2002. The disclosure
requirements of FIN 45 are effective for interim and annual periods ending after
December 15, 2002 and are applicable to guarantees issued before December 31,
2002. The adoption of FIN 45 did not have a material impact on our financial
position, results of operations or cash flows.

In November 2002, the EITF issued Issue 02-16, "Accounting by a Customer
(Including a Reseller) for Cash Consideration Received from a Vendor." This EITF
addresses the accounting treatment for cash vendor allowances received. The
adoption of EITF Issue 02-16 in 2003 did not have an impact on the Company's
financial position, results of operations or cash flows as we do not receive any
material vendor allowances.

New Accounting Pronouncements -- In January 2003, the Financial Accounting
Standards Board issued Financial Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 requires that if an entity
has a controlling financial interest in a variable interest entity, the assets,
liabilities and results of activities of the variable interest entity should be
included in the consolidated financial statements of the entity. FIN 46 requires
that its provisions are effective immediately for all arrangements entered into
after January 31, 2003. We do not have any variable interest entities created
after January 31, 2003. For any arrangements entered into prior to January 31,
2003, the FIN 46 provisions are required to be adopted at the beginning of the
first interim or annual period beginning after June 15, 2003. In October 2003,
the FASB deferred the implementation date for FIN 46 to financial statements
issued for the first period ending after December 15, 2003. The ultimate
adoption of FIN 46 is not expected to have a material impact on our financial
position, results of operations or cash flows.

6

2. EARNINGS PER SHARE

Basic earnings per share ("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, as well as the potential dilution of any put options outstanding,
computed using the reverse treasury stock method. Diluted EPS also gives effect
to the 3,031,431 potentially dilutive shares issuable upon conversion of the
Company's 3.125% Convertible Senior Notes due 2023. See "Liquidity and Capital
Resources" discussion in "Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 6 of Notes to
Consolidated Financial Statements herein.

3. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING

In connection with our direct sourcing program, we may enter into purchase
commitments that are denominated in a foreign currency (primarily the Euro). Our
practices include entering into foreign currency forward exchange contracts to
minimize foreign currency exposure related to forecasted purchases of certain
inventories. Under SFAS 133, such contracts have been designated as and
accounted for as cash flow hedges. The settlement terms of the forward
contracts, including amount, currency and maturity, correspond with payment
terms for the merchandise inventories. Any ineffective portion of a hedge is
reported in earnings immediately. At November 1, 2003, we had 29 contracts
maturing in varying increments to purchase an aggregate notional amount of $20.9
million in foreign currency, maturing at various dates through January 2005.
During the first nine months of 2003, we recognized an immaterial amount of
hedge ineffectiveness.

The changes in the fair value of the foreign currency forward exchange
contracts are matched to inventory purchases by period and are recognized in
earnings as such inventory is sold. 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 quarter end. We expect to recognize in earnings through October 30, 2004
approximately $0.1 million, net of tax, of existing net gains presently deferred
in accumulated other comprehensive income.

4. COMPREHENSIVE INCOME AND SUPPLEMENTAL CASH FLOWS

Our comprehensive income is as follows (in thousands):

We paid cash during the first nine months of 2002 of $1.4 million for
interest and $19.6 million for taxes, compared with $1.8 million for interest
and $15.9 million for taxes during the first nine months of 2003. We had
non-cash investing and financing activities resulting from the tax benefit
recognized upon exercise of stock options of $0.6 million and $1.2 million for
the first nine months of 2002 and 2003, respectively, and from the issuance of
treasury stock to the employee stock ownership plan of $0.5 million for the
first nine months of 2003. No issuance of treasury stock to the employee stock
ownership plan occurred during 2002.

7

5. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the net carrying amount of goodwill for the year ended
February 1, 2003 and for the nine months ended November 1, 2003 are as follows
(in thousands):

Balance, February 2, 2002............................................................................ $ 35,561
Goodwill of acquired business................................................................... 233
Translation adjustment.......................................................................... 813
---------
Balance, February 1, 2003............................................................................ $ 36,607
Translation adjustment.......................................................................... 2,810
---------
Balance, November 1, 2003............................................................................ $ 39,417
=========

The gross carrying amounts and accumulated amortization of our other
intangibles, which are included in other assets in the accompanying balance
sheet, are as follows (in thousands):

The pretax amortization expense associated with intangible assets totaled
approximately $270,000 and $521,000 for the nine months ended November 2, 2002
and November 1, 2003, respectively, and approximately $428,000 for the year
ended February 1, 2003. Pretax amortization associated with intangible assets at
November 1, 2003 is estimated to be $209,000 for the remainder of fiscal year
2003, $836,000 for each of the fiscal years 2004 and 2005, $785,000 for fiscal
year 2006 and $623,000 for fiscal year 2007.

6. LONG-TERM DEBT

In January 2003, we replaced our existing $125.0 million revolving credit
facility which was scheduled to mature in February 2004 with a new revolving
credit agreement with a group of banks (the "Credit Agreement") that provides
for borrowing of up to $100.0 million through February 4, 2006 (with extensions
for up to two years under certain conditions). Advances under the Credit
Agreement bear interest at a rate per annum equal to, at our option, the agent's
prime rate or the reserve adjusted LIBOR rate plus a varying interest rate
margin. The Credit Agreement also provides for fees applicable to unused
commitments. In addition, in January 2003, we entered into a new Canadian term
credit agreement under which we borrowed Can $62.0 million (US $40.7 million)
which was used to repay approximately Can $60.9 million (US $40.0 million) in
outstanding indebtedness of Moores under the previous term credit agreement. On
October 31, 2003, we repaid the outstanding indebtedness of Can $60.5 million
(US $45.9 million). As of November 1, 2003, there were no borrowings outstanding
under the Credit Agreement. The Credit Agreement contains certain 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 our common stock. We are in compliance with the
covenants in the Credit Agreement as of November 1, 2003.

On October 21, 2003, we issued $130.0 million of 3.125% Convertible Senior
Notes due 2023 in a private placement. A portion of the net proceeds from the
Notes was used to repay the outstanding indebtedness under our Canadian term
credit agreement and to repurchase shares of our stock under the program
authorized by the Board in September 2003 (see above); the balance is reserved
for general corporate purposes, which may include additional purchases of our
common stock under our share repurchase program. Interest on the Notes is
payable semi-annually on April 15 and October 15 of each year, beginning on
April 15, 2004. The Notes will mature on October 15, 2023. However, holders may
require us to purchase all or part of the Notes, for cash, at a purchase price
of 100% of the principal amount per Note plus accrued and unpaid interest

8

on October 15, 2008, October 15, 2013 and October 15, 2018 or upon a designated
event. Beginning on October 15, 2008, we will pay additional contingent interest
on the Notes if the average trading price of the Notes is above a specified
level during a specified period. In addition, we may redeem all or a portion of
the Notes on or after October 20, 2008, at 100% of the principal amount of the
Notes plus any accrued and unpaid interest, contingent interest and additional
amounts, if any. We also have the right to redeem the Notes between October 20,
2006 and October 19, 2008 if the price of our common stock reaches certain
levels.

During certain periods, the Notes are convertible by holders into shares of
our common stock initially at a conversion rate of 23.3187 shares of common
stock per $1,000 principal amount of Notes, which is equivalent to an initial
conversion price of $42.88 per share of common stock (subject to adjustment in
certain events), under the following circumstances: (1) if the closing sale
price of our common stock issuable upon conversion exceeds 120% of the
conversion price under specified conditions; (2) if we call the Notes for
redemption; or (3) upon the occurrence of specified corporate transactions. Upon
conversion of the Notes, in lieu of delivering common stock we may, in our
discretion, deliver cash or a combination of cash and common stock. The Notes
are general senior unsecured obligations, ranking on a parity in right of
payment with all our existing and future unsecured senior indebtedness and our
other general unsecured obligations, and senior in right of payment with all our
future subordinated indebtedness. The Notes are effectively subordinated to all
of our senior secured indebtedness, and all indebtedness and liabilities of our
subsidiaries.

7. LEGAL MATTERS

On April 18, 2003, a lawsuit was filed against the Company in the Superior
Court of California for the County of Orange, Case No. 03CC00132 (the "Orange
County Suit"). On April 21, 2003, a lawsuit was filed against K&G Men's Center,
Inc. and K&G Men's Company Inc. (collectively, "K&G"), wholly owned subsidiaries
of the Company, in the Los Angeles Superior Court of California, Case No.
BC294361 (the "Los Angeles County Suit"; the Los Angeles County Suit and the
Orange County Suit shall be referred to jointly as the "Suits").

The Orange County Suit was brought as a purported class action. The Los
Angeles County Suit was brought as a multi-party action. Both Suits allege
several causes of action, each based on the factual allegation that in the State
of California the Company and K&G misclassified its managers and assistant
managers as exempt from the application of certain California labor statutes.
Because of this alleged misclassification, the Suits allege that the Company and
K&G failed to pay overtime compensation and provide the required rest periods to
such employees. The Suits seek, among other things, declaratory and injunctive
relief along with an accounting as to alleged wages, premium pay, penalties,
interest and restitution allegedly due the class defendants. We believe that our
managers and assistant managers were properly classified as exempt under such
statutes and, therefore, properly compensated. The Company intends to vigorously
defend the Suits. We believe that the ultimate resolution of the Suits will not
have a material adverse effect on the Company.

On April 23, 2003, a lawsuit was filed against K&G in the Los Angeles
Superior Court of California, Case No. BC294497 (the "Tailor's Suit"). The
Tailor's Suit was brought as a multi-party action. The Tailor's Suit alleges
several causes of action, each based on the factual allegation that in the State
of California K&G misclassified the tailors working in their stores as
"independent contractors" and refused to classify them as non-exempt employees
subject to the application of certain California labor statutes. Because of this
alleged misclassification, the Tailor's Suit alleges that K&G failed to pay
hourly and overtime compensation and provide the required rest periods required
by such labor statutes. The Tailor's Suit further alleges that K&G violated
several other labor statutes and regulations as well as the California Unfair
Competition Law. It seeks, among other things, restitution, disgorgement due to
failure to comply with California labor laws, penalties, declaratory and
injunctive relief. We believe that the tailors were properly classified as
independent contractors and properly compensated pursuant to the terms of their
respective Independent Contractor Agreements. The Company intends to vigorously
defend the Tailor's Suit. We believe that the ultimate resolution of the
Tailor's Suit will not have a material adverse effect on the Company.

In addition, 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, results of operations or cash flows.

9

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

For supplemental information, it is suggested that "Management's Discussion
and Analysis of Financial Condition and Results of Operations" be read in
conjunction with the corresponding section included in the Company's Annual
Report on Form 10-K for the year ended February 1, 2003. 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 "2003" mean the 52-week fiscal year ending January 31, 2004.

The following table presents information with respect to stores in
operation during each of the respective fiscal periods:

RESULTS OF OPERATIONS

Three Months Ended November 2, 2002 and November 1, 2003

Our net sales were $322.6 million for the quarter ended November 1, 2003, a
$30.1 million or 10.3% increase from the same prior year period. This increase
was due primarily to a 9.8% increase in U.S. comparable store sales (which are
calculated primarily 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).
The increase in comparable sales for the U.S. stores was due mainly to increased
unit sales of suits and continued growth in our tuxedo rental business, which
increased from 3.5% of total revenues in the third quarter of 2002 to 4.3% of
total revenues in the third quarter of 2003. A decrease of 5.2% in comparable
sales for the Canadian stores, due partially to softer demand overall in the
Canadian men's apparel market, was more than offset by the foreign currency
exchange rate translation effect from the strengthening of the Canadian dollar.

Gross margin increased $20.5 million or 20.9% from the same prior year
quarter to $118.4 million in the third quarter of 2003. As a percentage of
sales, gross margin increased from 33.5% in the third quarter of 2002 to 36.7%
in the third quarter of 2003. This increase in gross margin percentage resulted
mainly from continued growth in our tuxedo rental business, which carries a
significantly higher incremental gross margin impact than our traditional
businesses, and improved initial markups and product margins realized from the
shift started in the second quarter of 2002 to merchandise with lower opening
price points at our Men's Wearhouse brand.

Selling, general and administrative ("SG&A") expenses, as a percentage of
sales, were 32.0% for the third quarter of 2003, compared to 31.0% for the third
quarter of 2002, with SG&A expenditures increasing by $12.7 million or 14.0% to
$103.3 million. On an absolute dollar basis, the principal components of SG&A
expenses increased primarily due to continued growth in our tuxedo rental
business, increased salaries and benefits associated with increased sales and
higher advertising costs. As a percentage of net sales, advertising expense

10

remained flat at 4.7%, store salaries increased from 12.6% to 12.8% and other
SG&A expenses increased from 13.8% to 14.5%.

Interest expense, net of interest income, increased from $0.4 million in the
third quarter of 2002 to $0.7 million in the third quarter of 2003. Weighted
average borrowings outstanding increased from $39.5 million in the third quarter
of 2002 to $61.8 million for the third quarter of 2003, and the weighted average
interest rate on outstanding indebtedness decreased from 5.3% to 4.6%. The
increase in the weighted average borrowings was due primarily to the issuance of
$130.0 million of 3.125% Convertible Senior Notes due 2023 (the "Notes") in
October 2003, a portion of the proceeds of which was used to repay the balance
outstanding on our Canadian credit facility. The decrease in the weighted
average interest rate was also due to the issuance of the Notes. The effect of
this increase in weighted average borrowings from the prior year on interest
expense was partly offset by an increase in interest income due to higher cash
balances. See "Liquidity and Capital Resources" discussion in the following
section herein.

Our effective income tax rate decreased from 37.8% for the third quarter of
2002 to 37.3% for the third quarter of 2003. The effective tax rate was higher
than the statutory U.S. federal rate of 35% primarily due to the effect of state
income taxes.

These factors resulted in net earnings of $9.1 million or 2.8% of net sales
for the third quarter of 2003, compared with net earnings of $4.3 million or
1.5% of net sales for the third quarter of 2002.

Nine Months Ended November 2, 2002 and November 1, 2003

Our net sales were $970.0 million for the nine months ended November 1,
2003, a $65.1 million or 7.2% increase over the same prior year period. This
increase was due primarily to a 6.2% increase in U.S. comparable store sales,
resulting mainly from increased unit sales of suits and continued growth in our
tuxedo rental business, which increased from 3.1% of total revenues in the first
nine months of 2002 to 4.6% of total revenues in the first nine months of 2003.
A decrease of 5.6% in comparable sales for the Canadian stores was due mainly to
unusually severe and extended winter weather conditions during the first
quarter, a shorter summer sale during the second quarter and softer demand
overall in the Canadian men's apparel market experienced throughout the first
nine months of 2003. However, this decrease was more than offset by the foreign
currency exchange rate translation effect from the strengthening of the Canadian
dollar.

Gross margin increased $43.4 million or 14.1% over the same prior year
period to $352.6 million for the first nine months of 2003. As a percentage of
sales, gross margin increased from 34.2% for the first nine months of 2002 to
36.4% for the first nine months of 2003. This increase in gross margin
percentage resulted mainly from continued growth in our tuxedo rental business,
which carries a significantly higher incremental gross margin impact than our
traditional businesses. In addition, our shift starting in the second quarter of
2002 to merchandise with lower opening price points at our Men's Wearhouse brand
resulted in improved initial markups and product margins in 2003.

SG&A expenses, as a percentage of sales, were 30.1% for the first nine
months of 2002, compared to 31.0% for the first nine months of 2003, with SG&A
expenditures increasing by $28.8 million or 10.6% to $300.9 million. On an
absolute dollar basis, the principal components of SG&A expenses increased
primarily due to continued growth in our tuxedo rental business, increased
salaries and benefits associated with increased sales, higher advertising costs
and higher insurance costs. SG&A expenses were reduced by the recognition of a
$4.4 million deferred pretax gain from the sale, in March 2002, of substantially
all of the assets of Chelsea Market Systems, L.L.C. ("Chelsea") to an unrelated
company regularly engaged in the development and licensing of software to the
retail industry. However, most of the gain recognized was offset by $3.7 million
in costs related to store closures and the write-off of certain technology
assets during the first quarter of 2003. As a percentage of net sales,
advertising expense decreased from 4.6% to 4.5%, store salaries decreased from
12.4% to 12.3% and other SG&A expenses increased from 13.2% to 14.2%.

Interest expense, net of interest income, increased from $0.8 million for
the first nine months of 2002 to $1.5 million in the first nine months of 2003.
Weighted average borrowings outstanding increased from $39.9 million in the
prior year to $49.5 million in the first nine months of 2003, and the weighted
average interest rate on outstanding indebtedness increased from 4.7% to 5.4%.
The increase in the weighted average borrowings was due primarily to the
issuance of the Notes in October 2003, a portion of the proceeds of which was
used to repay the balance outstanding on our Canadian credit facility. The
increase in the weighted average interest rate was due primarily to increases in
the LIBOR rate, as well as an increase in the rate payable for our then-existing
Canadian term loan. The effect of these increases on interest expense was partly
offset by an increase in interest income due to higher cash balances.

11

See "Liquidity and Capital Resources" discussion in the following section
herein.

Our effective income tax rate decreased from 37.8% for the nine months ended
November 2, 2002 to 37.3% for the nine months ended November 1, 2003. The
effective tax rate was higher than the statutory U.S. federal rate of 35%
primarily due to the effect of state income taxes.

These factors resulted in net earnings of $31.5 million or 3.3% of net sales
for the first nine months of 2003, compared with net earnings of $22.5 million
or 2.5% of net sales for the first nine months of 2002.

LIQUIDITY AND CAPITAL RESOURCES

Working capital was $379.8 million at November 1, 2003, which is up from
$325.3 million at February 1, 2003 and $305.2 million at November 2, 2002.
Historically, our working capital has been at its lowest level in January and
February, and has increased through November as inventory buildup is financed
with long-term borrowings in preparation for the fourth quarter selling season.
Working capital at the end of the third quarter of 2003 is higher than third
quarter of 2002 due mainly to our increased inventory levels and cash balances.

Our operating activities provided net cash of $34.3 million in the first
nine months of 2002, as cash provided by net earnings, adjusted for non-cash
charges and increases in payables, was offset partially by increases in
inventories and other assets and a decrease in income taxes payable. During the
first nine months of 2003, operating activities provided net cash of $24.6
million due mainly to net earnings, adjusted for non-cash charges (including
recognition of a deferred gain on a sale of assets) and increases in accounts
payables, accrued expenses and income taxes payable, offset partially by
increases in inventories. Inventories increased in the first nine months of 2003
due to seasonal inventory buildup and the purchase of fabric used in the direct
sourcing of inventory. During the first nine months of 2002, the increase in
inventory was less pronounced as a result of a decrease in net sales of 4.5% in
fiscal 2001, which resulted in lower planned inventory purchases.

Our investing activities used net cash of $28.5 million and $34.2 million
for the first nine months of 2002 and 2003, respectively. Cash used in investing
activities was primarily comprised of capital expenditures relating to stores
opened, remodeled or relocated during the period or under construction at the
end of the period and infrastructure technology investments. During the first
nine months of 2002, cash used for capital expenditures was partially offset by
net proceeds of $6.8 million received from the sale of assets.

Our financing activities used net cash of $26.5 million for the first nine
months of 2002, due mainly to purchases of treasury stock offset by proceeds
from the issuance of our common stock for options exercised. Net cash provided
by financing activities was $15.7 million for the first nine months of 2003, due
mainly to proceeds received from the issuance of the Notes and proceeds from the
issuance of our common stock for options exercised, offset by purchases of
treasury stock and the repayment of our Canadian term loan. The treasury stock
purchases were made under stock repurchase programs authorized by our Board of
Directors in January 2000, January 2001, November 2002 and September 2003. Under
the January 2000, January 2001 and November 2002 programs, 1,480,000 shares were
repurchased at a cost of $28.1 million during the first nine months of 2002 and
1,057,100 shares were repurchased at a cost of $24.1 million during the first
nine months of 2003. In September 2003, the Board of Directors authorized a
program for the repurchase of up to $100.0 million of Company common stock in
the open market or in private transactions. This authorization superceded the
approximately $1 million we had remaining under the Board's November 2002
authorization of a $25 million share repurchase program. As of November 1, 2003,
we had repurchased under this program 1,405,400 shares at a cost of $42.4
million in private transactions and 235,600 shares at a cost of $6.9 million in
open market transactions. A total of 2,698,100 shares at a cost of $73.4 million
have been repurchased during the first nine months of 2003.

In January 2003, we replaced our existing $125.0 million revolving credit
facility which was scheduled to mature in February 2004 with a new revolving
credit agreement with a group of banks (the "Credit Agreement") that provides
for borrowing of up to $100.0 million through February 4, 2006 (with extensions
for up to two years under certain conditions). Advances under the Credit
Agreement bear interest at a rate per annum equal to, at our option, the agent's
prime rate or the reserve adjusted LIBOR rate plus a varying interest rate
margin. The Credit Agreement also provides for fees applicable to unused
commitments. In addition, in January 2003, we entered into a new Canadian term
credit agreement under which we borrowed Can $62.0 million (US $40.7 million)
which was used to repay approximately Can $60.9 million (US $40.0 million)

12

in outstanding indebtedness of Moores under the previous term credit agreement.
On October 31, 2003, we repaid the outstanding indebtedness of Can $60.5 million
(US $45.9 million). As of November 1, 2003, there were no borrowings outstanding
under the Credit Agreement. The Credit Agreement contains certain 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 our common stock. We are in compliance with the
covenants in the Credit Agreement as of November 1, 2003.

On October 21, 2003, we issued $130.0 million of 3.125% Convertible Senior
Notes due 2023 in a private placement. A portion of the net proceeds from the
Notes was used to repay the outstanding indebtedness under our Canadian term
credit agreement and to repurchase shares of our common stock under the program
authorized by the Board in September 2003 (see above); the balance is reserved
for general corporate purposes, which may include additional purchases of our
common stock under our share repurchase program. Interest on the Notes is
payable semi-annually on April 15 and October 15 of each year, beginning on
April 15, 2004. The Notes will mature on October 15, 2023. However, holders may
require us to purchase all or part of the Notes, for cash, at a purchase price
of 100% of the principal amount per Note plus accrued and unpaid interest on
October 15, 2008, October 15, 2013 and October 15, 2018 or upon a designated
event. Beginning on October 15, 2008, we will pay additional contingent interest
on the Notes if the average trading price of the Notes is above a specified
level during a specified period. In addition, we may redeem all or a portion of
the Notes on or after October 20, 2008, at 100% of the principal amount of the
Notes plus any accrued and unpaid interest, contingent interest and additional
amounts, if any. We also have the right to redeem the Notes between October 20,
2006 and October 19, 2008 if the price of our common stock reaches certain
levels.

During certain periods, the Notes are convertible by holders into shares of
our common stock initially at a conversion rate of 23.3187 shares of common
stock per $1,000 principal amount of Notes, which is equivalent to an initial
conversion price of $42.88 per share of common stock (subject to adjustment in
certain events), under the following circumstances: (1) if the closing sale
price of our common stock issuable upon conversion exceeds 120% of the
conversion price under specified conditions; (2) if we call the Notes for
redemption; or (3) upon the occurrence of specified corporate transactions. Upon
conversion of the Notes, in lieu of delivering common stock we may, in our
discretion, deliver cash or a combination of cash and common stock. The Notes
are general senior unsecured obligations, ranking on a parity in right of
payment with all our existing and future unsecured senior indebtedness and our
other general unsecured obligations, and senior in right of payment with all our
future subordinated indebtedness. The Notes are effectively subordinated to all
of our senior secured indebtedness, and all indebtedness and liabilities of our
subsidiaries.

We anticipate that our existing cash and cash flow from operations,
supplemented by borrowings under our Credit Agreement, will be sufficient to
fund our planned store openings, other capital expenditures and operating cash
requirements for at least the next 12 months.

In connection with our direct sourcing program, we may enter into purchase
commitments that are denominated in a foreign currency (primarily the Euro). We
generally enter into forward exchange contracts to reduce the risk of currency
fluctuations related to such commitments. As these forward exchange contracts
are with two financial institutions, we are 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. We 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.

13

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 men's clothing, market trends in the retail men's clothing business,
currency fluctuations, inflation and various economic and business trends.
Forward-looking statements may be made by management orally or in writing,
including but not limited to, this Management's Discussion and Analysis of
Financial Condition and Results of Operations section and other sections of the
Company's filings with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 and the Securities Act of 1933.

Actual results and trends in the future may differ materially depending on a
variety of factors including, but not limited to, domestic and international
economic activity and inflation, our 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 our ability to continue to identify and complete successful expansions and
penetrations into existing and new markets and our ability to integrate such
expansions with our existing operations.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to exposure from fluctuations in U.S. dollar/Euro exchange
rates and the Canadian dollar/Euro exchange rates. As further described in Note
3 of Notes to Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources", we utilize foreign currency forward exchange contracts to
limit exposure to changes in currency exchange rates. At November 1, 2003, we
had 29 contracts maturing at various dates through January 2005. Unrealized
pretax gains on these forward contracts totaled approximately $0.1 million at
November 1, 2003. A hypothetical 10% change in applicable November 1, 2003
forward rates could increase or decrease this pretax gain by $2.1 million
related to these positions. However, it should be noted that any change in the
value of these contracts, whether real or hypothetical, would be significantly
offset by an inverse change in the value of the underlying hedged item.

Moores conducts its business in Canadian dollars. The exchange rate between
Canadian dollars and U.S. dollars has fluctuated historically. If the value of
the Canadian dollar against the U.S. dollar weakens, then the revenues and
earnings of our Canadian operations will be reduced when they are translated to
U.S. dollars. Also, the value of our Canadian net assets in U.S. dollars may
decline.

ITEM 4 - CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company's management, with the participation of the Company's principal
executive officer ("CEO") and principal financial officer ("CFO"), evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) as of the end of the fiscal quarter ended
November 1, 2003. Based on this evaluation, the CEO and CFO have concluded that
the Company's disclosure controls and procedures were effective as of the end of
the fiscal quarter ended November 1, 2003 to ensure that information that is
required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the SEC's rules and forms.

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

There were no changes in the Company's internal control over financial
reporting that occurred during the fiscal quarter ended November 1, 2003 that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.

14

PART II. OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

On April 18, 2003, a lawsuit was filed against the Company in the Superior
Court of California for the County of Orange, Case No. 03CC00132 (the "Orange
County Suit"). On April 21, 2003, a lawsuit was filed against K&G Men's Center,
Inc. and K&G Men's Company Inc. (collectively, "K&G"), wholly owned subsidiaries
of the Company, in the Los Angeles Superior Court of California, Case No.
BC294361 (the "Los Angeles County Suit"; the Los Angeles County Suit and the
Orange County Suit shall be referred to jointly as the "Suits").

The Orange County Suit was brought as a purported class action. The Los
Angeles County Suit was brought as a multi-party action. Both Suits allege
several causes of action, each based on the factual allegation that in the State
of California the Company and K&G misclassified its managers and assistant
managers as exempt from the application of certain California labor statutes.
Because of this alleged misclassification, the Suits allege that the Company and
K&G failed to pay overtime compensation and provide the required rest periods to
such employees. The Suits seek, among other things, declaratory and injunctive
relief along with an accounting as to alleged wages, premium pay, penalties,
interest and restitution allegedly due the class defendants. We believe that our
managers and assistant managers were properly classified as exempt under such
statutes and, therefore, properly compensated. The Company intends to vigorously
defend the Suits. We believe that the ultimate resolution of the Suits will not
have a material adverse effect on the Company.

On April 23, 2003, a lawsuit was filed against K&G in the Los Angeles
Superior Court of California, Case No. BC294497 (the "Tailor's Suit"). The
Tailor's Suit was brought as a multi-party action. The Tailor's Suit alleges
several causes of action, each based on the factual allegation that in the State
of California K&G misclassified the tailors working in their stores as
"independent contractors" and refused to classify them as non-exempt employees
subject to the application of certain California labor statutes. Because of this
alleged misclassification, the Tailor's Suit alleges that K&G failed to pay
hourly and overtime compensation and provide the required rest periods required
by such labor statutes. The Tailor's Suit further alleges that K&G violated
several other labor statutes and regulations as well as the California Unfair
Competition Law. It seeks, among other things, restitution, disgorgement due to
failure to comply with California labor laws, penalties, declaratory and
injunctive relief. We believe that the tailors were properly classified as
independent contractors and properly compensated pursuant to the terms of their
respective Independent Contractor Agreements. The Company intends to vigorously
defend the Tailor's Suit. We believe that the ultimate resolution of the
Tailor's Suit will not have a material adverse effect on the Company.

In addition, 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, results of operations or cash flows.

15

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS.

(b) REPORTS ON FORM 8-K.

On August 20, 2003, the Company filed a current report on Form 8-K pursuant
to Item 12 reporting the issuance of a press release that reported earnings
results for the three and six months ended August 2, 2003.

On October 14, 2003, the Company filed a current report on Form 8-K
pursuant to Item 5 announcing its intention to sell, subject to market and other
conditions, $110.0 million aggregate principal amount of the Notes in a private,
unregistered offering to "qualified institutional buyers," pursuant to Rule 144A
under the Securities Act of 1933, as amended.

On October 16, 2003, the Company filed a current report on Form 8-K
pursuant to Item 5 announcing the pricing of the Notes.

On October 21, 2003, the Company filed a current report on Form 8-K
pursuant to Item 5 announcing that the initial purchasers of the Notes exercised
their option to purchase an additional $20.0 million principal amount of such
Notes.

On November 19, 2003, the Company filed a current report on Form 8-K
pursuant to Item 12 reporting the issuance of a press release that reported
earnings results for the three and nine months ended November 1, 2003.

16

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, The Men's Wearhouse, Inc., has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

Dated: December 16, 2003 THE MEN'S WEARHOUSE, INC.

By /s/ NEILL P. DAVIS
----------------------------------
Neill P. Davis
Executive Vice President,
Chief Financial Officer
and Principal Financial Officer

17

INDEX TO EXHIBITS