Attached files
file | filename |
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EX-32.1 - EX-32.1 - TAILORED BRANDS INC | h68988exv32w1.htm |
EX-10.2 - EX-10.2 - TAILORED BRANDS INC | h68988exv10w2.htm |
EX-31.2 - EX-31.2 - TAILORED BRANDS INC | h68988exv31w2.htm |
EX-32.2 - EX-32.2 - TAILORED BRANDS INC | h68988exv32w2.htm |
EX-31.1 - EX-31.1 - TAILORED BRANDS INC | h68988exv31w1.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 31, 2009
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-16097
THE MENS WEARHOUSE, INC.
(Exact Name of Registrant as Specified in its Charter)
Texas | 74-1790172 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification Number) | |
6380 Rogerdale | ||
Houston, Texas | 77072-1624 | |
(Address of Principal Executive Offices) | (Zip Code) |
(281) 776-7000
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ. No o.
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o. 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 4, 2009 was 52,279,947 excluding 18,111,602 shares classified as Treasury Stock.
REPORT INDEX
Table of Contents
Forward-Looking and Cautionary Statements
Certain statements made in this Quarterly Report on Form 10-Q and in other public filings and
press releases by the Company contain forward-looking information (as defined in the Private
Securities Litigation Reform Act of 1995) that involves risk and uncertainty. These
forward-looking statements may include, but are not limited to, references to future capital
expenditures, acquisitions, sales, earnings, margins, costs, number and costs of store openings,
demand for clothing, market trends in the retail clothing business, currency fluctuations,
inflation and various economic and business trends. Forward-looking statements may be made by
management orally or in writing, including, but not limited to, Managements Discussion and
Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form
10-Q and other sections of our filings with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 and the Securities Act of 1933.
Forward-looking statements are not guarantees of future performance and a variety of factors
could cause actual results to differ materially from the anticipated or expected results expressed
in or suggested by these forward-looking statements. Factors that might cause or contribute to
such differences include, but are not limited to, actions by governmental entities, domestic and
international economic activity and inflation, our successful execution of internal operating plans
and new store and new market expansion plans, including successful integration of acquisitions,
performance issues with key suppliers, disruption in buying trends due to homeland security
concerns, severe weather, foreign currency fluctuations, government export and import policies,
aggressive advertising or marketing activities of competitors and legal proceedings. Future
results will also be dependent upon our ability to continue to identify and complete successful
expansions and penetrations into existing and new markets and our ability to integrate such
expansions with our existing operations. Refer to Risk Factors in our Annual Report on Form 10-K
for the year ended January 31, 2009 for a more complete discussion of these and other factors
that might affect our performance and financial results. These forward-looking statements are
intended to relay the Companys expectations about the future, and speak only as of the date they
are made. We undertake no obligation to publicly update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.
PART I. FINANCIAL INFORMATION
ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GENERAL INFORMATION
The condensed consolidated financial statements herein include the accounts of The Mens
Wearhouse, Inc. and its subsidiaries and have been prepared without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. As applicable under such regulations,
certain information and footnote disclosures have been condensed or omitted. We believe that the
presentation and disclosures herein are adequate to make the information not misleading, and the
condensed consolidated financial statements reflect all elimination entries and normal adjustments
which are necessary for a fair statement of the results for the three and nine months ended October
31, 2009 and November 1, 2008.
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 31, 2009 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)
October 31, | November 1, | January 31, | ||||||||||
2009 | 2008 | 2009 | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
ASSETS |
||||||||||||
CURRENT ASSETS: |
||||||||||||
Cash and cash equivalents |
$ | 198,538 | $ | 84,337 | $ | 87,412 | ||||||
Short-term investments |
| 17,434 | 17,121 | |||||||||
Accounts receivable, net |
17,304 | 17,804 | 16,315 | |||||||||
Inventories |
473,626 | 490,831 | 440,099 | |||||||||
Other current assets |
48,997 | 66,223 | 70,668 | |||||||||
Total current assets |
738,465 | 676,629 | 631,615 | |||||||||
PROPERTY AND EQUIPMENT, net |
370,191 | 393,391 | 387,472 | |||||||||
TUXEDO RENTAL PRODUCT, net |
100,653 | 84,702 | 96,691 | |||||||||
GOODWILL |
59,111 | 58,695 | 57,561 | |||||||||
OTHER ASSETS, net |
12,655 | 18,361 | 14,391 | |||||||||
TOTAL |
$ | 1,281,075 | $ | 1,231,778 | $ | 1,187,730 | ||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||||
CURRENT LIABILITIES: |
||||||||||||
Accounts payable |
$ | 121,374 | $ | 130,944 | $ | 108,800 | ||||||
Accrued expenses and other current liabilities |
106,082 | 102,347 | 111,404 | |||||||||
Income taxes payable |
24,743 | 468 | 19 | |||||||||
Total current liabilities |
252,199 | 233,759 | 220,223 | |||||||||
LONG-TERM DEBT |
42,985 | 88,608 | 62,916 | |||||||||
DEFERRED TAXES AND OTHER LIABILITIES |
63,087 | 65,674 | 62,443 | |||||||||
Total liabilities |
358,271 | 388,041 | 345,582 | |||||||||
COMMITMENTS AND CONTINGENCIES (Note 3 and Note 10) |
||||||||||||
SHAREHOLDERS EQUITY: |
||||||||||||
Preferred stock |
| | | |||||||||
Common stock |
704 | 699 | 700 | |||||||||
Capital in excess of par |
323,864 | 312,485 | 315,404 | |||||||||
Retained earnings |
977,659 | 926,468 | 924,288 | |||||||||
Accumulated other comprehensive income |
33,203 | 16,621 | 14,292 | |||||||||
Total |
1,335,430 | 1,256,273 | 1,254,684 | |||||||||
Treasury stock, at cost |
(412,626 | ) | (412,536 | ) | (412,536 | ) | ||||||
Total shareholders equity |
922,804 | 843,737 | 842,148 | |||||||||
TOTAL |
$ | 1,281,075 | $ | 1,231,778 | $ | 1,187,730 | ||||||
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)
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
October 31, | November 1, | October 31, | November 1, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net sales: |
||||||||||||||||
Clothing product |
$ | 333,882 | $ | 334,415 | $ | 1,057,246 | $ | 1,109,014 | ||||||||
Tuxedo rental services |
97,702 | 96,498 | 298,688 | 294,145 | ||||||||||||
Alteration and other services |
30,431 | 28,760 | 96,423 | 92,899 | ||||||||||||
Total net sales |
462,015 | 459,673 | 1,452,357 | 1,496,058 | ||||||||||||
Cost of sales: |
||||||||||||||||
Clothing product, including buying and
distribution costs |
147,354 | 143,793 | 484,998 | 484,758 | ||||||||||||
Tuxedo rental services |
16,497 | 16,202 | 50,004 | 49,569 | ||||||||||||
Alteration and other services |
23,096 | 23,673 | 70,876 | 73,608 | ||||||||||||
Occupancy costs |
72,394 | 73,281 | 218,028 | 220,601 | ||||||||||||
Total cost of sales |
259,341 | 256,949 | 823,906 | 828,536 | ||||||||||||
Gross margin |
202,674 | 202,724 | 628,451 | 667,522 | ||||||||||||
Selling, general and administrative expenses |
172,595 | 178,955 | 525,704 | 574,491 | ||||||||||||
Operating income |
30,079 | 23,769 | 102,747 | 93,031 | ||||||||||||
Interest income |
289 | 744 | 778 | 2,259 | ||||||||||||
Interest expense |
(308 | ) | (978 | ) | (957 | ) | (3,617 | ) | ||||||||
Earnings before income taxes |
30,060 | 23,535 | 102,568 | 91,673 | ||||||||||||
Provision for income taxes |
10,375 | 8,948 | 38,142 | 34,318 | ||||||||||||
Net earnings |
$ | 19,685 | $ | 14,587 | $ | 64,426 | $ | 57,355 | ||||||||
Net earnings per common share: (Note 2) |
||||||||||||||||
Basic |
$ | 0.37 | $ | 0.28 | $ | 1.23 | $ | 1.11 | ||||||||
Diluted |
$ | 0.37 | $ | 0.28 | $ | 1.22 | $ | 1.10 | ||||||||
Weighted average common shares outstanding: (Note 2) |
||||||||||||||||
Basic |
52,208 | 51,703 | 52,072 | 51,604 | ||||||||||||
Diluted |
52,442 | 52,011 | 52,218 | 51,913 | ||||||||||||
Cash dividends declared per common share |
$ | 0.07 | $ | 0.07 | $ | 0.21 | $ | 0.21 | ||||||||
See Notes to Condensed Consolidated Financial Statements.
3
Table of Contents
THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Nine Months Ended | ||||||||
October 31, | November 1, | |||||||
2009 | 2008 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net earnings |
$ | 64,426 | $ | 57,355 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
64,879 | 68,699 | ||||||
Tuxedo rental product amortization |
33,149 | 31,739 | ||||||
(Gain) loss on disposition of assets |
2,012 | (212 | ) | |||||
Deferred rent expense |
1,640 | 2,586 | ||||||
Share-based compensation |
7,603 | 7,333 | ||||||
Deferred tax (benefit) provision |
(8,130 | ) | 1,984 | |||||
(Increase) decrease in accounts receivable |
(769 | ) | 71 | |||||
Increase in inventories |
(27,051 | ) | (9,953 | ) | ||||
Increase in tuxedo rental product |
(34,871 | ) | (35,644 | ) | ||||
Decrease in other assets |
29,919 | 1,110 | ||||||
Increase (decrease) in accounts payable, accrued expenses and other current liabilities |
6,214 | (21,390 | ) | |||||
Increase (decrease) in income taxes payable |
25,242 | (13,879 | ) | |||||
Decrease in other liabilities |
(1,863 | ) | (1,738 | ) | ||||
Net cash provided by operating activities |
162,400 | 88,061 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Capital expenditures |
(44,466 | ) | (69,485 | ) | ||||
Purchases of available-for-sale investments |
| (17,434 | ) | |||||
Proceeds from sales of available-for-sale investments |
19,410 | 59,921 | ||||||
Other investing activities |
| 175 | ||||||
Net cash used in investing activities |
(25,056 | ) | (26,823 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Proceeds from issuance of common stock |
3,032 | 2,359 | ||||||
Proceeds from revolving credit facility |
| 150,600 | ||||||
Payments on revolving credit facility |
(25,000 | ) | (105,975 | ) | ||||
Payments on Canadian term loan |
| (31,880 | ) | |||||
Cash dividends paid |
(11,029 | ) | (10,936 | ) | ||||
Tax payments related to vested deferred stock units |
(1,634 | ) | (1,402 | ) | ||||
Excess tax benefits from share-based plans |
208 | 125 | ||||||
Purchase of treasury stock |
(90 | ) | (156 | ) | ||||
Net cash (used in) provided by financing activities |
(34,513 | ) | 2,735 | |||||
Effect of exchange rate changes |
8,295 | (19,082 | ) | |||||
INCREASE IN CASH AND CASH EQUIVALENTS |
111,126 | 44,891 | ||||||
Balance at beginning of period |
87,412 | 39,446 | ||||||
Balance at end of period |
$ | 198,538 | $ | 84,337 | ||||
See Notes to Condensed Consolidated Financial Statements.
4
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 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 31, 2009.
The preparation of the condensed consolidated financial statements in conformity with
accounting principals generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts and related disclosures. Actual amounts could
differ from those estimates.
Fair Value of Financial Instruments Our financial instruments consist of cash and cash
equivalents, short-term investments, accounts receivable, accounts payable, accrued expenses and
other current liabilities and long-term debt. Management estimates that, as of October 31, 2009
and January 31, 2009, 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 investments classified as short-term
investments at November 1, 2008 and January 31, 2009, are carried at fair value based on quoted
market prices for such financial instruments. The fair values of long-term debt approximate their
carrying amounts as of October 31, 2009 and January 31, 2009, based upon terms available to us for
borrowings with similar arrangements and remaining maturities.
Gift cards and gift card breakage Proceeds from the sale of gift cards are recorded as a
liability and are recognized as net sales from products and services when the cards are redeemed.
Our gift cards do not have an expiration date. Prior to the second quarter of 2009, all unredeemed
gift card proceeds were reflected as a liability until escheated in accordance with applicable laws
and we did not recognize any income from unredeemed gift cards. During the second quarter of 2009,
we entered into an agreement with an unrelated third party who assumed our liability for unredeemed
gift cards that had not yet reached their statutory escheatment term. As a result of this
agreement, we are no longer subject to certain third-party claims for unredeemed gift cards.
Accordingly, beginning with the second quarter of 2009, we recognize income from breakage of gift
cards when the likelihood of redemption of the gift card is remote. We determine our gift card
breakage rate based upon historical redemption patterns. Based on this historical information, the
likelihood of a gift card remaining unredeemed can be determined 36 months after the gift card is
issued. At that time, breakage income is recognized for those cards for which the likelihood of
redemption is deemed to be remote and for which there is no legal obligation for us to remit the
value of such unredeemed gift cards to any relevant jurisdictions. Gift card breakage income is
recorded as other operating income and is classified as a reduction of Selling, general and
administrative expenses in our condensed consolidated statement of earnings. Pretax breakage
income of $3.3 million ($2.1 million after tax or $0.04 per diluted earnings per common share) was
recognized during the nine months ended October 31, 2009. Pretax breakage income of $0.2 million
($0.1 million after tax) was recognized during the three months ended October 31, 2009, with no
effect on that quarters diluted earnings per common share. Gift card breakage estimates are
reviewed on a quarterly basis.
Recently Issued Accounting Pronouncements In June 2009, the Financial Accounting Standards
Board (FASB) issued a standard regarding the FASB Accounting Standards Codification
(Codification) and the hierarchy of generally accepted accounting principles (GAAP). This
standard identifies the source of accounting principles and the framework for selecting the
principles used in the preparation of financial statements of non-governmental entities that are
presented in conformity with GAAP in the United States. In addition, this standard establishes the
FASB Codification as the source of authoritative GAAP recognized by the FASB to be applied by
non-governmental entities in the preparation of financial statements in conformity with GAAP. All guidance contained in the Codification carries
an equal level of authority.
5
Table of Contents
THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
This standard is effective for financial statements issued for interim and annual periods ending
after September 15, 2009. The adoption of this standard did not have an impact on our financial
position, results of operations or cash flows, but will affect our financial reporting process by
eliminating all references to pre-codification standards. On the effective date of this standard,
the Codification superseded all then-existing non-SEC accounting and reporting standards, and all
other non-grandfathered, non-SEC accounting literature not included in the Codification became
non-authoritative.
In May 2009, the FASB issued a standard regarding accounting for subsequent events. This
standard is intended to establish general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or are available to
be issued. It requires disclosure of the date through which an entity has evaluated subsequent
events and the basis for selecting that date, that is, whether that date represents the date the
financial statements were issued or were available to be issued. This standard is effective for
interim periods ending after June 15, 2009. As this standard amends only the disclosure
requirements about subsequent events, its adoption did not affect our financial position, results
of operations or cash flows. We have evaluated subsequent events through December 9, 2009, which
is the date the condensed consolidated financial statements were issued.
In April 2009, the FASB issued guidance regarding interim disclosures about fair value of
financial instruments. This guidance requires disclosures about fair value of financial
instruments in interim reporting periods of publicly traded companies that were previously only
required to be disclosed in annual financial statements. This guidance is effective for interim
periods ending after June 15, 2009. As this guidance amends only the disclosure requirements about
fair value of financial instruments in interim periods, its adoption did not affect our financial
position, results of operations or cash flows. Refer to Fair Value of Financial Instruments
included within this Note 1 for disclosures regarding fair value measurements.
In June 2008, the FASB issued guidance regarding accounting by lessees for maintenance
deposits. This guidance is effective for financial statements issued for fiscal years beginning
after December 15, 2008 and interim periods within those fiscal years. This guidance concluded
that all maintenance deposits within its scope should be accounted for as a deposit and expensed or
capitalized in accordance with the lessees maintenance accounting policy. The adoption of this
guidance did not have a material impact on our financial position, results of operations or cash
flows.
In June 2008, the FASB issued guidance for determining whether instruments granted in
share-based payment transactions are participating securities, which provides that unvested
share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall be included in the computation of
earnings per common share pursuant to the two-class method. The guidance is effective for
financial statements issued for fiscal years beginning after December 15, 2008, and interim periods
within those years. All prior period earnings per common share data presented shall be adjusted
retrospectively. Early application of this guidance is prohibited. We adopted this guidance on
February 1, 2009. We calculated basic and diluted earnings per common share under both the
two-class method and the treasury stock method for the three and nine months ended October 31,
2009, noting no significant difference on the basic and diluted earnings per common share
calculations. This guidance has not been applied to prior year quarters as the impact is
immaterial. Refer to Note 2 for earnings per common share disclosures.
In December 2007, the FASB issued a revised standard regarding accounting for business
combinations. This standard establishes principles and requirements for how a company recognizes
assets acquired, liabilities assumed, contractual contingencies and contingent consideration
measured at fair value at the acquisition date. The standard also establishes disclosure
requirements which will enable users to evaluate the nature and financial effect of the business
combination. This standard is effective for fiscal years beginning after December 15, 2008. We
adopted this standard on February 1, 2009. There was no impact upon adoption, and its effects on
future periods will depend on the nature and significance of any future acquisitions by the
Company, if any.
In February 2008, the FASB issued guidance, which deferred the effective date of the FASB
statement regarding fair value measurements for all non-financial assets and non-financial
liabilities for fiscal years beginning after November 15, 2008 and interim periods within those
fiscal years for items within the scope of this guidance. We adopted this guidance for non-financial assets and non-financial liabilities on February 1, 2009. The adoption of this
guidance did not have a material impact to 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. Earnings per Share
As described in Note 1, Recently Issued Accounting Pronouncements, we adopted the FASBs
guidance regarding the determination of whether instruments granted in share-based payment
transactions are participating securities on February 1, 2009. Our unvested restricted stock and
deferred stock units contain rights to receive nonforfeitable dividends, and thus are participating
securities requiring the two-class method of computing earnings per common share. The two-class
method is an earnings allocation formula that determines earnings per common share for each
class of common stock and participating security according to dividends declared and
participation rights in undistributed earnings. We calculated basic and diluted earnings per
common share under both the two-class method and the treasury stock method for the three and nine
months ended October 31, 2009, noting no significant difference on the basic and diluted earnings
per common share calculations. This guidance has not been applied to prior year quarters as the
impact is immaterial.
Basic earnings per common share is determined using the two-class method and is computed by
dividing net earnings attributable to common shareholders by the weighted-average common shares
outstanding during the period. Diluted earnings per common share reflects the more dilutive
earnings per common share amount calculated using the treasury stock method or the two-class
method. The treasury stock method continues to be disclosed for the three and nine months ended
November 1, 2008.
The following table sets forth the computation of basic and diluted earnings per common share
(in thousands, except per share amounts). Basic and diluted earnings per common share are computed
using the actual net earnings available to common shareholders and the actual weighted-average
common shares outstanding rather than the rounded numbers presented within our condensed
consolidated statement of earnings and the accompanying notes. As a result, it may not be possible
to recalculate earnings per common share in our condensed consolidated statement of earnings and
the accompanying notes.
For the Three Months | For the Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
October 31, | November 1, | October 31, | November 1, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Numerator |
||||||||||||||||
Net earnings |
$ | 19,685 | $ | 14,587 | $ | 64,426 | $ | 57,355 | ||||||||
Net earnings allocated to participating securities
(restricted stock and deferred stock units) |
(196 | ) | | (638 | ) | | ||||||||||
Net earnings available to common shareholders |
$ | 19,489 | $ | 14,587 | $ | 63,788 | $ | 57,355 | ||||||||
Denominator |
||||||||||||||||
Basic weighted average common shares outstanding |
52,208 | 51,703 | 52,072 | 51,604 | ||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Stock options and equity-based compensation |
234 | 308 | 146 | 309 | ||||||||||||
Diluted weighted average common shares outstanding |
52,442 | 52,011 | 52,218 | 51,913 | ||||||||||||
Net earnings per common share: |
||||||||||||||||
Basic |
$ | 0.37 | $ | 0.28 | $ | 1.23 | $ | 1.11 | ||||||||
Diluted |
$ | 0.37 | $ | 0.28 | $ | 1.22 | $ | 1.10 | ||||||||
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. For the three and nine months ended November 1, 2008, 1.0 million and 1.2 million anti-dilutive shares of common stock were
excluded from the calculation of diluted earnings per common share, respectively.
7
Table of Contents
THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
3. Long-Term 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 31, 2009, there was US$43.0
million outstanding under the Canadian term loan with an effective interest rate of 1.3%, 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 31, 2009.
Adverse conditions in the U.S. and global credit markets have made it difficult for many
businesses to obtain financing on acceptable terms. If these adverse market conditions continue or
worsen, it may be more difficult for us to renew or increase our credit facility.
We utilize letters of credit primarily to secure inventory purchases. At October 31, 2009,
letters of credit totaling approximately $12.6 million were issued and outstanding.
4. Comprehensive Income (Loss) and Supplemental Cash Flows
Our comprehensive income (loss) is as follows (in thousands):
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
October 31, | November 1, | October, 31, | November, 1 | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net earnings |
$ | 19,685 | $ | 14,587 | $ | 64,426 | $ | 57,355 | ||||||||
Currency translation adjustments, net of tax |
(785 | ) | (22,284 | ) | 18,911 | (27,008 | ) | |||||||||
Comprehensive income (loss) |
$ | 18,900 | $ | (7,697 | ) | $ | 83,337 | $ | 30,347 | |||||||
8
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
Supplemental disclosure of cash flow information is as follows (in thousands):
For the Nine Months Ended | ||||||||
October 31, | November 1, | |||||||
2009 | 2008 | |||||||
Cash paid (received) during the nine months for: |
||||||||
Interest |
$ | 827 | $ | 3,431 | ||||
Income taxes, net |
(3,518 | ) | 46,689 | |||||
Schedule of noncash investing and financing activities: |
||||||||
Tax deficiency related to share-based plans |
(537 | ) | (710 | ) | ||||
Treasury stock contributed to employee stock plan |
| 1,000 |
We had cash dividends declared of $3.7 million at October 31, 2009 and at November 1, 2008.
We had unpaid capital expenditure purchases accrued in accounts payable, accrued expenses and other
current liabilities of approximately $2.9 million and $4.5 million at October 31, 2009 and November
1, 2008, respectively. Capital expenditure purchases are recorded as cash outflows from investing
activities in the condensed consolidated statement of cash flows in the period they are paid.
5. Goodwill and Other Intangible Assets
Changes in the net carrying amount of goodwill for the year ended January 31, 2009 and for the
nine months ended October 31, 2009 are as follows (in thousands):
Balance February 2, 2008 |
$ | 65,309 | ||
Translation adjustment |
(5,295 | ) | ||
Adjustment of goodwill of acquired business |
(1,338 | ) | ||
Adjustment for excess of tax deductible goodwill |
(1,115 | ) | ||
Balance, January 31, 2009 |
$ | 57,561 | ||
Translation adjustment |
3,027 | |||
Adjustment for excess of tax deductible goodwill |
(1,477 | ) | ||
Balance, October 31, 2009 |
$ | 59,111 | ||
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 2009.
The gross carrying amount and accumulated amortization of our other intangibles, which are
included in other assets in the accompanying balance sheet, are as follows (in thousands):
October 31, | November 1, | January 31, | ||||||||||
2009 | 2008 | 2009 | ||||||||||
Trademarks,
tradenames, favorable
leases and other
intangibles |
$ | 16,327 | $ | 17,064 | $ | 17,037 | ||||||
Accumulated amortization |
(11,048 | ) | (8,692 | ) | (9,330 | ) | ||||||
Net total |
$ | 5,279 | $ | 8,372 | $ | 7,707 | ||||||
9
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
The pretax amortization expense associated with intangible assets totaled approximately
$1.7 million and $1.9 million for the nine months ended October 31, 2009 and November 1, 2008,
respectively, and approximately $2.6 million for the year ended January 31, 2009. Pretax
amortization associated with intangible assets at October 31, 2009 is estimated to be $0.5 million
for the remainder of fiscal year 2009, $1.5 million for fiscal year 2010, $1.2 million for fiscal
year 2011, $0.8 million for fiscal year 2012 and $0.7 million for fiscal year 2013.
6. Other Assets, Accrued Expenses and Other Current Liabilities and Deferred Taxes and Other
Liabilities
Other current assets consist of the following (in thousands):
October 31, | November 1, | January 31, | ||||||||||
2009 | 2008 | 2009 | ||||||||||
Prepaid expenses |
$ | 25,773 | $ | 26,831 | $ | 26,603 | ||||||
Current deferred tax asset |
19,175 | 10,641 | 11,812 | |||||||||
Tax receivable |
91 | 18,548 | 24,335 | |||||||||
Other |
3,958 | 10,203 | 7,918 | |||||||||
Total other current assets |
$ | 48,997 | $ | 66,223 | $ | 70,668 | ||||||
Accrued expenses and other current liabilities
consist of the following (in thousands): |
||||||||||||
Accrued salary, bonus, sabbatical and vacation |
$ | 32,509 | $ | 32,014 | $ | 36,865 | ||||||
Sales, payroll and property taxes payable |
15,227 | 15,612 | 14,887 | |||||||||
Unredeemed gift certificates |
12,351 | 15,519 | 17,801 | |||||||||
Accrued workers compensation and medical costs |
16,772 | 12,669 | 14,790 | |||||||||
Tuxedo rental deposits |
10,204 | 9,597 | 9,171 | |||||||||
Other |
19,019 | 16,936 | 17,890 | |||||||||
Total accrued expenses and other current liabilities |
$ | 106,082 | $ | 102,347 | $ | 111,404 | ||||||
Deferred taxes and other liabilities consist
of the following (in thousands): |
||||||||||||
Deferred rent and landlord incentives |
$ | 44,695 | $ | 44,546 | $ | 44,204 | ||||||
Non-current deferred and other income tax liabilities |
11,337 | 14,341 | 11,807 | |||||||||
Other |
7,055 | 6,787 | 6,432 | |||||||||
Total deferred taxes and other liabilities |
$ | 63,087 | $ | 65,674 | $ | 62,443 | ||||||
7. Treasury Stock
As of October 31, 2009, we had 18,111,602 shares held in treasury stock. The change in our
treasury shares for the year ended January 31, 2009 and for the nine months ended October 31, 2009
is provided below:
Treasury | ||||
Shares | ||||
Balance, February 2, 2008 |
18,154,660 | |||
Treasury stock issued to profit sharing plan |
(57,078 | ) | ||
Purchases of treasury stock |
6,728 | |||
Balance, January 31, 2009 |
18,104,310 | |||
Purchases of treasury stock |
7,292 | |||
Balance, October 31, 2009 |
18,111,602 | |||
10
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
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 2009 or 2008. At October 31, 2009, the remaining balance available
under the August 2007 authorization was $44.3 million.
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. During the nine
months ended November 1, 2008, 6,728 shares at a cost of $0.2 million were repurchased at an
average price per share of $23.13 in a private transaction to satisfy tax withholding obligations
arising upon the vesting of certain restricted stock.
8. Share-Based Compensation Plans
We maintain several equity plans under which we may grant stock options, stock appreciation
rights, restricted stock, deferred stock units and performance based awards to full-time key
employees and non-employee directors. We account for share-based awards in accordance with the
FASB standard regarding share-based payments, which requires the compensation cost resulting from
all share-based payment transactions be recognized in the financial statements. The amount of
compensation cost is measured based on the grant-date fair value of the instrument issued and is
recognized over the vesting period. Share-based compensation expense recognized for the three and
nine months ended October 31, 2009 was $2.4 million and $7.6 million, respectively. Share-based
compensation expense recognized for the three and nine months ended November 1, 2008 was $2.6
million and $7.3 million, respectively.
Stock Options
The following table summarizes stock option activity for the nine months ended October 31,
2009:
Weighted- | ||||||||
Average | ||||||||
Exercise | ||||||||
Shares | Price | |||||||
Outstanding at January 31, 2009 |
1,661,858 | $ | 19.95 | |||||
Granted |
140,322 | 17.31 | ||||||
Exercised |
(117,685 | ) | 13.54 | |||||
Expired |
(8,040 | ) | 16.00 | |||||
Outstanding at October 31, 2009 |
1,676,455 | $ | 20.20 | |||||
Exercisable at October 31, 2009 |
575,143 | $ | 17.78 | |||||
11
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
The weighted-average grant date fair value of the 140,322 stock options granted during
the nine months ended October 31, 2009 was $7.22 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 31, 2009. No stock options
were granted during the three months ended October 31, 2009.
For the nine | ||||
months | ||||
ended | ||||
October 31, | ||||
2009 | ||||
Risk-free interest rate |
2.21 | % | ||
Expected lives |
6.9 years | |||
Dividend yield |
1.99 | % | ||
Expected volatility |
50.83 | % |
The assumptions presented in the table above represent the weighted average of the applicable
assumptions used to fair value stock options. Expected volatility is based on historical
volatility of our common stock. The expected term represents the period of time the options are
expected to be outstanding after their grant date. The risk-free interest rate is based on the
U.S. Treasury yield curve in effect at the time of grant. The dividend yield is based on the
average of the annual dividend divided by the market price of our common stock at the time of
declaration.
As of October 31, 2009, we have unrecognized compensation expense related to nonvested stock
options of approximately $6.6 million which is expected to be recognized over a weighted average
period of 3.2 years.
Restricted Stock and Deferred Stock Units
The following table summarizes restricted stock and deferred stock unit activity for the nine
months ended October 31, 2009:
Weighted- | ||||||||
Average | ||||||||
Grant-Date | ||||||||
Shares | Fair Value | |||||||
Nonvested at January 31, 2009 |
545,237 | $ | 26.34 | |||||
Granted |
275,905 | 17.92 | ||||||
Vested (1) |
(289,183 | ) | 27.39 | |||||
Forfeited |
(3,125 | ) | 18.23 | |||||
Nonvested at October 31, 2009 |
528,834 | $ | 21.42 | |||||
(1) | Includes 87,688 shares relinquished for tax payments related to vested deferred stock units for the nine months ended October 31, 2009. |
During the nine months ended October 31, 2009, 19,360 restricted stock shares and 269,823
deferred stock units vested. No shares of restricted stock were granted or forfeited during the
nine months ended October 31, 2009. Total nonvested shares of 528,834 at October 31, 2009 include
90,224 nonvested restricted stock shares.
As of October 31, 2009, we have unrecognized compensation expense related to nonvested
restricted stock shares and deferred stock units of approximately $6.5 million which is expected to
be recognized over a weighted average period of 1.6 years.
12
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
Employee Profit Sharing and Stock Purchase Plan
We have a defined contribution Employee Stock Ownership Plan (ESOP) which provides eligible
employees with future retirement benefits. Contributions to the ESOP are made at the discretion of
the Board of Directors. No contributions were charged to operations in fiscal 2008 or 2009. In
October 2009, the Board of Directors of the Company approved the termination of the ESOP, effective
as of October 15, 2009. Each participant and former participant in the ESOP who has an account
balance under the ESOP on January 1, 2009, which was not fully vested on that date will become
fully vested in the amount credited to his or her account under the ESOP together with any amounts
thereafter allocated and credited to such account prior to its distribution. Annual expense
associated with the ESOP is approximately $0.1 million. We do not expect the termination of the
ESOP to significantly affect our consolidated financial statements.
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 31, 2009, employees purchased 108,102 shares under the
ESDP, which had a weighted-average share price of $13.31 per share. As of October 31, 2009,
1,207,758 shares were reserved for future issuance under the ESDP.
13
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
9. Manufacturing Facility Closure
On March 3, 2008, we announced that Golden Brand Clothing (Canada) Ltd., an indirect wholly
owned subsidiary of the Company, intended to close its Montreal, Quebec-based manufacturing
facility. The facility was closed on July 11, 2008.
In fiscal 2008, we recognized pretax costs of $10.0 million for closure of the facility,
including $6.6 million for severance payments, $1.1 million for the write-off of fixed assets, $1.6
million for lease termination payments and approximately $0.7 million for other costs related to
closing the facility. As of November 1, 2008, we had recognized the total pretax cost of $10.0
million recorded in fiscal 2008 for the closure of the facility. These charges are included in
Selling, general and administrative expenses in our condensed consolidated statement of earnings.
No charges were recognized for the three and nine months ended October 31, 2009. The accrued
balance of $0.4 million at October 31, 2009 for closure of the facility relates to the remaining
lease termination payments which will be paid over the remaining term of the lease through February
2010.
The following table details information related to the accrued balance recorded during the
three months ended October 31, 2009 related to the closure of the Montreal manufacturing facility
(in thousands):
Accrued costs at August 1, 2009 |
$ | 607 | ||
Cash payments |
(248 | ) | ||
Translation adjustment |
(2 | ) | ||
Accrued costs at October 31, 2009 |
$ | 357 | ||
The following table details information related to the accrued balance recorded during the
nine months ended October 31, 2009 related to the closure of the Montreal manufacturing facility
(in thousands):
Accrued costs at January 31, 2009 |
$ | 971 | ||
Cash payments |
(723 | ) | ||
Translation adjustment |
109 | |||
Accrued costs at October 31, 2009 |
$ | 357 | ||
14
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
10. 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, discovery has not begun, and the court has not yet appointed lead
plaintiffs or lead counsel for the putative shareholder class. 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.
11. Supplemental Sales Information (in thousands)
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
October 31, | November 1, | October 31, | November 1, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net sales: |
||||||||||||||||
Mens tailored clothing product |
$ | 180,070 | $ | 174,579 | $ | 569,611 | $ | 578,447 | ||||||||
Mens non-tailored clothing product |
133,507 | 140,347 | 422,147 | 465,616 | ||||||||||||
Ladies clothing product |
16,594 | 14,666 | 55,071 | 48,019 | ||||||||||||
Corporate apparel uniform product |
3,711 | 4,823 | 10,417 | 16,932 | ||||||||||||
Total clothing product |
333,882 | 334,415 | 1,057,246 | 1,109,014 | ||||||||||||
Tuxedo rental services |
97,702 | 96,498 | 298,688 | 294,145 | ||||||||||||
Alteration services |
25,002 | 23,225 | 79,755 | 75,802 | ||||||||||||
Retail dry cleaning services |
5,429 | 5,535 | 16,668 | 17,097 | ||||||||||||
Total alteration and other services |
30,431 | 28,760 | 96,423 | 92,899 | ||||||||||||
Total net sales |
$ | 462,015 | $ | 459,673 | $ | 1,452,357 | $ | 1,496,058 | ||||||||
Net sales by brand: |
||||||||||||||||
MW (1) |
$ | 317,584 | $ | 315,607 | $ | 987,546 | $ | 1,006,229 | ||||||||
K&G |
79,329 | 80,415 | 277,442 | 277,442 | ||||||||||||
Moores |
55,962 | 53,293 | 160,284 | 178,358 | ||||||||||||
MW Cleaners (2) |
5,429 | 5,535 | 16,668 | 17,097 | ||||||||||||
Twin Hill (3) |
3,711 | 4,823 | 10,417 | 16,932 | ||||||||||||
Total net sales |
$ | 462,015 | $ | 459,673 | $ | 1,452,357 | $ | 1,496,058 | ||||||||
(1) | MW includes Mens Wearhouse and Mens Wearhouse and Tux stores. | |
(2) | MW Cleaners is our retail dry cleaning and laundry facilities in Houston, Texas. | |
(3) | Twin Hill is our corporate apparel and uniform program. |
15
Table of Contents
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
For supplemental information, it is suggested that Managements Discussion and Analysis of
Financial Condition and Results of Operations be read in conjunction with the corresponding
section included in our Annual Report on Form 10-K for the year ended January 31, 2009. 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 2009 mean the 52-week
fiscal year ending January 30, 2010.
The following table presents information with respect to retail apparel stores in operation
during each of the respective fiscal periods:
For the | ||||||||||||||||||||
For the Three Months Ended | For the Nine Months Ended | Year Ended | ||||||||||||||||||
October 31, | November 1, | October 31, | November 1, | January 31, | ||||||||||||||||
2009 | 2008 | 2009 | 2008 | 2009 | ||||||||||||||||
Stores open at beginning of period: |
1,278 | 1,287 | 1,294 | 1,273 | 1,273 | |||||||||||||||
Opened |
1 | 16 | 4 | 40 | 43 | |||||||||||||||
Closed |
(5 | ) | (5 | ) | (24 | ) | (15 | ) | (22 | ) | ||||||||||
Stores open at end of period |
1,274 | 1,298 | 1,274 | 1,298 | 1,294 | |||||||||||||||
Stores open at end of period: |
||||||||||||||||||||
U.S. |
||||||||||||||||||||
Mens Wearhouse |
581 | 579 | 581 | 579 | 580 | |||||||||||||||
Mens Wearhouse & Tux |
469 | 495 | 469 | 495 | 489 | |||||||||||||||
K&G |
107 | 107 | 107 | 107 | 108 | |||||||||||||||
1,157 | 1,181 | 1,157 | 1,181 | 1,177 | ||||||||||||||||
Canada |
||||||||||||||||||||
Moores |
117 | 117 | 117 | 117 | 117 | |||||||||||||||
1,274 | 1,298 | 1,274 | 1,298 | 1,294 | ||||||||||||||||
Our results of operations for the three and nine months ended October 31, 2009 continued to be
impacted by a depressed economic and retail environment as unemployment increased and consumer
spending remained weak. We continued efforts to stimulate sales with discounts and promotional
events as we also managed our inventory purchases, maintained expense control efforts and reduced
capital expenditures. We closed 24 stores (21 tux rental stores, two Mens Wearhouse stores and
one K&G store) that had reached the end of their lease terms during the nine months ended October
31, 2009. Based on our experience with previous economic downturns, we believe long-term
fundamentals for the mens specialty apparel industry remain strong and that current negative
conditions will stabilize over time. However, we cannot predict when a meaningful recovery will
occur.
We had revenues of $462.0 million and net earnings of $19.7 million for the three months ended
October 31, 2009, compared to revenues of $459.7 million and net earnings of $14.6 million for the
three months ended November 1, 2008. We had revenues of $1,452.4 million and net earnings of $64.4
million for the nine months ended October 31, 2009, compared to revenues of $1,496.1 million and
net earnings of $57.4 million for the nine months ended November 1, 2008. The more significant
factors impacting these results are addressed in the Results of Operations discussion below.
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.
16
Table of Contents
Results of Operations
Three Months Ended October 31, 2009 compared to Three Months Ended November 1, 2008
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 31, | November 1, | |||||||
2009 | 2008 | |||||||
Net sales: |
||||||||
Clothing product |
72.3 | % | 72.8 | % | ||||
Tuxedo rental services |
21.1 | 21.0 | ||||||
Alteration and other services |
6.6 | 6.2 | ||||||
Total net sales |
100.0 | % | 100.0 | % | ||||
Cost of sales: |
||||||||
Clothing product, including buying and distribution costs |
31.9 | 31.3 | ||||||
Tuxedo rental services |
3.6 | 3.5 | ||||||
Alteration and other services |
5.0 | 5.2 | ||||||
Occupancy costs |
15.7 | 15.9 | ||||||
Gross margin |
43.9 | 44.1 | ||||||
Selling, general and administrative expenses |
37.4 | 38.9 | ||||||
Operating income |
6.5 | 5.2 | ||||||
Interest income |
0.1 | 0.2 | ||||||
Interest expense |
(0.1 | ) | (0.2 | ) | ||||
Earnings before income taxes |
6.5 | 5.2 | ||||||
Provision for income taxes |
2.2 | 2.0 | ||||||
Net earnings |
4.3 | % | 3.2 | % | ||||
(1) | Percentage line items may not sum to totals due to the effect of rounding. |
The Companys net sales showed a slight increase of $2.3 million, or 0.5%, to $462.0 million
for the quarter ended October 31, 2009 as compared to the same prior year quarter. The increase
was due mainly to the following:
(in millions) | Amount Attributed to | |||
$ | (0.5 | ) | Decrease in comparable sales. |
|
2.4 | Increase from net sales of stores opened in 2008,
relocated stores and expanded stores not yet included in
comparable sales. |
|||
1.8 | Increase in alteration services sales. |
|||
(1.4 | ) | Decrease in corporate apparel and other sales. |
||
(2.2 | ) | Decrease in net sales resulting from stores closed. |
||
1.2 | Increase in net sales from 4 new stores opened in 2009. |
|||
1.0 | Increase in net sales resulting from exchange rate changes. |
|||
$ | 2.3 | Total |
Our comparable store sales (which are calculated by excluding the net sales of a store for any
month of one period if the store was not open throughout the same month of the prior period)
decreased 0.2% at Mens Wearhouse as the impact of lower store traffic levels more than offset the
effect of increases in units per transaction, driven by our promotional activities, and the
average transaction value. At Moores, store traffic levels were also lower than in the prior year
quarter, but promotion-driven increases in units per transaction and an increased average
transaction value were more than offsetting and resulted in a comparable store sales increase of
1.9%. Comparable store sales decreased 1.1% at K&G as decreases in units per transaction and
average transaction value more than offset an increase in store traffic. The continuation of
negative macroeconomic conditions, including high unemployment, particularly affected sales of
mens apparel as buying patterns for men are considered to be more discretionary than those in
other apparel areas. Tuxedo rental service revenues, as a percentage of total revenues, increased
slightly from 21.0% in the third quarter of 2008 to 21.1% in the third quarter of 2009. Alteration
services revenues also increased due mainly to the increases in units per transaction at Mens
Wearhouse and Moores.
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The Companys gross margin was as follows:
For the Three Months | ||||||||
Ended | ||||||||
October 31, | November 1, | |||||||
2009 | 2008 | |||||||
Gross margin (in thousands) |
$ | 202,674 | $ | 202,724 | ||||
Gross margin as a percentage of related sales: |
||||||||
Clothing product, including buying and distribution costs |
55.9 | % | 57.0 | % | ||||
Tuxedo rental services |
83.1 | % | 83.2 | % | ||||
Alteration and other services |
24.1 | % | 17.7 | % | ||||
Occupancy costs |
(15.7 | )% | (15.9 | )% | ||||
Total gross margin |
43.9 | % | 44.1 | % |
Total gross margin of $202.7 million for the quarter ended October 31, 2009 was unchanged from
the prior year quarter. However, as a percentage of sales, total gross margin decreased from 44.1%
in the third quarter of 2008 to 43.9% in the third quarter of 2009. This decrease was due mainly
to lower clothing product margins, offset partially by an improved alteration services margin. As
a percentage of related sales, the clothing product gross margin decreased from 57.0% in 2008 to
55.9% in 2009 due primarily to higher markdowns from increased promotional activities at our Mens
Wearhouse and Moores stores. The gross margin for alteration and other services increased from
17.7% in 2008 to 24.1% in 2009 mainly as a result of reduced alteration costs combined with
increased alteration sales associated with the increased unit sales from our promotional events.
The tuxedo rental services gross margin decreased slightly from 83.2% in 2008 to 83.1% in 2009.
Occupancy cost, which is relatively constant on a per store basis and includes store related rent,
common area maintenance, utilities, repairs and maintenance, security, property taxes and
depreciation, decreased from 15.9% of total sales in the third quarter of 2008 to 15.7% in the
third quarter of 2009. On an absolute dollar basis, occupancy costs decreased by 1.2% from the
third quarter of 2008 to the third quarter of 2009 due mainly to lower rent expense from our
decreased store count.
Selling, general and administrative expenses decreased to $172.6 million in the third quarter
of 2009 from $179.0 million in the third quarter of 2008, a decrease of $6.4 million or 3.6%. As a
percentage of sales, these expenses decreased from 38.9% in the third quarter of 2008 to 37.4% in
the third quarter of 2009. The components of this 1.5% net decrease in SG&A expenses as a
percentage of net sales and the related absolute dollar changes were as follows:
% | Attributed to | |||
0.7 | Increase in advertising expense as a percentage of sales from 3.2%
in the third quarter of 2008 to 3.9% in the third quarter of 2009.
On an absolute dollar basis, advertising expense increased $3.2
million. |
|||
(0.3 | ) | Decrease in store salaries as a percentage of sales from 15.3% in
the third quarter of 2008 to 15.0% in the third quarter of 2009.
Store salaries on an absolute dollar basis decreased $1.2 million
primarily due to decreased personnel. |
||
(0.4 | ) | Decrease in other SG&A expenses of $1.8 million due to the absence
in 2009 of costs incurred in the third quarter of 2008 in
connection with the July 11, 2008 closure of the Canadian based
manufacturing facility operated by the Companys subsidiary, Golden
Brand. |
||
(1.5 | ) | Decrease in other SG&A expenses as a percentage of sales from 20.0%
in the third quarter of 2008 to 18.5% in the third quarter of 2009.
On an absolute dollar basis, other SG&A expenses decreased $6.6
million primarily due to the continuation of cost control efforts
initiated in the fourth quarter of 2008. |
||
(1.5 | )% | Total |
Interest expense decreased from $1.0 million in the third quarter of 2008 to $0.3 million in
the third quarter of 2009, while interest income decreased from $0.7 million in the third quarter
of 2008 to $0.3 million in the third quarter of 2009. Weighted average borrowings outstanding
decreased from $80.0 million in the third quarter of 2008 to $42.8 million in the third quarter of
2009, and the weighted average interest rate on outstanding indebtedness decreased from 4.5% to
1.9%. The decrease in the weighted average borrowings was due to the voluntary repayment of a
portion of our Canadian term loan in October 2008 of approximately US$31.9 million and payments on
our revolving credit facility of $25.0 million during the first quarter of 2009. The weighted
average interest rate for the third quarter of 2009 decreased mainly due to a decrease in the
effective interest rate for the Canadian term loan from 3.3% at November 1, 2008 to 1.3% at
October 31, 2009. The
decrease in interest income was primarily attributable to lower interest rates for the third
quarter of 2009 as compared to the third quarter of 2008.
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Table of Contents
Our effective income tax rate was 34.5% for the third quarter of 2009 and 38.0% for the third
quarter of 2008. The effective tax rate in 2009 and 2008 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 the recognition of previously unrecognized tax benefits and related
accrued interest upon the expiration of the related statute of limitations.
These factors resulted in net earnings of $19.7 million or 4.3% of net sales for the third
quarter of 2009, compared with net earnings of $14.6 million or 3.2% of net sales for the third
quarter of 2008.
Nine Months Ended October 31, 2009 compared to Nine Months Ended November 1, 2008
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 31, | November 1, | |||||||
2009 | 2008 | |||||||
Net sales: |
||||||||
Clothing product |
72.8 | % | 74.1 | % | ||||
Tuxedo rental services |
20.6 | 19.7 | ||||||
Alteration and other services |
6.6 | 6.2 | ||||||
Total net sales |
100.0 | % | 100.0 | % | ||||
Cost of sales: |
||||||||
Clothing product, including buying and distribution costs |
33.4 | 32.4 | ||||||
Tuxedo rental services |
3.4 | 3.3 | ||||||
Alteration and other services |
4.9 | 4.9 | ||||||
Occupancy costs |
15.0 | 14.8 | ||||||
Gross margin |
43.3 | 44.6 | ||||||
Selling, general and administrative expenses |
36.2 | 38.4 | ||||||
Operating income |
7.1 | 6.2 | ||||||
Interest income |
0.1 | 0.1 | ||||||
Interest expense |
(0.1 | ) | (0.2 | ) | ||||
Earnings before income taxes |
7.1 | 6.1 | ||||||
Provision for income taxes |
2.6 | 2.3 | ||||||
Net earnings |
4.4 | % | 3.8 | % | ||||
(1) | Percentage line items may not sum to totals due to the effect of rounding. |
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The Companys net sales decreased $43.7 million, or 2.9%, to $1,452.4 million for the nine
months ended October 31, 2009. The decrease was due mainly to a $51.8 million decrease in clothing
product sales, offset partially by a $4.5 million increase in tuxedo rental services and a $4.0
million increase in alteration services, and is attributable to the following:
(in millions) | Amount Attributed to | |||
$ | (33.1 | ) | Decrease in comparable sales. |
|
13.5 | Increase from net sales of stores opened in 2008, relocated
stores and expanded stores not yet included in comparable
sales. |
|||
4.0 | Increase in alteration services sales. |
|||
(7.9 | ) | Decrease in corporate apparel and other sales. |
||
(6.8 | ) | Decrease in net sales resulting from stores closed. |
||
1.9 | Increase in net sales from 4 new stores opened in 2009. |
|||
(15.3 | ) | Decrease in net sales resulting from exchange rate changes. |
||
$ | (43.7 | ) | Total |
Our comparable store sales decreased 3.0% at Mens Wearhouse and 1.9% at Moores as moderate
increases in units per transaction and the average transaction value, driven by our promotional
activities, were more than offset by lower store traffic levels. At K&G, comparable store sales
decreased 0.8% primarily due to decreases in units per transaction and average transaction value.
The continuation of negative macroeconomic conditions, including high unemployment, particularly
affected sales of mens apparel as buying patterns for men are considered to be more discretionary
than those in other apparel areas. The lower clothing product sales were partially offset by
increased revenues from our tuxedo rental services due mainly to higher average rental rates. As a
percentage of total revenues, tuxedo rental service revenues increased from 19.7% in the first nine
months of 2008 to 20.6% in the first nine months of 2009. Exchange rate changes from a weaker
Canadian dollar also caused total sales for the first nine months of 2009 to be $15.3 million less
than the comparable prior year sales.
The Companys gross margin was as follows:
For the Nine Months Ended | ||||||||
October 31, | November 1, | |||||||
2009 | 2008 | |||||||
Gross margin (in thousands) |
$ | 628,451 | $ | 667,522 | ||||
Gross margin as a percentage of related sales: |
||||||||
Clothing product, including buying and distribution costs |
54.1 | % | 56.3 | % | ||||
Tuxedo rental services |
83.3 | % | 83.1 | % | ||||
Alteration and other services |
26.5 | % | 20.8 | % | ||||
Occupancy costs |
(15.0 | )% | (14.8 | )% | ||||
Total gross margin |
43.3 | % | 44.6 | % |
Total gross margin decreased $39.1 million or 5.9% from the same prior year period to $628.5
million in the first nine months of 2009. As a percentage of sales, total gross margin decreased
from 44.6% in the first nine months of 2008 to 43.3% in the first nine months of 2009. This
decrease is due mainly to lower clothing product margin, offset slightly by improved tuxedo rental
and alteration services margins. As a percentage of related sales, the clothing product gross
margin decreased from 56.3% in 2008 to 54.1% in 2009 due primarily to higher markdowns from
increased promotional activities at our Mens Wearhouse and Moores stores. The tuxedo rental
services gross margin increased slightly from 83.1% in 2008 to 83.3% in 2009 due mainly to the
absence in 2009 of costs incurred in the first quarter of 2008 associated with realignment of our
tuxedo rental product inventory. The gross margin for alteration and other services increased from
20.8% in 2008 to 26.5% in 2009 mainly as a result of reduced alteration costs combined with
increased alteration sales associated with the increased unit sales from our promotional events.
Occupancy cost, which is relatively constant on a per store basis and includes store related rent,
common area maintenance, utilities, repairs and maintenance, security, property taxes and
depreciation, increased from 14.8% of total sales in the first nine months of 2008 to 15.0% in the
first nine months of 2009 but, on an absolute dollar basis, decreased by 1.2%.
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Selling, general and administrative expenses decreased to $525.7 million in the first nine
months of 2009 from $574.5 million in the first nine months of 2008, a decrease of $48.8 million or
8.5%. As a percentage of sales, these expenses decreased from 38.4% in the first nine months of
2008 to 36.2% in the first nine months of 2009. The components of this 2.2% net decrease in SG&A
expenses as a percentage of net sales and the related absolute dollar changes were as follows:
% | Attributed to | |||
0.6 | Increase in advertising expense as a percentage of sales from 3.4%
in the first nine months of 2008 to 4.0% in the first nine months
of 2009. On an absolute dollar basis, advertising expense
increased $6.8 million. |
|||
(0.2 | ) | Decrease in store salaries as a percentage of sales from 14.6% in
the first nine months of 2008 to 14.4% in the first nine months of
2009. Store salaries on an absolute dollar basis decreased $9.7
million primarily due to decreased commissions and store personnel
due to decreased sales in 2009. |
||
(0.7 | ) | Decrease in other SG&A expenses of $10.0 million due to the absence
in 2009 of costs incurred in the first nine months of 2008 in
connection with the July 11, 2008 closure of the Canadian based
manufacturing facility operated by the Companys subsidiary, Golden
Brand. |
||
(1.9 | ) | Decrease in other SG&A expenses as a percentage of sales from 19.7%
in the first nine months of 2008 to 17.8% in the first nine months
of 2009. On an absolute dollar basis, other SG&A expenses decreased
$35.9 million primarily due to cost control efforts initiated in
the fourth quarter of 2008 and the 2009 recognition of $3.3 million
in other operating income from gift card breakage. During the
second quarter of 2009, we entered into an agreement with an
unrelated third party who assumed our liability for unredeemed gift
cards that had not yet reached their statutory escheatment term.
As a result of this agreement, we are no longer subject to certain
third party claims for unredeemed gift cards, which allows us to
recognize other income from breakage of gift cards when the
likelihood of redemption of the gift cards is remote (see Note 1 of
Notes to Condensed Consolidated Financial Statements). |
||
(2.2 | )% | Total |
Interest expense decreased from $3.6 million in the first nine months of 2008 to $1.0 million
in the first nine months of 2009, while interest income decreased from $2.3 million in the first
nine months of 2008 to $0.8 million in the first nine months of 2009. Weighted average borrowings
outstanding decreased from $94.6 million in the first nine months of 2008 to $48.6 million in the
first nine months of 2009, and the weighted average interest rate on outstanding indebtedness
decreased from 4.7% to 1.9%. The decrease in the weighted average borrowings was due mainly to the
voluntary repayment of a portion of our Canadian term loan in October 2008 of approximately US$31.9
million and payments on our revolving credit facility of $25.0 million during the first quarter of
2009. The weighted average interest rate for the first nine months of 2009 decreased mainly due to
a decrease in the effective interest rate for the Canadian term loan from 3.3% at November 1, 2008
to 1.3% at October 31, 2009. The decrease in interest income was primarily attributable to lower
interest rates for the first nine months of 2009 as compared to the first nine months of 2008.
Our effective income tax rate was 37.2% for the first nine months of 2009 and 37.4% for the
first nine months of 2008. The effective tax rate in 2009 and 2008 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 the recognition of previously unrecognized tax
benefits and related accrued interest upon the expiration of the related statute of limitations.
During the first nine months of 2009, we recognized $0.6 million of net previously unrecognized tax
benefits and associated accrued interest. During the first nine months of 2008, we recognized $1.3
million of net previously unrecognized tax benefits and associated accrued interest.
These factors resulted in net earnings of $64.4 million or 4.4% of net sales for the first
nine months of 2009, compared with net earnings of $57.4 million or 3.8% of net sales for the first
nine months of 2008.
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Liquidity and Capital Resources
At October 31, 2009, January 31, 2009 and November 1, 2008, cash and cash equivalents totaled
$198.5 million, $87.4 million and $84.3 million, respectively. We had working capital of $486.3
million, $411.4 million and $442.9 million at October 31, 2009, January 31, 2009 and November 1,
2008, respectively, which included short-term investments of $17.1 million and $17.4 million at
January 31, 2009 and November 1, 2008, respectively. We held no short-term investments at October
31, 2009. 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 $74.9 million increase in working capital at October
31, 2009 compared to January 31, 2009 resulted primarily from increased cash balances from
operating results.
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 31, 2009, there was US$43.0
million outstanding under the Canadian term loan, with an effective interest rate of 1.3%, 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 31, 2009.
Adverse conditions in the U.S. and global credit markets have made it difficult for many
businesses to obtain financing on acceptable terms. If these adverse market conditions continue or
worsen, it may be more difficult for us to renew or increase our credit facility.
We utilize letters of credit primarily to secure inventory purchases. At October 31, 2009,
letters of credit totaling approximately $12.6 million were issued and outstanding.
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 $162.4 million in the first nine months of 2009, due
mainly to net earnings, adjusted for non-cash charges, and a decrease in other assets and an
increase in income taxes payable, offset by increases in inventories and tuxedo rental product.
During the first nine months of 2008, our operating activities provided net cash of $88.1 million,
due mainly to net earnings, adjusted for non-cash charges, offset by increases in inventories and
tuxedo rental product and decreases in accounts payable, accrued expenses and other current
liabilities and income taxes payable. The increase in inventories during the first nine months of
2009 and 2008 was primarily due to seasonal inventory build up. The increase in tuxedo rental
product in the first nine months of 2009 and 2008 was due to purchases to support our tuxedo rental
business, including realignment and replacement of a portion of our tuxedo rental product offerings
in both periods. The decrease in accounts payable, accrued expenses and other current liabilities
for the first nine months of 2008 was primarily due to the timing of vendor payments and reduced
purchases associated with decreased clothing sales. The decrease in other assets in the first nine
months of 2009 was due mainly to tax refunds received. Income taxes payable in the first nine
months of 2008 decreased due to the decrease in net earnings for the
period. The increase in
income taxes payable in the first nine months of 2009 was due to the timing and amounts of required
tax payments.
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Table of Contents
Investing activities Our cash outflows from investing activities are primarily for capital
expenditures and purchases of short-term investments, while cash inflows are primarily the result
of proceeds from sales of short-term investments. During the first nine months of 2009, our
investing activities used net cash of $25.1 million due mainly to proceeds of short-term
investments of $19.4 million, offset by capital expenditures of $44.5 million. During the first
nine months of 2008, our investing activities used net cash of $26.8 million due mainly to net
proceeds of short-term investments of $42.5 million, offset by capital expenditures of $69.5
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 and from issuances of common stock related to our
share-based compensation plans. During the first nine months of 2009, our financing activities
used net cash of $34.5 million 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. Our financing activities provided net cash of $2.7 million for the first
nine months of 2008, due mainly to proceeds from our revolving credit facility and the issuance of
common stock, offset by the payment of cash dividends and payments on our Canadian term loan and
our revolving credit facility.
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 2009 or 2008. At October 31, 2009, the remaining
balance available under the August 2007 authorization was $44.3 million.
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. During the nine
months ended November 1, 2008, 6,728 shares at a cost of $0.2 million were repurchased at an
average price per share of $23.13 in a private transaction to satisfy tax withholding obligations
arising upon the vesting of certain restricted stock.
Dividends Cash dividends paid were approximately $11.0 million and $10.9 million for the
nine months ended October 31, 2009 and November 1, 2008, respectively.
In October 2009, our Board of Directors declared a quarterly cash dividend of $0.07 per share
payable on December 24, 2009 to shareholders of record at close of business on December 15, 2009.
The dividend payout is estimated to be approximately $3.7 million and is included in accrued
expenses and other current liabilities as of October 31, 2009.
Future cash flow
The continuation of certain adverse economic conditions, including high unemployment levels,
lowered consumer spending and deteriorated credit markets, could negatively affect our future
operating results as well as our existing cash and cash equivalent balances. In addition, the
presence of turmoil in the financial markets could limit our access to additional capital
resources, if needed, and could increase associated costs. Given the uncertain economic
environment, we continue to focus on operating effectiveness, expense control, inventory management
and conservative capital spending. Going forward, we plan to proceed cautiously with new store
growth and continue to anticipate a significant reduction in store openings in the next 12 months
relative to 2008 levels. 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, other capital
expenditures and operating cash requirements and that we will be able to maintain compliance with
the covenants in our Credit Agreement for at least the next 12 months. In addition, as of October
31, 2009, borrowings available under our Credit Agreement were $187.4 million. However, current
economic conditions may create potential acquisition opportunities. If such acquisition
opportunities develop, we may need to raise additional capital in order to complete such
acquisitions and/or our Credit Agreement might need to be modified.
23
Table of Contents
As a substantial portion of our cash and cash equivalents, which are primarily U.S.
treasuries, guaranteed investment certificates and other interest bearing accounts, is held by
three financial institutions (one U.S. and two 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.
24
Table of Contents
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
Moores conducts its business in Canadian dollars. The exchange rate between Canadian dollars
and U.S. dollars has fluctuated over the last ten years. If the value of the Canadian dollar
against the U.S. dollar weakens, then the revenues and earnings of our Canadian operations will be
reduced when they are translated to U.S. dollars. Also, the value of our Canadian net assets in
U.S. dollars may decline.
Interest Rate Risk
We are also subject to market risk as a result of the outstanding balance of US$43.0 million
under our Canadian term loan at October 31, 2009, which bears a variable interest rate (see Note 3
of Notes to Condensed Consolidated Financial Statements). An increase in market interest rates
would increase our interest expense and our cash requirements for interest payments. For example,
an average increase of 0.5% in the variable interest rate would increase our interest expense and
payments by approximately $0.2 million. At October 31, 2009, 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 31, 2009, we have highly liquid investments classified as cash equivalents in our condensed
consolidated balance sheet. Future investment income earned on our cash equivalents will fluctuate
in line with short-term interest rates.
ITEM 4 CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Companys management, with the participation of the Companys chief executive officer and
chief financial officer, 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) as of the end of the fiscal quarter ended October 31, 2009. Based on this
evaluation, the CEO and CFO have concluded that the Companys disclosure controls and procedures
were effective as of the end of the fiscal quarter ended October 31, 2009 to ensure that
information that is required to be disclosed by the Company in the reports it files or submits
under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms.
Changes in Internal Controls over Financial Reporting
There were no changes in the Companys internal control over financial reporting that occurred
during the fiscal quarter ended October 31, 2009 that has materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial reporting.
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Table of Contents
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, discovery has not begun, and the court has not yet appointed lead
plaintiffs or lead counsel for the putative shareholder class. The Company believes the lawsuit is
without merit and intends to mount a vigorous defense; we are unable to determine the likely
outcome at this time.
We are involved in various routine legal proceedings, including ongoing litigation, incidental
to the conduct of our business. Management believes that none of these matters will have a
material adverse effect on our financial position, results of operations or cash flows.
ITEM 6 EXHIBITS
(a) Exhibits.
Exhibit | ||||||
Number | Exhibit Index | |||||
10.1 | | The Mens Wearhouse, Inc. Change in Control Severance
Plan (As Amended and Restated Effective October 1, 2009)
(incorporated by reference from Exhibit 10.1 to the
Companys Current Report on Form 8-K filed with the
Commission on October 27, 2009). |
||||
10.2 | | Forms of Deferred Stock Unit Award Agreement, Restricted
Stock Award Agreement and Nonqualified Stock Option Award
Agreement under The Mens Wearhouse, Inc. 2004 Long-Term
Incentive Plan (as amended and restated effective as of
April 1, 2008) (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). |
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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, 2009 | THE MENS WEARHOUSE, INC. |
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By | /s/ NEILL P. DAVIS | |||
Neill P. Davis | ||||
Executive Vice President, Chief Financial Officer, Treasurer and Principal Financial Officer |
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Table of Contents
EXHIBIT INDEX
Exhibit | ||||||
Number | Exhibit Index | |||||
10.1 | | The Mens Wearhouse, Inc. Change in Control Severance
Plan (As Amended and Restated Effective October 1, 2009)
(incorporated by reference from Exhibit 10.1 to the
Companys Current Report on Form 8-K filed with the
Commission on October 27, 2009). |
||||
10.2 | | Forms of Deferred Stock Unit Award Agreement, Restricted
Stock Award Agreement and Nonqualified Stock Option Award
Agreement under The Mens Wearhouse, Inc. 2004 Long-Term
Incentive Plan (as amended and restated effective as of
April 1, 2008) (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). |
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