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EXCEL - IDEA: XBRL DOCUMENT - TAILORED BRANDS INC | Financial_Report.xls |
EX-18 - EX-18 - TAILORED BRANDS INC | h78121exv18.htm |
EX-31.1 - EX-31.1 - TAILORED BRANDS INC | h78121exv31w1.htm |
EX-32.2 - EX-32.2 - TAILORED BRANDS INC | h78121exv32w2.htm |
EX-31.2 - EX-31.2 - TAILORED BRANDS INC | h78121exv31w2.htm |
EX-32.1 - EX-32.1 - TAILORED BRANDS INC | h78121exv32w1.htm |
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 October 30, 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 Incorporation or Organization) |
(I.R.S. Employer Identification Number) |
|
6380 Rogerdale Houston, Texas (Address of Principal Executive Offices) |
77072-1624 (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 December 3, 2010 was 52,817,839 excluding 18,118,350 shares classified as Treasury Stock.
REPORT INDEX
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EX-18 | ||||||||
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 and corporate apparel 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 recurring
adjustments which are necessary for a fair statement of the results for the three and nine months
ended October 30, 2010 and October 31, 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)
(Unaudited)
(In thousands)
(Unaudited)
October 30, | October 31, | January 30, | ||||||||||
2010 | 2009 | 2010 | ||||||||||
(as adjusted- | (as adjusted- | |||||||||||
Note 16) | Note 16) | |||||||||||
ASSETS |
||||||||||||
CURRENT ASSETS: |
||||||||||||
Cash and cash equivalents |
$ | 197,843 | $ | 198,538 | $ | 186,018 | ||||||
Accounts receivable, net |
65,069 | 17,304 | 16,745 | |||||||||
Inventories |
509,422 | 476,760 | 434,881 | |||||||||
Other current assets |
62,830 | 47,744 | 72,732 | |||||||||
Total current assets |
835,164 | 740,346 | 710,376 | |||||||||
PROPERTY AND EQUIPMENT, net |
333,007 | 370,191 | 344,746 | |||||||||
TUXEDO RENTAL PRODUCT, net |
86,121 | 100,653 | 102,479 | |||||||||
GOODWILL |
90,580 | 59,111 | 59,414 | |||||||||
INTANGIBLE ASSETS, net |
38,678 | 5,279 | 4,287 | |||||||||
OTHER ASSETS |
21,831 | 7,376 | 12,850 | |||||||||
TOTAL ASSETS |
$ | 1,405,381 | $ | 1,282,956 | $ | 1,234,152 | ||||||
LIABILITIES AND EQUITY |
||||||||||||
CURRENT LIABILITIES: |
||||||||||||
Accounts payable |
$ | 145,138 | $ | 121,374 | $ | 83,052 | ||||||
Accrued expenses and other current liabilities |
130,550 | 106,082 | 117,047 | |||||||||
Income taxes payable |
12,294 | 24,743 | 23,936 | |||||||||
Current maturities of long-term debt |
45,584 | | | |||||||||
Total current liabilities |
333,566 | 252,199 | 224,035 | |||||||||
LONG-TERM DEBT |
| 42,985 | 43,491 | |||||||||
DEFERRED TAXES AND OTHER LIABILITIES |
72,664 | 63,087 | 62,236 | |||||||||
Total liabilities |
406,230 | 358,271 | 329,762 | |||||||||
COMMITMENTS AND CONTINGENCIES (Note 4 and Note 15) |
||||||||||||
EQUITY: |
||||||||||||
Preferred stock |
| | | |||||||||
Common stock |
709 | 704 | 705 | |||||||||
Capital in excess of par |
336,942 | 323,864 | 327,742 | |||||||||
Retained earnings |
1,023,467 | 979,540 | 956,032 | |||||||||
Accumulated other comprehensive income |
37,651 | 33,203 | 32,537 | |||||||||
Treasury stock, at cost |
(412,761 | ) | (412,626 | ) | (412,626 | ) | ||||||
Total equity attributable to common shareholders |
986,008 | 924,685 | 904,390 | |||||||||
Noncontrolling interest |
13,143 | | | |||||||||
Total equity |
999,151 | 924,685 | 904,390 | |||||||||
TOTAL LIABILITIES AND EQUITY |
$ | 1,405,381 | $ | 1,282,956 | $ | 1,234,152 | ||||||
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 Nine Months Ended | |||||||||||||||
October 30, | October 31, | October 30, | October 31, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(as adjusted- | (as adjusted- | |||||||||||||||
Note 16) | Note 16) | |||||||||||||||
Net sales: |
||||||||||||||||
Clothing product |
$ | 405,784 | $ | 333,882 | $ | 1,136,383 | $ | 1,057,246 | ||||||||
Tuxedo rental services |
111,297 | 97,702 | 325,913 | 298,688 | ||||||||||||
Alteration and other services |
33,022 | 30,431 | 98,262 | 96,423 | ||||||||||||
Total net sales |
550,103 | 462,015 | 1,560,558 | 1,452,357 | ||||||||||||
Cost of sales: |
||||||||||||||||
Clothing product, including buying and
distribution costs |
204,044 | 147,987 | 531,858 | 484,081 | ||||||||||||
Tuxedo rental services |
17,484 | 16,497 | 50,846 | 50,004 | ||||||||||||
Alteration and other services |
24,598 | 23,096 | 73,108 | 70,876 | ||||||||||||
Occupancy costs |
68,978 | 72,394 | 208,472 | 218,028 | ||||||||||||
Total cost of sales |
315,104 | 259,974 | 864,284 | 822,989 | ||||||||||||
Gross margin |
234,999 | 202,041 | 696,274 | 629,368 | ||||||||||||
Selling, general and administrative expenses |
200,588 | 172,595 | 571,406 | 525,704 | ||||||||||||
Operating income |
34,411 | 29,446 | 124,868 | 103,664 | ||||||||||||
Interest income |
83 | 289 | 163 | 778 | ||||||||||||
Interest expense |
(357 | ) | (308 | ) | (937 | ) | (957 | ) | ||||||||
Earnings before income taxes |
34,137 | 29,427 | 124,094 | 103,485 | ||||||||||||
Provision for income taxes |
8,789 | 10,141 | 42,222 | 38,517 | ||||||||||||
Net earnings including noncontrolling interest |
25,348 | 19,286 | 81,872 | 64,968 | ||||||||||||
Less: Net earnings attributable to noncontrolling
interest |
89 | | 89 | | ||||||||||||
Net earnings attributable to common shareholders |
$ | 25,259 | $ | 19,286 | $ | 81,783 | $ | 64,968 | ||||||||
Net earnings per common share attributable to common
shareholders (Note 3): |
||||||||||||||||
Basic |
$ | 0.47 | $ | 0.37 | $ | 1.54 | $ | 1.24 | ||||||||
Diluted |
$ | 0.47 | $ | 0.36 | $ | 1.54 | $ | 1.23 | ||||||||
Weighted average common shares outstanding (Note 3): |
||||||||||||||||
Basic |
52,702 | 52,208 | 52,589 | 52,072 | ||||||||||||
Diluted |
52,895 | 52,442 | 52,776 | 52,218 | ||||||||||||
Cash dividends declared per common share |
$ | 0.09 | $ | 0.07 | $ | 0.27 | $ | 0.21 | ||||||||
See Notes to Condensed Consolidated Financial Statements.
3
Table of Contents
THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
October 30, | October 31, | October 30, | October 31, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(as adjusted- | (as adjusted- | |||||||||||||||
Note 16) | Note 16) | |||||||||||||||
Net earnings including noncontrolling interest |
$ | 25,348 | $ | 19,286 | $ | 81,872 | $ | 64,968 | ||||||||
Change in derivative fair values, net of tax |
(94 | ) | | | | |||||||||||
Currency translation adjustments, net of tax |
1,487 | (785 | ) | 5,164 | 18,911 | |||||||||||
Other comprehensive income including
noncontrolling interest |
26,741 | 18,501 | 87,036 | 83,879 | ||||||||||||
Other comprehensive income attributable to
noncontrolling interest: |
||||||||||||||||
Net earnings |
(89 | ) | | (89 | ) | | ||||||||||
Currency translation adjustments,
net of tax |
(50 | ) | | (50 | ) | | ||||||||||
Other comprehensive income attributable to
noncontrolling interest |
(139 | ) | | (139 | ) | | ||||||||||
Other comprehensive income attributable to
common shareholders |
$ | 26,602 | $ | 18,501 | $ | 86,897 | $ | 83,879 | ||||||||
4
Table of Contents
THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Nine Months Ended | ||||||||
October 30, | October 31, | |||||||
2010 | 2009 | |||||||
(as adjusted- | ||||||||
Note 16) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net earnings including noncontrolling interest |
$ | 81,872 | $ | 64,968 | ||||
Adjustments to reconcile net earnings to net cash
provided by operating activities: |
||||||||
Depreciation and amortization |
57,210 | 64,879 | ||||||
Tuxedo rental product amortization |
31,732 | 33,149 | ||||||
Loss on disposition of assets |
209 | 2,012 | ||||||
Asset impairment charges |
3,350 | | ||||||
Gain on bargain purchase acquisition |
(524 | ) | | |||||
Deferred rent expense |
2,138 | 1,640 | ||||||
Share-based compensation |
8,787 | 7,603 | ||||||
Excess tax benefits from share-based plans |
(952 | ) | (208 | ) | ||||
Deferred tax benefit |
(1,724 | ) | (7,755 | ) | ||||
Increase in accounts receivable |
(23,708 | ) | (769 | ) | ||||
Increase in inventories |
(6,502 | ) | (27,968 | ) | ||||
Increase in tuxedo rental product |
(14,492 | ) | (34,871 | ) | ||||
Decrease in other assets |
4,194 | 29,919 | ||||||
Increase in accounts payable, accrued expenses and other current liabilities |
36,760 | 6,214 | ||||||
Increase (decrease) in income taxes payable |
(12,271 | ) | 25,450 | |||||
Decrease in other liabilities |
(197 | ) | (1,863 | ) | ||||
Net cash provided by operating activities |
165,882 | 162,400 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Capital expenditures |
(43,835 | ) | (44,466 | ) | ||||
Acquisitions of businesses, net of cash |
(97,786 | ) | | |||||
Proceeds from sales of available-for-sale investments |
| 19,410 | ||||||
Proceeds from sales of property and equipment |
76 | | ||||||
Net cash used in investing activities |
(141,545 | ) | (25,056 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Proceeds from issuance of common stock |
2,503 | 3,032 | ||||||
Payments on revolving credit facility |
| (25,000 | ) | |||||
Cash dividends paid |
(14,318 | ) | (11,029 | ) | ||||
Tax payments related to vested deferred stock units |
(2,748 | ) | (1,634 | ) | ||||
Excess tax benefits from share-based plans |
952 | 208 | ||||||
Purchase of treasury stock |
(144 | ) | (90 | ) | ||||
Net cash used in financing activities |
(13,755 | ) | (34,513 | ) | ||||
Effect of exchange rate changes |
1,243 | 8,295 | ||||||
INCREASE IN CASH AND CASH EQUIVALENTS |
11,825 | 111,126 | ||||||
Balance at beginning of period |
186,018 | 87,412 | ||||||
Balance at end of period |
$ | 197,843 | $ | 198,538 | ||||
See Notes to Condensed Consolidated Financial Statements.
5
Table of Contents
THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 recurring 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 principles 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.
On August 6, 2010, 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 (refer to Note 2 to the Condensed Consolidated Financial Statements for
further details regarding the acquisitions). As a result of these acquisitions, in the third
quarter of fiscal 2010, the Company revised its segment reporting to reflect two reportable
segments, retail and corporate apparel, based on the way we manage, evaluate and internally report
our business activities. Prior period amounts reported as one operating segment have been revised
to conform with our new segment reporting structure. Refer to Note 13 to the Condensed
Consolidated Financial Statements for further segment information.
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, Chairman of the Board
and Chief Executive Officer, 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.
Noncontrolling Interest Noncontrolling interest in our condensed consolidated balance sheets
represents the proportionate share of equity attributable to the minority shareholders of our
consolidated United Kingdom subsidiaries. Noncontrolling interest is adjusted each period to
reflect the allocation of comprehensive income to or the absorption of comprehensive losses by the
noncontrolling interest.
Derivative Financial Instruments Derivative financial instruments are recorded in the
condensed consolidated balance sheet at fair value as other current assets or accrued expenses and
other current liabilities. The Company has not elected to apply hedge accounting to our derivative
financial instruments. The gain or loss on derivative financial instruments is recorded in cost of
sales in the condensed consolidated statements of earnings. See Note 12 to the Condensed
Consolidated Financial Statements.
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 on our financial position, results of operations or
cash flows.
6
Table of Contents
THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
2. Acquisitions
On August 6, 2010, we acquired Dimensions and certain assets of Alexandra, two leading
providers of corporate clothing uniforms and workwear in the United Kingdom (UK), to expand our
corporate apparel operations. The results of operations for Dimensions and Alexandra have been
included in the condensed consolidated financial statements since
that date. The acquired 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 after fiscal 2013 on terms set forth
in the Investment, Shareholders and Stock Purchase Agreement.
The acquisition-date cash consideration transferred for the Dimensions and Alexandra
acquisitions was $79.8 million and $18.0 million, respectively, totaling $97.8 million (£61
million), and was funded through the Companys cash on hand.
The following table summarizes the preliminary estimates of the fair values of the
identifiable assets acquired and liabilities assumed in the Dimensions and Alexandra acquisitions
as of the date of acquisition. The preliminary estimates of the fair value of identifiable assets
acquired and liabilities assumed are subject to revisions, which may result in adjustments to the
preliminary values presented below, when managements appraisals and estimates are finalized.
As of August 6, 2010 | ||||||||||||
(in thousands) | Dimensions | Alexandra | Total | |||||||||
Current non-cash assets |
$ | 25,127 | $ | | $ | 25,127 | ||||||
Inventory |
48,340 | 16,980 | 65,320 | |||||||||
Property and equipment |
5,374 | 283 | 5,657 | |||||||||
Intangible assets |
35,474 | 1,501 | 36,975 | |||||||||
Total identifiable assets acquired |
114,315 | 18,764 | 133,079 | |||||||||
Current liabilities |
41,003 | 279 | 41,282 | |||||||||
Other liabilities |
10,292 | | 10,292 | |||||||||
Total liabilities assumed |
51,295 | 279 | 51,574 | |||||||||
Net identifiable assets acquired |
63,020 | 18,485 | 81,505 | |||||||||
Goodwill |
29,809 | | 29,809 | |||||||||
Subtotal |
92,829 | 18,485 | 111,314 | |||||||||
Less: Fair value of noncontrolling interest |
(13,004 | ) | | (13,004 | ) | |||||||
Less: Gain on bargain purchase |
| (524 | ) | (524 | ) | |||||||
Net assets acquired |
$ | 79,825 | $ | 17,961 | $ | 97,786 | ||||||
Goodwill is calculated as the excess of the purchase price over the net assets acquired. The
goodwill recognized is attributable primarily to expected synergies and the assembled workforce of
Dimensions. All of the goodwill has been assigned to our corporate apparel reporting segment and
is non-deductible for tax purposes.
7
Table of Contents
THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
Acquired intangible assets for both acquisitions consist primarily of customer-related
contract and relationship intangibles and trademarks, which are being amortized over
their estimated useful lives of primarily 12 years. Acquired intangible assets also include $1.3
million related to certain trademarks of Alexandra which are not subject to amortization but will
be evaluated at least annually for impairment.
In connection with the Alexandra acquisition, we recognized a preliminary gain on a bargain
purchase of approximately $0.5 million which is included in Selling, general and administrative
expenses (SG&A) in the 2010 condensed consolidated statements of earnings. The transaction
resulted in a bargain purchase because the previous UK business of Alexandra plc was in
administration (similar to bankruptcy) and was being sold through a bidding process. The gain on
bargain purchase is subject to revisions until managements appraisals and estimates of the fair
value of the identifiable assets acquired and liabilities assumed are finalized, which may result
in adjustments to the preliminary gain on bargain purchase reported for the period ended October
30, 2010.
The $13.0 million noncontrolling interest fair value as of the August 6, 2010 acquisition date
was determined based upon the $79.8 million fair value of consideration transferred to acquire our
86% interest in the UK businesses.
Total costs incurred for the acquisitions of Dimensions and Alexandra were $1.4 million and
$4.1 million for the three and nine months ended October 30, 2010 and are included in SG&A in the
condensed consolidated statement of earnings.
The acquired businesses contributed net sales of $50.6 million, gross margin of $13.6 million
and a net loss, including the pretax $4.1 million in acquisition costs, of $2.5 million to the Companys
condensed consolidated statement of earnings from the date of acquisition to the period ended
October 30, 2010.
The following table presents unaudited pro forma financial information as if the closing of
our acquisition of Dimensions had occurred on February 1, 2009, after giving effect to certain
purchase accounting adjustments. The acquisition of Alexandra was not material to the Companys
financial position or results of operations, therefore pro forma operating results for Alexandra
have not been included below.
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
October 30, | October 31, | October 30, | October 31, | |||||||||||||
(in thousands, except per share data) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Total net sales |
$ | 552,728 | $ | 499,723 | $ | 1,623,168 | $ | 1,547,932 | ||||||||
Net earnings attributable to common shareholders |
$ | 26,220 | $ | 20,959 | $ | 86,463 | $ | 70,064 | ||||||||
Net earnings per common share attributable to
common shareholders: |
||||||||||||||||
Basic |
$ | 0.49 | $ | 0.40 | $ | 1.63 | $ | 1.33 | ||||||||
Diluted |
$ | 0.49 | $ | 0.40 | $ | 1.62 | $ | 1.33 | ||||||||
This pro forma information is not necessarily indicative of the results of operations
that actually would have resulted had the Dimensions acquisition occurred on the dates indicated
above or that may result in the future and does not reflect potential synergies, integration costs
or other such costs and savings.
8
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
3. Earnings per Share
We calculate earnings per common share attributable to common shareholders 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 attributable to common shareholders. 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 attributable to common shareholders 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 attributable to common shareholders 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
attributable to common shareholders (in thousands, except per share amounts). Basic and diluted
earnings per common share attributable to common shareholders 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 attributable to common shareholders in our condensed consolidated statement of earnings and
the accompanying notes.
For the Three Months | For the Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
October 30, | October 31, | October 30, | October 31, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Numerator |
||||||||||||||||
Total net earnings attributable to common shareholders |
$ | 25,259 | $ | 19,286 | $ | 81,783 | $ | 64,968 | ||||||||
Net earnings allocated to participating securities
(restricted stock and deferred stock units) |
(236 | ) | (192 | ) | (758 | ) | (643 | ) | ||||||||
Net earnings attributable to common shareholders |
$ | 25,023 | $ | 19,094 | $ | 81,025 | $ | 64,325 | ||||||||
Denominator |
||||||||||||||||
Basic weighted average common shares outstanding |
52,702 | 52,208 | 52,589 | 52,072 | ||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Stock options and equity-based compensation |
193 | 234 | 187 | 146 | ||||||||||||
Diluted weighted average common shares outstanding |
52,895 | 52,442 | 52,776 | 52,218 | ||||||||||||
Net earnings per common share attributable to common
shareholders: |
||||||||||||||||
Basic |
$ | 0.47 | $ | 0.37 | $ | 1.54 | $ | 1.24 | ||||||||
Diluted |
$ | 0.47 | $ | 0.36 | $ | 1.54 | $ | 1.23 | ||||||||
In each of the three and nine months ended October 30, 2010, 0.9 million anti-dilutive stock
options were excluded from the calculation of diluted earnings per common share. For the three and
nine months ended October 31, 2009, 0.7 million and 1.0 million anti-dilutive stock options were
excluded from the calculation of diluted earnings per common share, respectively.
9
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
4. 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 October 30, 2010, there was US$45.6
million outstanding under the Canadian term loan with an effective interest rate of 1.9%, 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 October 30, 2010.
We are in the process of amending and restating the Credit Agreement to provide for a total
secured revolving credit facility of $200.0 million, which can be expanded to $300.0 million upon
additional lender commitments, to mature in December 2015. In addition, as amended and restated,
the revolving facility is expected to allow for borrowings in multiple currencies, including US
dollars, Canadian dollars and pounds Sterling, and to make certain adjustments to the financial
covenants. In addition to use for general corporate purposes, we intend to use borrowings under
the amended and restated facility to pay off the Canadian term loan discussed above. We anticipate
closing the amendment and restatement of our credit facility in the fourth quarter of fiscal 2010.
We utilize letters of credit primarily to secure inventory purchases and as collateral for
workers compensation claims. At October 30, 2010, letters of credit totaling approximately $23.0
million were issued and outstanding. Borrowings available under our Credit Agreement at October
30, 2010 were $177.0 million.
5. Supplemental Cash Flows
Supplemental disclosure of cash flow information is as follows (in thousands):
For the Nine Months Ended | ||||||||
October 30, | October 31, | |||||||
2010 | 2009 | |||||||
Cash paid (received) during the nine months for: |
||||||||
Interest |
$ | 785 | $ | 827 | ||||
Income taxes, net |
55,322 | (3,518 | ) | |||||
Schedule of noncash investing and financing activities: |
||||||||
Tax benefit (deficiency) related to share-based plans |
662 | (537 | ) | |||||
Treasury stock contributed to employee stock plan |
9 | | ||||||
Cash dividends declared |
4,783 | 3,691 |
We had unpaid capital expenditure purchases accrued in accounts payable, accrued expenses and
other current liabilities of approximately $2.1 million and $2.9 million at October 30, 2010 and
October 31, 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.
10
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
6. Goodwill and Other Intangible Assets
Goodwill
Goodwill allocated to the Companys reportable segments and changes in the net carrying amount
of goodwill for the nine months ended October 30, 2010 are as follows (in thousands):
Corporate | ||||||||||||
Retail | Apparel | Total | ||||||||||
Balance at January 30, 2010 |
$ | 58,120 | $ | 1,294 | $ | 59,414 | ||||||
Translation adjustment |
1,249 | 108 | 1,357 | |||||||||
Goodwill of acquired business |
| 29,809 | 29,809 | |||||||||
Balance at October 30, 2010 |
$ | 59,369 | $ | 31,211 | $ | 90,580 | ||||||
The goodwill of acquired business resulted from our August 6, 2010 acquisition of Dimensions,
a leading provider of corporate clothing uniforms and workwear in the UK. As indicated in Note 2
to the Condensed Consolidated Financial Statements (Acquisitions), the preliminary estimates of
the fair value of the identifiable assets acquired and liabilities assumed for our August 6, 2010
acquisitions are not yet final and are subject to revisions until managements appraisals and
estimates are finalized, including goodwill, which may result in adjustments to the preliminary
values as reported for the corporate apparel reportable segment at October 30, 2010.
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
nine months of 2010.
Intangible Assets
The gross carrying amount and accumulated amortization of our other intangibles, which are
included in intangible assets, net in the accompanying condensed consolidated balance sheet, are as
follows (in thousands):
October 30, | October 31, | January 30, | ||||||||||
2010 | 2009 | 2010 | ||||||||||
Amortizable intangible assets: |
||||||||||||
Trademarks, tradenames, customer
relationships and other intangibles |
$ | 49,389 | $ | 16,327 | $ | 15,305 | ||||||
Accumulated amortization |
(11,993 | ) | (11,048 | ) | (11,018 | ) | ||||||
Total amortizable intangible assets, net |
37,396 | 5,279 | 4,287 | |||||||||
Infinite-lived intangible assets: |
||||||||||||
Trademarks |
1,282 | | | |||||||||
Total intangible assets, net |
$ | 38,678 | $ | 5,279 | $ | 4,287 | ||||||
The increases in amortizable and infinite-lived intangible assets at October 30, 2010 relate
to intangible assets acquired in our acquisitions of Dimensions and Alexandra on August 6, 2010.
Refer to Note 2 to the Condensed Consolidated Financial Statements for further information
regarding these intangible assets and preliminary assessment values.
The pretax amortization expense associated with intangible assets subject to amortization
totaled approximately $1.5 million and $1.7 million for the nine months ended October 30, 2010 and
October 31, 2009, respectively, and approximately $2.2 million for the year ended January 30, 2010.
Pretax amortization associated with intangible assets subject to amortization at October 30, 2010 is estimated to be $1.0 million for the remainder of fiscal
year 2010, $3.4 million for fiscal year 2011, $3.3 million for fiscal year 2012, $3.2 million for
fiscal year 2013 and $3.1 million for fiscal year 2014.
11
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
7. Other Assets, Accrued Expenses and Other Current Liabilities and Deferred Taxes and Other
Liabilities
Other current assets consist of the following (in thousands):
October 30, | October 31, | January 30, | ||||||||||
2010 | 2009 | 2010 | ||||||||||
Prepaid expenses |
$ | 29,851 | $ | 25,773 | $ | 30,896 | ||||||
Current deferred tax asset |
26,521 | 17,922 | 36,408 | |||||||||
Other |
6,458 | 4,049 | 5,428 | |||||||||
Total other current assets |
$ | 62,830 | $ | 47,744 | $ | 72,732 | ||||||
Accrued expenses and other current liabilities consist of the following (in thousands): | ||||||||||||
Accrued salary, bonus, sabbatical and vacation |
$ | 35,689 | $ | 32,509 | $ | 40,032 | ||||||
Sales, payroll and property taxes payable |
19,081 | 15,227 | 12,524 | |||||||||
Accrued workers compensation and medical costs |
17,090 | 16,772 | 17,484 | |||||||||
Customer deposits, prepayments and refunds payable |
14,130 | 10,204 | 9,523 | |||||||||
Unredeemed gift certificates |
11,921 | 12,351 | 14,980 | |||||||||
Loyalty program reward certificates |
7,002 | 6,134 | 6,342 | |||||||||
Cash dividends declared |
4,783 | 3,691 | 4,753 | |||||||||
Other |
20,854 | 9,194 | 11,409 | |||||||||
Total accrued expenses and other current liabilities |
$ | 130,550 | $ | 106,082 | $ | 117,047 | ||||||
Deferred taxes and other liabilities consist of the following (in thousands): | ||||||||||||
Deferred rent and landlord incentives |
$ | 47,544 | $ | 44,695 | $ | 44,656 | ||||||
Non-current deferred and other income tax liabilities |
17,433 | 11,337 | 10,976 | |||||||||
Other |
7,687 | 7,055 | 6,604 | |||||||||
Total deferred taxes and other liabilities |
$ | 72,664 | $ | 63,087 | $ | 62,236 | ||||||
12
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
8. Shareholders Equity and Noncontrolling Interest
A reconciliation of the total carrying amount of the Companys equity accounts for the fiscal
year ended January 30, 2010 and for the nine months ended October 30, 2010 is as follows (in
thousands):
Total | ||||||||||||||||||||||||||||||||
Accumulated | Equity | |||||||||||||||||||||||||||||||
Capital in | Other | Attributable to | ||||||||||||||||||||||||||||||
Common | Excess of | Retained | Comprehensive | Treasury | Common | Noncontrolling | Total | |||||||||||||||||||||||||
Stock | Par Value | Earnings | Income | Stock | Shareholders | Interest | Equity | |||||||||||||||||||||||||
Balances January 30, 2010 (as
adjusted-Note 16) |
$ | 705 | $ | 327,742 | $ | 956,032 | $ | 32,537 | $ | (412,626 | ) | $ | 904,390 | $ | | $ | 904,390 | |||||||||||||||
Net earnings |
| | 81,783 | | | 81,783 | 89 | 81,872 | ||||||||||||||||||||||||
Other comprehensive income (a) |
| | | 5,114 | | 5,114 | 50 | 5,164 | ||||||||||||||||||||||||
Cash dividends paid |
| | (9,565 | ) | | | (9,565 | ) | | (9,565 | ) | |||||||||||||||||||||
Cash dividends declared |
| | (4,783 | ) | | | (4,783 | ) | | (4,783 | ) | |||||||||||||||||||||
Share-based compensation |
| 8,787 | | | | 8,787 | | 8,787 | ||||||||||||||||||||||||
Common stock issued to stock discount plan |
1 | 1,511 | | | | 1,512 | | 1,512 | ||||||||||||||||||||||||
Common stock issued upon exercise of stock
options |
1 | 990 | | | | 991 | | 991 | ||||||||||||||||||||||||
Common stock issued pursuant to
restricted stock and deferred stock unit
awards |
2 | (2 | ) | | | | | | | |||||||||||||||||||||||
Tax payments related to vested deferred
stock units |
| (2,748 | ) | | | | (2,748 | ) | | (2,748 | ) | |||||||||||||||||||||
Tax benefit related to share-based plans |
| 662 | | | | 662 | | 662 | ||||||||||||||||||||||||
Treasury stock purchased |
| | | | (144 | ) | (144 | ) | | (144 | ) | |||||||||||||||||||||
Treasury stock issued to profit sharing
plan |
| | | | 9 | 9 | | 9 | ||||||||||||||||||||||||
Fair value of noncontrolling interest
associated with businesses acquired |
| | | | | | 13,004 | 13,004 | ||||||||||||||||||||||||
Balances October 30, 2010 |
$ | 709 | $ | 336,942 | $ | 1,023,467 | $ | 37,651 | $ | (412,761 | ) | $ | 986,008 | $ | 13,143 | $ | 999,151 | |||||||||||||||
(a) | Refer to condensed consolidated statements of other comprehensive income included within this Form 10-Q. |
13
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
A reconciliation of the total carrying amount of the Companys equity accounts for the
fiscal year ended January 31, 2009 and for the nine months ended October 31, 2009 is as follows (in
thousands):
Total | ||||||||||||||||||||||||||||||||
Accumulated | Equity | |||||||||||||||||||||||||||||||
Capital in | Other | Attributable to | ||||||||||||||||||||||||||||||
Common | Excess of | Retained | Comprehensive | Treasury | Common | Noncontrolling | Total | |||||||||||||||||||||||||
Stock | Par Value | Earnings | Income | Stock | Shareholders | Interest | Equity | |||||||||||||||||||||||||
Balances January 31, 2009 |
$ | 700 | $ | 315,404 | $ | 924,288 | $ | 14,292 | $ | (412,536 | ) | $ | 842,148 | $ | | $ | 842,148 | |||||||||||||||
Cumulative adjustment for change in
accounting principle (Note 16) |
| | 1,339 | | | 1,339 | | 1,339 | ||||||||||||||||||||||||
Net earnings |
| | 64,968 | | | 64,968 | | 64,968 | ||||||||||||||||||||||||
Other comprehensive income (a) |
| | | 18,911 | | 18,911 | | 18,911 | ||||||||||||||||||||||||
Cash dividends paid |
| | (7,364 | ) | | | (7,364 | ) | | (7,364 | ) | |||||||||||||||||||||
Cash dividends declared |
| | (3,691 | ) | | | (3,691 | ) | | (3,691 | ) | |||||||||||||||||||||
Share-based compensation |
| 7,603 | | | | 7,603 | | 7,603 | ||||||||||||||||||||||||
Common stock issued to stock discount
plan |
1 | 1,438 | | | | 1,439 | | 1,439 | ||||||||||||||||||||||||
Common stock issued upon exercise of
stock options |
1 | 1,592 | | | | 1,593 | | 1,593 | ||||||||||||||||||||||||
Common stock issued pursuant to
restricted stock and deferred stock unit
awards |
2 | (2 | ) | | | | | | | |||||||||||||||||||||||
Tax payments related to vested
deferred stock units |
| (1,634 | ) | | | | (1,634 | ) | | (1,634 | ) | |||||||||||||||||||||
Tax deficiency related to share-based
plans |
| (537 | ) | | | | (537 | ) | | (537 | ) | |||||||||||||||||||||
Treasury stock purchased |
| | | | (90 | ) | (90 | ) | | (90 | ) | |||||||||||||||||||||
Balances October 31, 2009 (as adjusted- Note 16) |
$ | 704 | $ | 323,864 | $ | 979,540 | $ | 33,203 | $ | (412,626 | ) | $ | 924,685 | $ | | $ | 924,685 | |||||||||||||||
(a) | Refer to condensed consolidated statements of other comprehensive income included within this Form 10-Q. |
9. Treasury Stock
As of October 30, 2010, we had 18,118,350 shares held in treasury stock. The change in our
treasury shares for the year ended January 30, 2010 and for the nine months ended October 30, 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 | |||
Treasury stock issued to profit sharing plan |
(386 | ) | ||
Purchases of treasury stock |
7,134 | |||
Balance, October 30, 2010 |
18,118,350 | |||
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 nine months of 2010 or 2009. At October 30, 2010, the remaining balance available
under the August 2007 authorization was $44.3 million.
14
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
During the nine months ended October 30, 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 nine
months ended October 30, 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.
10. 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
nine months ended October 30, 2010 was $3.1 million and $8.8 million, respectively. Share-based
compensation expense recognized for the three and nine months ended October 31, 2009 was $2.4
million and $7.6 million, respectively.
Stock Options
The following table summarizes stock option activity for the nine months ended October 30,
2010:
Weighted- | ||||||||
Average | ||||||||
Exercise | ||||||||
Shares | Price | |||||||
Outstanding at January 30, 2010 |
1,642,905 | $ | 20.29 | |||||
Granted |
50,000 | 18.79 | ||||||
Exercised |
(68,627 | ) | 14.44 | |||||
Expired |
(5,374 | ) | 20.89 | |||||
Outstanding at October 30, 2010 |
1,618,904 | $ | 20.49 | |||||
Exercisable at October 30, 2010 |
756,392 | $ | 18.75 | |||||
The weighted-average grant date fair value of the 50,000 stock options granted during the nine
months ended October 30, 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 nine months ended October 30, 2010. No stock options were granted
during the three months ended October 30, 2010.
For the Nine | ||||
Months Ended | ||||
October 30, | ||||
2010 | ||||
Risk-free interest rate |
1.80 | % | ||
Expected lives |
5.0 years | |||
Dividend yield |
1.65 | % | ||
Expected volatility |
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.
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
As of October 30, 2010, we have unrecognized compensation expense related to nonvested
stock options of approximately $5.5 million which is expected to be recognized over a weighted
average period of 2.9 years.
Restricted Stock and Deferred Stock Units
The following table summarizes restricted stock and deferred stock unit activity for the nine
months ended October 30, 2010:
Weighted- | ||||||||
Average | ||||||||
Grant-Date | ||||||||
Shares | Fair Value | |||||||
Nonvested at January 30, 2010 |
506,133 | $ | 22.35 | |||||
Granted |
335,116 | 23.97 | ||||||
Vested (1) |
(338,545 | ) | 21.26 | |||||
Forfeited |
(10,310 | ) | 23.73 | |||||
Nonvested at October 30, 2010 |
492,394 | $ | 24.17 | |||||
(1) | Includes 108,666 shares relinquished for tax payments related to vested deferred stock units for the nine months ended October 30, 2010. |
During the nine months ended October 30, 2010, 20,196 restricted stock shares and 314,920
deferred stock units were granted and 19,360 restricted stock shares and 319,185 deferred stock
units vested. No shares of restricted stock were forfeited during the nine months ended October
30, 2010. Total nonvested shares of 492,394 at October 30, 2010 include 69,334 nonvested
restricted stock shares.
As of October 30, 2010, we have unrecognized compensation expense related to nonvested
restricted stock shares and deferred stock units of approximately $6.1 million which is expected to
be recognized over a weighted average period of 1.2 years.
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 nine months ended October 30, 2010, employees purchased 92,352 shares under the
ESDP, which had a weighted-average share price of $16.38 per share. As of October 30, 2010,
1,085,148 shares were reserved for future issuance under the ESDP.
11. 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.
16
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
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 nine
months ended October 30, 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 | ||||||||||||||
October 30, | Instruments | Inputs | Inputs | |||||||||||||
(in thousands) | 2010 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Assets: |
||||||||||||||||
Derivative financial instruments |
$ | 364 | $ | | $ | 364 | $ | | ||||||||
Liabilities: |
||||||||||||||||
Derivative financial instruments |
$ | 548 | $ | | $ | 548 | $ | | ||||||||
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 currency different from the operating entitys functional
currency. 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
12 for further information regarding our derivative instruments.
At October 31, 2009 and 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 nine months ended October 30, 2010, we recorded
charges for the impairment of long-lived assets of $3.2 million and $3.4 million, respectively,
which is included in SG&A in our condensed consolidated statement of earnings. The asset
impairment charges reduced the carrying amounts of the applicable long-lived assets, primarily
leasehold improvements for certain Mens Wearhouse and Tux stores, to their fair values of $0.5
million as of October 30, 2010. No asset impairment charges were recorded for the three and nine
months ended October 31, 2009.
17
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
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 October 30, 2010, October 31, 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 October 30, 2010 and of
long-term debt at October 31, 2009 and January 30, 2010 approximate their carrying amounts based
upon terms available to us for borrowings with similar arrangements and remaining maturities.
12. Derivative Financial Instruments
We are exposed to market risk associated with foreign currency exchange rate fluctuations as a
result of our direct sourcing programs and our operations in foreign countries. In connection with
our direct sourcing programs, we may enter into merchandise purchase commitments that are
denominated in a currency different from the functional currency of the operating entity. Our risk
management policy is to hedge a significant portion of forecasted merchandise purchases for our
direct sourcing programs that bear foreign exchange risk using foreign exchange forward contracts.
The Company has not elected to apply hedge accounting to these transactions denominated in a
foreign currency.
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.
The table below discloses the fair value of the derivative financial instruments included in
the condensed consolidated balance sheet as of October 30, 2010. We held no derivative financial
instruments as of October 31, 2009 or January 30, 2010.
October 30, 2010 | ||||||||||||||||
Asset Derivatives | Liability Derivatives | |||||||||||||||
Balance Sheet | Balance Sheet | |||||||||||||||
(in thousands) | Location | Fair Value | Location | Fair Value | ||||||||||||
Derivatives not designated as hedging instruments: |
||||||||||||||||
Foreign exchange forward contracts |
Other current assets | $ | 364 | Accrued expenses and other current liabilities | $ | 548 | ||||||||||
Total derivative instruments |
$ | 364 | $ | 548 | ||||||||||||
At October 30, 2010, we had three contracts maturing in varying increments to purchase
euros for an aggregate notional amount of US$2.9 million maturing at various dates through March
2011, five contracts maturing in varying increments to purchase USD for an aggregate notional
amount of Canadian dollars (CAD) $4.3 million maturing at various dates through March 2011 and 55
contracts maturing in varying increments to purchase USD for an aggregate notional amount of pounds
Sterling (GBP) $20.6 million maturing at various dates through June 2011. For the three and nine
months ended October 30, 2010, we recognized a pre-tax gain of $0.2 million in cost of sales on the
condensed consolidated statement of earnings for our derivative financial instruments not
designated as cash flow hedges. No amounts were recognized in our results of operations during the
three and nine months ended October 31, 2009.
We had no derivative financial instruments with credit-risk-related contingent features
underlying the agreements as of October 30, 2010.
18
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
13. Segment Reporting
On August 6, 2010, we acquired Dimensions and certain assets of Alexandra, two leading
providers of corporate clothing uniforms and workwear in the UK (refer to Note 2 to the Condensed
Consolidated Financial Statements for further details regarding the acquisitions). As a result of
these acquisitions, in the third quarter of fiscal 2010, the Company revised its segment reporting
to reflect two reportable segments, retail and corporate apparel, based on the way we manage,
evaluate and internally report our business activities. Prior period amounts reported as one
operating segment have been revised to conform to our new segment reporting structure.
The retail segment includes the results from our four retail merchandising brands: Mens
Wearhouse, Mens Wearhouse and Tux, K&G and Moores. These four brands are operating segments that
have been aggregated into the retail reportable segment based on their similar economic
characteristics, products, production processes, target customers and distribution methods. MW
Cleaners is also aggregated in the retail segment as these operations have not had a significant
effect on the revenues or expenses of the Company. Specialty apparel merchandise offered by our
four retail merchandising concepts include suits, suit separates, sport coats, pants, shoes,
shirts, sportswear, outerwear and accessories for men. Ladies career apparel is offered at
most of our K&G stores and tuxedo rentals are offered at our Mens Wearhouse, Mens Wearhouse and
Tux and Moores retail stores.
The corporate apparel segment includes the results from our corporate apparel and uniform
operations conducted by Twin Hill in the United States and, beginning in the third quarter of
fiscal 2010, Dimensions and Alexandra in the UK. The two corporate apparel and uniform concepts
are operating segments that have been aggregated into the reportable corporate apparel segment
based on their similar economic characteristics, products, production processes, target customers
and distribution methods. The corporate apparel segment provides corporate clothing uniforms and
workwear to workforces.
The accounting policies for each of our operating segments are the same as those described in
Note 1 to the Condensed Consolidated Financial Statements.
Operating income is the primary measure of profit we use to make decisions on allocating
resources to our operating segments and to assess the operating performance of each operating
segment. It is defined as income before interest expense, interest income, income taxes and
noncontrolling interest. Corporate expenses are allocated to the retail segment.
Net sales by brand and reportable segment are as follows:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
October 30, | October 31, | October 30, | October 31, | |||||||||||||
(in thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Net sales: |
||||||||||||||||
MW (1) |
$ | 349,092 | $ | 317,584 | $ | 1,034,786 | $ | 987,546 | ||||||||
K&G |
78,024 | 79,329 | 263,862 | 277,442 | ||||||||||||
Moores |
61,489 | 55,962 | 180,435 | 160,284 | ||||||||||||
MW Cleaners |
5,964 | 5,429 | 17,631 | 16,668 | ||||||||||||
Total retail segment |
494,569 | 458,304 | 1,496,714 | 1,441,940 | ||||||||||||
Twin Hill |
4,891 | 3,711 | 13,201 | 10,417 | ||||||||||||
Dimensions and Alexandra (UK) |
50,643 | | 50,643 | | ||||||||||||
Total corporate apparel
segment |
55,534 | 3,711 | 63,844 | 10,417 | ||||||||||||
Total net sales |
$ | 550,103 | $ | 462,015 | $ | 1,560,558 | $ | 1,452,357 | ||||||||
(1) | MW includes Mens Wearhouse and Mens Wearhouse and Tux stores |
19
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
The following table sets forth supplemental products and services sales information for the
Company:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
October 30, | October 31, | October 30, | October 31, | |||||||||||||
(in thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Net sales: |
||||||||||||||||
Mens tailored clothing product |
$ | 194,765 | $ | 180,070 | $ | 586,049 | $ | 569,611 | ||||||||
Mens non-tailored clothing product |
138,151 | 133,507 | 429,058 | 422,147 | ||||||||||||
Ladies clothing product |
17,334 | 16,594 | 57,432 | 55,071 | ||||||||||||
Corporate apparel uniform product |
55,534 | 3,711 | 63,844 | 10,417 | ||||||||||||
Total clothing product |
405,784 | 333,882 | 1,136,383 | 1,057,246 | ||||||||||||
Tuxedo rental services |
111,297 | 97,702 | 325,913 | 298,688 | ||||||||||||
Alteration services |
27,058 | 25,002 | 80,631 | 79,755 | ||||||||||||
Retail dry cleaning services |
5,964 | 5,429 | 17,631 | 16,668 | ||||||||||||
Total alteration and other services |
33,022 | 30,431 | 98,262 | 96,423 | ||||||||||||
Total net sales |
$ | 550,103 | $ | 462,015 | $ | 1,560,558 | $ | 1,452,357 | ||||||||
Operating income (loss) by reportable segment and the reconciliation to earnings before income
taxes is as follows:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
October 30, | October 31, | October 30, | October 31, | |||||||||||||
(in thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Operating income (loss): |
||||||||||||||||
Retail |
$ | 35,148 | $ | 29,972 | $ | 130,508 | $ | 105,430 | ||||||||
Corporate apparel |
(737 | ) | (526 | ) | (5,640 | ) | (1,766 | ) | ||||||||
Operating income |
34,411 | 29,446 | 124,868 | 103,664 | ||||||||||||
Interest income |
83 | 289 | 163 | 778 | ||||||||||||
Interest expense |
(357 | ) | (308 | ) | (937 | ) | (957 | ) | ||||||||
Earnings before income taxes |
$ | 34,137 | $ | 29,427 | $ | 124,094 | $ | 103,485 | ||||||||
Total assets by reportable segment are as follows:
October 30, | October 31, | January 30, | ||||||||||
(in thousands) | 2010 | 2009 | 2010 | |||||||||
Segment assets: |
||||||||||||
Retail |
$ | 1,172,732 | $ | 1,246,956 | $ | 1,197,932 | ||||||
Corporate apparel (a) |
232,649 | 36,000 | 36,220 | |||||||||
Total assets |
$ | 1,405,381 | $ | 1,282,956 | $ | 1,234,152 | ||||||
(a) | As indicated in Note 2 to the Condensed Consolidated Financial Statements, the preliminary estimates of the fair value of the identifiable assets acquired and liabilities assumed in our August 6, 2010 acquisitions are not yet final and are subject to revisions until managements appraisals and estimates are finalized, which may result in adjustments to the preliminary values as reported for the corporate apparel reportable segment at October 30, 2010. |
20
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
14. Ceased Tuxedo Rental Distribution Operations
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 $3.6 million, which consists primarily of severance payments, the
write-off of fixed assets and facility remediation costs. We also estimate that approximately $1.8
million of the charge will result in future cash expenditures. All costs are recognized as
incurred.
As of October 30, 2010, we have recognized retail segment pre-tax costs of $2.0 million for
the ceased tuxedo rental distribution operations at these four facilities, including $0.7 million
for severance payments and $1.3 million for the write-off of fixed assets. These charges are
included in SG&A in our condensed consolidated statement of earnings. No cash payments related to
the ceased tuxedo rental distribution operations were paid in the nine months ended October 30,
2010. The accrued balance of $0.7 million, included within Accrued expenses and other current
liabilities in our condensed consolidated balance sheet at October 30, 2010, relates to severance
payments which will be paid in the fourth quarter of fiscal 2010. We expect to incur additional
charges of approximately $1.6 million in connection with the ceased tuxedo rental distribution
operations at these four facilities.
The following table details information related to the accrued balance recorded during the
three months ended October 30, 2010 related to the ceased tuxedo rental distribution operations (in
thousands):
Accrued costs at July 31, 2010 |
$ | | ||
Cost incurred |
2,026 | |||
Non-cash charges |
(1,330 | ) | ||
Accrued costs at October 30, 2010 |
$ | 696 | ||
The following table details information related to the accrued balance recorded during the
nine months ended October 30, 2010 related to the ceased tuxedo rental distribution operations (in
thousands):
Accrued costs at January 30, 2010 |
$ | | ||
Cost incurred |
2,026 | |||
Non-cash charges |
(1,330 | ) | ||
Accrued costs at October 30, 2010 |
$ | 696 | ||
21
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
15. 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 filed a motion to dismiss the
complaint on April 12, 2010, and we are awaiting a decision from the Court. 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.
16. Change in Accounting Principle
On August 1, 2010, we changed the method of determining cost under the lower of cost or market
inventory valuation method used for our K&G brand (representing approximately 23% of our inventory)
from the retail inventory method to the average cost method.
We believe the average cost method is preferable over the retail inventory method because it
results in greater precision in the determination of cost of sales and inventories. Under the
average cost method, cost is computed using the actual cost of inventory purchases, while cost
under the retail inventory method is determined by using imprecise estimates of inputs such as
selling prices and gross margin. Additionally, this change results in a consistent inventory
valuation method for all of our inventories.
The effect of the change in accounting principle for periods prior to February 1, 2009 is not
determinable as the period-specific information required to value K&Gs inventory on the average
cost method is not available for periods prior to February 1, 2009. As stated in FASB guidance
regarding accounting changes, when it is impracticable to determine the cumulative effect of
applying a change in accounting principle to any prior period, the new accounting principle shall
be applied as if the changes were made prospectively as of the earliest date practicable.
Therefore, we adopted the new method of accounting for K&Gs inventory retrospectively to February
1, 2009. The effect of this change in accounting principle on inventory values as of the beginning
of 2009 was an increase in inventory of $2.2 million, a decrease in deferred tax assets of $0.9
million and a reduction of retained earnings as of the beginning of 2009 of $1.3 million. The
non-cash increase in the inventory balance of $2.2 million is due only to this accounting change as
the underlying retail value of the inventory is not affected by this accounting change.
Had we not changed our method of determining inventory cost for our K&G inventory in the
current quarter, the impact would have been immaterial to our financial position, results of
operations, cash flows and net earnings per common share attributable to the common shareholders as
of and for the three and nine months ended October 30, 2010.
22
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
For comparability purposes, the following tables set forth the financial statement line
items as of and for the three months ended May 2, 2009 that were affected by the change in
accounting principle. The change in accounting principle did not impact net cash provided by
operating activities, net cash used in investing activities or net cash provided by financing
activities as reported in the Condensed Consolidated Statement of Cash flows. However, certain
line items were affected as shown below:
As Previously | Change in | |||||||||||
Reported | Accounting | As Adjusted | ||||||||||
under Retail | Principle to | for the Effect | ||||||||||
(In thousands, except per share amounts) | Method | Cost Method | of Change | |||||||||
Condensed Consolidated Balance Sheet at May 2,
2009 (unaudited) (1): |
||||||||||||
Inventories |
$ | 448,018 | $ | 2,541 | $ | 450,559 | ||||||
Other current assets |
59,752 | (1,005 | ) | 58,747 | ||||||||
Retained earnings |
925,881 | 1,536 | 927,417 | |||||||||
Condensed Consolidated Statement of Earnings for
the Three Months Ended May 2, 2009 (unaudited): |
||||||||||||
Cost of sales: Clothing product, including
buying and distribution costs |
$ | 167,457 | $ | (324 | ) | $ | 167,133 | |||||
Operating income |
8,776 | 324 | 9,100 | |||||||||
Provision for income taxes |
3,360 | 127 | 3,487 | |||||||||
Net earnings attributable to common shareholders |
5,256 | 197 | 5,453 | |||||||||
Basic earnings per common share attributable to
common shareholders |
0.10 | | 0.10 | |||||||||
Diluted earnings per share attributable to
common shareholders |
0.10 | | 0.10 | |||||||||
Condensed Consolidated Statement of Cash Flows
for the Three Months Ended May 2, 2009
(unaudited): |
||||||||||||
Net earnings including noncontrolling interest |
$ | 5,256 | $ | 197 | $ | 5,453 | ||||||
Deferred tax provision |
3,009 | 127 | 3,136 | |||||||||
Increase in inventories |
(6,194 | ) | (324 | ) | (6,518 | ) |
(1) | Change in accounting principle to weighted average cost method includes the cumulative effect of the change in accounting principle. |
23
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
For comparability purposes, the following tables set forth the financial statement line
items as of and for the three and six months ended August 1, 2009 that were affected by the change
in accounting principle. The change in accounting principle did not impact net cash provided by
operating activities, net cash used in investing activities or net cash provided by financing
activities as reported in the Condensed Consolidated Statement of Cash flows. However, certain
line items were affected as shown below:
As Previously | Change in | |||||||||||
Reported | Accounting | As Adjusted | ||||||||||
under Retail | Principle to | for the Effect | ||||||||||
(In thousands, except per share amounts) | Method | Cost Method | of Change | |||||||||
Condensed Consolidated Balance Sheet at August
1, 2009 (unaudited) (1): |
||||||||||||
Inventories |
$ | 430,777 | $ | 3,768 | $ | 434,545 | ||||||
Other current assets |
51,876 | (1,488 | ) | 50,388 | ||||||||
Retained earnings |
961,670 | 2,280 | 963,950 | |||||||||
Condensed Consolidated Statement of Earnings for
the Three Months Ended August 1, 2009
(unaudited): |
||||||||||||
Cost of sales: Clothing product, including
buying and distribution costs |
$ | 170,187 | $ | (1,226 | ) | $ | 168,961 | |||||
Operating income |
63,892 | 1,226 | 65,118 | |||||||||
Provision for income taxes |
24,407 | 482 | 24,889 | |||||||||
Net earnings attributable to common shareholders |
39,485 | 744 | 40,229 | |||||||||
Basic earnings per common share attributable to
common shareholders |
0.75 | 0.01 | 0.76 | |||||||||
Diluted earnings per share attributable to
common shareholders |
0.75 | 0.01 | 0.76 | |||||||||
Condensed Consolidated Statement of Earnings for
the Six Months Ended August 1, 2009 (unaudited): |
||||||||||||
Cost of sales: Clothing product, including
buying and distribution costs |
$ | 337,644 | $ | (1,550 | ) | $ | 336,094 | |||||
Operating income |
72,668 | 1,550 | 74,218 | |||||||||
Provision for income taxes |
27,767 | 609 | 28,376 | |||||||||
Net earnings attributable to common shareholders |
44,741 | 941 | 45,682 | |||||||||
Basic earnings per common share attributable to
common shareholders |
0.85 | 0.02 | 0.87 | |||||||||
Diluted earnings per share attributable to
common shareholders |
0.85 | 0.02 | 0.87 | |||||||||
Condensed Consolidated Statement of Cash Flows
for the Six Months Ended August 1, 2009
(unaudited): |
||||||||||||
Net earnings including noncontrolling interest |
$ | 44,741 | $ | 941 | $ | 45,682 | ||||||
Deferred tax benefit |
(8,135 | ) | 609 | (7,526 | ) | |||||||
Decrease in inventories |
15,460 | (1,550 | ) | 13,910 |
(1) | Change in accounting principle to weighted average cost method includes the cumulative effect of the change in accounting principle. |
24
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
For comparability purposes, the following tables set forth the financial statement line
items as of and for the three and nine months ended October 31, 2009 that were affected by the
change in accounting principle. The change in accounting principle did not impact net cash
provided by operating activities, net cash used in investing activities or net cash provided by
financing activities as reported in the Condensed Consolidated Statement of Cash flows. However,
certain line items were affected as shown below:
As Previously | Change in | |||||||||||
Reported | Accounting | As Adjusted | ||||||||||
under Retail | Principle to | for the Effect | ||||||||||
(In thousands, except per share amounts) | Method | Cost Method | of Change | |||||||||
Condensed Consolidated Balance Sheet at October
31, 2009 (unaudited) (1): |
||||||||||||
Inventories |
$ | 473,626 | $ | 3,134 | $ | 476,760 | ||||||
Other current assets |
48,997 | (1,253 | ) | 47,744 | ||||||||
Retained earnings |
977,659 | 1,881 | 979,540 | |||||||||
Condensed Consolidated Statement of Earnings for
the Three Months Ended October 31, 2009
(unaudited): |
||||||||||||
Cost of sales: Clothing product, including
buying and distribution costs |
$ | 147,354 | $ | 633 | $ | 147,987 | ||||||
Operating income |
30,079 | (633 | ) | 29,446 | ||||||||
Provision for income taxes |
10,375 | (234 | ) | 10,141 | ||||||||
Net earnings attributable to common shareholders |
19,685 | (399 | ) | 19,286 | ||||||||
Basic earnings per common share attributable to
common shareholders |
0.37 | | 0.37 | |||||||||
Diluted earnings per share attributable to
common shareholders |
0.37 | (0.01 | ) | 0.36 | ||||||||
Condensed Consolidated Statement of Earnings for
the Nine Months Ended October 31, 2009
(unaudited): |
||||||||||||
Cost of sales: Clothing product, including
buying and distribution costs |
$ | 484,998 | $ | (917 | ) | $ | 484,081 | |||||
Operating income |
102,747 | 917 | 103,664 | |||||||||
Provision for income taxes |
38,142 | 375 | 38,517 | |||||||||
Net earnings attributable to common shareholders |
64,426 | 542 | 64,968 | |||||||||
Basic earnings per common share attributable to
common shareholders |
1.23 | 0.01 | 1.24 | |||||||||
Diluted earnings per share attributable to
common shareholders |
1.22 | 0.01 | 1.23 | |||||||||
Condensed Consolidated Statement of Cash Flows
for the Nine Months Ended October 31, 2009
(unaudited): |
||||||||||||
Net earnings including noncontrolling interest |
$ | 64,426 | $ | 542 | $ | 64,968 | ||||||
Deferred tax benefit |
(8,130 | ) | 375 | (7,755 | ) | |||||||
Increase in inventories |
(27,051 | ) | (917 | ) | 27,968 |
(1) | Change in accounting principle to weighted average cost method includes the cumulative effect of the change in accounting principle. |
25
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
For comparability purposes, the following tables set forth the financial statement line
items as of and for the three and twelve months ended January 30, 2010 that were affected by the
change in accounting principle. The change in accounting principle did not impact net cash
provided by operating activities, net cash used in investing activities or net cash provided by
financing activities as reported in the Consolidated Statement of Cash flows. However, certain
line items were affected as shown below:
As Previously | Change in | |||||||||||
Reported | Accounting | As Adjusted | ||||||||||
under Retail | Principle to | for the Effect | ||||||||||
(In thousands, except per share amounts) | Method | Cost Method | of Change | |||||||||
Consolidated Balance Sheet at January 30, 2010 (1): |
||||||||||||
Inventories |
$ | 431,492 | $ | 3,389 | $ | 434,881 | ||||||
Other current assets |
74,075 | (1,343 | ) | 72,732 | ||||||||
Retained earnings |
953,986 | 2,046 | 956,032 | |||||||||
Consolidated Statement of Earnings for the Three
Months Ended January 30, 2010: |
||||||||||||
Cost of sales: Clothing product, including buying
and distribution costs |
$ | 185,173 | $ | (255 | ) | $ | 184,918 | |||||
Operating loss |
(34,543 | ) | 255 | (34,288 | ) | |||||||
Benefit for income taxes |
(15,778 | ) | 90 | (15,688 | ) | |||||||
Net loss attributable to common shareholders |
(18,918 | ) | 165 | (18,753 | ) | |||||||
Basic loss per common share attributable to common
shareholders |
(0.36 | ) | | (0.36 | ) | |||||||
Diluted loss per share attributable to common
shareholders |
(0.36 | ) | | (0.36 | ) | |||||||
Consolidated Statement of Earnings for the Twelve
Months Ended January 30, 2010: |
||||||||||||
Cost of sales: Clothing product, including buying
and distribution costs |
$ | 670,171 | $ | (1,172 | ) | $ | 668,999 | |||||
Operating income |
68,204 | 1,172 | 69,376 | |||||||||
Provision for income taxes |
22,364 | 465 | 22,829 | |||||||||
Net earnings attributable to common shareholders |
45,508 | 707 | 46,215 | |||||||||
Basic earnings per common share attributable to
common shareholders |
0.86 | 0.02 | 0.88 | |||||||||
Diluted earnings per share attributable to common
shareholders |
0.86 | 0.02 | 0.88 | |||||||||
Consolidated Statement of Shareholders Equity and
Comprehensive Income at January 30, 2010: |
||||||||||||
Net earnings attributable to common shareholders |
$ | 45,508 | $ | 707 | $ | 46,215 | ||||||
Consolidated Statement of Cash Flows for the
Twelve Months Ended January 30, 2010: |
||||||||||||
Net earnings including noncontrolling interest |
$ | 45,508 | $ | 707 | $ | 46,215 | ||||||
Deferred tax benefit |
(30,630 | ) | 465 | (30,165 | ) | |||||||
Decrease in inventories |
15,579 | (1,172 | ) | 14,407 |
(1) | Change in accounting principle to weighted average cost method includes the cumulative effect of the change in accounting principle. |
26
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
For comparability purposes, the following tables set forth the financial statement line
items as of and for the three months ended May 1, 2010 that were affected by the change in
accounting principle. The change in accounting principle did not impact net cash provided by
operating activities, net cash used in investing activities or net cash provided by financing
activities as reported in the Condensed Consolidated Statement of Cash flows. However, certain
line items were affected as shown below:
As Previously | Change in | |||||||||||
Reported | Accounting | As Adjusted | ||||||||||
under Retail | Principle to | for the Effect | ||||||||||
(In thousands, except per share amounts) | Method | Cost Method | of Change | |||||||||
Condensed Consolidated Balance Sheet at May 1,
2010 (unaudited) (1): |
||||||||||||
Inventories |
$ | 435,351 | $ | 3,320 | $ | 438,671 | ||||||
Other current assets |
68,830 | (1,320 | ) | 67,510 | ||||||||
Retained earnings |
962,834 | 2,000 | 964,834 | |||||||||
Condensed Consolidated Statement of Earnings for
the Three Months Ended May 1, 2010 (unaudited): |
||||||||||||
Cost of sales: Clothing product, including
buying and distribution costs |
$ | 167,313 | $ | 69 | $ | 167,382 | ||||||
Operating income |
21,422 | (69 | ) | 21,353 | ||||||||
Provision for income taxes |
7,589 | (23 | ) | 7,566 | ||||||||
Net earnings attributable to common shareholders |
13,608 | (46 | ) | 13,562 | ||||||||
Basic earnings per common share attributable to
common shareholders |
0.26 | | 0.26 | |||||||||
Diluted earnings per share attributable to
common shareholders |
0.26 | | 0.26 | |||||||||
Condensed Consolidated Statement of Cash Flows
for the Three Months Ended May 1, 2010
(unaudited): |
||||||||||||
Net earnings including noncontrolling interest |
$ | 13,608 | $ | (46 | ) | $ | 13,562 | |||||
Deferred tax provision |
6,412 | (23 | ) | 6,389 | ||||||||
Increase in inventories |
(1,103 | ) | 69 | (1,034 | ) |
(1) | Change in accounting principle to weighted average cost method includes the cumulative effect of the change in accounting principle. |
27
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
For comparability purposes, the following tables set forth the financial statement line
items as of and for the three and six months ended July 31, 2010 that were affected by the change
in accounting principle. The change in accounting principle did not impact net cash provided by
operating activities, net cash used in investing activities or net cash provided by financing
activities as reported in the Condensed Consolidated Statement of Cash flows. However, certain
line items were affected as shown below:
As Previously | Change in | |||||||||||
Reported | Accounting | As Adjusted | ||||||||||
under Retail | Principle to | for the Effect | ||||||||||
(In thousands, except per share amounts) | Method | Cost Method | of Change | |||||||||
Condensed Consolidated Balance Sheet at July 31,
2010 (unaudited) (1): |
||||||||||||
Inventories |
$ | 416,377 | $ | 4,009 | $ | 420,386 | ||||||
Other current assets |
61,762 | (1,567 | ) | 60,195 | ||||||||
Retained earnings |
1,000,553 | 2,442 | 1,002,995 | |||||||||
Condensed Consolidated Statement of Earnings for
the Three Months Ended July 31, 2010
(unaudited): |
||||||||||||
Cost of sales: Clothing product, including
buying and distribution costs |
$ | 161,121 | $ | (689 | ) | $ | 160,432 | |||||
Operating income |
68,415 | 689 | 69,104 | |||||||||
Provision for income taxes |
25,620 | 247 | 25,867 | |||||||||
Net earnings attributable to common shareholders |
42,520 | 442 | 42,962 | |||||||||
Basic earnings per common share attributable to
common shareholders |
0.80 | 0.01 | 0.81 | |||||||||
Diluted earnings per share attributable to
common shareholders |
0.80 | 0.01 | 0.81 | |||||||||
Condensed Consolidated Statement of Earnings for
the Six Months Ended July 31, 2010 (unaudited): |
||||||||||||
Cost of sales: Clothing product, including
buying and distribution costs |
$ | 328,434 | $ | (620 | ) | $ | 327,814 | |||||
Operating income |
89,837 | 620 | 90,457 | |||||||||
Provision for income taxes |
33,209 | 224 | 33,433 | |||||||||
Net earnings attributable to common shareholders |
56,128 | 396 | 56,524 | |||||||||
Basic earnings per common share attributable to
common shareholders |
1.06 | 0.01 | 1.07 | |||||||||
Diluted earnings per share attributable to
common shareholders |
1.05 | 0.01 | 1.06 | |||||||||
Condensed Consolidated Statement of Cash Flows
for the Six Months Ended July 31, 2010
(unaudited): |
||||||||||||
Net earnings including noncontrolling interest |
$ | 56,128 | $ | 396 | $ | 56,524 | ||||||
Deferred tax provision |
3,958 | 224 | 4,182 | |||||||||
Decrease in inventories |
17,165 | (620 | ) | 16,545 |
(1) | Change in accounting principle to weighted average cost method includes the cumulative effect of the change in accounting principle. |
28
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 Mens Wearhouse, Inc. is a specialty apparel retailer offering suits, suit separates,
sport coats, pants, shoes, shirts, sportswear, outerwear and accessories for men and tuxedo
rentals. We offer our products and services through multiple channels including The Mens
Wearhouse, Mens Wearhouse and Tux, K&G, Moores Clothing for Men and on the internet at
www.menswearhouse.com. Our stores are located throughout the United States and Canada and carry a
wide selection of brand name and private label merchandise. In addition, we offer our customers a
variety of services, including alterations and our loyalty program, and most of our K&G stores
offer ladies career apparel.
We also conduct corporate apparel and uniform operations through Twin Hill in the United
States and, in the Houston, Texas area, conduct retail dry cleaning and laundry operations through
MW Cleaners.
On August 6, 2010, 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, to expand our corporate apparel operations. These operations offer their
products through multiple channels including managed corporate accounts, catalogs and on the
internet at www.dimensions.co.uk and www.alexandra.co.uk. The results of operations for Dimensions
and Alexandra have been included in the condensed consolidated financial statements since that
date. The combined businesses are organized under a UK-based holding company, of which we control
86% and certain existing shareholders of Dimensions control 14%. We have 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 acquisition-date cash
consideration transferred for the Dimensions and Alexandra acquisitions was US$97.8 million (£61
million) and was funded through our cash on hand. Refer to Note 2 to the Condensed Consolidated
Financial Statements for further details regarding the acquisitions.
As a result of these acquisitions, in the third quarter of fiscal 2010, we revised our segment
reporting to reflect two reportable segments, retail and corporate apparel, based on the way we
manage, evaluate and internally report our business activities. Prior period amounts reported as
one operating segment have been revised to conform to our new segment reporting structure.
The retail segment includes the results from our four retail merchandising brands: Mens
Wearhouse, Mens Wearhouse and Tux, K&G and Moores. MW Cleaners is also aggregated in the retail
segment as these operations have not had a significant effect on the revenues or expenses of the
Company.
The corporate apparel segment includes the results from our corporate apparel and uniform
operations conducted by Twin Hill in the United States and, beginning in the third quarter of
fiscal 2010, by Dimensions and Alexandra in the United Kingdom. Refer to Note 13 to the Condensed
Consolidated Financial Statements for additional information and disclosures regarding our
reportable segments and the discussion included in Results of Operations below.
Also in the third quarter of fiscal 2010,
we changed the method of determining cost under the lower of cost or market inventory
valuation method used for our K&G brand (representing approximately 23% of our inventory)
from the retail inventory method to the average cost method. We recorded the cumulative effect of the
change in accounting principle retrospectively as of February 1, 2009. The cumulative effect of
this change in accounting principle as of February 1, 2009 was an increase in inventory of $2.2
million, a decrease in deferred tax assets of $0.9 million and a net increase in retained earnings
of $1.3 million. The retrospective application of this accounting change impacted both segment
and consolidated operating income, as well as consolidated net earnings, for all comparable periods
presented by insignificant amounts. The change in accounting principle did not have any impact on
our previously reported net cash flows, sales or comparable store sales. Refer to Note 16 to the
Condensed Consolidated Financial Statements.
29
Table of Contents
Overview
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 Nine Months | For the Year | ||||||||||||||||||
Ended | Ended | Ended | ||||||||||||||||||
October 30, | October 31, | October 30, | October 31, | January 30, | ||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010 | ||||||||||||||||
Stores open at beginning of
period: |
1,239 | 1,278 | 1,259 | 1,294 | 1,294 | |||||||||||||||
Opened |
5 | 1 | 9 | 4 | 6 | |||||||||||||||
Closed |
(31 | ) | (5 | ) | (55 | ) | (24 | ) | (41 | ) | ||||||||||
Stores open at end of period |
1,213 | 1,274 | 1,213 | 1,274 | 1,259 | |||||||||||||||
Stores open at end of period: |
||||||||||||||||||||
Mens Wearhouse |
586 | 581 | 586 | 581 | 581 | |||||||||||||||
Mens Wearhouse & Tux |
408 | 469 | 408 | 469 | 454 | |||||||||||||||
K&G |
102 | 107 | 102 | 107 | 107 | |||||||||||||||
Moores |
117 | 117 | 117 | 117 | 117 | |||||||||||||||
1,213 | 1,274 | 1,213 | 1,274 | 1,259 | ||||||||||||||||
We had revenues of $550.1 million and net earnings attributable to common shareholders of
$25.3 million for the three months ended October 30, 2010, compared to revenues of $462.0 million
and net earnings attributable to common shareholders of $19.3 million for the three months ended
October 31, 2009. We had revenues of $1,560.6 million and net earnings attributable to common
shareholders of $81.8 million for the nine months ended October 30, 2010, compared to revenues of
$1,452.4 million and net earnings attributable to common shareholders of $65.0 million for the nine
months ended October 31, 2009. We increased our revenues by $88.1 million or 19.1% and our gross
margin by $33.0 million or 16.3% for the third quarter of 2010, and for the nine months ended
October 30, 2010, we increased our revenues by $108.2 million or 7.5% and our gross margin by $66.9
million or 10.6%. The acquisitions of Dimensions and Alexandra on August 6, 2010 contributed $50.6
million of the increased revenues and $13.6 million of the increased gross margin. We closed 55
stores (four Mens Wearhouse stores, five K&G stores and 46 Mens Wearhouse & Tux stores), of which
31 had reached the end of their lease terms, and opened nine Mens Wearhouse stores during the
first nine 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 manage our capital
expenditures.
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.
30
Table of Contents
Results of Operations
Three Months Ended October 30, 2010 compared to Three Months Ended October 31, 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) | ||||||||
October 30, | October 31, | |||||||
2010 | 2009 | |||||||
Net sales: |
||||||||
Clothing product |
73.8 | % | 72.3 | % | ||||
Tuxedo rental services |
20.2 | 21.1 | ||||||
Alteration and other services |
6.0 | 6.6 | ||||||
Total net sales |
100.0 | % | 100.0 | % | ||||
Cost of sales: |
||||||||
Clothing product, including buying and distribution costs |
37.1 | 32.0 | ||||||
Tuxedo rental services |
3.2 | 3.6 | ||||||
Alteration and other services |
4.5 | 5.0 | ||||||
Occupancy costs |
12.5 | 15.7 | ||||||
Total cost of sales |
57.3 | 56.3 | ||||||
Gross margin |
42.7 | 43.7 | ||||||
Selling, general and administrative expenses |
36.5 | 37.4 | ||||||
Operating income |
6.3 | 6.4 | ||||||
Interest income |
0.0 | 0.1 | ||||||
Interest expense |
(0.1 | ) | (0.1 | ) | ||||
Earnings before income taxes |
6.2 | 6.4 | ||||||
Provision for income taxes |
1.6 | 2.2 | ||||||
Net earnings including noncontrolling interest |
4.6 | 4.2 | ||||||
Less: Net earnings attributable to noncontrolling interest |
0.0 | 0.0 | ||||||
Net earnings attributable to common shareholders |
4.6 | % | 4.2 | % | ||||
(1) | Percentage line items may not sum to totals due to the effect of rounding. |
The Companys net sales increased $88.1 million, or 19.1%, to $550.1 million for the
quarter ended October 30, 2010 as compared to the same prior year quarter. The increase was due
mainly to a $71.9 million increase in clothing product revenues and a $13.6 million increase in
tuxedo rental service revenue, and is attributable to the following:
(in millions) | Amount Attributed to | |||
$ | 30.7 | Increase in comparable sales. |
||
4.7 | Increase in alteration and other services sales. |
|||
1.4 | Increase from net sales of stores opened in 2009, relocated
stores and expanded stores not yet included in comparable
sales. |
|||
2.3 | Increase in net sales from nine new stores opened in 2010. |
|||
(5.1 | ) | Decrease in net sales resulting from stores closed. |
||
2.3 | Increase in net sales resulting from change in U.S./Canadian dollar exchange rate. |
|||
36.3 | Increase in
retail segment. |
|||
50.6 | Increase in
corporate apparel sales due to acquisitions. |
|||
1.2 | Increase in other corporate apparel sales. |
|||
51.8 | Increase in
corporate apparel segment. |
|||
$ | 88.1 | Total |
||
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Table of Contents
Our net sales by reportable segment are as follows (in thousands):
For the Three Months | ||||||||
Ended | ||||||||
October 30, | October 31, | |||||||
2010 | 2009 | |||||||
Retail |
$ | 494,569 | $ | 458,304 | ||||
Corporate apparel |
55,534 | 3,711 | ||||||
Total net sales |
$ | 550,103 | $ | 462,015 | ||||
Retail segment net sales increased $36.3 million, or 7.9%, to $494.6 million for the quarter
ended October 30, 2010 as compared to the same prior year quarter. The increase was due mainly to
a $20.1 million increase in clothing product revenues and a $13.6 million increase in tuxedo rental
service revenue. 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 9.6% at Mens Wearhouse/Mens Wearhouse & Tux, decreased 0.2% at K&G and
increased 5.6% at Moores. Tuxedo rental service revenues as a percentage of total retail segment
net sales increased from 21.3% in the third quarter of 2009 to 22.5% in the third quarter of 2010.
In absolute dollars, tuxedo rental service revenues increased $13.6 million or 13.9% due mainly to
a 14.6% increase in paid units rented, offset partially by lower average rental rates in the U.S.
Exchange rate changes from a stronger Canadian dollar also caused total retail segment sales for
the third quarter of 2010 to be $2.3 million more than the comparable prior year sales.
The following table summarizes our retail segment comparable store sales by brand:
For the Three Months | ||||||||
Ended | ||||||||
October 30, | October 31, | |||||||
2010 | 2009 | |||||||
Mens Wearhouse, Mens Wearhouse and Tux |
9.6 | % | (0.2 | )% | ||||
K&G |
(0.2 | )% | (1.1 | )% | ||||
Moores |
5.6 | % | 1.9 | % |
The increase of 9.6% in comparable store sales at Mens Wearhouse and Mens Wearhouse and Tux
and 5.6% at Moores was due mainly to continued unit growth in our tuxedo rental services business,
increased units per transaction and higher store traffic levels, which more than offset a decrease
in the average transaction value. At K&G, the decrease of 0.2% in comparable store sales was due
mainly to a decrease in the average transaction value.
Corporate apparel segment net sales increased $51.8 million to $55.5 million for the quarter
ended October 30, 2010 as compared to the same prior year quarter. This increase was primarily due
to our acquisitions of Dimensions and Alexandra in the UK on August 6, 2010.
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Table of Contents
The Companys gross margin was as follows:
For the Three Months | ||||||||
Ended | ||||||||
October 30, | October 30, | |||||||
2010 | 2009 | |||||||
Gross margin (in thousands) |
$ | 234,999 | $ | 202,041 | ||||
Gross margin as a percentage of related sales: |
||||||||
Retail segment gross margin: |
||||||||
Clothing product |
53.4 | % | 56.0 | % | ||||
Tuxedo rental services |
84.3 | % | 83.1 | % | ||||
Alteration and other services |
25.5 | % | 24.1 | % | ||||
Occupancy costs (as a percentage of retail segment sales) |
(13.9 | )% | (15.8 | )% | ||||
Total |
44.5 | % | 43.9 | % | ||||
Corporate apparel segment gross margin |
26.5 | % | 22.6 | % | ||||
Total gross margin |
42.7 | % | 43.7 | % | ||||
Total clothing product gross margin, including buying and distribution
costs, as a percentage of related sales: |
||||||||
Retail segment |
53.4 | % | 56.0 | % | ||||
Corporate apparel segment |
26.5 | % | 22.6 | % | ||||
Total clothing product gross margin |
49.7 | % | 55.7 | % | ||||
Total gross margin increased $33.0 million or 16.3% from the same prior year quarter to $235.0
million in the third quarter of 2010. As a percentage of sales, total gross margin decreased from
43.7% in the third quarter of 2009 to 42.7% in the third quarter of 2010. This decrease is due
mainly to a decrease in clothing product margins which offset improvements in tuxedo rental
margins and a decrease in occupancy cost.
With respect to gross margin as a percentage of related sales, clothing product gross margin
decreased from 55.7% in third quarter 2009 to 49.7% in third quarter 2010 due primarily to more
aggressive promotional offerings in 2010 compared to 2009 and the increased mix of the lower margin
corporate apparel business. The tuxedo rental services gross margin increased from 83.1% in third
quarter 2009 to 84.3% in third quarter 2010 due primarily to a decrease in rental product
retirement costs in 2010 and lower dry cleaning costs as a percentage of related sales. The gross
margin for alteration and other services increased from 24.1% in third quarter 2009 to 25.5% in
third quarter 2010 mainly as a result of increased alteration sales associated with an increase in
suit unit sales in 2010. Occupancy costs decreased from 15.8% in the third quarter of 2009 to 13.9% in the third
quarter of 2010. On an absolute dollar basis, occupancy cost decreased by $3.4 million
or 4.7% from the third quarter of 2009 to the third quarter of 2010 primarily due to fewer
open stores in 2010 and reduced depreciation following impairment charges taken in the
fourth quarter of 2009.
In the retail segment, total gross margin as a percentage of sales increased from 43.9% in the
third quarter of 2009 to 44.5% in the third quarter of 2010 as the improved tuxedo rental
margins and the decrease in occupancy cost more than offset the
reduced clothing product margin. In the corporate apparel segment, total gross
margin as a percentage of sales increased from 22.6% in the third quarter of 2009 to 26.5% in the third
quarter of 2010 due to our acquisitions of Dimensions and Alexandra in the UK on August 6, 2010.
33
Table of Contents
Selling, general and administrative expenses increased to $200.6 million in the third quarter
of 2010 from $172.6 million in the third quarter of 2009, an increase of $28.0 million or 16.2%.
As a percentage of sales, these expenses decreased from 37.4% in the third quarter of 2009 to 36.5%
in the third quarter of 2010. The components of this 0.9% net decrease in SG&A expenses as a
percentage of net sales and the related absolute dollar changes were as follows:
% | Attributed to | |||
(0.3 | ) | Decrease in advertising expense as a percentage of sales from 3.9%
in the third quarter of 2009 to 3.6% in the third quarter of 2010.
On an absolute dollar basis, advertising expense increased $1.7
million. |
||
(2.1 | ) | Decrease in store salaries as a percentage of sales from 15.0% in
the third quarter of 2009 to 12.9% in the third quarter of 2010.
Store salaries on an absolute dollar basis increased $1.7 million. |
||
1.5 | Increase in other SG&A expenses as a percentage of sales from
18.5% in the third quarter of 2009 to 20.0% in the third quarter
of 2010. On an absolute dollar basis, other SG&A expenses
increased $24.6 million primarily due to expenses related to our
acquisitions of Dimensions and Alexandra on
August 6, 2010, increased medical insurance costs, costs incurred
for ceased tuxedo rental distribution operations (refer to Note 14
in Notes to Condensed Consolidated Financial Statements) and
approximately $3.2 million in non-cash asset impairment charges
taken in the third quarter of fiscal 2010. |
|||
(0.9 | )% | Total |
In the retail segment, SG&A expenses as a percentage of sales remained flat at 37.4% in the
third quarter of 2009 and 2010. Decreases in advertising and store salaries were offset by
increased medical insurance costs, costs incurred for ceased tuxedo rental distribution operations
and non-cash asset impairment charges taken in the third quarter of fiscal 2010.
In the corporate apparel segment, SG&A expenses as a percentage of sales decreased from 36.8%
in the third quarter of 2009 to 27.8% in the third quarter of 2010
due primarily to our acquisitions of Dimensions and Alexandra on
August 6, 2010. The corporate apparel segment operating loss of $0.7 million for the third quarter
of 2010 resulted mainly from $1.4
million in acquisition costs incurred during the quarter.
Interest expense increased from $0.3 million in the third quarter of 2009 to $0.4 million in
the third quarter of 2010 while interest income decreased from $0.3 million in the third quarter of
2009 to $0.1 million in the third quarter of 2010. Weighted average borrowings outstanding
increased from $42.8 million in the third quarter of 2009 to $45.1 million in the third quarter of
2010, and the weighted average interest rate on outstanding indebtedness increased from 1.9% to
2.3%. The increase in the weighted average borrowings is due to the strengthening of the Canadian
dollar in the third quarter of 2010 as compared to the prior year. The weighted average interest
rate for the third quarter of 2010 increased mainly due to an increase in the effective interest
rate for the Canadian term loan from 1.3% at October 31, 2009 to 1.9% at October 30, 2010. The
decrease in interest income was primarily attributable to a shift in our investments and lower
interest rates for the third quarter of 2010 as compared to the third quarter of 2009.
Our effective income tax rate was 25.7% for the third quarter of 2010 and 34.5% for the third
quarter of 2009. The effective tax rate in 2010 was lower than the statutory U.S. federal rate of
35% due to the favorable tax rate effects from the release of valuation allowances previously
established for potential utilization limitations on foreign tax credit carryforwards and
recognition of previously unrecognized tax benefits and related accrued interest from expirations
of statutes of limitations, offset partially by the effect of state income taxes. The effective
tax rate in 2009 differed from the statutory U.S. federal rate of 35% due to various factors
including the effect of state income taxes, the conclusion of certain income tax audits and
recognition of previously unrecognized tax benefits and related accrued interest upon the
expiration of statutes of limitations.
Net
earnings attributable to noncontrolling interest was
$0.1 million for the third quarter of 2010 due to our
acquisitions of Dimensions and Alexandra on August 6, 2010. The
Company controls 86% of the UK-based operations.
These factors resulted in net earnings attributable to common shareholders of $25.3 million or
4.6% of net sales for the third quarter of 2010, compared with net earnings of $19.3 million or
4.2% of net sales for the third quarter of 2009.
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Nine Months Ended October 30, 2010 compared to Nine Months Ended October 31, 2009
The following table sets forth the Companys results of operations expressed as a percentage
of net sales for the periods indicated:
For the Nine Months | ||||||||
Ended (1) | ||||||||
October 30, | October 31, | |||||||
2010 | 2009 | |||||||
Net sales: |
||||||||
Clothing product |
72.8 | % | 72.8 | % | ||||
Tuxedo rental services |
20.9 | 20.6 | ||||||
Alteration and other services |
6.3 | 6.6 | ||||||
Total net sales |
100.0 | % | 100.0 | % | ||||
Cost of sales: |
||||||||
Clothing product, including buying and distribution costs |
34.1 | 33.3 | ||||||
Tuxedo rental services |
3.3 | 3.4 | ||||||
Alteration and other services |
4.7 | 4.9 | ||||||
Occupancy costs |
13.4 | 15.0 | ||||||
Total cost of sales |
55.4 | 56.7 | ||||||
Gross margin |
44.6 | 43.3 | ||||||
Selling, general and administrative expenses |
36.6 | 36.2 | ||||||
Operating income |
8.0 | 7.1 | ||||||
Interest income |
0.0 | 0.1 | ||||||
Interest expense |
(0.1 | ) | (0.1 | ) | ||||
Earnings before income taxes |
8.0 | 7.1 | ||||||
Provision for income taxes |
2.7 | 2.7 | ||||||
Net earnings including noncontrolling interest |
5.2 | 4.5 | ||||||
Less: Net earnings attributable to noncontrolling interest |
0.0 | 0.0 | ||||||
Net earnings attributable to common shareholders |
5.2 | % | 4.5 | % | ||||
(1) | Percentage line items may not sum to totals due to the effect of rounding. |
The Companys net sales increased $108.2 million or 7.5% to $1,560.6 million for the
first nine months of 2010 as compared to the same prior year period. The increase was due mainly
to a $79.1 million increase in clothing product revenues and a $27.2 million increase in tuxedo
rental service revenue, and is attributable to the following:
(in millions) | Amount Attributed to | |||
$ | 38.3 | Increase in comparable sales. |
||
4.5 | Increase in alteration and other services sales. |
|||
5.1 | Increase from net sales of stores opened in 2009, relocated
stores and expanded stores not yet included in comparable
sales. |
|||
2.9 | Increase in net sales from nine new stores opened in 2010. |
|||
(11.6 | ) | Decrease in net sales resulting from stores closed. |
||
15.6 | Increase in net sales resulting from change in U.S./Canadian dollar exchange rate. |
|||
54.8 | Increase in
retail segment. |
|||
50.6 | Increase in
corporate apparel sales due to acquisitions. |
|||
2.8 | Increase in
other corporate apparel sales. |
|||
53.4 | Increase in
corporate apparel segment. |
|||
$ | 108.2 | Total |
||
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Our net sales by reportable segment are as follows (in thousands):
For the Nine Months Ended | ||||||||
October 30, | October 31, | |||||||
2010 | 2009 | |||||||
Retail |
$ | 1,496,714 | $ | 1,441,940 | ||||
Corporate apparel |
63,844 | 10,417 | ||||||
Total net sales |
$ | 1,560,558 | $ | 1,452,357 | ||||
Retail segment net sales increased $54.8 million, or 3.8%, to $1,496.7 million for the nine
months ended October 30, 2010 as compared to the same prior year period. The increase was due
mainly to a $25.7 million increase in clothing product revenues and a $27.2 million increase in
tuxedo rental service revenue. Comparable store sales increased 4.8% at Mens Wearhouse/Mens
Wearhouse & Tux, decreased 3.5% at K&G and increased 2.1% at Moores. Tuxedo rental service
revenues as a percentage of total retail segment net sales increased from 20.7% in the first nine
months of 2009 to 21.8% in the first nine months of 2010; in absolute dollars, tuxedo rental
service revenues increased $27.2 million or 9.1% due mainly to a 10.8% increase in paid units
rented, offset partially by lower average rental rates in the U.S. Exchange rate changes from a
stronger Canadian dollar also caused total retail segment sales for the first nine months of 2010
to increase $15.6 million over the comparable prior year sales.
The following table summarizes our retail comparable store sales by brand:
For the Nine Months Ended | ||||||||
October 30, | October 31, | |||||||
2010 | 2009 | |||||||
Mens Wearhouse, Mens Wearhouse & Tux |
4.8 | % | (3.0 | )% | ||||
K&G |
(3.5 | )% | (0.8 | )% | ||||
Moores |
2.1 | % | (1.9 | )% |
The increase of 4.8% in comparable store sales at Mens Wearhouse and Mens Wearhouse and Tux
and 2.1% at Moores was due mainly to continued unit growth in our tuxedo rental services business
and higher store traffic levels, which offset a decrease in the average transaction value and units
per transaction. At K&G, the decrease of 3.5% in comparable store sales was due mainly to a
decrease in the average transaction value.
Corporate apparel segment net sales increased $53.4 million to $63.8 million for the first
nine months of 2010 as compared to the same prior year period. This increase was primarily due to
our acquisitions of Dimensions and Alexandra on August 6, 2010.
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The Companys gross margin was as follows:
For the Nine Months Ended | ||||||||
October 30, | October 30, | |||||||
2010 | 2009 | |||||||
Gross margin (in thousands) |
$ | 696,274 | $ | 629,368 | ||||
Gross margin as a percentage of related sales: |
||||||||
Retail segment gross margin: |
||||||||
Clothing product |
54.8 | % | 54.5 | % | ||||
Tuxedo rental services |
84.4 | % | 83.3 | % | ||||
Alteration and other services |
25.6 | % | 26.5 | % | ||||
Occupancy costs (as a percentage of retail segment sales) |
(13.9 | )% | (15.1 | )% | ||||
Total |
45.4 | % | 43.5 | % | ||||
Corporate apparel segment gross margin |
26.5 | % | 21.9 | % | ||||
Total gross margin |
44.6 | % | 43.3 | % | ||||
Total clothing product gross margin, including buying and distribution
costs, as a percentage of related sales: |
||||||||
Retail segment |
54.8 | % | 54.5 | % | ||||
Corporate apparel segment |
26.5 | % | 21.9 | % | ||||
Total clothing product gross margin |
53.2 | % | 54.2 | % | ||||
Total gross margin increased $66.9 million or 10.6% from the same prior year period to $696.3
million in the first nine months of 2010. As a percentage of sales, total gross margin increased
from 43.3% in the first nine months of 2009 to 44.6% in the first nine months of 2010. This
increase is due mainly to an increase in tuxedo rental margin and a decrease in occupancy cost.
With respect to gross margin as a percentage of related sales, clothing product gross margin
decreased from 54.2% in the first nine months of 2009 to 53.2% in the first nine months of 2010 due
primarily to the increased mix of the lower margin corporate apparel business. The tuxedo rental
services gross margin increased from 83.3% in the first nine months of 2009 to 84.4% in the first
nine months of 2010 due primarily to a decrease in rental product retirement costs in 2010 and
lower dry cleaning costs as a percentage of related sales. The gross margin for alteration and
other services decreased from 26.5% in the first nine months of 2009 to 25.6% in the first nine
months of 2010 mainly as a result of decreased suit unit sales in
2010. Occupancy costs as a percentage of retail segment sales decreased from 15.1% in the
first nine months of 2009 to 13.9% in the first nine months of 2010. On an absolute dollar basis,
occupancy cost decreased by $9.6 million or 4.4% from the first nine months of 2009 to
the first nine months of 2010 primarily due to fewer open stores in 2010 and reduced
depreciation following impairment charges taken in the fourth quarter of 2009.
In the retail segment, total gross margin as a percentage of sales increased from 43.5% in the
first nine months of 2009 to 45.4% in the first nine months of 2010 primarily due to improved
tuxedo rental margins and a decrease in occupancy cost. In the corporate apparel segment, total gross margin as a percentage of sales increased from
21.9% in the first nine months of 2009 to 26.5% in the first nine months of 2010 due to our
acquisitions of Dimensions and Alexandra on August 6, 2010.
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Selling, general and administrative expenses increased to $571.4 million in the first nine
months of 2010 from $525.7 million in the first nine months of 2009, an increase of $45.7 million
or 8.7%. As a percentage of sales, these expenses increased from 36.2% in the first nine months of
2009 to 36.6% in the first nine months of 2010. The components of this 0.4% net increase in SG&A
expenses as a percentage of net sales and the related absolute dollar changes were as follows:
% | Attributed to | |||
0.1 | Increase in advertising expense as a percentage of sales from 4.0%
in the first nine months of 2009 to 4.1% in the first nine months of
2010. On an absolute dollar basis, advertising expense increased
$5.5 million. |
|||
(0.7 | ) | Decrease in store salaries as a percentage of sales from 14.4% in
the first nine months of 2009 to 13.7% in the first nine months of
2010. Store salaries on an absolute dollar basis increased $4.3
million. |
||
1.0 | Increase in other SG&A expenses as a percentage of sales from 17.8%
in the first nine months of 2009 to 18.8% in the first nine months
of 2010. On an absolute dollar basis, other SG&A expenses increased
$35.9 million primarily due to expenses related to our
acquisitions
of Dimensions and Alexandra on August 6, 2010,
increased medical insurance costs, costs incurred for ceased tuxedo
rental distribution operations (refer to Note 14 in the Notes to
Condensed Consolidated Financial Statements), approximately $3.4
million for non-cash asset impairment charges taken in the first
nine months of fiscal 2010, 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. |
|||
0.4 | % | Total |
In the retail segment, SG&A expenses as a percentage of net sales increased from 36.2% in the
first nine months of 2009 to 36.7% in the first nine months of 2010 primarily due to increased
medical insurance costs, costs incurred for ceased tuxedo rental distribution operations, non-cash
asset impairment charges taken in the first nine months of fiscal 2010, 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.
In the corporate apparel segment, SG&A expenses as a percentage of net sales decreased from
38.8% in the first nine months of 2009 to 35.3% in the first nine months of 2010 due primarily to
our acquisitions of Dimensions and Alexandra on August 6, 2010. The corporate apparel segment
operating loss of $5.6 million for the first nine
months of 2010 resulted mainly from $4.1 million in acquisition
costs related to these acquisitions.
Interest expense decreased slightly from $1.0 million for the first nine months of 2009 to
$0.9 million for the first nine months of 2010 while interest income decreased from $0.8 million in
the first nine months of 2009 to $0.2 million in the first nine months of 2010. Weighted average
borrowings outstanding decreased from $48.6 million in the first nine months of 2009 to $45.0
million in the first nine months of 2010, and the weighted average interest rate on outstanding
indebtedness remained flat at 1.9%. The decrease in the weighted average borrowings 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 nine months of 2010 as compared to the first
nine months of 2009.
Our effective income tax rate was 34.0% for the first nine months of 2010 and 37.2% for the
first nine months of 2009. The effective tax rate in 2010 was lower than the statutory U.S.
federal rate of 35% due to the favorable tax rate effects from the release of valuation allowances
previously established for potential utilization limitations on foreign tax credit carryforwards,
the conclusion of certain income tax audits, and recognition of previously unrecognized tax
benefits and related accrued interest from expirations of statutes of limitations. The favorable
tax rate effects for 2010 were partially offset by the effect of state income taxes. The effective
tax rate in 2009 was higher than the statutory U.S. federal rate of 35% due to unfavorable tax rate
effects from state income taxes, partially offset by recognition of previously unrecognized tax
benefits and associated accrued interest resulting from the conclusion of certain income tax
audits.
Net earnings attributable to noncontrolling interest was $0.1 million for the
first nine months of 2010 due to our acquisitions of Dimensions and Alexandra on August 6, 2010.
The Company controls 86% of the UK-based operations.
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These factors resulted in net earnings attributable to common shareholders of $81.8 million or
5.2% of net sales for the first nine months of 2010, compared with net earnings of $65.0 million or
4.5% of net sales for the first nine months of 2009.
Liquidity and Capital Resources
At October 30, 2010, January 30, 2010 and October 31, 2009, cash and cash equivalents totaled
$197.8 million, $186.0 million and $198.5 million,
respectively. We had working capital of $501.6
million, $486.3 million and $488.1 million at October 30, 2010, January 30, 2010 and October 31,
2009, respectively. 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 $15.3 million increase in working capital
at October 30, 2010 compared to January 30, 2010 resulted primarily from $11.8 million in increased
cash balances, as increases in accounts receivables and inventories during the first nine months of
2010 were largely offset by increases in current liabilities, including the current liability
classification at October 30, 2010 of our Canadian debt of US$45.6 million due on February 10,
2011.
On August 6, 2010, we acquired Dimensions and certain assets of Alexandra, two leading
providers of corporate clothing uniforms and workwear in the United Kingdom, to expand our
corporate apparel operations. The operating results of Dimensions and Alexandra have been included
in the condensed consolidated financial statements since that date. 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 acquisition-date cash consideration
transferred for the Dimensions and Alexandra acquisitions was $79.8 million and $18.0 million,
respectively, totaling $97.8 million (£61 million), and was funded through the Companys cash on
hand.
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 October 30, 2010, there was US$45.6
million outstanding under the Canadian term loan, with an effective interest rate of 1.9%, 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 October 30, 2010.
We are in the process of amending and restating the Credit Agreement to provide for a total
secured revolving credit facility of $200.0 million, which can be expanded to $300.0 million upon
additional lender commitments, to mature in December 2015. In addition, as amended and restated,
the revolving facility is expected to allow for borrowings in multiple currencies, including US
dollars, Canadian dollars and pounds Sterling, and to make certain adjustments to the financial
covenants. In addition to use for general corporate purposes, we intend to use borrowings under
the amended and restated facility to pay off the Canadian term loan discussed above. We anticipate
closing the amendment and restatement of our credit facility in the fourth quarter of fiscal 2010.
We utilize letters of credit primarily to secure inventory purchases and as collateral for
workers compensation claims. At October 30, 2010, letters of credit totaling approximately $23.0
million were issued and outstanding. Borrowings available under our Credit Agreement at October
30, 2010 were $177.0 million.
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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 $165.9 million in the first nine months of 2010, due
mainly to net earnings, adjusted for non-cash charges, and an increase in accounts payable, accrued
expenses and other current liabilities, offset by increases in accounts receivable, inventories,
tuxedo rental product and a decrease in income taxes payable. During the first nine months of
2009, our operating activities provided net cash of $162.4 million, due mainly to net earnings,
adjusted for non-cash charges, a decrease in other assets and an increase in income taxes payable,
offset by increases in inventories and tuxedo rental product. The increase in accounts receivable
during the first nine months of 2010 was due primarily to a build of customer balances at our UK
operations acquired in the third quarter of fiscal 2010. The increase in inventories during the
first nine months of 2009 was primarily due to seasonal inventory build up. Inventories also
increased in the first nine months of 2010 but the increase was less than the prior year due to our
continued efforts to align inventory purchases with sales expectations and a decrease in our retail
store count. 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 increase in accounts payable, accrued expenses and other current
liabilities in the first nine months of 2010 was primarily due to the timing of vendor payments,
while the decrease in income taxes payable was due to the timing of required tax payments. The
decrease in other assets in the first nine months of 2009 was due mainly to tax refunds received,
while the increase in income taxes payable was due to the timing and amounts of required tax
payments.
Investing activities Our cash outflows from investing activities are primarily for capital
expenditures and, in 2010, acquisitions of businesses. During the first nine months of 2010, our
investing activities used net cash of $141.5 million, due mainly to our acquisitions of Dimensions
and Alexandra on August 6, 2010 for US$97.8 million and capital expenditures of $43.8 million.
During the first nine months of 2009, our investing activities used net cash of $25.1 million due
mainly to capital expenditures of $44.5 million, offset by proceeds of short-term investments of
$19.4 million. 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.
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 nine months of 2010, our
financing activities used net cash of $13.8 million due mainly to cash dividends paid of $14.3
million, offset by $2.5 million proceeds from the issuance of common stock. Our financing
activities used net cash of $34.5 million for the first nine months of 2009, due mainly to payments
on our revolving credit facility of $25.0 million and cash dividends paid of $11.0 million, offset
by $3.0 million of proceeds from the issuance of common stock.
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 nine months of 2010 or 2009. At October 30, 2010, the
remaining balance available under the August 2007 authorization was $44.3 million.
During the nine months ended October 30, 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 nine
months ended October 31, 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 $14.3 million and $11.0 million for the nine
months ended October 30, 2010 and October 31, 2009, respectively.
In October 2010, our Board of Directors declared a quarterly cash dividend of $0.09 per share
payable on December 24, 2010 to shareholders of record at close of business on December 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 October
30, 2010.
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Future cash flow
Current domestic and global economic conditions, including high unemployment levels, reduced
public sector spending and constrained 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 UK-based acquisitions, and that we will
be able to maintain compliance with the covenants in our Credit Agreement for at least the next 12
months. Borrowings available under our Credit Agreement were $177.0 million as of October 30,
2010. As discussed above, we are currently in the process of amending and restating our Credit
Agreement on terms which we consider comparable or favorable to our existing terms.
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.
We are exposed to market risk associated with foreign currency exchange rate fluctuations as a
result of our direct sourcing programs and our operations in foreign countries. In connection with
our direct sourcing programs, we may enter into merchandise purchase commitments that are
denominated in a currency different from the functional currency of the operating entity. Our risk
management policy is to hedge a significant portion of forecasted merchandise purchases for our
direct sourcing programs that bear foreign exchange risk using foreign exchange forward contracts.
As these foreign exchange forward contracts are with three financial institutions, we are exposed
to credit risk in the event of nonperformance by these parties. However, due to the
creditworthiness of these major financial institutions, full performance is anticipated.
Critical Accounting Policies and Estimates
The preparation of our condensed consolidated financial statements requires the appropriate
application of accounting policies in accordance with generally accepted accounting principles. In
many instances, this also requires management to make estimates and assumptions about future events
that affect the amounts and disclosures included in our financial statements. We base our
estimates on historical experience and various assumptions that we believe are reasonable under our
current business model. However, because future events and conditions and their effects cannot be
determined with certainty, actual results will differ from our estimates and such differences could
be material to our financial statements. There have been no significant changes to our critical
accounting policies and estimates as discussed in our Annual Report on Form 10-K for the fiscal
year ended January 30, 2010.
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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, U.S.
dollar/pounds Sterling (GBP) exchange rates and U.S. dollar/Canadian dollar (CAD) exchange
rates as a result of our direct sourcing programs and our operations in foreign countries. Our
acquired UK-based operations in particular are subject to exposure from fluctuations in U.S.
dollar/GBP exchange rates as Dimensions and Alexandra sell their products and conduct their
business primarily in GBP but purchase most of their merchandise in transactions paid in U.S.
dollars.
As further described in Note 12 of Notes to Condensed Consolidated Financial Statements and
Managements Discussion and Analysis of Financial Information and Results of Operations
Liquidity and Capital Resources, our risk management policy is to hedge a significant portion of
forecasted merchandise purchases for our direct sourcing programs that bear foreign exchange risk
using foreign exchange forward contracts. The Company has not elected to apply hedge accounting to
these transactions denominated in a foreign currency. At October 30, 2010, we had three contracts
maturing in varying increments to purchase euros for an aggregate notional amount of US$2.9 million
maturing at various dates through March 2011, five contracts maturing in varying increments to
purchase USD for an aggregate notional amount of CAD$4.3 million maturing at various dates through
March 2011 and 55 contracts maturing in varying increments to purchase USD for an aggregate
notional amount of GBP$20.6 million maturing at various dates through June 2011. For the three and
nine months ended October 30, 2010, we recognized a pre-tax gain of $0.2 million in cost of sales
on the condensed consolidated statement of earnings for our derivative financial instruments not
designated as cash flow hedges. We held no outstanding contracts at October 31, 2009. A
hypothetical 10% increase in applicable October 30, 2010 forward rates could decrease the fair
value of the derivative financial instruments by $1.4 million, whereas a hypothetical 10% decrease
in applicable October 30, 2010 forward rates could increase the fair value of the derivative
contracts by $1.3 million. 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.
Dimensions and Alexandra, our UK-based acquisitions, sell their products and conduct their
business primarily in GBP but purchase most of their merchandise in transactions paid in U.S.
dollars. The exchange rate between the GBP and U.S. dollar has fluctuated over the last ten years.
A decline in the value of the GBP as compared to the U.S. dollar will adversely impact our UK
operating results as the cost of merchandise purchases will increase and the revenues and earnings
of our UK operations will be reduced when they are translated to U.S. dollars. Also, the value of
our UK net assets in U.S. dollars may decline. Dimensions and Alexandra utilize foreign currency
hedging contracts as discussed above 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. Moores utilizes foreign currency hedging contracts as discussed above to
limit exposure to changes in U.S. dollar/CAD exchange rates.
Interest Rate Risk
We are also subject to market risk as a result of the outstanding balance of US$45.6 million
under our Canadian term loan at October 30, 2010, which bears a variable interest rate (see Note 4
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 October 30, 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
October 30, 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.
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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.
Changes in Internal Controls over Financial Reporting
Other
than the events discussed under the Dimensions and Alexandra acquisitions below, there
were no changes in the Companys internal control over financial reporting that occurred during the
fiscal quarter ended October 30, 2010 that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting.
Dimensions
and Alexandra Acquisitions
On August 6, 2010, we acquired Dimensions and Alexandra, two leading providers of corporate
clothing uniforms and workwear in the United Kingdom. For additional information regarding the
acquisitions, refer to Note 2 to the Condensed Consolidated Financial Statements and Managements
Discussion and Analysis of Financial Condition and Results of Operations included in Item 2 in
this Quarterly Report.
On June 22, 2004, the Office of the Chief Accountant of the SEC issued guidance regarding the
reporting of internal control over financial reporting in connection with a major acquisition. On
October 6, 2004, the SEC revised its guidance to include expectations of quarterly reporting
updates of new internal control and the status of the control regarding any exempted businesses.
This guidance was reiterated in September 2007 to affirm that management may omit an assessment of
an acquired businesss internal control over financial reporting from its assessment of internal
control over financial reporting for a period not to exceed one year.
We have recommended to our Audit Committee that we exclude the operations acquired in the
Dimensions and Alexandra acquisitions from the scope of our Sarbanes-Oxley Section 404 report on
internal controls over financial reporting for the year ending January 29, 2011 which is due in
March 2011. We are in the process of implementing our internal control structure over the acquired
operations, and expect that this effort will be completed in fiscal 2011.
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 filed a motion to dismiss the complaint
on April 12, 2010, and we are awaiting a decision from the Court. 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.
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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 acquisitions of
Dimensions and Alexandra on August 6, 2010 involves the following risks:
A reduction in the value of the GBP against the U.S. dollar can significantly impact the acquired
businesses.
Dimensions and Alexandra, our UK-based acquisitions, sell their products and conduct their
business primarily in GBP but purchase most of their merchandise 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
our UK operating results as the cost of merchandise purchases will increase, particularly in
relation to longer term customer contracts that have little or no pricing adjustment provisions.
Dimensions and Alexandra utilize foreign currency hedging contracts as well price renegotiations to
mitigate some of this risk.
The general economic conditions in the UK and particularly service cut backs being put forth by the
current government may reduce demand for the businesses of Dimensions and Alexandra.
The UK 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 our UK operating results.
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ITEM 6 EXHIBITS
(a) Exhibits.
Exhibit | ||||
Number | Exhibit Index | |||
10.1
|
| License Agreement dated effective as of November 5, 2010, by and between the George Zimmer 1988 Living Trust and The Mens Wearhouse, Inc (incorporated by reference from Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the Commission on November 10, 2010). | ||
10.2
|
| Fourth Amended and Restated Employment Agreement dated effective as of October 25, 2010, by and between The Mens Wearhouse, Inc. and David H. Edwab (incorporated by reference from Exhibit 10.2 to the Companys Current Report on Form 8-K filed with the Commission on November 10, 2010). | ||
18
|
| Preferability Letter from Independent Registered Public Accounting Firm Regarding Change in Accounting Principles (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 nine months ended October 30, 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: December 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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EXHIBIT INDEX
Exhibit | ||||
Number | Exhibit Index | |||
10.1
|
| License Agreement dated effective as of November 5, 2010, by and between the George Zimmer 1988 Living Trust and The Mens Wearhouse, Inc (incorporated by reference from Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the Commission on November 10, 2010). | ||
10.2
|
| Fourth Amended and Restated Employment Agreement dated effective as of October 25, 2010, by and between The Mens Wearhouse, Inc. and David H. Edwab (incorporated by reference from Exhibit 10.2 to the Companys Current Report on Form 8-K filed with the Commission on November 10, 2010). | ||
18
|
| Preferability Letter from Independent Registered Public Accounting Firm Regarding Change in Accounting Principles (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 nine months ended October 30, 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. |
46