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EXCEL - IDEA: XBRL DOCUMENT - TAILORED BRANDS INC | Financial_Report.xls |
EX-32.2 - EX-32.2 - TAILORED BRANDS INC | h80862exv32w2.htm |
EX-31.2 - EX-31.2 - TAILORED BRANDS INC | h80862exv31w2.htm |
EX-23.1 - EX-23.1 - TAILORED BRANDS INC | h80862exv23w1.htm |
EX-32.1 - EX-32.1 - TAILORED BRANDS INC | h80862exv32w1.htm |
EX-21.1 - EX-21.1 - TAILORED BRANDS INC | h80862exv21w1.htm |
EX-31.1 - EX-31.1 - TAILORED BRANDS INC | h80862exv31w1.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended January 29, 2011
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 (State or Other Jurisdiction of Incorporation or Organization) |
74-1790172 (IRS Employer Identification Number) |
|
6380 Rogerdale Road Houston, Texas (Address of Principal Executive Offices) |
77072-1624 (Zip Code) |
(281) 776-7000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered |
|
Common Stock, par value $.01 per share | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes þ. No o.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o. No þ.
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 Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes þ. No o.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of the registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
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 aggregate market value of the voting stock held by non-affiliates of the registrant, based on
the closing price of shares of common stock on the New York Stock Exchange on July 31, 2010, was
approximately $947.9 million.
The number of shares of common stock of the registrant outstanding on March 24, 2011 was 51,420,365
excluding 19,710,867 shares classified as Treasury Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Document | Incorporated as to | |
Notice and Proxy Statement for the
Annual Meeting of Shareholders
scheduled to be held June 15, 2011.
|
Part III: Items 10,11,12, 13 and 14 |
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EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
Table of Contents
Forward-Looking and Cautionary Statements
Certain statements made in this Annual Report on Form 10-K and in other public filings and
press releases by the Company contain forward-looking information (as defined in the Private
Securities Litigation Reform Act of 1995) that involves risk and uncertainty. These
forward-looking statements may include, but are not limited to, references to future capital
expenditures, acquisitions, sales, earnings, margins, costs, number and costs of store openings,
demand for clothing, market trends in the retail and corporate apparel clothing business, currency
fluctuations, inflation and various economic and business trends. Forward-looking statements may
be made by management orally or in writing, including, but not limited to, Managements Discussion
and Analysis of Financial Condition and Results of Operations included in this Annual Report on
Form 10-K 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, success, or lack thereof, in executing our 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 contained in Part I of this
Annual Report on Form 10-K 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
convey 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.
1
Table of Contents
PART I
ITEM 1. BUSINESS
General
The Mens Wearhouse began operations in 1973 as a partnership and was incorporated as The
Mens Wearhouse, Inc. (the Company) under the laws of Texas in May 1974. Our principal corporate
and executive offices are located at 6380 Rogerdale Road, Houston, Texas 77072-1624 (telephone
number 281/776-7000) and at 40650 Encyclopedia Circle, Fremont, California 94538-2453 (telephone
number 510/657-9821), respectively. Unless the context otherwise requires, Company, we, us
and our refer to The Mens Wearhouse, Inc. and its subsidiaries.
The Company
We are one of the largest specialty retailers of mens suits and the largest provider of
tuxedo rental product in the United States (U.S.) and Canada. At January 29, 2011, we operated
1,192 retail stores, with 1,075 stores in the United States and 117 stores in Canada. Our U.S.
retail stores are operated under the brand names of Mens Wearhouse (585 stores), Mens Wearhouse
and Tux (388 stores) and K&G (102 stores) in 47 states and the District of Columbia. Our Canadian
stores are operated under the brand name of Moores Clothing for Men in ten provinces. We also
conduct retail dry cleaning and laundry operations through MW Cleaners in the Houston, Texas area.
On August 6, 2010, we acquired Dimensions Clothing Limited (Dimensions) and certain assets
of Alexandra plc (Alexandra), two leading providers of corporate clothing uniforms and workwear
in the United Kingdom (UK), to complement our corporate apparel operations conducted by Twin Hill
in the United States. The acquired businesses are organized under a UK-based holding company, of
which the Company controls 86% and certain previous shareholders of Dimensions control 14%. The
Company has the right to acquire the remaining outstanding shares of the UK-based holding company
after fiscal 2013 on terms set forth in the Investment, Shareholders and Stock Purchase Agreement.
The acquisition-date cash consideration transferred for the Dimensions and Alexandra acquisitions
was US$97.8 million (£61 million) and was funded through our cash on hand.
As a result of these acquisitions, in the third quarter of fiscal 2010, we revised our segment
reporting to reflect two reportable segments, retail and corporate apparel, based on the way we
manage, evaluate and internally report our business activities. Prior to these acquisitions our
corporate apparel business did not have a significant effect on the revenues or expenses of the
Company and we reported our business as one operating segment. Refer to the Business Segments
discussion below.
Also in the third quarter of fiscal 2010, we changed the method of determining cost under the
lower of cost or market inventory valuation method used for our K&G brand (representing
approximately 23% of our inventory) from the retail inventory method to the average cost method.
We recorded the cumulative effect of the change in accounting principle retrospectively as of
February 1, 2009. The cumulative effect of this change in accounting principle as of February 1,
2009 was an increase in inventory of $2.2 million, a decrease in deferred tax assets of $0.9
million and a net increase in retained earnings of $1.3 million. The retrospective application of
this accounting change impacted both segment and consolidated operating income, as well as
consolidated net earnings, for all comparable periods presented by insignificant amounts. The
change in accounting principle did not have any impact on our previously reported net cash flows,
sales or comparable store sales. Refer to Note 14 of Notes to Consolidated Financial Statements
contained herein.
During fiscal years 2010, 2009 and 2008, we generated total net sales of $2,102.7 million,
$1,909.6 million and $1,972.4 million, respectively, and net earnings attributable to common
shareholders of $67.7 million, $46.2 million and $58.8 million, respectively.
2
Table of Contents
Business Segments
As discussed above, as a result of our acquisitions of Dimensions and Alexandra in the third
quarter of fiscal 2010, we revised our segment reporting to reflect two reportable segments, retail
and corporate apparel, based on the way we manage, evaluate and internally report our business
activities. Prior to these acquisitions our corporate apparel business did not have a significant
effect on the revenues or expenses of the Company and we reported our business as one operating
segment. Prior period amounts reported as one operating segment have been revised to conform to our
new segment reporting structure.
The following table presents our net sales and operating income by reportable segment for the
last three fiscal years (in thousands):
Fiscal Year | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Net sales: |
||||||||||||
Retail |
$ | 1,976,366 | $ | 1,896,102 | $ | 1,950,919 | ||||||
Corporate apparel |
126,298 | 13,473 | 21,499 | |||||||||
Total net sales |
$ | 2,102,664 | $ | 1,909,575 | $ | 1,972,418 | ||||||
Operating income (loss): |
||||||||||||
Retail |
$ | 108,392 | $ | 73,670 | $ | 89,132 | ||||||
Corporate apparel |
(6,721 | ) | (4,294 | ) | 1,339 | |||||||
Operating income |
$ | 101,671 | $ | 69,376 | $ | 90,471 | ||||||
Additional segment information, together with certain geographical information, is included in
Note 11 of Notes to Consolidated Financial Statements contained herein.
The corporate apparel segment provides corporate clothing uniforms and workwear to workforces
with operations conducted by Twin Hill in the United States and, beginning in the third quarter of
fiscal 2010, Dimensions and Alexandra in the UK. Alexandra also operates in The Netherlands and
France. We offer our corporate apparel clothing products through multiple channels including
managed corporate accounts, catalogs and on the internet at www.dimensions.co.uk and
www.alexandra.co.uk. We offer a wide variety of customer branded apparel such as shirts,
blouses, trousers, skirts and suits as well as a wide range of other products from aprons to safety
vests to high visibility police outerwear. With respect to our managed contracts, we generally
provide complete management of our customers corporate clothing programs from design, fabric
buying and manufacture to measuring, product roll-outs and ongoing stock replacement and
replenishment. The corporate apparel segment accounted for approximately 6.0%, 0.7% and 1.1% of
our total net sales in fiscal 2010, 2009 and 2008, respectively.
3
Table of Contents
In our retail segment, we offer our products and services through our four retail
merchandising brands The Mens Wearhouse, Mens Wearhouse and Tux, K&G and Moores Clothing for
Men and on the internet at www.menswearhouse.com. Our stores are located throughout the United
States and Canada and carry a wide selection of brand name and private label merchandise. Our
retail segment accounted for approximately 94.0%, 99.3% and 98.9% of our total net sales in fiscal
2010, 2009 and 2008, respectively. MW Cleaners, a retail dry cleaning and laundry operation in
the Houston, Texas area, is also aggregated in the retail segment as these operations have not had
a significant effect on the revenues or expenses of the Company.
Below is a summary of store statistics with respect to our retail apparel stores during each
of the respective fiscal years, followed by a brief description of each brand.
For the Year Ended | ||||||||||||
January 29, 2011 | January 30, 2010 | January 31, 2009 | ||||||||||
Stores open at beginning of period: |
1,259 | 1,294 | 1,273 | |||||||||
Opened |
10 | 6 | 43 | |||||||||
Closed |
(77 | ) | (41 | ) | (22 | ) | ||||||
Stores open at end of period |
1,192 | 1,259 | 1,294 | |||||||||
Stores open at end of period: |
||||||||||||
Mens Wearhouse |
585 | 581 | 580 | |||||||||
Mens Wearhouse and Tux |
388 | 454 | 489 | |||||||||
K&G |
102 | 107 | 108 | |||||||||
Moores |
117 | 117 | 117 | |||||||||
Total |
1,192 | 1,259 | 1,294 | |||||||||
At January 29, 2011 we also operated 35 retail dry cleaning and laundry facilities in the
Houston, Texas area.
Mens Wearhouse/Mens Wearhouse and Tux
Under the Mens Wearhouse brand, we target middle and upper-middle income men by providing a
superior level of customer service and offering quality merchandise, including a broad selection of
designer, brand name and private label merchandise and big and tall product, at regular and sale
prices we believe are competitive with traditional department stores. Our merchandise includes
suits, suit separates, sport coats, slacks, formalwear, business casual, sportswear, outerwear,
dress shirts, shoes and accessories. We concentrate on mens wear-to-work business attire that
is characterized by infrequent and more predictable fashion changes. Therefore, we believe we are
not as exposed to trends typical of more fashion-forward apparel retailers where significant
markdowns to move out-of-style merchandise are more common. However, our concentration in
wear-to-work business attire is impacted by macroeconomic trends, particularly employment levels.
At January 29, 2011, we operated 585 Mens Wearhouse apparel stores in 47 states and the
District of Columbia. These stores are referred to as Mens Wearhouse stores or traditional
stores and also offer a full selection of tuxedo rental product. We believe our tuxedo rental
program broadens our customer base by drawing first-time and younger customers into our stores. We
believe this in turn generates opportunities for incremental apparel sales by introducing these
customers to the quality merchandise selection and superior level of customer service at our
traditional stores. To further accommodate these younger tuxedo rental customers, we also offer an
expanded merchandise assortment of dress and casual apparel targeted towards a younger customer in
our traditional stores.
Mens Wearhouse stores vary in size from approximately 3,100 to 9,700 total square feet
(average square footage at January 29, 2011 was 5,673 square feet with 87% of stores having between
4,000 and 7,000 square feet). Mens Wearhouse stores are primarily located in middle and
upper-middle income regional strip and specialty retail shopping centers. We believe our customers
generally prefer to limit the amount of time they spend shopping for menswear and seek easily
accessible store sites. In fiscal 2010, we opened nine new Mens Wearhouse stores and closed five
stores.
4
Table of Contents
At January 29, 2011, we also operated another 388 stores in 38 states branded as Mens
Wearhouse and Tux that offer a full selection of tuxedo rental product and a limited selection of
retail merchandise, including dress and casual apparel targeted towards a younger customer. These stores, referred to as rental
stores, are smaller than our traditional stores and are located primarily in regional malls and
lifestyle centers. These rental stores vary in size from approximately 600 to 4,800 total square
feet (average square footage at January 29, 2011 was 1,381 square feet with 85% of stores having
between 1,000 and 4,000 square feet). In fiscal 2010, we closed 66 Mens Wearhouse and Tux stores.
Our Mens Wearhouse and Mens Wearhouse and Tux stores accounted for 68.1% of our total retail
segment net sales in fiscal 2010, 67.6% in fiscal 2009 and 67.8% in fiscal 2008.
K&G
Under the K&G brand, we target the more price sensitive customer. At January 29, 2011, we
operated 102 K&G stores in 28 states, 91 of which also offer ladies career apparel, sportswear and
accessories, including shoes.
We believe that K&Gs more value-oriented superstore approach appeals to certain customers in
the apparel market. K&G offers first-quality, current-season apparel and accessories comparable in
quality to that of traditional department stores, at everyday low prices we believe are typically
up to 60% below the regular prices charged by such stores. K&Gs merchandising strategy emphasizes
broad assortments across all major categories of both mens and ladies apparel, including tailored
clothing, casual sportswear, dress furnishings, childrens clothing, footwear and accessories.
This merchandise selection, which includes brand name as well as private label merchandise,
positions K&G to attract a wide range of customers in each of its markets.
K&G stores vary in size from approximately 5,400 to 42,000 total square feet (average square
footage at January 29, 2011 was 23,472 square feet with 63% of stores having between 15,000 and
25,000 square feet). K&G stores are destination stores located primarily in second generation
strip shopping centers that are easily accessible from major highways and thoroughfares. K&G has
created a 20,000 to 25,000 square foot mens and ladies superstore prototype. In fiscal 2010, we
opened one new K&G store and closed six stores.
Our K&G stores accounted for 18.2% of our total retail segment net sales in fiscal 2010, 19.5%
in fiscal 2009 and 19.3% in fiscal 2008.
Moores
Moores is one of Canadas leading specialty retailers of mens suits, with 117 retail apparel
stores in 10 Canadian provinces at January 29, 2011. Similar to the Mens Wearhouse stores, Moores
stores offer a broad selection of quality merchandise, including big and tall products, at
regular and sale prices we believe are competitive with traditional Canadian department stores.
Moores focuses on basic tailored wear-to-work apparel that we believe limits exposure to changes
in fashion trends and the need for significant markdowns. However, similar to the Mens Wearhouse
stores, this concentration in wear-to-work business attire is impacted by macroeconomic trends,
particularly employment levels. Moores merchandise consists of suits, sport coats, slacks,
business casual, dress shirts, sportswear, outerwear, shoes and accessories.
We also offer tuxedo rentals at all of our Moores stores which we believe broadens our
customer base by drawing first-time and younger customers into our stores. To further accommodate
these younger tuxedo rental customers, we also offer an expanded merchandise assortment including
dress and casual apparel targeted towards a younger customer in our Moores stores.
Moores stores vary in size from approximately 3,600 to 15,100 total square feet (average
square footage at January 29, 2011 was 6,306 square feet with 80% of stores having between 4,000
and 7,000 square feet). Moores stores are primarily located in middle and upper-middle income
regional strip and specialty retail shopping centers. We believe our customers generally prefer to
limit the amount of time they spend shopping for menswear and seek easily accessible store sites.
In fiscal 2010, no Moores stores were opened or closed.
Our Moores stores accounted for 12.5% of our total retail segment net sales in fiscal 2010,
11.7% in fiscal 2009 and 11.8% in fiscal 2008.
5
Table of Contents
Expansion Strategy
Our expansion strategy includes:
| opening a limited number of apparel stores in new and existing markets, | ||
| expanding our e-commerce business, | ||
| expanding our corporate apparel and uniform business, | ||
| identifying potential opportunities in international markets, and | ||
| identifying potential acquisition opportunities. |
In general terms, we consider a geographic area served by a common group of television
stations as a single market.
At present, we believe that our ability to increase the number of traditional Mens Wearhouse
stores in the United States is limited. However, we believe that additional growth opportunities
exist through continuing the diversification of our merchandise mix, continuing our promotional
strategies, relocating existing stores and adding complementary products and services. We believe
the expansion of our retail merchandise selection to include dress and casual apparel targeted
towards a younger customer will continue to generate opportunities for incremental apparel sales by
introducing younger customers to the quality merchandise selection and superior level of customer
service associated with our stores.
We plan to continue to focus on achieving a significant increase in our e-commerce business
during fiscal 2011 and intend to increase our online media and marketing spending. We will expand
the breadth and depth of our menswearhouse.com online product offerings, including web-only and
non-tailored merchandise, and we will launch a new e-commerce enabled site for K&G in the first
quarter of fiscal 2011. We intend to continue to focus on improving our site functionality and
conversion rate through staffing and technology investments and development partnerships. In
addition, our database marketing efforts will be more concentrated on online opportunities. We
believe these parallel efforts will contribute to enhanced growth in our e-commerce business for
fiscal 2011 and future years.
We plan to continue to pursue our U.S. corporate apparel and uniform program in 2011 through
our existing sales force. In the UK, our corporate apparel expansion strategy includes growth in
catalog sales by investing in direct market expertise, targeting non-customer contract
opportunities, expansion into key European markets, sale of additional products to existing
customers and identifying potential acquisition opportunities.
We also plan to open one additional retail dry cleaning and laundry facility in the Houston,
Texas area during fiscal 2011.
Merchandising
Retail Segment
Our apparel stores offer a broad selection of designer, brand name and private label mens
business attire, including a consistent stock of core items (such as basic suits, navy blazers and
tuxedos) and a significant selection of big and tall product. Although basic styles are
emphasized, each seasons merchandise reflects current fabric, fit and color trends and a smaller
percentage of inventory is more fashion oriented. The broad merchandise selection creates
increased sales opportunities by permitting a customer to purchase substantially all of his
tailored wardrobe and accessory requirements, including shoes, at our apparel stores. Within our
tailored clothing, we offer an assortment of styles from a variety of manufacturers and maintain a
broad selection of fabrics, colors and sizes. Based on the experience and expertise of our
management, we believe that the depth of selection offered provides us with an advantage over most
of our competitors.
6
Table of Contents
The Companys inventory mix includes business casual merchandise designed to meet demand for
such products resulting from more relaxed dress codes in the workplace. This merchandise consists
of tailored and non-tailored clothing (sport coats, casual slacks, knits and woven sports shirts,
sweaters and casual shoes) that complements the existing product mix and provides opportunity for
enhanced sales without significant inventory risk. To further accommodate our younger tuxedo
rental customers, we also offer an expanded merchandise assortment of dress and casual apparel
targeted towards a younger customer in our Mens Wearhouse, Mens Wearhouse and Tux and Moores
stores.
During 2010, 2009 and 2008, 56.3%, 56.0% and 54.6%, respectively, of our total retail mens
net clothing product sales were attributable to tailored clothing (suits, sport coats and slacks)
and 43.7%, 44.0% and 45.4%, respectively, were attributable to casual attire, sportswear, shoes,
shirts, ties, outerwear and other clothing product sales.
We do not purchase significant quantities of merchandise overruns or close-outs. We provide
recognizable quality merchandise at prices that assist the customer in identifying the value
available at our apparel stores. We believe that the merchandise at Mens Wearhouse and Moores
stores, before consideration of promotional discounts, is generally offered at attractive price
points that are competitive with traditional department stores and that merchandise at K&G stores
is generally up to 60% below regular retail prices charged by such stores.
Beginning in the fourth quarter of fiscal 2008 and throughout fiscal 2009 and 2010, we made a
strategic change to our promotional cadence by utilizing a variety of pricing techniques such as
buy one get one free and buy one get one for $100 versus our past practice of everyday low
prices and only having two annual clearance events. Our promotional pricing strategy is designed
to encourage multiple unit sales, and it allows us to offer our customers excellent value while
still maintaining adequate margins and remaining competitive in the current economic environment.
Corporate Apparel Segment
In our corporate apparel operations, we work with our customers, who are generally businesses
and organizations in both the public and private sector, to create custom apparel programs designed
to support and enhance their respective brands. Our comprehensive apparel collections, including
basic apparel categories such as shirts, blouses, skirts and suits as well as a wide range of other
products from aprons to safety vests and high visibility police outerwear, feature designs with
sizes and fits that meet the performance needs of our customers employees and utilize the latest
technology in long-wearing fabrications. Career wear, casual wear and workwear make up an
increasingly significant portion of the product mix as service industry customers continue to grow.
Under our managed contracts, our customers receive a full range of services including design,
measuring and sizing, employee database management and replenishment forecasting, supply chain
management and distribution and logistics of finished products. Customers work with our in-house
design and technical teams to design and develop uniforms or other corporate wear that creates
strong brand identity. We utilize our management information and garment tracking system which
highlights trends, identifies issues and provides benchmark data for the customer at all levels
from individual wearer to enterprise-wide. This system also allows us to identify potential cost
savings and develop solutions on behalf of our customers and to respond quickly to trends or other
changing needs.
With respect to our UK catalog and internet operations, customers can design an off-the rack
program that provides custom alterations and embroidery on any of our standard, ready-to wear
clothing. We work with such customers to create a distinctive, branded program that may include
the addition of a company logo or other custom trim.
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Table of Contents
Customer Service and Marketing
Retail Segment
The Mens Wearhouse and Moores sales personnel are trained as clothing consultants to provide
customers with assistance and advice on their apparel needs, including product style, color
coordination, fabric choice and garment fit. Consultants are encouraged to offer guidance to the
customer at each stage of the decision-making process, making every effort to earn the customers
confidence and to create a professional relationship that will continue beyond the initial visit.
Mens Wearhouse and Tux stores are generally smaller than our traditional stores and are staffed to
facilitate the tuxedo rental and retail sales process.
K&G stores are designed to allow customers to select and purchase apparel by themselves. For
example, each merchandise category is clearly marked and organized by size and suits are
specifically tagged Athletic Fit, Double-Breasted, Three Button, etc., as a means of further
assisting customers to easily select their styles and sizes. K&G employees are also available to
assist customers with merchandise selection, including correct sizing.
Each of our apparel stores provides on-site tailoring services to facilitate timely
alterations at a reasonable cost to customers. Tailored clothing purchased at a Mens Wearhouse
store will be pressed and re-altered (if the alterations were performed at a Mens Wearhouse store)
free of charge for the life of the garment.
Because management believes that men prefer direct and easy store access, we attempt to locate
our apparel stores in regional strip and specialty retail centers or in freestanding buildings to
enable customers to park near the entrance of the store.
The Companys advertising strategy primarily consists of television, radio, direct mail,
email, online and bridal shows. We consider our integrated efforts across these channels to be the
most effective means of both attracting and reaching potential new customers, as well as
reinforcing our positive attributes for our various brands with our existing customer base. Our
total annual advertising expenditures for the retail segment were $89.9 million, $81.8 million and
$76.7 million in 2010, 2009 and 2008, respectively.
The Company entered into a marketing agreement with Davids Bridal, Inc., the nations largest
bridal retailer, in connection with the acquisition of 509 tuxedo rental stores in fiscal 2007. As
a result, we have a preferred relationship with Davids Bridal, Inc. with respect to our tuxedo
rental operations.
We also offer our Perfect Fit loyalty program to our Mens Wearhouse, Mens Wearhouse and
Tux and Moores customers. Under the loyalty program, customers receive points for purchases.
Points are equivalent to dollars spent on a one-for-one basis, excluding any sales tax dollars.
Upon reaching 500 points, customers are issued a $50 rewards certificate which they may use to make
purchases at Mens Wearhouse, Mens Wearhouse and Tux or Moores stores. We believe that the
loyalty program facilitates our ability to cultivate long-term relationships with our customers.
All customers who register for our Perfect Fit loyalty program are eligible to participate and
earn points for purchases. Approximately 74% of sales transactions at our Mens Wearhouse, Mens
Wearhouse and Tux and Moores stores were to customers who participated in the loyalty program in
fiscal 2010.
Corporate Apparel Segment
Sector characteristics tend to impact the corporate wear requirements of our individual
customers. For example, retail customers typically have high staff turnover levels resulting in
large replenishment volumes and significant seasonal demand, while banking customers generally have
lower turnover and replenishment requirements but refresh or rebrand uniforms more frequently. The
public service sector has historically consisted of fragmented regional authorities although there
seems to be a move in the UK toward more consolidated sourcing units.
Sectors which tend to be strong users of third party corporate wear providers are retail,
finance, utilities, hospitality and leisure. Our customer base includes companies and
organizations in the retail grocery, retail, banking, distribution, travel and leisure, postal,
security, healthcare and public sectors. Our managed contract customers are generally
organizations with larger numbers of uniform wearing employees or those that use uniforms as a form
of brand identity. We have long established relationships with many of the UKs top employers and
we currently maintain over 25 managed accounts with an average account size greater than 15,000
wearers. Our typical catalog customers are small to medium sized organizations with a relatively
smaller number of employees or organizations where brand differentiation is not imperative.
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During fiscal 2010, one customer accounted for 13.6% of our total corporate apparel net sales;
no other customer accounted for 10% or more of our total corporate apparel net sales. Management
does not believe that the loss of any customer would significantly impact us.
Under our managed contracts, we take responsibility for dressing our customers employees and
are the exclusive supplier of corporate wear to many of our customers. Because of the nature of
the managed contract model, we ensure that we are fully involved in all of our customers uniform
requirements, from daily replenishment requirements to longer term rebranding plans and wider
corporate wear strategy. As a result, our relationship and level of interaction with our customers
is generally far deeper and more embedded than conventional customer-supplier relationships.
Managed contracts are generally awarded through a request for proposal or tender process for
multi-year contracts. Our teams continually monitor market opportunities to obtain access to such
contracts. Regular contact with corporate wear buyers is supplemented with mail campaigns,
attendance at trade fairs and trade magazine advertisements. Generally, we provide each managed
contract customer with a specific account manager who often works two or three days a week on-site
at our larger customers offices. In addition to maintaining customer requirements, the account
manager is also responsible for suggesting and implementing ways of improving the customers
corporate wear process.
Our catalogs are distributed via mail and, in the U.S., by sales representatives. The
catalogs offer a full range of our products and offer further branding or embellishment of any
product ordered. Catalog orders can be placed via mail, fax or direct contact with our sales
representatives. Our e-commerce platforms also allow online ordering via our websites and provide
24 hour functionality, with a full list of our products and their details and real-time stock
information. In addition, we regularly develop dedicated websites for our corporate clients for
use by their employees in ordering their company specific corporate wear.
Purchasing and Distribution
Retail Segment
We purchase merchandise and tuxedo rental product from approximately 900 vendors. In 2010,
one vendor accounted for 10% of our total purchases; no other vendor accounted for 10% or more of
our purchases. Management does not believe that the loss of any vendor would significantly impact
us. While we have no material long-term contracts with our vendors, we believe that we have
developed an excellent relationship with our vendors which is supported by consistent purchasing
practices.
We purchased approximately 24% and 41% of total U.S. and Canada clothing product purchases,
respectively, in fiscal 2010 through our direct sourcing program. We have no long-term merchandise
supply contracts and typically transact business on a purchase order-by-purchase order basis either
directly with manufacturers and fabric mills or with trading companies. We have developed
long-term and reliable relationships with over half of our direct manufacturers and fabric mills,
which we believe provides stability, quality and price leverage. We also work with trading
companies that support our relationships with vendors for our direct sourced merchandise and
contract agent offices that provide administrative functions on our behalf. In addition, the agent
offices provide all quality control inspections and ensure that our operating procedures manuals
are adhered to by our suppliers.
During 2010, approximately 80% of our direct sourced merchandise was sourced in Asia (76% from
China, Indonesia and India) while 10% was sourced in Mexico and 14% was sourced in Europe and other
regions. All of our foreign purchases are negotiated and paid for in U.S. dollars, except purchases
from Italy which are negotiated and paid for in Euros. All direct sourcing vendors are expected to
adhere to our compliance program. To oversee compliance, we have a direct sourcing compliance
department and we also use the services of an outside audit company to conduct frequent vendor
audits.
All retail apparel merchandise for Mens Wearhouse stores is received into our distribution
center located in Houston, Texas, where it is either placed in back-stock or allocated to and
picked by store for shipping. In the majority of our markets, we also have separate hub facilities
or space within certain Mens Wearhouse stores used as redistribution facilities for their
respective areas. Approximately 35% of purchased merchandise is transported to our K&G stores from
our Houston distribution center; all other merchandise is direct shipped by vendors to the stores.
Most purchased merchandise for our Moores stores is distributed to the stores from our distribution
center in Montreal.
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Our tuxedo rental product is located in our Houston distribution center and in six additional
distribution facilities located in the U.S. (five) and Canada (one). The six additional
distribution facilities also receive limited quantities of retail product, primarily formalwear
accessories, that is sold in our Mens Wearhouse, Mens Wearhouse and Tux and Moores stores.
All retail merchandise and new tuxedo rental product is transported from vendors to our
distribution facilities via common carrier or on a dedicated fleet of long-haul vehicles operated
by a third party. This dedicated fleet is also used to transport product from our Houston
distribution center to the hub facilities and a fleet of leased or owned smaller vehicles is used
to transport product from the hub facilities to our stores within a given geographic region.
Corporate Apparel Segment
Most corporate apparel garment production is outsourced to third-party manufacturers and
fabric mills through our direct sourcing programs. We have developed long-term relationships with
most of our direct manufacturers and fabric mills, which we believe provides stability, quality and
reliability. We do not have any material long-term contracts with our vendors and no vendor
accounted for 10% or more of our fiscal 2010 purchases. We also work with trading companies that
support our relationships with our direct source vendors and with contract agent offices that
provide administrative functions on our behalf. In addition, the agent offices assist with quality
control inspections and ensure that our operating procedures manuals are adhered to by our
suppliers.
During 2010, approximately 71% of our corporate wear product purchases was sourced in Asia
(primarily China, Sri Lanka, Indonesia and Bangladesh) while approximately 29% was sourced from
Europe and other regions. Our foreign purchases from Asia are negotiated and paid for in U.S.
dollars, while our purchases from Europe and other regions are negotiated and paid for in pounds
Sterling or Euros.
All corporate apparel merchandise is received into our distribution facilities located in
Houston, Texas for U.S. operations and in primarily Long Eaton, Glasgow and Bristol in the UK.
Customer orders are dispatched to the customer or individual wearers employed by the customer via
common carrier or pursuant to other arrangements specified by the customer.
Competition
Retail Segment
Our primary competitors include specialty mens clothing stores, traditional department
stores, off-price retailers, manufacturer-owned and independently-owned outlet stores and their
e-commerce channels and independently owned tuxedo rental stores. We believe that the principal
competitive factors in the menswear market are merchandise assortment, quality, price, garment fit,
merchandise presentation, store location and customer service, including on-site tailoring.
We believe that strong vendor relationships, our direct sourcing program and our buying
volumes and patterns are the principal factors enabling us to obtain quality merchandise at
attractive prices. We believe that our vendors rely on our predictable payment record and history
of honoring promises. Certain of our competitors (principally department stores) may be larger and
may have substantially greater financial, marketing and other resources than we have and therefore
may have certain competitive advantages.
Corporate Apparel Segment
Dimensions and Alexandra are among the largest companies in the UK corporate wear market with
much of the competition consisting of smaller companies that focus more on catalog business. The
U.S. corporate wear market is more fragmented with most U.S. competitors being larger and having
more resources than Twin Hill. We believe that the competitive factors in the corporate wear
market are merchandise assortment, quality, price, customer service and delivery capabilities.
We believe that our proven capability in the provision of corporate apparel programs to
businesses and organizations of all sizes alongside our catalog and internet operations position us
well with our existing customers and should enable us to continue to gain new catalog accounts and
managed contracts. Certain of our competitors in the U.S. market may be larger and may have
substantially greater financial, marketing and other resources than we have and therefore may have
certain competitive advantages.
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Seasonality
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.
With respect to corporate apparel sales and operating results, seasonal fluctuations are not
significant but customer decisions to rebrand or revise their corporate wear programs can cause
significant variations in period results. 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 (see
Note 15 of Notes to Consolidated Financial Statements).
Trademarks and Servicemarks
We are the owner in the United States and selected other countries of the trademark and
service mark THE MENSS WEARHOUSE®, and MW MENS WEARHOUSE and design® and MENS WEARHOUSE® and of
federal registrations therefor. Our rights in the MENS WEARHOUSE marks and its variations are a
significant part of our business, as the marks have become well known through our use of the marks
in connection with our retail and formalwear rental services and products (both in store and
online) and our advertising campaigns. Accordingly, we intend to maintain our marks and the
related registrations.
We are the owner of various marks and trademark registrations in the U.S., Canada and the UK
under which our stores and corporate apparel business operate or are used to label the products we
sell. We intend to maintain our marks and the related registrations.
We have entered into license agreements with a limited number of parties under which we are
entitled to use designer labels in return for royalties paid to the licensor based on the costs of
the relevant product. These license agreements generally limit the use of the individual label to
products of a specific nature (such as mens suits, mens formalwear or mens shirts). The labels
licensed under these agreements will continue to be used in connection with a portion of the
purchases under the direct sourcing program described above, as well as purchases from other
vendors. We monitor the performance of these licensed labels compared to their cost and may elect
to selectively terminate any license, as provided in the respective agreement.
Employees
At January 29, 2011, we had approximately 16,600 employees, consisting of approximately 14,200
in the U.S. and 2,400 in foreign countries, and approximately 11,800 full-time employees.
Seasonality affects the number of part-time employees as well as the number of hours worked by
full-time and part-time personnel.
Available Information
Our website address is www.menswearhouse.com. Through the investor relations section of our
website, we provide free access to our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable
after such material is electronically filed with or furnished to the Securities and Exchange
Commission (SEC). In addition, copies of the Companys annual reports will be made available,
free of charge, upon written request. The public may read and copy any materials we file with or
furnish to the SEC at the SECs Public Reference Room at 100 F Street NE, Washington, DC 20549.
The public may obtain information on the operation of the Public Reference Room by calling the SEC
at 1-800-SEC-0330. The SEC also maintains a website that contains the Companys filings and other
information regarding issuers who file electronically with the SEC at www.sec.gov.
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ITEM 1A. RISK FACTORS
We wish to caution you that there are risks and uncertainties that could affect our business.
These risks and uncertainties include, but are not limited to, the risks described below and
elsewhere in this report, particularly found in Forward-Looking and Cautionary Statements. The
following is not intended to be a complete discussion of all potential risks or uncertainties, as
it is not possible to predict or identify all risk factors.
Our business is particularly sensitive to economic conditions and consumer confidence.
During most of 2010, the U.S. and global financial and equity markets continued to reflect
recessionary trends, including tighter credit and lower levels of consumer confidence, consumer
spending and business activity in general, as well as high levels of unemployment. We believe that
these market conditions affect us more than other retailers because discretionary spending for
items like mens tailored apparel tends to slow sooner and to recover later than that for other
retail purchases. We do not know if or when these market conditions are likely to show significant
improvement, and a sustained continuation or worsening of such conditions could intensify the
adverse effect of such conditions on our revenues and operating results.
The general economic conditions in the UK and particularly service cut backs being put forth by the
current government may reduce demand for the businesses of Dimensions and Alexandra.
The UK has experienced and is continuing to experience an economic slow down. As a result of
expected deficits, the UK government has announced significant reductions in public services
including reductions in employment. Employees in the public service in the UK are a significant
target market for the acquired businesses, and a substantial reduction in the number of these
employees could adversely affect our UK operating results.
Our ability to continue to expand our Mens Wearhouse stores may be limited.
A large part of our growth has resulted from the addition of new Mens Wearhouse stores and
the increased sales volume and profitability provided by these stores. We will continue to depend
on adding new stores to increase our sales volume and profitability. As of January 29, 2011, we
operate 585 Mens Wearhouse stores. However, we believe that our ability to increase the number of
Mens Wearhouse stores in the United States is limited. Therefore, we may not be able to achieve
the same rate of growth as we have historically.
Certain of our expansion strategies may present greater risks.
We are continuously assessing opportunities to expand complementary products and services
related to our traditional business, such as corporate apparel and uniform sales. We may expend
both capital and personnel resources on such business opportunities which may or may not be
successful.
Any acquisitions that we undertake could be difficult to integrate, disrupt our business, dilute
shareholder value and harm our operating results.
In the event we complete one or more acquisitions, we may be subject to a variety of risks,
including risks associated with an ability to integrate acquired assets or operations into our
existing operations, higher costs or unexpected difficulties or problems with acquired assets or
entities, outdated or incompatible technologies, labor difficulties or an inability to realize
anticipated synergies and efficiencies, whether within anticipated time frames or at all. If one
or more of these risks are realized, it could have an adverse impact on our operating results.
Our retail business is seasonal.
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. Any
decrease in sales during these peak quarters could have a significant adverse effect on our net
earnings.
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The loss of, or disruption in, our Houston distribution center could result in delays in the
delivery of merchandise to our stores.
All retail apparel merchandise for Mens Wearhouse stores and a portion of the merchandise for
K&G stores is received into our Houston distribution center, where the inventory is then processed,
sorted and either placed in back-stock or shipped to our stores. We depend in large part on the
orderly operation of this receiving and distribution process, which depends, in turn, on adherence
to shipping schedules and effective management of the distribution center. Events, such as
disruptions in operations due to fire or other catastrophic events, employee matters or shipping
problems, may result in delays in the delivery of merchandise to our stores. For example, given
our proximity to the Texas gulf coast, it is possible that a hurricane or tropical storm could
cause damage to the distribution center, result in extended power outages or flood roadways into
and around the distribution center, any of which would disrupt or delay deliveries to the
distribution center and to our stores.
Although we maintain business interruption and property insurance, we cannot assure that our
insurance will be sufficient, or that insurance proceeds will be paid timely to us, in the event
our Houston distribution center is shut down for any reason or if we incur higher costs and longer
lead times in connection with a disruption at our distribution center.
Our stock price has been and may continue to be volatile due to many factors.
The market price of our common stock has fluctuated in the past and may change rapidly in the
future depending on news announcements and changes in general market conditions. The following
factors, among others, may cause significant fluctuations in our stock price:
| news announcements regarding actual or forward-looking quarterly or annual results of operations, | ||
| comparable store sales announcements, | ||
| acquisitions, | ||
| competitive developments, | ||
| litigation affecting the Company, or | ||
| market views as to the prospects of the economy or the retail industry generally. |
Our success significantly depends on our key personnel and our ability to attract and retain key
personnel.
Our success depends upon the personal efforts and abilities of our senior management team,
particularly, George Zimmer, and other key personnel. Mr. Zimmer has been very important to the
success of the Company and is the primary advertising spokesman. Although we believe we have a
strong management team with relevant industry expertise, the extended loss of the services of Mr.
Zimmer or other key personnel could have a material adverse effect on the securities markets view
of our prospects and materially harm our business.
Also, our continued success and the achievement of our expansion goals are dependent upon our
ability to attract and retain additional qualified employees as we expand.
Fluctuations in exchange rates may cause us to experience currency exchange losses.
Moores conducts most of its business in Canadian dollars (CAD). The exchange rate between
CAD and U.S. dollars has fluctuated historically. If the value of the CAD against the U.S. dollar
weakens, then the revenues and earnings of our Canadian operations will be reduced when they are
translated to U.S. dollars. Also, the value of our Canadian net assets in U.S. dollars may decline.
Moores utilizes foreign currency hedging contracts to limit exposure to changes in U.S. dollar/CAD
exchange rates.
Dimensions and Alexandra, our UK-based acquisitions, sell their products and conduct their
business primarily in pounds Sterling (GBP) but purchase most of their merchandise in
transactions paid in U.S. dollars. The exchange rate between the GBP and U.S. dollars has
fluctuated historically. A decline in the value of the GBP as compared to the U.S. dollar will
adversely impact our UK operating results as the cost of merchandise purchases will increase,
particularly in relation to longer term customer contracts that have little or no pricing
adjustment provisions, and the revenues and earnings of our UK operations will be reduced when they
are translated to U.S. dollars. Also, the value of our UK net assets in U.S. dollars may decline. Dimensions and
Alexandra utilize foreign currency hedging contracts as well as price renegotiations to limit
exposure to some of this risk.
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We are subject to import risks, including potential disruptions in supply, changes in duties,
tariffs, quotas and voluntary export restrictions on imported merchandise, strikes and other events
affecting delivery; and economic, political or other problems in countries from or through which
merchandise is imported.
Many of the products sold in our stores and our corporate apparel operations are sourced from
many foreign countries. Political or financial instability, terrorism, trade restrictions, tariffs,
currency exchange rates, transport capacity limitations, disruptions and costs, strikes and other
work stoppages and other factors relating to international trade are beyond our control and could
affect the availability and the price of our inventory.
Our business is global in scope and can be impacted by factors beyond our control.
As a result of our increasing international operations, we face the
possibility of greater losses from a number of risks inherent in doing business in international
markets and from a number of factors which are beyond our control. Such factors that could harm our
results of operations and financial condition include, among other things:
| political instability or acts of terrorism, which disrupt trade with the countries where we operate or in which our contractors, suppliers or customers are located; | ||
| recessions in foreign economies; | ||
| challenges in managing our foreign operations; | ||
| increased difficulty in protecting our intellectual property rights in foreign jurisdictions; and | ||
| restrictions on the transfer of funds between the United States and foreign jurisdictions. |
Our business could be adversely affected by increased costs of the raw materials and other
resources that are important to our business.
The raw materials used to manufacture our products are subject to availability constraints and
price volatility caused by high demand for fabrics, weather conditions, supply conditions,
government regulations, economic climate and other unpredictable factors. In addition, our
transportation and labor costs are subject to price volatility caused by the price of oil, supply
of labor, governmental regulations, economic climate and other unpredictable factors. Increases in
demand for, or the price of, raw materials, distribution services and labor, including federal and
state minimum wage rates, could have a material adverse effect on our business, financial condition
and results of operations.
The costs of cotton and other raw materials significant to the manufacture of apparel have
increased recently as have the costs of manufacturing in China. These increased costs could
materially affect our results of operations to the extent they cannot be mitigated through price
increases and relocation to lower cost sources of supply or other cost reductions. These increased
costs could particularly impact our managed contract corporate wear business which tends to have
more long term contractually committed customer sales arrangements with limited price flexibility.
Our business is subject to numerous, varied and changing laws, rules and regulations, the
interpretation of which can be uncertain and which may lead to litigation or administrative
proceedings.
The sale of goods at retail is subject to rules issued by the payment brand industry, and
laws, rules and regulations promulgated by national, state and provincial authorities, including
laws, rules and regulations relating to privacy, use of consumer information, credit cards and
advertising. These laws, rules and regulations and the interpretation thereof are subject to change
and often application thereof may be unclear. As a result, from time to time, the Company is
subject to inquiries, investigations, and/or litigation, including class action lawsuits, and
administrative actions related to compliance with these laws, rules and regulations.
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If we are unable to operate information systems and implement new technologies effectively, our
business could be disrupted or our sales or profitability could be reduced.
The efficient operation of our business is dependent on our information systems, including our
ability to operate them effectively and successfully to implement new technologies, systems,
controls and adequate disaster recovery systems. In addition, we must protect the confidentiality
of our and our customers data. The failure of our information systems to perform as designed or
our failure to implement and operate them effectively could disrupt our business or subject us to
liability and thereby harm our profitability.
Rights of our shareholders may be negatively affected if we issue any of the shares of preferred
stock which our Board of Directors has authorized for issuance.
We have available for issuance 2,000,000 shares of preferred stock, par value $.01 per share.
Our Board of Directors is authorized to issue any or all of this preferred stock, in one or more
series, without any further action on the part of shareholders. The rights of our shareholders may
be negatively affected if we issue a series of preferred stock in the future that has preference
over our common stock with respect to the payment of dividends or distribution upon our
liquidation, dissolution or winding up. See Note 7 of Notes to Consolidated Financial Statements
for more information.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
As of January 29, 2011, we operated 1,075 retail apparel and tuxedo rental stores in 47 states
and the District of Columbia and 117 retail apparel stores in 10 Canadian provinces. The following
tables set forth the location, by state or province, of these stores:
Mens | ||||||||||||
Mens | Wearhouse | |||||||||||
United States | Wearhouse | and Tux | K&G | |||||||||
California |
83 | 26 | 1 | |||||||||
Florida |
42 | 37 | 5 | |||||||||
Texas |
55 | 2 | 13 | |||||||||
Illinois |
28 | 33 | 7 | |||||||||
Michigan |
20 | 21 | 7 | |||||||||
New York |
31 | 13 | 4 | |||||||||
Pennsylvania |
25 | 16 | 5 | |||||||||
Massachusetts |
16 | 21 | 3 | |||||||||
Georgia |
18 | 16 | 6 | |||||||||
Ohio |
19 | 16 | 5 | |||||||||
Virginia |
19 | 17 | 3 | |||||||||
Maryland |
14 | 17 | 7 | |||||||||
New Jersey |
16 | 14 | 5 | |||||||||
North Carolina |
13 | 17 | 4 | |||||||||
Tennessee |
12 | 11 | 2 | |||||||||
Louisiana |
7 | 12 | 4 | |||||||||
Indiana |
9 | 9 | 3 | |||||||||
Missouri |
11 | 8 | 2 | |||||||||
Arizona |
14 | 6 | ||||||||||
Wisconsin |
9 | 10 | 1 | |||||||||
Minnesota |
9 | 9 | 2 | |||||||||
Colorado |
14 | 3 | 3 | |||||||||
Washington |
14 | 2 | 2 | |||||||||
Connecticut |
9 | 5 | 2 | |||||||||
South Carolina |
5 | 10 | 1 | |||||||||
Alabama |
6 | 8 | 1 | |||||||||
Oregon |
9 | 1 | ||||||||||
Kentucky |
3 | 6 | 1 | |||||||||
Nevada |
6 | 2 | ||||||||||
Kansas |
5 | 2 | 1 | |||||||||
New Hampshire |
4 | 3 | ||||||||||
Utah |
7 | |||||||||||
Oklahoma |
5 | 2 | ||||||||||
Iowa |
4 | 2 | ||||||||||
Nebraska |
3 | 2 | ||||||||||
Delaware |
2 | 3 | ||||||||||
Mississippi |
1 | 3 | ||||||||||
New Mexico |
4 | |||||||||||
Rhode Island |
1 | 3 | ||||||||||
Arkansas |
3 | |||||||||||
South Dakota |
2 | 1 | ||||||||||
Maine |
1 | 1 | ||||||||||
North Dakota |
2 | |||||||||||
Vermont |
1 | |||||||||||
Idaho |
1 | |||||||||||
West Virginia |
1 | |||||||||||
Alaska |
1 | |||||||||||
District of Columbia |
1 | |||||||||||
Total |
585 | 388 | 102 | |||||||||
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Canada | Moores | |||
Ontario |
50 | |||
Quebec |
24 | |||
British Columbia |
16 | |||
Alberta |
12 | |||
Manitoba |
5 | |||
New Brunswick |
3 | |||
Nova Scotia |
3 | |||
Saskatchewan |
2 | |||
Newfoundland |
1 | |||
Prince Edward Island |
1 | |||
Total |
117 | |||
We lease our stores on terms generally from five to ten years with renewal options at higher
fixed rates in most cases. Leases typically provide for percentage rent over sales break points.
Additionally, most leases provide for a base rent as well as triple net charges, including but
not limited to common area maintenance expenses, property taxes, utilities, center promotions and
insurance. In certain markets, we lease between 3,000 and 51,600 additional square feet as a part
of a Mens Wearhouse store or in a separate hub warehouse unit to be utilized as a redistribution
facility in that geographic area.
We own or lease properties in various parts of the U.S. and Canada to facilitate the
distribution of retail and rental product to our stores. We also own or lease properties in
Houston, Texas and various parts of the UK to facilitate the distribution of our corporate apparel
product. In addition, we have primary office locations in Houston, Texas and Fremont, California
with additional satellite offices in other parts of the U.S., Canada and Europe. The following is
a listing of all owned and leased non-store facilities as of January 29, 2011:
Square Footage Used For | ||||||||||||||||||||||||
Warehouse/ | ||||||||||||||||||||||||
Business Segment | Location | Total Sq Ft | Owned/Leased | Distribution | Office Space | Total Use | ||||||||||||||||||
Retail |
||||||||||||||||||||||||
Houston, TX | 1,100,000 | Own | 1,066,700 | 33,300 | 1,100,000 | |||||||||||||||||||
Houston, TX | 241,500 | Own | 226,000 | 15,500 | 241,500 | |||||||||||||||||||
Houston, TX (1) | 22,000 | Own | 18,000 | 4,000 | 22,000 | |||||||||||||||||||
Norcross, GA | 89,300 | Lease | 68,700 | 20,600 | 89,300 | |||||||||||||||||||
Addison, IL | 71,000 | Lease | 65,000 | 6,000 | 71,000 | |||||||||||||||||||
Pittston, PA | 419,600 | Lease | 411,200 | 8,400 | 419,600 | |||||||||||||||||||
Richmond, VA | 54,900 | Own | 53,500 | 1,400 | 54,900 | |||||||||||||||||||
Bakersfield, CA | 222,400 | Lease | 211,700 | 10,700 | 222,400 | |||||||||||||||||||
Various locations (2) | 370,300 | Lease | 326,300 | 44,000 | 370,300 | |||||||||||||||||||
Atlanta, GA (3) | 100,000 | Lease | 23,000 | 35,000 | 58,000 | |||||||||||||||||||
Toronto, Ontario | 36,700 | Lease | 19,800 | 16,900 | 36,700 | |||||||||||||||||||
Cambridge, Ontario | 214,600 | Own | 207,800 | 6,800 | 214,600 | |||||||||||||||||||
Montreal, Quebec | 173,000 | Own | 167,300 | 5,700 | 173,000 | |||||||||||||||||||
Vancouver, BC | 2,100 | Lease | | 2,100 | 2,100 | |||||||||||||||||||
Corporate apparel |
||||||||||||||||||||||||
Houston, TX | 146,500 | Own | 136,200 | 10,300 | 146,500 | |||||||||||||||||||
Richmond, CA | 5,000 | Lease | | 5,000 | 5,000 | |||||||||||||||||||
Long Eaton, UK | 328,400 | Lease | 323,400 | 5,000 | 328,400 | |||||||||||||||||||
Glasgow, UK | 146,200 | Lease | 125,900 | 20,300 | 146,200 | |||||||||||||||||||
Bristol, UK | 25,000 | Lease | | 25,000 | 25,000 | |||||||||||||||||||
Castle Donington, UK | 19,400 | Lease | | 19,400 | 19,400 | |||||||||||||||||||
Various locations (4) | 297,600 | Lease | 253,900 | 43,700 | 297,600 | |||||||||||||||||||
Retail and
Corporate apparel |
||||||||||||||||||||||||
Houston, TX | 206,400 | Lease | | 206,400 | 206,400 | |||||||||||||||||||
Houston, TX | 25,000 | Own | | 25,000 | 25,000 | |||||||||||||||||||
New York, NY | 13,900 | Lease | | 13,900 | 13,900 | |||||||||||||||||||
Fremont, CA | 34,000 | Own | | 34,000 | 34,000 | |||||||||||||||||||
4,364,800 | 3,704,400 | 618,400 | 4,322,800 | |||||||||||||||||||||
(1) | This facility houses the laundry and dry cleaning plant for our retail laundry and dry cleaning services. | |
(2) | Various locations consist primarily of hub warehouse facilities located throughout the U.S. | |
(3) | Total square footage includes 42,000 square feet used for a retail store. | |
(4) | Various locations consist primarily of warehouse facilities located throughout Bristol, UK and Swindon, UK. |
17
Table of Contents
ITEM 3. 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 October 10, 2007, November 28, 2007, and January 9, 2008. The
case is in its early stages and discovery has not begun. The Company filed a motion to dismiss the
complaint on April 12, 2010, and we are awaiting a decision from the Court. The Company believes
the lawsuit is without merit and intends to mount a vigorous defense; we are unable to determine
the likely outcome at this time.
We are involved in various routine legal proceedings, including ongoing litigation, incidental
to the conduct of our business. Management believes that none of these matters will have a
material adverse effect on our financial position, results of operations or cash flows.
ITEM 4. REMOVED AND RESERVED
18
Table of Contents
PART II
ITEM 5. | MARKET FOR THE COMPANYS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our common stock is traded on the New York Stock Exchange under the symbol MW. The
following table sets forth, on a per share basis for the periods indicated, the high and low sale
prices per share for our common stock as reported by the New York Stock Exchange and the quarterly
dividends declared on each share of common stock:
High | Low | Dividend | ||||||||||
Fiscal Year 2010
|
||||||||||||
First quarter ended May 1, 2010 |
$ | 27.18 | $ | 19.88 | $ | 0.09 | ||||||
Second quarter ended July 31, 2010 |
24.45 | 18.24 | 0.09 | |||||||||
Third quarter ended October 30, 2010 |
25.54 | 18.65 | 0.09 | |||||||||
Fourth quarter ended January 29, 2011 |
28.74 | 23.42 | 0.12 | |||||||||
Fiscal Year 2009
|
||||||||||||
First quarter ended May 2, 2009 |
$ | 20.45 | $ | 9.38 | $ | 0.07 | ||||||
Second quarter ended August 1, 2009 |
22.69 | 14.62 | 0.07 | |||||||||
Third quarter ended October 31, 2009 |
27.67 | 20.74 | 0.07 | |||||||||
Fourth quarter ended January 30, 2010 |
23.68 | 18.43 | 0.09 |
On March 24, 2011, there were approximately 1,300 shareholders of record and approximately
28,500 beneficial shareholders of our common stock.
The cash dividend of $0.12 per share declared by our Board of Directors in January 2011 is
payable on March 25, 2011 to shareholders of record on March 15, 2011. The dividend payout is
approximately $6.4 million.
The information required by this item regarding securities authorized for issuance under
equity compensation plans is incorporated by reference from Item 12 of this Form 10-K.
Issuer Purchases of Equity Securities
During fiscal 2010, 7,134 shares at a cost of $0.1 million were repurchased at an average
price per share of $20.24 in a private transaction to satisfy tax withholding obligations arising
upon the vesting of certain restricted stock. No shares of our common stock were repurchased
during the fourth quarter of fiscal 2010. In January 2011, the Board of Directors approved a
$150.0 million share repurchase program of our common stock, which amends and increases the
Companys existing share repurchase authorization. This authorization superceded any remaining
previous authorizations. At January 29, 2011, the remaining balance available under the January
2011 authorization was $150.0 million. Subsequent to January 29, 2011 and through March 30, 2011,
we have purchased 1,703,432 shares for $45.6 million at an average price per share of $26.77 under
the January 2011 authorization.
19
Table of Contents
Performance Graph
The following Performance Graph and related information shall not be deemed soliciting
material or to be filed with the Securities and Exchange Commission, nor shall such information
be incorporated by reference into any future filing under the Securities Act of 1933 or Securities
Exchange Act of 1934, each as amended, except to the extent that the Company specifically
incorporates it by reference into such filing.
The following graph compares, as of each of the dates indicated, the percentage change in the
Companys cumulative total shareholder return on the Common Stock with the cumulative total return
of the NYSE Composite Index and the Retail Specialty Apparel Index. The graph assumes that the
value of the investment in the Common Stock and each index was $100 at January 28, 2006 and that
all dividends paid by those companies included in the indices were reinvested.
January 28, 2006 | February 3, 2007 | February 2, 2008 | January 31, 2009 | January 30, 2010 | January 29, 2011 | |||||||||||||||||||
Measurement
Period (Fiscal
Year Covered) |
||||||||||||||||||||||||
The Mens Wearhouse, Inc. |
$ | 100.00 | $ | 127.22 | $ | 76.54 | $ | 34.53 | $ | 60.61 | $ | 79.33 | ||||||||||||
NYSE Composite
Index |
100.00 | 117.76 | 119.68 | 68.91 | 93.79 | 112.38 | ||||||||||||||||||
Dow Jones US
Apparel
Retailers |
100.00 | 120.83 | 95.47 | 50.29 | 95.24 | 117.86 |
The foregoing graph is based on historical data and is not necessarily indicative of future
performance.
20
Table of Contents
ITEM 6. SELECTED FINANCIAL DATA
The following selected statement of earnings, balance sheet and cash flow information for the
fiscal years indicated has been derived from our audited consolidated financial statements. The
Selected Financial Data should be read in conjunction with Managements Discussion and Analysis of
Financial Condition and Results of Operations and the Consolidated Financial Statements and notes
thereto. References herein to years are to the Companys 52-week or 53-week fiscal year, which ends
on the Saturday nearest January 31 in the following calendar year. For example, references to
2010 mean the fiscal year ended January 29, 2011. All fiscal years for which financial
information is included herein had 52 weeks, except 2006 which had 53 weeks.
As a result of the acquisitions of Dimensions and Alexandra on August 6, 2010, the statement
of earnings data and the cash flow information below for the year ended January 29, 2011 include
the results of operations and cash flows, respectively, of Dimensions and Alexandra since that
date. In addition, the balance sheet information below as of January 29, 2011 includes the fair
values of the assets acquired and liabilities assumed as of the acquisition date for Dimensions and
Alexandra.
As a result of the acquisition of After Hours on April 9, 2007, the statement of earnings data
and the cash flow information below for the year ended February 2, 2008 include the results of
operations and cash flows, respectively, of After Hours beginning April 10, 2007. In addition, the
balance sheet information below as of February 2, 2008 includes estimates of the fair values of the
assets acquired and liabilities assumed as of the acquisition date for After Hours. During the
first quarter of 2008, we completed our assessment and purchase price allocation of the fair values
of the acquired After Hours assets and liabilities assumed.
2010 | 2009 (1) | 2008 | 2007 | 2006 | ||||||||||||||||
(Dollars and shares in thousands, except | ||||||||||||||||||||
per share and per square foot data) | ||||||||||||||||||||
Statement of Earnings Data: |
||||||||||||||||||||
Total net sales |
$ | 2,102,664 | $ | 1,909,575 | $ | 1,972,418 | $ | 2,112,558 | $ | 1,882,064 | ||||||||||
Total gross margin |
898,433 | 798,898 | 850,512 | 970,057 | 815,705 | |||||||||||||||
Operating income |
101,671 | 69,376 | 90,471 | 228,652 | 223,938 | |||||||||||||||
Net earnings attributable to
common shareholders |
67,697 | 46,215 | 58,844 | 147,041 | 148,575 | |||||||||||||||
Per Common Share Data: |
||||||||||||||||||||
Diluted net earnings per common
share attributable to common
shareholders |
$ | 1.27 | $ | 0.88 | $ | 1.13 | $ | 2.73 | $ | 2.71 | ||||||||||
Cash dividends declared |
$ | 0.39 | $ | 0.30 | $ | 0.28 | $ | 0.25 | $ | 0.20 | ||||||||||
Weighted average common shares
outstanding plus dilutive
potential common shares |
52,853 | 52,280 | 51,944 | 53,890 | 54,749 | |||||||||||||||
Operating Information: |
||||||||||||||||||||
Percentage increase/(decrease) in
comparable store sales (2): |
||||||||||||||||||||
Mens Wearhouse |
4.7 | % | (4.0 | )% | (9.0 | )% | (0.4 | )% | 3.1 | % | ||||||||||
K&G |
(1.5 | )% | (1.9 | )% | (11.7 | )% | (10.9 | )% | (1.8 | )% | ||||||||||
Moores |
2.2 | % | (0.9 | )% | (5.6 | )% | 1.5 | % | 8.7 | % | ||||||||||
Average square footage (3): |
||||||||||||||||||||
Mens Wearhouse |
5,673 | 5,653 | 5,626 | 5,600 | 5,552 | |||||||||||||||
Mens Wearhouse and Tux |
1,381 | 1,373 | 1,360 | 1,333 | | |||||||||||||||
K&G |
23,472 | 23,137 | 23,087 | 23,132 | 23,204 | |||||||||||||||
Moores |
6,306 | 6,278 | 6,233 | 6,205 | 6,218 | |||||||||||||||
Average net sales per square foot of
selling space (4): |
||||||||||||||||||||
Mens Wearhouse |
$ | 410 | $ | 387 | $ | 395 | $ | 441 | $ | 488 | ||||||||||
K&G |
$ | 181 | $ | 182 | $ | 184 | $ | 220 | $ | 259 | ||||||||||
Moores |
$ | 405 | $ | 408 | $ | 412 | $ | 440 | $ | 430 |
21
Table of Contents
2010 | 2009 (1) | 2008 | 2007 | 2006 | ||||||||||||||||
(Dollars and shares in thousands, except | ||||||||||||||||||||
per share and per square foot data) | ||||||||||||||||||||
Number of retail stores: |
||||||||||||||||||||
Open at beginning of the period |
1,259 | 1,294 | 1,273 | 752 | 719 | |||||||||||||||
Opened |
10 | 6 | 43 | 42 | 35 | |||||||||||||||
Acquired (5) |
| | | 509 | | |||||||||||||||
Closed |
(77 | ) | (41 | ) | (22 | ) | (30 | ) | (2 | ) | ||||||||||
Open at end of the period |
1,192 | 1,259 | 1,294 | 1,273 | 752 | |||||||||||||||
Mens Wearhouse |
585 | 581 | 580 | 563 | 543 | |||||||||||||||
Mens Wearhouse and Tux |
388 | 454 | 489 | 489 | | |||||||||||||||
K&G |
102 | 107 | 108 | 105 | 93 | |||||||||||||||
Moores |
117 | 117 | 117 | 116 | 116 | |||||||||||||||
Total |
1,192 | 1,259 | 1,294 | 1,273 | 752 | |||||||||||||||
Cash Flow Information: |
||||||||||||||||||||
Capital expenditures |
$ | 58,868 | $ | 56,912 | $ | 88,225 | $ | 126,076 | $ | 72,904 | ||||||||||
Depreciation and amortization |
75,998 | 86,090 | 90,665 | 80,296 | 61,387 | |||||||||||||||
Purchase of treasury stock |
144 | 90 | 156 | 106,107 | 40,289 |
January 29, | January 30, | January 31, | February 2, | February 3, | ||||||||||||||||
2011 | 2010 (1) | 2009 | 2008 | 2007 | ||||||||||||||||
Balance Sheet Information: |
||||||||||||||||||||
Cash and cash
equivalents |
$ | 136,371 | $ | 186,018 | $ | 87,412 | $ | 39,446 | $ | 179,694 | ||||||||||
Short-term investments |
| | 17,121 | 59,921 | | |||||||||||||||
Inventories |
486,499 | 434,881 | 440,099 | 492,423 | 448,586 | |||||||||||||||
Working capital |
497,352 | 486,341 | 411,392 | 393,740 | 454,691 | |||||||||||||||
Total assets |
1,320,318 | 1,234,152 | 1,187,730 | 1,256,467 | 1,096,952 | |||||||||||||||
Long-term debt |
| 43,491 | 62,916 | 92,399 | 72,967 | |||||||||||||||
Total equity |
983,853 | 904,390 | 842,148 | 815,937 | 753,772 |
(1) | Results have been adjusted for the change in inventory valuation method used by our K&G brand from the retail inventory method to the average cost method during the third quarter of fiscal 2010. The cumulative effect of this change in accounting principle was recorded retrospectively as of February 1, 2009. Refer to Note 14 of Notes to Consolidated Financial Statements. | |
(2) | Comparable store sales data is calculated by excluding the net sales of a store for any month of one period if the store was not open throughout the same month of the prior period. Mens Wearhouse and Tux stores acquired in April 2007 are included in comparable store sales for the Mens Wearhouse beginning in the second quarter of fiscal 2008. Comparable store sales percentages for Moores are calculated using Canadian dollars. | |
(3) | Average square footage is calculated by dividing the total square footage for all stores open at the end of the period by the number of stores open at the end of such period. | |
(4) | Average net sales per square foot of selling space is calculated by dividing total selling square footage for all stores open the entire year into total sales for those stores. The calculation for Mens Wearhouse includes Mens Wearhouse and Tux stores resulting from the acquisition of After Hours on April 9, 2007. The calculation for Moores is based upon the Canadian dollar. For 2006, the calculation excludes total sales for the 53rd week. | |
(5) | Mens Wearhouse and Tux stores resulting from the acquisition of After Hours on April 9, 2007. |
22
Table of Contents
ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
General
The Mens Wearhouse, Inc. is a specialty apparel retailer offering suits, suit separates,
sport coats, pants, shoes, shirts, sportswear, outerwear and accessories for men and tuxedo
rentals. We offer our products and services through multiple channels including The Mens
Wearhouse, Mens Wearhouse and Tux, K&G, Moores Clothing for Men and on the internet at
www.menswearhouse.com. Our stores are located throughout the United States and Canada and carry a
wide selection of brand name and private label merchandise. In addition, we offer our customers a
variety of services, including alterations and our loyalty program, and most of our K&G stores
offer ladies career apparel, sportswear and accessories, including shoes.
We also conduct corporate apparel and uniform operations through Twin Hill in the United
States and, in the Houston, Texas area, conduct retail dry cleaning and laundry operations through
MW Cleaners.
On August 6, 2010, we acquired Dimensions Clothing Limited (Dimensions) and certain assets
of Alexandra plc (Alexandra), two leading providers of corporate clothing uniforms and workwear
in the United Kingdom, to complement our corporate apparel operations. These operations offer
their products through multiple channels including managed corporate accounts, catalogs and on the
internet at www.dimensions.co.uk and www.alexandra.co.uk. The results of
operations for Dimensions and Alexandra have been included in the consolidated financial statements
since that date. The combined businesses are organized under a UK-based holding company, of which
we control 86% and certain previous shareholders of Dimensions control 14%. We have the right to
acquire the remaining outstanding shares of the UK-based holding company in the future on the terms
set forth in the Investment, Shareholders and Stock Purchase Agreement. The acquisition-date cash
consideration transferred for the Dimensions and Alexandra acquisitions was US$97.8 million (£61
million) and was funded through our cash on hand. Refer to Note 2 of Notes to Consolidated
Financial Statements for further details regarding the acquisitions.
As a result of these acquisitions, in the third quarter of fiscal 2010, we revised our segment
reporting to reflect two reportable segments, retail and corporate apparel, based on the way we
manage, evaluate and internally report our business activities. Prior to these acquisitions our
corporate apparel business did not have a significant effect on the revenues or expenses of the
Company and we reported our business as one operating segment. Prior period amounts reported as one
operating segment have been revised to conform to our new segment reporting structure.
The retail segment includes the results from our four retail merchandising brands: Mens
Wearhouse, Mens Wearhouse and Tux, K&G and Moores. MW Cleaners is also aggregated in the retail
segment as these operations have not had a significant effect on the revenues or expenses of the
Company.
The corporate apparel segment includes the results from our corporate apparel and uniform
operations conducted by Twin Hill in the United States and, beginning in the third quarter of
fiscal 2010, by Dimensions and Alexandra in the United Kingdom. Refer to Note 11 of Notes to
Consolidated Financial Statements for additional information and disclosures regarding our
reportable segments and the discussion included in Results of Operations below.
Also in the third quarter of fiscal 2010, we changed the method of determining cost under the
lower of cost or market inventory valuation method used for our K&G brand (representing
approximately 23% of our inventory) from the retail inventory method to the average cost method.
We recorded the cumulative effect of the change in accounting principle retrospectively as of
February 1, 2009. The cumulative effect of this change in accounting principle as of February 1,
2009 was an increase in inventory of $2.2 million, a decrease in deferred tax assets of $0.9
million and a net increase in retained earnings of $1.3 million. The retrospective application of
this accounting change impacted both segment and consolidated operating income, as well as
consolidated net earnings, for all comparable periods presented by insignificant amounts. The
change in accounting principle did not have any impact on our previously reported net cash flows,
sales or comparable store sales. Refer to Note 14 of Notes to Consolidated Financial Statements.
23
Table of Contents
Overview
We had revenues of $2,102.7 million and net earnings attributable to common shareholders of
$67.7 million in fiscal 2010, compared to revenues of $1,909.6 million and net earnings
attributable to common shareholders of $46.2 million in fiscal 2009 and revenues of $1,972.4
million and net earnings attributable to common shareholders of $58.8 million in fiscal 2008. We
increased our revenues by $193.1 million or 10.1% and our gross margin by $99.5 million or 12.5%
for fiscal 2010. The acquisitions of Dimensions and Alexandra on August 6, 2010 contributed $104.8
million of the increased revenues and $29.5 million of the increased gross margin.
We opened 10 stores in fiscal 2010, six stores in fiscal 2009 and 43 stores in fiscal 2008.
In 2010, we closed four Mens Wearhouse stores due to lease expiration and one due to substandard
performance. We closed two K&G stores due to lease expiration and four due to substandard
performance. We also closed 66 Mens Wearhouse and Tux stores: seven due to substandard
performance, 21 due to lease expiration and 38 due to consolidation of operations with other
existing Mens Wearhouse stores in the area. In 2009, we closed four Mens Wearhouse stores due to
lease expiration and one K&G store due to substandard performance. We also closed 36 Mens
Wearhouse and Tux stores: one due to substandard performance, nine due to lease expiration and 26
due to consolidation of operations with other existing Mens Wearhouse stores in the area. In
2008, we closed two Mens Wearhouse stores due to substandard performance. We also closed 20 Mens
Wearhouse and Tux stores: seven due to substandard performance, one due to lease expiration and 12
due to consolidation of operations with other existing Mens Wearhouse stores in the area.
While we believe conditions have become more stable and overall our businesses experienced
improvement in both sales and profitability during fiscal 2010 as compared to the prior year, we
expect general economic conditions to remain difficult in 2011. In response to these challenges,
we plan to continue efforts to stimulate sales with discounts and other promotional events, to
manage our inventory purchases, to maintain our cost control efforts and to manage our capital
expenditures. We plan to open approximately 20 Mens Wearhouse stores in fiscal 2011 and to expand
and/or relocate approximately 20 existing Mens Wearhouse stores, three existing K&G stores and two
existing Moores stores. We plan to close three Mens Wearhouse stores, three K&G stores and
approximately 30 Mens Wearhouse and Tux stores in fiscal 2011 as their lease terms expire or
acceptable lease termination arrangements can be established. 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 continue to stabilize over time.
24
Table of Contents
Results of Operations
The following table sets forth the Companys results of operations expressed as a percentage
of net sales for the periods indicated:
Fiscal Year (1) | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Net sales: |
||||||||||||
Retail clothing product |
70.4 | % | 75.1 | % | 75.8 | % | ||||||
Tuxedo rental services |
17.3 | 17.5 | 16.7 | |||||||||
Alteration and other services |
6.3 | 6.7 | 6.4 | |||||||||
Total retail sales |
94.0 | 99.3 | 98.9 | |||||||||
Corporate apparel clothing product sales |
6.0 | 0.7 | 1.1 | |||||||||
Total net sales |
100 | % | 100 | % | 100 | % | ||||||
Cost of sales (2): |
||||||||||||
Retail clothing product |
46.1 | 45.9 | 44.0 | |||||||||
Tuxedo rental services |
15.4 | 17.2 | 18.0 | |||||||||
Alteration and other services |
74.6 | 73.8 | 75.9 | |||||||||
Occupancy costs |
14.0 | 15.3 | 15.0 | |||||||||
Total retail cost of sales |
56.3 | 58.0 | 56.7 | |||||||||
Corporate apparel clothing product cost of sales |
72.5 | 81.4 | 68.9 | |||||||||
Total cost of sales |
57.3 | 58.2 | 56.9 | |||||||||
Gross margin (2): |
||||||||||||
Retail clothing product |
53.9 | 54.1 | 56.0 | |||||||||
Tuxedo rental services |
84.6 | 82.8 | 82.0 | |||||||||
Alteration and other services |
25.4 | 26.2 | 24.1 | |||||||||
Occupancy costs |
(14.0 | ) | (15.3 | ) | (15.0 | ) | ||||||
Total retail gross margin |
43.7 | 42.0 | 43.3 | |||||||||
Corporate apparel clothing product gross margin |
27.5 | 18.6 | 31.0 | |||||||||
Total gross margin |
42.7 | 41.8 | 43.1 | |||||||||
Asset impairment charges |
0.3 | 1.0 | 0.1 | |||||||||
Selling, general and administrative expenses |
37.6 | 37.2 | 38.4 | |||||||||
Operating income |
4.8 | 3.6 | 4.6 | |||||||||
Interest income |
0.0 | 0.1 | 0.1 | |||||||||
Interest expense |
(0.1 | ) | (0.1 | ) | (0.2 | ) | ||||||
Earnings before income taxes |
4.8 | 3.6 | 4.5 | |||||||||
Provision for income taxes |
1.6 | 1.2 | 1.5 | |||||||||
Net earnings including noncontrolling interest |
3.2 | 2.4 | 3.0 | |||||||||
Net loss attributable to noncontrolling interest |
0.0 | 0.0 | 0.0 | |||||||||
Net earnings attributable to common shareholders |
3.2 | % | 2.4 | % | 3.0 | % | ||||||
(1) | Percentage line items may not sum to totals due to the effect of rounding. | |
(2) | Calculated as a percentage of related sales. |
25
Table of Contents
2010 Compared with 2009
The Companys total net sales increased $193.1 million, or 10.1%, to $2,102.7 million for
fiscal 2010 as compared to fiscal 2009. Total corporate apparel clothing sales increased $112.8
million due mainly to $104.8 million in sales from the Dimensions and Alexandra operations acquired
on August 6, 2010. Total retail sales increased $80.3 million, or 4.2%, to $1,976.4 million due
mainly to a $46.6 million increase in retail clothing product revenues and a $30.2 million increase
in tuxedo rental service revenue, and is attributable to the following:
(in millions) | Amount attributed to | |||
$ | 55.1 | Increase in comparable sales. |
||
10.5 | Increase in e-commerce, alteration and other services sales. |
|||
5.9 | Increase from net sales of stores opened in 2009, relocated
stores and expanded stores not yet included in comparable
sales. |
|||
6.6 | Increase in net sales from 10 new stores opened in 2010. |
|||
(16.1 | ) | Decrease in net sales resulting from stores closed. |
||
18.3 | Increase in net sales resulting from change in U.S./Canadian dollar exchange rate. |
|||
$ | 80.3 | Increase in total retail sales. |
||
Comparable store sales (which are calculated by excluding the net sales of a store for any
month of one period if the store was not open throughout the same month of the prior period)
increased 4.7% at Mens Wearhouse/Mens Wearhouse and Tux and 2.2% at Moores, and decreased 1.5% at
K&G. The increase of 4.7% in comparable store sales at Mens Wearhouse and Mens Wearhouse and Tux
was due mainly to higher store traffic levels and to continued paid unit growth in our tuxedo
rental services business. The increase of 2.2% at Moores was due mainly increased units per
transaction, which increased the average transaction value and to continued paid unit growth in our
tuxedo rental services business. At K&G, the decrease of 1.5% in comparable store sales was due
mainly to a decrease in store traffic levels. Tuxedo rental service revenues as a percentage of
total retail sales increased from 17.6% in fiscal 2009 to 18.4% in 2010. In absolute dollars,
tuxedo rental service revenues increased $30.2 million or 9.0% due mainly to a 10.5% increase in
paid units rented, offset partially by lower average rental rates in the U.S. Exchange rate
changes from a stronger Canadian dollar also caused total retail sales for fiscal 2010 to be $18.3
million more than the comparable prior year sales.
The Companys gross margin was as follows:
Fiscal Year | ||||||||
2010 | 2009 | |||||||
Gross margin (in thousands) |
$ | 898,433 | $ | 798,898 | ||||
Gross margin as a percentage of related sales: |
||||||||
Retail gross margin: |
||||||||
Clothing product |
53.9 | % | 54.1 | % | ||||
Tuxedo rental services |
84.6 | % | 82.8 | % | ||||
Alteration and other services |
25.4 | % | 26.2 | % | ||||
Occupancy costs . |
(14.0 | )% | (15.3 | )% | ||||
Total retail gross margin |
43.7 | % | 42.0 | % | ||||
Corporate apparel clothing product gross margin |
27.5 | % | 18.6 | % | ||||
Total gross margin |
42.7 | % | 41.8 | % | ||||
Buying and distribution costs are included in determining our retail and corporate apparel
clothing product gross margins. Our gross margin may not be comparable to other specialty
retailers, as some companies exclude costs related to their distribution network from cost of goods
sold while others, like us, include all or a portion of such costs in cost of goods sold and
exclude them from selling, general and administrative expenses.
Total gross margin increased $99.5 million or 12.5% from fiscal 2009 to $898.4 million in
fiscal 2010. As a percentage of total net sales, total gross margin increased from 41.8% in fiscal
2009 to 42.7% in fiscal 2010. In the retail segment, total gross margin as a percentage of related
sales increased from 42.0% in fiscal 2009 to 43.7% in fiscal 2010 primarily due to improved tuxedo
rental margins and a decrease in occupancy cost. Retail clothing product gross margin decreased
from 54.1% in fiscal 2009 to 53.9% in fiscal 2010 due primarily to increased promotional activity
in fiscal 2010. The tuxedo rental services gross margin increased from 82.8% in fiscal 2009 to
84.6% in fiscal 2010 due
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primarily to a decrease in per unit rental costs in 2010. The gross
margin for alteration
and other services decreased from 26.2% in fiscal 2009 to 25.4% in fiscal 2010 mainly as a result
of increased payroll related costs in fiscal 2010. 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 15.3% in fiscal 2009 to
14.0% in fiscal 2010. On an absolute dollar basis, occupancy cost decreased by $13.0 million or
4.5% from fiscal 2009 to fiscal 2010 primarily due to fewer open stores in 2010 and reduced
depreciation following impairment charges taken in 2010 and the fourth quarter of 2009.
In the corporate apparel segment, total gross margin as a percentage of related sales
increased from 18.6% in fiscal 2009 to 27.5% in fiscal 2010 due to our acquisitions of Dimensions
and Alexandra on August 6, 2010.
Non-cash asset impairment charges were $5.9 million in fiscal 2010 as compared to $19.5
million in fiscal 2009. As a percentage of total net sales, these expenses decreased from 1.0% in
2009 to 0.3% in 2010. The asset impairment charges in both years related primarily to Mens
Wearhouse and Tux stores and K&G stores. Refer to Impairment of Long-Lived Assets as discussed in
Critical Accounting Polices and Estimates below and Note 1 of Notes to Consolidated Financial
Statements for further details.
Selling, general and administrative (SG&A) expenses increased to $790.9 million in fiscal
2010 from $710.0 million in fiscal 2009, an increase of $80.9 million or 11.4%. As a percentage of
total net sales, these expenses increased from 37.2% in fiscal 2009 to 37.6% in fiscal 2010. The
components of this 0.4% net increase in SG&A expenses as a percentage of total net sales and the
related absolute dollar changes were as follows:
% | Attributed to | |||
0.0 | Advertising expense remained flat as a percentage of total net sales
in fiscal 2009 and fiscal 2010 at 4.3%. On an absolute dollar
basis, advertising expense increased $9.5 million. |
|||
(1.0 | ) | Decrease in store salaries as a percentage of total net sales from
15.0% in fiscal 2009 to 14.0% in fiscal 2010. Store salaries on an
absolute dollar basis increased $8.3 million primarily due to
increased commissions associated with increased sales. |
||
1.4 | Increase in other SG&A expenses as a percentage of total net sales
from 17.9% in fiscal 2009 to 19.3% in fiscal 2010. On an absolute
dollar basis, other SG&A expenses increased $63.1 million primarily
due to expenses related to our acquisitions of Dimensions and
Alexandra on August 6, 2010, increased payroll related costs, costs
incurred for ceased tuxedo rental distribution operations (refer to
Note 12 of Notes to Consolidated Financial Statements) and the
absence in 2010 of a cumulative adjustment of $3.1 million
recognized in the second quarter of 2009 for gift card breakage
income. |
|||
0.4 | % | Total |
In the retail segment, SG&A expenses as a percentage of related net sales increased slightly
from 37.1% in fiscal 2009 to 37.9% in fiscal 2010 primarily due to increased payroll related costs,
costs incurred for ceased tuxedo rental distribution operations and the absence in 2010 of a
cumulative adjustment of $3.1 million recognized in the second quarter of 2009 for gift card
breakage income.
In the corporate apparel segment, SG&A expenses as a percentage of related net sales decreased
from 50.5% in fiscal 2009 to 32.8% in fiscal 2010 due primarily to our acquisitions of Dimensions
and Alexandra on August 6, 2010. The corporate apparel segment operating loss of $6.7 million for
fiscal 2010 resulted mainly from $6.4 million in acquisition costs related to these acquisitions.
Interest expense increased from $1.2 million in fiscal 2009 to $1.5 million in fiscal 2010
while interest income decreased from $0.9 million in fiscal 2009 to $0.3 million in fiscal 2010.
Weighted average borrowings outstanding decreased from $47.4 million in fiscal 2009 to $44.0
million in fiscal 2010, and the weighted average interest rate on outstanding indebtedness
increased from 1.9% in fiscal 2009 to 2.1% in fiscal 2010. The decrease in the weighted average
borrowings was due mainly to payments on our revolving credit facility of $25.0 million in the
first quarter of 2009 and the repayment of our Canadian term loan in January 2011 of approximately
US$46.7 million. The weighted average interest rate for fiscal 2010 increased mainly due to an
increase in the effective interest rate for the outstanding Canadian term loan in fiscal 2010
compared to the prior year. As indicated above, the Canadian term loan was paid in full in January
2011. The decrease in interest income was primarily attributable to a shift in our investments
and lower interest rates for fiscal 2010 as compared to fiscal 2009.
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Our effective income tax rate was 32.7% for fiscal 2010 and 33.1% for fiscal 2009. The
effective tax rate for fiscal 2010 was lower than the statutory U.S. federal rate of 35% due to the
favorable tax rate effects from net permanent book-to-tax adjustments, the release of valuation
allowances on foreign tax credit carryforwards, the conclusion of certain income tax audits and
recognition of previously unrecognized tax benefits from expirations of statute of limitations,
partially offset by the effect of state income taxes. The effective tax rate for fiscal 2009 was
lower than the statutory U.S. federal rate of 35% mainly due to the foreign exchange impact of
distributed earnings from our Canadian operations, favorable conclusions of certain income tax
audits and statute of limitation expirations during the year. Such favorable effects were
partially offset by the effect of state income taxes and the establishment of valuation allowances.
As of January 29, 2011, we had $5.6 million in unrecognized tax benefits, of which $4.2 million,
if recognized, would reduce our income tax expense and effective tax rate. It is reasonably
possible that there could be a reduction in the balance of unrecognized tax benefits of up to $1.0
million in the next twelve months.
Net loss attributable to noncontrolling interest was $19 thousand for fiscal 2010 due to our
acquisitions of Dimensions and Alexandra on August 6, 2010. The Company controls 86% of the
UK-based operations.
These factors resulted in net earnings attributable to common shareholders of $67.7 million or
3.2% of total net sales for fiscal 2010, an increase of $21.5 million or 46.5% over net earnings of
$46.2 million or 2.4% of total net sales for fiscal 2009.
2009 Compared with 2008
The Companys total net sales decreased $62.8 million, or 3.2%, to $1,909.6 million for fiscal
2009 as compared to fiscal 2008. Total retail sales decreased $54.8 million due mainly to a $60.3
million decrease in retail clothing product revenues, offset by a $4.1 million increase in tuxedo
rental services and a $1.9 million increase in alteration services, and is attributable to the
following:
(in millions) | Amount Attributed to | |||
$ | (57.3 | ) | Decrease in comparable sales. |
|
14.4 | Increase from net sales of stores opened in 2008,
relocated stores and expanded stores not yet included in
comparable sales. |
|||
3.7 | Increase in net sales from six stores opened in 2009. |
|||
1.9 | Increase in alteration services sales. |
|||
(1.9 | ) | Decrease in other sales. |
||
(8.5 | ) | Decrease in net sales resulting from stores closed. |
||
(7.1 | ) | Decrease in net sales resulting from exchange rate changes. |
||
$ | (54.8 | ) | Total |
|
Our comparable store sales decreased 4.0% at Mens Wearhouse as increases in units per
transaction, driven by our promotional activities, were more than offset by lower store traffic
levels and higher markdowns. At Moores, comparable store sales decreased 0.9% as increases in
units per transaction, driven by our promotional activities, and a higher average transaction value
were more than offset by lower store traffic levels. At K&G, comparable store sales decreased 1.9%
primarily due to decreases in units per transaction and higher markdowns. 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 retail 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 retail sales, tuxedo rental service revenues increased from 16.9% in 2008 to
17.6% in 2009. Exchange rate changes from a weaker Canadian dollar also caused total retail sales
for fiscal 2009 to be $7.1 million less than the comparable prior year sales.
Total corporate apparel clothing product sales decreased $8.0 million to $13.5 million in
fiscal 2009 due mainly to reduced orders from several major corporate apparel customers.
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The Companys gross margin was as follows:
Fiscal Year | ||||||||
2009 | 2008 | |||||||
Gross margin (in thousands) |
$ | 798,898 | $ | 850,512 | ||||
Gross margin as a percentage of related sales: |
||||||||
Retail gross margin: |
||||||||
Clothing product |
54.1 | % | 56.0 | % | ||||
Tuxedo rental services |
82.8 | % | 82.0 | % | ||||
Alteration and other services |
26.2 | % | 24.1 | % | ||||
Occupancy costs |
(15.3 | )% | (15.0 | )% | ||||
Total retail gross margin |
42.0 | % | 43.3 | % | ||||
Corporate apparel clothing product gross margin |
18.6 | % | 31.0 | % | ||||
Total gross margin |
41.8 | % | 43.1 | % | ||||
Buying and distribution costs are included in determining our retail and corporate apparel
clothing product gross margins. Our gross margin may not be comparable to other specialty
retailers, as some companies exclude costs related to their distribution network from cost of goods
sold while others, like us, include all or a portion of such costs in cost of goods sold and
exclude them from selling, general and administrative expenses.
Total gross margin decreased 6.1% from $850.5 million in fiscal 2008 to $798.9 million in
fiscal 2009. As a percentage of total net sales, total gross margin decreased from 43.1% in fiscal
2008 to 41.8% in fiscal 2009.
In the retail segment, total gross margin as a percentage of related sales decreased from
43.3% in fiscal 2008 to 42.0% in fiscal 2009 due mainly to a decline in the retail clothing product
gross margin from 56.0% in fiscal 2008 to 54.1% in fiscal 2009 related to higher markdowns from
increased promotional activities at our Mens Wearhouse and Moores stores. The tuxedo rental
services gross margin increased slightly from 82.0% in fiscal 2008 to 82.8% in fiscal 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 24.1% in fiscal 2008 to 26.2% in fiscal 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 15.0% of total retail sales in fiscal 2008 to 15.3%
in fiscal 2009 but, on an absolute dollar basis, decreased by 1.3%.
In the corporate apparel segment, total gross margin as a percentage of related sales
decreased from 31.0% in fiscal 2008 to 18.6% in fiscal 2009 due mainly to the impact of fixed
buying and procurement costs.
Non-cash asset impairment charges increased to $19.5 million in fiscal 2009 as compared to
$1.8 million in fiscal 2008. As a percentage of total net sales, these expenses increased from
0.1% in 2008 to 1.0% in 2009. The asset impairment charges in fiscal 2009 related to 145 Mens
Wearhouse and Tux stores and 12 K&G stores. The asset impairment charges in fiscal 2008 related to
two K&G stores. Refer to Impairment of Long-Lived Assets as discussed in Critical Accounting
Polices and Estimates below and Note 1 of Notes to Consolidated Financial Statements for further
details.
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Selling, general and administrative expenses decreased to $710.0 million in fiscal 2009 from
$758.2 million in fiscal 2008, a decrease of $48.2 million or 6.4%. As a percentage of total net
sales, these expenses decreased from 38.4% in 2008 to 37.2% in 2009. The components of this 1.2%
net decrease in SG&A expenses as a percentage of total net sales and the related absolute dollar
changes were as follows:
% | Attributed to | |||
0.4 | % | Increase in advertising expense as a percentage of total
net sales from 3.9% in 2008 to 4.3% in 2009. On an
absolute dollar basis, advertising expense increased $5.0
million. |
||
0.1 | % | Increase in store salaries as a percentage of total net
sales from 14.9% in 2008 to 15.0% in 2009. Store salaries
on an absolute dollar basis decreased $7.8 million
primarily due to decreased commissions and store personnel
due to decreased sales and fewer stores in 2009. |
||
(0.5 | )% | Decrease in other SG&A expenses of $10.0 million due to
the absence in 2009 of costs incurred in 2008 in
connection with the July 11, 2008 closure of the Canadian
based manufacturing facility operated by the Companys
subsidiary, Golden Brand. |
||
0.4 | % | Increase in other SG&A expenses of $8.8 million due to the
absence in 2009 of the gain on sale of certain
distribution facility assets acquired by the State of
California through eminent domain in 2008. |
||
(1.6 | )% | Decrease in other SG&A expenses as a percentage of total
net sales from 19.5% in 2008 to 17.9% in 2009. On an
absolute dollar basis, other SG&A expenses decreased $44.2
million primarily due to cost control efforts initiated in
the fourth quarter of 2008 and the 2009 recognition of
$5.0 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 (refer to Note 1 of Notes to Consolidated
Financial Statements). |
||
(1.2 | )% | Total |
In the retail segment, SG&A expenses as a percentage of related net sales decreased from 38.6%
in fiscal 2008 to 37.1% in fiscal 2009 for the reasons discussed above In the corporate apparel
segment, SG&A expenses as a percentage of related net sales increased from 24.8% in fiscal 2008 to
50.5% in fiscal 2009 due primarily to fixed buying and procurement costs higher as a percentage of
reduced sales volume.
Interest expense decreased from $4.3 million in fiscal 2008 to $1.2 million in fiscal 2009
while interest income decreased from $2.6 million in fiscal 2008 to $0.9 million in fiscal 2009.
Weighted average borrowings outstanding decreased from $91.1 million in 2008 to $47.4 million in
2009, and the weighted average interest rate on outstanding indebtedness decreased from 4.3% 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 fiscal 2009 decreased mainly due to a decrease in the effective interest
rate for the Canadian term loan from 1.9% at January 31, 2009 to 1.1% at January 30, 2010. The
decrease in interest income was primarily attributable to lower interest rates for fiscal 2009 as
compared to fiscal 2008.
Our effective income tax rate was 33.1% for 2009 and 33.7% for fiscal 2008. The effective tax
rate for fiscal 2009 was lower than the statutory U.S. federal rate of 35% primarily due to the
foreign exchange impact of distributed earnings from our Canadian operations, favorable conclusions
of certain income tax audits and statute of limitation expirations during the year, offset
partially by the unfavorable effect of state income taxes and establishment of a valuation
allowance related to potential limited utilization of foreign tax credits. The effective income
tax rate in 2008 was lower than the statutory U.S. federal rate of 35% mainly because favorable
conclusions of certain income tax audits and statute of limitation expirations during the year more
than offset the effect of state income taxes. As of January 30, 2010, we had $7.1 million in
unrecognized tax benefits, of which $4.8 million, if recognized, would reduce our income tax
expense and effective tax rate. It is reasonably possible that there could be a net reduction in
the balance of unrecognized tax benefits of up to $1.0 million in the next twelve months.
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These factors resulted in 2009 net earnings attributable to common shareholders of $46.2
million or 2.4% of total net sales, compared with 2008 net earnings attributable to common
shareholders of $58.8 million or 3.0% of total net sales.
Liquidity and Capital Resources
At January 29, 2011 and January 30, 2010, cash and cash equivalents totaled $136.4 million and
$186.0 million, respectively. We had working capital of $497.4 million and $486.3 million at
January 29, 2011 and January 30, 2010, respectively. We held no short-term investments at January
29, 2011 or January 30, 2010. Our primary sources of working capital are cash flows from
operations and borrowings under our Credit Agreement. Historically, our working capital has been
at its lowest level in January and February, and has increased through November as inventory
buildup occurs in preparation for the fourth quarter selling season. The $11.1 million increase in
working capital at January 29, 2011 compared to January 30, 2010 resulted primarily from increases
in accounts receivable and inventories, which more than offset the increases in accounts payable
and accrued expenses and other current liabilities.
On August 6, 2010, we acquired Dimensions and certain assets of Alexandra, two leading
providers of corporate clothing uniforms and workwear in the United Kingdom, to complement our
corporate apparel operations. The operating results of Dimensions and Alexandra have been included
in the consolidated financial statements since that date. The combined businesses are organized
under a UK-based holding company, of which the Company controls 86% and certain previous
shareholders of Dimensions control 14%. The Company has the right to acquire the remaining
outstanding shares of the UK-based holding company in the future on the terms set forth in the
Investment, Shareholders and Stock Purchase Agreement. The acquisition-date cash consideration
transferred for the Dimensions and Alexandra acquisitions was $79.8 million and $18.0 million,
respectively, totaling $97.8 million (£61 million), and was funded through the Companys cash on
hand.
Credit Facilities
On January 26, 2011, we entered into a Second Amended and Restated Credit Agreement (the
Credit Agreement) with a group of banks to amend and restate our existing credit facility, which
provided the Company with a revolving credit facility that was scheduled to mature on February 11,
2012, as well as a term loan to our Canadian subsidiaries, which was scheduled to mature on
February 10, 2011. The term loan outstanding balance of US$46.7 million was paid in full during
the fourth quarter of fiscal 2010.
The Credit Agreement provides for a total senior revolving credit facility of $200.0 million,
with increases to $300.0 million upon additional lender commitments, that matures on January 26,
2016. The Credit Agreement is secured by the stock of certain of our subsidiaries. The Credit
Agreement has several borrowing and interest rate options including the following indices: (i)
adjusted LIBO rate, (ii) adjusted EURIBO rate, (iii) CDO rate, (iv) Canadian prime rate or (v) an
alternate base rate (equal to the greater of the prime rate, the federal funds rate plus 0.5% or
the adjusted LIBO rate for a one month period plus 1.0%). Advances under the Credit Agreement bear
interest at a rate per annum using the applicable indices plus a varying interest rate margin up to
2.75%. The Credit Agreement also provides for fees applicable to amounts available to be drawn
under outstanding letters of credit which range from 2.00% to 2.75%, and a fee on unused
commitments which ranges from 0.35% to 0.50%. As of January 29, 2011, there were no borrowings
outstanding under the Credit Agreement.
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 January 29, 2011.
We utilize letters of credit primarily to secure inventory purchases and as collateral for
workers compensation claims. At January 29, 2011, letters of credit totaling approximately $25.2
million were issued and outstanding. Borrowings available under our Credit Agreement at January
29, 2011 were $174.8 million.
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Table of Contents
Cash flow activities
Operating activities Our primary source of operating cash flow is from sales to our
customers. Our primary uses of cash include clothing product inventory and tuxedo rental product
purchases, personnel related expenses, occupancy costs, advertising costs and income tax payments.
Our operating activities provided net cash of $169.9 million in 2010 due mainly to net earnings,
adjusted for non-cash charges and a decrease in inventories and increases in accounts payable,
accrued expenses and other current liabilities, offset in part by increases in accounts receivable
and tuxedo rental product and a decrease in income taxes payable. Our operating activities
provided net cash of $163.2 million in 2009, due mainly to net earnings, adjusted for non-cash
charges, and decreases in inventories and other assets and an increase in income taxes payable,
offset in part by an increase in tuxedo rental product and decreases in accounts payable, accrued
expenses and other current liabilities. Our operating activities provided net cash of $129.5
million in 2008, due mainly to net earnings, adjusted for non-cash charges, and a decrease in
inventories, offset in part by an increase in tuxedo rental product and decreases in accounts
payable, accrued expenses and other current liabilities and income taxes payable. The increase in
accounts receivable during fiscal 2010 was due primarily to a build of customer balances at our UK
corporate apparel operations acquired in the third quarter of fiscal 2010. Inventories decreased
in 2009 and 2008 as purchases were reduced in line with decreased clothing sales in 2009 and 2008.
Inventories also decreased in 2010 as we continued efforts to align inventory purchases with sales
expectations and a decrease in our retail store count. Tuxedo rental product increased in each of
the years to support the continued growth in our tuxedo rental business, to replenish and replace
product and, in 2008, to rationalize the acquired After Hours tuxedo rental product offerings. The
increases in accounts payable, accrued expenses and other current liabilities in 2010 was primarily
due to the timing of vendor payments, increased advertising costs and an increase in annual bonuses
due to increased sales in 2010, while the decrease in income taxes payable was due to the timing of
required tax payments. The decreases in accounts payable, accrued expenses and other current
liabilities in 2009 and 2008 relate mainly to the timing of vendor payments and reduced purchases
associated with decreased clothing sales. The decrease in other assets in 2009 was mainly due to
tax refunds received, while the increase in income taxes payable was due to the timing and amounts
of required tax payments. In 2008, income taxes payable decreased because actual earnings were
lower than amounts used to estimate required tax payments.
Investing activities Our cash outflows from investing activities are primarily for capital
expenditures, purchases of short-term investments and, in 2010, acquisitions of businesses, while
cash inflows are primarily the result of proceeds from sales of short-term investments. Our
investing activities used net cash of $156.6 million, $36.7 million and $35.0 million in 2010, 2009
and 2008, respectively. We made capital expenditures of $58.9 million, $56.9 million and $88.2
million in 2010, 2009 and 2008, respectively. In 2010, we used net cash of $97.8 million for the
acquisitions of Dimensions and Alexandra on August 6, 2010. In 2008, we had proceeds of $9.6
million from the sale of certain distribution facility assets acquired by the State of California
through eminent domain. Additionally, in 2009 and 2008, we had net proceeds from short-term
investments of $19.4 million and $42.8 million, respectively.
Our capital expenditures relate mainly to costs incurred for stores opened, remodeled or
relocated during the year or under construction at the end of the year, distribution facility
additions and infrastructure technology investments as detailed below (in millions):
2010 | 2009 | 2008 | ||||||||||
Retail segment capital expenditures: |
||||||||||||
New store construction |
$ | 5.5 | $ | 3.4 | $ | 18.1 | ||||||
Relocation and remodeling of existing stores |
25.0 | 26.5 | 50.2 | |||||||||
Information technology |
18.9 | 14.1 | 7.5 | |||||||||
Distribution facilities |
4.8 | 10.8 | 7.0 | |||||||||
Other |
1.8 | 0.8 | 4.8 | |||||||||
Total retail segment capital expenditures |
56.0 | 55.6 | 87.6 | |||||||||
Corporate apparel segment capital expenditures (a) |
2.9 | 1.3 | 0.6 | |||||||||
Total capital expenditures |
$ | 58.9 | $ | 56.9 | $ | 88.2 | ||||||
(a) | Relates mainly to information technology. |
Property additions relating to new retail apparel stores include stores in various stages
of completion at the end of the fiscal year (four stores at the end of 2010, one store at the end
of 2009 and five stores at the end of 2008).
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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 the issuance of common stock. In 2010, our
financing activities used net cash of $65.3 million, due mainly to the payment of cash dividends
and payments on our Canadian term loan, offset partially by proceeds from the issuance of common
stock. In 2009, our financing activities used net cash of $36.9 million, due mainly to the
payment of cash dividends and payments on our revolving credit facility, offset partially by
proceeds from the issuance of common stock. In 2008, our financing activities used net cash of
$25.4 million, due mainly to the payment of cash dividends and payments on our Canadian term loan
and our revolving credit facility, offset by proceeds from our revolving credit facility and the
issuance of common stock.
Share repurchase program In January 2006, the Board of Directors authorized a $100.0 million
share repurchase program of our common stock, which superseded any remaining previous
authorizations. In August 2007, the Board of Directors approved a replenishment of the share
repurchase program to $100.0 million by authorizing $90.3 million to be added to the remaining $9.7
million of the then current program. In January 2011, the Board of Directors approved a $150.0
million share repurchase program of our common stock, which amends and increases the existing share
repurchase authorization. This authorization superceded any remaining previous authorizations.
No shares were repurchased under the August 2007 authorization during fiscal 2009 or 2008. No
shares were repurchased under the August 2007 or the January 2011 authorization during fiscal 2010.
At January 29, 2011, the remaining balance available under the January 2011 authorization was
$150.0 million. Subsequent to January 29, 2011 and through March 30, 2011, we have purchased
1,703.4 thousand shares for $45.6 million at an average price per share of $26.77 under the January
2011 authorization.
The following table summarizes our share repurchases over the last three fiscal years, all of
which were private transactions to satisfy tax withholding obligations arising upon the vesting of
certain restricted stock:
2010 | 2009 | 2008 | ||||||||||
Shares repurchased (in thousands) |
7.1 | 7.3 | 6.7 | |||||||||
Total costs (in millions) |
$ | 0.1 | $ | 0.1 | $ | 0.2 | ||||||
Average price per share |
$ | 20.24 | $ | 12.29 | $ | 23.13 |
Dividends Cash dividends paid were approximately $19.1 million, $14.7 million and $14.6
million during fiscal 2010, 2009 and 2008, respectively. In fiscal 2010, a dividend of $0.09 per
share was declared in the first, second and third quarters and a dividend of $0.12 per share was
declared in the fourth quarter, for an annual dividend of $0.39 per share. In fiscal 2009, a
dividend of $0.07 per share was declared in the first, second and third quarters and a dividend of
$0.09 per share was declared in the fourth quarter, for an annual dividend of $0.30 per share. A
dividend of $0.07 per share was declared in each quarter of fiscal 2008, for an annual dividend of
$0.28 per share. The cash dividend of $0.12 per share declared by our Board of Directors in
January 2011 is payable on March 25, 2011 to shareholders of record on March 15, 2011. The
dividend payout is approximately $6.4 million and is included in accrued expenses and other current
liabilities on the consolidated balance sheet as of January 29, 2011.
Futures sources and uses of cash
Our primary uses of cash are to finance working capital requirements of our operations. In
addition, we will use cash to fund capital expenditures, income tax and dividend payments,
operating leases and various other obligations, including the commitments discussed in the
Contractual Obligations table below, as they arise.
Capital expenditures are anticipated to be in the range of $90.0 to $100.0 million for 2011.
This amount includes the anticipated costs of opening approximately 20 new Mens Wearhouse stores
in 2011 at an expected average cost per store of approximately $0.4 million (excluding
telecommunications and point-of-sale equipment and inventory). The balance of the capital
expenditures for 2011 will be used for telecommunications, point-of-sale and other computer
equipment and systems, store relocations, remodeling and expansion, distribution facilities and
investment in our corporate uniform program. The Company anticipates that each of the new Mens
Wearhouse stores will require, on average, an initial inventory costing approximately $0.3 million
(subject to the seasonal patterns that affect inventory at all stores). These inventory purchases
will be funded by cash from operations, trade credit and, if necessary, borrowings under our Credit
Agreement. The actual amount of future capital expenditures and inventory purchases will depend in
part on the number of new stores opened and the terms on which new stores are leased, as well as on
industry trends consistent with our anticipated operating plans. Additionally, market
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conditions may produce attractive opportunities for us to make acquisitions larger than our past
acquisitions. Any such acquisitions may be undertaken as an alternative to opening new stores. We
may use cash on hand, together with cash flow from operations, borrowings under our Credit
Agreement and issuances of debt or equity securities, to take advantage of any significant
acquisition opportunities.
Current domestic and global economic conditions, including high unemployment levels, reduced
public sector spending and constrained credit markets, could negatively affect our future operating
results as well as our existing cash and cash equivalents balances. In addition, conditions in the
financial markets could limit our access to additional capital resources, if needed, and could
increase associated costs. We believe based on our current business plan that our existing cash
and cash flows from operations will be sufficient to fund our planned store openings, relocations
and remodelings, other capital expenditures and operating cash requirements, including integration
costs and other requirements related to our August 6, 2010 UK-based acquisitions, and that we will
be able to maintain compliance with the covenants in our Credit Agreement for at least the next 12
months. Borrowings available under our Credit Agreement were $174.8 million as of January 29,
2011.
We are exposed to market risk associated with foreign currency exchange rate fluctuations as a
result of our direct sourcing programs and our operations in foreign countries. In connection with
our direct sourcing programs, we may enter into merchandise purchase commitments that are
denominated in a currency different from the functional currency of the operating entity. Our risk
management policy is to hedge a significant portion of forecasted merchandise purchases for our
direct sourcing programs that bear foreign exchange risk using foreign exchange forward contracts.
As these foreign exchange forward contracts are with three financial institutions, we are exposed
to credit risk in the event of nonperformance by these parties. However, due to the
creditworthiness of these major financial institutions, full performance is anticipated.
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Contractual Obligations
As of January 29, 2011, the Company is obligated to make cash payments in connection with its
noncancelable capital and operating leases and other contractual obligations in the amounts listed
below. In addition, we utilize letters of credit primarily for inventory purchases and as
collateral for workers compensation claims. At January 29, 2011, letters of credit totaling
approximately $25.2 million were issued and outstanding.
Payments Due by Period | ||||||||||||||||||||
<1 | 1-3 | 4-5 | > 5 | |||||||||||||||||
(In millions) | Total | Year | Years | Years | Years | |||||||||||||||
Contractual obligations |
||||||||||||||||||||
Capital lease obligations (a) |
$ | 3.6 | $ | 1.1 | $ | 1.6 | $ | 0.9 | $ | | ||||||||||
Operating lease base rentals (a) |
720.7 | 153.4 | 250.0 | 175.1 | 142.2 | |||||||||||||||
Other contractual obligations (b) |
21.5 | 7.5 | 8.5 | 5.5 | | |||||||||||||||
Total contractual obligations (c)(d) |
$ | 745.8 | $ | 162.0 | $ | 260.1 | $ | 181.5 | $ | 142.2 | ||||||||||
(a) | We lease retail business locations, office and warehouse facilities, copier equipment and automotive equipment under various noncancelable capital and operating leases. Leases on retail business locations specify minimum base rentals plus common area maintenance charges and possible additional rentals based upon percentages of sales. Most of the retail business location leases provide for renewal options at rates specified in the leases. Our future lease obligations would change if we exercised these renewal options and if we entered into additional lease agreements. See Note 13 of Notes to Consolidated Financial Statements for more information. | |
(b) | Other contractual obligations consist primarily of payments required under our marketing agreement with Davids Bridal, Inc. | |
(c) | Excluded from the table above is $7.0 million, which includes $1.4 million in interest, related to uncertain tax positions. These amounts are not included due to our inability to predict the timing of the settlement of these amounts. Refer to Note 5 of Notes to Consolidated Financial Statements for more information. | |
(d) | In February 2011, we entered into a US$1.7 million contractual obligation for the refurbishment of the primary offices for Alexandra located in Bristol, UK. This obligation, which is excluded from the table above, will be paid in fiscal 2011. |
In the normal course of business, we issue purchase orders to
vendors/suppliers for merchandise. The purchase orders represent executory contracts requiring
performance by the vendors/suppliers, including the delivery of the merchandise prior to a
specified cancellation date and compliance with product specifications, quality standards and other
requirements. In the event of the vendors failure to meet the agreed upon terms and conditions,
we may cancel the order.
Off-Balance Sheet Arrangements
Other than the noncancelable operating leases, other contractual obligations and letters of
credit discussed above, the Company does not have any off-balance sheet arrangements that are
material to its financial position or results of operations.
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Inflation
The Company believes the impact of inflation on the results of operations during the periods
presented has been minimal. However, there can be no assurance that the Companys business will
not be affected by inflation in the future.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements requires the appropriate application
of accounting policies in accordance with generally accepted accounting principles. In many
instances, this also requires management to make estimates and assumptions about future events that
affect the amounts and disclosures included in our financial statements. We base our estimates on
historical experience and various assumptions that we believe are reasonable under our current
business model. However, because future events and conditions and their effects cannot be
determined with certainty, actual results will differ from our estimates and such differences could
be material to our financial statements.
Our accounting policies are described in Note 1 of Notes to Consolidated Financial Statements.
We consistently apply these policies and periodically evaluate the reasonableness of our estimates
in light of actual events. Historically, we have found our accounting policies to be appropriate
and our estimates and assumptions reasonable. Our critical accounting policies, which are those
most significant to the presentation of our financial position and results of operations and those
that require significant judgment or complex estimates by management, are discussed below.
Revenue Recognition Clothing product revenue is recognized at the time of sale and delivery
of merchandise, net of actual sales returns and a provision for estimated sales returns, and
excludes sales taxes. Revenues from tuxedo rental, alteration and other services are recognized
upon completion of the services.
We present all non-income government-assessed taxes (sales, use and value added taxes)
collected from our customers and remitted to governmental agencies on a net basis (excluded from
net sales) in our consolidated financial statements. The government-assessed taxes are recorded in
accrued expenses and other current liabilities until they are remitted to the government agency.
Inventories Our inventory is carried at the lower of cost or market. Cost is determined
based on the average cost method. Our inventory cost also includes estimated buying and
distribution costs (warehousing, freight, hangers and merchandising costs) associated with the
inventory, with the balance of such costs included in cost of sales. We make assumptions, based
primarily on historical experience, as to items in our inventory that may be damaged, obsolete or
salable only at marked down prices and reduce the cost of inventory to reflect the market value of
these items. If actual damages, obsolescence or market demand is significantly different from our
estimates, additional inventory write-downs could be required. In addition, buying and
distribution costs are allocated to inventory based on the ratio of annual product purchases to
inventory cost. If this ratio were to change significantly, it could materially affect the amount
of buying and distribution costs included in cost of sales.
In the third quarter of fiscal 2010, we changed the method of determining cost under the lower
of cost or market inventory valuation method used for our K&G brand (representing approximately 23%
of our inventory) from the retail inventory method to the average cost method. We recorded the
cumulative effect of the change in accounting principle retrospectively as of February 1, 2009.
The cumulative effect of this change in accounting principle as of February 1, 2009 was an increase
in inventory of $2.2 million, a decrease in deferred tax assets of $0.9 million and a net increase
in retained earnings of $1.3 million. The retrospective application of this accounting change
impacted both segment and consolidated operating income, as well as consolidated net earnings, for
all comparable periods presented by insignificant amounts. The change in accounting principle did
not have any impact on our previously reported net cash flows, sales or comparable store sales.
Refer to Note 14 of Notes to Consolidated Financial Statements.
Impairment of Long-Lived Assets Long-lived assets, such as property and equipment and
identifiable intangibles with finite useful lives, are periodically evaluated for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Assets are grouped and evaluated for impairment at the lowest level of which there
are identifiable cash flows, which is generally at a store level. Assets are reviewed using
factors including, but not limited to, the Companys future operating plans and projected cash
flows. The determination of whether impairment has occurred is based on an estimate of
undiscounted future cash flows directly related to
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the assets, compared to the carrying value of
the assets. If the sum of the undiscounted future cash flows of the assets does not exceed the carrying value of the
assets, full or partial impairment may exist. If the asset carrying amount exceeds its fair value,
an impairment charge is recognized in the amount by which the carrying amount exceeds the fair
value of the asset. Fair value is determined using an income approach, which requires discounting
the estimated future cash flows associated with the asset. Estimating future cash flows requires
management to make assumptions and to apply judgment, including forecasting future sales, costs and
useful lives of assets. Significant judgment is also involved in selecting the appropriate discount
rate to be applied in determining the estimated fair value of an asset. Changes to our key
assumptions related to future performance, market conditions and other economic factors can
significantly affect our impairment evaluation. For example, unanticipated adverse market
conditions can cause individual stores to become unprofitable and can result in an impairment
charge for the property and equipment assets in those stores.
During the fourth quarter of fiscal 2008, we recognized pretax non-cash asset impairment
charges of $1.8 million related mainly to store assets for two K&G stores still in operation.
During the fourth quarter of fiscal 2009, we recognized pretax non-cash asset impairment charges of
$19.5 million related to store assets for 145 Mens Wearhouse and Tux stores and 12 K&G stores.
During fiscal 2010, we recognized pretax non-cash asset impairment charges of $5.9 million related
to store assets for 49 Mens Wearhouse and Tux stores, four K&G stores and three Mens Wearhouse
stores.
The pretax asset impairment charges for the K&G stores of $1.8 million in 2008, $5.1 million
in 2009 and $1.9 million in 2010 are the result primarily of sales declines that started in 2007
and continued through fiscal 2010 caused mainly by the downturn experienced by the U.S. economy.
The pretax asset impairment charges related to the store assets for the Mens Wearhouse and
Tux stores were $14.4 million in fiscal 2009 and $3.6 million in fiscal 2010. Most of our
stand-alone tuxedo rental stores were acquired in April 2007 or opened subsequently and operated as
MW Tux from the fourth quarter of fiscal 2007 until the first quarter of fiscal 2009 when they were
renamed Mens Wearhouse and Tux. These rental stores offer a full selection of tuxedo rental
product as well as an expanded selection of retail merchandise, including dress and casual apparel
targeted towards a younger customer, which was introduced during the first quarter of fiscal 2009.
It was anticipated that expanding the retail merchandise at the rental stores and renaming them to
Mens Wearhouse and Tux would diminish or possibly reverse a consumer driven shifting of rental
revenues that was occurring from the rental stores to our Mens Wearhouse stores located in close
proximity (one mile or less). Although the expanded merchandise offering contributed to a
significant increase in retail clothing sales by the rental stores in fiscal 2009 and 2010, the
shifting of tuxedo rental revenues from the rental stores to nearby Mens Wearhouse stores
continued to occur. In total, tuxedo rental revenues for fiscal 2010 were $364.3 million compared
to $334.1 million in 2009 and $330.0 million in fiscal 2008; however, $14.4 million and $3.6
million of store assets in fiscal 2009 and 2010, respectively, for the stand-alone Mens Wearhouse
and Tux stores were impaired due mainly to the shifting of rental revenues.
In fiscal 2010, we also recognized pretax asset impairment charges of $0.4 million for three
Mens Wearhouse stores, two which are still in operation.
Changes to our key assumptions related to future performance, market conditions and other
economic factors could result in future impairment charges for stores or other long-lived assets
where the carrying amount of the assets may not be recoverable.
Goodwill and Other Intangible Assets Goodwill and other intangible assets are initially
recorded at their fair values. Trademarks, tradenames, customer relationships and other
identifiable intangible assets with finite useful lives are amortized to expense over their
estimated useful lives of 3 to 20 years using the straight-line method and are periodically
evaluated for impairment as discussed in the Impairment of Long-Lived Assets section above.
Identifiable intangible assets with an indefinite useful life, including goodwill, are not
amortized but are evaluated annually as of our fiscal year end for impairment. 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, 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.
Goodwill represents the excess cost of businesses acquired over the fair value of the
identifiable tangible and intangible assets acquired and liabilities assumed in prior business
combinations. Goodwill totaled $88.0 million at January 29, 2011, of which $27.0 million related
to our acquisition of Dimensions on August 6, 2010. Refer to Note 2 of Notes to Consolidated
Financial Statements. For purposes of our impairment evaluation, the reporting units are our
operating brands identified in Note 11 of Notes to Consolidated Financial Statements. Goodwill has
been assigned to the reporting units based on prior business combinations related to the brands.
The goodwill impairment evaluation is performed in
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two steps. The first step is intended to
determine if potential impairment exists and is performed by comparing each reporting units fair value to its carrying value, including
goodwill. If the carrying value of a reporting unit exceeds its estimated fair value, goodwill is
considered potentially impaired, and we must complete the second step of the testing to determine
the amount of any impairment. The second step requires an allocation of the reporting units first
step estimated fair value to the individual assets and liabilities of the reporting unit in the
same manner as if the reporting unit was being acquired in a business combination. Any excess of
the estimated fair value over the amounts allocated to the individual assets and liabilities
represents the implied fair value of goodwill for the reporting unit. If the implied fair value of
goodwill is less than the recorded goodwill, we would recognize an impairment charge for the
difference.
In our step one process, we estimate the fair value of our reporting units using a combined
income and market comparable approach. Our income approach uses projected future cash flows that
are discounted using a weighted-average cost of capital analysis that reflects current market
conditions. The market comparable approach primarily considers market price multiples of
comparable companies and applies those price multiples to certain key drivers of the reporting
unit. We engage an independent valuation firm to assist us in estimating the fair value of our
reporting units.
Management judgment is a significant factor in the goodwill impairment evaluation process.
The computations require management to make estimates and assumptions. Critical assumptions that
are used as part of these evaluations include:
| The potential future cash flows of the reporting unit. The income approach relies on the timing and estimates of future cash flows. The projections use managements estimates of economic and market conditions over the projected period, including growth rates in revenue, gross margin and expense. The cash flows are based on the Companys most recent business operating plans and various growth rates have been assumed for years beyond the current business plan period. We believe that the assumptions and rates used in our 2010 impairment evaluation are reasonable; however, variations in the assumptions and rates could result in significantly different estimates of fair value. | ||
| Selection of an appropriate discount rate. The income approach requires the selection of an appropriate discount rate, which is based on a weighted average cost of capital analysis. The discount rate is affected by changes in short-term interest rates and long-term yield as well as variances in the typical capital structure of marketplace participants. Given current economic conditions, it is possible that the discount rate will fluctuate in the near term. The weighted average cost of capital used to discount the cash flows for our reporting units ranged from 12.0% to 14.0% for the 2010 analysis. | ||
| Selection of comparable companies within the industry. For purposes of the market comparable approach, valuations were determined by calculating average price multiples of relevant key drivers from a group of companies that are comparable to the reporting units being analyzed and applying those price multiples to the key drivers of the reporting unit. While the market price multiple is not an assumption, a presumption that it provides an indicator of the value of the reporting unit is inherent in the valuation. The determination of the market comparable also involves a degree of judgment. Earnings multiples of 6.0 to 7.3 were used for the 2010 analysis for our operating brands including Mens Wearhouse, K&G, Moores and MW Cleaners. |
As discussed above, the fair values of reporting units in 2010 were determined using a
combined income and market comparable approach. We believe these two approaches are appropriate
valuation techniques and we generally weight the two values equally as an estimate of reporting
unit fair value for the purposes of our impairment testing. However, we may weigh one value more
heavily than the other when conditions merit doing so. The fair value derived from the weighting
of these two methods provided appropriate valuations that, in aggregate, reasonably reconciled to
our market capitalization, taking into account observable control premiums. Therefore, we used the
valuations in evaluating goodwill for possible impairment and determined that none of our goodwill
was impaired.
The goodwill impairment evaluation process requires management to make estimates and
assumptions with regard to the fair value of the reporting units. Actual values may differ
significantly from these judgments, particularly if there are significant adverse changes in the
operating environment for our reporting units. Sustained declines in the Companys market
capitalization could also increase the risk of goodwill impairment. Such occurrences could result
in future goodwill impairment charges that would, in turn, negatively impact the Companys results
of operations; however, any such goodwill impairments would be non-cash charges that would not
affect our cash flows or compliance with our current debt covenants.
No goodwill impairment was identified in fiscal 2010, 2009 or 2008.
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Tuxedo Rental Product The cost of our tuxedo rental product is amortized to cost of sales
based on the cost of each unit rented, which is estimated based on the number of times the unit is
expected to be rented and the average cost of the rental product. Lost, damaged and retired rental
product is also charged to cost of sales. Tuxedo rental product is amortized to expense generally
over a two to three year period. We make assumptions, based primarily on historical experience and
information obtained from tuxedo rental industry sources, as to the number of times each unit can
be rented. If the actual number of times a unit can be rented were to vary significantly from our
estimates, it could materially affect the amount of tuxedo rental product amortization included in
cost of sales.
Self-Insurance We self-insure significant portions of our workers compensation and employee
medical costs. We estimate our liability for future payments under these programs based on
historical experience and various assumptions as to participating employees, health care costs,
number of claims and other factors, including industry trends and information provided to us by our
insurance broker. We also use actuarial estimates. If the number of claims or the costs
associated with those claims were to increase significantly over our estimates, additional charges
to earnings could be necessary to cover required payments.
Income Taxes Income taxes are accounted for using the asset and liability method. Deferred
tax liabilities or assets are established for temporary differences between financial and tax
reporting bases and are subsequently adjusted to reflect changes in enacted tax rates expected to
be in effect when the temporary differences reverse. The deferred tax assets are reduced, if
necessary, by a valuation allowance to the extent future realization of those tax benefits is
uncertain.
Significant judgment is required in determining the provision for income taxes and the related
taxes payable and deferred tax assets and liabilities since, in the ordinary course of business,
there are transactions and calculations where the ultimate tax outcome is uncertain. Additionally,
our tax returns are subject to audit by various domestic and foreign tax authorities that could
result in material adjustments or differing interpretations of the tax laws. Although we believe
that our estimates are reasonable and are based on the best available information at the time we
prepare the provision, actual results could differ from these estimates resulting in a final tax
outcome that may be materially different from that which is reflected in our consolidated financial
statements.
The tax benefit from an uncertain tax position is recognized only if it is more likely than
not that the tax position will be sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in the consolidated financial
statements from such positions are then measured based on the largest benefit that has a greater
than 50% likelihood of being realized upon settlement. Interest and/or penalties related to
uncertain tax positions are recognized in income tax expense. Significant judgment is required in
determining our uncertain tax positions. We have established accruals for uncertain tax positions
using our best judgment and adjust these accruals, as warranted, due to changing facts and
circumstances. A change in our uncertain tax positions, in any given period, could have a
significant impact on our financial position, results of operations and cash flows for that period.
Operating Leases Our operating leases primarily relate to stores and generally contain rent
escalation clauses, rent holidays, contingent rent provisions and occasionally leasehold
incentives. We recognize rent expense for operating leases on a straight-line basis over the term
of the lease, which is generally five to ten years based on the initial lease term plus first
renewal option periods that are reasonably assured. Rent expense for stores is included in cost of
sales as a part of occupancy cost and other rent is included in selling, general and administrative
expenses. The lease terms commence when we take possession with the right to control use of the
leased premises and, for stores, is generally 60 days prior to the date rent payments begin.
Rental costs associated with ground or building operating leases that are incurred during a
construction period are recognized as rental expense. Deferred rent that results from recognition
of rent on a straight-line basis is included in other liabilities. Landlord incentives received
for reimbursement of leasehold improvements are recorded as deferred rent and amortized as a
reduction to rent expense over the term of the lease. Contingent rentals are generally based on
percentages of sales and are recognized as store rent expense as they accrue.
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Recent Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (FASB) issued authoritative
guidance that expands the required disclosures about fair value measurements. This guidance
provides for new disclosures requiring the Company to (a) disclose separately the amounts of
significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the
reasons for the transfers and (b) present separately information about purchases, sales, issuances
and settlements in the reconciliation of Level 3 fair value measurements. This guidance also
provides clarification of existing disclosures requiring the Company to (i) determine each class of
assets and liabilities based on the nature and risks of the investments rather than by major
security type and (ii) for each class of assets and liabilities, disclose the valuation techniques
and inputs used to measure fair value for both Level 2 and Level 3 fair value measurements. We
adopted this guidance effective January 31, 2010, except for the presentation of purchases, sales,
issuances and settlements in the reconciliation of Level 3 fair value measurements, which will be
effective for fiscal years beginning after December 15, 2010. The adoption of the first phase of
this guidance did not have a material impact on our financial position, results of operations or
cash flows. We do not expect the adoption of the second phase of this guidance to have a material
impact on our financial position, results of operations or cash flows.
In December 2010, the FASB updated the disclosures of supplementary pro forma information for
business combinations. This update specifies that if a public entity presents comparative financial
statements, the entity should disclose revenue and earnings of the combined entity as though the
business combination(s) that occurred during the current year had occurred as of the beginning of
the comparable prior annual reporting period only. This amendment also expands the supplemental pro
forma disclosures related to business combinations to include a description of the nature and
amount of material, non-recurring pro forma adjustments directly attributable to the business
combination included in the reported pro forma revenue and earnings. This update is effective
prospectively for business combinations for which the acquisition date is on or after the beginning
of the first annual reporting period beginning on or after December 15, 2010, with early adoption
permitted. We do not expect the adoption of this update to have a material impact on our financial
position, results of operations or cash flows.
In December 2010, the FASB issued guidance to clarify when to perform step 2 of the goodwill
impairment test for reporting units with zero or negative carrying amounts. This update modifies
step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts,
requiring the entity to assess whether it is more likely than not that the reporting units
goodwill is impaired in order to determine if the entity should perform step 2 of the goodwill
impairment test for those reporting unit(s). This update is effective for fiscal years, and interim
periods within those years, beginning after December 15, 2010. Early adoption is not permitted. We
do not expect the adoption of this update to have a material impact on our financial position,
results of operations or cash flows.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
We are subject to exposure from fluctuations in U.S. dollar/Euro exchange rates, U.S.
dollar/pounds Sterling (GBP) exchange rates and U.S. dollar/Canadian dollar (CAD) exchange
rates as a result of our direct sourcing programs and our operations in foreign countries. Our
acquired UK-based operations in particular are subject to exposure from fluctuations in U.S.
dollar/GBP exchange rates as Dimensions and Alexandra sell their products and conduct their
business primarily in GBP but purchase most of their merchandise in transactions paid in U.S.
dollars.
As further described in Note 10 of Notes to Consolidated Financial Statements and
Managements Discussion and Analysis of Financial Information and Results of Operations
Liquidity and Capital Resources, our risk management policy is to hedge a significant portion of
forecasted merchandise purchases for our direct sourcing programs that bear foreign exchange risk
using foreign exchange forward contracts. The Company has not elected to apply hedge accounting to
these transactions denominated in a foreign currency. At January 29, 2011, we had six contracts
maturing in varying increments to purchase euros for an aggregate notional amount of US$3.8 million
maturing at various dates through October 2011, 10 contracts maturing in varying increments to
purchase U.S. dollars for an aggregate notional amount of CAD $5.8 million maturing at various dates
through May 2011 and 70 contracts maturing in varying increments to purchase U.S. dollars for an
aggregate notional amount of GBP £27.6 million maturing at various dates through September 2011.
For the fiscal year ended January 29, 2011, we recognized a pre-tax gain of $0.6 million in cost of
sales on the consolidated statement of earnings for our derivative financial instruments not
designated as cash flow hedges. We held no outstanding contracts at January 30, 2010. A
hypothetical 10% increase in applicable January 29, 2011 forward rates could decrease the fair
value of the derivative financial instruments by $1.6 million, whereas a hypothetical 10% decrease
in applicable January 29, 2011 forward rates could increase the fair value of the derivative
contracts by $2.2 million. However, it should be noted that any change in the value of these
contracts, whether real or hypothetical, would be significantly offset by an inverse change in the
value of the underlying hedged item.
Dimensions and Alexandra, our UK-based acquisitions, sell their products and conduct their
business primarily in GBP but purchase most of their merchandise in transactions paid in U.S.
dollars. The exchange rate between the GBP and U.S. dollar has fluctuated over the last ten years.
A decline in the value of the GBP as compared to the U.S. dollar will adversely impact our UK
operating results as the cost of merchandise purchases will increase and the revenues and earnings
of our UK operations will be reduced when they are translated to U.S. dollars. Also, the value of
our UK net assets in U.S. dollars may decline. Dimensions and Alexandra utilize foreign currency
hedging contracts as discussed above to limit exposure to changes in U.S. dollar/GBP exchange
rates.
Moores conducts its business in CAD. The exchange rate between CAD and U.S. dollars has
fluctuated over the last ten years. If the value of the CAD against the U.S. dollar weakens, then
the revenues and earnings of our Canadian operations will be reduced when they are translated to
U.S. dollars. Also, the value of our Canadian net assets in U.S. dollars may decline. Moores
utilizes foreign currency hedging contracts as discussed above to limit exposure to changes in U.S.
dollar/CAD exchange rates.
Interest Rate Risk
We are also exposed to risk under our Credit Agreement. Interest rates under our Credit
Agreement vary with the (i) adjusted LIBO rate, (ii) adjusted EURIBO rate, (iii) CDO rate, (iv)
Canadian prime rate or (v) an alternate base rate (equal to the greater of the prime rate, the
federal funds rate plus 0.5% or the adjusted LIBO rate for a one month period plus 1.0%). Advances
under the Credit Agreement bear interest at a rate per annum using the applicable indices plus a
varying interest rate margin up to 2.75%. See Note 4 of Notes to Consolidated Financial
Statements. At January 29, 2011, there were no borrowings outstanding under the Credit Agreement.
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
January 29, 2011, we have highly liquid investments classified as cash equivalents in our
consolidated balance sheet. Future investment income earned on our cash equivalents will fluctuate
in line with short-term interest rates.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
The Mens Wearhouse, Inc.
Houston, Texas
The Mens Wearhouse, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheets of The Mens Wearhouse, Inc. and
subsidiaries (the Company) as of January 29, 2011 and January 30, 2010, and the related
consolidated statements of earnings, equity and comprehensive income, and cash flows for each of
the three years in the period ended January 29, 2011. Our audits also included the financial
statement schedule listed in the Index at Item 15. These financial statements and financial
statement schedule are the responsibility of the Companys management. Our responsibility is to
express an opinion on the financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of The Mens Wearhouse, Inc. and subsidiaries as of January 29, 2011 and
January 30, 2010, and the results of their operations and their cash flows for each of the three
years in the period ended January 29, 2011, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
As discussed in Note 14 to the consolidated financial statements, the Company changed its method of
accounting for merchandise inventories at its K&G brand from the retail inventory method to the
average cost method during the year ended January 29, 2011. The accounting change was applied
retrospectively to February 1, 2009.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Companys internal control over financial reporting as of January 29,
2011, based on the criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 30,
2011 expressed an unqualified opinion on the Companys internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP |
Houston, Texas
March 30, 2011
March 30, 2011
42
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except shares)
(In thousands, except shares)
January 29, | January 30, | |||||||
2011 | 2010 | |||||||
(as adjusted- | ||||||||
Note 14) | ||||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 136,371 | $ | 186,018 | ||||
Accounts receivable, net |
60,607 | 16,745 | ||||||
Inventories |
486,499 | 434,881 | ||||||
Other current assets |
80,531 | 72,732 | ||||||
Total current assets |
764,008 | 710,376 | ||||||
PROPERTY AND EQUIPMENT, AT COST |
||||||||
Land |
12,264 | 12,036 | ||||||
Buildings |
90,436 | 88,463 | ||||||
Leasehold improvements |
377,966 | 367,728 | ||||||
Furniture, fixtures and equipment |
429,331 | 397,778 | ||||||
909,997 | 866,005 | |||||||
Less accumulated depreciation and amortization |
(577,386 | ) | (521,259 | ) | ||||
Net property and equipment |
332,611 | 344,746 | ||||||
TUXEDO RENTAL PRODUCT, net |
89,465 | 102,479 | ||||||
GOODWILL |
87,994 | 59,414 | ||||||
INTANGIBLE ASSETS, net |
37,348 | 4,287 | ||||||
OTHER ASSETS |
8,892 | 12,850 | ||||||
TOTAL ASSETS |
$ | 1,320,318 | $ | 1,234,152 | ||||
LIABILITIES AND EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Accounts payable |
$ | 123,881 | $ | 83,052 | ||||
Accrued expenses and other current liabilities |
139,640 | 117,047 | ||||||
Income taxes payable |
3,135 | 23,936 | ||||||
Total current liabilities |
266,656 | 224,035 | ||||||
LONG-TERM DEBT |
| 43,491 | ||||||
DEFERRED TAXES AND OTHER LIABILITIES |
69,809 | 62,236 | ||||||
Total liabilities |
336,465 | 329,762 | ||||||
COMMITMENTS AND CONTINGENCIES (Notes 4 and 13) EQUITY: |
||||||||
Preferred stock, $.01 par value, 2,000,000 shares authorized,
no shares issued |
| | ||||||
Common stock, $.01 par value, 100,000,000 shares
authorized, 71,005,810
and 70,523,368 shares issued |
710 | 705 | ||||||
Capital in excess of par |
341,663 | 327,742 | ||||||
Retained earnings |
1,002,975 | 956,032 | ||||||
Accumulated other comprehensive income |
38,366 | 32,537 | ||||||
Treasury stock, 18,118,350 and 18,111,602 shares at cost |
(412,761 | ) | (412,626 | ) | ||||
Total equity attributable to common shareholders |
970,953 | 904,390 | ||||||
Noncontrolling interest |
12,900 | | ||||||
Total equity |
983,853 | 904,390 | ||||||
TOTAL LIABILITIES AND EQUITY |
$ | 1,320,318 | $ | 1,234,152 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
43
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the Years Ended
January 29, 2011, January 30, 2010 and January 31, 2009
(In thousands, except per share amounts)
For the Years Ended
January 29, 2011, January 30, 2010 and January 31, 2009
(In thousands, except per share amounts)
Fiscal Year | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(as adjusted- | ||||||||||||
Note 14) | ||||||||||||
Net sales: |
||||||||||||
Retail clothing product |
$ | 1,480,492 | $ | 1,433,913 | $ | 1,494,205 | ||||||
Tuxedo rental services |
364,269 | 334,068 | 329,951 | |||||||||
Alteration and other services |
131,605 | 128,121 | 126,763 | |||||||||
Total retail sales |
1,976,366 | 1,896,102 | 1,950,919 | |||||||||
Corporate apparel clothing product sales |
126,298 | 13,473 | 21,499 | |||||||||
Total net sales |
2,102,664 | 1,909,575 | 1,972,418 | |||||||||
Cost of sales: |
||||||||||||
Retail clothing product |
681,817 | 658,031 | 657,800 | |||||||||
Tuxedo rental services |
56,067 | 57,417 | 59,515 | |||||||||
Alteration and other services |
98,126 | 94,589 | 96,165 | |||||||||
Occupancy costs |
276,688 | 289,672 | 293,597 | |||||||||
Total retail cost of sales |
1,112,698 | 1,099,709 | 1,107,077 | |||||||||
Corporate apparel clothing product cost of sales |
91,533 | 10,968 | 14,829 | |||||||||
Total cost of sales |
1,204,231 | 1,110,677 | 1,121,906 | |||||||||
Gross margin: |
||||||||||||
Retail clothing product |
798,675 | 775,882 | 836,405 | |||||||||
Tuxedo rental services |
308,202 | 276,651 | 270,436 | |||||||||
Alteration and other services |
33,479 | 33,532 | 30,598 | |||||||||
Occupancy costs |
(276,688 | ) | (289,672 | ) | (293,597 | ) | ||||||
Total retail gross margin |
863,668 | 796,393 | 843,842 | |||||||||
Corporate apparel clothing product gross margin |
34,765 | 2,505 | 6,670 | |||||||||
Total gross margin |
898,433 | 798,898 | 850,512 | |||||||||
Asset impairment charges |
5,854 | 19,473 | 1,812 | |||||||||
Selling, general and administrative expenses |
790,908 | 710,049 | 758,229 | |||||||||
Operating income |
101,671 | 69,376 | 90,471 | |||||||||
Interest income |
315 | 912 | 2,592 | |||||||||
Interest expense |
(1,456 | ) | (1,244 | ) | (4,300 | ) | ||||||
Earnings before income taxes |
100,530 | 69,044 | 88,763 | |||||||||
Provision for income taxes |
32,852 | 22,829 | 29,919 | |||||||||
Net earnings including noncontrolling interest |
67,678 | 46,215 | 58,844 | |||||||||
Net loss attributable to noncontrolling interest |
19 | | | |||||||||
Net earnings attributable to common shareholders |
$ | 67,697 | $ | 46,215 | $ | 58,844 | ||||||
Net earnings per common share attributable to common
shareholders (Note 3): |
||||||||||||
Basic |
$ | 1.27 | $ | 0.88 | $ | 1.14 | ||||||
Diluted |
$ | 1.27 | $ | 0.88 | $ | 1.13 | ||||||
Weighted average common shares outstanding (Note 3): |
||||||||||||
Basic |
52,647 | 52,130 | 51,645 | |||||||||
Diluted |
52,853 | 52,280 | 51,944 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
44
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
(In thousands, except shares)
(In thousands, except shares)
Capital | Accumulated Other | Total Equity | ||||||||||||||||||||||||||||||
Common | in Excess | Retained | Comprehensive | Treasury | Attributable to | Noncontrolling | ||||||||||||||||||||||||||
Stock | of Par Value | Earnings | Income | Stock | Common Shareholders | Interest | Total Equity | |||||||||||||||||||||||||
BALANCES February 2, 2008 |
$ | 696 | $ | 305,209 | $ | 880,084 | $ | 43,629 | $ | (413,681 | ) | $ | 815,937 | | $ | 815,937 | ||||||||||||||||
Net earnings |
| | 58,844 | | | 58,844 | | 58,844 | ||||||||||||||||||||||||
Other comprehensive income |
| | | (29,337 | ) | | (29,337 | ) | | (29,337 | ) | |||||||||||||||||||||
Cash dividends $0.28 per share |
| | (14,640 | ) | | | (14,640 | ) | | (14,640 | ) | |||||||||||||||||||||
Share-based compensation |
| 9,797 | | | | 9,797 | | 9,797 | ||||||||||||||||||||||||
Common stock issued to stock
discount plan 147,991 shares |
1 | 2,127 | | | | 2,128 | | 2,128 | ||||||||||||||||||||||||
Common stock issued upon exercise of
stock options 52,922 shares |
1 | 724 | | | | 725 | | 725 | ||||||||||||||||||||||||
Common stock issued pursuant to
restricted stock and deferred stock
unit awards 209,206 shares |
2 | (2 | ) | | | | | | | |||||||||||||||||||||||
Tax payments related to vested deferred stock
units |
| (1,399 | ) | | | | (1,399 | ) | | (1,399 | ) | |||||||||||||||||||||
Tax deficiency related to share-based plans |
| (751 | ) | | | | (751 | ) | | (751 | ) | |||||||||||||||||||||
Treasury stock issued to profit sharing
plan 57,078 shares |
| (301 | ) | | | 1,301 | 1,000 | | 1,000 | |||||||||||||||||||||||
Treasury stock purchased 6,728 shares |
| | | | (156 | ) | (156 | ) | | (156 | ) | |||||||||||||||||||||
BALANCES January 31, 2009 |
700 | 315,404 | 924,288 | 14,292 | (412,536 | ) | 842,148 | | 842,148 | |||||||||||||||||||||||
Cumulative adjustment for change in
accounting principle (Note 14) |
| | 1,339 | | | 1,339 | | 1,339 | ||||||||||||||||||||||||
Net earnings (as adjusted Note 14) |
| | 46,215 | | | 46,215 | | 46,215 | ||||||||||||||||||||||||
Other comprehensive income |
| | | 18,245 | | 18,245 | | 18,245 | ||||||||||||||||||||||||
Cash dividends $0.30 per share |
| | (15,810 | ) | | | (15,810 | ) | | (15,810 | ) | |||||||||||||||||||||
Share-based compensation |
| 10,168 | | | | 10,168 | | 10,168 | ||||||||||||||||||||||||
Common stock issued to stock
discount plan 138,360 shares |
1 | 1,985 | | | | 1,986 | | 1,986 | ||||||||||||||||||||||||
Common stock issued upon exercise of
stock options 151,235 shares |
2 | 2,118 | | | | 2,120 | | 2,120 | ||||||||||||||||||||||||
Common stock issued pursuant to
restricted stock and deferred stock
unit awards 231,273 shares |
2 | (2 | ) | | | | | | | |||||||||||||||||||||||
Tax payments related to vested deferred stock
units |
| (1,634 | ) | | | | (1,634 | ) | | (1,634 | ) | |||||||||||||||||||||
Tax deficiency related to share-based plans |
| (297 | ) | | | | (297 | ) | | (297 | ) | |||||||||||||||||||||
Treasury stock purchased 7,292
shares |
| | | | (90 | ) | (90 | ) | | (90 | ) | |||||||||||||||||||||
BALANCES January 30, 2010 (as adjusted-Note 14) |
705 | 327,742 | 956,032 | 32,537 | (412,626 | ) | 904,390 | | 904,390 | |||||||||||||||||||||||
Net earnings (loss) |
| | 67,697 | | | 67,697 | (19 | ) | 67,678 | |||||||||||||||||||||||
Other comprehensive income (loss) |
| | | 5,829 | | 5,829 | (85 | ) | 5,744 | |||||||||||||||||||||||
Cash dividends $0.39 per share |
| | (20,754 | ) | | | (20,754 | ) | | (20,754 | ) | |||||||||||||||||||||
Share-based compensation |
| 11,892 | | | | 11,892 | | 11,892 | ||||||||||||||||||||||||
Common stock issued to stock
discount plan 120,434 shares |
1 | 2,086 | | | | 2,087 | | 2,087 | ||||||||||||||||||||||||
Common stock issued upon exercise of
stock options 120,664 shares |
1 | 1,812 | | | | 1,813 | | 1,813 | ||||||||||||||||||||||||
Common stock issued pursuant to
restricted stock and deferred stock
unit awards 260,704 shares |
3 | (3 | ) | | | | | | | |||||||||||||||||||||||
Tax payments related to vested deferred stock
units |
| (2,748 | ) | | | | (2,748 | ) | | (2,748 | ) | |||||||||||||||||||||
Tax benefit related to share-based plans |
| 882 | | | | 882 | | 882 | ||||||||||||||||||||||||
Treasury stock issued to profit sharing plan
386 shares |
| | | | 9 | 9 | | 9 | ||||||||||||||||||||||||
Treasury stock purchased 7,134
shares |
| | | | (144 | ) | (144 | ) | | (144 | ) | |||||||||||||||||||||
Fair value of noncontrolling interest
associated with businesses acquired (Note 2) |
| | | | | | 13,004 | 13,004 | ||||||||||||||||||||||||
BALANCES January 29, 2011 |
$ | 710 | $ | 341,663 | $ | 1,002,975 | $ | 38,366 | $ | (412,761 | ) | $ | 970,953 | $ | 12,900 | $ | 983,853 | |||||||||||||||
45
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
(Continued)
(In thousands)
(In thousands)
For the Fiscal Year Ended | ||||||||||||
January 29, | January 30, | January 31, | ||||||||||
2011 | 2010 | 2009 | ||||||||||
(as adjusted- | ||||||||||||
Note 14) | ||||||||||||
Comprehensive income: |
||||||||||||
Net earnings including noncontrolling interest |
$ | 67,678 | $ | 46,215 | $ | 58,844 | ||||||
Currency translation adjustments, net of tax |
5,744 | 18,245 | (29,337 | ) | ||||||||
Other comprehensive income including
noncontrolling interest |
73,422 | 64,460 | 29,507 | |||||||||
Other comprehensive loss attributable to
noncontrolling interest: |
||||||||||||
Net loss |
(19 | ) | | | ||||||||
Currency translation adjustments, net of tax |
(85 | ) | | | ||||||||
Other comprehensive loss attributable to
noncontrolling interest |
(104 | ) | | | ||||||||
Other comprehensive income attributable to common
shareholders |
$ | 73,526 | $ | 64,460 | $ | 29,507 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
46
Table of Contents
THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
January 29, 2011, January 30, 2010 and January 31, 2009
(In thousands)
For the Years Ended
January 29, 2011, January 30, 2010 and January 31, 2009
(In thousands)
Fiscal Year | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(as adjusted- | ||||||||||||
Note 14) | ||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net earnings including noncontrolling interest |
$ | 67,678 | $ | 46,215 | $ | 58,844 | ||||||
Adjustments to reconcile net earnings to net cash
provided by operating activities: |
||||||||||||
Depreciation and amortization |
75,998 | 86,090 | 90,665 | |||||||||
Tuxedo rental product amortization |
33,485 | 37,184 | 38,180 | |||||||||
Asset impairment charges |
5,854 | 19,473 | 1,812 | |||||||||
Loss on disposition of assets |
223 | 1,778 | 73 | |||||||||
Gain on bargain purchase acquisition |
(524 | ) | | | ||||||||
Gain on sale of certain distribution facility assets |
| | (8,818 | ) | ||||||||
Deferred rent expense |
3,001 | 2,305 | 808 | |||||||||
Share-based compensation |
11,892 | 10,168 | 9,797 | |||||||||
Excess tax benefits from share-based compensation |
(1,107 | ) | (392 | ) | (138 | ) | ||||||
Deferred tax provision (benefit) |
8,735 | (30,165 | ) | 8,270 | ||||||||
Decrease (increase) in accounts receivable |
(19,846 | ) | (167 | ) | 1,513 | |||||||
Decrease in inventories |
16,804 | 14,407 | 40,224 | |||||||||
Increase in tuxedo rental product |
(19,234 | ) | (40,528 | ) | (54,414 | ) | ||||||
Decrease (increase) in other assets |
(7,473 | ) | 23,505 | 3,802 | ||||||||
Increase (decrease) in accounts payable, accrued
expenses and other current liabilities |
19,155 | (24,918 | ) | (34,535 | ) | |||||||
Increase (decrease) in income taxes payable |
(22,026 | ) | 20,990 | (25,169 | ) | |||||||
Decrease in other liabilities |
(2,668 | ) | (2,790 | ) | (1,424 | ) | ||||||
Net cash provided by operating activities |
169,947 | 163,155 | 129,490 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
Capital expenditures |
(58,868 | ) | (56,912 | ) | (88,225 | ) | ||||||
Proceeds from sale of certain distribution facility assets |
| | 9,588 | |||||||||
Acquisitions of businesses, net of cash |
(97,786 | ) | | | ||||||||
Purchases of available-for-sale investments |
| | (17,121 | ) | ||||||||
Proceeds from sales of available-for-sale investments |
| 19,410 | 59,921 | |||||||||
Proceeds from sales of property and equipment |
76 | 797 | 811 | |||||||||
Net cash used in investing activities |
(156,578 | ) | (36,705 | ) | (35,026 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Proceeds from issuance of common stock |
3,900 | 4,106 | 2,853 | |||||||||
Proceeds from revolving credit facility |
| | 150,600 | |||||||||
Payments on revolving credit facility |
| (25,000 | ) | (130,975 | ) | |||||||
Payments on Canadian term loan |
(46,738 | ) | | (31,880 | ) | |||||||
Cash dividends paid |
(19,111 | ) | (14,722 | ) | (14,600 | ) | ||||||
Deferred financing costs |
(1,577 | ) | | | ||||||||
Tax payments related to vested deferred stock units |
(2,748 | ) | (1,634 | ) | (1,399 | ) | ||||||
Excess tax benefits from share-based compensation |
1,107 | 392 | 138 | |||||||||
Purchase of treasury stock |
(144 | ) | (90 | ) | (156 | ) | ||||||
Net cash used in financing activities |
(65,311 | ) | (36,948 | ) | (25,419 | ) | ||||||
Effect of exchange rate changes |
2,295 | 9,104 | (21,079 | ) | ||||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
(49,647 | ) | 98,606 | 47,966 | ||||||||
Balance at beginning of period |
186,018 | 87,412 | 39,446 | |||||||||
Balance at end of period |
$ | 136,371 | $ | 186,018 | $ | 87,412 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
47
Table of Contents
THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For the Years Ended
January 29, 2011, January 30, 2010 and January 31, 2009
(In thousands)
For the Years Ended
January 29, 2011, January 30, 2010 and January 31, 2009
(In thousands)
Fiscal Year | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(as adjusted- | ||||||||||||
Note 14) | ||||||||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
||||||||||||
Cash paid during the year for: |
||||||||||||
Interest |
$ | 1,144 | $ | 1,108 | $ | 4,189 | ||||||
Income taxes |
$ | 59,261 | $ | 4,337 | $ | 48,862 | ||||||
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES: |
||||||||||||
Additional capital in excess of par resulting from tax
benefit (deficiency)
related to share-based plans |
$ | 822 | $ | (297 | ) | $ | (751 | ) | ||||
Treasury stock contributed to employee stock plan |
$ | 9 | $ | | $ | 1,000 | ||||||
Cash dividends declared |
$ | 6,396 | $ | 4,753 | $ | 3,665 | ||||||
We had unpaid capital expenditure purchases accrued in accounts payable and accrued
expenses and other current liabilities of approximately $6.3 million, $5.6 million and $4.4 million
in fiscal 2010, 2009 and 2008, respectively. Capital expenditure purchases are recorded as cash
outflows from investing activities in the consolidated statement of cash flows in the period they
are paid.
The accompanying notes are an integral part of these consolidated financial statements.
48
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended
January 29, 2011, January 30, 2010 and January 31, 2009
For the Years Ended
January 29, 2011, January 30, 2010 and January 31, 2009
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business The Mens Wearhouse, Inc. and its subsidiaries (the Company) is
a specialty apparel retailer offering suits, suit separates, sport coats, pants, shoes, shirts,
sportswear, outerwear and accessories for men and tuxedo rentals. We offer our products and
services through multiple channels including The Mens Wearhouse, Mens Wearhouse and Tux, K&G,
Moores Clothing for Men and on the internet at www.menswearhouse.com. Our stores are located
throughout the United States and Canada and carry a wide selection of brand name and private label
merchandise. In addition, we offer our customers a variety of services, including alterations and
our loyalty program, and most of our K&G stores offer ladies career apparel, sportswear and
accessories, including shoes. We follow the standard fiscal year of the retail industry, which is a
52-week or 53-week period ending on the Saturday closest to January 31. Fiscal year 2010 ended on
January 29, 2011, fiscal year 2009 ended on January 30, 2010 and fiscal year 2008 ended on January
31, 2009. Fiscal years 2010, 2009 and 2008 each included 52 weeks.
We also conduct corporate apparel and uniform operations through Twin Hill in the United
States and, in the Houston, Texas area, conduct retail dry cleaning and laundry operations through
MW Cleaners.
On August 6, 2010, we acquired Dimensions Clothing Limited (Dimensions) and certain assets
of Alexandra plc (Alexandra), two leading providers of corporate clothing uniforms and workwear
in the United Kingdom (refer to Note 2 for further details regarding the acquisitions). As a
result of these acquisitions, in the third quarter of fiscal 2010, the Company revised its segment
reporting to reflect two reportable segments, retail and corporate apparel, based on the way we
manage, evaluate and internally report our business activities. Prior to these acquisitions our
corporate apparel business did not have a significant effect on the revenues or expenses of the
Company and we reported our business as one operating segment. Prior period amounts reported as one
operating segment have been revised to conform with our new segment reporting structure. Refer to
Note 11 for further segment information.
On September 1, 2010, the Company assigned its rights to receive an aggregate of $2.6 million
of the proceeds from life insurance policies on the life of George Zimmer, Chairman of the Board
and Chief Executive Officer, to Mr. Zimmer and a trust for the benefit of Mr. Zimmer in exchange
for a cash payment of $2.6 million from Mr. Zimmer. The Company acquired the right to receive a
portion of the proceeds from the life insurance policies as a result of paying premiums in the
amount of $2.6 million on the policies. All such premium payments were made by the Company prior
to 2003.
Principles of Consolidation The consolidated financial statements include the accounts of
The Mens Wearhouse, Inc. and its subsidiaries. Intercompany accounts and transactions have been
eliminated in the consolidated financial statements.
Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those
estimates. Our most significant estimates and assumptions, as discussed in Managements
Discussion and Analysis Critical Accounting Policies and Estimates included herein, are those
relating to revenue recognition, inventories, impairment of long-lived assets, including goodwill,
amortization of the cost of our tuxedo rental product, our estimated liabilities for self-insured
portions of our workers compensation and employee health benefit costs, our estimates relating to
income taxes and our operating lease accounting.
Cash and Cash Equivalents Cash and cash equivalents includes all cash in banks, cash on
hand and all highly liquid investments with an original maturity of three months or less.
49
Table of Contents
THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Accounts Receivable Accounts receivable consists of our receivables from third-party credit
card providers and other trade receivables, net of an allowance for uncollectible accounts of $0.9
million and $0.4 million in fiscal 2010 and 2009, respectively. Collectibility is reviewed
regularly and the allowance is adjusted as necessary. Our other trade receivables consist
primarily of receivables from our corporate apparel segment customers.
Inventories Inventories are valued at the lower of cost or market. Cost is determined
based on the average cost method. Our inventory cost also includes estimated buying and
distribution costs (warehousing, freight, hangers and merchandising costs) associated with the
inventory. Buying and distribution costs are allocated to inventory based on the ratio of annual
product purchases to inventory cost. We make assumptions, based primarily on historical
experience, as to items in our inventory that may be damaged, obsolete or salable only at marked
down prices and reduce the cost of inventory to reflect the market value of these items.
In the third quarter of fiscal 2010, we changed the method of determining cost under the lower
of cost or market inventory valuation method used for our K&G brand (representing approximately 23%
of our inventory) from the retail inventory method to the average cost method. We recorded the
cumulative effect of the change in accounting principle retrospectively as of February 1, 2009.
The cumulative effect of this change in accounting principle as of February 1, 2009 was an increase
in inventory of $2.2 million, a decrease in deferred tax assets of $0.9 million and a net increase
in retained earnings of $1.3 million. The retrospective application of this accounting change
impacted both segment and consolidated operating income, as well as consolidated net earnings, for
all comparable periods presented by insignificant amounts. The change in accounting principle did
not have any impact on our previously reported net cash flows, sales or comparable store sales.
Refer to Note 14 for additional information and disclosures.
Property and Equipment Property and equipment are stated at cost. Normal repairs and
maintenance costs are charged to earnings as incurred and additions and major improvements are
capitalized. The cost of assets retired or otherwise disposed of and the related allowances for
depreciation are eliminated from the accounts in the period of disposal and the resulting gain or
loss is credited or charged to earnings.
Buildings are depreciated using the straight-line method over their estimated useful lives of
20 to 25 years. Depreciation of leasehold improvements is computed on the straight-line method
over the term of the lease, which is generally five to ten years based on the initial lease term
plus first renewal option periods that are reasonably assured, or the useful life of the assets,
whichever is shorter. Furniture, fixtures and equipment are depreciated using primarily the
straight-line method over their estimated useful lives of three to 25 years.
Depreciation expense was $73.6 million, $83.9 million and $88.1 million for fiscal 2010, 2009
and 2008, respectively.
In January 2009, we received cash proceeds of approximately $9.6 million from the State of
California (the State) for certain property being acquired by the State pursuant to eminent
domain. We recognized a pretax gain of $8.8 million from this transaction. The property acquired
by the State is primarily machinery, equipment and leasehold improvements at the former site of a
distribution facility in Arleta, California. The gain is included in Selling, general and
administrative expenses in the consolidated statement of earnings for the period ended January 31,
2009.
Impairment of Long-Lived Assets Long-lived assets, such as property and equipment and
identifiable intangibles with finite useful lives, are periodically evaluated for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Assets are grouped and evaluated for impairment at the lowest level of which there
are identifiable cash flows, which is generally at a store level. Assets are reviewed using
factors including, but not limited to, the Companys future operating plans and projected cash
flows. The determination of whether impairment has occurred is based on an estimate of
undiscounted future cash flows directly related to the assets, compared to the carrying value of
the assets. If the sum of the undiscounted future cash flows of the assets does not exceed the
carrying value of the assets, full or partial impairment may exist. If the asset carrying amount
exceeds its fair value, an impairment charge is recognized in the amount by which the carrying
amount exceeds the fair value of the asset. Fair value is determined using an income approach,
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which
requires discounting the estimated future cash flows associated with the asset. Estimating future cash flows requires management to make assumptions and to apply
judgment, including forecasting future sales, costs and useful lives of assets. Significant
judgment is also involved in selecting the appropriate discount rate to be applied in determining
the estimated fair value of an asset. Changes to our key assumptions related to future performance,
market conditions and other economic factors can significantly affect our impairment evaluation.
For example, unanticipated adverse market conditions can cause individual stores to become
unprofitable and can result in an impairment charge for the property and equipment assets in those
stores.
During the fourth quarter of fiscal 2008, we recognized pretax non-cash asset impairment
charges of $1.8 million related mainly to store assets for two K&G stores still in operation.
During the fourth quarter of fiscal 2009, we recognized pretax non-cash asset impairment charges of
$19.5 million related to store assets for 145 Mens Wearhouse and Tux stores and 12 K&G stores.
During fiscal 2010, we recognized pretax non-cash asset impairment charges of $5.9 million related
to store assets for 49 Mens Wearhouse and Tux stores, four K&G stores and three Mens Wearhouse
stores.
The pretax asset impairment charges for the K&G stores of $1.8 million in 2008, $5.1 million
in 2009 and $1.9 million in 2010 are the result primarily of sales declines that started in 2007
and continued through fiscal 2010 caused mainly by the downturn experienced by the U.S. economy.
The pretax asset impairment charges related to the store assets for the Mens Wearhouse and
Tux stores were $14.4 million in fiscal 2009 and $3.6 million in fiscal 2010. Most of our
stand-alone tuxedo rental stores were acquired in April 2007 or opened subsequently and operated as
MW Tux from the fourth quarter of fiscal 2007 until the first quarter of fiscal 2009 when they were
renamed Mens Wearhouse and Tux. These rental stores offer a full selection of tuxedo rental
product as well as an expanded selection of retail merchandise, including dress and casual apparel
targeted towards a younger customer, which was introduced during the first quarter of fiscal 2009.
It was anticipated that expanding the retail merchandise at the rental stores and renaming them to
Mens Wearhouse and Tux would diminish or possibly reverse a consumer driven shifting of rental
revenues that was occurring from the rental stores to our Mens Wearhouse stores located in close
proximity (one mile or less). Although the expanded merchandise offering contributed to a
significant increase in retail clothing sales by the rental stores in fiscal 2009 and 2010, the
shifting of tuxedo rental revenues from the rental stores to nearby Mens Wearhouse stores
continued to occur. In total, tuxedo rental revenues for fiscal 2010 were $364.3 million compared
to $334.1 million in 2009 and $330.0 million in fiscal 2008; however, $14.4 million and $3.6
million of store assets in fiscal 2009 and 2010, respectively, for the stand-alone Mens Wearhouse
and Tux stores were impaired due mainly to the shifting of rental revenues.
In fiscal 2010, we also recognized pretax asset impairment charges of $0.4 million for three
Mens Wearhouse stores, two of which are still in operation.
Changes to our key assumptions related to future performance, market conditions and other
economic factors could result in future impairment charges for stores or other long-lived assets
where the carrying amount of the assets may not be recoverable.
Goodwill and Other Intangible Assets Goodwill and other intangible assets are initially
recorded at their fair values. Trademarks, tradenames, customer relationships and other
identifiable intangible assets with finite useful lives are amortized to expense over their
estimated useful lives of 3 to 20 years using the straight-line method and are periodically
evaluated for impairment as discussed in the Impairment of Long-Lived Assets section above.
Identifiable intangible assets with an indefinite useful life, including goodwill, are not
amortized but are evaluated annually as of our fiscal year end for impairment. 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, 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.
Goodwill represents the excess cost of businesses acquired over the fair value of the
identifiable tangible and intangible assets acquired and liabilities assumed in prior business
combinations. Goodwill totaled $88.0 million at January 29, 2011, of which $27.0 million related
to our acquisition of Dimensions on August 6, 2010 as discussed in Note 2 below. For purposes of
our goodwill impairment evaluation, the reporting units are our operating brands identified in Note
11. Goodwill has been assigned to the reporting units based on prior business combinations
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related
to the brands. The goodwill impairment evaluation is performed in two steps. The first
step is intended to determine if potential impairment exists and is performed by comparing each
reporting units fair value to its carrying value, including goodwill. If the carrying value of a
reporting unit exceeds its estimated fair value, goodwill is considered potentially impaired, and
we must complete the second step of the testing to determine the amount of any impairment. The
second step requires an allocation of the reporting units first step estimated fair value to the
individual assets and liabilities of the reporting unit in the same manner as if the reporting unit
was being acquired in a business combination. Any excess of the estimated fair value over the
amounts allocated to the individual assets and liabilities represents the implied fair value of
goodwill for the reporting unit. If the implied fair value of goodwill is less than the recorded
goodwill, we would recognize an impairment charge for the difference.
In our step one process, we estimate the fair value of our reporting units using a combined
income and market comparable approach. Our income approach uses projected future cash flows that
are discounted using a weighted-average cost of capital analysis that reflects current market
conditions. The market comparable approach primarily considers market price multiples of
comparable companies and applies those price multiples to certain key drivers of the reporting
unit. We engage an independent valuation firm to assist us in estimating the fair value of our
reporting units.
Management judgment is a significant factor in the goodwill impairment evaluation process.
The computations require management to make estimates and assumptions. Critical assumptions that
are used as part of these evaluations include:
| The potential future cash flows of the reporting unit. The income approach relies on the timing and estimates of future cash flows. The projections use managements estimates of economic and market conditions over the projected period, including growth rates in revenue, gross margin and expense. The cash flows are based on the Companys most recent business operating plans and various growth rates have been assumed for years beyond the current business plan period. We believe that the assumptions and rates used in our 2010 impairment evaluation are reasonable; however, variations in the assumptions and rates could result in significantly different estimates of fair value. |
| Selection of an appropriate discount rate. The income approach requires the selection of an appropriate discount rate, which is based on a weighted average cost of capital analysis. The discount rate is affected by changes in short-term interest rates and long-term yield as well as variances in the typical capital structure of marketplace participants. Given current economic conditions, it is possible that the discount rate will fluctuate in the near term. The weighted average cost of capital used to discount the cash flows for our reporting units ranged from 12.0% to 14.0% for the 2010 analysis. |
| Selection of comparable companies within the industry. For purposes of the market comparable approach, valuations were determined by calculating average price multiples of relevant key drivers from a group of companies that are comparable to the reporting units being analyzed and applying those price multiples to the key drivers of the reporting unit. While the market price multiple is not an assumption, a presumption that it provides an indicator of the value of the reporting unit is inherent in the valuation. The determination of the market comparable also involves a degree of judgment. Earnings multiples of 6.0 to 7.3 were used for the 2010 analysis for our operating brands including Mens Wearhouse, K&G, Moores and MW Cleaners. |
As discussed above, the fair values of reporting units in 2010 were determined using a
combined income and market comparable approach. We believe these two approaches are appropriate
valuation techniques and we generally weight the two values equally as an estimate of reporting
unit fair value for the purposes of our impairment testing. However, we may weigh one value more
heavily than the other when conditions merit doing so. The fair value derived from the weighting
of these two methods provided appropriate valuations that, in aggregate, reasonably reconciled to
our market capitalization, taking into account observable control premiums. Therefore, we used the
valuations in evaluating goodwill for possible impairment and determined that none of our goodwill
was impaired.
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The goodwill impairment evaluation process requires management to make estimates and
assumptions with regard to the fair value of the reporting units. Actual values may differ
significantly from these judgments, particularly if there are significant adverse changes in the
operating environment for our reporting units. Sustained declines in the Companys market
capitalization could also increase the risk of goodwill impairment. Such occurrences could result
in future goodwill impairment charges that would, in turn, negatively impact the Companys results
of operations; however, any such goodwill impairments would be non-cash charges that would not
affect our cash flows or compliance with our current debt covenants.
No goodwill impairment was identified in fiscal 2010, 2009 or 2008.
Tuxedo Rental Product Tuxedo rental product is amortized to cost of sales based
on the cost of each unit rented. The cost of each unit rented is estimated based on the number of
times the unit is expected to be rented and the average cost of the rental product. Lost, damaged
and retired rental product is also charged to cost of sales. Tuxedo rental product is amortized to
expense generally over a two to three year period. We make assumptions, based primarily on
historical experience and information obtained from tuxedo rental industry sources, as to the
number of times each unit can be rented. Amortization expense was $33.5 million, $37.2 million and
$38.2 million for fiscal 2010, 2009 and 2008, respectively.
Derivative Financial Instruments Derivative financial instruments are recorded in the
consolidated balance sheet at fair value as other current assets or accrued expenses and other
current liabilities. The Company has not elected to apply hedge accounting to our derivative
financial instruments. The gain or loss on derivative financial instruments is recorded in cost of
sales in the consolidated statements of earnings. Refer to Note 10 for further information
regarding our derivative instruments.
Self-Insurance We self-insure significant portions of our workers compensation and employee
medical costs. We estimate our liability for future payments under these programs based on
historical experience and various assumptions as to participating employees, health care costs,
number of claims and other factors, including industry trends and information provided to us by our
insurance broker. We also use actuarial estimates. If the number of claims or the costs
associated with those claims were to increase significantly over our estimates, additional charges
to earnings could be necessary to cover required payments.
Sabbatical Leave We recognize compensation expense associated with a sabbatical leave or
other similar benefit arrangement over the requisite service period during which an employee earns
the benefit. The accrued liability for sabbatical leave, which is included in accrued expenses and
other current liabilities in the consolidated balance sheets, was $9.9 million and $8.9 million as
of fiscal 2010 and 2009, respectively.
Income Taxes Income taxes are accounted for using the asset and liability method. Deferred
tax liabilities or assets are established for temporary differences between financial and tax
reporting bases and subsequently adjusted to reflect changes in enacted tax rates expected to be in
effect when the temporary differences reverse. The deferred tax assets are reduced, if necessary,
by a valuation allowance to the extent future realization of those tax benefits is uncertain.
The tax benefit from an uncertain tax position is recognized only if it is more likely than
not that the tax position will be sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in the financial statements from
such positions are then measured based on the largest benefit that has a greater than 50%
likelihood of being realized upon settlement. Interest and/or penalties related to uncertain tax
positions are recognized in income tax expense. See Note 5 for further information regarding
income taxes.
Revenue Recognition Clothing product revenue is recognized at the time of sale and delivery
of merchandise, net of actual sales returns and a provision for estimated sales returns, and
excludes sales taxes. Revenues from tuxedo rental, alteration and other services are recognized
upon completion of the services.
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We present all non-income government-assessed taxes (sales, use and value added taxes)
collected from our customers and remitted to governmental agencies on a net basis (excluded from
net sales) in our consolidated financial statements. The government-assessed taxes are recorded in
accrued expenses and other current liabilities until they are remitted to the government agency.
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 became the issuer of the Companys
gift cards and assumed the existing liability for which there were no currently existing claims
under unclaimed property statutes. The Company is no longer the primary obligor for the third
party issued gift cards and is therefore not subject to claims under unclaimed property statutes as
the agreement effectively transfers the escheatment liability for unredeemed gift cards to the
third party. 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 consolidated statement of earnings. Pretax breakage income,
including a cumulative adjustment of $3.1 million recorded in the second quarter of 2009, of $5.0
million was recognized during fiscal 2009. Pretax breakage income of $1.8 million was recognized
during fiscal 2010. Gift card breakage estimates are reviewed on a quarterly basis.
Loyalty Program We maintain a customer loyalty program in our Mens Wearhouse, Mens
Wearhouse and Tux and Moores stores in which customers receive points for purchases. Points are
equivalent to dollars spent on a one-to-one basis, excluding any sales tax dollars. Upon reaching
500 points, customers are issued a $50 rewards certificate which they may redeem for purchases at
our Mens Wearhouse, Mens Wearhouse and Tux or Moores stores. Generally, reward certificates
earned must be redeemed no later than six months from the date of issuance. We accrue the
estimated costs of the anticipated certificate redemptions when the certificates are issued and
charge such costs to cost of goods sold. Redeemed certificates are recorded as markdowns when
redeemed and no revenue is recognized for the redeemed certificate amounts. The estimate of costs
associated with the loyalty program requires us to make assumptions related to the cost of product
or services to be provided to customers when the certificates are redeemed as well as redemption
rates.
Vendor Allowances Vendor allowances received are recognized as a reduction of the cost of
the merchandise purchased.
Shipping and Handling Costs All shipping and handling costs for product sold are recognized
as cost of goods sold.
Operating Leases Operating leases relate primarily to stores and generally contain rent
escalation clauses, rent holidays, contingent rent provisions and occasionally leasehold
incentives. Rent expense for operating leases is recognized on a straight-line basis over the term
of the lease, which is generally five to ten years based on the initial lease term plus first
renewal option periods that are reasonably assured. Rent expense for stores is included in cost of
sales as a part of occupancy cost and other rent is included in selling general and administrative
expenses. The lease terms commence when we take possession with the right to control use of the
leased premises and, for stores, is generally 60 days prior to the date rent payments begin.
Rental costs associated with ground or building operating leases that are incurred during a
construction period are recognized as rental expense.
Deferred rent that results from recognition of rent expense on a straight-line basis is
included in other liabilities. Landlord incentives received for reimbursement of leasehold
improvements are recorded as deferred rent and amortized as a reduction to rent expense over the
term of the lease. Contingent rentals are generally based on percentages of sales and are
recognized as store rent expense as they accrue.
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Advertising Advertising costs are expensed as incurred or, in the case of media production
costs, when the commercial first airs. Advertising expenses were $91.5 million, $82.0 million and
$77.0 million in fiscal 2010, 2009 and 2008, respectively.
New Store Costs Promotion and other costs associated with the opening of new stores are
expensed as incurred.
Store Closures and Relocations Costs associated with store closures or relocations are
charged to expense when the liability is incurred. When we close or relocate a store, we record a
liability for the present value of estimated unrecoverable cost, which is substantially made up of
the remaining net lease obligation.
Share-Based Compensation In recognizing share-based compensation, we follow the provisions
of the authoritative guidance regarding share-based awards. This guidance establishes fair value
as the measurement objective in accounting for stock awards and requires the application of a fair
value based measurement method in accounting for compensation cost, which is recognized over the
requisite service period.
We use the Black-Scholes option pricing model to estimate the fair value of stock options on
the date of grant. The fair value of restricted stock and deferred stock units is determined based
on the number of shares granted and the quoted price of the Companys common stock on the date of
grant. The value of the portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service period. For grants that are subject to graded vesting over a
service period, we recognize expense on a straight-line basis over the requisite service period for
the entire award.
Share-based compensation expense recognized for fiscal 2010, 2009 and 2008 was $11.9 million,
$10.2 million and $9.8 million, respectively. Total income tax benefit recognized in net earnings
for share-based compensation arrangements was $4.6 million, $3.9 million and $3.8 million for
fiscal 2010, 2009 and 2008, respectively. Refer to Note 7 for additional disclosures regarding
share-based compensation.
Foreign Currency Translation Assets and liabilities of foreign subsidiaries are translated
into U.S. dollars at the exchange rates in effect at each balance sheet date. Equity is translated
at applicable historical exchange rates. Income, expense and cash flow items are translated at
average exchange rates during the year. Resulting translation adjustments are reported as a
separate component of comprehensive income.
Comprehensive Income Comprehensive income includes all changes in equity during the period
presented that result from transactions and other economic events other than transactions with
shareholders.
Noncontrolling Interest Noncontrolling interest in our consolidated balance sheets
represents the proportionate share of equity attributable to the minority shareholders of our
consolidated United Kingdom subsidiaries. Noncontrolling interest is adjusted each period to
reflect the allocation of comprehensive income to or the absorption of comprehensive losses by the
noncontrolling interest.
Earnings per share We calculate earnings per common share attributable to common
shareholders using the two-class method in accordance with the 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 attributable to common shareholders pursuant to the
two-class method. This guidance was 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 attributable to common shareholders data presented shall be adjusted
retrospectively. We adopted this guidance on February 1, 2009. We calculated basic and diluted
earnings per common share attributable to common shareholders under both the two-class method and
the treasury stock method for fiscal 2010 and 2009, noting no significant difference on the basic
and diluted earnings per common share calculations. This guidance has not been applied to prior
years as the impact is immaterial. Refer to Note 3 for earnings per common share attributable to
common shareholders disclosures.
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Recent Accounting Pronouncements In January 2010, the Financial Accounting Standards Board
(FASB) issued authoritative guidance that expands the required disclosures about fair value
measurements. This guidance provides for new disclosures requiring the Company to (a) disclose
separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value
measurements and describe the reasons for the transfers and (b) present separately information
about purchases, sales, issuances and settlements in the reconciliation of Level 3 fair value
measurements. This guidance also provides clarification of existing disclosures requiring the
Company to (i) determine each class of assets and liabilities based on the nature and risks of the
investments rather than by major security type and (ii) for each class of assets and liabilities,
disclose the valuation techniques and inputs used to measure fair value for both Level 2 and Level
3 fair value measurements. We adopted this guidance effective January 31, 2010, except for the
presentation of purchases, sales, issuances and settlements in the reconciliation of Level 3 fair
value measurements, which will be effective for fiscal years beginning after December 15, 2010. The
adoption of the first phase of this guidance did not have a material impact on our financial
position, results of operations or cash flows. We do not expect the adoption of the second phase
of this guidance to have a material impact on our financial position, results of operations or cash
flows.
In December 2010, the FASB updated the disclosures of supplementary pro forma information for
business combinations. This update specifies that if a public entity presents comparative financial
statements, the entity should disclose revenue and earnings of the combined entity as though the
business combination(s) that occurred during the current year had occurred as of the beginning of
the comparable prior annual reporting period only. This amendment also expands the supplemental pro
forma disclosures related to business combinations to include a description of the nature and
amount of material, non-recurring pro forma adjustments directly attributable to the business
combination included in the reported pro forma revenue and earnings. This update is effective
prospectively for business combinations for which the acquisition date is on or after the beginning
of the first annual reporting period beginning on or after December 15, 2010, with early adoption
permitted. We do not expect the adoption of this update to have a material impact on our financial
position, results of operations or cash flows.
In December 2010, the FASB issued guidance to clarify when to perform step 2 of the goodwill
impairment test for reporting units with zero or negative carrying amounts. This update modifies
step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts,
requiring the entity to assess whether it is more likely than not that the reporting units
goodwill is impaired in order to determine if the entity should perform step 2 of the goodwill
impairment test for those reporting unit(s). This update is effective for fiscal years, and interim
periods within those years, beginning after December 15, 2010. Early adoption is not permitted. We
do not expect the adoption of this update to have a material impact on our financial position,
results of operations or cash flows.
2. ACQUISITIONS
On August 6, 2010, we acquired Dimensions and certain assets of Alexandra, two leading
providers of corporate clothing uniforms and workwear in the United Kingdom (UK), to complement
our corporate apparel operations. The results of operations for Dimensions and Alexandra have been
included in the consolidated financial statements since that date. The acquired businesses are
organized under a UK-based holding company, of which the Company controls 86% and certain previous
shareholders of Dimensions control 14%. The Company has the right to acquire the remaining
outstanding shares of the UK-based holding company after fiscal 2013 on terms set forth in the
Investment, Shareholders and Stock Purchase Agreement.
The acquisition-date cash consideration transferred for the Dimensions and Alexandra
acquisitions was $79.8 million and $18.0 million, respectively, totaling $97.8 million (£61
million), and was funded through the Companys cash on hand.
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The following table summarizes the fair values of the identifiable assets acquired and
liabilities assumed in the Dimensions and Alexandra acquisitions as of the date of acquisition. As
of January 29, 2011, measurement-period adjustments were not material.
As of August 6, 2010 | ||||||||||||
(in thousands) | Dimensions | Alexandra | Total | |||||||||
Current non-cash assets |
$ | 25,515 | $ | | $ | 25,515 | ||||||
Inventory |
48,340 | 16,980 | 65,320 | |||||||||
Property and equipment |
5,374 | 283 | 5,657 | |||||||||
Intangible assets |
35,474 | 1,501 | 36,975 | |||||||||
Total identifiable assets acquired |
114,703 | 18,764 | 133,467 | |||||||||
Current liabilities |
40,590 | 279 | 40,869 | |||||||||
Other liabilities |
8,273 | | 8,273 | |||||||||
Total liabilities assumed |
48,863 | 279 | 49,142 | |||||||||
Net identifiable assets acquired |
65,840 | 18,485 | 84,325 | |||||||||
Goodwill |
26,989 | | 26,989 | |||||||||
Subtotal |
92,829 | 18,485 | 111,314 | |||||||||
Less: Fair value of noncontrolling interest |
(13,004 | ) | | (13,004 | ) | |||||||
Less: Gain on bargain purchase |
| (524 | ) | (524 | ) | |||||||
Net assets acquired |
$ | 79,825 | $ | 17,961 | $ | 97,786 | ||||||
Goodwill is calculated as the excess of the purchase price over the net assets acquired. The
goodwill recognized is attributable primarily to expected synergies and the assembled workforce of
Dimensions. All of the goodwill has been assigned to our corporate apparel reporting segment and
is non-deductible for tax purposes.
Acquired intangible assets for both acquisitions consist primarily of customer relationship
intangibles and trademarks, which are being amortized over their estimated useful lives of
primarily 12 years. Acquired intangible assets also include $1.3 million related to certain
trademarks of Alexandra which are not subject to amortization but will be evaluated at least
annually for impairment.
In connection with the Alexandra acquisition, we recognized a preliminary gain on a bargain
purchase of approximately $0.5 million which is included in Selling, general and administrative
expenses (SG&A) in the 2010 consolidated statements of earnings. The transaction resulted in a
bargain purchase because the previous UK business of Alexandra plc was in administration (similar
to bankruptcy) and was being sold through a bidding process.
The $13.0 million noncontrolling interest fair value as of the August 6, 2010 acquisition date
was determined based upon the $79.8 million fair value of consideration transferred to acquire our
86% interest in the UK businesses.
Total costs incurred for the acquisitions of Dimensions and Alexandra were $6.4 million for
fiscal 2010, and are included in SG&A in the consolidated statement of earnings.
The acquired businesses contributed net sales of $104.8 million, gross margin of $29.5 million
and a net loss, including the pretax $6.4 million in acquisition costs, of $2.6 million to the
Companys consolidated statement of earnings from the date of acquisition to the period ended
January 29, 2011.
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The following table presents unaudited pro forma financial information as if the closing of
our acquisition of Dimensions had occurred on February 1, 2009, after giving effect to certain
purchase accounting adjustments. The acquisition of Alexandra was not material to the Companys
financial position or results of operations, therefore pro forma operating results for Alexandra
have not been included below.
Fiscal Year | ||||||||
(in thousands, except per share data) | 2010 | 2009 | ||||||
Total net sales |
$ | 2,165,273 | $ | 2,037,387 | ||||
Net earnings attributable to common shareholders |
$ | 71,934 | $ | 52,737 | ||||
Net earnings per common share attributable to
common shareholders: |
||||||||
Basic |
$ | 1.35 | $ | 1.00 | ||||
Diluted |
$ | 1.35 | $ | 1.00 | ||||
This pro forma information is not necessarily indicative of the results of operations
that actually would have resulted had the Dimensions acquisition occurred on the dates indicated
above or that may result in the future and does not reflect potential synergies, integration costs
or other such costs and savings.
Subsequent to completion of the acquisitions, Alexandra operations were extended to The
Netherlands and France through newly formed subsidiaries. These subsidiaries did not have a
material impact on our financial position, results of operations or cash flows.
3. EARNINGS PER SHARE
As described in Note 1, Earnings per share, 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 attributable to common shareholders. The
two-class method is an earnings allocation formula that determines earnings per common share for
each class of common stock and participating security according to dividends declared and
participation rights in undistributed earnings. We calculated basic and diluted earnings per
common share attributable to common shareholders under both the two-class method and the treasury
stock method for fiscal years 2010 and 2009, noting no significant difference on the basic and
diluted earnings per common share attributable to common shareholders calculations. This guidance
has not been applied to prior years as the impact was immaterial.
Basic earnings per common share attributable to common shareholders is determined using the
two-class method and is computed by dividing net earnings attributable to common shareholders by
the weighted-average common shares outstanding during the period. Diluted earnings per common
share attributable to common shareholders reflects the more dilutive earnings per common share
amount calculated using the two-class method for fiscal years 2010 and 2009 and the treasury stock
method for fiscal 2008.
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table sets forth the computation of basic and diluted earnings per common share
attributable to common shareholders (in thousands, except per share amounts). Basic and diluted
earnings per common share attributable to common shareholders are computed using the actual net
earnings available to common shareholders and the actual weighted-average common shares outstanding
rather than the rounded numbers presented within our consolidated statement of earnings and the
accompanying notes. As a result, it may not be possible to recalculate earnings per common share
attributable to common shareholders in our consolidated statement of earnings and the accompanying
notes.
Fiscal Year | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Numerator |
||||||||||||
Total net earnings attributable to common
shareholders |
$ | 67,697 | $ | 46,215 | $ | 58,844 | ||||||
Net earnings allocated to participating
securities (restricted stock and deferred stock
units) |
(624 | ) | (457 | ) | | |||||||
Net earnings attributable to common shareholders |
$ | 67,073 | $ | 45,758 | $ | 58,844 | ||||||
Denominator |
||||||||||||
Basic weighted average common shares outstanding |
52,647 | 52,130 | 51,645 | |||||||||
Effect of dilutive securities: |
||||||||||||
Stock options and equity-based compensation |
206 | 150 | 299 | |||||||||
Diluted weighted average common shares
outstanding |
52,853 | 52,280 | 51,944 | |||||||||
Net earnings per common share attributable to
common shareholders: |
||||||||||||
Basic |
$ | 1.27 | $ | 0.88 | $ | 1.14 | ||||||
Diluted |
$ | 1.27 | $ | 0.88 | $ | 1.13 | ||||||
For fiscal 2010 and 2009, 0.8 and 1.0 million anti-dilutive stock options were excluded from
the calculation of diluted earnings per common share attributable to common shareholders,
respectively. For fiscal 2008, 1.2 million anti-dilutive shares of common stock were excluded from
the calculation of diluted earnings per common share attributable to common shareholders.
4. LONG-TERM DEBT
On January 26, 2011, we entered into a Second Amended and Restated Credit Agreement (the
Credit Agreement) with a group of banks to amend and restate our existing credit facility, which
provided the Company with a revolving credit facility that was scheduled to mature on February 11,
2012, as well as a term loan to our Canadian subsidiaries, which was scheduled to mature on
February 10, 2011. The term loan outstanding balance of US$46.7 million was paid in full during
the fourth quarter of fiscal 2010.
The Credit Agreement provides for a total senior revolving credit facility of $200.0 million,
with increases to $300.0 million upon additional lender commitments, that matures on January 26,
2016. The Credit Agreement is secured by the stock of certain of our subsidiaries. The Credit
Agreement has several borrowing and interest rate options including the following indices: (i)
adjusted LIBO rate, (ii) adjusted EURIBO rate, (iii) CDO rate, (iv) Canadian prime rate or (v) an
alternate base rate (equal to the greater of the prime rate, the federal funds rate plus 0.5% or
the adjusted LIBO rate for a one month period plus 1.0%). Advances under the Credit Agreement bear
interest at a rate per annum using the applicable indices plus a varying interest rate margin up to
2.75%. The Credit Agreement also provides for fees applicable to amounts available to be drawn
under outstanding letters of credit which range from 2.00% to 2.75%, and a fee on unused
commitments which ranges from 0.35% to 0.50%. As of January 29, 2011, there were no borrowings
outstanding under the Credit Agreement.
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 January 29, 2011.
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We utilize letters of credit primarily to secure inventory purchases and as collateral for
workers compensation claims. At January 29, 2011, letters of credit totaling approximately $25.2
million were issued and outstanding. Borrowings available under our Credit Agreement at January
29, 2011 were $174.8 million.
5. INCOME TAXES
Earnings before income taxes (in thousands):
Fiscal Year | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(as adjusted | ||||||||||||
Note 14) | ||||||||||||
United States |
$ | 49,150 | $ | 22,738 | $ | 47,341 | ||||||
Foreign |
51,380 | 46,306 | 41,422 | |||||||||
Total |
$ | 100,530 | $ | 69,044 | $ | 88,763 | ||||||
The provision for income taxes consists of the following (in thousands):
Fiscal Year | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(as adjusted | ||||||||||||
Note 14) | ||||||||||||
Current tax expense: |
||||||||||||
Federal |
$ | 20,240 | $ | 18,843 | $ | 11,709 | ||||||
State |
3,402 | 1,548 | 1,844 | |||||||||
Foreign |
475 | 32,603 | 8,096 | |||||||||
Deferred tax expense (benefit): |
||||||||||||
Federal and state |
(4,439 | ) | (10,667 | ) | 5,689 | |||||||
Foreign |
13,174 | (19,498 | ) | 2,581 | ||||||||
Total |
$ | 32,852 | $ | 22,829 | $ | 29,919 | ||||||
No provision for U.S. income taxes or Canadian withholding taxes has been made on the
cumulative undistributed earnings of foreign companies (approximately $124.1 million at January 29,
2011) because we intend to reinvest permanently outside of the United States. The potential
deferred tax liability associated with these earnings, net of foreign tax credits associated with
the earnings, is estimated to be $18.4 million.
A reconciliation of the statutory federal income tax rate to our effective tax rate is as
follows:
Fiscal Year | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(as adjusted | ||||||||||||
Note 14) | ||||||||||||
Federal statutory rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
State income taxes, net of federal benefit |
2.5 | 2.0 | 2.3 | |||||||||
Exchange rate impact from distributed foreign earnings |
| (3.5 | ) | | ||||||||
Net change in tax accruals |
(1.4 | ) | (1.2 | ) | (4.4 | ) | ||||||
Foreign tax rate differential and other |
(0.9 | ) | (1.2 | ) | 0.8 | |||||||
Amortizable tax goodwill |
(1.1 | ) | | | ||||||||
Valuation allowance |
(1.4 | ) | 2.0 | | ||||||||
32.7 | % | 33.1 | % | 33.7 | % | |||||||
At January 29, 2011, we had net deferred tax assets of $27.5 million with $32.2 million
classified as other current assets, $5.0 million classified as other non-current assets and $9.7
million classified as other non-current liabilities. At January 30, 2010, we had net deferred tax
assets of $40.6 million with $36.4 million classified as other current assets, $7.6 million
classified as other non-current assets and $3.4 million classified as other non-current
liabilities. A valuation allowance of $1.4 million was established and included in net deferred
tax assets at January 30, 2010 based on our assumptions about our ability to utilize foreign tax
credits generated in fiscal 2009 before such credits expire. Due to events that occurred during
fiscal 2010, it is more likely than not that the foreign tax credits will be fully utilized in the
future. As such, the valuation allowance was released during fiscal 2010.
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Total deferred tax assets and liabilities and the related temporary differences as of January
29, 2011 and January 30, 2010 were as follows (in thousands):
January 29, | January 30, | |||||||
2011 | 2010 | |||||||
(as adjusted | ||||||||
Note 14) | ||||||||
Deferred tax assets: |
||||||||
Accrued rent and other expenses |
$ | 29,730 | $ | 29,846 | ||||
Accrued compensation |
16,835 | 11,578 | ||||||
Accrued inventory markdowns |
4,146 | 1,879 | ||||||
Deferred intercompany profits |
4,640 | 23,172 | ||||||
Tax loss and other carryforwards |
23,460 | 14,057 | ||||||
Total gross deferred tax assets |
78,811 | 80,532 | ||||||
Valuation allowance |
| (1,400 | ) | |||||
Total net deferred tax assets |
78,811 | 79,132 | ||||||
Deferred tax liabilities: |
||||||||
Property and equipment |
(32,624 | ) | (27,247 | ) | ||||
Capitalized inventory costs |
(4,898 | ) | (4,163 | ) | ||||
Intangibles |
(13,658 | ) | (4,528 | ) | ||||
Other |
(127 | ) | (2,563 | ) | ||||
Total deferred tax liabilities |
(51,307 | ) | (38,501 | ) | ||||
Net deferred tax assets |
$ | 27,504 | $ | 40,631 | ||||
In accordance with the guidance regarding accounting for uncertainty in income taxes, we
classify uncertain tax positions as non-current income tax liabilities unless expected to be paid
within one year and recognize interest and/or penalties related to income tax matters in income tax
expense. As of January 29, 2011 and January 30, 2010, the total amount of accrued interest related
to uncertain tax positions was $1.4 million and $1.5 million, respectively. Amounts charged to
operations for interest and/or penalties related to income tax matters were $0.4 million, $0.4
million and $0.5 million in fiscal 2010, 2009 and 2008, respectively.
The following table summarizes the activity related to our unrecognized tax benefits (in
thousands):
January 29, | January 30, | |||||||
2011 | 2010 | |||||||
Gross unrecognized tax benefits, beginning balance |
$ | 7,073 | $ | 7,488 | ||||
Increase in tax positions for prior years |
459 | 412 | ||||||
Decrease in tax positions for prior years |
| (15 | ) | |||||
Increase in tax positions for current year |
741 | 940 | ||||||
Decrease in tax positions for current year |
| | ||||||
Settlements |
(802 | ) | (572 | ) | ||||
Lapse from statute of limitations |
(1,912 | ) | (1,180 | ) | ||||
Gross unrecognized tax benefits, ending balance |
$ | 5,559 | $ | 7,073 | ||||
Of the $5.6 million in unrecognized tax benefits as of January 29, 2011, $4.2 million, if
recognized, would reduce our income tax expense and effective tax rate. It is reasonably possible
that there could be a net reduction in the balance of unrecognized tax benefits of up to $1.0
million in the next twelve months.
The Company is subject to routine compliance examinations on tax matters by various tax
jurisdictions in the ordinary course of business. Tax years 2006 through 2010 are open to such
examinations. Our tax jurisdictions include the United States, Canada, the United Kingdom, The
Netherlands and France as well as their states, provinces and other political subdivisions. A
number of U.S. state examinations are ongoing. As of January 29, 2011, we cannot reasonably
determine the timing or outcomes of these examinations.
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At January 29, 2011, the company had federal, state and foreign net operating loss (NOLs)
carryforwards of approximately $26.4 million, $12.1 million and $29.3 million. The federal and
state NOLs will expire between fiscal 2014 and 2030, $9.7 million of foreign NOLs can be carried
forward indefinitely and $19.6 million of foreign NOLs will expire in fiscal 2030. It is more
likely than not that we can fully realize the NOL carryforwards in future years. We also had $4.6
million of foreign tax credit (FTC) carryforwards at January 29, 2011 which will expire in fiscal
2019.
6. OTHER CURRENT ASSETS, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES AND DEFERRED TAXES AND
OTHER LIABILITIES
Other current assets consist of the following (in thousands):
January 29, | January 30, | |||||||
2011 | 2010 | |||||||
Prepaid expenses |
$ | 31,009 | $ | 30,896 | ||||
Current deferred tax asset |
32,151 | 36,408 | ||||||
Tax receivable |
12,927 | 1,309 | ||||||
Other |
4,444 | 4,119 | ||||||
Total other current assets |
$ | 80,531 | $ | 72,732 | ||||
Accrued expenses and other current liabilities consist of the following (in thousands):
Accrued salary, bonus, sabbatical and vacation |
$ | 50,831 | $ | 40,032 | ||||
Sales, payroll and property taxes payable |
17,005 | 12,524 | ||||||
Accrued workers compensation and medical costs |
17,318 | 17,484 | ||||||
Customer deposits, prepayments and refunds payable |
12,770 | 9,523 | ||||||
Unredeemed gift certificates |
14,385 | 14,980 | ||||||
Loyalty program reward certificates |
7,636 | 6,342 | ||||||
Cash dividends declared |
6,396 | 4,753 | ||||||
Other |
13,299 | 11,409 | ||||||
Total accrued expenses and other current liabilities |
$ | 139,640 | $ | 117,047 | ||||
Deferred taxes and other liabilities consist of the following (in thousands):
Deferred rent and landlord incentives |
$ | 47,910 | $ | 44,656 | ||||
Non-current deferred and other income tax
liabilities |
15,079 | 10,976 | ||||||
Other |
6,820 | 6,604 | ||||||
Total deferred taxes and other liabilities |
$ | 69,809 | $ | 62,236 | ||||
7. CAPITAL STOCK, STOCK OPTIONS AND BENEFIT PLANS
Dividends
Cash dividends paid were approximately $19.1 million, $14.7 million and $14.6 million during
fiscal 2010, 2009 and 2008, respectively. In fiscal 2010, a dividend of $0.09 per share was
declared in the first, second and third quarters and a dividend of $0.12 per share was declared in
the fourth quarter, for an annual dividend of $0.39 per share. In fiscal 2009, a dividend of $0.07
per share was declared in the first, second and third quarters and a dividend of $0.09 per share
was declared in the fourth quarter, for an annual dividend of $0.30 per share. A dividend of $0.07
per share was declared in each quarter of fiscal 2008, for an annual dividend of $0.28 per share.
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The cash dividend of $0.12 per share declared by our Board of Directors in January 2011 is
payable on March 25, 2011 to shareholders of record on March 15, 2011. The dividend payout is
approximately $6.4 million and is included in accrued expenses and other current
liabilities on the consolidated balance sheet as of January 29, 2011.
Stock Repurchase Program
In January 2006, the Board of Directors authorized a $100.0 million share repurchase program
of our common stock, which superseded any remaining previous authorizations. In August 2007, the
Board of Directors approved a replenishment of the share repurchase program to $100.0 million by
authorizing $90.3 million to be added to the remaining $9.7 million of the then current program.
In January 2011, the Board of Directors approved a $150.0 million share repurchase program of our
common stock, which amends and increases the Companys existing share repurchase authorization.
This authorization superceded any remaining previous authorizations.
No shares were repurchased under the August 2007 authorization during fiscal 2009 or 2008. No
shares were repurchased under the August 2007 or the January 2011 authorization during fiscal 2010.
At January 29, 2011, the remaining balance available under the January 2011 authorization was
$150.0 million. Subsequent to January 29, 2011 and through March 30, 2011, we have purchased
1,703,432 shares for $45.6 million at an average price per share of $26.77 under the January 2011
authorization.
The table below summarizes our share repurchases during fiscal 2010, 2009 and 2008, all of
which were private transactions to satisfy tax withholding obligations arising upon the vesting of
certain restricted stock.
Average Price Per | ||||||||||||
Shares | Cost | Share | ||||||||||
(in thousands) | ||||||||||||
Total shares repurchased during fiscal 2010 |
7,134 | $ | 144 | $ | 20.24 | |||||||
Total shares repurchased during fiscal 2009 |
7,292 | $ | 90 | $ | 12.29 | |||||||
Total shares repurchased during fiscal 2008 |
6,728 | $ | 156 | $ | 23.13 |
The following table shows the changes during fiscal 2010 in our treasury shares held:
Treasury | ||||
Shares | ||||
Balance, January 30, 2010 |
18,111,602 | |||
Treasury stock issued to profit sharing plan |
(386 | ) | ||
Purchases of treasury stock |
7,134 | |||
Balance, January 29, 2011 |
18,118,350 | |||
The total cost of the 18,118,350 shares of treasury stock held at January 29, 2011 is $412.8
million or an average price of $22.78 per share.
Preferred Stock
Our Board of Directors is authorized to issue up to 2,000,000 shares of preferred stock and to
determine the dividend rights and terms, redemption rights and terms, liquidation preferences,
conversion rights, voting rights and sinking fund provisions of those shares without any further
vote or act by Company shareholders. There was no issued preferred stock as of January 29, 2011
and January 30, 2010.
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock Plans
We have adopted the 1996 Long-Term Incentive Plan (formerly known as the 1996 Stock Option
Plan) (1996 Plan) which, as amended, provides for an aggregate of up to 2,775,000 shares of our
common stock (or the fair market value thereof) with respect to which stock options, stock
appreciation rights, restricted stock, deferred stock units and performance based awards may be
granted to full-time key employees (excluding certain officers); the 1998 Key Employee Stock Option
Plan (1998 Plan) which, as amended, provides for the grant of options to purchase up to 3,150,000
shares of our common stock to full-time key employees (excluding certain officers); and the 2004
Long-Term Incentive Plan (2004 Plan) which, as amended, provides for an aggregate of up to
2,110,059 shares of our common stock (or the fair market value thereof) with respect to which stock
options, stock appreciation rights, restricted stock, deferred stock units and performance based
awards may be granted to full-time key employees and to non-employee directors of the Company. No
awards may be granted pursuant to the plans after the end of ten years following the effective date
of such plan; provided, however, no awards may be granted pursuant to the 1996 Plan on or after
March 29, 2014, which is ten years following its amended and restated effective date. No awards
have been available for grant under the 1998 Plan since February 2008. Options granted under these
plans must be exercised within ten years of the date of grant.
In fiscal 1992, we adopted a Non-Employee Director Stock Option Plan (Director Plan) which,
as amended, provides for an aggregate of up to 251,250 shares of our common stock with respect to
which stock options, stock appreciation rights or restricted stock awards may be granted to
non-employee directors of the Company. In fiscal 2001, the period during which awards may be
granted under the Director Plan was extended to February 23, 2012. Options granted under this plan
must be exercised within ten years of the date of grant. In fiscal 2008, the 2004 Plan was amended
and restated to allow non-employee directors of the Company to receive awards under the 2004 Plan.
All grants to non-employee directors are now issued under the 2004 Plan, as amended, and are
subject to the terms of the 2004 Plan.
Options granted under these Plans vest annually in varying increments over a period from one
to ten years. Under the 1996 Plan and the 2004 Plan, options may not be issued at a price less
than 100% of the fair market value of our stock on the date of grant. Under the 1996 Plan and the
2004 Plan, the vesting, transferability restrictions and other applicable provisions of any
options, stock appreciation rights, restricted stock, deferred stock units or performance based
awards will be determined by the Compensation Committee of the Board of Directors or, in the case
of awards to non-employee directors, the Board of Directors of the Company. Grants of deferred
stock units generally vest over a period from one to three years; however, certain grants vest
annually at varying increments over a period up to ten years.
The options granted under the Director Plan vest one year after the date of grant and were
issued at a price equal to the fair market value of our stock on the date of grant. Restricted
stock and deferred stock unit awards granted to non-employee directors of the Company under the
Director Plan and the 2004 Plan vest one year after the date of grant.
As of January 29, 2011, 745,727 shares were available for grant under existing plans and
2,777,470 shares of common stock were reserved for future issuance.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock Options
A summary of our stock option activity during fiscal 2010 is presented below:
Weighted-Average | Aggregate | |||||||||||||||
Number of | Weighted-Average | Remaining | Intrinsic Value | |||||||||||||
Shares | Exercise Price | Contractual Term | (in thousands) | |||||||||||||
Options outstanding at January 30, 2010 |
1,642,905 | $ | 20.29 | |||||||||||||
Granted |
50,000 | $ | 18.79 | |||||||||||||
Exercised |
(120,664 | ) | $ | 15.03 | ||||||||||||
Expired |
(8,768 | ) | $ | 21.19 | ||||||||||||
Outstanding at January 29, 2011 |
1,563,473 | $ | 20.64 | 5.6 Years | $ | 10,264 | ||||||||||
Exercisable at January 29, 2011 |
775,714 | $ | 18.89 | 4.4 Years | $ | 6,347 | ||||||||||
During fiscal 2010, 2009 and 2008, 50,000, 140,322 and 730,225 stock options, respectively,
were granted at a weighted-average grant date fair value of $8.27, $7.22, and $7.93, respectively.
The fair value of options is estimated on the date of grant using the Black-Scholes option pricing
model using the following weighted average assumptions:
Fiscal Year | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Risk-free interest rates |
1.80 | % | 2.21 | % | 2.38 | % | ||||||
Expected lives |
5.0 years | 6.9 years | 5.0 years | |||||||||
Dividend yield |
1.65 | % | 1.99 | % | 0.82 | % | ||||||
Expected volatility |
57.03 | % | 50.83 | % | 42.05 | % |
The expected volatility is based on historical volatility of our common stock. The risk-free
interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The
expected term represents the period of time the options are expected to be outstanding after their
grant date. 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. The total intrinsic value of options
exercised during fiscal 2010, 2009 and 2008 was $1.3 million, $1.5 million and $0.5 million,
respectively. As of January 29, 2011, we have unrecognized compensation expense related to
nonvested stock options of approximately $5.1 million which is expected to be recognized over a
weighted average period of 2.7 years.
Restricted Stock and Deferred Stock Units
A summary of our nonvested restricted stock and deferred stock unit activity during fiscal
2010 is presented below:
Weighted-Average | ||||||||
Grant-Date | ||||||||
Nonvested Awards | Shares | Fair Value | ||||||
Nonvested at January 30, 2010 |
506,133 | $ | 22.35 | |||||
Granted |
344,745 | $ | 24.03 | |||||
Vested (1) |
(369,323 | ) | $ | 21.18 | ||||
Forfeited |
(13,285 | ) | $ | 23.83 | ||||
Nonvested at January 29, 2011 |
468,270 | $ | 24.47 | |||||
(1) | Includes 108,666 shares relinquished for tax payments related to the vested deferred stock units in fiscal 2010. |
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During fiscal 2010, 2009 and 2008, 344,745, 305,683 and 313,096 restricted stock and deferred
stock units, respectively, were granted at a weighted-average grant date fair value of $24.03,
$18.14 and $21.21, respectively. As of January 29, 2011, the intrinsic value of nonvested
restricted stock and deferred stock units was $12.2 million. As of January 29, 2011, we have
unrecognized compensation expense related to nonvested restricted stock and deferred stock units of
approximately $3.9 million which is expected to be recognized over a weighted average period of 1.4
years. The total fair value of shares vested during fiscal 2010, 2009 and 2008 was $7.8 million,
$8.5 million and $7.4 million, respectively, based on the weighted-average fair value on the date
of grant. The total fair value of shares vested during fiscal 2010, 2009 and 2008 was $9.3
million, $6.3 million and $4.9 million, respectively, based on the weighted-average fair value on
the vesting date. At January 29, 2011, there were total nonvested shares of 468,270, including
49,185 shares of nonvested restricted stock.
A summary of activity for our nonvested restricted stock during fiscal 2010 is presented
below:
Nonvested Restricted Stock | Shares | |||
Nonvested at January 30, 2010 |
68,498 | |||
Granted |
29,825 | |||
Vested |
(49,138 | ) | ||
Forfeited |
| |||
Nonvested at January 29, 2011 |
49,185 | |||
During fiscal 2010, 29,825 restricted stock shares were granted to our non-employee directors
under the 2004 Plan at an average grant price of $23.47 per share. During fiscal 2009, 29,778
restricted stock shares were granted to our non-employee directors under the 2004 Plan at an
average grant price of $20.15 per share. During fiscal 2008, 51,504 restricted stock shares were
granted to our non-employee directors under the 2004 Plan at an average grant price of $11.65 per
share.
On October 25, 2010, we entered into a Fourth Amended and Restated Employment Agreement
(Agreement) with David H. Edwab, Vice Chairman of the Company. In accordance with the terms of
this Agreement, the Company granted to Mr. Edwab 96,800 shares of restricted stock on February 5,
2011, which will vest in equal numbers over a five-year period beginning in 2012. The shares of
restricted stock were granted under the 1996 Plan at a grant price per share of $27.77.
Retirement and Stock Purchase Plans
We had a defined contribution Employee Stock Ownership Plan (ESOP) which provided eligible
employees with future retirement benefits. Contributions to the ESOP were made at the discretion
of the Board of Directors. No contributions were charged to operations in fiscal 2009 or 2008 and
in October 2009, the Board of Directors approved the termination of the ESOP, effective as of
October 15, 2009. Each participant and former participant in the ESOP who had an account balance
under the ESOP on January 1, 2009 which was not fully vested on that date became fully vested in
the amount credited to their account under the ESOP together with any amounts thereafter allocated
and credited to such account prior to its distribution. During fiscal 2010, operations were
charged $9 thousand pending completion of termination and distribution matters. The termination of
the ESOP did not have a significant effect on our consolidated financial position, results of
operations or cash flows.
We have a 401(k) savings plan which allows eligible employees to save for retirement on a tax
deferred basis. Employer matching contributions under the 401(k) savings plan are made based on a
formula set by the Board of Directors from time to time. During fiscal 2010, 2009 and 2008,
Company matching
contributions for the plan charged to operations were $1.0 million, $0.4 million and $1.3
million, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In 1998, we adopted an Employee Stock Discount Plan (ESDP) which 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 of our common stock on the first day of
the offering period or the fair market value of our common stock on the last day of the offering
period. We make no contributions to this plan but pay all brokerage, service and other costs
incurred. A participant may not purchase more than 125 shares during any calendar quarter.
The fair value of ESDP shares is estimated using the Black-Scholes option pricing model in the
quarter that the purchase occurs with the following weighted average assumptions for each
respective period:
Fiscal Year | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Risk-free interest rates |
1.56 | % | 0.16 | % | 1.02 | % | ||||||
Expected lives |
0.25 | 0.25 | 0.25 | |||||||||
Dividend yield |
1.66 | % | 1.88 | % | 1.21 | % | ||||||
Expected volatility |
46.40 | % | 66.86 | % | 71.48 | % |
During fiscal 2010, 2009 and 2008, employees purchased 120,434, 138,360 and 147,991 shares,
respectively, under the ESDP, the weighted-average fair value of which was $17.33, $14.36 and
$14.38 per share, respectively. We recognized approximately $0.6 million, $0.7 million and $0.8
million of share-based compensation expense related to the ESDP for fiscal 2010, 2009 and 2008,
respectively. As of January 29, 2011, 1,057,066 shares were reserved for future issuance under the
ESDP.
8. GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill allocated to the Companys reportable segments and changes in the net carrying amount
of goodwill for the years ended January 29, 2011 and January 30, 2010 are as follows (in
thousands):
Retail | Corporate Apparel | Total | ||||||||||
Balance, January 31, 2009 |
$ | 56,267 | $ | 1,294 | $ | 57,561 | ||||||
Translation adjustment |
3,330 | | 3,330 | |||||||||
Adjustment for excess of tax deductible goodwill |
(1,477 | ) | | (1,477 | ) | |||||||
Balance, January 30, 2010 |
$ | 58,120 | 1,294 | $ | 59,414 | |||||||
Translation adjustment |
1,769 | (178 | ) | 1,591 | ||||||||
Goodwill of acquired business (Note 2) |
| 26,989 | 26,989 | |||||||||
Balance, January 30, 2010 |
$ | 59,889 | $ | 28,105 | $ | 87,994 | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Intangible Assets
The gross carrying amount and accumulated amortization of our identifiable intangible assets
are as follows (in thousands):
January 29, | January 30, | |||||||
2011 | 2010 | |||||||
Amortizable intangible assets: |
||||||||
Carrying amount: |
||||||||
Trademarks, tradenames and other intangibles |
$ | 16,114 | $ | 15,305 | ||||
Customer relationships |
32,632 | | ||||||
Total carrying amount |
48,746 | 15,305 | ||||||
Accumulated amortization: |
||||||||
Trademarks, tradenames and other intangibles |
(11,121 | ) | (11,018 | ) | ||||
Customer relationships |
(1,294 | ) | | |||||
Total accumulated amortization |
(12,415 | ) | (11,018 | ) | ||||
Translation adjustment |
(252 | ) | | |||||
Total amortizable intangible assets, net |
36,079 | 4,287 | ||||||
Infinite-lived intangible assets: |
||||||||
Trademarks |
1,269 | | ||||||
Total intangible assets, net |
$ | 37,348 | $ | 4,287 | ||||
The increases in amortizable and infinite-lived intangible assets at January 29, 2011 relate
to intangible assets acquired in our acquisitions of Dimensions and Alexandra on August 6, 2010 as
discussed in Note 2.
The pretax amortization expense associated with intangible assets subject to amortization
totaled approximately $2.4 million, $2.2 million and $2.6 million for fiscal 2010, 2009 and 2008,
respectively. Pretax amortization expense associated with intangible assets subject to
amortization at January 29, 2011 is estimated to be approximately $3.4 million for fiscal year
2011, $3.3 million for fiscal year 2012 and $3.1 million for each of the fiscal years 2013, 2014
and 2015.
9. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. The
authoritative guidance for fair value measurements establishes a three-tier fair value hierarchy,
categorizing the inputs used to measure fair value. The hierarchy can be described as follows:
Level 1- observable inputs such as quoted prices in active markets; Level 2- inputs other than the
quoted prices in active markets that are observable either directly or indirectly; and Level 3-
unobservable inputs in which there is little or no market data, which require the reporting entity
to develop its own assumptions. The fair value hierarchy also requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Effective January 31, 2010, we adopted enhanced disclosure requirements for fair value
measurements. There were no transfers into or out of Level 1 and Level 2 during the year ended
January 29, 2011.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | ||||||||||||||||
Markets for | ||||||||||||||||
Identical | Significant Other | Significant | ||||||||||||||
Instruments | Observable Inputs | Unobservable Inputs | ||||||||||||||
(in thousands) | January 29, 2011 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Assets: |
||||||||||||||||
Derivative financial instruments |
$ | 361 | $ | | $ | 361 | $ | | ||||||||
Liabilities: |
||||||||||||||||
Derivative financial instruments |
$ | 35 | $ | | $ | 35 | $ | | ||||||||
Derivative financial instruments are comprised of foreign currency forward exchange contracts
primarily entered into to minimize our foreign currency exposure related to forecasted purchases of
certain inventories denominated in a currency different from the operating entitys functional
currency. Our derivative financial instruments are recorded in the consolidated balance sheets at
fair value based upon observable market inputs. Derivative financial instruments in an asset
position are included within other current assets in the consolidated balance sheets. Derivative
financial instruments in a liability position are included within accrued expenses and other
current liabilities in the consolidated balance sheets. Refer to Note 10 for further information
regarding our derivative instruments.
At January 30, 2010, we had no financial assets or liabilities measured at fair value on a
recurring basis.
Assets and Liabilities that are Measured at Fair Value on a Non-Recurring Basis
Long-lived assets, such as property and equipment and identifiable intangibles with finite
useful lives, are periodically evaluated for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If the asset carrying amount
exceeds its fair value, an impairment charge is recognized in the amount by which the carrying
amount exceeds the fair value of the asset. The fair values of long-lived assets held-for-use are
based on our own judgments about the assumptions that market participants would use in pricing the
asset and on observable market data, when available. We classify these measurements as Level 3
within the fair value hierarchy.
Assets are grouped and evaluated for impairment at the lowest level at which cash flows are
identifiable, which is generally at a store level. Fair value is determined using an income
approach, which requires discounting the estimated future cash flows associated with the asset.
Estimating future cash flows requires us to make assumptions and to apply judgment, including
forecasting future sales, costs and useful lives of assets. Significant judgment is also involved
in selecting the appropriate discount rate to be applied in determining the estimated fair value of
an asset. The discount rate is commensurate with the risk that selected market participants would
assign to the estimated cash flows. The selected market participants represent a group of other
retailers with a store footprint similar to ours.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents the non-financial assets measured at estimated fair value on a
non-recurring basis and any resulting realized losses included in earnings. Because long-lived
assets are not measured at fair value on a recurring basis, certain carrying amounts and fair value
measurements presented in the table may reflect values at earlier measurement dates and may no
longer represent the fair values at January 29, 2011 or January 30, 2010.
Fair Value Measurements - non-recurring basis | ||||||||
(in thousands) | January 29, 2011 | January 30, 2010 | ||||||
Long-lived assets held-for use |
||||||||
Fair value measurement |
$ | 945 | $ | 1,302 | ||||
Carrying amount |
6,799 | 20,775 | ||||||
Realized loss |
$ | (5,854 | ) | $ | (19,473 | ) | ||
The realized loss relates to impaired store assets in our retail segment and is reflected as
Asset impairment charges in the consolidated statement of earnings. Refer to Impairment of
Long-Lived Assets in Note 1 for additional information.
Fair Value of Financial Instruments
Our financial instruments, other than those presented in the disclosures above, consist of
cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other
current liabilities and long-term debt. Management estimates that, as of January 29, 2011 and
January 30, 2010, the carrying 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 carrying value of long term debt at
January 30, 2010 approximates its fair value based upon terms available to us for borrowings with
similar arrangements and remaining maturities.
10. DERIVATIVE FINANCIAL INSTRUMENTS
We are exposed to market risk associated with foreign currency exchange rate fluctuations as a
result of our direct sourcing programs and our operations in foreign countries. In connection with
our direct sourcing programs, we may enter into merchandise purchase commitments that are
denominated in a currency different from the functional currency of the operating entity. Our risk
management policy is to hedge a significant portion of forecasted merchandise purchases for our
direct sourcing programs that bear foreign exchange risk using foreign exchange forward contracts.
The Company has not elected to apply hedge accounting to these transactions denominated in a
foreign currency.
Our derivative financial instruments are recorded in the consolidated balance sheet at fair
value determined by comparing the cost of the foreign currency to be purchased under the contracts
using the exchange rates obtained under the contracts (adjusted for forward points) to the
hypothetical cost using the spot rate at period end.
The table below discloses the fair value of the derivative financial instruments included in
the consolidated balance sheet as of January 29, 2011. We held no derivative financial instruments
as of January 30, 2010.
January 29, 2011 | ||||||||||||||||
Asset Derivatives | Liability Derivatives | |||||||||||||||
Balance Sheet | Balance Sheet | |||||||||||||||
(in thousands) | Location | Fair Value | Location | Fair Value | ||||||||||||
Derivatives not designated as hedging
instruments foreign exchange forward
contracts |
Other current assets | $ | 361 | Accrued expenses and other current liabilities | $ | 35 | ||||||||||
Total derivative instruments |
$ | 361 | $ | 35 | ||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At January 29, 2011, we had six contracts maturing in varying increments to purchase euros for
an aggregate notional amount of US$3.8 million maturing at various dates through October 2011, 10
contracts maturing in varying increments to purchase USD for an aggregate notional amount of
Canadian dollars (CAD) $5.8 million maturing at various dates through May 2011 and 70 contracts
maturing in varying increments to purchase USD for an aggregate notional amount of pounds Sterling
(GBP) £27.6 million maturing at various dates through September 2011. For the fiscal year ended
January 29, 2011, we recognized a net pre-tax gain of $0.6 million in cost of sales in the
consolidated statement of earnings for our derivative financial instruments not designated as cash
flow hedges. No amounts were recognized in our results of operations during fiscal 2009 or 2008.
We had no derivative financial instruments with credit-risk-related contingent features
underlying the agreements as of January 29, 2011.
11. SEGMENT REPORTING
On August 6, 2010, we acquired Dimensions and certain assets of Alexandra, two leading
providers of corporate clothing uniforms and workwear in the UK (refer to Note 2). As a result of
these acquisitions, in the third quarter of fiscal 2010, the Company revised its segment reporting
to reflect two reportable segments, retail and corporate apparel, based on the way we manage,
evaluate and internally report our business activities. Prior to these acquisitions our corporate
apparel business did not have a significant effect on the revenues or expenses of the Company and
we reported our business as one operating segment. Prior period amounts reported as one operating
segment have been revised to conform to our new segment reporting structure.
The retail segment includes the results from our four retail merchandising brands: Mens
Wearhouse, Mens Wearhouse and Tux, K&G and Moores. These four brands are operating segments that
have been aggregated into the retail reportable segment based on their similar economic
characteristics, products, production processes, target customers and distribution methods. MW
Cleaners is also aggregated in the retail segment as these operations have not had a significant
effect on the revenues or expenses of the Company. Specialty apparel merchandise offered by our
four retail merchandising concepts include suits, suit separates, sport coats, pants, shoes,
shirts, sportswear, outerwear and accessories for men. Ladies career apparel, sportswear and
accessories, including shoes is offered at most of our K&G stores and tuxedo rentals are offered at
our Mens Wearhouse, Mens Wearhouse and Tux and Moores retail stores.
The corporate apparel segment includes the results from our corporate apparel and uniform
operations conducted by Twin Hill in the United States and, beginning in the third quarter of
fiscal 2010, Dimensions and Alexandra in the UK. The two corporate apparel and uniform concepts
are operating segments that have been aggregated into the reportable corporate apparel segment
based on their similar economic characteristics, products, production processes, target customers
and distribution methods. The corporate apparel segment provides corporate clothing uniforms and
workwear to workforces.
The accounting policies for each of our operating segments are the same as those described in
Note 1.
Operating income is the primary measure of profit we use to make decisions on allocating resources
to our operating segments and to assess the operating performance of each operating segment. It is
defined as income before interest expense, interest income, income taxes and noncontrolling
interest. Corporate expenses are allocated to the retail segment.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net sales by brand and reportable segment are as follows (in thousands):
Fiscal Year | ||||||||||||
Net sales: | 2010 | 2009 | 2008 | |||||||||
MW (1) |
$ | 1,345,915 | $ | 1,281,847 | $ | 1,322,003 | ||||||
K&G |
360,301 | 370,148 | 376,033 | |||||||||
Moores |
246,735 | 222,049 | 230,235 | |||||||||
MW Cleaners |
23,415 | 22,058 | 22,648 | |||||||||
Total retail segment |
1,976,366 | 1,896,102 | 1,950,919 | |||||||||
Twin Hill |
21,464 | 13,473 | 21,499 | |||||||||
Dimensions and Alexandra |
104,834 | | | |||||||||
Total corporate apparel
segment |
126,298 | 13,473 | 21,499 | |||||||||
Total net sales |
$ | 2,102,664 | $ | 1,909,575 | $ | 1,972,418 | ||||||
(1) | MW includes Mens Wearhouse and Mens Wearhouse and Tux stores and e-commerce |
The following table sets forth supplemental products and services sales information for the
Company (in thousands):
Fiscal Year | ||||||||||||
Net sales: | 2010 | 2009 | 2008 | |||||||||
Mens tailored clothing product |
$ | 790,558 | $ | 761,752 | $ | 779,950 | ||||||
Mens non-tailored clothing product |
612,544 | 597,667 | 648,389 | |||||||||
Ladies clothing product |
77,390 | 74,494 | 65,866 | |||||||||
Total retail clothing product |
1,480,492 | 1,433,913 | 1,494,205 | |||||||||
Tuxedo rental services |
364,269 | 334,068 | 329,951 | |||||||||
Alteration services |
108,190 | 106,063 | 104,115 | |||||||||
Retail dry cleaning services |
23,415 | 22,058 | 22,648 | |||||||||
Total alteration and other services |
131,605 | 128,121 | 126,763 | |||||||||
Corporate apparel clothing product |
126,298 | 13,473 | 21,499 | |||||||||
Total net sales |
$ | 2,102,664 | $ | 1,909,575 | $ | 1,972,418 | ||||||
Operating income (loss) by reportable segment and the reconciliation to earnings before income
taxes is as follows (in thousands):
Fiscal Year | ||||||||||||
Operating income (loss): | 2010 | 2009 | 2008 | |||||||||
Retail |
$ | 108,392 | $ | 73,670 | $ | 89,132 | ||||||
Corporate apparel |
(6,721 | ) | (4,294 | ) | 1,339 | |||||||
Operating income |
101,671 | 69,376 | 90,471 | |||||||||
Interest income |
315 | 912 | 2,592 | |||||||||
Interest expense |
(1,456 | ) | (1,244 | ) | (4,300 | ) | ||||||
Earnings before income taxes |
$ | 100,530 | $ | 69,044 | $ | 88,763 | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Capital expenditures by reportable segment are as follows (in thousands):
Fiscal Year | ||||||||||||
Capital expenditures: | 2010 | 2009 | 2008 | |||||||||
Retail |
$ | 55,967 | $ | 55,612 | $ | 87,609 | ||||||
Corporate apparel |
2,901 | 1,300 | 616 | |||||||||
Capital expenditures |
$ | 58,868 | $ | 56,912 | $ | 88,225 | ||||||
Depreciation and amortization expense by reportable segment are as follows (in thousands):
Fiscal Year | ||||||||||||
Depreciation and amortization expense: | 2010 | 2009 | 2008 | |||||||||
Retail |
$ | 72,472 | $ | 84,681 | $ | 89,173 | ||||||
Corporate apparel |
3,526 | 1,409 | 1,492 | |||||||||
Depreciation and amortization expense |
$ | 75,998 | $ | 86,090 | $ | 90,665 | ||||||
Total assets by reportable segment are as follows (in thousands):
January 29, | January 30, | |||||||
Segment assets: | 2011 | 2010 | ||||||
Retail |
$ | 1,081,169 | $ | 1,197,932 | ||||
Corporate apparel |
239,149 | 36,220 | ||||||
Total assets |
$ | 1,320,318 | $ | 1,234,152 | ||||
The tables below present information related to geographic areas in which the Company
operated, with net sales classified based primarily on the country where the Companys customer is
located (in thousands):
Fiscal Year | ||||||||||||
Net sales: | 2010 | 2009 | 2008 | |||||||||
U.S. |
$ | 1,751,095 | $ | 1,687,526 | $ | 1,742,183 | ||||||
Canada |
246,735 | 222,049 | 230,235 | |||||||||
UK |
104,834 | | | |||||||||
Net sales |
$ | 2,102,664 | $ | 1,909,575 | $ | 1,972,418 | ||||||
January 29, | January 30, | |||||||
Long-lived assets: | 2011 | 2010 | ||||||
U.S. |
$ | 366,974 | $ | 396,210 | ||||
Canada |
49,194 | 51,015 | ||||||
UK |
5,908 | | ||||||
Total long-lived assets |
$ | 422,076 | $ | 447,225 | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. CEASED OPERATIONS AND FACILITY CLOSURES
Ceased Tuxedo Rental Distribution Operations
In late August 2010, a decision was made by management to cease tuxedo rental distribution
operations at four of the then ten U.S. facilities that we had used for that purpose. The tuxedo
rental distribution operations at these four facilities ceased in November 2010 and were assumed by
the remaining U.S. tuxedo distribution facilities, which allows us to perform tuxedo rental
distribution requirements more cost effectively. Three of the facilities were converted to hub
locations that redistribute tuxedo rental units and retail apparel merchandise to our Mens
Wearhouse, Mens Wearhouse and Tux and K&G stores within limited geographic areas. We expect the
total pre-tax charge to be incurred in ceasing tuxedo rental distribution operations at these four
facilities to be approximately $3.9 million, which consists primarily of severance payments, the
write-off of fixed assets and facility remediation costs. We also estimate that approximately $1.8 million of the charge will result in future cash
expenditures. All costs are recognized as incurred.
As of January 29, 2011, we have recognized retail segment pre-tax costs of $3.1 million for
the ceased tuxedo rental distribution operations at these four facilities, including $0.9 million
for severance payments, $0.7 million for facility remediation costs and $1.5 million for the
write-off of fixed assets. These charges are included in SG&A in our consolidated statement of
earnings. Net cash payments of $1.5 million related to the ceased tuxedo rental distribution
operations were paid in fiscal 2010. The accrued balance of $0.1 million, included within Accrued
expenses and other current liabilities in our consolidated balance sheet at January 29, 2011,
relates to severance payments which will be paid in the first quarter of fiscal 2011. We expect to
incur additional charges of approximately $0.8 million in connection with the ceased tuxedo rental
distribution operations at these four facilities in fiscal 2011.
The following table details information related to the accrued balance recorded during the
fiscal year ended January 29, 2011 related to the ceased tuxedo rental distribution operations (in
thousands):
Accrued costs at January 30, 2010 |
$ | | ||
Cost incurred |
3,122 | |||
Net cash payments |
(1,486 | ) | ||
Non-cash charges |
(1,513 | ) | ||
Accrued costs at January 29, 2011 |
$ | 123 | ||
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 retail segment 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 $0.7 million for other costs related to
closing the facility. These charges are included in Selling, general and administrative expenses
in our consolidated statement of earnings. No charges were recognized during fiscal 2010 or 2009.
Net cash payments of $0.1 million, $1.0 million and $7.2 million related to the closure of the
facility were made in fiscal 2010, 2009 and 2008, respectively. The payments made in fiscal 2010
and fiscal 2009 for closure of the facility related to the remaining lease termination payments
which were paid over the remaining term of the lease through February 2010. No amounts are
included in accrued expenses and other current liabilities at January 29, 2011.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. COMMITMENTS AND CONTINGENCIES
Lease commitments
We lease retail business locations, office and warehouse facilities, copier equipment and
automotive equipment under various noncancelable capital and operating leases expiring in various
years through 2027. Rent expense for operating leases for fiscal 2010, 2009 and 2008 was $161.7
million, $158.7 million and $158.5 million, respectively, and includes contingent rentals of $0.3
million, $0.3 million and $0.4 million, respectively.
Sublease rentals of $0.7 million were
received in fiscal 2010. Sublease rentals of $0.8 million were received in fiscal 2009 and 2008.
The total minimum future rentals to be received under noncancelable subleases as of January 29,
2011 are $0.8 million.
Minimum future rental payments under noncancelable capital and operating leases as of January
29, 2011 for each of the next five years and in the aggregate are as follows (in thousands):
Operating | Capital | |||||||
Fiscal Year | Leases | Leases | ||||||
2011 |
$ | 153,396 | $ | 1,040 | ||||
2012 |
134,022 | 830 | ||||||
2013 |
115,970 | 765 | ||||||
2014 |
96,390 | 622 | ||||||
2015 |
78,666 | 305 | ||||||
Thereafter |
142,221 | 25 | ||||||
Total |
$ | 720,665 | 3,587 | |||||
Amounts representing interest |
(556 | ) | ||||||
Capital lease obligations |
$ | 3,031 | ||||||
Leases on retail business locations specify minimum rentals plus common area maintenance
charges and possible additional rentals based upon percentages of sales. Most of the retail
business location leases provide for renewal options at rates specified in the leases. In the
normal course of business, these leases are generally renewed or replaced by other leases.
In February 2011, we entered into a US$1.7 million contractual obligation for the
refurbishment of the primary offices for Alexandra located in Bristol, UK. This obligation, which
is excluded from the table above, will be paid in fiscal 2011.
At January 29, 2011, the gross capitalized balance and the accumulated amortization balance of
our capital lease assets was $5.1 million and $2.2 million, respectively, resulting in a net
capitalized value of $2.9 million. At January 30, 2010, the gross capitalized balance and the
accumulated amortization balance of our capital lease assets was $4.6 million and $2.1 million,
respectively, resulting in a net capitalized value of $2.5 million. Amortization expense was $0.9
million, $1.0 million and $1.4 million in fiscal 2010, 2009 and 2008, respectively, and is included
in depreciation expense in the consolidated statement of earnings. These assets are included in
furniture, fixtures and equipment on the consolidated balance sheet. The deferred liability
balance of these capital lease assets is included in deferred taxes and other liabilities on the
consolidated balance sheet.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 October 10, 2007, November 28, 2007, and January 9, 2008. The
case is in its early stages and discovery has not begun. The Company filed a motion to dismiss the
complaint on April 12, 2010, and we are awaiting a decision from the Court. The Company believes
the lawsuit is without merit and intends to mount a vigorous defense; we are unable to determine
the likely outcome at this time.
We are involved in various routine legal proceedings, including ongoing litigation, incidental
to the conduct of our business. Management believes that none of these matters will have a
material adverse effect on our financial position, results of operations or cash flows.
14. CHANGE IN ACCOUNTING PRINCIPLE
On August 1, 2010, we changed the method of determining cost under the lower of cost or market
inventory valuation method used for our K&G brand (representing approximately 23% of our inventory)
from the retail inventory method to the average cost method.
We believe the average cost method is preferable over the retail inventory method because it
results in greater precision in the determination of cost of sales and inventories. Under the
average cost method, cost is computed using the actual cost of inventory purchases, while cost
under the retail inventory method is determined by using imprecise estimates of inputs such as
selling prices and gross margin. Additionally, this change results in a consistent inventory
valuation method for all of our inventories.
The effect of the change in accounting principle for periods prior to February 1, 2009 is not
determinable as the period-specific information required to value K&Gs inventory on the average
cost method is not available for periods prior to February 1, 2009. As stated in FASB guidance
regarding accounting changes, when it is impracticable to determine the cumulative effect of
applying a change in accounting principle to any prior period, the new accounting principle shall
be applied as if the changes were made prospectively as of the earliest date practicable.
Therefore, we adopted the new method of accounting for K&Gs inventory retrospectively to February
1, 2009. The effect of this change in accounting principle on inventory values as of the beginning
of 2009 was an increase in inventory of $2.2 million, a decrease in deferred tax assets of $0.9
million and a net increase in retained earnings as of the beginning of 2009 of $1.3 million. The
non-cash increase in the inventory balance of $2.2 million is due only to this accounting change as
the underlying retail value of the inventory is not affected by this accounting change.
Had we not changed our method of determining inventory cost for our K&G inventory in the third
quarter of fiscal 2010, the impact would have been immaterial to our financial position, results of
operations, cash flows and net earnings per common share attributable to the common shareholders as
of and for the period ended January 29, 2011.
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For comparability purposes, the following tables set forth the financial statement line items
as of and for the three months ended May 2, 2009 that were affected by the change in accounting
principle. The change in accounting principle did not impact net cash provided by operating
activities, net cash used in investing activities or net cash provided by financing activities as
reported in the Condensed Consolidated Statement of Cash flows. However, certain line items were
affected as shown below:
Change in | ||||||||||||
As Previously | Accounting | |||||||||||
Reported under | Principle to Cost | As Adjusted for the | ||||||||||
(In thousands, except per share amounts) | Retail Method | Method | Effect of Change | |||||||||
Condensed Consolidated Balance Sheet at May 2,
2009 (unaudited) (1): |
||||||||||||
Inventories |
$ | 448,018 | $ | 2,541 | $ | 450,559 | ||||||
Other current assets |
59,752 | (1,005 | ) | 58,747 | ||||||||
Retained earnings |
925,881 | 1,536 | 927,417 | |||||||||
Condensed Consolidated Statement of Earnings for
the Three Months Ended May 2, 2009 (unaudited): |
||||||||||||
Cost of sales: Retail clothing product |
$ | 164,545 | $ | (324 | ) | $ | 164,221 | |||||
Operating income |
8,776 | 324 | 9,100 | |||||||||
Provision for income taxes |
3,360 | 127 | 3,487 | |||||||||
Net earnings attributable to common shareholders |
5,256 | 197 | 5,453 | |||||||||
Basic earnings per common share attributable to
common shareholders |
0.10 | | 0.10 | |||||||||
Diluted earnings per share attributable to
common shareholders |
0.10 | | 0.10 | |||||||||
Condensed Consolidated Statement of Cash Flows
for the Three Months Ended May 2, 2009
(unaudited): |
||||||||||||
Net earnings including noncontrolling interest |
$ | 5,256 | $ | 197 | $ | 5,453 | ||||||
Deferred tax provision |
3,009 | 127 | 3,136 | |||||||||
Increase in inventories |
(6,194 | ) | (324 | ) | (6,518 | ) |
(1) | Change in accounting principle to average cost method includes the cumulative effect of the change in accounting principle. |
77
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For comparability purposes, the following tables set forth the financial statement line items
as of and for the three and six months ended August 1, 2009 that were affected by the change in
accounting principle. The change in accounting principle did not impact net cash provided by
operating activities, net cash used in investing activities or net cash provided by financing
activities as reported in the Condensed Consolidated Statement of Cash flows. However, certain
line items were affected as shown below:
As Previously | Change in | |||||||||||
Reported | Accounting | As Adjusted | ||||||||||
under Retail | Principle to | for the Effect | ||||||||||
(In thousands, except per share amounts) | Method | Cost Method | of Change | |||||||||
Condensed Consolidated Balance Sheet at August
1, 2009 (unaudited) (1): |
||||||||||||
Inventories |
$ | 430,777 | $ | 3,768 | $ | 434,545 | ||||||
Other current assets |
51,876 | (1,488 | ) | 50,388 | ||||||||
Retained earnings |
961,670 | 2,280 | 963,950 | |||||||||
Condensed Consolidated Statement of Earnings for
the Three Months Ended August 1, 2009
(unaudited): |
||||||||||||
Cost of sales: Retail clothing product |
$ | 167,833 | $ | (1,226 | ) | $ | 166,607 | |||||
Operating income |
63,892 | 1,226 | 65,118 | |||||||||
Provision for income taxes |
24,407 | 482 | 24,889 | |||||||||
Net earnings attributable to common shareholders |
39,485 | 744 | 40,229 | |||||||||
Basic earnings per common share attributable to
common shareholders |
0.75 | 0.01 | 0.76 | |||||||||
Diluted earnings per share attributable to
common shareholders |
0.75 | 0.01 | 0.76 | |||||||||
Condensed Consolidated Statement of Earnings for
the Six Months Ended August 1, 2009 (unaudited): |
||||||||||||
Cost of sales: Retail clothing product |
$ | 332,378 | $ | (1,550 | ) | $ | 330,828 | |||||
Operating income |
72,668 | 1,550 | 74,218 | |||||||||
Provision for income taxes |
27,767 | 609 | 28,376 | |||||||||
Net earnings attributable to common shareholders |
44,741 | 941 | 45,682 | |||||||||
Basic earnings per common share attributable to
common shareholders |
0.85 | 0.02 | 0.87 | |||||||||
Diluted earnings per share attributable to
common shareholders |
0.85 | 0.02 | 0.87 | |||||||||
Condensed Consolidated Statement of Cash Flows
for the Six Months Ended August 1, 2009
(unaudited): |
||||||||||||
Net earnings including noncontrolling interest |
$ | 44,741 | $ | 941 | $ | 45,682 | ||||||
Deferred tax benefit |
(8,135 | ) | 609 | (7,526 | ) | |||||||
Decrease in inventories |
15,460 | (1,550 | ) | 13,910 |
(1) | Change in accounting principle to average cost method includes the cumulative effect of the change in accounting principle. |
78
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For comparability purposes, the following tables set forth the financial statement line items
as of and for the three and nine months ended October 31, 2009 that were affected by the change in
accounting principle. The change in accounting principle did not impact net cash provided by
operating activities, net cash used in investing activities or net cash provided by financing
activities as reported in the Condensed Consolidated Statement of Cash flows. However, certain
line items were affected as shown below:
As Previously | Change in | |||||||||||
Reported | Accounting | As Adjusted | ||||||||||
under Retail | Principle to | for the Effect | ||||||||||
(In thousands, except per share amounts) | Method | Cost Method | of Change | |||||||||
Condensed Consolidated Balance Sheet at October
31, 2009 (unaudited) (1): |
||||||||||||
Inventories |
$ | 473,626 | $ | 3,134 | $ | 476,760 | ||||||
Other current assets |
48,997 | (1,253 | ) | 47,744 | ||||||||
Retained earnings |
977,659 | 1,881 | 979,540 | |||||||||
Condensed Consolidated Statement of Earnings for
the Three Months Ended October 31, 2009
(unaudited): |
||||||||||||
Cost of sales: Retail clothing product |
$ | 144,480 | $ | 633 | $ | 145,113 | ||||||
Operating income |
30,079 | (633 | ) | 29,446 | ||||||||
Provision for income taxes |
10,375 | (234 | ) | 10,141 | ||||||||
Net earnings attributable to common shareholders |
19,685 | (399 | ) | 19,286 | ||||||||
Basic earnings per common share attributable to
common shareholders |
0.37 | | 0.37 | |||||||||
Diluted earnings per share attributable to
common shareholders |
0.37 | (0.01 | ) | 0.36 | ||||||||
Condensed Consolidated Statement of Earnings for
the Nine Months Ended October 31, 2009
(unaudited): |
||||||||||||
Cost of sales: Retail clothing product |
$ | 476,858 | $ | (917 | ) | $ | 475,941 | |||||
Operating income |
102,747 | 917 | 103,664 | |||||||||
Provision for income taxes |
38,142 | 375 | 38,517 | |||||||||
Net earnings attributable to common shareholders |
64,426 | 542 | 64,968 | |||||||||
Basic earnings per common share attributable to
common shareholders |
1.23 | 0.01 | 1.24 | |||||||||
Diluted earnings per share attributable to
common shareholders |
1.22 | 0.01 | 1.23 | |||||||||
Condensed Consolidated Statement of Cash Flows
for the Nine Months Ended October 31, 2009
(unaudited): |
||||||||||||
Net earnings including noncontrolling interest |
$ | 64,426 | $ | 542 | $ | 64,968 | ||||||
Deferred tax benefit |
(8,130 | ) | 375 | (7,755 | ) | |||||||
Increase in inventories |
(27,051 | ) | (917 | ) | 27,968 |
(1) | Change in accounting principle to average cost method includes the cumulative effect of the change in accounting principle. |
79
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For comparability purposes, the following tables set forth the financial statement line items
as of and for the three and twelve months ended January 30, 2010 that were affected by the change
in accounting principle. The change in accounting principle did not impact net cash provided by
operating activities, net cash used in investing activities or net cash provided by financing
activities as reported in the Consolidated Statement of Cash flows. However, certain line items
were affected as shown below:
As Previously | Change in | |||||||||||
Reported | Accounting | As Adjusted | ||||||||||
under Retail | Principle to | for the Effect | ||||||||||
(In thousands, except per share amounts) | Method | Cost Method | of Change | |||||||||
Consolidated Balance Sheet at January 30, 2010 (1): |
||||||||||||
Inventories |
$ | 431,492 | $ | 3,389 | $ | 434,881 | ||||||
Other current assets |
74,075 | (1,343 | ) | 72,732 | ||||||||
Retained earnings |
953,986 | 2,046 | 956,032 | |||||||||
Consolidated Statement of Earnings for the Three
Months Ended January 30, 2010: |
||||||||||||
Cost of sales: Retail clothing product |
$ | 182,345 | $ | (255 | ) | $ | 182,090 | |||||
Operating loss |
(34,543 | ) | 255 | (34,288 | ) | |||||||
Benefit for income taxes |
(15,778 | ) | 90 | (15,688 | ) | |||||||
Net loss attributable to common shareholders |
(18,918 | ) | 165 | (18,753 | ) | |||||||
Basic loss per common share attributable to common
shareholders |
(0.36 | ) | | (0.36 | ) | |||||||
Diluted loss per share attributable to common
shareholders |
(0.36 | ) | | (0.36 | ) | |||||||
Consolidated Statement of Earnings for the Twelve
Months Ended January 30, 2010: |
||||||||||||
Cost of sales: Retail clothing product |
$ | 659,203 | $ | (1,172 | ) | $ | 658,031 | |||||
Operating income |
68,204 | 1,172 | 69,376 | |||||||||
Provision for income taxes |
22,364 | 465 | 22,829 | |||||||||
Net earnings attributable to common shareholders |
45,508 | 707 | 46,215 | |||||||||
Basic earnings per common share attributable to
common shareholders |
0.86 | 0.02 | 0.88 | |||||||||
Diluted earnings per share attributable to common
shareholders |
0.86 | 0.02 | 0.88 | |||||||||
Consolidated Statement of Equity and Comprehensive
Income at January 30, 2010: |
||||||||||||
Net earnings attributable to common shareholders |
$ | 45,508 | $ | 707 | $ | 46,215 | ||||||
Consolidated Statement of Cash Flows for the
Twelve Months Ended January 30, 2010: |
||||||||||||
Net earnings including noncontrolling interest |
$ | 45,508 | $ | 707 | $ | 46,215 | ||||||
Deferred tax benefit |
(30,630 | ) | 465 | (30,165 | ) | |||||||
Decrease in inventories |
15,579 | (1,172 | ) | 14,407 |
(1) | Change in accounting principle to average cost method includes the cumulative effect of the change in accounting principle. |
80
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For comparability purposes, the following tables set forth the financial statement line items
as of and for the three months ended May 1, 2010 that were affected by the change in accounting
principle. The change in accounting principle did not impact net cash provided by operating
activities, net cash used in investing activities or net cash provided by financing activities as
reported in the Condensed Consolidated Statement of Cash flows. However, certain line items were
affected as shown below:
As Previously | Change in | |||||||||||
Reported | Accounting | As Adjusted | ||||||||||
under Retail | Principle to | for the Effect | ||||||||||
(In thousands, except per share amounts) | Method | Cost Method | of Change | |||||||||
Condensed Consolidated Balance Sheet at May 1,
2010 (unaudited) (1): |
||||||||||||
Inventories |
$ | 435,351 | $ | 3,320 | $ | 438,671 | ||||||
Other current assets |
68,830 | (1,320 | ) | 67,510 | ||||||||
Retained earnings |
962,834 | 2,000 | 964,834 | |||||||||
Condensed Consolidated Statement of Earnings for
the Three Months Ended May 1, 2010 (unaudited): |
||||||||||||
Cost of sales: Retail clothing product |
$ | 164,521 | $ | 69 | $ | 164,590 | ||||||
Operating income |
21,422 | (69 | ) | 21,353 | ||||||||
Provision for income taxes |
7,589 | (23 | ) | 7,566 | ||||||||
Net earnings attributable to common shareholders |
13,608 | (46 | ) | 13,562 | ||||||||
Basic earnings per common share attributable to
common shareholders |
0.26 | | 0.26 | |||||||||
Diluted earnings per share attributable to
common shareholders |
0.26 | | 0.26 | |||||||||
Condensed Consolidated Statement of Cash Flows
for the Three Months Ended May 1, 2010
(unaudited): |
||||||||||||
Net earnings including noncontrolling interest |
$ | 13,608 | $ | (46 | ) | $ | 13,562 | |||||
Deferred tax provision |
6,412 | (23 | ) | 6,389 | ||||||||
Increase in inventories |
(1,103 | ) | 69 | (1,034 | ) |
(1) | Change in accounting principle to average cost method includes the cumulative effect of the change in accounting principle. |
81
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For comparability purposes, the following tables set forth the financial statement line items
as of and for the three and six months ended July 31, 2010 that were affected by the change in
accounting principle. The change in accounting principle did not impact net cash provided by
operating activities, net cash used in investing activities or net cash provided by financing
activities as reported in the Condensed Consolidated Statement of Cash flows. However, certain
line items were affected as shown below:
As Previously | Change in | |||||||||||
Reported | Accounting | As Adjusted | ||||||||||
under Retail | Principle to | for the Effect | ||||||||||
(In thousands, except per share amounts) | Method | Cost Method | of Change | |||||||||
Condensed Consolidated Balance Sheet at July 31,
2010 (unaudited) (1): |
||||||||||||
Inventories |
$ | 416,377 | $ | 4,009 | $ | 420,386 | ||||||
Other current assets |
61,762 | (1,567 | ) | 60,195 | ||||||||
Retained earnings |
1,000,553 | 2,442 | 1,002,995 | |||||||||
Condensed Consolidated Statement of Earnings for
the Three Months Ended July 31, 2010
(unaudited): |
||||||||||||
Cost of sales: Retail clothing product |
$ | 157,778 | $ | (689 | ) | $ | 157,089 | |||||
Operating income |
68,415 | 689 | 69,104 | |||||||||
Provision for income taxes |
25,620 | 247 | 25,867 | |||||||||
Net earnings attributable to common shareholders |
42,520 | 442 | 42,962 | |||||||||
Basic earnings per common share attributable to
common shareholders |
0.80 | 0.01 | 0.81 | |||||||||
Diluted earnings per share attributable to
common shareholders |
0.80 | 0.01 | 0.81 | |||||||||
Condensed Consolidated Statement of Earnings for
the Six Months Ended July 31, 2010 (unaudited): |
||||||||||||
Cost of sales: Retail clothing product |
$ | 322,299 | $ | (620 | ) | $ | 321,679 | |||||
Operating income |
89,837 | 620 | 90,457 | |||||||||
Provision for income taxes |
33,209 | 224 | 33,433 | |||||||||
Net earnings attributable to common shareholders |
56,128 | 396 | 56,524 | |||||||||
Basic earnings per common share attributable to
common shareholders |
1.06 | 0.01 | 1.07 | |||||||||
Diluted earnings per share attributable to
common shareholders |
1.05 | 0.01 | 1.06 | |||||||||
Condensed Consolidated Statement of Cash Flows
for the Six Months Ended July 31, 2010
(unaudited): |
||||||||||||
Net earnings including noncontrolling interest |
$ | 56,128 | $ | 396 | $ | 56,524 | ||||||
Deferred tax provision |
3,958 | 224 | 4,182 | |||||||||
Decrease in inventories |
17,165 | (620 | ) | 16,545 |
(1) | Change in accounting principle to average cost method includes the cumulative effect of the change in accounting principle. |
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THE MENS WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
Our quarterly results of operations reflect all adjustments, consisting only of normal,
recurring adjustments, which are, in the opinion of management, necessary for a fair statement of
the results for the interim periods presented. The consolidated results of operations by quarter
for the 2010 and 2009 fiscal years are presented below and include the results of operations for
Dimensions and Alexandra since their date of acquisition on August 6, 2010 (in thousands, except
per share amounts):
Fiscal 2010 Quarters Ended | ||||||||||||||||
May 1, | July 31, | October 30, | January 29, | |||||||||||||
2010 (a) | 2010 (a) | 2010 | 2011 | |||||||||||||
Net sales |
$ | 473,466 | $ | 536,989 | $ | 550,103 | $ | 542,106 | ||||||||
Gross margin |
201,003 | 260,272 | 234,999 | 202,159 | ||||||||||||
Net earnings (loss)
attributable to
common shareholders |
$ | 13,562 | $ | 42,962 | $ | 25,259 | $ | (14,086 | ) | |||||||
Net earnings (loss)
per common share
attributable to
common
shareholders: |
||||||||||||||||
Basic |
$ | 0.26 | $ | 0.81 | $ | 0.47 | $ | (0.27 | ) | |||||||
Diluted |
$ | 0.26 | $ | 0.81 | $ | 0.47 | $ | (0.27 | ) |
Fiscal 2009 Quarters Ended (a) | ||||||||||||||||
May 2, | August 1, | October 31, | January 30, | |||||||||||||
2009 | 2009 | 2009 | 2010 | |||||||||||||
Net sales |
$ | 464,134 | $ | 526,208 | $ | 462,015 | $ | 457,218 | ||||||||
Gross margin |
188,313 | 239,014 | 202,041 | 169,530 | ||||||||||||
Net earnings (loss)
attributable to
common shareholders |
$ | 5,453 | $ | 40,229 | $ | 19,286 | $ | (18,753 | ) | |||||||
Net earnings (loss)
per common share
attributable to
common
shareholders: |
||||||||||||||||
Basic |
$ | 0.10 | $ | 0.76 | $ | 0.37 | $ | (0.36 | ) | |||||||
Diluted |
$ | 0.10 | $ | 0.76 | $ | 0.36 | $ | (0.36 | ) |
(a) | Previously reported amounts for gross margin, net earnings (loss) attributable to common shareholders and net earnings (loss) per common share attributable to common shareholders have been adjusted for the change in inventory valuation method used by our K&G brand from the retail inventory method to the average cost method during the third quarter of fiscal 2010. The cumulative effect of this change in accounting principle was recorded retrospectively as of February 1, 2009. Refer to Note 14 for additional information and disclosures. |
Due to the method of calculating weighted average common shares outstanding, the sum of the
quarterly per share amounts may not equal net earnings per common share attributable to common
shareholders for the respective years.
As discussed in Note 1 under Impairment of Long-Lived Assets, we recognized pretax non-cash
asset impairment charges related to store assets of $5.9 million ($0.2 million in the second
quarter, $3.2 million in the third quarter and $2.5 million in the fourth quarter) in fiscal 2010
and $19.5 million in the fourth quarter of fiscal 2009.
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Table of Contents
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Companys management, with the participation of the Companys principal executive officer
(CEO) and principal financial officer (CFO), evaluated the effectiveness of the Companys
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under
the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period
covered by this report. Based on this evaluation, the CEO and CFO have concluded that, as of the
end of such period, the Companys disclosure controls and procedures were effective to ensure that
information that is required to be disclosed by the Company in the reports it files or submits
under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods
specified in the SECs rules and forms and (ii) accumulated and communicated to the Companys
management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required
disclosure.
Changes in Internal Control over Financial Reporting
Other than the events discussed under the Dimensions and Alexandra acquisitions below, there
were no changes in the Companys internal control over financial reporting that occurred during the
fiscal quarter ended January 29, 2011 that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting.
Dimensions and Alexandra Acquisitions
On August 6, 2010, we acquired Dimensions and Alexandra, two leading providers of corporate
clothing uniforms and workwear in the United Kingdom. For additional information regarding the
acquisitions, refer to the discussion under the caption Business included within Item 1 in this
Annual Report on Form 10-K and Note 2 of Notes to Consolidated Financial Statements.
On June 22, 2004, the Office of the Chief Accountant of the SEC issued guidance regarding the
reporting of internal control over financial reporting in connection with a major acquisition. On
October 6, 2004, the SEC revised its guidance to include expectations of quarterly reporting
updates of new internal control and the status of the control regarding any exempted businesses.
This guidance was reiterated in September 2007 to affirm that management may omit an assessment of
an acquired businesss internal control over financial reporting from its assessment of internal
control over financial reporting for a period not to exceed one year.
We have recommended to our Audit Committee that we exclude the operations acquired in the
Dimensions and Alexandra acquisitions from the scope of our Sarbanes-Oxley Section 404 report on
internal controls over financial reporting for the year ending January 29, 2011. We are in the
process of implementing our internal control structure over the acquired operations, and expect
that this effort will be completed in fiscal 2011.
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Managements Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our
internal control over financial reporting is a process designed under the supervision of our
principal executive and principal financial officers, and effected by our Board of Directors,
management and other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as
of the end of our most recent fiscal year. In making this assessment, our management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control Integrated Framework. Based on such assessment, management concluded that, as
of January 29, 2011, our internal control over financial reporting is effective based on those
criteria. As set forth above, Managements assessment of and conclusion on the effectiveness of
internal control over financial reporting did not include the internal controls of Dimensions and
Alexandra, acquired in August 2010, which are included in the consolidated financial statements of
The Mens Wearhouse, Inc. as of and for the year ended January 29, 2011 and constituted 15.3% of
total assets and 5.0% of total net sales, respectively, of our consolidated financial statements as
of and for the year ended January 29, 2011.
Managements assessment of the effectiveness of our internal control over financial reporting
as of January 29, 2011 has been audited by Deloitte & Touche LLP, the independent registered public
accounting firm that audited our consolidated financial statements included in this report, as
stated in their report dated March 30, 2011, which follows.
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Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
The Mens Wearhouse, Inc.
Houston, Texas
The Mens Wearhouse, Inc.
Houston, Texas
We have audited the internal control over financial reporting of The Mens Wearhouse, Inc. and
subsidiaries (the Company) as of January 29, 2011, based on criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. As described in Managements Annual Report on Internal Control Over Financial
Reporting, management excluded from its assessment the internal control over financial reporting at
Dimensions Clothing Limited (Dimensions) and Alexandra plc (Alexandra), which were acquired on
August 6, 2010 and whose financial statements constitute 15.3% of total assets and 5.0% of net
sales of the consolidated financial statement amounts as of and for the year ended January 29,
2011. Accordingly, our audit did not include the internal control over financial reporting at
Dimensions and Alexandra. The Companys management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Managements Annual Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of January 29, 2011, based on the criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements and financial statement schedule as of
and for the year ended January 29, 2011 of the Company and our report dated March 30, 2011
expressed an unqualified opinion on those financial statements and financial statement schedule and
included an explanatory paragraph relating to a change in the method of accounting for merchandise
inventories at the Companys K&G brand.
/s/ DELOITTE & TOUCHE LLP |
Houston, Texas
March 30, 2011
March 30, 2011
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ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Except as set forth below, the information required by this Item is incorporated herein by
reference from our Proxy Statement for the Annual Meeting of Shareholders to be held June 15, 2011.
The Company has adopted a Code of Ethics for Senior Management which applies to the Companys
Chief Executive Officer and all Presidents, Chief Financial Officers, Principal Accounting
Officers, Executive Vice Presidents and other designated financial and operations officers. A copy
of such policy is posted on the Companys website, www.menswearhouse.com, under the heading
Corporate Governance.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference from our Proxy
Statement for the Annual Meeting of Shareholders to be held June 15, 2011.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated herein by reference from our Proxy
Statement for the Annual Meeting of Shareholders to be held June 15, 2011.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated herein by reference from our Proxy
Statement for the Annual Meeting of Shareholders to be held June 15, 2011.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated herein by reference from our Proxy
Statement for the Annual Meeting of Shareholders to be held June 15, 2011.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements
The following consolidated financial statements of the Company are included in Part II, Item 8:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of January 29, 2011 and January 30, 2010 (as
adjusted-Note 14)
adjusted-Note 14)
Consolidated Statements of Earnings for the years ended January 29, 2011,
January 30, 2010 (as adjusted-Note 14) and January 31, 2009
January 30, 2010 (as adjusted-Note 14) and January 31, 2009
Consolidated Statements of Equity and Comprehensive Income for the years ended
January 29, 2011, January 30, 2010 (as adjusted-Note 14) and January 31, 2009
January 29, 2011, January 30, 2010 (as adjusted-Note 14) and January 31, 2009
Consolidated Statements of Cash Flows for the years ended January 29, 2011,
January 30, 2010 (as adjusted-Note 14) and January 31, 2009
January 30, 2010 (as adjusted-Note 14) and January 31, 2009
Notes to Consolidated Financial Statements
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2. Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
The Mens Wearhouse, Inc.
(In thousands)
(In thousands)
Deductions | ||||||||||||||||||||||||||||
Balance at | Charged to Costs | Charged to Other | from Reserve | Acquisitions | Translation | Balance at End of | ||||||||||||||||||||||
Beginning of Period | and Expenses | Accounts (4) | (2) | (5) | Adjustment | Period | ||||||||||||||||||||||
Allowance for uncollectible accounts (1): |
||||||||||||||||||||||||||||
Year ended January 29, 2011 |
$ | 381 | $ | 552 | $ | | $ | (548 | ) | $ | 533 | $ | (2 | ) | $ | 916 | ||||||||||||
Year ended January 30, 2010 |
243 | 249 | | (111 | ) | | | 381 | ||||||||||||||||||||
Year ended January 31, 2009 |
320 | 262 | | (338 | ) | | (1 | ) | 243 | |||||||||||||||||||
Allowance for sales returns (1) (3): |
||||||||||||||||||||||||||||
Year ended January 29, 2011 |
$ | 401 | $ | 326 | $ | (195 | ) | $ | | $ | 80 | $ | 1 | $ | 613 | |||||||||||||
Year ended January 30, 2010 |
433 | 12 | (44 | ) | | | | 401 | ||||||||||||||||||||
Year ended January 31, 2009 |
491 | 39 | (97 | ) | | | | 433 |
(1) | The allowance for uncollectible accounts and the allowance for sales returns are evaluated at the end of each fiscal quarter and adjusted based on the evaluation. | |
(2) | Consists primarily of write-offs of bad debt. | |
(3) | Allowance for sales returns is included in accrued expenses. | |
(4) | Deduction (addition) to net sales. | |
(5) | Relates to our acquisitions of Dimensions and Alexandra in the third quarter of fiscal 2010. Refer to Note 2 of Notes to Consolidated Financial Statements. |
All other schedules are omitted because they are not applicable or because the required
information is included in the Consolidated Financial Statements or Notes thereto.
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3. Exhibits
Exhibit | ||||
Number | Exhibit | |||
2.1
|
| Investment, Shareholders and Stock Purchase Agreement dated August 6, 2010, by and among The Mens Wearhouse, Inc., Moores The Suit People Inc., MWUK Holding Company Limited, Ensco 648 Limited, Gresham 4A and Gresham 4B and the stockholders of Ensco 648 Limited (incorporated by reference from Exhibit 2.1 to the Companys Current Report on Form 8-K/A filed with the Commission on August 16, 2010). | ||
3.1
|
| Restated Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended July 30, 1994). | ||
3.2
|
| Articles of Amendment to the Restated Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1999). | ||
3.3
|
| Fourth Amended and Restated Bylaws (incorporated by reference from Exhibit 3.1 to the Companys Current Report on Form 8-K filed with the Commission on January 28, 2010). | ||
4.1
|
| Restated Articles of Incorporation (included as Exhibit 3.1). | ||
4.2
|
| Form of Common Stock certificate (incorporated by reference from Exhibit 4.3 to the Companys Registration Statement on Form S-1 (Registration No. 33-45949)). | ||
4.3
|
| Articles of Amendment to the Restated Articles of Incorporation (included as Exhibit 3.2). | ||
4.4
|
| Fourth Amended and Restated Bylaws (included as Exhibit 3.3). | ||
10.1
|
| Second Amended and Restated Credit Agreement, dated as January 26, 2011, by and among The Mens Wearhouse, Inc., Moores The Suit People Inc., MWUK Holding Company Limited, the financial institutions from time to time parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian Agent, and J.P. Morgan Europe Limited, as European Agent (incorporated by reference from Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the Commission on February 1, 2011). | ||
*10.2
|
| 1992 Non-Employee Director Stock Option Plan (As Amended and Restated Effective January 1, 2004), including forms of stock option agreement and restricted stock award agreement (incorporated by reference from Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the Commission on March 18, 2005). | ||
*10.3
|
| Stock Agreement dated as of March 23, 1992, between the Company and George Zimmer (incorporated by reference from Exhibit 10.13 to the Companys Registration Statement on Form S-1 (Registration No. 33-45949)). | ||
*10.4
|
| 1996 Long-Term Incentive Plan (As Amended and Restated Effective April 1, 2008) (incorporated by reference from Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended May 3, 2008), and the forms of stock option agreement, restricted stock award agreement and deferred stock unit award agreement (incorporated by reference from Exhibit 10.20 to the Companys Current Report on Form 8-K filed with the Commission on March 18, 2005). | ||
*10.5
|
| Forms of Deferred Stock Unit Award Agreement, Restricted Stock Award Agreement and Nonqualified Stock Option Award Agreement under The Mens Wearhouse, Inc. 1996 Long-Term Incentive Plan (as amended and restated effective as of April 1, 2008)(incorporated by reference from Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended May 1, 2010). | ||
*10.6
|
| 1998 Key Employee Stock Option Plan (incorporated by reference from Exhibit 10.18 to the Companys Annual Report on Form 10-K for the fiscal year ended January 31, 1998). | ||
*10.7
|
| First Amendment to 1998 Key Employee Stock Option Plan (incorporated by reference from Exhibit 4.1 to the Companys Registration Statement on Form S-8 (Registration No. 333-80033)). | ||
*10.8
|
| Second Amendment to 1998 Key Employee Stock Option Plan (incorporated by reference to Exhibit 10.22 to the Companys Annual Report on Form 10-K for the fiscal year ended January 29, 2000). | ||
*10.9
|
| Split-Dollar Agreement and related Split-Dollar Collateral Assignment dated May 25, 1995, by and between the Company and David H. Edwab (incorporated by reference from Exhibit 10.26 to the Companys Annual Report on Form 10-K for the fiscal year ended February 2, 2002). | ||
*10.10
|
| Split-Dollar Agreement and related Split-Dollar Collateral Assignment dated May 25, 1995, between the Company, David H. Edwab and George Zimmer, Co-Trustee of the David H. Edwab 1995 Irrevocable Trust (incorporated by reference from Exhibit 10.27 to the Companys Annual Report on Form 10-K for the fiscal year ended February 2, 2002). | ||
*10.11
|
| First Amendment to Split-Dollar Agreement dated January 17, 2002, between the Company, David H. Edwab and George Zimmer, Trustee of the David H. Edwab 1995 Irrevocable Trust (incorporated by reference from Exhibit 10.28 to the Companys Annual Report on Form 10-K for the fiscal year ended February 2, 2002). | ||
*10.12
|
| 2004 Long-Term Incentive Plan (As Amended and Restated Effective April 1, 2008) (incorporated by reference from Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the Commission on June 27, 2008). | ||
*10.13
|
| Forms of Deferred Stock Unit Award Agreement (non-employee director) and Restricted Stock Award |
90
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Exhibit | ||||
Number | Exhibit | |||
Agreement (non-employee director) under The Mens Wearhouse, Inc. 2004 Long-Term Incentive Plan (as amended and restated effective April 1, 2008) (incorporated by reference from Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the Commission on January 28, 2009). | ||||
*10.14
|
| Forms of Deferred Stock Unit Award Agreement, Restricted Stock Award Agreement and Nonqualified Stock Option Award Agreement (each for executive officers) under The Mens Wearhouse, Inc. 2004 Long-Term Incentive Plan (as amended and restated effective April 1, 2008) (incorporated by reference from Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2009). | ||
*10.15
|
| Form of Change in Control Agreement entered into effective as of May 15, 2009, by and between The Mens Wearhouse, Inc. and each of George Zimmer, David Edwab, Neill P. Davis, Douglas S. Ewert, Charles Bresler, Ph.D., William Silveira, James Zimmer, Gary Ckodre, Diana Wilson and Carole Souvenir (incorporated by reference from Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the Commission on May 20, 2009). | ||
*10.16
|
| 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). | ||
10.17
|
| License Agreement dated effective as of November 5, 2010, by and between the George Zimmer 1988 Living Trust and The Mens Wearhouse, Inc (incorporated by reference from Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the Commission on November 10, 2010). | ||
*10.18
|
| Fourth Amended and Restated Employment Agreement dated effective as of October 25, 2010, by and between The Mens Wearhouse, Inc. and David H. Edwab (incorporated by reference from Exhibit 10.2 to the Companys Current Report on Form 8-K filed with the Commission on November 10, 2010). | ||
18
|
| Preferability Letter from Independent Registered Public Accounting Firm Regarding Change in Accounting Principles (incorporated by reference from Exhibit 18 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended October 30, 2010). | ||
21.1
|
| Subsidiaries of the Company (filed herewith). | ||
23.1
|
| Consent of Deloitte & Touche LLP, independent auditors (filed herewith). | ||
31.1
|
| Certification of Annual Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed herewith). | ||
31.2
|
| Certification of Annual Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith). | ||
32.1
|
| Certification of Annual Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed herewith). | ||
32.2
|
| Certification of Annual Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith). | ||
101.1
|
| The following financial information from The Mens Wearhouse, Inc.s Annual Report on Form 10-K for the year ended January 29, 2011, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Earnings; (iii) the Consolidated Statements of Cash Flows; and (iv) the Notes to Consolidated Financial Statements, tagged as blocks of text. |
* | Management Compensation or Incentive Plan |
The Company will furnish a copy of any exhibit described above to any beneficial holder
of its securities upon receipt of a written request therefore, provided that such request sets
forth a good faith representation that, as of the record date for the Companys 2011 Annual Meeting
of Shareholders, such beneficial holder is entitled to vote at such meeting, and provided further
that such holder pays to the Company a fee compensating the Company for its reasonable expenses in
furnishing such exhibits.
91
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
THE MENS WEARHOUSE, INC. |
||||
By | /s/ GEORGE ZIMMER | |||
George Zimmer | ||||
Chairman of the Board and Chief Executive Officer | ||||
Dated: March 30, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature | Title | Date | ||
/s/ GEORGE ZIMMER
|
Chairman of the Board, Chief Executive Officer and Director |
March 30, 2011 | ||
/s/ NEILL P. DAVIS
|
Executive Vice President, Chief Financial Officer, Treasurer and Principal Financial Officer |
March 30, 2011 | ||
/s/ DIANA M. WILSON
|
Senior Vice President, Chief Accounting Officer and Principal Accounting Officer |
March 30, 2011 | ||
/s/ DAVID H. EDWAB
|
Vice Chairman of the Board and Director | March 30, 2011 | ||
/s/ RINALDO S. BRUTOCO
|
Director | March 30, 2011 | ||
/s/ MICHAEL L. RAY
|
Director | March 30, 2011 | ||
/s/ SHELDON I. STEIN
|
Director | March 30, 2011 | ||
/s/ LARRY R. KATZEN
|
Director | March 30, 2011 | ||
/s/ GRACE NICHOLS
|
Director | March 30, 2011 | ||
/s/ DEEPAK CHOPRA
|
Director | March 30, 2011 | ||
/s/ WILLIAM B. SECHREST
|
Director | March 30, 2011 |
92
Table of Contents
Exhibit Index
Exhibit | ||||
Number | Exhibit | |||
2.1
|
| Investment, Shareholders and Stock Purchase Agreement dated August 6, 2010, by and among The Mens Wearhouse, Inc., Moores The Suit People Inc., MWUK Holding Company Limited, Ensco 648 Limited, Gresham 4A and Gresham 4B and the stockholders of Ensco 648 Limited (incorporated by reference from Exhibit 2.1 to the Companys Current Report on Form 8-K/A filed with the Commission on August 16, 2010). | ||
3.1
|
| Restated Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended July 30, 1994). | ||
3.2
|
| Articles of Amendment to the Restated Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1999). | ||
3.3
|
| Fourth Amended and Restated Bylaws (incorporated by reference from Exhibit 3.1 to the Companys Current Report on Form 8-K filed with the Commission on January 28, 2010). | ||
4.1
|
| Restated Articles of Incorporation (included as Exhibit 3.1). | ||
4.2
|
| Form of Common Stock certificate (incorporated by reference from Exhibit 4.3 to the Companys Registration Statement on Form S-1 (Registration No. 33-45949)). | ||
4.3
|
| Articles of Amendment to the Restated Articles of Incorporation (included as Exhibit 3.2). | ||
4.4
|
| Fourth Amended and Restated Bylaws (included as Exhibit 3.3). | ||
10.1
|
| Second Amended and Restated Credit Agreement, dated as January 26, 2011, by and among The Mens Wearhouse, Inc., Moores The Suit People Inc., MWUK Holding Company Limited, the financial institutions from time to time parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian Agent, and J.P. Morgan Europe Limited, as European Agent (incorporated by reference from Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the Commission on February 1, 2011). | ||
*10.2
|
| 1992 Non-Employee Director Stock Option Plan (As Amended and Restated Effective January 1, 2004), including forms of stock option agreement and restricted stock award agreement (incorporated by reference from Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the Commission on March 18, 2005). | ||
*10.3
|
| Stock Agreement dated as of March 23, 1992, between the Company and George Zimmer (incorporated by reference from Exhibit 10.13 to the Companys Registration Statement on Form S-1 (Registration No. 33-45949)). | ||
*10.4
|
| 1996 Long-Term Incentive Plan (As Amended and Restated Effective April 1, 2008) (incorporated by reference from Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended May 3, 2008), and the forms of stock option agreement, restricted stock award agreement and deferred stock unit award agreement (incorporated by reference from Exhibit 10.20 to the Companys Current Report on Form 8-K filed with the Commission on March 18, 2005). | ||
*10.5
|
| Forms of Deferred Stock Unit Award Agreement, Restricted Stock Award Agreement and Nonqualified Stock Option Award Agreement under The Mens Wearhouse, Inc. 1996 Long-Term Incentive Plan (as amended and restated effective as of April 1, 2008)(incorporated by reference from Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended May 1, 2010). | ||
*10.6
|
| 1998 Key Employee Stock Option Plan (incorporated by reference from Exhibit 10.18 to the Companys Annual Report on Form 10-K for the fiscal year ended January 31, 1998). | ||
*10.7
|
| First Amendment to 1998 Key Employee Stock Option Plan (incorporated by reference from Exhibit 4.1 to the Companys Registration Statement on Form S-8 (Registration No. 333-80033)). | ||
*10.8
|
| Second Amendment to 1998 Key Employee Stock Option Plan (incorporated by reference to Exhibit 10.22 to the Companys Annual Report on Form 10-K for the fiscal year ended January 29, 2000). | ||
*10.9
|
| Split-Dollar Agreement and related Split-Dollar Collateral Assignment dated May 25, 1995, by and between the Company and David H. Edwab (incorporated by reference from Exhibit 10.26 to the Companys Annual Report on Form 10-K for the fiscal year ended February 2, 2002). | ||
*10.10
|
| Split-Dollar Agreement and related Split-Dollar Collateral Assignment dated May 25, 1995, between the Company, David H. Edwab and George Zimmer, Co-Trustee of the David H. Edwab 1995 Irrevocable Trust (incorporated by reference from Exhibit 10.27 to the Companys Annual Report on Form 10-K for the fiscal year ended February 2, 2002). | ||
*10.11
|
| First Amendment to Split-Dollar Agreement dated January 17, 2002, between the Company, David H. Edwab and George Zimmer, Trustee of the David H. Edwab 1995 Irrevocable Trust (incorporated by reference from Exhibit 10.28 to the Companys Annual Report on Form 10-K for the fiscal year ended February 2, 2002). | ||
*10.12
|
| 2004 Long-Term Incentive Plan (As Amended and Restated Effective April 1, 2008) (incorporated by reference from Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the Commission on June 27, 2008). | ||
*10.13
|
| Forms of Deferred Stock Unit Award Agreement (non-employee director) and Restricted Stock Award |
97
Table of Contents
Exhibit | ||||
Number | Exhibit | |||
Agreement (non-employee director) under The Mens Wearhouse, Inc. 2004 Long-Term Incentive Plan (as amended and restated effective April 1, 2008) (incorporated by reference from Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the Commission on January 28, 2009). | ||||
*10.14
|
| Forms of Deferred Stock Unit Award Agreement, Restricted Stock Award Agreement and Nonqualified Stock Option Award Agreement (each for executive officers) under The Mens Wearhouse, Inc. 2004 Long-Term Incentive Plan (as amended and restated effective April 1, 2008) (incorporated by reference from Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2009). | ||
*10.15
|
| Form of Change in Control Agreement entered into effective as of May 15, 2009, by and between The Mens Wearhouse, Inc. and each of George Zimmer, David Edwab, Neill P. Davis, Douglas S. Ewert, Charles Bresler, Ph.D., William Silveira, James Zimmer, Gary Ckodre, Diana Wilson and Carole Souvenir (incorporated by reference from Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the Commission on May 20, 2009). | ||
*10.16
|
| 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). | ||
10.17
|
| License Agreement dated effective as of November 5, 2010, by and between the George Zimmer 1988 Living Trust and The Mens Wearhouse, Inc (incorporated by reference from Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the Commission on November 10, 2010). | ||
*10.18
|
| Fourth Amended and Restated Employment Agreement dated effective as of October 25, 2010, by and between The Mens Wearhouse, Inc. and David H. Edwab (incorporated by reference from Exhibit 10.2 to the Companys Current Report on Form 8-K filed with the Commission on November 10, 2010). | ||
18
|
| Preferability Letter from Independent Registered Public Accounting Firm Regarding Change in Accounting Principles (incorporated by reference from Exhibit 18 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended October 30, 2010). | ||
21.1
|
| Subsidiaries of the Company (filed herewith). | ||
23.1
|
| Consent of Deloitte & Touche LLP, independent auditors (filed herewith). | ||
31.1
|
| Certification of Annual Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed herewith). | ||
31.2
|
| Certification of Annual Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith). | ||
32.1
|
| Certification of Annual Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed herewith). | ||
32.2
|
| Certification of Annual Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith). | ||
101.1
|
| The following financial information from The Mens Wearhouse, Inc.s Annual Report on Form 10-K for the year ended January 29, 2011, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Earnings; (iii) the Consolidated Statements of Cash Flows; and (iv) the Notes to Consolidated Financial Statements, tagged as blocks of text. |
* | Management Compensation or Incentive Plan |
98