0000950129-01-503056.txt : 20011008
0000950129-01-503056.hdr.sgml : 20011008
ACCESSION NUMBER: 0000950129-01-503056
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20010804
FILED AS OF DATE: 20010918
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: MENS WEARHOUSE INC
CENTRAL INDEX KEY: 0000884217
STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-APPAREL & ACCESSORY STORES [5600]
IRS NUMBER: 741790172
STATE OF INCORPORATION: TX
FISCAL YEAR END: 0201
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-16097
FILM NUMBER: 1739725
BUSINESS ADDRESS:
STREET 1: 5803 GLENMONT DR
CITY: HOUSTON
STATE: TX
ZIP: 77081
BUSINESS PHONE: 7135927200
MAIL ADDRESS:
STREET 1: 5083 GLENMONT DR
CITY: HOUSTON
STATE: TX
ZIP: 77081
10-Q
1
h90719e10-q.txt
THE MEN'S WEARHOUSE INC - DATED AUGUST 4, 2001
1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 4, 2001 or
--------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________to__________
Commission file number 1-16097
THE MEN'S WEARHOUSE, INC.
(Exact Name of Registrant as Specified in its Charter)
TEXAS 74-1790172
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
5803 GLENMONT DRIVE
HOUSTON, TEXAS 77081-1701
(Address of Principal Executive Offices) (Zip Code)
(713) 592-7200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]. No [ ].
The number of shares of common stock of the Registrant, par value $.01 per
share, outstanding at September 14, 2001 was 40,955,583, excluding 1,365,364
shares classified as Treasury Stock.
================================================================================
2
REPORT INDEX
PART AND ITEM NO. PAGE NO.
---------------- --------
PART I - Financial Information
Item 1 - Financial Statements
General Information...................................................................... 1
Consolidated Balance Sheets as of July 29, 2000 (unaudited), August 4, 2001
(unaudited) and February 3, 2001....................................................... 2
Consolidated Statements of Earnings for the Three and Six Months Ended July 29,
2000 (unaudited) and August 4, 2001 (unaudited)........................................ 3
Consolidated Statements of Cash Flows for the Six Months Ended July 29, 2000
(unaudited) and August 4, 2001 (unaudited)............................................. 4
Notes to the Consolidated Financial Statements........................................... 5
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................................... 7
Item 3 - Qualitative and Quantitative Disclosures about Market Risk...................... 11
PART II - Other Information
Item 1 - Legal Proceedings............................................................... 12
Item 4 - Submission of Matters to a Vote of Security Holders............................. 12
Item 6 - Exhibits and Reports on Form 8-K................................................ 14
3
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
GENERAL INFORMATION
The consolidated financial statements herein include the accounts of
The Men's Wearhouse, Inc. and its 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. The
Company believes that the presentation and disclosures herein are adequate to
make the information not misleading, and the financial statements reflect all
elimination entries and normal adjustments which are necessary for a fair
statement of the results for the three and six months ended July 29, 2000 and
August 4, 2001.
Operating results for interim periods are not necessarily indicative of
the results for full years. It is suggested that these consolidated financial
statements be read in conjunction with the consolidated financial statements for
the year ended February 3, 2001 and the related notes thereto included in the
Company's 2000 Annual Report on Form 10-K filed with the SEC.
1
4
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JULY 29, AUGUST 4, FEBRUARY 3,
ASSETS 2000 2001 2001
------------ ------------ ------------
CURRENT ASSETS:
Cash ................................................ $ 27,437 $ 15,176 $ 84,426
Inventories ......................................... 362,219 414,296 355,284
Other current assets ................................ 27,450 34,985 29,371
------------ ------------ ------------
Total current assets ............................. 417,106 464,457 469,081
------------ ------------ ------------
PROPERTY AND EQUIPMENT, net ........................... 152,886 208,402 185,917
OTHER ASSETS, net ..................................... 51,560 54,144 52,736
------------ ------------ ------------
TOTAL ....................................... $ 621,552 $ 727,003 $ 707,734
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .................................... $ 84,922 $ 79,765 $ 77,502
Accrued expenses .................................... 38,598 39,023 49,894
Current portion of long-term debt ................... 2,537 2,451 2,508
Income taxes payable ................................ 3,078 5,574 20,593
------------ ------------ ------------
Total current liabilities ........................ 129,135 126,813 150,497
LONG-TERM DEBT ........................................ 45,753 88,823 42,645
OTHER LIABILITIES ..................................... 12,537 20,975 19,605
------------ ------------ ------------
Total liabilities ................................ 187,425 236,611 212,747
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock ..................................... -- -- --
Common stock ........................................ 414 423 422
Capital in excess of par ............................ 183,990 191,206 189,656
Retained earnings ................................... 256,584 334,844 311,852
Accumulated other comprehensive loss ................ (234) (1,722) (316)
------------ ------------ ------------
Total ............................................ 440,754 524,751 501,614
Treasury stock, at cost ............................. (6,627) (34,359) (6,627)
------------ ------------ ------------
Total shareholders' equity ....................... 434,127 490,392 494,987
------------ ------------ ------------
TOTAL ....................................... $ 621,552 $ 727,003 $ 707,734
============ ============ ============
See Notes to Consolidated Financial Statements.
2
5
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
------------------------------ ----------------------------
JULY 29, AUGUST 4, JULY 29, AUGUST 4,
2000 2001 2000 2001
------------ ------------ ------------ ------------
Net sales .................................................... $ 294,505 $ 297,153 $ 582,381 $ 601,804
Cost of goods sold, including buying and occupancy costs ..... 183,853 188,858 367,416 381,821
------------ ------------ ------------ ------------
Gross margin ................................................. 110,652 108,295 214,965 219,983
Selling, general and administrative expenses ................. 83,829 90,699 165,912 181,231
------------ ------------ ------------ ------------
Operating income ............................................. 26,823 17,596 49,053 38,752
Interest expense, net ....................................... 297 782 235 1,048
------------ ------------ ------------ ------------
Earnings before income taxes ................................. 26,526 16,814 48,818 37,704
Provision for income taxes ................................... 10,561 6,564 19,425 14,712
------------ ------------ ------------ ------------
Net earnings ................................................. $ 15,965 $ 10,250 $ 29,393 $ 22,992
============ ============ ============ ============
Net earnings per share:
Basic ...................................................... $ 0.38 $ 0.25 $ 0.70 $ 0.56
============ ============ ============ ============
Diluted .................................................... $ 0.38 $ 0.25 $ 0.70 $ 0.55
============ ============ ============ ============
Weighted average shares outstanding:
Basic ...................................................... 41,696 40,931 41,731 41,021
============ ============ ============ ============
Diluted .................................................... 42,098 41,549 42,240 41,585
============ ============ ============ ============
See Notes to Consolidated Financial Statements.
3
6
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE SIX MONTHS ENDED
-------------------------------
JULY 29, AUGUST 4,
2000 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ................................................... $ 29,393 $ 22,992
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization ............................... 16,482 19,493
Deferred tax provision (benefit) ............................ (298) 3,549
Increase in inventories ..................................... (43,127) (59,903)
Increase in other assets .................................... (4,210) (10,327)
Decrease in accounts payable and accrued expenses ........... (3,361) (6,976)
Decrease in income taxes payable ............................ (7,590) (14,726)
Increase in other liabilities ............................... 241 109
------------ ------------
Net cash used in operating activities .................. (12,470) (45,789)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net ...................................... (29,663) (40,640)
Investment in trademarks, tradenames and other assets .......... (1,686) (697)
------------ ------------
Net cash used in investing activities .................. (31,349) (41,337)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ......................... 1,433 1,506
Long-term borrowings ........................................... 1,349 48,100
Principal payments on long-term debt ........................... (1,275) (944)
Tax payments related to options exercised ...................... (145) --
Purchase of treasury stock ..................................... (7,871) (30,409)
------------ ------------
Net cash provided by (used in) financing activities .... (6,509) 18,253
------------ ------------
Effect of exchange rate changes on cash .......................... (33) (377)
------------ ------------
DECREASE IN CASH ................................................. (50,361) (69,250)
CASH:
Beginning of period ............................................ 77,798 84,426
------------ ------------
End of period .................................................. $ 27,437 $ 15,176
============ ============
See Notes to Consolidated Financial Statements.
4
7
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES--
Basis of Presentation - The consolidated financial statements include the
accounts of The Men's Wearhouse, Inc. and its subsidiaries (the "Company").
Except for those discussed below, there have been no significant changes in the
accounting policies of the Company during the periods presented. For a
description of these policies, see Note 1 of Notes to Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the year ended
February 3, 2001. Certain July 29, 2000 balances have been reclassified to
conform to classifications used in the current year.
Accounting Change - The Company adopted Statement of Financial Accounting
Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"), as amended, on February 4, 2001. In accordance with the transition
provisions of SFAS 133, the Company recorded a cumulative loss adjustment of
$0.5 million ($0.3 million, net of tax) in accumulated other comprehensive
income related primarily to the unrealized losses on foreign currency forward
exchange contracts, which were designated as cash-flow hedging instruments.
Recent Accounting Pronouncements - In June 2001, the Financial Accounting
Standards Board ("FASB") issued two new pronouncements: Statement of Financial
Accounting Standards No. 141, "Business Combinations" ("SFAS 141"), and No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 is effective as
follows: a) use of the pooling-of-interest method is prohibited for business
combinations initiated after June 30, 2001; and b) the provisions of SFAS 141
apply to all business combinations accounted for by the purchase method that are
completed after June 30, 2001 (that is, the date of the acquisition is July 2001
or later). There are also transition provisions that apply to business
combinations completed before July 1, 2001 that were accounted for by the
purchase method. SFAS 142 is effective for fiscal years beginning after December
15, 2001 for all goodwill and other intangible assets recognized in an entity's
statement of financial position at that date, regardless of when those assets
were initially recognized. The Company is currently evaluating the provisions of
SFAS 141 and SFAS 142 and has not adopted such provisions in its August 4, 2001
consolidated financial statements.
2. EARNINGS PER SHARE--
Basic earnings per share ("EPS") is computed using the weighted average
number of common shares outstanding during the period and net earnings. Diluted
EPS gives effect to the potential dilution which would have occurred if
additional shares were issued for stock options exercised under the treasury
stock method.
3. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
The Company's policy is to enter into foreign currency forward exchange
contracts to minimize foreign currency exposure related to forecasted purchases
of certain inventories. Under SFAS 133, such contracts have been designated as
and accounted for as cash flow hedges. The settlement terms of the forward
contracts, including amount, currency and maturity, correspond with payment
terms for the merchandise inventories. As a result, there is no hedge
ineffectiveness to be reflected in earnings. At August 4, 2001, the Company had
26 contracts maturing in varying increments to purchase an aggregate notional
amount of $20.4 million in foreign currency, maturing at various dates through
September 2002.
The changes in the fair value of the foreign currency forward exchange
contracts are matched to inventory purchases by period and are recognized in
earnings as such inventory is sold. The Company expects to recognize in earnings
through August 3, 2002 approximately $0.7 million, net of tax, of existing net
losses presently deferred in accumulated other comprehensive income.
5
8
4. COMPREHENSIVE INCOME AND SUPPLEMENTAL CASH FLOWS
The Company's comprehensive income, which encompasses net earnings,
currency translation adjustments, cumulative effect of accounting change and
changes in derivative fair values, is as follows (in thousands):
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
------------------------------ -------------------------------
JULY 29, AUGUST 4, JULY 29, AUGUST 4,
2000 2001 2000 2001
------------ ------------ ------------ ------------
Net earnings $ 15,965 $ 10,250 $ 29,393 $ 22,992
Cumulative effect of accounting change, net of tax -- -- -- (331)
Change in derivative fair value, net of tax -- 133 -- (442)
Currency translation adjustments, net of tax -- 710 (293) (633)
------------ ------------ ------------ ------------
Comprehensive income $ 15,965 $ 11,093 $ 29,100 $ 21,586
============ ============ ============ ============
The Company paid cash during the first two quarters of 2000 of $1.7 million
for interest and $27.5 million for taxes, compared with $1.4 million for
interest and $26.6 million for taxes during the first two quarters of 2001. The
Company had non-cash investing and financing activities resulting from the
issuance of treasury stock to the employee stock ownership plan of $2.5 million
and $2.5 million in the first two quarters of 2000 and 2001, respectively, and
from the tax benefit recognized upon exercise of stock options of $0.1 million
and $0.2 million, respectively.
6
9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
For supplemental information, it is suggested that "Management's
Discussion and Analysis of Financial Condition and Results of Operations" be
read in conjunction with the corresponding section included in the Company's
Annual Report on Form 10-K for the year ended February 3, 2001. References
herein to years are to the Company's 52-week or 53-week fiscal year which ends
on the Saturday nearest January 31 in the following calendar year. For example,
references to "2001" mean the 52-week fiscal year ending February 2, 2002.
In large part, changes in net sales and operating results are impacted
by the number of stores operating during the fiscal period. The following table
presents information with respect to stores in operation during each of the
respective fiscal periods.
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED YEAR ENDED
-------------------------- --------------------------- -----------
JULY 29, AUGUST 4, JULY 29, AUGUST 4, FEBRUARY 3,
2000 2001 2000 2001 2001
---------- ---------- ---------- ---------- -----------
Stores open at beginning of period 617 659 614 651 614
Opened 5 5 11 13 39
Acquired 1 -- 1 -- 1
Closed -- (1) (3) (1) (3)
---------- ---------- ---------- ---------- ----------
Stores open at end of period 623 663 623 663 651
========== ========== ========== ========== ==========
Stores open at end of period:
U.S. --
Men's Wearhouse 455 481 455 481 473
K&G/Suit Warehouse 55 69 55 69 65
---------- ---------- ---------- ---------- ----------
510 550 510 550 538
Canada-- Moores 113 113 113 113 113
---------- ---------- ---------- ---------- ----------
623 663 623 663 651
========== ========== ========== ========== ==========
RESULTS OF OPERATIONS
Three Months Ended July 29, 2000 and August 4, 2001
The Company's net sales were $297.2 million for the quarter ended August 4,
2001, a $2.6 million or 0.9% increase over the same prior year period. This
increase was due primarily to sales resulting from the increased number of
stores, offset by decreased sales in stores open prior to fiscal year 2000.
Sales from U.S. stores represented 86.7% of total sales in the second quarter of
2001, compared with 86.9% of total sales in the second quarter of 2000.
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) decreased 5.6% for the U.S. stores from the same
prior year quarter, while comparable store sales for the Canadian stores
increased 9.0% from the same prior year quarter.
Gross margin decreased 2.1% over the same prior year quarter to $108.3
million in the second quarter of 2001. As a percentage of sales, gross margin
decreased from 37.6% in the second quarter of 2000 to 36.4% in the second
quarter of 2001. This decrease in gross margin predominantly resulted from an
increase in occupancy cost as a percentage of sales and a larger percentage of
the sales mix being contributed by our lower margin K&G brand.
Selling, general and administrative ("SG&A") expenses increased as a
percentage of sales from 28.5% for the quarter ended July 29, 2000 to 30.5% for
the quarter ended August 4, 2001, and SG&A expenditures increased by $6.9
million to $90.7 million. On an absolute dollar basis, the principal components
of SG&A expenses increased primarily due to the Company's growth in number of
stores and increased infrastructure support costs. Advertising expense decreased
from 5.3%
7
10
to 5.1% of net sales, while store salaries increased from 11.4% to 11.8% of net
sales and other SG&A expenses increased from 11.7% to 13.6% of net sales.
Interest expense, net of interest income, increased from $0.3 million in the
first quarter of 2000 to $0.8 million in the second quarter of 2001. Weighted
average borrowings outstanding increased from $51.4 million in the second
quarter of 2000 to $64.5 million in the second quarter of 2001, and the weighted
average interest rate on outstanding indebtedness decreased from 6.8% to 4.9%.
The increase in the weighted average borrowings was due primarily to increased
borrowings under the Company's credit facilities. The decrease in the weighted
average interest rate was due primarily to decreases in the LIBOR rate. See
"Liquidity and Capital Resources" discussion in the following section herein.
The Company's effective income tax rate decreased from 39.8% for the second
quarter of 2000 to 39.0% for the second quarter of 2001. The effective tax rate
was higher than the statutory U.S. federal rate of 35% primarily due to the
effect of state income taxes.
Six Months Ended July 29, 2000 and August 4, 2001
The Company's net sales were $601.8 million for the six months ended August
4, 2001, a $19.4 million or 3.3% increase over the same prior year period. This
increase was due primarily to sales resulting from the increased number of
stores, offset by decreased sales in stores open prior to fiscal year 2000.
Sales from U.S. stores represented 88.5% of total sales in the first two
quarters of 2001, compared with 88.7% of total sales in the same period of 2000.
Comparable store sales decreased 4.9% for the U.S. stores from the same prior
year period, while comparable store sales for the Canadian stores increased 8.8%
from the same prior year period.
Gross margin increased 2.3% over the same prior year period to $220.0
million for the first six months of 2001. As a percentage of sales, gross margin
decreased from 36.9% for the first two quarters of 2000 to 36.6% in the first
two quarters of 2001. This decrease in gross margin percentage predominantly
resulted from an increase in occupancy cost as a percentage of sales and a
larger percentage of the sales mix being contributed by our lower margin K&G
brand.
SG&A expenses increased as a percentage of sales from 28.5% for the first
six months of 2000 to 30.1% for the first six months of 2001, and SG&A
expenditures increased by $15.3 million to $181.2 million. On an absolute dollar
basis, the principal components of SG&A expenses increased primarily due to the
Company's growth in number of stores and increased infrastructure support costs.
Advertising expense decreased from 5.5% to 4.9% of net sales, while store
salaries increased from 11.2% to 11.7% of net sales and other SG&A expenses
increased from 11.9% to 13.6% of net sales. See "Liquidity and Capital
Resources" discussion in the following section herein.
Interest expense, net of interest income, increased from $0.2 million for
the first six months of 2000 to $1.0 million in the first six months of 2001.
Weighted average borrowings outstanding increased from $52.6 million in the
prior year to $54.1 million in the first two quarters of 2001, and the weighted
average interest rate on outstanding indebtedness decreased from 6.7% to 5.7%.
The increase in the weighted average borrowings was due primarily to increased
borrowings under the Company's credit facilities. The decrease in the weighted
average interest rate was due primarily to decreases in the LIBOR rate.
The Company's effective income tax rate decreased from 39.8% for the six
months ended July 29, 2000 to 39.0% for the six months ended August 4, 2001. The
effective tax rate was higher than the statutory U.S. federal rate of 35%
primarily due to the effect of state income taxes.
8
11
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $337.6 million at August 4, 2001, which is up from
$318.6 million at February 3, 2001 and $288.0 million at July 29, 2000.
Historically, the Company's working capital has been at its lowest level in
January and February, and has increased through November as inventory buildup is
financed with long-term borrowings in preparation for the fourth quarter selling
season.
Net cash used in operating activities was $12.5 million in the first six
months of 2000 compared with $45.8 million in the first six months of 2001.
These amounts primarily represent net earnings before extraordinary items plus
depreciation, amortization and other non-cash charges, offset by increases in
inventories and other assets and decreases in payables. Inventories increased
$43.1 million and $59.9 million for the two quarters ended July 29, 2000 and
August 4, 2001, respectively, due to seasonal inventory buildup and the addition
of inventory for new stores and stores expected to be opened in the following
quarter. Other assets increased primarily due to increased investment in tuxedo
rental merchandise associated with the expansion of this business to 266 Men's
Wearhouse stores, as of August 4, 2001, while payables decreased mainly due to
income tax payments.
Cash used in investing activities was $31.3 million and $41.3 million
for the first two quarters of 2000 and 2001, respectively. Cash used in
investing activities was primarily comprised of capital expenditures relating
primarily to stores opened, remodeled or relocated during the period or under
construction at the end of the period and infrastructure technology investments.
The Company has a revolving credit agreement with a group of banks (the
"Credit Agreement") that provides for borrowing of up to $125 million through
February 5, 2004. Advances under the Credit Agreement bear interest at a rate
per annum equal to, at the Company's option, the agent's prime rate or the
reserve adjusted LIBOR rate plus a varying interest rate margin. The Credit
Agreement also provides for fees applicable to unused commitments. In addition,
the Company has two Canadian credit facilities which include a revolving credit
agreement which provides for borrowings up to Can$30 million (US$20 million)
through February 5, 2004 and a term credit agreement under which the Company
borrowed Can$75 million (US$50 million) in February 1999. The term credit
borrowing is payable in quarterly installments of Can$0.9 million (US$0.6
million) beginning in May 1999, with the remaining unpaid principal payable on
February 5, 2004. Covenants and interest rates are substantially similar to
those contained in the Company's Credit Agreement. As of August 4, 2001, there
was $43.2 million outstanding under the term credit agreement and $48.1 million
outstanding under the revolving credit agreement.
The Credit Agreement contains certain restrictive and financial covenants,
including the requirement to maintain a minimum level of net worth and certain
financial ratios. The Credit Agreement also prohibits payment of cash dividends
on the common stock of the Company. The Company is in compliance with the
covenants in the Credit Agreement.
Net cash used in financing activities was $6.5 million for the first two
quarters of 2000, due mainly to the purchases of treasury stock. Net cash
provided by financing activities was $18.3 million for the first two quarters of
2001, due mainly to borrowings on the revolving credit agreement, offset by
purchases of treasury stock. In January 2000, the Board of Directors authorized
a stock repurchase program for up to 1,000,000 shares of the Company's common
stock. Under this authorization, the Company may purchase shares from time to
time in the open market or in private transactions, depending on market price
and other considerations. On January 31, 2001, the Board of Directors authorized
an expansion of the stock repurchase program for up to an additional 2,000,000
shares of the Company's common stock. During the first two quarters of 2000 and
2001, the Company repurchased 335,000 and 1,185,000 shares of its common stock
under this program at a cost of $7.9 million and $30.4 million, respectively.
In December 2000, the Company issued two option contracts under which the
contract counterparties had the option to require the Company to purchase an
agreed-upon number of shares of its common stock at a specific strike price per
share on March 15, 2001 and on June 12, 2001. The Company received premiums, in
aggregate, of $0.5 million for issuing these contracts. Both option contracts
expired unexercised.
The Company anticipates that its existing cash and cash flow from
operations, supplemented by borrowings under the Credit Agreement, will be
sufficient to fund its planned store openings, other capital expenditures and
operating cash requirements for at least the next 12 months.
9
12
In connection with the Company's direct sourcing program, the Company may
enter into purchase commitments that are denominated in a foreign currency
(primarily the Euro). The Company generally enters into forward exchange
contracts to reduce the risk of currency fluctuations related to such
commitments. The majority of the forward exchange contracts are with five
financial institutions. Therefore, the Company is exposed to credit risk in the
event of nonperformance by these parties. However, due to the creditworthiness
of these major financial institutions, full performance is anticipated. The
Company may also be exposed to market risk as a result of changes in foreign
exchange rates. This market risk should be substantially offset by changes in
the valuation of the underlying transactions.
10
13
ITEM 3 - QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to exposure from fluctuations in U.S. dollar/Euro
exchange rates and the Canadian dollar/Euro exchange rates. The Company utilizes
foreign currency forward exchange contracts to limit exposure to changes in
currency exchange rates (see Note 3 to the Company's Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial Information
and Results of Operations - Liquidity and Capital Resources"). At August 4,
2001, the Company had 26 contracts maturing in varying increments to purchase an
aggregate notional amount of $20.4 million in foreign currency, maturing at
various dates through September 2002. Unrealized pretax losses on these forward
contracts totaled approximately $1.3 million at August 4, 2001. A hypothetical
10% change in applicable August 4, 2001 forward rates could increase or decrease
this pretax loss by $2.0 million related to these positions. However, it should
be noted that any change in the value of these contracts, whether real or
hypothetical, would be significantly offset by an inverse change in the value of
the underlying hedged item.
Moores conducts its business in Canadian dollars. The exchange rate between
Canadian dollars and U.S. dollars has fluctuated over the last ten years. If the
value of the Canadian dollar against the U.S. dollar weakens, then the revenues
and earnings of the Company's Canadian operations will be reduced when they are
translated to U.S. dollars and the value of the Company's Canadian net assets in
U.S. dollars may decline.
FORWARD-LOOKING STATEMENTS
Certain statements made herein and in other public filings and releases by
the Company contain "forward-looking" information (as defined in the Private
Securities Litigation Reform Act of 1995) that involve risk and uncertainty.
These forward-looking statements may include, but are not limited to, future
capital expenditures, acquisitions (including the amount and nature thereof),
future sales, earnings, margins, costs, number and costs of store openings,
demand for men's clothing, market trends in the retail men's clothing business,
currency fluctuations, inflation and various economic and business trends.
Forward-looking statements may be made by management orally or in writing,
including but not limited to, this Management's Discussion and Analysis of
Financial Condition and Results of Operations section and other sections of the
Company's filings with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 and the Securities Act of 1933.
Actual results and trends in the future may differ materially depending on a
variety of factors including, but not limited to, domestic and international
economic activity and inflation, the Company's successful execution of internal
operating plans and new store and new market expansion plans, performance issues
with key suppliers, severe weather, foreign currency fluctuations, government
export and import policies and legal proceedings. Future results will also be
dependent upon the ability of the Company to continue to identify and complete
successful expansions and penetrations into existing and new markets, and its
ability to integrate such expansions with the Company's existing operations.
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PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On May 11, 2001, a lawsuit was filed against the Company in the
Superior Court of California for the County of San Diego, Cause No. GIC
767223 (the "Suit"). The Suit, which was brought as a purported class
action, alleges several causes of action, each based on the factual
allegation that the Company advertised and sold men's slacks at a
marked price that was exclusive of a hemming fee for the pants. The
Suit seeks: (i) permanent and preliminary injunctions against
advertising slacks at prices which do not include hemming; (ii)
restitution of all funds allegedly acquired by means of any act or
practice declared by the Court to be unlawful or fraudulent or to
constitute unfair competition under certain California statutes, (iii)
prejudgment interest; (iv) compensatory and punitive damages; (v)
attorney's fees; and (vi) costs of suit. The Company believes that the
Suit is without merit and the allegations are contrary to customary and
well recognized and accepted practices in the sale of men's tailored
clothing. By letter dated September 10, 2001, the complainant in the
lawsuit advised the Company's counsel that the complainant intends to
seek to amend the complaint in the Suit to add causes of action based
upon the Company's alleged "claims that [it] sell[s] the same garments
as department stores at 20% to 30% less." The Company believes that any
such added causes of action, if added, would also be without merit. The
Company intends to vigorously defend the Suit.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 7, 2001, the Company held its Annual Meeting of Shareholders.
At the meeting, the shareholders voted on the following matters:
1. The election of the eleven directors of the Company to hold office
until the next Annual Meeting of Shareholders or until their
respective successors are duly elected and qualified.
2. The amendment of the Company's 1992 Non-Employee Director Stock
Option Plan as stated in the Proxy for the June 7, 2001 Annual
Meeting of Shareholders.
3. The ratification of the appointment by the Board of Directors of
the firm Deloitte & Touche LLP as independent auditors for the
Company for 2001.
All proposals received the affirmative vote required for approval. The
number of votes cast for, against and withheld, as well as the number of
abstentions, as to each matter were as follows:
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Proposal
Votes For Votes Withheld
--------- --------------
1. Election of Directors
George Zimmer 39,869,085 711,753
David H. Edwab 39,501,932 1,078,906
Richard E. Goldman 39,207,558 1,373,280
Harry M. Levy 39,503,617 1,077,221
Robert E. Zimmer 39,502,781 1,078,057
James E. Zimmer 39,555,817 1,025,021
Stephen H. Greenspan 39,503,383 1,077,455
Rinaldo S. Brutoco 39,892,316 688,522
Michael L. Ray 39,930,906 649,932
Sheldon I. Stein 39,930,514 650,324
Kathleen Mason 39,883,552 697,286
Affirmative Votes Negative Votes Abstentions
----------------- -------------- -----------
2. Amendment of 1992
Non-Employee Director Stock
Option Plan 38,604,055 1,640,039 336,743
3. Ratification of
Auditors 38,504,620 2,059,759 16,459
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
None.
(b) REPORTS ON FORM 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, The Men's Wearhouse, Inc., has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: September 18, 2001 THE MEN'S WEARHOUSE, INC.
By /s/ NEILL P. DAVIS
--------------------------------------------------
Neill P. Davis
Senior Vice President, Chief Financial Officer and
Treasurer (Principal Financial Officer)
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