Attached files
file | filename |
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EX-4.2 - EX-4.2 - TAILORED BRANDS INC | h75800exv4w2.htm |
EX-4.1 - EX-4.1 - TAILORED BRANDS INC | h75800exv4w1.htm |
EX-32.1 - EX-32.1 - TAILORED BRANDS INC | h75800exv32w1.htm |
EX-31.1 - EX-31.1 - TAILORED BRANDS INC | h75800exv31w1.htm |
EX-31.2 - EX-31.2 - TAILORED BRANDS INC | h75800exv31w2.htm |
EX-32.2 - EX-32.2 - TAILORED BRANDS INC | h75800exv32w2.htm |
EXCEL - IDEA: XBRL DOCUMENT - TAILORED BRANDS INC | Financial_Report.xls |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July 31, 2010 or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-16097
THE MENS WEARHOUSE, INC.
(Exact Name of Registrant as Specified in its Charter)
Texas | 74-1790172 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification Number) | |
6380 Rogerdale | ||
Houston, Texas | 77072-1624 | |
(Address of Principal Executive Offices) | (Zip Code) |
(281) 776-7000
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ. No o.
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes þ. No o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See definition of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o. No þ.
The number of shares of common stock of the Registrant, par value $.01 per share, outstanding
at September 3, 2010 was 52,683,462 excluding 18,118,736 shares classified as Treasury Stock.
REPORT INDEX
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26 | ||||||||
26 | ||||||||
EX-4.1 | ||||||||
EX-4.2 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT |
Table of Contents
Forward-Looking and Cautionary Statements
Certain statements made in this Quarterly Report on Form 10-Q and in other public filings and
press releases by the Company contain forward-looking information (as defined in the Private
Securities Litigation Reform Act of 1995) that involves risk and uncertainty. These
forward-looking statements may include, but are not limited to, references to future capital
expenditures, acquisitions, sales, earnings, margins, costs, number and costs of store openings,
demand for clothing, market trends in the retail clothing business, currency fluctuations,
inflation and various economic and business trends. Forward-looking statements may be made by
management orally or in writing, including, but not limited to, Managements Discussion and
Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form
10-Q and other sections of our filings with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 and the Securities Act of 1933.
Forward-looking statements are not guarantees of future performance and a variety of factors
could cause actual results to differ materially from the anticipated or expected results expressed
in or suggested by these forward-looking statements. Factors that might cause or contribute to
such differences include, but are not limited to, actions by governmental entities, domestic and
international economic activity and inflation, our successful execution of internal operating plans
and new store and new market expansion plans, including successful integration of acquisitions,
performance issues with key suppliers, disruption in buying trends due to homeland security
concerns, severe weather, foreign currency fluctuations, government export and import policies,
aggressive advertising or marketing activities of competitors and legal proceedings. Future
results will also be dependent upon our ability to continue to identify and complete successful
expansions and penetrations into existing and new markets and our ability to integrate such
expansions with our existing operations. Refer to Risk Factors in our Annual Report on Form 10-K
for the year ended January 30, 2010 and Item 1A contained in Part II of this Quarterly Report on
Form 10-Q for a more complete discussion of these and other factors that might affect our
performance and financial results. These forward-looking statements are intended to relay the
Companys expectations about the future, and speak only as of the date they are made. We undertake
no obligation to publicly update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise.
PART I. FINANCIAL INFORMATION
ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GENERAL INFORMATION
The condensed consolidated financial statements herein include the accounts of The Mens
Wearhouse, Inc. and its subsidiaries and have been prepared without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. As applicable under such regulations,
certain information and footnote disclosures have been condensed or omitted. We believe that the
presentation and disclosures herein are adequate to make the information not misleading, and the
condensed consolidated financial statements reflect all elimination entries and normal adjustments
which are necessary for a fair statement of the results for the three and six months ended July 31,
2010 and August 1, 2009.
Our business historically has been seasonal in nature, and the operating results of the
interim periods presented are not necessarily indicative of the results that may be achieved for
the full year. These condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements for the year ended January 30, 2010 and the related
notes thereto included in the Companys Annual Report on Form 10-K for the year then ended filed
with the SEC.
Unless the context otherwise requires, Company, we, us and our refer to The Mens
Wearhouse, Inc. and its subsidiaries.
1
Table of Contents
THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(In thousands)
July 31, | August 1, | January 30, | ||||||||||
2010 | 2009 | 2010 | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
ASSETS |
||||||||||||
CURRENT ASSETS: |
||||||||||||
Cash and cash equivalents |
$ | 281,500 | $ | 144,449 | $ | 186,018 | ||||||
Short-term investments |
| 19,490 | | |||||||||
Accounts receivable, net |
19,066 | 17,129 | 16,745 | |||||||||
Inventories |
416,377 | 430,777 | 431,492 | |||||||||
Other current assets |
61,762 | 51,876 | 74,075 | |||||||||
Total current assets |
778,705 | 663,721 | 708,330 | |||||||||
PROPERTY AND EQUIPMENT, net |
333,133 | 375,595 | 344,746 | |||||||||
TUXEDO RENTAL PRODUCT, net |
91,690 | 107,848 | 102,479 | |||||||||
GOODWILL |
60,449 | 59,266 | 59,414 | |||||||||
OTHER ASSETS, net |
22,850 | 16,466 | 17,137 | |||||||||
TOTAL |
$ | 1,286,827 | $ | 1,222,896 | $ | 1,232,106 | ||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||||
CURRENT LIABILITIES: |
||||||||||||
Accounts payable |
$ | 82,163 | $ | 78,918 | $ | 83,052 | ||||||
Accrued expenses and other current liabilities |
129,971 | 115,488 | 117,047 | |||||||||
Income taxes payable |
7,589 | 19,276 | 23,936 | |||||||||
Current maturities of long-term debt |
45,226 | | | |||||||||
Total current liabilities |
264,949 | 213,682 | 224,035 | |||||||||
LONG-TERM DEBT |
| 43,161 | 43,491 | |||||||||
DEFERRED TAXES AND OTHER LIABILITIES |
64,402 | 63,289 | 62,236 | |||||||||
Total liabilities |
329,351 | 320,132 | 329,762 | |||||||||
COMMITMENTS AND CONTINGENCIES (Note 3 and Note 11) |
||||||||||||
SHAREHOLDERS EQUITY: |
||||||||||||
Preferred stock |
| | | |||||||||
Common stock |
708 | 703 | 705 | |||||||||
Capital in excess of par |
332,677 | 319,029 | 327,742 | |||||||||
Retained earnings |
1,000,553 | 961,670 | 953,986 | |||||||||
Accumulated other comprehensive income |
36,308 | 33,988 | 32,537 | |||||||||
Treasury stock, at cost |
(412,770 | ) | (412,626 | ) | (412,626 | ) | ||||||
Total shareholders equity |
957,476 | 902,764 | 902,344 | |||||||||
TOTAL |
$ | 1,286,827 | $ | 1,222,896 | $ | 1,232,106 | ||||||
See Notes to Condensed Consolidated Financial Statements.
2
Table of Contents
THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
(In thousands, except per share data)
(Unaudited)
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
July 31, | August 1, | July 31, | August 1, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net sales: |
||||||||||||||||
Clothing product |
$ | 362,228 | $ | 364,302 | $ | 730,599 | $ | 723,364 | ||||||||
Tuxedo rental services |
142,462 | 129,567 | 214,616 | 200,986 | ||||||||||||
Alteration and other services |
32,299 | 32,339 | 65,240 | 65,992 | ||||||||||||
Total net sales |
536,989 | 526,208 | 1,010,455 | 990,342 | ||||||||||||
Cost of sales: |
||||||||||||||||
Clothing product, including buying and
distribution costs |
161,121 | 170,187 | 328,434 | 337,644 | ||||||||||||
Tuxedo rental services |
22,036 | 21,475 | 33,362 | 33,507 | ||||||||||||
Alteration and other services |
24,446 | 23,690 | 48,510 | 47,780 | ||||||||||||
Occupancy costs |
69,803 | 73,068 | 139,494 | 145,634 | ||||||||||||
Total cost of sales |
277,406 | 288,420 | 549,800 | 564,565 | ||||||||||||
Gross margin |
259,583 | 237,788 | 460,655 | 425,777 | ||||||||||||
Selling, general and administrative expenses |
191,168 | 173,896 | 370,818 | 353,109 | ||||||||||||
Operating income |
68,415 | 63,892 | 89,837 | 72,668 | ||||||||||||
Interest income |
46 | 231 | 80 | 489 | ||||||||||||
Interest expense |
(321 | ) | (231 | ) | (580 | ) | (649 | ) | ||||||||
Earnings before income taxes |
68,140 | 63,892 | 89,337 | 72,508 | ||||||||||||
Provision for income taxes |
25,620 | 24,407 | 33,209 | 27,767 | ||||||||||||
Net earnings |
$ | 42,520 | $ | 39,485 | $ | 56,128 | $ | 44,741 | ||||||||
Net earnings per common share (Note 2): |
||||||||||||||||
Basic |
$ | 0.80 | $ | 0.75 | $ | 1.06 | $ | 0.85 | ||||||||
Diluted |
$ | 0.80 | $ | 0.75 | $ | 1.05 | $ | 0.85 | ||||||||
Weighted average common shares outstanding
(Note 2): |
||||||||||||||||
Basic |
52,648 | 52,112 | 52,533 | 52,004 | ||||||||||||
Diluted |
52,806 | 52,255 | 52,717 | 52,105 | ||||||||||||
Cash dividends declared per common share |
$ | 0.09 | $ | 0.07 | $ | 0.18 | $ | 0.14 | ||||||||
See Notes to Condensed Consolidated Financial Statements.
3
Table of Contents
THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Six Months Ended | ||||||||
July 31, | August 1, | |||||||
2010 | 2009 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net earnings |
$ | 56,128 | $ | 44,741 | ||||
Adjustments to reconcile net earnings to net cash
provided by operating activities: |
||||||||
Depreciation and amortization |
36,885 | 43,881 | ||||||
Tuxedo rental product amortization |
20,812 | 22,089 | ||||||
Loss on disposition of assets |
209 | 1,750 | ||||||
Asset impairment charges |
162 | | ||||||
Deferred rent expense |
1,681 | 892 | ||||||
Share-based compensation |
5,723 | 5,159 | ||||||
Excess tax benefits from share-based plans |
(780 | ) | (42 | ) | ||||
Deferred tax provision (benefit) |
3,958 | (8,135 | ) | |||||
Increase in accounts receivable |
(2,263 | ) | (631 | ) | ||||
Decrease in inventories |
17,165 | 15,460 | ||||||
Increase in tuxedo rental product |
(9,276 | ) | (30,816 | ) | ||||
Decrease in other assets |
1,971 | 24,755 | ||||||
Increase (decrease) in accounts payable, accrued expenses and other current liabilities |
13,485 | (27,682 | ) | |||||
Increase (decrease) in income taxes payable |
(15,402 | ) | 19,984 | |||||
Decrease in other liabilities |
(170 | ) | (1,276 | ) | ||||
Net cash provided by operating activities |
130,288 | 110,129 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Capital expenditures |
(25,865 | ) | (28,757 | ) | ||||
Other investing activities |
23 | | ||||||
Net cash used in investing activities |
(25,842 | ) | (28,757 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Proceeds from issuance of common stock |
1,321 | 1,051 | ||||||
Payments on revolving credit facility |
| (25,000 | ) | |||||
Cash dividends paid |
(9,535 | ) | (7,344 | ) | ||||
Tax payments related to vested deferred stock units |
(2,656 | ) | (1,630 | ) | ||||
Excess tax benefits from share-based plans |
780 | 42 | ||||||
Purchase of treasury stock |
(144 | ) | (90 | ) | ||||
Net cash used in financing activities |
(10,234 | ) | (32,971 | ) | ||||
Effect of exchange rate changes |
1,270 | 8,636 | ||||||
INCREASE IN CASH AND CASH EQUIVALENTS |
95,482 | 57,037 | ||||||
Balance at beginning of period |
186,018 | 87,412 | ||||||
Balance at end of period |
$ | 281,500 | $ | 144,449 | ||||
See Notes to Condensed Consolidated Financial Statements.
4
Table of Contents
THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
1. Significant Accounting Policies
Basis of Presentation The condensed consolidated financial statements herein include the
accounts of The Mens Wearhouse, Inc. and its subsidiaries (the Company) and have been prepared
without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the
SEC). As applicable under such regulations, certain information and footnote disclosures have
been condensed or omitted. We believe that the presentation and disclosures herein are adequate to
make the information not misleading, and the condensed consolidated financial statements reflect
all elimination entries and normal adjustments which are necessary for a fair presentation of the
financial position, results of operations and cash flows at the dates and for the periods
presented. These condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and accompanying notes included in our Annual Report on Form
10-K for the year ended January 30, 2010.
The preparation of the condensed consolidated financial statements in conformity with
accounting principals generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts and related disclosures. Actual amounts could
differ from those estimates.
Recent Accounting Guidance In January 2010, the Financial Accounting Standards
Board (FASB) issued authoritative guidance that expands the required disclosures about fair value
measurements. This guidance provides for new disclosures requiring the Company to (a) disclose
separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value
measurements and describe the reasons for the transfers and (b) present separately information
about purchases, sales, issuances and settlements in the reconciliation of Level 3 fair value
measurements. This guidance also provides clarification of existing disclosures requiring the
Company to (i) determine each class of assets and liabilities based on the nature and risks of the
investments rather than by major security type and (ii) for each class of assets and liabilities,
disclose the valuation techniques and inputs used to measure fair value for both Level 2 and
Level 3 fair value measurements. We adopted this guidance effective January 31, 2010, except for
the presentation of purchases, sales, issuances and settlements in the reconciliation of Level 3
fair value measurements, which will be effective for fiscal years beginning after December 15,
2010. The adoption of the first phase of this guidance did not have a material impact to our
financial position, results of operations or cash flows.
2. Earnings per Share
We calculate earnings per common share using the two-class method in accordance with the
guidance for determination of whether instruments granted in share-based payment transactions are
participating securities. Our unvested restricted stock and deferred stock units contain rights to
receive nonforfeitable dividends or dividend equivalents, respectively, and thus are participating
securities requiring the two-class method of computing earnings per common share. The two-class
method is an earnings allocation formula that determines earnings per common share for each class
of common stock and participating security according to dividends declared and participation rights
in undistributed earnings.
Basic earnings per common share is determined using the two-class method and is computed by
dividing net earnings attributable to common shareholders by the weighted-average common shares
outstanding during the period. Diluted earnings per common share reflects the more dilutive
earnings per common share amount calculated using the treasury stock method or the two-class
method.
The following table sets forth the computation of basic and diluted earnings per common share
(in thousands, except per share amounts). Basic and diluted earnings per common share are computed
using the actual net earnings available to common shareholders and the actual weighted-average
common shares outstanding rather than the rounded numbers presented within our condensed
consolidated statement of earnings and the accompanying notes. As a result, it may not be possible
to recalculate earnings per common share in our condensed consolidated statement of earnings and
the accompanying notes.
5
Table of Contents
THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
For the Three Months | For the Six Months | |||||||||||||||
Ended | Ended | |||||||||||||||
July 31, | August 1, | July 31, | August 1, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Numerator |
||||||||||||||||
Net earnings |
$ | 42,520 | $ | 39,485 | $ | 56,128 | $ | 44,741 | ||||||||
Net earnings allocated to participating securities (restricted stock and deferred stock units) |
(397 | ) | (388 | ) | (518 | ) | (442 | ) | ||||||||
Net earnings available to common shareholders |
$ | 42,123 | $ | 39,097 | $ | 55,610 | $ | 44,299 | ||||||||
Denominator |
||||||||||||||||
Basic weighted average common shares outstanding |
52,648 | 52,112 | 52,533 | 52,004 | ||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Stock options and equity-based compensation |
158 | 143 | 184 | 101 | ||||||||||||
Diluted weighted average common shares outstanding |
52,806 | 52,255 | 52,717 | 52,105 | ||||||||||||
Net earnings per common share: |
||||||||||||||||
Basic |
$ | 0.80 | $ | 0.75 | $ | 1.06 | $ | 0.85 | ||||||||
Diluted |
$ | 0.80 | $ | 0.75 | $ | 1.05 | $ | 0.85 | ||||||||
For the three and six months ended July 31, 2010, 1.0 million and 0.9 million anti-dilutive
stock options were excluded from the calculation of diluted earnings per common share,
respectively. For the three and six months ended August 1, 2009, 1.0 million and 1.2 million
anti-dilutive stock options were excluded from the calculation of diluted earnings per common
share, respectively.
3. Debt
Our Amended and Restated Credit Agreement (the Credit Agreement) with a group of banks,
which was last amended on February 2, 2007, provides for a total senior secured revolving credit
facility of $200.0 million, which can be expanded to $250.0 million upon additional lender
commitments, that matures on February 11, 2012. The Credit Agreement also provided our Canadian
subsidiaries with a secured term loan used to fund the repatriation of US$74.7 million of Canadian
earnings in January 2006 under the American Jobs Creation Act of 2004. The Canadian term loan
matures on February 10, 2011. The Credit Agreement is secured by the stock of certain of the
Companys subsidiaries. The Credit Agreement has several borrowing and interest rate options
including the following indices: (i) an alternate base rate (equal to the greater of the prime rate
or the federal funds rate plus 0.5%) or (ii) LIBO rate or (iii) CDO rate. Advances under the
Credit Agreement bear interest at a rate per annum using the applicable indices plus a varying
interest rate margin up to 1.125%. The Credit Agreement also provides for fees applicable to
unused commitments ranging from 0.100% to 0.175%. As of July 31, 2010, there was US$45.2 million
outstanding under the Canadian term loan with an effective interest rate of 1.6%, and no borrowings
outstanding under the revolving credit facility.
The Credit Agreement contains certain restrictive and financial covenants, including the
requirement to maintain certain financial ratios. The restrictive provisions in the Credit
Agreement reflect an overall covenant structure that is generally representative of a commercial
loan made to an investment-grade company. Our debt, however, is not rated, and we have not sought,
and are not seeking, a rating of our debt. We were in compliance with the covenants in the Credit
Agreement as of July 31, 2010.
Conditions in the U.S. and global credit markets have made it difficult for many businesses to
obtain financing on acceptable terms. If these market conditions continue or worsen, it may be
more difficult for us to renew or increase our credit facility.
6
Table of Contents
THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
We utilize letters of credit primarily to secure inventory purchases and as collateral
for workers compensation claims. At July 31, 2010, letters of credit totaling approximately $11.6
million were issued and outstanding. Borrowings available under our Credit Agreement at July 31,
2010 were $188.4 million.
4. Comprehensive Income and Supplemental Cash Flows
Our comprehensive income is as follows (in thousands):
For the Three Months | For the Six Months | |||||||||||||||
Ended | Ended | |||||||||||||||
July 31, | August 1, | July 31, | August 1, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net earnings |
$ | 42,520 | $ | 39,485 | $ | 56,128 | $ | 44,741 | ||||||||
Change in derivative fair value, net of tax |
94 | | 94 | | ||||||||||||
Currency translation adjustments, net of tax |
(1,090 | ) | 14,933 | 3,677 | 19,696 | |||||||||||
Comprehensive income |
$ | 41,524 | $ | 54,418 | $ | 59,899 | $ | 64,437 | ||||||||
Supplemental disclosure of cash flow information is as follows (in thousands):
For the Six Months | ||||||||
Ended | ||||||||
July 31, | August 1, | |||||||
2010 | 2009 | |||||||
Cash paid (received) during the six months for: |
||||||||
Interest |
$ | 480 | $ | 566 | ||||
Income taxes, net |
44,081 | (3,558 | ) | |||||
Schedule of noncash investing and financing activities: |
||||||||
Tax benefit (deficiency) related to share-based plans |
550 | (952 | ) | |||||
Cash dividends declared |
4,779 | 3,680 |
We had unpaid capital expenditure purchases accrued in accounts payable, accrued expenses and
other current liabilities of approximately $3.1 million and $3.9 million at July 31, 2010 and
August 1, 2009, respectively. Capital expenditure purchases are recorded as cash outflows from
investing activities in the condensed consolidated statement of cash flows in the period they are
paid.
5. Goodwill and Other Intangible Assets
Changes in the net carrying amount of goodwill for the year ended January 30, 2010 and for the
six months ended July 31, 2010 are as follows (in thousands):
Balance, January 31, 2009 |
$ | 57,561 | ||
Translation adjustment |
3,330 | |||
Adjustment for excess of tax deductible goodwill |
(1,477 | ) | ||
Balance, January 30, 2010 |
$ | 59,414 | ||
Translation adjustment |
1,035 | |||
Balance, July 31, 2010 |
$ | 60,449 | ||
7
Table of Contents
THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
Goodwill is evaluated for impairment annually as of our fiscal year end. A more frequent
evaluation is performed if events or circumstances indicate that impairment could have occurred.
Such events or circumstances could include, but are not limited to, new significant negative
industry or economic trends, unanticipated changes in the competitive environment, decisions to
significantly modify or dispose of operations and a significant sustained decline in the market
price of our stock. No additional impairment evaluation was considered necessary during the first
six months of 2010.
The gross carrying amount and accumulated amortization of our other intangibles, which are
included in other assets in the accompanying condensed consolidated balance sheet, are as follows
(in thousands):
July 31, | August 1, | January 30, | ||||||||||
2010 | 2009 | 2010 | ||||||||||
Trademarks,
tradenames, favorable
leases and other
intangibles |
$ | 13,932 | $ | 16,991 | $ | 15,305 | ||||||
Accumulated amortization |
(11,428 | ) | (10,576 | ) | (11,018 | ) | ||||||
Net total |
$ | 2,504 | $ | 6,415 | $ | 4,287 | ||||||
The pretax amortization expense associated with intangible assets totaled approximately $0.6
million and $1.3 million for the six months ended July 31, 2010 and August 1, 2009, respectively
and approximately $2.2 million for the year ended January 30, 2010. Pretax amortization associated
with intangible assets at July 31, 2010 is estimated to be $0.5 million for the remainder of fiscal
year 2010, $0.5 million for fiscal year 2011, $0.4 million for fiscal year 2012, $0.3 million for
fiscal year 2013 and $0.2 million for fiscal year 2014.
6. Other Assets, Accrued Expenses and Other Current Liabilities and Deferred Taxes and Other
Liabilities
Other current assets consist of the following (in thousands):
July 31, | August 1, | January 30, | ||||||||||
2010 | 2009 | 2010 | ||||||||||
Prepaid expenses |
$ | 29,695 | $ | 25,691 | $ | 30,896 | ||||||
Current deferred tax asset |
26,945 | 16,549 | 37,751 | |||||||||
Income taxes receivable |
174 | 5,339 | 1,309 | |||||||||
Other |
4,948 | 4,297 | 4,119 | |||||||||
Total other current assets |
$ | 61,762 | $ | 51,876 | $ | 74,075 | ||||||
Accrued expenses and other current liabilities consist of the following (in thousands): | ||||||||||||
Accrued salary, bonus, sabbatical and vacation |
$ | 32,125 | $ | 31,152 | $ | 40,032 | ||||||
Sales, payroll and property taxes payable |
19,251 | 14,385 | 12,524 | |||||||||
Unredeemed gift certificates |
12,590 | 13,025 | 14,980 | |||||||||
Accrued workers compensation and medical costs |
16,731 | 16,157 | 17,484 | |||||||||
Tuxedo rental deposits |
26,021 | 22,228 | 9,523 | |||||||||
Cash dividends declared |
4,779 | 3,680 | 4,753 | |||||||||
Loyalty program reward certificates |
6,427 | 5,635 | 6,342 | |||||||||
Other |
12,047 | 9,226 | 11,409 | |||||||||
Total accrued expenses and other current liabilities |
$ | 129,971 | $ | 115,488 | $ | 117,047 | ||||||
Deferred taxes and other liabilities consist of the following (in thousands): | ||||||||||||
Deferred rent and landlord incentives |
$ | 46,703 | $ | 44,223 | $ | 44,656 | ||||||
Non-current deferred and other income tax liabilities |
11,209 | 12,506 | 10,976 | |||||||||
Other |
6,490 | 6,560 | 6,604 | |||||||||
Total deferred taxes and other liabilities |
$ | 64,402 | $ | 63,289 | $ | 62,236 | ||||||
8
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
7. Treasury Stock
As of July 31, 2010, we had 18,118,736 shares held in treasury stock. The change in our
treasury shares for the year ended January 30, 2010 and for the six months ended July 31, 2010 is
provided below:
Treasury | ||||
Shares | ||||
Balance, January 31, 2009 |
18,104,310 | |||
Purchases of treasury stock |
7,292 | |||
Balance, January 30, 2010 |
18,111,602 | |||
Purchases of treasury stock |
7,134 | |||
Balance, July 31, 2010 |
18,118,736 | |||
In January 2006, the Board of Directors authorized a $100.0 million share repurchase program
of our common stock. This authorization superceded any remaining previous authorizations. In
August 2007, the Companys Board of Directors approved a replenishment of the Companys share
repurchase program to $100 million by authorizing $90.3 million to be added to the remaining $9.7
million of the then current program. No shares were purchased under the August 2007 authorization
during the first six months of 2010 or 2009. At July 31, 2010, the remaining balance available
under the August 2007 authorization was $44.3 million.
During the six months ended July 31, 2010, 7,134 shares at a cost of $0.1 million were
repurchased at an average price per share of $20.24 in a private transaction to satisfy tax
withholding obligations arising upon the vesting of certain restricted stock. During the six
months ended August 1, 2009, 7,292 shares at a cost of $0.1 million were repurchased at an average
price per share of $12.29 in a private transaction to satisfy tax withholding obligations arising
upon the vesting of certain restricted stock.
8. Share-Based Compensation Plans
We maintain several equity plans under which we may grant stock options, stock appreciation
rights, restricted stock, deferred stock units and performance based awards to full-time key
employees and non-employee directors. We account for share-based awards in accordance with the
FASB standard regarding share-based payments, which requires the compensation cost resulting from
all share-based payment transactions be recognized in the financial statements. The amount of
compensation cost is measured based on the grant-date fair value of the instrument issued and is
recognized over the vesting period. Share-based compensation expense recognized for the three and
six months ended July 31, 2010 was $3.1 million and $5.7 million, respectively. Share-based
compensation expense recognized for the three and six months ended August 1, 2009 was $2.4 million
and $5.2 million, respectively.
Stock Options
The following table summarizes stock option activity for the six months ended July 31, 2010:
Weighted- | ||||||||
Average | ||||||||
Exercise | ||||||||
Shares | Price | |||||||
Outstanding at January 30, 2010 |
1,642,905 | $ | 20.29 | |||||
Granted |
50,000 | 18.79 | ||||||
Exercised |
(20,745 | ) | 15.35 | |||||
Expired |
(5,374 | ) | 20.89 | |||||
Outstanding at July 31, 2010 |
1,666,786 | $ | 20.30 | |||||
Exercisable at July 31, 2010 |
802,608 | $ | 18.47 | |||||
9
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
The weighted-average grant date fair value of the 50,000 stock options granted during the
six months ended July 31, 2010 was $8.27 per share. The following table summarizes the weighted
average assumptions used to fair value stock options at the date of grant using the Black-Scholes
option pricing model for the three and six months ended July 31, 2010:
For the Three | For the Six | |||||||
Months Ended | Months Ended | |||||||
July 31, | July 31, | |||||||
2010 | 2010 | |||||||
Risk-free interest rate |
1.80 | % | 1.80 | % | ||||
Expected lives |
5.0 years | 5.0 years | ||||||
Dividend yield |
1.65 | % | 1.65 | % | ||||
Expected volatility |
57.03 | % | 57.03 | % |
The assumptions presented in the table above represent the weighted average of the applicable
assumptions used to fair value stock options. Expected volatility is based on historical
volatility of our common stock. The expected term represents the period of time the options are
expected to be outstanding after their grant date. The risk-free interest rate is based on the
U.S. Treasury yield curve in effect at the time of grant. The dividend yield is based on the
average of the annual dividend divided by the market price of our common stock at the time of
declaration.
As of July 31, 2010, we have unrecognized compensation expense related to nonvested stock
options of approximately $5.9 million which is expected to be recognized over a weighted average
period of 3.0 years.
Restricted Stock and Deferred Stock Units
The following table summarizes restricted stock and deferred stock unit activity for the six
months ended July 31, 2010:
Weighted- | ||||||||
Average | ||||||||
Grant-Date | ||||||||
Shares | Fair Value | |||||||
Nonvested at January 30, 2010 |
506,133 | $ | 22.35 | |||||
Granted |
328,978 | 23.96 | ||||||
Vested (1) |
(327,945 | ) | 21.19 | |||||
Forfeited |
(3,175 | ) | 22.73 | |||||
Nonvested at July 31, 2010 |
503,991 | $ | 24.15 | |||||
(1) | Includes 104,839 shares relinquished for tax payments related to vested deferred stock units for the six months ended July 31, 2010. |
During the six months ended July 31, 2010, 14,058 restricted stock shares and 314,920
deferred stock units were granted and 19,360 restricted stock shares and 308,585 deferred stock
units vested. No shares of restricted stock were forfeited during the six months ended July 31,
2010. Total nonvested shares of 503,991 at July 31, 2010 include 63,196 nonvested restricted stock
shares.
As of July 31, 2010, we have unrecognized compensation expense related to nonvested restricted
stock shares and deferred stock units of approximately $8.5 million which is expected to be
recognized over a weighted average period of 1.2 years.
10
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
Employee Stock Purchase Plan
The Employee Stock Discount Plan (ESDP) allows employees to authorize after-tax payroll
deductions to be used for the purchase of up to 2,137,500 shares of our common stock at 85% of the
lesser of the fair market value on the first day of the offering period or the fair market value on
the last day of the offering period. We make no contributions to this plan but pay all brokerage,
service and other costs incurred. The plan, as amended, allows participants to purchase no more
than 125 shares during any calendar quarter.
During the six months ended July 31, 2010, employees purchased 59,604 shares under the ESDP,
which had a weighted-average share price of $16.83 per share. As of July 31, 2010, 1,117,896
shares were reserved for future issuance under the ESDP.
9. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. The
authoritative guidance for fair value measurements establishes a three-tier fair value hierarchy,
categorizing the inputs used to measure fair value. The hierarchy can be described as follows:
Level 1- observable inputs such as quoted prices in active markets; Level 2- inputs other than the
quoted prices in active markets that are observable either directly or indirectly; and Level 3-
unobservable inputs in which there is little or no market data, which require the reporting entity
to develop its own assumptions. The fair value hierarchy also requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Effective January 31, 2010, we adopted enhanced disclosure requirements for fair value
measurements. There were no transfers into or out of Level 1 and Level 2 during the three and six
months ended July 31, 2010.
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Instruments | Inputs | Inputs | ||||||||||||||
(in thousands) | July 31, 2010 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Assets: |
||||||||||||||||
Derivative financial instruments |
$ | 155 | $ | | $ | 155 | $ | | ||||||||
Liabilities: |
||||||||||||||||
Derivative financial instruments |
$ | 60 | $ | | $ | 60 | $ | | ||||||||
Derivative financial instruments are comprised of foreign currency forward exchange contracts
primarily entered into to minimize our foreign currency exposure related to forecasted purchases of
certain inventories denominated in a foreign currency (primarily the Euro). Our derivative
financial instruments are recorded in the condensed consolidated balance sheets at fair value based
upon observable market inputs. Derivative financial instruments in an asset position are included
within other current assets in the condensed consolidated balance sheets. Derivative financial
instruments in a liability position are included within accrued expenses and other current
liabilities in the condensed consolidated balance sheets. Refer to Note 10 for further information
regarding our derivative instruments.
11
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
At August 1, 2009, we had highly liquid investments of $19.5 million classified as short-term
investments included in our condensed consolidated balance sheet. The carrying amount of these
instruments approximates fair value and is based on quoted market prices at the reporting date and
is considered a Level 1 fair value measurement within the fair value hierarchy. We had no
financial liabilities measured at fair value on a recurring basis at August 1, 2009. At January
30, 2010, we had no financial assets or liabilities measured at fair value on a recurring basis.
Assets and Liabilities that are Measured at Fair Value on a Non-Recurring Basis
Long-lived assets, such as property and equipment and identifiable intangibles with finite
useful lives, are periodically evaluated for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If the asset carrying amount
exceeds its fair value, an impairment charge is recognized in the amount by which the carrying
amount exceeds the fair value of the asset. The fair values of long-lived assets held-for-use are
based on our own judgments about the assumptions that market participants would use in pricing the
asset and on observable market data, when available. We classify these measurements as Level 3
within the fair value hierarchy. For the three and six months ended July 31, 2010, we recorded
charges for the impairment of long-lived assets of $0.2 million which is included within Selling,
general and administrative expenses in our condensed consolidated statement of earnings. The
asset impairment charges reduced the carrying amounts of the applicable long-lived assets to their
fair values of $0.2 million as of July 31, 2010. No asset impairment charges were recorded for the
three and six months ended August 1, 2009.
Fair Value of Financial Instruments
Our financial instruments, other than those presented in the disclosures above, consist of
cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other
current liabilities, current maturities of long-term debt and long-term debt. Management estimates
that, as of July 31, 2010, August 1, 2009 and January 30, 2010 the fair value of cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities
approximate their fair value due to the highly liquid or short-term nature of these instruments.
The fair values of current maturities of long-term debt at July 31, 2010 and of long-term debt at
August 1, 2009 and January 30, 2010 approximate their carrying amounts based upon terms available
to us for borrowings with similar arrangements and remaining maturities.
10. Derivative Financial Instruments
In connection with our direct sourcing program, we may enter into purchase commitments that
are denominated in a foreign currency (primarily the Euro). Our policy is to enter into foreign
currency forward exchange contracts to minimize foreign currency exposure related to forecasted
purchases of certain inventories. In accordance with the guidance for derivatives and hedging
instruments, such contracts have been designated as and accounted for as cash flow hedges. The
settlement terms of the forward contracts, including amount, currency and maturity, correspond with
payment terms for the merchandise inventories. The effective portion of the gain or loss on the
derivative financial instruments is reported as a component of accumulated other comprehensive
income and is recognized in income in the period which approximates the time when the underlying
transaction occurs. Gains and losses on the derivative financial instruments representing either
hedge ineffectiveness or hedge components excluded from the assessment of effectiveness, if any,
are reported in earnings immediately. Our derivative financial instruments are recorded in the
condensed consolidated balance sheet at fair value determined by comparing the cost of the foreign
currency to be purchased under the contracts using the exchange rates obtained under the contracts
(adjusted for forward points) to the hypothetical cost using the spot rate at quarter end. Refer
to Note 9 for further information regarding fair value measurements of our derivative instruments.
12
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
At July 31, 2010, we had three contracts maturing in varying increments to purchase an
aggregate notional amount of $2.9 million in foreign currency, maturing at various dates through
March 2011. No contracts were held at August 1, 2009 or January 30, 2010. No amounts were
recorded in our results of operations for the six months ended July 31, 2010 as a result of hedge
ineffectiveness, hedge components excluded from the assessment of effectiveness or the
discontinuance of cash flow hedges because the forecasted transactions were no longer probable. As
of July 31, 2010, accumulated other comprehensive income included an unrealized gain of
approximately $0.1 million, net of tax, of which an immaterial amount is estimated will be
recognized as a reduction to cost of sales over the next 12 months at the then current values on a
pre-tax basis, which may differ from the current quarter-end values. Additionally, no amounts were
reclassified from accumulated other comprehensive income to earnings for the six months ended July
31, 2010.
We had no derivative financial instruments with credit-risk-related contingent features
underlying the agreements as of July 31, 2010.
11. Legal Matters
On October 8, 2009, the Company was named in a federal securities class action lawsuit
filed in the United States District Court for the Southern District of Texas, Houston Division.
The case is styled Material Yard Workers Local 1175 Benefit Funds, et al. v. The Mens Wearhouse,
Inc., Case No. 4:09-cv-03265. The class period alleged in the complaint runs from March 7, 2007 to
January 9, 2008. The primary allegations are that the Company issued false and misleading press
releases regarding its guidance for fiscal year 2007 on various occasions during the alleged class
period. The complaint seeks damages based on the decline in the Companys stock price following
the announcement of lowered guidance on Oct. 10, 2007, Nov. 28, 2007, and Jan. 9, 2008. The case
is in its early stages and discovery has not begun. The Company believes the lawsuit is without
merit and intends to mount a vigorous defense; we are unable to determine the likely outcome at
this time.
We are involved in various routine legal proceedings, including ongoing litigation, incidental
to the conduct of our business. Management believes that none of these matters will have a
material adverse effect on our financial position, results of operations or cash flows.
13
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
12. Supplemental Sales Information
(in thousands)
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
July 31, 2010 | August 1, 2009 | July 31, 2010 | August 1, 2009 | |||||||||||||
Net sales: |
||||||||||||||||
Mens tailored clothing product |
$ | 194,190 | $ | 197,774 | $ | 391,284 | $ | 389,541 | ||||||||
Mens non-tailored clothing product |
145,206 | 145,981 | 290,907 | 288,640 | ||||||||||||
Ladies clothing product |
18,203 | 17,762 | 40,098 | 38,477 | ||||||||||||
Corporate apparel uniform product |
4,629 | 2,785 | 8,310 | 6,706 | ||||||||||||
Total clothing product |
362,228 | 364,302 | 730,599 | 723,364 | ||||||||||||
Tuxedo rental services |
142,462 | 129,567 | 214,616 | 200,986 | ||||||||||||
Alteration services |
26,421 | 26,788 | 53,573 | 54,753 | ||||||||||||
Retail dry cleaning services |
5,878 | 5,551 | 11,667 | 11,239 | ||||||||||||
Total alteration
and other services |
32,299 | 32,339 | 65,240 | 65,992 | ||||||||||||
Total net sales |
$ | 536,989 | $ | 526,208 | $ | 1,010,455 | $ | 990,342 | ||||||||
Net sales by brand: |
||||||||||||||||
MW (1) |
$ | 367,354 | $ | 359,039 | $ | 685,694 | $ | 669,962 | ||||||||
K&G |
87,578 | 93,597 | 185,838 | 198,113 | ||||||||||||
Moores |
71,550 | 65,236 | 118,946 | 104,322 | ||||||||||||
MW Cleaners (2) |
5,878 | 5,551 | 11,667 | 11,239 | ||||||||||||
Twin Hill (3) |
4,629 | 2,785 | 8,310 | 6,706 | ||||||||||||
Total net sales |
$ | 536,989 | $ | 526,208 | $ | 1,010,455 | $ | 990,342 | ||||||||
(1) | MW includes Mens Wearhouse and Mens Wearhouse and Tux stores. | |
(2) | MW Cleaners is our retail dry cleaning and laundry facilities in Houston, Texas. | |
(3) | Twin Hill is our corporate apparel and uniform program. |
14
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
13. Subsequent Events
On August 6, 2010, subsequent to the end of our 2010 second quarter, we acquired Dimensions
Clothing Limited (Dimensions) and certain assets of Alexandra plc (Alexandra), two leading
providers of corporate clothing uniforms and workwear in the United Kingdom, for a total cash
consideration of approximately £61 million (US$97.8 million). The acquisition of Dimensions and
certain assets of Alexandra will expand our corporate apparel operations. The combined businesses
are organized under a UK-based holding company, of which the Company controls 86% and certain
existing shareholders of Dimensions control 14%. The Company has the right to acquire the remaining
outstanding shares of the UK-based holding company in the future on the terms set forth in the
Investment, Shareholders and Stock Purchase Agreement. The cash consideration of £61 million
(US$97.8 million) was funded through the Companys cash on hand. Given the recent timing of this
acquisition, we have not completed the initial accounting for the Dimensions and Alexandra business
combination and we have not made certain disclosures. These disclosures include the fair value of
assets acquired and liabilities assumed, intangible asset classifications, and pro-forma
information. The initial accounting and related disclosures required for business combinations
will be made in a subsequent filing.
In late August 2010, a decision was made by management to cease tuxedo rental distribution
operations at four of the ten U.S. facilities that we currently use for that purpose. The tuxedo
rental distribution operations at these four facilities will cease in November 2010 and will be
assumed by the remaining U.S. tuxedo distribution facilities, which will allow us to perform tuxedo
rental distribution requirements more cost effectively. Three of the facilities will be converted
to hub locations that redistribute tuxedo rental units and retail apparel merchandise to our Mens
Wearhouse, Mens Wearhouse and Tux and K&G stores within limited geographic areas. We expect the
total pre-tax charge to be incurred in ceasing tuxedo rental distribution operations at these four
facilities to be approximately $3.4 million, which consists primarily of severance payments, the
write-off of fixed assets and facility remediation costs. We also estimate that approximately $1.6
million of the charge will result in future cash expenditures.
On September 1, 2010, the Company assigned its rights to receive an aggregate of $2.6 million
of the proceeds from life insurance policies on the life of George Zimmer to Mr. Zimmer and a trust
for the benefit of Mr. Zimmer in exchange for a cash payment of $2.6 million from Mr. Zimmer. The
Company acquired the right to receive a portion of the proceeds from the life insurance policies as
a result of paying premiums in the amount of $2.6 million on the policies. All such premium
payments were made by the Company prior to 2003.
15
Table of Contents
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
For supplemental information, it is suggested that Managements Discussion and Analysis of
Financial Condition and Results of Operations be read in conjunction with the corresponding
section included in our Annual Report on Form 10-K for the year ended January 30, 2010. References
herein to years are to our 52-week or 53-week fiscal year which ends on the Saturday nearest
January 31 in the following calendar year. For example, references to 2010 mean the 52-week
fiscal year ending January 29, 2011.
The following table presents information with respect to retail apparel stores in operation
during each of the respective fiscal periods:
For the Three Months | For the Six Months | For the Year | ||||||||||||||||||
Ended | Ended | Ended | ||||||||||||||||||
July 31, | August 1, | July 31, | August 1, | January 30, | ||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010 | ||||||||||||||||
Stores open at beginning of
period: |
1,252 | 1,284 | 1,259 | 1,294 | 1,294 | |||||||||||||||
Opened |
3 | 1 | 4 | 3 | 6 | |||||||||||||||
Closed |
(16 | ) | (7 | ) | (24 | ) | (19 | ) | (41 | ) | ||||||||||
Stores open at end of period |
1,239 | 1,278 | 1,239 | 1,278 | 1,259 | |||||||||||||||
Stores open at end of period: |
||||||||||||||||||||
U.S. |
||||||||||||||||||||
Mens Wearhouse |
584 | 580 | 584 | 580 | 581 | |||||||||||||||
Mens Wearhouse & Tux |
434 | 473 | 434 | 473 | 454 | |||||||||||||||
K&G |
104 | 108 | 104 | 108 | 107 | |||||||||||||||
1,122 | 1,161 | 1,122 | 1,161 | 1,142 | ||||||||||||||||
Canada |
||||||||||||||||||||
Moores |
117 | 117 | 117 | 117 | 117 | |||||||||||||||
1,239 | 1,278 | 1,239 | 1,278 | 1,259 | ||||||||||||||||
We had revenues of $537.0 million and net earnings of $42.5 million for the three months ended
July 31, 2010, compared to revenues of $526.2 million and net earnings of $39.5 million for the
three months ended August 1, 2009. We had revenues of $1,010.5 million and net earnings of $56.1
million for the six months ended July 31, 2010, compared to revenues of $990.3 million and net
earnings of $44.7 million for the six months ended August 1, 2009. Although high unemployment
levels and tight credit conditions in the U.S. continued in 2010, we increased our revenues by
$10.8 million or 2.0% and our gross margin by $21.8 million or 9.2% for the second quarter of 2010,
and for the six months ended July 31, 2010, we increased our revenues by $20.1 million or 2.0% and
our gross margin by $34.9 million or 8.2%. We closed 24 stores (one Mens Wearhouse store, three
K&G stores and 20 Mens Wearhouse & Tux stores), of which 16 had reached the end of their lease
terms, and opened four Mens Wearhouse stores during the first six months of 2010. We plan to
continue our efforts to stimulate sales with discounts and other promotional events, to maintain
our cost control efforts and to limit our capital expenditures.
On August 6, 2010, subsequent to the end of our 2010 second quarter, we acquired Dimensions
Clothing Limited (Dimensions) and certain assets of Alexandra plc (Alexandra), two leading
providers of corporate clothing uniforms and workwear in the United Kingdom, for a total cash
consideration of approximately £61 million (US$97.8 million). The acquisition of Dimensions and
certain assets of Alexandra will expand our corporate apparel operations. The combined businesses
are organized under a UK-based holding company, of which the Company controls 86% and certain
existing shareholders of Dimensions control 14%. The Company has the right to acquire the
remaining outstanding shares of the UK-based holding company in the future on the terms set forth
in the Investment, Shareholders and Stock Purchase Agreement. The cash consideration of £61
million (US$97.8 million) was funded through the Companys cash on hand.
16
Table of Contents
Our sales and net earnings are subject to seasonal fluctuations. In most years, a greater
portion of our net retail clothing sales have been generated during the fourth quarter of each year
when holiday season shopping peaks. In addition, our tuxedo rental revenues are heavily
concentrated in the second quarter while the fourth quarter is considered the seasonal low point.
Because of the seasonality of our sales, results for any quarter are not necessarily indicative of
the results that may be achieved for the full year.
Results of Operations
Three Months Ended July 31, 2010 compared to Three Months Ended August 1, 2009
The following table sets forth the Companys results of operations expressed as a percentage
of net sales for the periods indicated:
For the Three Months | ||||||||
Ended (1) | ||||||||
July 31, | August 1, | |||||||
2010 | 2009 | |||||||
Net sales: |
||||||||
Clothing product |
67.5 | % | 69.2 | % | ||||
Tuxedo rental services |
26.5 | 24.6 | ||||||
Alteration and other services |
6.0 | 6.2 | ||||||
Total net sales |
100.0 | % | 100.0 | % | ||||
Cost of sales: |
||||||||
Clothing product, including buying and distribution costs |
30.0 | 32.3 | ||||||
Tuxedo rental services |
4.1 | 4.1 | ||||||
Alteration and other services |
4.6 | 4.5 | ||||||
Occupancy costs |
13.0 | 13.9 | ||||||
Total cost of sales |
51.7 | 54.8 | ||||||
Gross margin |
48.3 | 45.2 | ||||||
Selling, general and administrative expenses |
35.6 | 33.1 | ||||||
Operating income |
12.7 | 12.1 | ||||||
Interest income |
0.0 | 0.0 | ||||||
Interest expense |
(0.1 | ) | (0.0 | ) | ||||
Earnings before income taxes |
12.7 | 12.1 | ||||||
Provision for income taxes |
4.8 | 4.6 | ||||||
Net earnings |
7.9 | % | 7.5 | % | ||||
(1) | Percentage line items may not sum to totals due to the effect of rounding. |
The Companys net sales increased $10.8 million, or 2.0%, to $537.0 million for the
quarter ended July 31, 2010 as compared to the same prior year quarter. The increase was due
mainly to a $12.9 million increase in tuxedo rental service revenues, offset partially by a $2.1
million decrease in clothing product revenues, and is attributable to the following:
(in millions) | Amount Attributed to | |||
$ | 5.3 | Increase in comparable sales. |
||
2.3 | Increase from net sales of stores opened in 2009, relocated
stores and expanded stores not yet included in comparable sales. |
|||
(0.4 | ) | Decrease in alteration services sales. |
||
2.6 | Increase in corporate apparel and other sales. |
|||
(5.0 | ) | Decrease in net sales resulting from stores closed. |
||
0.5 | Increase in net sales from 4 new stores opened in 2010. |
|||
5.5 | Increase in net sales resulting from change in U.S./Canadian dollar exchange rate. |
|||
$ | 10.8 | Total |
Our 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 2.7% at Mens Wearhouse due mainly to continued unit growth in our tuxedo rental services
business which offset lower clothing product sales caused mainly by a decrease in units per
transaction and lower store traffic levels. At Moores, comparable store sales increased a slight
0.6% due mainly to continued unit growth in our tuxedo rental
services business which
17
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offset lower
clothing product sales caused mainly by a decrease in units per transaction. At K&G, comparable store sales decreased 4.6%
due mainly to a decrease in the average transaction value. Tuxedo rental service revenues as a
percentage of total net sales increased from 24.6% in the second quarter of 2009 to 26.5% in the
second quarter of 2010; in absolute dollars, tuxedo rental service revenues increased $12.9 million
or 10.0% due mainly to a 7.0% increase in units rented, offset partially by lower average rental
rates in the U.S. Exchange rate changes from a stronger Canadian dollar also caused total sales
for the second quarter of 2010 to be $5.5 million more than the comparable prior year sales.
The Companys gross margin was as follows:
For the Three Months | ||||||||
Ended | ||||||||
July 31, | August 1, | |||||||
2010 | 2009 | |||||||
Gross margin (in thousands) |
$ | 259,583 | $ | 237,788 | ||||
Gross margin as a percentage of related sales: |
||||||||
Clothing product, including buying and distribution costs |
55.5 | % | 53.3 | % | ||||
Tuxedo rental services |
84.5 | % | 83.4 | % | ||||
Alteration and other services |
24.3 | % | 26.7 | % | ||||
Occupancy costs |
(13.0 | )% | (13.9 | )% | ||||
Total gross margin |
48.3 | % | 45.2 | % |
Total gross margin increased 9.2% from the same prior year quarter to $259.6 million in the
second quarter of 2010. As a percentage of sales, total gross margin increased from 45.2% in the
second quarter of 2009 to 48.3% in the second quarter of 2010. This increase is due mainly to
improved clothing product and tuxedo rental margins and a decrease from 13.9% in the second quarter
of 2009 to 13.0% in the second quarter of 2010 for occupancy cost, which is relatively constant on
a per store basis and includes store related rent, common area maintenance, utilities, repairs and
maintenance, security, property taxes and depreciation. On an absolute dollar basis, occupancy
cost decreased by $3.3 million or 4.5% from the second quarter of 2009 to the second quarter of
2010 primarily due to fewer open stores in 2010 and reduced depreciation following impairment
charges taken in the fourth quarter of 2009. With respect to gross margin as a percentage of
related sales, clothing product gross margin increased from 53.3% in second quarter 2009 to 55.5%
in second quarter 2010 due primarily to different promotional offerings, as well as the mix of
products on promotion, in 2010 compared to 2009 and lower product costs. The tuxedo rental
services gross margin increased from 83.4% in second quarter 2009 to 84.5% in second quarter 2010
due mainly to a decrease in rental product retirement costs in 2010. The gross margin for
alteration and other services decreased from 26.7% in second quarter 2009 to 24.3% in second
quarter 2010 mainly as a result of decreased alteration sales associated with decreased suit unit
sales in 2010.
Selling, general and administrative expenses increased to $191.2 million in the second quarter
of 2010 from $173.9 million in the second quarter of 2009, an increase of $17.3 million or 9.9%.
As a percentage of sales, these expenses increased from 33.1% in the second quarter of 2009 to
35.6% in the second quarter of 2010. The components of this 2.5% net increase in SG&A expenses as
a percentage of net sales and the related absolute dollar changes were as follows:
% | Attributed to | |||
0.9 | Increase in advertising expense as a percentage of sales from 3.4%
in the second quarter of 2009 to 4.3% in the second quarter of 2010.
On an absolute dollar basis, advertising expense increased $5.1
million. |
|||
| Store salaries as a percentage of sales remained flat at 13.6%
for the second quarter of 2010 and 2009. Store salaries on an
absolute dollar basis increased $1.8 million. |
|||
1.6 | Increase in other SG&A expenses as a percentage of sales from 16.1%
in the second quarter of 2009 to 17.7% in the second quarter of
2010. On an absolute dollar basis, other SG&A expenses increased
$10.4 million primarily due to expenses related to our acquisition
of Dimensions and certain assets of Alexandra on August 6, 2010,
increased medical insurance costs, and the absence in 2010 of a
cumulative adjustment of $3.1 million recognized in the second
quarter of 2009 for gift card breakage income. |
|||
2.5 | % | Total |
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Table of Contents
Interest expense increased from $0.2 million in the second quarter of 2009 to $0.3 million in
the second quarter of 2010 while interest income decreased from $0.2 million in the second quarter
of 2009 to $46 thousand in the second quarter of 2010. Weighted average borrowings outstanding
increased from $41.1 million in the second quarter of 2009 to $44.4 million in the second quarter
of 2010, and the weighted average interest rate on outstanding indebtedness increased from 1.0% to
2.0%. The increase in the weighted average borrowings is due to the strengthening of the Canadian
dollar in the second quarter of 2010 as compared to the prior year. The weighted average interest
rate for the second quarter of 2010 increased mainly due to an increase in the effective interest
rate for the Canadian term loan from 1.3% at August 1, 2009 to 1.6% at July 31, 2010. The
decrease in interest income was primarily attributable to a shift in our investments and lower
interest rates for the second quarter of 2010 as compared to the second quarter of 2009.
Our effective income tax rate was 37.6% for the second quarter of 2010 and 38.2% for the
second quarter of 2009. The effective tax rate in 2010 and 2009 was higher than the statutory U.S.
federal rate of 35% primarily due to the unfavorable tax rate effect from state income taxes.
These factors resulted in net earnings of $42.5 million or 7.9% of net sales for the second
quarter of 2010, compared with net earnings of $39.5 million or 7.5% of net sales for the second
quarter of 2009.
Six Months Ended July 31, 2010 compared to Six Months Ended August 1, 2009
The following table sets forth the Companys results of operations expressed as a percentage
of net sales for the periods indicated:
For the Six Months | ||||||||
Ended (1) | ||||||||
July 31, | August 1, | |||||||
2010 | 2009 | |||||||
Net sales: |
||||||||
Clothing product |
72.3 | % | 73.0 | % | ||||
Tuxedo rental services |
21.2 | 20.3 | ||||||
Alteration and other services |
6.5 | 6.7 | ||||||
Total net sales |
100.0 | % | 100.0 | % | ||||
Cost of sales: |
||||||||
Clothing product, including buying and distribution costs |
32.5 | 34.1 | ||||||
Tuxedo rental services |
3.3 | 3.4 | ||||||
Alteration and other services |
4.8 | 4.8 | ||||||
Occupancy costs |
13.8 | 14.7 | ||||||
Total cost of sales |
54.4 | 57.0 | ||||||
Gross margin |
45.6 | 43.0 | ||||||
Selling, general and administrative expenses |
36.7 | 35.7 | ||||||
Operating income |
8.9 | 7.3 | ||||||
Interest income |
0.0 | 0.1 | ||||||
Interest expense |
(0.1 | ) | (0.1 | ) | ||||
Earnings before income taxes |
8.8 | 7.3 | ||||||
Provision for income taxes |
3.3 | 2.8 | ||||||
Net earnings |
5.6 | % | 4.5 | % | ||||
(1) | Percentage line items may not sum to totals due to the effect of rounding. |
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The Companys net sales increased $20.1 million, or 2.0%, to $1,010.5 million for the six
months ended July 31, 2010. The increase was due mainly to a $13.6 million increase in tuxedo
rental service revenues and a $7.2 million increase in clothing product revenues, and is
attributable to the following:
(in millions) | Amount Attributed to | |||
$ | 7.5 | Increase in comparable sales. |
||
5.1 | Increase from net sales of stores opened in 2009, relocated
stores and expanded stores not yet included in comparable
sales. |
|||
(1.2 | ) | Decrease in alteration services sales. |
||
2.6 | Increase in corporate apparel and other sales. |
|||
(7.8 | ) | Decrease in net sales resulting from stores closed. |
||
0.6 | Increase in net sales from 4 new stores opened in 2010. |
|||
13.3 | Increase in net sales resulting from change in
U.S./Canadian dollar exchange rate. |
|||
$ | 20.1 | Total |
Our comparable store sales increased 2.6% at Mens Wearhouse due mainly to continued unit
growth in our tuxedo services business, with clothing product sales remaining flat as average
ticket and store traffic levels were stable. At Moores, comparable store sales increased a slight
0.5% due mainly to continued unit growth in our tuxedo services business, while clothing product
sales remained flat with a higher average transaction value offsetting a decrease in units per
transaction and lower store traffic levels. At K&G, comparable store sales decreased 4.8% due
mainly to a decrease in the average transaction value. Tuxedo rental service revenues as a
percentage of total net sales increased from 20.3% in the first six months of 2009 to 21.2% in the
first six months of 2010; in absolute dollars, tuxedo rental service revenues increased $13.6
million or 6.8% due mainly to a 5.5% increase in units rented, offset partially by lower average
rental rates in the U.S. Exchange rate changes from a stronger Canadian dollar also caused total
sales for the first half of 2010 to be $13.3 million more than the comparable prior year sales.
The Companys gross margin was as follows:
For the Six Months Ended | ||||||||
July 31, | August 1, | |||||||
2010 | 2009 | |||||||
Gross margin (in thousands) |
$ | 460,655 | $ | 425,777 | ||||
Gross margin as a percentage of related sales: |
||||||||
Clothing product, including buying and distribution costs |
55.1 | % | 53.3 | % | ||||
Tuxedo rental services |
84.5 | % | 83.3 | % | ||||
Alteration and other services |
25.6 | % | 27.6 | % | ||||
Occupancy
costs |
(13.8 | )% | (14.7 | )% | ||||
Total gross margin |
45.6 | % | 43.0 | % |
Total gross margin increased 8.2% from the same prior year period to $460.7 million in the
first six months of 2010. As a percentage of sales, total gross margin increased from 43.0% in the
first six months of 2009 to 45.6% in the first six months of 2010. This increase is due mainly to
improved clothing product and tuxedo rental margins and a decrease from 14.7% in the first six
months of 2009 to 13.8% in the first six months of 2010 for occupancy cost, which is relatively
constant on a per store basis and includes store related rent, common area maintenance, utilities,
repairs and maintenance, security, property taxes and depreciation. On an absolute dollar basis,
occupancy cost decreased by $6.1 million or 4.2% from the first six months of 2009 to the first six
months of 2010 primarily due to fewer open stores in 2010 and reduced depreciation following
impairment charges taken in the fourth quarter of 2009. With respect to gross margin as a
percentage of related sales, clothing product gross margin increased from 53.3% in first six months
of 2009 to 55.1% in the first six months of 2010 due primarily to different promotional offerings,
as well as the mix of products on promotion, in 2010 compared to 2009 and lower product costs. The
tuxedo rental services gross margin increased from 83.3% in the first six months of 2009 to 84.5%
in the first six months of 2010 due mainly to a decrease in rental product retirement costs in
2010. The gross margin for alteration and other services decreased from 27.6% in the first six
months of 2009 to 25.6% in first six months of 2010 mainly as a result of decreased alteration
sales associated with decreased suit unit sales in 2010.
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Table of Contents
Selling, general and administrative expenses increased to $370.8 million in the first six
months of 2010 from $353.1 million in the first six months of 2009, an increase of $17.7 million or
5.0%. As a percentage of sales, these expenses increased from 35.7% in the first six months of
2009 to 36.7% in the first six months of 2010. The components of this 1.0% net increase in SG&A
expenses as a percentage of net sales and the related absolute dollar changes were as follows:
% | Attributed to | |||
0.3 | Increase in advertising expense as a percentage of sales from 4.1%
in the first six months of 2009 to 4.4% in the first six months of
2010. On an absolute dollar basis, advertising expense increased
$3.7 million. |
|||
(0.1 | ) | Decrease in store salaries as a percentage of sales from 14.2% in
the first six months of 2009 to 14.1% in the first six months of
2010. Store salaries on an absolute dollar basis increased $2.6
million. |
||
0.8 | Increase in other SG&A expenses as a percentage of sales from 17.4%
in the first six months of 2009 to 18.2% in the first six months of
2010. On an absolute dollar basis, other SG&A expenses increased
$11.4 million primarily due to expenses related to our acquisition
of Dimensions and certain assets of Alexandra on August 6, 2010,
increased medical insurance costs and the absence in 2010 of a
cumulative adjustment of $3.1 million recognized in the second
quarter of 2009 for gift card breakage income. |
|||
1.0 | % | Total |
Interest expense remained flat at $0.6 million for the first six months of 2010 and 2009 while
interest income decreased from $0.5 million in the first six months of 2009 to $0.1 million in the
first six months of 2010. Weighted average borrowings outstanding decreased from $51.5 million in
the first six months of 2009 to $44.9 million in the first six months of 2010, and the weighted
average interest rate on outstanding indebtedness decreased from 1.9% to 1.8%. The decrease in the
weighted average borrowings and the weighted average interest rate was due to the repayment of our
outstanding balance on our revolving credit facility of $25.0 million in the first quarter of 2009.
The decrease in interest income was primarily attributable to a shift in our investments and lower
interest rates for the first six months of 2010 as compared to the first six months of 2009.
Our effective income tax rate was 37.2% for the first six months of 2010 and 38.3% for the
first six months of 2009. The effective tax rate in 2010 and 2009 was higher than
the statutory U.S. federal rate of 35% due to the unfavorable tax rate effect from state income
taxes, offset partially in 2010 by the favorable tax rate effect from the recognition of previously
unrecognized tax benefits and associated accrued interest resulting from the conclusion of certain
income tax audits.
These factors resulted in net earnings of $56.1 million or 5.6% of net sales for the first six
months of 2010, compared with net earnings of $44.7 million or 4.5% of net sales for the first six
months of 2009.
Liquidity and Capital Resources
At July 31, 2010, January 30, 2010 and August 1, 2009, cash and cash equivalents totaled
$281.5 million, $186.0 million and $144.4 million, respectively. We had working capital of $513.8
million, $484.3 million and $450.0 million at July 31, 2010, January 30, 2010 and August 1, 2009,
respectively, which included short-term investments of $19.5 million at August 1, 2009. We held no
short-term investments at July 31, 2010 or January 30, 2010. Our primary sources of working
capital are cash flows from operations and borrowings under our Credit Agreement. Historically,
our working capital has been at its lowest level in January and February, and has increased through
November as inventory buildup occurs in preparation for the fourth quarter selling season. The
$29.5 million increase in working capital at July 31, 2010 compared to January 30, 2010 resulted
primarily from increased cash balances, offset partially by the current liability classification at
quarter end of our Canadian debt of US$45.2 million due on February 10, 2011.
On August 6, 2010, subsequent to the end of our 2010 second quarter, we acquired Dimensions
Clothing Limited and certain assets of Alexandra plc, two leading providers of corporate clothing
uniforms and workwear in the United Kingdom, for a total cash consideration of approximately £61
million (US$97.8 million). The acquisition of Dimensions and certain assets of Alexandra will
expand our corporate apparel operations. The combined businesses are organized under a UK-based
holding company, of which the Company controls 86% and certain existing shareholders of Dimensions
control 14%. The Company has the right to acquire the remaining outstanding shares of the UK-based
holding company in the future on the terms set forth in the Investment, Shareholders and Stock
Purchase Agreement. The cash consideration of £61 million (US$97.8 million) was funded through the
Companys cash on hand.
21
Table of Contents
Credit Facilities
Our Amended and Restated Credit Agreement (the Credit Agreement) with a group of banks,
which was last amended on February 2, 2007, provides for a total senior secured revolving credit
facility of $200.0 million, which can be expanded to $250.0 million upon additional lender
commitments, that matures on February 11, 2012. The Credit Agreement also provided our Canadian
subsidiaries with a senior secured term loan used to fund the repatriation of US$74.7 million of
Canadian earnings in January 2006 under the American Jobs Creation Act of 2004. The Canadian term
loan matures on February 10, 2011. The Credit Agreement is secured by the stock of certain of the
Companys subsidiaries. The Credit Agreement has several borrowing and interest rate options
including the following indices: (i) an alternate base rate (equal to the greater of the prime rate
or the federal funds rate plus 0.5%) or (ii) LIBO rate or (iii) CDO rate. Advances under the
Credit Agreement bear interest at a rate per annum using the applicable indices plus a varying
interest rate margin up to 1.125%. The Credit Agreement also provides for fees applicable to
unused commitments ranging from 0.100% to 0.175%. As of July 31, 2010, there was US$45.2 million
outstanding under the Canadian term loan, with an effective interest rate of 1.6%, and no
borrowings outstanding under the revolving credit facility.
The Credit Agreement contains certain restrictive and financial covenants, including the
requirement to maintain certain financial ratios. The restrictive provisions in the Credit
Agreement reflect an overall covenant structure that is generally representative of a commercial
loan made to an investment-grade company. Our debt, however, is not rated, and we have not sought,
and are not seeking, a rating of our debt. We were in compliance with the covenants in the Credit
Agreement as of July 31, 2010.
Conditions in the U.S. and global credit markets have made it difficult for many businesses to
obtain financing on acceptable terms. If these market conditions continue or worsen, it may be
more difficult for us to renew or increase our credit facility.
We utilize letters of credit primarily to secure inventory purchases and as collateral for
workers compensation claims. At July 31, 2010, letters of credit totaling approximately $11.6
million were issued and outstanding. Borrowings available under our Credit Agreement at July 31,
2010 were $188.4 million.
Cash flow activities
Operating activities Our primary source of operating cash flow is from sales to our
customers. Our primary uses of cash include merchandise inventory and tuxedo rental product
purchases, personnel related expenses, occupancy costs, advertising costs and income tax payments.
Our operating activities provided net cash of $130.3 million in the first six months of 2010, due
mainly to net earnings, adjusted for non-cash charges, a decrease in inventories and an increase in
accounts payable, accrued expenses and other current liabilities, offset by increases in tuxedo
rental product and a decrease in income taxes payable. During the first six months of 2009, our
operating activities provided net cash of $110.1 million, due mainly to net earnings, adjusted for
non-cash charges, a decrease in inventories and other assets and an increase in income taxes
payable, offset by a decrease in accounts payable, accrued expenses and other current liabilities
and an increase in tuxedo rental product. The decrease in inventories during the first six months
of 2010 and 2009 was primarily due to lower inventory purchases as a result of decreased clothing
sales in 2009 and our continued efforts in 2010 to align our inventory purchases with sales
expectations. Tuxedo rental product increased in each of the periods to support the continued
growth of our tuxedo rental business and, in 2009, to replenish and replace a portion of our tuxedo
rental product offerings. The decrease in accounts payable, accrued expenses and other current
liabilities for the first six months of 2009 was primarily due to the timing of vendor payments and
reduced purchases associated with decreased clothing sales, while the increase in income taxes
payable was due to the timing and amounts of required tax payments. The increase in accounts
payable, accrued expenses and other current liabilities in the first six months of 2010 was
primarily due to the timing of vendor payments and the seasonal increase in tuxedo rental deposits,
while the decrease in income taxes payable was due to the timing of required tax payments. The
decrease in other assets in the first six months of 2009 was due mainly to tax refunds received.
Investing activities Our cash outflows from investing activities are primarily for capital
expenditures. During the first six months of 2010 and 2009, our investing activities used net cash
of $25.8 and $28.8 million, respectively, primarily for capital expenditures. Our capital
expenditures relate to costs incurred for stores opened, remodeled or relocated during the period
or under construction at the end of the period, office and distribution facility additions and
infrastructure technology investments.
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Table of Contents
Financing activities Our cash outflows from financing activities consist primarily of cash
dividend payments and debt payments, while cash inflows from financing activities consist primarily
of proceeds from our revolving credit facility. During the first six months of 2010, our financing
activities used net cash of $10.2 million due mainly to cash dividends paid of $9.5 million. Our
financing activities used net cash of $33.0 million for the first six months of 2009, due mainly to
payments on our revolving credit facility of $25.0 million and cash dividends paid of $7.3 million.
Share repurchase program In January 2006, the Board of Directors authorized a $100.0 million
share repurchase program of our common stock. This authorization superceded any remaining previous
authorizations. In August 2007, the Companys Board of Directors approved a replenishment of the
Companys share repurchase program to $100 million by authorizing $90.3 million to be added to the
remaining $9.7 million of the then current program. No shares were purchased under the August 2007
authorization during the first six months of 2010 or 2009. At July 31, 2010, the remaining balance
available under the August 2007 authorization was $44.3 million.
During the six months ended July 31, 2010, 7,134 shares at a cost of $0.1 million were
repurchased at an average price per share of $20.24 in a private transaction to satisfy tax
withholding obligations arising upon the vesting of certain restricted stock. During the six
months ended August 1, 2009, 7,292 shares at a cost of $0.1 million were repurchased at an average
price per share of $12.29 in a private transaction to satisfy tax withholding obligations arising
upon the vesting of certain restricted stock.
Dividends Cash dividends paid were approximately $9.5 million and $7.3 million for the six
months ended July 31, 2010 and August 1, 2009, respectively.
In June 2010, our Board of Directors declared a quarterly cash dividend of $0.09 per share
payable on September 24, 2010 to shareholders of record at close of business on September 14, 2010.
The dividend payout is estimated to be approximately $4.8 million and is included in accrued
expenses and other current liabilities on the condensed consolidated balance sheet as of July 31,
2010.
Future cash flow
Current domestic and global economic conditions, including high unemployment levels and
tightened credit markets, could negatively affect our future operating results as well as our
existing cash and cash equivalents balances. In addition, conditions in the financial markets
could limit our access to additional capital resources, if needed, and could increase associated
costs. We believe based on our current business plan that our existing cash and cash flows from
operations will be sufficient to fund our planned store openings, relocations and remodelings,
other capital expenditures and operating cash requirements, including integration costs and other
requirements related to our August 6, 2010 Dimensions and Alexandra acquisition, and that we will
be able to maintain compliance with the covenants in our Credit Agreement for at least the next 12
months. In addition, as of July 31, 2010, borrowings available under our Credit Agreement were
$188.4 million. However, current economic conditions are creating potential acquisition
opportunities. If such acquisition opportunities develop, we may need to raise additional capital
in order to complete such acquisitions and our Credit Agreement may need to be modified or
expanded.
As a substantial portion of our cash and cash equivalents, which are primarily governmental
agencies and U.S. treasuries, is held by four financial institutions (three U.S. and one Canadian),
we are exposed to risk of loss in the event of failure of any of these parties. However, due to
the creditworthiness of these financial institutions, we anticipate full performance and access to
our deposits and liquid investments.
In connection with our direct sourcing program, we may enter into purchase commitments that
are denominated in a foreign currency (primarily the Euro). We generally enter into forward
exchange contracts to reduce the risk of currency fluctuations related to such commitments. As
these forward exchange contracts are with one financial institution, we are 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. We may also be exposed to market risk as a
result of changes in foreign exchange rates. This market risk should be substantially offset by
changes in the valuation of the underlying transactions.
23
Table of Contents
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
We are subject to exposure from fluctuations in U.S. dollar/Euro exchange rates. As further
described in Note 10 of Notes to Condensed Consolidated Financial Statements and Managements
Discussion and Analysis of Financial Information and Results of Operations Liquidity and Capital
Resources, we utilize foreign currency forward exchange contracts to limit exposure to changes in
currency exchange rates. At July 31, 2010, we had three contracts maturing in varying increments
to purchase an aggregate notional amount of $2.9 million in foreign currency, maturing at various
dates through March 2011. We held no outstanding contracts at August 1, 2009. Unrealized pretax
gains on these forward contracts totaled approximately $0.2 million at July 31, 2010. A
hypothetical 10% change in applicable July 31, 2010 forward rates could increase or decrease the
July 31, 2010 unrealized pretax gain by approximately $0.3 million related to these positions.
However, it should be noted that any change in the value of these contracts, whether real or
hypothetical, would be significantly offset by an inverse change in the value of the underlying
hedged item.
Subsequent to our August 6, 2010 Dimensions and Alexandra acquisition, we will be subject to
exposure from fluctuations in U.S. dollar/ Pounds Sterling (GBP) exchange rates as Dimensions and
Alexandra sell their products and services primarily in GBP but acquire a significant part of their
goods in transactions paid in U.S. dollars. A decline in the value of the GBP as compared to the
U.S. dollar will adversely impact their operating results, particularly in relation to longer term
customer contracts that have little or no pricing adjustment provisions. Dimensions and Alexandra
utilize foreign currency hedging contracts to limit exposure to changes in U.S. dollar/GBP exchange
rates.
Moores conducts its business in Canadian dollars. The exchange rate between Canadian dollars
and U.S. dollars has fluctuated over the last ten years. If the value of the Canadian dollar
against the U.S. dollar weakens, then the revenues and earnings of our Canadian operations will be
reduced when they are translated to U.S. dollars. Also, the value of our Canadian net assets in
U.S. dollars may decline.
Interest Rate Risk
We are also subject to market risk as a result of the outstanding balance of US$45.2 million
under our Canadian term loan at July 31, 2010, which bears a variable interest rate (see Note 3 of
Notes to Condensed Consolidated Financial Statements). An increase in market interest rates would
increase our interest expense and our cash requirements for interest payments. For example, an
average increase of 0.5% in the variable interest rate would increase our interest expense and
payments by approximately $0.2 million. At July 31, 2010, there were no borrowings outstanding
under our revolving credit facility.
We also have exposure to market rate risk for changes in interest rates as those rates relate
to our investment portfolio. The primary objective of our investment activities is to preserve
principal while at the same time maximizing yields without significantly increasing risk. As of
July 31, 2010, we have highly liquid investments classified as cash equivalents in our condensed
consolidated balance sheet. Future investment income earned on our cash equivalents will fluctuate
in line with short-term interest rates.
ITEM 4 CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Companys management, with the participation of the Companys principal executive officer
(CEO) and principal financial officer (CFO), evaluated the effectiveness of the Companys
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under
the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period
covered by this report. Based on this evaluation, the CEO and CFO have concluded that, as of the
end of such period, the Companys disclosure controls and procedures were effective to ensure that
information that is required to be disclosed by the Company in the reports it files or submits
under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods
specified in the SECs rules and forms and (ii) accumulated and communicated to the Companys
management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required
disclosure.
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Changes in Internal Controls over Financial Reporting
There were no changes in the Companys internal control over financial reporting that occurred
during the fiscal quarter ended July 31, 2010 that has materially affected, or is reasonably likely
to materially affect, the Companys internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
On October 8, 2009, the Company was named in a federal securities class action lawsuit filed
in the United States District Court for the Southern District of Texas, Houston Division. The case
is styled Material Yard Workers Local 1175 Benefit Funds, et al. v. The Mens Wearhouse, Inc., Case
No. 4:09-cv-03265. The class period alleged in the complaint runs from March 7, 2007 to January 9,
2008. The primary allegations are that the Company issued false and misleading press releases
regarding its guidance for fiscal year 2007 on various occasions during the alleged class period.
The complaint seeks damages based on the decline in the Companys stock price following the
announcement of lowered guidance on Oct. 10, 2007, Nov. 28, 2007, and Jan. 9, 2008. The case is in
its early stages and discovery has not begun. The Company believes the lawsuit is without merit
and intends to mount a vigorous defense; we are unable to determine the likely outcome at this
time.
We are involved in various routine legal proceedings, including ongoing litigation, incidental
to the conduct of our business. Management believes that none of these matters will have a
material adverse effect on our financial position, results of operations or cash flows.
ITEM 1A RISK FACTORS
In addition to the general risk factors described in our Annual Report on Form 10-K, including
those related to acquisition integration and to general economic conditions, our acquisition of
Dimensions and Alexandra on August 6, 2010 involves the following risks:
A reduction in the value of the Pound Sterling against the U.S. dollar can significantly impact the
acquired businesses.
The acquired businesses sell their products and services in Pound Sterling but acquire a
significant part of their goods in transactions paid in U.S. dollars. Therefore a decline in the
value of the Pound Sterling as compared to the U.S. dollar will adversely impact their operating
results, particularly in relation to longer term customer contracts that have little or no pricing
adjustment provisions. The acquired businesses have taken steps through hedging and price
renegotiations to mitigate some of this risk.
The general economic conditions in the United Kingdom and particularly service cut backs being put
forth by the current government may reduce demand for the businesses of Dimensions and Alexandra.
The United Kingdom has experienced and is continuing to experience an economic slow down. As
a result of expected deficits, the UK government has announced significant reductions in public
services including reductions in employment. Employees in the public service in the UK are a
significant target market for the acquired businesses and a substantial reduction in the number of
these employees could adversely affect the acquired businesses.
The competition authorities in the UK will review the combination of Dimensions and Alexandra and
this could result in a requirement to divest some assets.
The combination of Dimensions and Alexandra has been noticed to the Office of Fair Trading in
the UK for review. The Company believes for a variety of reasons that upon completion of its
review, the Office of Fair Trading will unconditionally clear the combination. However, no
assurance can be given that this will be the case and the Office of Fair Trading could refer the
combination to the Competition Commission in the UK for a more detailed investigation. The
Competition Commission could require the divestiture of some of the acquired assets if it were to
conclude that the combination resulted, or may be expected to result, in a substantial lessening of
competition.
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ITEM 6 EXHIBITS
(a) Exhibits.
Exhibit | ||||
Number | Exhibit Index | |||
2.1
|
| Investment, Shareholders and Stock Purchase Agreement dated August 6, 2010, by and among The Mens Wearhouse, Inc., Moores The Suit People Inc., MWUK Holding Company Limited, Ensco 648 Limited, Gresham 4A and Gresham 4B and the stockholders of Ensco 648 Limited (incorporated by reference from Exhibit 2.1 to the Companys Current Report on Form 8-K/A filed with the Commission on August 16, 2010). | ||
4.1
|
| Amended and Restated Credit Agreement, dated as of December 21, 2005, by and among The Mens Wearhouse, Inc., Moores The Suit People Inc., Golden Brand Clothing (Canada) Ltd., the financial institutions from time to time parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and JPMorgan Chase Bank, N.A. as Canadian Agent (filed herewith). | ||
4.2
|
| Agreement and Amendment to Amended and Restated Credit Agreement effective as of January 31, 2007, by and among the Company, Moores The Suit People Inc., Golden Brand Clothing (Canada) Ltd., the financial institutions from time to time party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent (filed herewith). | ||
31.1
|
| Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed herewith). | ||
31.2
|
| Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith). | ||
32.1
|
| Certification of Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed herewith). | ||
32.2
|
| Certification of Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith). | ||
101.1
|
| The following financial information from The Mens Wearhouse, Inc.s Quarterly Report on Form 10-Q for the quarter and six months ended July 31, 2010, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Earnings; (iii) the Condensed Consolidated Statements of Cash Flows; and (iv) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant, The Mens
Wearhouse, Inc., has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: September 9, 2010 | THE MENS WEARHOUSE, INC. |
|||
By | /s/ NEILL P. DAVIS | |||
Neill P. Davis | ||||
Executive Vice President, Chief Financial Officer, Treasurer and Principal Financial Officer |
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Table of Contents
EXHIBIT INDEX
Exhibit | ||||
Number | Exhibit Index | |||
2.1
|
| Investment, Shareholders and Stock Purchase Agreement dated August 6, 2010, by and among The Mens Wearhouse, Inc., Moores The Suit People Inc., MWUK Holding Company Limited, Ensco 648 Limited, Gresham 4A and Gresham 4B and the stockholders of Ensco 648 Limited (incorporated by reference from Exhibit 2.1 to the Companys Current Report on Form 8-K/A filed with the Commission on August 16, 2010). | ||
4.1
|
| Amended and Restated Credit Agreement, dated as of December 21, 2005, by and among The Mens Wearhouse, Inc., Moores The Suit People Inc., Golden Brand Clothing (Canada) Ltd., the financial institutions from time to time parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and JPMorgan Chase Bank, N.A. as Canadian Agent (filed herewith). | ||
4.2
|
| Agreement and Amendment to Amended and Restated Credit Agreement effective as of January 31, 2007, by and among the Company, Moores The Suit People Inc., Golden Brand Clothing (Canada) Ltd., the financial institutions from time to time party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent (filed herewith). | ||
31.1
|
| Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed herewith). | ||
31.2
|
| Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith). | ||
32.1
|
| Certification of Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed herewith). | ||
32.2
|
| Certification of Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith). | ||
101.1
|
| The following financial information from The Mens Wearhouse, Inc.s Quarterly Report on Form 10-Q for the quarter and six months ended July 31, 2010, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Earnings; (iii) the Condensed Consolidated Statements of Cash Flows; and (iv) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. |
27