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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-20036
THE MEN'S WEARHOUSE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 74-1790172
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5803 GLENMONT DRIVE 77081
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(713) 295-7200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 Par Value
5 1/4% Convertible Subordinated Notes Due 2003
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 the Proxy Statement or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment hereto. [ ]
The aggregate market value of the outstanding Common Stock of the
registrant held by non-affiliates of the registrant as of April 16, 1996, based
on the closing sale price of the Common Stock on the Nasdaq National Market
System on said date, was $318,872,684.
There were 21,063,872 shares of Common Stock of the registrant outstanding
as of April 16, 1996, not including 53,735 shares classified as Treasury Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Items 10, 11, 12 and 13 of Part III will be
included in the registrant's definitive proxy statement to be filed pursuant to
Regulation 14A and is incorporated herein by reference.
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PART I
ITEM 1. BUSINESS.
The Men's Wearhouse commenced operations in 1973 as a partnership and was
incorporated as The Men's Wearhouse, Inc. under the laws of Texas in May 1974.
Its principal executive offices are located at 5803 Glenmont Drive, Houston,
Texas 77081 (telephone number 713/295-7200), and at 40650 Encyclopedia Circle,
Fremont, California 94538 (telephone number 510/657-9821).
The Company is one of the country's largest off-price specialty retailers
of men's tailored business attire. The Company opened its first store in
Houston, Texas in 1973 and, as of February 1, 1997, operated 345 stores in 33
states, with approximately 42% of its locations in Texas and California. During
fiscal 1996, the Company opened 50 new stores, entered 10 new markets and on
January 17, 1997, through VPC, acquired 17 additional stores operating under the
name "C&R Clothiers", as described more fully under "Recent Developments".
As used herein, the term "The Men's Wearhouse" refers to The Men's
Wearhouse, Inc. and its wholly-owned subsidiaries, exclusive of Value Priced
Clothing, Inc. ("VPC"), and the term the "Company" refers to The Men's
Wearhouse, Inc. and its wholly-owned subsidiaries including VPC. Additionally,
the terminology a "Men's Wearhouse store" refers to the Company's traditional
stores while a "C&R store" refers to the 17 stores operating under VPC.
The Men's Wearhouse continues to target middle and upper middle income men
with a strategy of providing value to its customers by offering quality
merchandise at consistent, everyday low prices with a superior level of customer
service. With the late 1996 acquisition of the C&R stores, the Company has
broadened its potential market as VPC targets a more price sensitive customer.
The price of suits generally range from $199 to $499 at the traditional Men's
Wearhouse stores. VPC generally prices suits from $99 to $199. The Company
believes that a large portion of the men's tailored clothing market is motivated
by low prices rather than superior service.
The Men's Wearhouse stores offer a broad selection of designer, brand name
and private label merchandise at prices it believes are typically 20% to 30%
below the regular retail prices of traditional department and specialty store
prices. VPC offers a selection of brand names and private label merchandise the
Company believes are typically 30% to 50% below the regular retail prices of
traditional department and specialty store prices.
The Company considers its merchandise, which includes suits, sport coats,
slacks, outerwear, dress shirts, shoes and accessories, conservative. By
concentrating on tailored business attire, a category of men's clothing
characterized by infrequent and more predictable fashion changes, the Company
believes it is not as exposed to trends typical of more fashion-forward apparel
retailers, where markdowns and promotional pricing are more prevalent.
The Company's expansion strategy includes opening additional stores in
existing markets, opening stores in new markets and increasing its net sales and
profitability in its existing markets. In general terms, a market is defined as
a geographic area served by a common group of television stations. The Company
anticipates that the addition of new stores will be the primary source of its
future growth. On a limited basis, the Company has acquired store locations,
inventories, customer lists, trademarks and tradenames from existing local
menswear retailers in both new and existing markets, and may do so in the
future. At present, the Company plans to open approximately 50 new stores during
1997, approximately one-half of which will be in new markets, and to continue
its expansion in subsequent years.
As a result of the continuing consolidation of the men's tailored clothing
industry, the Company has been and expects to continue to be presented with more
significant opportunities within its industry. Such opportunities may include,
but are not limited to, increased direct sourcing of merchandise, including
possible ventures with apparel manufacturers, acquisitions of menswear retailers
and the acquisition or licensing of designer or nationally recognized brand
labels. Recent financial difficulties of significant menswear retailers
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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.
RECENT DEVELOPMENTS
In November 1996, VPC was organized as a wholly-owned subsidiary of the
Company for the purpose of acquiring assets of C&R Clothiers, Inc. ("C&R"), a
privately-held retailer of men's tailored clothing stores operating in Southern
California. On January 17, 1997, VPC acquired 17 C&R stores in Southern
California and C&R's existing inventory and entered into a lease for C&R's
distribution center in Culver City, California. The C&R acquisition served to
launch a new division selling men's apparel, targeting the more price sensitive
clothing customer.
During March 1997, the Company, through its wholly-owned subsidiary Value
Priced Liquidators, Inc., formed a joint venture with Buxbaum, Ginsberg &
Associates and entered into an asset purchase and license agreement to acquire
and liquidate certain of the assets of Kuppenheimer's Men's Clothiers, a chain
of 42 men's clothing stores. The joint venture is acting as agent with respect
to Kuppenheimer's going-out-of-business sale under such agreement. Under the
agreement, the Company acquired the rights to the trade name, customer lists,
labels, and other proprietary data as well as certain property and equipment
which has been or will be sold for cash or used in its continuing operations.
Although the Company had an option to assume any and all leases related to the
42 Kuppenheimer stores, on April 18, 1997 it elected not to take all but two of
such leases.
MERCHANDISING
The Men's Wearhouse offers a broad selection of designer, brand name and
private label men's business attire, including a consistent stock of basic items
(such as navy blazers, tuxedos and navy and gray suits) and considers its
merchandise conservative. Although basic styles are emphasized, each season's
merchandise does reflect current fabric and color trends, and a small percentage
of inventory, accessories in particular, is usually more fashion oriented. The
Company's 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 a Men's Wearhouse store. Within its
tailored clothing, The Men's Wearhouse offers an assortment of styles from a
variety of manufacturers and maintains a broad selection of fabrics and colors.
The Company believes that the depth of selection it offers at The Men's
Wearhouse provides it with an advantage over most of its competitors.
In 1995, The Men's Wearhouse expanded its inventory mix to include
"business casual" merchandise designed to meet increased demand for such product
resulting from the trend toward more relaxed dress codes in the workplace. The
added merchandise consists of tailored and nontailored clothing which
complements the existing product mix and provides opportunity for enhanced sales
without significant inventory risk. The expanded inventory includes, among other
things, more sports coats, casual slacks, knits and woven sports shirts,
sweaters and casual shoes.
The Men's Wearhouse believes it differs from most other off-price retailers
in that it does not purchase significant quantities of merchandise overruns or
close-outs. The Company provides recognizable quality merchandise at consistent
prices that assist the customer in identifying the value available at The Men's
Wearhouse. The Men's Wearhouse believes its merchandise is generally offered 20%
to 30% below traditional department and specialty store prices. The The Men's
Wearhouse affixes a ticket to each item, which displays The Men's Wearhouse
selling price alongside the price the Company regards as the regular retail
price of the item. At the check-out counter, the customer's receipt reflects the
savings from what the Company considers the regular retail price.
By targeting men's tailored business attire, a category of men's clothing
characterized by infrequent and more predictable fashion changes, the Company
believes it is not as exposed to trends typical of more fashion-forward apparel
retailers. This allows the Company 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. The Men's
Wearhouse has a once-a-year sale after Christmas that has typically lasted until
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the fourth week in 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. Management believes
the Company's three outlet stores assist in the reduction of merchandise the
Company desires to move out of The Men's Wearhouse stores to make room for new
merchandise without using promotional methods in its traditional stores. The
Company may also, on a limited basis, use the VPC stores to assist in the
reduction of merchandise it desires to move out of The Men's Wearhouse stores.
During 1994, 1995 and 1996, 77%, 74% and 72%, respectively, of the
Company's net sales were attributable to tailored clothing (suits, sport coats
and slacks), and 23%, 26% and 28%, respectively, were attributable to
accessories and other items.
Customers may pay for merchandise with cash, check or nationally recognized
credit cards. Credit card sales were 65% of net sales in 1994, 67% in 1995 and
68% in 1996.
CUSTOMER SERVICE AND MARKETING
The Men's Wearhouse 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. Clothing consultants
attend an intensive training program at the Company's 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.
The Company encourages its clothing consultants to be friendly and
knowledgeable and to promptly greet each customer entering the store. The
consultants are encouraged to offer guidance to the customer at each stage of
the decision-making process, making every effort to earn the customer's
confidence and to create a professional relationship that will continue beyond
the initial visit. Clothing consultants are also encouraged to contact customers
after the purchase or pick-up of tailored clothing to determine whether
customers are satisfied with their purchases and, if necessary, to take
corrective action. Store personnel have full authority to respond to customer
complaints and reasonable requests, including the approval of returns,
exchanges, refunds, re-alterations and other special requests, all of which the
Company believes helps promote customer satisfaction and loyalty.
Each of The Men's Wearhouse 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,
the Company attempts to locate its stores in neighborhood strip and specialty
retail centers or in free standing buildings to enable customers to park near
the entrance of the store.
The Company's annual advertising expenditures, which were $23.2 million,
$27.4 million and $31.0 million in 1994, 1995 and 1996, respectively, are
significant. However, the Company believes that once it attracts prospective
customers, the experience of shopping in its stores will be the primary factor
encouraging subsequent visits. The Company advertises principally on television
and radio, which it considers the most effective means of attracting and
reaching potential customers, and its advertising campaign is designed to
reinforce its image of providing value and customer service. "I guarantee it" is
a long standing phrase associated with The Men's Wearhouse and its advertising
campaign. In the advertisements, the Company's Chief Executive Officer and
co-founder guarantees customer satisfaction with the apparel purchased, the
quality of tailoring and the total shopping experience.
PURCHASING AND DISTRIBUTION
The Company purchases merchandise from approximately 180 vendors. In 1996,
no vendor accounted for 10% or more of purchases. Management does not believe
that the loss of any vendor would significantly impact the Company. The buying
staff is led by the Chief Operating Officer of the Company. While the Company
has
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no material long-term contracts with its vendors, the Company believes that it
has developed an excellent relationship with its vendors, which is supported by
consistent purchasing practices.
The Company believes it obtains favorable buying opportunities relative to
many of its competitors. The Company does not request cooperative advertising
support from manufacturers, which reduces the manufacturers' costs of doing
business and enables them to offer lower prices to the Company. Further, the
Company believes it obtains better discounts by entering into purchase
arrangements that provide for limited return policies, although the Company
always retains the right to return goods that are damaged upon receipt or
determined to be improperly manufactured. Finally, volume purchasing of
specifically planned quantities enables more efficient production runs by
manufacturers, who, in turn, are provided the opportunity to pass some of the
cost savings back to the Company.
During 1993, the Company expanded its inventory sourcing capabilities by
implementing a direct sourcing program. Under this program, the Company
purchases fabric from mills and contracts with certain factories for the
assembly of the end product (suits, sport coats or slacks). Such arrangements
for fabric and assembly have been with both domestic and foreign mills and
factories. Previous purchases from such mills and factories had been through
other suppliers. Product acquired during 1994, 1995 and 1996 through the direct
sourcing program represented approximately 10%, 20% and 28%, respectively, of
total inventory purchases, and the Company expects that purchases through such
program will represent between approximately 25% to 30% of total purchases in
1997.
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, the Company enters into forward
exchange contracts. In addition, many of the purchases from foreign vendors are
financed by letters of credit.
In 1995, the Company entered into license agreements with a limited number
of parties under which the Company is entitled to use designer labels, such as
"Pierre Balmain" and "Vito Rufolo", and nationally recognized brand labels such
as "Botany" and "Botany 500", in return for royalties paid to the licensor based
on the costs of the relevant product. These license agreements generally limit
the use of the individual label to products of a specific nature (such as men's
suits, men's formal wear or men's shirts). The labels licensed under these
agreements will continue to be used in connection with a portion of the
purchases under the direct sourcing program described above, as well as
purchases from other vendors. During 1996, the Company purchased several
trademarks from Hugo Boss. These marks include "Cricketeer," "Joseph & Feiss
International," "Baracuda," and "Country Britches," among others, and will be
used similarly to the Company's licensed labels. The Company monitors the
performance of these licensed labels compared to their cost and may elect to
selectively terminate any license. Because of the continued consolidation in the
men's tailored clothing industry, the Company may be presented with
opportunities to acquire or license other designer or nationally recognized
brand labels.
All merchandise is received into the Company's central warehouse located in
Houston, Texas, except for merchandise intended for the C&R stores which is
principally received at VPC's Culver City, California distribution center. Once
received, merchandise is arranged by size. The computer generates bar-coded
garment tags and labels and recommends distribution of the merchandise on the
basis of each store's past performance with similar merchandise and existing
inventory levels. This distribution is reviewed by a member of the merchandise
staff and any necessary changes are made. Merchandise for a store is picked and
then moved to the appropriate staging area for shipping. In addition to the
central warehouse in Houston, the Company leases additional space within Men's
Wearhouse stores in the majority of its markets, which operate as redistribution
facilities for their respective areas. The Company's executive offices in
Fremont, California also serve as a redistribution facility for the San
Francisco Bay area.
The Company leases and operates 19 long-haul tractors and 30 trailers,
which, together with common carriers, ship merchandise from the vendors to the
Company's distribution facilities and from the distribution facilities to
centrally located stores within each market. The Company also leases 46 smaller
van-like trucks, which are used to ship merchandise locally or within a given
geographic region.
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MANAGEMENT INFORMATION AND TELECOMMUNICATION SYSTEMS
The Company has aggressively pursued the implementation of technology which
provides the opportunity for competitive advantage, and which leverages human
resources. By implementing a sophisticated management information system, and by
integrating it with a highly functional telecommunication system, the Company
has effectively managed the operation of its business and its inventory while
experiencing substantial growth.
The Company's inventory control systems, including purchase order
management, automatic replenishment of basic items, and real-time point of sale,
have contributed to enhanced performance and profitability and to achieving
inventory shrinkage rates that are consistently below industry averages.
Electronic Data Interchange (EDI) with several suppliers and use of data
warehousing and decision support technologies have substantially leveraged the
efforts of the merchandising team, allowing them to reallocate time from simple
and repetitive tasks to those requiring more analytical skills.
The Company has developed and is now using an "expert" system to assist in
the distribution of incoming merchandise. This system uses rules for
distribution decisions which reflect the decision making process of the senior
product managers. In addition, in 1996 the Company negotiated a comprehensive
telecommunications arrangement with a major telecommunications vendor that
allowed the Company to transition its data network to a more modern, flexible,
and reliable frame relay environment, while simultaneously reducing operating
costs.
The Company's voice mail system has not only enhanced internal
communication capabilities, it has also provided an actively used channel for
improving customer service and it has contributed to the Company's advertising
efforts, giving the Company access to unsolicited customer testimonials.
The Company employs technology in several other areas of its operations
and intends to continue its pursuit of technologies which favorably impact
performance and/or the delivery of customer service.
COMPETITION
The Company believes that the unit demand for men's tailored clothing has
declined. The Company's primary competitors include specialty men's clothing
stores, traditional department stores, off-price retailers and
manufacturer-owned and independently-owned outlet stores. Over the past several
years market conditions have resulted in consolidation of the industry.
Management believes that the principal competitive factors in the men's tailored
clothing market are merchandise assortment, quality, price, garment fit,
merchandise presentation, store location and customer service. The Company
attempts to distinguish itself from its competitors by providing what it
believes are the best features of each competing shopping alternative.
Management believes that strong vendor relationships, its direct sourcing
program and the buying power of the Company are the principal factors enabling
it to obtain quality merchandise at attractive prices. The Company believes that
its vendors rely on the Company's predictable payment record and on the
Company's history of honoring all promises, including the Company's promise not
to advertise names of labeled and unlabeled designer merchandise, when
requested. Certain of the Company's competitors (principally department stores)
are larger and have substantially greater financial, marketing and other
resources than the Company and there can be no assurance that the Company will
be able to compete successfully with them in the future.
SEASONALITY
Like most retailers, the Company's business is subject to seasonal
fluctuations. Historically, over 30% of the Company's net sales and
approximately 50% of its net earnings have been generated during the fourth
quarter of each year. Because of the seasonality of the Company's business,
results for any quarter are not necessarily indicative of the results that may
be achieved for the full year. See Note 8 of Notes to Consolidated Financial
Statements.
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TRADEMARKS AND SERVICE MARKS
The Company is the owner in the United States of the trademark and service
mark The Men's Wearhouse(R), and of federal registrations therefor expiring in
2009 and 2002, respectively, subject to renewal. The Company has also been
granted registrations for that trademark and service mark in 28 states
(including Texas and California) of the 33 states in which it does business and
has used those marks. Applications for the most recent states entered are in
process. The Company's rights in the "The Men's Wearhouse" mark are a
significant part of the Company's business, as the mark has become well known
through the Company's television and radio advertising campaigns. Accordingly,
the Company intends to maintain its mark and the related registrations.
The Company is also the owner in the United States of the servicemarks
"C&R" and "C&R Clothiers" and the owner in the State of California of the
servicemark "C&R Clothiers". Federal applications for the registration of the
servicemarks have been filed by the Company. The State of California has issued
a registration for the servicemark "C&R Clothiers". Such marks are used to
identify the retail store services of and is the tradename utilized by the
retail clothing stores operated by VPC.
In addition to The Men's Wearhouse and C&R Clothiers trademarks/service
marks, the Company owns or licenses other trademarks/service marks used in the
business, principally in connection with the labeling of product purchased
through the direct sourcing program.
EMPLOYEES
At February 1, 1997, the Company had approximately 4,900 employees, of whom
approximately 4,200 were full-time employees and approximately 700 were
part-time employees. Seasonality affects the number of part-time employees as
well as the number of hours worked by full-time and part-time personnel. The
Company has no collective bargaining agreements.
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ITEM 2. PROPERTIES.
As of February 1, 1997, the Company operated 345 stores in 33 states. The
following table sets forth the location, by state, of these Company stores, 17
of which operate as C&R stores in California:
California.................................................. 101
Texas (including two outlet stores)......................... 45
Florida..................................................... 21
Michigan.................................................... 18
Illinois.................................................... 16
Ohio........................................................ 12
Washington.................................................. 12
Georgia (including one outlet store)........................ 11
Colorado.................................................... 9
North Carolina.............................................. 9
Massachusetts............................................... 7
Minnesota................................................... 7
Indiana..................................................... 6
Maryland.................................................... 6
Missouri.................................................... 6
Pennsylvania................................................ 6
Tennessee................................................... 6
Arizona..................................................... 5
Oregon...................................................... 5
Wisconsin................................................... 5
South Carolina.............................................. 4
Utah........................................................ 4
Virginia.................................................... 4
Louisiana................................................... 3
Nevada...................................................... 3
Oklahoma.................................................... 3
Alabama..................................................... 2
Connecticut................................................. 2
Kansas...................................................... 2
New Hampshire............................................... 2
Idaho....................................................... 1
Kentucky.................................................... 1
New Mexico.................................................. 1
The Men's Wearhouse stores vary in size from approximately 2,800 to 9,600
total square feet (average square footage at February 1, 1997 was 4,683 square
feet), excluding the three outlet stores. The C&R stores vary in size from
approximately 5,000 to 9,508 total square feet (average square footage at
February 1, 1997 was 6,632 square feet). The Men's Wearhouse stores are
primarily located in middle and upper middle income neighborhood strip and
specialty retail shopping centers. The Company believes its customers generally
prefer to limit the amount of time they spend shopping for men's tailored
clothing and seek easily accessible store sites.
The Men's Wearhouse stores are designed to further the Company's strategy
of facilitating sales while making the shopping experience pleasurable. Each
store is staffed with clothing consultants and sales associates and has a
tailoring facility with at least one tailor.
The Men's Wearhouse attempts to create a specialty store atmosphere through
effective merchandise presentation and sizing, attractive in-store signs and
efficient check-out procedures. Most of the stores have similar floor plans and
merchandise presentation to facilitate the shopping experience and sales
process.
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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.
The Company owns its Houston, Texas outlet store, which comprises
approximately 12,000 square feet. The Company also owns the building that houses
one of its stores in Dallas, Texas, and leases the underlying land from certain
principal shareholders of the Company. The Company leases all of its other
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, the Company leases between 1,000 and 3,000 additional square feet in a
Men's Wearhouse store to be utilized as a redistribution facility in a
geographic area.
The Company purchased land and constructed a store thereon in 1995. During
1996, the Company sold and leased back this property on terms similar to those
discussed in the preceding paragraph. There was no gain or loss resulting from
this transaction. The Company may, on a limited basis, enter into similar
transactions in the future.
In July 1995, the Company moved its executive offices in Fremont,
California to a new 35,500 square foot facility owned by the Company, which
serves as an office, training and redistribution facility.
The Company owns its principal office, warehouse and distribution facility
which is situated on approximately seven acres of land in Houston, Texas. In
late 1994, a 120,000 square foot expansion (a three story building on a 50,000
square foot foundation) of this facility was completed, increasing the facility
to an aggregate of 240,000 square feet. Approximately 40,000 square feet of this
facility is used as office space for the Company's accounting, treasury,
management information systems and merchandising departments with the remaining
200,000 square feet serving as a warehouse and distribution center.
The Company also leases a building, situated on one acre in Houston, Texas
and used as a supply depot, from certain principal shareholders of the Company.
The lease term on this facility runs until August 31, 2005, and is on terms that
the Company believes are no less favorable than could be obtained from an
independent third party.
During 1996 the Company purchased a six acre corner lot across the street
from its Houston distribution center and plans to use this for future warehouse
and distribution facility expansion. The Company is currently evaluating the
nature and timing of such expansion. Additionally, the Company purchased land
and began construction of two stores in Seattle, Washington and Memphis,
Tennessee to be opened in fiscal 1997. The Company will seek to enter into
sale-and-leaseback transactions with respect to these two stores.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various routine legal proceedings, including
ongoing litigation, incidental to the conduct of its business. Management
believes that none of these matters will have a material adverse effect on the
financial condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year ended February 1, 1997.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Common Stock is quoted on the Nasdaq National Market under the symbol
"SUIT". The following table sets forth, on a per share basis for the periods
indicated, the high and low sale prices for the Common Stock as reported by
NASDAQ. The prices set forth below for periods prior to November 16, 1995 have
been adjusted to give retroactive effect to the 50% stock dividend paid on that
date.
HIGH LOW
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FISCAL YEAR ENDED FEBRUARY 3, 1996
First Quarter............................................. $17.09 $12.83
Second Quarter............................................ 23.83 15.50
Third Quarter............................................. 28.83 19.17
Fourth Quarter............................................ 30.25 20.75
FISCAL YEAR ENDED FEBRUARY 1, 1997
First Quarter............................................. $38.50 $25.50
Second Quarter............................................ 37.00 17.00
Third Quarter............................................. 27.00 18.25
Fourth Quarter............................................ 28.50 16.25
On April 16, 1997, there were approximately 280 record holders and
approximately 3,700 beneficial holders of Common Stock.
The Company has not paid any dividends on its Common Stock and for the
foreseeable future intends to retain all its earnings for the future operation
and expansion of its business. The Company's Credit Agreement prohibits the
payment of cash dividends on the Common Stock. See Note 3 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 Company's audited
consolidated financial statements. The Company's consolidated financial
statements as of February 3, 1996 and February 1, 1997 and for each of the three
years in the period ended February 1, 1997 were audited by Deloitte & Touche LLP
, independent auditors, whose report thereon appears elsewhere herein. The
information set forth below should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto of the
Company included elsewhere herein. References herein to years are to the
Company's 52- or 53-week fiscal year, which ends on the Saturday nearest January
31 in the following calendar year. For example, references to "1996" mean the
fiscal year ended February 1, 1997. All fiscal years for which financial
information is included herein had 52 weeks, except for 1995 which had 53 weeks.
YEAR
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1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT
PER SHARE AND PER SQUARE FOOT DATA)
STATEMENT OF EARNINGS INFORMATION:
Net sales................................... $169,977 $240,394 $317,127 $406,343 $483,547
Gross margin................................ 63,976 91,766 121,878 157,615 188,366
Operating income............................ 10,803 15,818 22,375 30,606 38,134
Net earnings................................ 5,870 8,739 12,108 16,508 21,143
Net earnings per share of common stock(1)... $ 0.35 $ 0.48 $ 0.63 $ 0.82 $ 1.00
Weighted average shares outstanding(1)(2)... 16,532 18,138 19,163 20,226 21,193
OPERATING INFORMATION:
Percentage increase in comparable store
sales(3)................................. 6.2% 17.2% 8.4% 6.8% 3.9%
Average square footage -- all stores(4)..... 4,287 4,374 4,426 4,583 4,780
Average sales per square foot of selling
space(5)................................. $ 381 $ 409 $ 419 $ 425 $ 420
Number of stores:
Open at beginning of the period.......... 113 143 183 231 278
Opened during the period................. 31 40 48 48 50
C&R acquired during the period........... -- -- -- -- 17
Closed during the period................. 1 -- -- 1 --
-------- -------- -------- -------- --------
Open at end of the period................ 143 183 231 278 345
Capital expenditures(6)..................... $ 9,345 $ 11,461 $ 23,736 $ 22,538 $ 26,222
JAN. 30, JAN. 29, JAN. 28, FEB. 3, FEB. 1,
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
BALANCE SHEET INFORMATION:
Working capital............................. $ 28,289 $ 42,689 $ 68,078 $ 88,798 $136,837
Total assets................................ 78,745 112,176 160,494 204,105 295,478
Long-term debt and capital leases(7)........ 8,909 10,790 24,575 4,250 57,500
Shareholders' equity........................ 38,448 57,867 84,944 136,961 159,129
- ---------------
(1) Adjusted to give effect to a 2.5541-for-one stock split effected on March
23, 1992, a 50% stock dividend effected on August 6, 1993, and a 50% stock
dividend effected on November 15, 1995.
(2) Includes common shares and common share equivalents, in thousands.
(3) 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.
(4) Average square footage -- all stores is calculated by dividing the total
square footage for all stores (excluding the Company's outlet stores) open
at the end of the period by the number of stores open at the end of such
period. Excluding the 17 C&R stores acquired on January 17, 1997, the
average square footage per store at the end of 1996 was 4,683.
(5) Average sales per square foot of selling space is calculated by dividing
total selling square footage for all stores (excluding the Company's outlet
stores) open the entire year into total sales for those stores. Selling
square footage does not include space for tailoring operations and storage.
(6) Excludes additions to capital lease property.
(7) February 1, 1997 balance represents the 5 1/4% Convertible Subordinated
Notes Due 2003 (see Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources).
11
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The Men's Wearhouse opened its first store in Houston, Texas in August
1973, growing to 25 stores by the end of 1985 and 345 stores by February 1,
1997. The Company's most significant growth has occurred since 1991. This growth
has resulted in significant increases in net sales and has also contributed to
increased net earnings for the Company.
On average, new Men's Wearhouse stores contribute toward covering corporate
overhead and other indirect costs within three months of opening, depending
primarily upon the month within which the store is opened. See "Item 1.
Business -- Seasonality". In determining store contribution, the Company
considers net sales, cost of sales and other direct store costs, but excludes
buying costs, corporate overhead, depreciation and amortization, financing costs
and advertising. Expansion is generally continued within a market as long as
management believes it will provide profitable incremental sales volume.
The Company presently intends to continue its expansion in existing and new
markets and plans to open approximately 50 new stores in 1997. The Company
anticipates that approximately one-half of these new stores will be in new
markets. The average cost (excluding telecommunications and point-of-sale
equipment and inventory) of opening a new store was approximately $250,000 in
1996 and is expected to be between approximately $240,000 and $250,000 in 1997.
Prior to 1996, the average cost (excluding telecommunications and point-of-sale
equipment and inventory) of opening a new store was approximately $235,000. The
increase in 1996 resulted primarily from an increase in the average square
footage per new store.
In addition to increases in net sales resulting from new stores, the
Company has experienced comparable store sales increases in each of the past
five years, including a 3.9% increase for 1996.
The Company closed only two stores in the five years ended February 1,
1997. One store was closed in 1992 at the end of its lease term due to declining
sales and deteriorating neighborhood conditions. In March 1995, the Company
closed another store due to substandard performance and the opening of a store
at a more attractive alternative location. In general, in determining whether to
close a store, the Company considers such store's historical and projected
performance and the continued desirability of the store's location. Store
performance is continually monitored and, from time to time, 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 March 1997, the Company
closed one store in Houston, Texas due to its proximity to a new Men's Wearhouse
store opened in this market.
The following table sets forth the Company's results of operations
expressed as a percentage of net sales for the periods indicated:
YEAR
-----------------------
1994 1995 1996
----- ----- -----
Net sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold, including buying and occupancy costs.... 61.6 61.2 61.0
----- ----- -----
Gross margin................................................ 38.4 38.8 39.0
Selling, general and administrative expenses................ 31.4 31.3 31.1
----- ----- -----
Operating income............................................ 7.0 7.5 7.9
Interest expense............................................ .5 .6 .4
----- ----- -----
Earnings before income taxes................................ 6.5 6.9 7.5
Income taxes................................................ 2.7 2.8 3.1
----- ----- -----
Net earnings................................................ 3.8% 4.1% 4.4%
===== ===== =====
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RESULTS OF OPERATIONS
1996 Compared to 1995
The following table presents a breakdown of 1995 and 1996 net sales of the
Company by stores open in each of these periods:
NET SALES
----------------------------
STORES 1995 1996 INCREASE
------ ------ ------ --------
(IN MILLIONS)
50 stores opened in 1996*................................ $ -- $ 36.8 $ 36.8
48 stores opened in 1995................................. 30.8 65.9 35.1
Stores opened before 1995................................ 375.5 380.8 5.3
------ ------ ------
Total.......................................... $406.3 $483.5 $ 77.2
====== ====== ======
- ---------------
* Sales include $900,000 attributed to the 17 C&R stores acquired on January 17,
1997, with the remaining $35.9 million being attributable to the 50 The Men's
Wearhouse stores opened in 1996.
Net sales in 1996 increased $77.2 million, or 19.0%, compared to 1995
primarily due to the increased number of stores and increased sales at existing
stores. Comparable store sales (which are calculated by excluding the net sales
of a store for any month of one period if the store was not open throughout the
same month of the prior period) increased 3.9% from 1995. The comparable store
sales increase for 1996 does not include sales from the C&R stores. Since the
C&R stores were not acquired until January 17, 1997, these stores will not be
included in the comparable store sales comparison until February 1998.
Gross margin increased by $30.8 million in 1996, and increased as a
percentage of sales from 38.8% in 1995 to 39.0% in 1996. The improvement in
gross margin as a percentage of sales resulted from a decrease in product costs
and alteration costs as a percentage of sales, partially offset by an increase
in occupancy costs as a percentage of sales, principally due to an increase in
the average square footage per store.
Selling, general and administrative expenses increased by $23.2 million
between 1995 and 1996. All the principal components of selling, general and
administrative expenses increased primarily due to the Company's growth. As a
percentage of net sales, selling, general and administrative expenses decreased
from 31.3% to 31.1%. Advertising expense decreased from 6.7% to 6.4% of net
sales and store salaries decreased from 13.0% to 12.4% of net sales, while other
selling, general and administrative expenses increased from 11.5% to 12.3% of
net sales.
Interest expense, net of interest income, decreased from $2.5 million in
1995 to $2.1 million in 1996. Weighted average borrowings outstanding increased
from $31.6 million in 1995 to $54.6 million in 1996, while the weighted average
interest rates on outstanding indebtedness decreased from 8.3% to 6.2%. The
effective interest rate includes commitment fees paid pursuant to the Credit
Agreement (see Liquidity and Capital Resources) under which indebtedness was
outstanding for only a portion of the first quarter of 1996. Interest expense
associated with the 5 1/4% Convertible Subordinated Notes (the "Notes") was
offset by interest income of $1.2 million resulting from the investment of
excess cash from the sale of Notes in short-term securities in 1996 (see
Liquidity and Capital Resources).
The Company's 1996 effective tax rate of 41.3% was relatively unchanged
from the 41.2% effective rate for 1995. This, combined with the factors
discussed above, resulted in 1996 net earnings of $21.1 million, or 4.4% of net
sales, as compared to 1995 net earnings of $16.5 million, or 4.1% of net sales.
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14
1995 Compared to 1994
The following table presents a breakdown of 1995 and 1994 net sales of the
Company by stores open in each of these periods.
NET SALES
----------------------------
STORES 1994 1995 INCREASE
------ ------ ------ --------
(IN MILLIONS)
48 stores opened in 1995................................. $ -- $ 30.8 $30.8
48 stores opened in 1994................................. 28.6 64.8 36.2
Stores opened before 1994................................ 288.5 310.7 22.2
------ ------ -----
Total.......................................... $317.1 $406.3 $89.2
====== ====== =====
Net sales in 1995 increased $89.2 million, or 28.1%, compared to 1994
primarily due to the increased number of stores and increased sales at existing
stores. Sales also increased as a result of the additional week in 1995, 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) increased 6.8% from 1994.
Comparable store sales increases were experienced in all major markets.
Gross margin increased by $35.7 million in 1995, and increased as a
percentage of sales from 38.4% in 1994 to 38.8% in 1995. The improvement in
gross margin as a percentage of sales resulted from a decrease in product costs
and alteration costs as a percentage of sales, partially offset by an increase
in occupancy costs as a percentage of sales.
Selling, general and administrative expenses increased by $27.5 million
between 1994 and 1995. All the principal components of selling, general and
administrative expenses increased primarily due to the Company's growth. As a
percentage of net sales, selling, general and administrative expenses decreased
from 31.4% to 31.3%. Advertising expense decreased from 7.3% to 6.7% of net
sales and store salaries increased from 12.4% to 13.0% of net sales, while other
selling, general and administrative expenses decreased from 11.7% to 11.5% of
net sales. The decrease in other selling, general and administrative expenses as
a percent of net sales resulted from sales growth exceeding the increase in
other selling, general and administrative costs as such costs are not a direct
function of sales.
Interest expense of $2.5 million in 1995 was relatively unchanged, as a
percent of net sales, from expense of $1.8 million in 1994. Weighted average
borrowings outstanding, including obligations under capital leases, increased
32.3% and weighted average interest rates applicable to those borrowings
increased from 7.4% to 8.3%. Weighted average borrowings increased as a result
of the continuation of the Company's expansion program despite the application
of net proceeds of $34.7 million from the Company's public offering in August
1995 to repay indebtedness. Weighted average interest rates increased as a
result of the increase in variable rates applicable to the Company's bank debt.
The Company's 1995 effective tax rate of 41.2% was relatively unchanged
from the 41.3% effective rate for 1994. This, combined with the factors
discussed above, resulted in 1995 net earnings of $16.5 million, or 4.1% of net
sales, as compared to 1994 net earnings of $12.1 million, or 3.8% of net sales.
LIQUIDITY AND CAPITAL RESOURCES
In April 1992, the Company completed an initial public offering of
3,375,000 shares of Common Stock at $5.78 per share, of which 2,531,250 shares
were sold by the Company for net proceeds of $12.7 million. In April 1993, May
1994 and August 1995 the Company issued an aggregate of 3,958,125 shares of
Common Stock for net proceeds of $59.6 million. The Company used the proceeds
from such offerings to reduce indebtedness under its revolving credit
facilities.
In March 1996, the Company issued $57.5 million of 5 1/4% Convertible
Subordinated Notes due 2003. The Notes are convertible into Common Stock at a
conversion price of $34.125 per share. A portion of the net proceeds from the
Notes was used to repay outstanding indebtedness under the Credit Agreement and
the
14
15
balance has been invested in new stores, the acquisition of C&R, licenses,
trademarks, short-term interest bearing securities or otherwise used to minimize
borrowings under the Credit Agreement. Interest on the Notes is payable
semi-annually on March 1 and September 1 of each year.
In March 1995, the Company entered into a second amended and restated
Credit Agreement with its bank group that became effective on June 30, 1995. The
Credit Agreement provides for borrowings under two separate revolving facilities
of up to $100 million through June 30, 1998 and may be extended for a maximum of
two years subject to approval of all of the banks. The first facility allows the
Company to borrow up to $75 million and the second facility, which can be
activated and deactivated at the discretion of the Company, allows the Company
to borrow up to $25 million. On June 30, 1998 (subject to extension as discussed
above), the Company may convert all amounts then outstanding under the revolving
facilities to a term loan that is payable in equal quarterly principal
installments (based on a five-year amortization schedule) and matures at the end
of three years (June 30, 2003, assuming extensions). As of February 1, 1997, the
Company had no indebtedness outstanding under the Credit Agreement.
Advances under the Credit Agreement bear interest at a rate per annum equal
to, at the Company's option, (i) the bank's prime rate or (ii) the reserve
adjusted LIBOR rate plus an interest rate margin varying between 1.00% to 1.50%.
The Credit Agreement provides for facility fees applicable to commitments under
each facility of (i) .125% with respect to the first facility and (ii) .1875%
with respect to the second facility during periods in which it is activated or
.0625% with respect to periods in which it is not activated.
The Credit Agreement contains certain restrictive and financial covenants,
including a requirement to maintain a minimum amount of Consolidated Tangible
Net Worth (as defined in the Credit Agreement). The Credit Agreement also
specifies that for 30-day periods that include the last day of each fiscal year
during the revolving period, amounts drawn under the revolving credit facility
cannot exceed $60 million. The Company is also required to maintain certain debt
to equity, cash flow and current ratios and must keep its average store
inventories below certain specified amounts. In addition, the Company is
prohibited, subject to certain exceptions, from incurring additional
indebtedness (including capital leases) or creating liens, making certain
Restricted Payments (as defined in the Credit Agreement), making Investments (as
defined in the Credit Agreement) and paying dividends on the Common Stock, other
than in shares of Common Stock. The Credit Agreement also permits but has
certain limitations regarding the Company's ability to merge or consolidate with
another company, sell or dispose of its property, make acquisitions, issue
options or enter into transactions with affiliates. The Company is in compliance
with the covenants in the Credit Agreement.
The Company is currently in negotiations with its bank group seeking to
amend its Credit Agreement to, among other things, (i) extend the expiration
date, (ii) increase the amount of the revolving facilities and (iii) modify
certain financial covenants and restrictions, particularly those relating to
business acquisitions.
The Company's primary sources of working capital are cash flow from
operations, proceeds from the sale of the Notes discussed above, and borrowings
under the Credit Agreement. The Company had working capital of $68.1 million,
$88.8 million and $136.8 million at the end of 1994, 1995 and 1996,
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. In 1994 and 1995, as inventories were
reduced by sales in December and January, working capital was also reduced as
the net proceeds from these sales were used to reduce outstanding long-term
borrowings under the Credit Agreement. In 1996 cash generated by December and
January sales resulted in larger cash balances as no amount was outstanding
under the Credit Agreement after the sale of Notes in March 1996.
Net cash used in operating activities was $4.6 million in 1994. Net cash
provided by operating activities amounted to $9.4 million in 1995 and $19.8 in
1996. These amounts primarily represent net earnings plus depreciation and
amortization and changes in non-current other liabilities, offset by increases
in inventories and other non-cash working capital. The increase in inventories
of $30.3 million in 1994, $28.6 million in 1995 and $27.3 million in 1996
resulted from the addition of inventory for new stores opened and stores
expected to be opened shortly after the year-end, backstocking and the purchase
of fabric used in the direct sourcing of inventory.
15
16
Capital expenditures amounted to $23.7 million, $22.5 million and $26.2
million in 1994, 1995 and 1996, respectively. These property additions were
principally related to (i) the construction of new stores, including fixtures
and tailoring and other equipment (1994 -- $9.2 million, 1995 -- $10.5 million
and 1996 -- $13.5 million), (ii) the remodeling and equipping of existing
stores, including the addition of tailoring and other equipment (1994 -- $1.6
million, 1995 -- $3.7 million and 1996 -- $3.9 million), (iii) the addition of
leaseholds and equipment for the warehouse and office facilities (1994 -- $2.0
million, 1995 -- $0.5 million and 1996 -- $0.4 million), (iv) the addition of
point-of-sale, telecommunications, and computer equipment (1994 -- $4.4 million,
1995 -- $5.0 million and 1996 -- $5.5 million) and (v) the purchase of land and
buildings (1994 -- $5.7 million, which includes $3.7 million for the acquisition
and expansion of the Houston distribution center, $1.3 million for the
construction of an office, training and redistribution center in Fremont,
California and $0.7 million for the purchase of land for 1995 new store
locations, 1995 -- $2.8 million, which includes $1.9 million for the completion
of the Fremont, California facility and $0.6 million for the construction of new
stores associated with the land purchased in 1994 for such purpose and 1996 --
$2.9 million, which includes $1.9 million for the purchase of land and
construction thereon for 1997 new store locations, $0.7 million for the purchase
of land in Houston for future warehouse and distribution facility expansion, and
$0.3 million for land and building improvements), and (vi) other expenditures of
$0.8 million in 1994. Property additions relating to new stores include stores
in various stages of completion at the end of the fiscal year (three stores at
the end of 1994, two stores at the end of 1995 and eight stores at the end of
1996). In addition, the Company acquired several assets in connection with
various transactions in 1996 for approximately $12.0 million. Such assets
include, but are not limited to, trademarks, tradenames, customer lists,
non-compete agreements and license agreements.
Net cash provided by financing activities amounted to $28.0 million, $14.4
million and $50.0 million in 1994, 1995 and 1996, respectively. Cash provided by
financing activities includes the net proceeds of public offerings of Common
Stock of $14.5 million and $34.7 million in 1994 and 1995, respectively,
proceeds from sale of Notes of $55.5 million in 1996 (net of $2.0 million in
related costs), as well as borrowings under the Company's revolving credit
facilities. Cash used in financing activities is principally comprised of
repayments of amounts outstanding under the Company's revolving credit
facilities.
The Company's primary cash requirements are to finance working capital
increases for its peak selling season and fund capital expenditure requirements
anticipated to be between approximately $22 million and $27 million for 1997.
This amount includes the anticipated costs of opening approximately 50 new
stores in 1997 at an expected average cost per store of between approximately
$240,000 to $250,000 (excluding telecommunications and point-of-sale equipment
and inventory). The balance of the capital expenditures for 1997 will be used
for telecommunications, point-of-sale and other computer equipment, for store
remodeling and expansion, warehousing and distribution and real estate. The
Company anticipates that each of the approximately 50 new stores will require,
on average, an initial inventory costing approximately $500,000 (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 has recently received, and from time to time in the past has
received, inquiries concerning its interest in possible acquisitions and has
requested information with respect thereto. The Company may use cash on hand,
together with its cash flow from operations and borrowings under the Credit
Agreement, to take advantage of significant acquisition opportunities.
The Company anticipates that its existing cash and cash flow from
operations, supplemented by borrowings under the Credit Agreement, will be
sufficient to fund its 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. The
Company generally enters into forward
16
17
exchange contracts to reduce the risk of currency fluctuations related to such
commitments. The majority of the forward exchange contracts are with one
financial institution. Therefore, the Company is exposed to credit risk in the
event of nonperformance by this party. However, due to the creditworthiness of
this major financial institution, 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 being hedged.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share" (SFAS 128), in February 1997. SFAS 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier application is permitted.
This statement establishes standards for computing and presenting earnings
per share (EPS) and applies to entities with publicly held common stock or
potential common stock. SFAS 128 simplifies the standards for computing earnings
per share previously found in APB Opinion No. 15 and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS pursuant to Opinion 15.
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
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 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, 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.
17
18
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 accompanying consolidated balance sheets of The Men's
Wearhouse, Inc. and its subsidiaries (the "Company") as of February 3, 1996 and
February 1, 1997, and the related consolidated statements of earnings,
shareholders' equity, and cash flows for each of the three years in the period
ended February 1, 1997. 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 generally accepted auditing
standards. 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 provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company and its
subsidiaries as of February 3, 1996 and February 1, 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended February 1, 1997 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Houston, Texas
March 5, 1997
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19
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
FEBRUARY 3, FEBRUARY 1,
1996 1997
------------ ------------
CURRENT ASSETS:
Cash...................................................... $ 2,547,000 $ 34,113,000
Inventories............................................... 136,797,000 164,140,000
Other current assets...................................... 5,663,000 10,051,000
------------ ------------
Total current assets................................... 145,007,000 208,304,000
------------ ------------
PROPERTY AND EQUIPMENT:
Land...................................................... 1,861,000 3,231,000
Buildings................................................. 7,645,000 7,978,000
Leasehold improvements.................................... 30,888,000 43,518,000
Furniture, fixtures and equipment......................... 45,998,000 56,324,000
------------ ------------
86,392,000 111,051,000
Less accumulated depreciation and amortization............ (29,247,000) (40,029,000)
------------ ------------
Net property and equipment............................. 57,145,000 71,022,000
------------ ------------
OTHER ASSETS................................................ 1,953,000 16,152,000
------------ ------------
TOTAL............................................. $204,105,000 $295,478,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 33,810,000 $ 38,089,000
Accrued expenses.......................................... 16,507,000 24,742,000
Income taxes payable...................................... 5,276,000 8,194,000
Other current liabilities................................. 616,000 442,000
------------ ------------
Total current liabilities.............................. 56,209,000 71,467,000
LONG-TERM DEBT.............................................. 4,250,000 57,500,000
OTHER LIABILITIES........................................... 6,685,000 7,382,000
------------ ------------
Total liabilities...................................... 67,144,000 136,349,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000,000 shares
authorized, none issued................................ -- --
Common stock, $.01 par value, 50,000,000 shares
authorized, 20,933,230 and 21,012,750 shares issued.... 209,000 210,000
Capital in excess of par.................................. 77,299,000 78,182,000
Retained earnings......................................... 60,173,000 81,316,000
------------ ------------
Total.................................................. 137,681,000 159,708,000
Treasury common stock, 113,418 and 91,294 shares at
cost................................................... (720,000) (579,000)
------------ ------------
Total shareholders' equity............................. 136,961,000 159,129,000
------------ ------------
TOTAL............................................. $204,105,000 $295,478,000
============ ============
See notes to consolidated financial statements.
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20
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED JANUARY 28, 1995,
FEBRUARY 3, 1996 AND FEBRUARY 1, 1997
FISCAL YEAR
--------------------------------------------
1994 1995 1996
------------ ------------ ------------
Net sales........................................ $317,127,000 $406,343,000 $483,547,000
Cost of goods sold including buying and occupancy
costs.......................................... 195,249,000 248,728,000 295,181,000
------------ ------------ ------------
Gross margin..................................... 121,878,000 157,615,000 188,366,000
Selling, general and administrative expenses..... 99,503,000 127,009,000 150,232,000
------------ ------------ ------------
Operating income................................. 22,375,000 30,606,000 38,134,000
Interest expense (net of interest income of
$43,000, $93,000 and $1,237,000,
respectively).................................. 1,764,000 2,518,000 2,146,000
------------ ------------ ------------
Earnings before income taxes..................... 20,611,000 28,088,000 35,988,000
Provision for income taxes....................... 8,503,000 11,580,000 14,845,000
------------ ------------ ------------
Net earnings..................................... $ 12,108,000 $ 16,508,000 $ 21,143,000
============ ============ ============
Net earnings per share of common stock........... $ .63 $ .82 $ 1.00
============ ============ ============
Weighted average number of common and common
equivalent shares outstanding.................. 19,163,000 20,226,000 21,193,000
============ ============ ============
See notes to consolidated financial statements.
20
21
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 28, 1995,
FEBRUARY 3, 1996 AND FEBRUARY 1, 1997
CAPITAL
COMMON IN EXCESS RETAINED TREASURY
STOCK OF PAR EARNINGS STOCK TOTAL
-------- ----------- ----------- ----------- ------------
BALANCE -- January 29, 1994................ $122,000 $27,253,000 $31,557,000 $(1,065,000) $ 57,867,000
Net earnings............................. -- -- 12,108,000 -- 12,108,000
Common stock issued in public offering --
810,000 shares......................... 5,000 14,495,000 -- -- 14,500,000
Common stock issued upon exercise of
stock options -- 56,637 shares......... 1,000 192,000 -- -- 193,000
Common stock withheld to satisfy tax
withholding liabilities of
optionees -- 21,321 shares............. -- (398,000) -- -- (398,000)
Tax benefit recognized upon exercise of
stock options.......................... -- 309,000 -- -- 309,000
Treasury stock issued to profit sharing
plan -- 20,756 shares.................. -- 233,000 -- 132,000 365,000
-------- ----------- ----------- ----------- ------------
BALANCE -- January 28, 1995................ 128,000 42,084,000 43,665,000 (933,000) 84,944,000
Net earnings............................. -- -- 16,508,000 -- 16,508,000
Common stock issued in public offering --
1,725,000 shares....................... 11,000 34,657,000 -- -- 34,668,000
Stock dividend -- 50%.................... 69,000 (69,000) -- -- --
Common stock issued upon exercise of
stock options -- 118,319 shares........ 1,000 456,000 -- -- 457,000
Common stock withheld to satisfy tax
withholding liabilities of
optionees -- 42,356 shares............. -- (692,000) -- -- (692,000)
Tax benefit recognized upon exercise of
stock options.......................... -- 576,000 -- -- 576,000
Treasury stock issued to profit sharing
plan -- 33,708 shares.................. -- 287,000 -- 213,000 500,000
-------- ----------- ----------- ----------- ------------
BALANCE -- February 3, 1996................ 209,000 77,299,000 60,173,000 (720,000) 136,961,000
Net earnings............................. -- -- 21,143,000 -- 21,143,000
Common stock issued upon exercise of
stock options -- 123,058 shares........ 1,000 713,000 -- -- 714,000
Common stock withheld to satisfy tax
withholding liabilities of
optionees -- 43,538 shares............. -- (1,415,000) -- -- (1,415,000)
Tax benefit recognized upon exercise of
stock options.......................... -- 1,101,000 -- -- 1,101,000
Treasury stock issued to profit sharing
plan -- 22,124 shares.................. -- 484,000 -- 141,000 625,000
-------- ----------- ----------- ----------- ------------
BALANCE -- February 1, 1997................ $210,000 $78,182,000 $81,316,000 $ (579,000) $159,129,000
======== =========== =========== =========== ============
See notes to consolidated financial statements.
21
22
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 28, 1995,
FEBRUARY 3, 1996 AND FEBRUARY 1, 1997
1994 1995 1996
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings...................................... $ 12,108,000 $ 16,508,000 $ 21,143,000
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization.................. 7,088,000 9,436,000 12,563,000
Deferred tax provision (benefit)............... (300,000) 381,000 (1,093,000)
Increase in inventories........................ (30,268,000) (28,609,000) (27,343,000)
(Increase) decrease in other current assets.... (1,419,000) 425,000 (3,083,000)
Increase in accounts payable and accrued
expenses..................................... 7,616,000 7,836,000 13,138,000
Increase (decrease) in income taxes payable.... (232,000) 2,742,000 4,019,000
Increase in other liabilities.................. 797,000 717,000 455,000
------------ ------------ ------------
Net cash provided by (used in) operating
activities.............................. (4,610,000) 9,436,000 19,799,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (23,736,000) (22,538,000) (26,222,000)
Investment in trademarks, tradenames and other
intangibles.................................... -- -- (11,972,000)
------------ ------------ ------------
Net cash used in investing
activities.............................. (23,736,000) (22,538,000) (38,194,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock............ 14,693,000 35,125,000 714,000
Bank borrowings................................... 43,750,000 46,820,000 18,750,000
Principal payments on bank debt................... (29,250,000) (66,070,000) (23,000,000)
Net proceeds from debt offering................... -- -- 55,500,000
Principal payments under capital lease
obligations.................................... (826,000) (763,000) (588,000)
Tax payments related to options exercised......... (398,000) (692,000) (1,415,000)
------------ ------------ ------------
Net cash provided by financing
activities.............................. 27,969,000 14,420,000 49,961,000
------------ ------------ ------------
INCREASE (DECREASE) IN CASH......................... (377,000) 1,318,000 31,566,000
CASH:
Beginning of period............................... 1,606,000 1,229,000 2,547,000
------------ ------------ ------------
End of period..................................... $ 1,229,000 $ 2,547,000 $ 34,113,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.......................................... $ 1,570,000 $ 2,788,000 $ 2,145,000
============ ============ ============
Income taxes...................................... $ 9,249,000 $ 8,474,000 $ 11,919,000
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Additional paid in capital resulting from tax
benefit recognized upon exercise of stock
options........................................ $ 309,000 $ 576,000 $ 1,101,000
============ ============ ============
Treasury stock contributed to profit sharing
plan........................................... $ 365,000 $ 500,000 $ 625,000
============ ============ ============
See notes to consolidated financial statements.
22
23
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business -- The Men's Wearhouse, Inc. (the Company) is an
off-price specialty retailer of men's tailored business attire. The Company
follows the standard fiscal year of the retail industry, which is a 52-53 week
period ending on the Saturday closest to January 31. Fiscal year 1994 ended on
January 28, 1995, fiscal year 1995 ended on February 3, 1996, and fiscal year
1996 ended on February 1, 1997; each of these fiscal years included 52 weeks,
except for 1995 which was a 53 week year.
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
intercompany accounts and transactions are eliminated in consolidation.
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 and Cash Equivalents -- For purposes of the statement of cash flows,
the Company considers all highly liquid investments with maturities of three
months or less as cash equivalents.
Inventories -- Inventories are valued at the lower of cost or market, with
cost determined on the retail first-in, first-out (FIFO) 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.
The Company provides for depreciation by the straight-line method over the
estimated useful lives of the assets as follows:
Leasehold improvements...................................... 8 years
Furniture, fixtures and equipment........................... 3-8 years
Buildings................................................... 20-25 years
New Store Costs -- Promotion and other costs associated with the opening of
new stores are expensed as incurred.
Stock Based Compensation -- As permitted by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123), the Company continues to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Accordingly, no compensation
expense has been recognized for the Company's employee stock option plans. The
disclosure only provisions of SFAS No. 123 have been included in Note 5 of Notes
to Consolidated Financial Statements.
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. Gains and losses associated with these contracts are accounted
for as part of the underlying inventory purchase transactions.
Earnings per Share -- Net earnings per share of common stock are based on
the weighted average number of shares of common stock and common stock
equivalents outstanding during each fiscal period. Common stock options are the
only common stock equivalents and have been included in the computation of
23
24
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
net earnings per share based on the number of shares issuable upon exercise of
the options granted less the number of common shares that are assumed to be
purchased at their estimated fair value.
As discussed in Note 5, in 1994 and 1995, the Company sold shares of common
stock and in 1995 declared a stock split effected as a 50% stock dividend. The
weighted average number of shares outstanding consider the shares sold from the
date of closing of each transaction. All applicable share and per share data in
the consolidated financial statements and related notes give retroactive effect
to the stock split.
2. ACCRUED EXPENSES
Accrued expenses consist of the following:
FEBRUARY 3, FEBRUARY 1,
1996 1997
----------- -----------
Sales, payroll and property tax payable................... $ 3,492,000 $ 4,275,000
Accrued salary, bonus and vacation........................ 6,201,000 7,047,000
Other..................................................... 6,814,000 13,420,000
----------- -----------
Total........................................... $16,507,000 $24,742,000
=========== ===========
3. LONG-TERM DEBT
The Company entered into a second amended and restated Credit Agreement
with its bank group that became effective on June 30, 1995. The Credit Agreement
provides for borrowings under two separate revolving facilities of up to $100
million through June 30, 1998 and may be extended for a maximum of two years
subject to approval of all of the banks. The first facility allows the Company
to borrow up to $75 million and the second facility, which can be activated and
deactivated at the discretion of the Company, allows the Company to borrow up to
$25 million. On June 30, 1998 (subject to extension as discussed above), the
Company may convert all amounts then outstanding under the revolvers to a term
loan that is payable in equal quarterly principal installments (based on a
five-year amortization schedule) and matures at the end of three years (June 30,
2003, assuming extensions). As of February 1, 1997, there were no borrowings
under the Credit Agreement and letters of credit with an aggregate undrawn
balance of $3.4 million issued on the Company's behalf were outstanding. As of
February 3, 1996, borrowings were $4,250,000 with interest at 8.25%.
Advances under the Credit Agreement bear interest at a rate per annum equal
to, at the Company's option, (i) the bank's prime rate or (ii) the reserve
adjusted LIBOR rate plus an interest rate margin varying between 1.00% to 1.50%.
The Credit Agreement provides for facility fees applicable to commitments under
each facility of (i) .125% with respect to the first facility and (ii) .1875%
with respect to the second facility during periods in which it is activated or
.0625% with respect to periods in which it is not activated. Total commitment
fees related to the Credit Agreement were $86,000 in 1994, $101,000 in 1995 and
$133,000 in 1996.
The Credit Agreement contains certain restrictive and financial covenants,
including a requirement to maintain a minimum amount of Consolidated Tangible
Net Worth (as defined in the Credit Agreement). The Credit Agreement also
specifies that for 30-day periods that include the last day of each fiscal year
during the revolving period, amounts drawn under the revolving credit facility
cannot exceed $60 million. The Company is also required to maintain certain debt
to equity, cash flow and current ratios and must keep its average store
inventories below certain specified amounts. In addition, the Company is
prohibited, subject to certain exceptions, from incurring additional
indebtedness (including capital leases) or creating liens, making certain
Restricted Payments (as defined in the Credit Agreement), making Investments (as
defined in the Credit Agreement) and paying dividends on the Common Stock, other
than in shares of Common Stock. The Credit Agreement also permits but has
certain limitations regarding the Company's ability to merge or consolidate
24
25
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with another company, sell or dispose of its property, make acquisitions, issue
options or enter into transactions with affiliates. As of February 1, 1997 the
Company was in compliance with the covenants in the Credit Agreement.
In March 1996, the Company sold $57.5 million of 5 1/4% Convertible
Subordinated Notes (the "Notes") due 2003. A portion of the net proceeds from
the Notes was used to repay outstanding indebtedness under the Credit Agreement.
The Notes are convertible at any time through March 1, 2003, unless previously
redeemed into Common Stock at a conversion price of $34.125 per share. Interest
on the Notes is payable semi-annually on March 1 and September 1 of each year.
The Notes are redeemable at the option of the Company, in whole or in part, on
or after March 1, 1998 initially at 103.5% of the face amount and thereafter at
prices declining to 100% at maturity. As of February 1, 1997, the quoted market
price for the Notes was 103 3/4.
4. INCOME TAXES
The provision for income taxes consists of the following:
FISCAL YEAR
----------------------------------------
1994 1995 1996
---------- ----------- -----------
Current tax expense:
Federal.................................... $7,346,000 $ 9,266,000 $13,410,000
State...................................... 1,457,000 1,933,000 2,528,000
Deferred tax expense (benefit):
Current.................................... (646,000) (1,007,000) (1,750,000)
Noncurrent................................. 346,000 1,388,000 657,000
---------- ----------- -----------
Total.............................. $8,503,000 $11,580,000 $14,845,000
========== =========== ===========
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:
FISCAL YEAR
--------------------
1994 1995 1996
---- ---- ----
Statutory rate.............................................. 35% 35% 35%
State income taxes, net of federal benefit.................. 5 4 5
Other....................................................... 1 2 1
-- -- --
41% 41% 41%
== == ==
25
26
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At February 3, 1996, the Company had net deferred tax assets of $126,000
with $1,726,000 classified as other current assets and $1,600,000 classified as
other liabilities (noncurrent). At February 1, 1997, the Company had net
deferred tax assets of $1,219,000 with $3,476,000 classified as other current
assets and $2,257,000 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 February 3, 1996 and
February 1, 1997 were as follows:
FEBRUARY 3, FEBRUARY 1,
1996 1997
----------- -----------
Deferred tax assets:
Accrued rent and other expenses................. $ 1,929,000 $ 3,400,000
Accrued compensation............................ 992,000 683,000
Accrued markdowns............................... 985,000 1,356,000
Other........................................... 475,000 557,000
----------- -----------
4,381,000 5,996,000
----------- -----------
Deferred tax liabilities:
Capitalized inventory costs..................... (1,121,000) (1,225,000)
Property and equipment capitalization........... (2,519,000) (3,103,000)
Different inventory cost method for tax......... (270,000) --
Other........................................... (345,000) (449,000)
----------- -----------
(4,255,000) (4,777,000)
----------- -----------
Net deferred tax assets........................... $ 126,000 $ 1,219,000
=========== ===========
5. CAPITAL STOCK, STOCK OPTIONS AND BENEFIT PLANS
In April 1994 and August 1995 the Company sold 810,000 shares and 1,725,000
shares of common stock, respectively, with net proceeds to the Company of
$14,500,000 and $34,668,000, respectively. In addition the Board of Directors
took action to cause a 3-for-2 stock split in November 1995 effected in the form
of a 50% stock dividend.
In connection with an employment agreement entered into in January 1991
with an officer, that officer was granted options on February 25, 1991, to
acquire 531,135 shares of common stock of the Company at a price of $2.35 per
share. Among other things, the employment agreement provides that upon the
exercise of any of these options, the Company will pay the officer an amount
which, after the payment of income taxes by the officer on such amount, will
equal the $2.35 per share purchase price for the shares purchased upon exercise
of the options. The Company recognizes compensation expense as the options vest.
The officer exercised 44,262 options in 1994, 73,769 options in 1995 and 73,768
options in 1996. On February 3, 1997 the officer exercised 73,769 options that
vested on January 31, 1997.
In 1992, the Company adopted the 1992 Stock Option Plan (1992 Plan) which,
as amended, provides for the grant of options to purchase up to 714,338 shares
of the Company's common stock to full-time key employees (excluding certain
officers). In 1996, the Company adopted the 1996 Stock Option Plan (1996 Plan),
which provides for the grant of options to purchase up to 750,000 shares of the
Company's common stock to full-time key employees (excluding certain officers)
of the Company. The 1996 Plan will expire at the end of ten years and no option
may be granted pursuant to the 1996 Plan after the expiration date. 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 45,000 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 and the 1996 Plan will
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
26
27
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
issued at a price less than 50% of the fair market value of the Company's stock
on the date of grant. However, approximately 68% of the options for the 355,250
shares granted on January 6, 1997 under the 1996 Plan will vest annually in
equal increments over a period from four to ten years. Options granted under the
Director Plan vest one year after the date of grant and will be issued at a
price equal to the fair market value of the Company's stock on the date of
grant.
The following table is a summary of the Company's stock option activity:
SHARES UNDER WEIGHTED AVERAGE OPTIONS
OPTION EXERCISE PRICE EXERCISABLE
------------ ---------------- -----------
Balance, January 29, 1994................... 646,089 $ 6.85 79,163
======= =======
Granted................................... 107,025 14.93
Exercised................................. (56,637) 3.40
Forfeited................................. (9,637) 8.75
--------
Balance, January 28, 1995................... 686,840 $ 8.35 129,300
======= =======
Granted................................... 133,675 21.85
Exercised................................. (118,319) 3.97
Forfeited................................. (7,650) 13.48
--------
Balance, February 3, 1996................... 694,546 $11.64 318,352
======= =======
Granted................................... 362,000 23.67
Exercised................................. (123,058) 5.24
Forfeited................................. (3,025) 17.79
--------
Balance, February 1, 1997................... 930,463 $17.15 346,288
======== ======= =======
Grants of stock options outstanding as of February 1, 1997 are summarized
as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICES TOTAL LIFE PRICE TOTAL PRICE
- ----------------- ----------- ----------- --------- ----------- ---------
$ 2.35 to 8.00 219,311 5.2 years $ 5.83 185,561 $ 5.43
8.0001 to 14.83 217,477 7.4 years 14.83 151,227 14.83
14.8334 to 26.63 493,675 9.6 years 23.20 9,500 21.57
------- ------ ------- ------
$ 2.35 to 26.63 930,463 $17.15 346,288 $ 9.98
======= ====== ======= ======
As of February 1, 1997, 549,354 options were available for grant under
existing plans and 1,479,817 shares of common stock were reserved for future
issuance, of which 750,000 shares pertain to the 1996 Plan.
The difference between the option price and the fair market value of the
Company's common stock on the dates that options for 56,637, 118,319 and 123,058
shares of common stock were exercised during 1994, 1995 and 1996, respectively,
resulted in a tax benefit to the Company of $309,000 in 1994, $576,000 in 1995
and $1,101,000 in 1996, which has been recognized as additional capital in
excess of par. In addition, the Company withheld 21,321 shares, 42,356 shares
and 43,538 shares, respectively, of such common stock for withholding payments
made to satisfy the optionees' income tax liabilities resulting from the
exercises.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation cost for the Company's stock option plans
been
27
28
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
determined based on the fair value at the grant date consistent with the
provisions of SFAS No. 123, the Company's pro forma net earnings and earnings
per share would have been $11,844,000 and $0.62 per share, $16,127,000 and $0.80
per share and $20,586,000 and $0.97 per share for 1994, 1995, and 1996,
respectively.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants:
1994 1995 1996
----- ----- -----
Dividend yield.............................................. NA NA NA
Expected volatility......................................... 49.83% 49.84% 50.91%
Risk-free interest rate (U.S. Treasury 5 year notes)........ 6.34% 6.37% 6.21%
Expected lives (years)...................................... 5 5 5
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 discretion of the
Board of Directors. During 1994, 1995 and 1996, contributions charged to
operations were $500,000, $625,000 and $1,000,000, respectively. The Company
also has an Employee Stock Purchase Plan which allows employees to authorize
after-tax payroll deductions to be used for the purchase of the Company's common
stock in the open market. The Company makes no contributions to this plan but
pays all brokerage, service and other costs incurred.
6. COMMITMENTS AND CONTINGENCIES
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 1994, 1995 and
1996 was $16,840,000, $21,712,000 and $26,905,000, respectively, and includes
contingent rentals of $465,000, $354,000 and $335,000, respectively.
Minimum future rental payments under noncancelable operating leases as of
February 1, 1997 for each of the next five years and in the aggregate are as
follows:
FISCAL YEAR AMOUNT
----------- ------------
1997........................................................ $ 32,611,000
1998........................................................ 30,464,000
1999........................................................ 26,497,000
2000........................................................ 21,963,000
2001........................................................ 19,163,000
Thereafter.................................................. 60,792,000
------------
Total........................................ $191,490,000
============
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.
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 of the Company.
The Company routinely enters into inventory purchase commitments that are
denominated in a foreign currency. To protect against currency exchange risks
associated with certain firmly committed and certain
28
29
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
other probable, but not firmly committed inventory transactions, the Company
enters into foreign currency forward exchange contracts. At February 1, 1997,
the Company held forward exchange contracts with notional amounts totaling $17.6
million. All such contracts expire within 24 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 (U.S. dollars) of the foreign currency to be
purchased under the contracts using the exchange rates obtained under the
contracts (adjusted for forward points) to the cost using the spot rate at
year-end. At February 1, 1997, the contracts outstanding had a fair value of
$0.3 million in excess of their notional value.
The majority of the forward exchange contracts are with one financial
institution. Therefore, the Company is exposed to credit risk in the event of
nonperformance by this party. However, due to the creditworthiness of this major
financial institution, 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 being hedged.
7. ACQUISITIONS
In November 1996, Value Priced Clothing ("VPC") was organized under the
laws of California as a wholly-owned subsidiary of the Company for the purpose
of acquiring assets of C&R Clothiers, Inc. ("C&R"), a privately-held retailer of
men's tailored clothing operating stores in Southern California. In January,
1997, the Company and VPC entered into an asset purchase agreement with C&R and
other parties for approximately $12 million. Under the agreement, VPC acquired
17 C&R stores in Southern California and C&R's existing inventory and entered
into a lease for C&R's distribution center in Culver City, California. The new
chain will be used to attract the more price-sensitive clothing customer.
Additionally, the Company acquired various trademarks, tradenames and other
intangibles aggregating $12.0 million during 1996.
8. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The Company's consolidated results of operations by quarter for the 1995
and 1996 fiscal years are presented below. These 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.
1995
------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
Net sales......................... $ 81,355,000 $85,714,000 $ 92,864,000 $146,410,000
Gross margin...................... 30,436,000 33,640,000 35,514,000 58,025,000
Net earnings...................... 2,026,000 2,951,000 3,046,000 8,485,000
Net earnings per share of
common stock.................... $ 0.11 $ 0.15 $ 0.15 $ 0.40
1996
------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
Net sales......................... $103,697,000 $98,885,000 $110,276,000 $170,689,000
Gross margin...................... 38,962,000 38,962,000 42,505,000 67,937,000
Net earnings...................... 3,109,000 4,009,000 3,744,000 10,281,000
Net earnings per share of
common stock.................... $ 0.15 $ 0.19 $ 0.18 $ 0.49
29
30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE MATTERS.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is incorporated by reference from the
Company's Proxy Statement for its Annual Meeting of Shareholders to be held on
June 18, 1997.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from the
Company's Proxy Statement for its Annual Meeting of Shareholders to be held on
June 18, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from the
Company's Proxy Statement for its Annual Meeting of Shareholders to be held on
June 18, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from the
Company's Proxy Statement for its Annual Meeting of Shareholders to be held on
June 18, 1997.
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 Men's Wearhouse,
Inc. and its subsidiaries are included in Part II, Item 8.
Independent Auditors' Report................................ 18
Consolidated Balance Sheets -- February 3, 1996 and February
1, 1997................................................... 19
Consolidated Statements of Earnings -- Years ended January
28, 1995, February 3, 1996 and February 1, 1997........... 20
Consolidated Statements of Shareholders' Equity -- Years
ended January 28, 1995, February 3, 1996 and February 1,
1997...................................................... 21
Consolidated Statements of Cash Flows -- Years ended January
28, 1995, February 3, 1996 and February 1, 1997........... 22
Notes to Consolidated Financial Statements.................. 23
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.
30
31
3. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 -- Restated Articles of Incorporation (incorporated by
reference from Exhibit 3.1 to the Registrant's Quarterly
Report on Form 10-Q for the Quarter ended July 30, 1994).
3.2 -- By-laws, as amended.
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 Registrant's
Registration Statement on Form S-1 (Registration No. 33-
45949)).
*4.4 -- Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab, including the
First Amendment thereto dated as of September 30, 1991
(incorporated by reference from Exhibit 4.4 to the
Registrant's Registration Statement on Form S-1
(Registration No. 33-45949)).
*4.5 -- Second Amendment effective as of January 1, 1993, to
Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab (incorporated by
reference from Exhibit 4.5 to the Registrant's
Registration Statement on Form S-1 (Registration No.
33-60516)).
*4.6 -- Second [sic] Amendment dated as of April 12, 1994, to
Employment Agreement dated as of January 31, 1991
(incorporated by reference to Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1995).
*4.7 -- Option Issuance Agreement dated as of September 30, 1991,
by and between the Company and David H. Edwab
(incorporated by reference from Exhibit 4.5 to the
Registrant's Registration Statement on Form S-1
(Registration No. 33-45949)).
*4.8 -- First Amendment to Option Issuance Agreement dated April
22, 1992, but effective as of September 30, 1991
(incorporated by reference from Exhibit 4.7 to the
Registrant's Registration Statement on Form S-8
(Registration No. 33-48109)).
*4.9 -- Second Amendment to Option Issuance Agreement dated
effective as of January 1, 1993 (incorporated by
reference from Exhibit 4.8 to the Registrant's
Registration Statement on Form S-1 (Registration No.
33-60516)).
*4.10 -- First [sic] Amendment to Option Issuance Agreement dated
as of April 12, 1994 (incorporated by reference to
Exhibit 4.10 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1995).
4.11 -- Indenture dated March 1, 1996, between the Company and
Texas Commerce Bank National Association, as trustee
including Form of Note (incorporated by reference from
Exhibit 4.1 to the Registrant's Quarterly Report on Form
10-Q for the Quarter ended May 4, 1996).
*10.1 -- Employment Agreement dated as of January 31, 1991,
including the First Amendment thereto dated as of
September 30, 1991 by and between the Company and David
H. Edwab (included as Exhibit 4.4).
*10.2 -- Second Amendment effective as of January 1, 1993, to
Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab (included as
Exhibit 4.5).
31
32
EXHIBIT
NUMBER DESCRIPTION
------- -----------
*10.3 -- Second [sic] Amendment dated as of April 12, 1994, to
Employment Agreement dated as of January 31, 1991
(incorporated by reference to Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1995).
*10.4 -- Option Issuance Agreement dated as of September 30, 1991,
by and between the Company and David H. Edwab (included
as Exhibit 4.7).
*10.5 -- First Amendment to Option Issuance Agreement dated April
22, 1992, but effective as of September 30, 1991
(included as Exhibit 4.8).
*10.6 -- Second Amendment to Option Issuance Agreement dated
effective as of January 1, 1993 (included as Exhibit
4.9).
*10.7 -- First [sic] Amendment to Option Issuance Agreement dated
as of April 12, 1994 (incorporated by reference to
Exhibit 4.10 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1995).
*10.8 -- 1992 Stock Option Plan (incorporated by reference from
Exhibit 10.5 to the Registrant's Registration Statement
on Form S-1 (Registration No. 33-45949)).
*10.9 -- First Amendment to 1992 Stock Option Plan (incorporated
by reference from Exhibit 10.9 to the Registrant's
Registration Statement on Form S-1 (Registration No.
33-60516)).
*10.10 -- Non-Employee Director Stock Option Plan (incorporated by
reference from Exhibit 10.7 to the Registrant's
Registration Statement on Form S-1 (Registration No.
33-45949)).
*10.11 -- First Amendment to Non-Employee Director Stock Option
Plan (incorporated by reference from Exhibit 10.16 to the
Registrant's Registration Statement on Form S-1
(Registration No. 33-45949)).
10.12 -- 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 Registrant's Quarterly
Report on Form 10-Q for the Quarter ended May 4, 1996).
10.13 -- Commercial Lease dated April 5, 1989, by and between the
Company and Preston Road Partnership (incorporated by
reference from Exhibit 10.10 to the Registrant's
Registration Statement on Form S-1 (Registration No.
33-45949)).
*10.14 -- Stock Agreement dated as of March 23, 1992, between the
Company and George Zimmer (incorporated by reference from
Exhibit 10.13 to the Registrant's Registration Statement
on Form S-1 (Registration No. 33-45949)).
*10.15 -- 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).
10.16 -- Second Amended and Restated Credit Agreement dated as of
March 14, 1995, by and among the Company, NationsBank
N.A. of Texas, N.A., as Agent, and NationsBank of Texas,
N.A., Union Bank and Wells Fargo Bank, N.A. (incorporated
by reference to Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 28,
1995).
32
33
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.17 -- First Amendment to Second Amended and Restated Credit
Agreement dated as of August 5, 1996, by and among the
Company, NationsBank N.A. of Texas, N.A., as Agent, and
NationsBank of Texas, N.A., Union Bank and Wells Fargo
Bank, N.A. (incorporated by reference from Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for the
Quarter ended August 3, 1996).
10.18 -- Second Amendment to Second Amended and Restated Credit
Agreement dated as of November 8, 1996, by and among the
Company, NationsBank N.A. of Texas, N.A., as Agent, and
NationsBank of Texas, N.A., Union Bank and Wells Fargo
Bank, N.A.
*10.19 -- 1996 Stock Option Plan (incorporated by reference from
Exhibit 10.2 to the Registrant's Quarterly Report on Form
10-Q for the Quarter ended August 3, 1996).
*10.20 -- Second Amendment to Non-Employee Director Stock Option
Plan (incorporated by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the
Quarter ended August 3, 1996).
10.21 -- Indenture dated March 1, 1996, between the Company and
Texas Commerce Bank National Association, as trustee
(included as exhibit 4.12).
11.1 -- Statement of Computation of Net Earnings Per Share.
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Deloitte & Touche LLP , independent auditors.
27.1 -- Financial Data Schedule.
- ---------------
* Management Compensation or Incentive Plan
As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant
has not filed with this Annual Report on Form 10-K certain instruments defining
the rights of holders of long-term debt of the Registrant and its subsidiaries
because the total amount of securities authorized under any of such instruments
does not exceed 10% of the total assets of the Registrant and its subsidiaries
on a consolidated basis. The Registrant agrees to furnish a copy of any such
agreements to the Securities and Exchange Commission upon request.
The Company will furnish a copy of any exhibit described above to any
beneficial holder of its securities upon receipt of a written request therefor,
provided that such request sets forth a good faith representation that, as of
the record date for the Company's 1996 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.
There were no reports filed by the Company on Form 8-K during the fourth
quarter period ended February 1, 1997.
33
34
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 29, 1997
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 29, 1997
- ----------------------------------------------------- Executive Officer and Director
George Zimmer
/s/ DAVID EDWAB President, Treasurer and Director April 29, 1997
- -----------------------------------------------------
David Edwab
/s/ GARY G. CKODRE Vice President -- Finance and April 29, 1997
- ----------------------------------------------------- Principal Financial and Accounting
Gary G. Ckodre Officer
/s/ RICHARD E. GOLDMAN Executive Vice President and April 29, 1997
- ----------------------------------------------------- Director
Richard E. Goldman
/s/ ROBERT E. ZIMMER Senior Vice President -- Real April 29, 1997
- ----------------------------------------------------- Estate and Director
Robert E. Zimmer
/s/ JAMES E. ZIMMER Senior Vice President -- April 29, 1997
- ----------------------------------------------------- Merchandising and Director
James E. Zimmer
/s/ HARRY M. LEVY Senior Vice President -- Planning April 29, 1997
- ----------------------------------------------------- and Systems, Chief Information
Harry M. Levy Officer and Director
/s/ RINALDO BRUTOCO Director April 29, 1997
- -----------------------------------------------------
Rinaldo Brutoco
/s/ MICHAEL L. RAY Director April 29, 1997
- -----------------------------------------------------
Michael L. Ray
/s/ SHELDON I. STEIN Director April 29, 1997
- -----------------------------------------------------
Sheldon I. Stein
34
35
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 -- Restated Articles of Incorporation (incorporated by
reference from Exhibit 3.1 to the Registrant's Quarterly
Report on Form 10-Q for the Quarter ended July 30, 1994).
3.2 -- By-laws, as amended.
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 Registrant's
Registration Statement on Form S-1 (Registration No. 33-
45949)).
*4.4 -- Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab, including the
First Amendment thereto dated as of September 30, 1991
(incorporated by reference from Exhibit 4.4 to the
Registrant's Registration Statement on Form S-1
(Registration No. 33-45949)).
*4.5 -- Second Amendment effective as of January 1, 1993, to
Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab (incorporated by
reference from Exhibit 4.5 to the Registrant's
Registration Statement on Form S-1 (Registration No.
33-60516)).
*4.6 -- Second [sic] Amendment dated as of April 12, 1994, to
Employment Agreement dated as of January 31, 1991
(incorporated by reference to Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1995).
*4.7 -- Option Issuance Agreement dated as of September 30, 1991,
by and between the Company and David H. Edwab
(incorporated by reference from Exhibit 4.5 to the
Registrant's Registration Statement on Form S-1
(Registration No. 33-45949)).
*4.8 -- First Amendment to Option Issuance Agreement dated April
22, 1992, but effective as of September 30, 1991
(incorporated by reference from Exhibit 4.7 to the
Registrant's Registration Statement on Form S-8
(Registration No. 33-48109)).
*4.9 -- Second Amendment to Option Issuance Agreement dated
effective as of January 1, 1993 (incorporated by
reference from Exhibit 4.8 to the Registrant's
Registration Statement on Form S-1 (Registration No.
33-60516)).
*4.10 -- First [sic] Amendment to Option Issuance Agreement dated
as of April 12, 1994 (incorporated by reference to
Exhibit 4.10 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1995).
4.11 -- Indenture dated March 1, 1996, between the Company and
Texas Commerce Bank National Association, as trustee
including Form of Note (incorporated by reference from
Exhibit 4.1 to the Registrant's Quarterly Report on Form
10-Q for the Quarter ended May 4, 1996).
*10.1 -- Employment Agreement dated as of January 31, 1991,
including the First Amendment thereto dated as of
September 30, 1991 by and between the Company and David
H. Edwab (included as Exhibit 4.4).
*10.2 -- Second Amendment effective as of January 1, 1993, to
Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab (included as
Exhibit 4.5).
36
EXHIBIT
NUMBER DESCRIPTION
------- -----------
*10.3 -- Second [sic] Amendment dated as of April 12, 1994, to
Employment Agreement dated as of January 31, 1991
(incorporated by reference to Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1995).
*10.4 -- Option Issuance Agreement dated as of September 30, 1991,
by and between the Company and David H. Edwab (included
as Exhibit 4.7).
*10.5 -- First Amendment to Option Issuance Agreement dated April
22, 1992, but effective as of September 30, 1991
(included as Exhibit 4.8).
*10.6 -- Second Amendment to Option Issuance Agreement dated
effective as of January 1, 1993 (included as Exhibit
4.9).
*10.7 -- First [sic] Amendment to Option Issuance Agreement dated
as of April 12, 1994 (incorporated by reference to
Exhibit 4.10 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1995).
*10.8 -- 1992 Stock Option Plan (incorporated by reference from
Exhibit 10.5 to the Registrant's Registration Statement
on Form S-1 (Registration No. 33-45949)).
*10.9 -- First Amendment to 1992 Stock Option Plan (incorporated
by reference from Exhibit 10.9 to the Registrant's
Registration Statement on Form S-1 (Registration No.
33-60516)).
*10.10 -- Non-Employee Director Stock Option Plan (incorporated by
reference from Exhibit 10.7 to the Registrant's
Registration Statement on Form S-1 (Registration No.
33-45949)).
*10.11 -- First Amendment to Non-Employee Director Stock Option
Plan (incorporated by reference from Exhibit 10.16 to the
Registrant's Registration Statement on Form S-1
(Registration No. 33-45949)).
10.12 -- 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 Registrant's Quarterly
Report on Form 10-Q for the Quarter ended May 4, 1996).
10.13 -- Commercial Lease dated April 5, 1989, by and between the
Company and Preston Road Partnership (incorporated by
reference from Exhibit 10.10 to the Registrant's
Registration Statement on Form S-1 (Registration No.
33-45949)).
*10.14 -- Stock Agreement dated as of March 23, 1992, between the
Company and George Zimmer (incorporated by reference from
Exhibit 10.13 to the Registrant's Registration Statement
on Form S-1 (Registration No. 33-45949)).
*10.15 -- 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).
10.16 -- Second Amended and Restated Credit Agreement dated as of
March 14, 1995, by and among the Company, NationsBank
N.A. of Texas, N.A., as Agent, and NationsBank of Texas,
N.A., Union Bank and Wells Fargo Bank, N.A. (incorporated
by reference to Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 28,
1995).
37
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.17 -- First Amendment to Second Amended and Restated Credit
Agreement dated as of August 5, 1996, by and among the
Company, NationsBank N.A. of Texas, N.A., as Agent, and
NationsBank of Texas, N.A., Union Bank and Wells Fargo
Bank, N.A. (incorporated by reference from Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for the
Quarter ended August 3, 1996).
10.18 -- Second Amendment to Second Amended and Restated Credit
Agreement dated as of November 8, 1996, by and among the
Company, NationsBank N.A. of Texas, N.A., as Agent, and
NationsBank of Texas, N.A., Union Bank and Wells Fargo
Bank, N.A.
*10.19 -- 1996 Stock Option Plan (incorporated by reference from
Exhibit 10.2 to the Registrant's Quarterly Report on Form
10-Q for the Quarter ended August 3, 1996).
*10.20 -- Second Amendment to Non-Employee Director Stock Option
Plan (incorporated by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the
Quarter ended August 3, 1996).
10.21 -- Indenture dated March 1, 1996, between the Company and
Texas Commerce Bank National Association, as trustee
(included as exhibit 4.12).
11.1 -- Statement of Computation of Net Earnings Per Share.
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Deloitte & Touche LLP , independent auditors.
27.1 -- Financial Data Schedule.
- ---------------
* Management Compensation or Incentive Plan