The applications are currently pending withapplication for the United States Patent and Trademark Office.service mark “Women’s Wearhouse” is pending.
We own Canadian trademark registrations for the marks “Moores The Suit People®,” “Moores Vetements Pour Hommes®,” “Moores Vetements Pour Hommes (and design)®,” “Moores Clothing For Men®” and “Moores Clothing For Men (and design)®.” Moores stores operate under the tradenames “Moores Clothing For Men” and “Moores Vetements Pour Hommes.”
We are also the owner in Canada of the service mark “MWCLEANERS” as well as certain logos incorporating “MWCLEANERS” or the letters “MW” to identify dry cleaning services. The applications are currently pending with the Canadian Trademarks Office.
6
Employees
At January 28, 2006,February 3, 2007, we had approximately 13,80014,900 employees, of whom approximately 10,20010,700 were full-time and approximately 3,6004,200 were part-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. Approximately 700600 of our employees at Golden Brand belong to the Union of Needletrades, Industrial and Textile Employees. Golden Brand is part of a collective bargaining unit, of which it is the largest company.unit. The current union contract expires in November 2009.
| 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.
Consumer confidence is often adversely impacted by many factors including local, regional or national economic conditions, continued threats of terrorism, acts of war and other uncertainties. We believe that a decrease in consumer spending in response to a decline in consumer confidence will affect us more than other retailers because a slowing of men’s discretionary spending for items like tailored apparel tends to occur faster than that for other retail purchases.
Our ability to continue to expand our Men’s Wearhouse stores may be limited.
A large part of our growth has resulted from the addition of new Men’s 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 28, 2006,February 3, 2007, we operate 526543 Men’s Wearhouse stores. However, we believe that our ability to increase the number of Men’s Wearhouse stores in the United States above 600 will be limited. Therefore, we cannot assure you that we will continue to experience the same rate of growth as we have historically.
Certain of our expansion strategies may present greater risks.
Any acquisitions that we undertake could be difficult to integrate, disrupt our business, dilute stockholder 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 timeframes or at all. If one or more of these risks are realized, it could have an adverse impact on our operations.
7
Our business is seasonal.
In most years, a significant portion of our net sales and our net earnings have been generated during November, December and January. In addition, our increased tuxedo rental business during the prom and wedding seasons has increased the significance of our second quarter net sales and net earnings. Accordingly, our results for the first, second and third quarters of our fiscal yearany quarter are not necessarily indicative of our annual profitability. Therefore,profitability and any decrease in sales during these monthspeak quarters could have a significant adverse effect on our net earnings.
7
Sales in the men’s tailored clothing market have increasedchanged modestly over recent years.
According to industry sources, sales in the men’s tailored clothing market increased modestly in 2004 and in 2005.2005 and declined slightly in 2006. We believe that this trend is attributable primarily to more employers returning to less relaxed dress codes. We also believe that this trend has contributed to our increases in comparable store sales. However, this trend may not continue andthese modest changes are representative of weakening demand for men’s tailored clothing. As a result we may not be able to continue to expand our sales volume within our segment of the retailing industry.
The loss of, or disruption in, our centralized distribution center could result in delays in the delivery of merchandise to our stores.
All merchandise for Men’s Wearhouse stores and a majority of the merchandise for K&G stores is received into our centralized distribution center in Houston, Texas, where the inventory is then processed, sorted and shipped to our stores. In addition, over 90%70% of our U.S. tuxedo rental product and our unit rentals are maintained and processed through this facility. 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 merchandiseand/or tuxedo rentals 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 you that our insurance will be sufficient, or that insurance proceeds will be timely paid to us, in the event our 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 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 retail industry generally. |
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
8
distribution upon our liquidation, dissolution or winding up. See Note 6 of Notes to Consolidated Financial Statements for more information.
Our success significantly depends on our key personnel and our ability to attract and retain additional personnel.
Mr. George Zimmer has been very important to our success. Mr. Zimmer is the Company’s Chairman of the Board, Chief Executive Officer and primary advertising spokesman. The loss of Mr. Zimmer’s services could have a material adverse effect on the securities markets’ view of our prospects.
8
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. The exchange rate between Canadian dollars and U.S. dollars has fluctuated historically. If the value of the Canadian dollar against the U.S. dollar weakens, then the revenues and earnings of our Canadian operations will be reduced when they are translated to U.S. dollars. Also, the value of our Canadian net assets in U.S. dollars may decline.
In connection with our direct sourcing program, we may enter into purchase commitments that are denominated in a foreign currency (primarily the Euro), which create currency exchange risks. If the value of foreign currency strengthens, then the cost in U.S. dollars to purchase such goods would increase.
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 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.
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.
| Item 1B. | Unresolved Staff Comments |
None.
9
| Item 2. | Properties |
As of January 28, 2006,February 3, 2007, we operated 603636 retail apparel stores in 4445 states and the District of Columbia and 116 retail apparel stores in the 10 Canadian provinces. The following table sets forth the location, by state or province, of these stores:
| Men’s | Men’s | |||||||||||||||||||||||
| Wearhouse | K&G | Moores | Wearhouse | K&G | Moores | |||||||||||||||||||
United States | ||||||||||||||||||||||||
| California | 85 | 85 | ||||||||||||||||||||||
| Texas | 45 | 10 | 47 | 11 | ||||||||||||||||||||
| Florida | 37 | 2 | 39 | 3 | ||||||||||||||||||||
| New York | 27 | 4 | 28 | 4 | ||||||||||||||||||||
| Illinois | 22 | 6 | 22 | 7 | ||||||||||||||||||||
| Pennsylvania | 22 | 3 | 22 | 4 | ||||||||||||||||||||
| Michigan | 20 | 5 | 22 | 7 | ||||||||||||||||||||
| Ohio | 19 | 4 | 19 | 4 | ||||||||||||||||||||
| Georgia | 17 | 6 | 17 | 6 | ||||||||||||||||||||
| Virginia | 17 | 2 | 17 | 2 | ||||||||||||||||||||
| Massachusetts | 15 | 4 | 15 | 5 | ||||||||||||||||||||
| Washington | 15 | 2 | 14 | 2 | ||||||||||||||||||||
| Maryland | 14 | 5 | 14 | 7 | ||||||||||||||||||||
| Colorado | 14 | 2 | ||||||||||||||||||||||
| New Jersey | 13 | 6 | 13 | 8 | ||||||||||||||||||||
| North Carolina | 13 | 3 | ||||||||||||||||||||||
| Arizona | 12 | 12 | ||||||||||||||||||||||
| Colorado | 12 | 2 | ||||||||||||||||||||||
| North Carolina | 12 | 3 | ||||||||||||||||||||||
| Missouri | 11 | 1 | 11 | 1 | ||||||||||||||||||||
| Tennessee | 10 | 2 | ||||||||||||||||||||||
| Minnesota | 9 | 2 | 9 | 2 | ||||||||||||||||||||
| Tennessee | 9 | 2 | ||||||||||||||||||||||
| Wisconsin | 9 | 1 | 9 | 1 | ||||||||||||||||||||
| Oregon | 9 | |||||||||||||||||||||||
| Connecticut | 8 | 2 | 8 | 2 | ||||||||||||||||||||
| Oregon | 8 | |||||||||||||||||||||||
| Indiana | 7 | 1 | 8 | 1 | ||||||||||||||||||||
| Louisiana | 7 | 1 | 7 | 3 | ||||||||||||||||||||
| Utah | 6 | 7 | ||||||||||||||||||||||
| Alabama | 5 | 1 | 5 | 1 | ||||||||||||||||||||
| Nevada | 5 | 5 | ||||||||||||||||||||||
| Oklahoma | 5 | 2 | ||||||||||||||||||||||
| New Mexico | 4 | |||||||||||||||||||||||
| Kentucky | 4 | 1 | 4 | 1 | ||||||||||||||||||||
| New Mexico | 4 | |||||||||||||||||||||||
| Oklahoma | 4 | |||||||||||||||||||||||
| Arkansas | 3 | |||||||||||||||||||||||
| Kansas | 3 | 1 | 4 | 1 | ||||||||||||||||||||
| South Carolina | 4 | 1 | ||||||||||||||||||||||
| Nebraska | 3 | 3 | ||||||||||||||||||||||
| New Hampshire | 3 | 3 | ||||||||||||||||||||||
| South Carolina | 3 | |||||||||||||||||||||||
| Arkansas | 3 | |||||||||||||||||||||||
| Delaware | 2 | 2 | ||||||||||||||||||||||
| Iowa | 2 | 2 | ||||||||||||||||||||||
| Idaho | 1 | 1 | ||||||||||||||||||||||
| Maine | 1 | 1 | ||||||||||||||||||||||
| Mississippi | 1 | 1 | ||||||||||||||||||||||
| Rhode Island | 1 | 1 | ||||||||||||||||||||||
| South Dakota | 1 | 1 | ||||||||||||||||||||||
| West Virginia | 1 | 1 | ||||||||||||||||||||||
| Vermont | 1 | |||||||||||||||||||||||
| District of Columbia | 1 | 1 | ||||||||||||||||||||||
Canada | ||||||||||||||||||||||||
| Ontario | 50 | 50 | ||||||||||||||||||||||
| Quebec | 24 | 24 | ||||||||||||||||||||||
| British Columbia | 15 | 15 | ||||||||||||||||||||||
| Alberta | 12 | 12 | ||||||||||||||||||||||
| Manitoba | 5 | 5 | ||||||||||||||||||||||
| New Brunswick | 3 | 3 | ||||||||||||||||||||||
| Nova Scotia | 3 | 3 | ||||||||||||||||||||||
| Saskatchewan | 2 | 2 | ||||||||||||||||||||||
| Newfoundland | 1 | 1 | ||||||||||||||||||||||
| Prince Edward Island | 1 | 1 | ||||||||||||||||||||||
| Total | 526 | 77 | 116 | 543 | 93 | 116 | ||||||||||||||||||
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Men’s Wearhouse and Moores stores vary in size from approximately 3,100 to 15,100 total square feet (average square footage at January 28, 2006February 3, 2007 was 5,6455,669 square feet with 66%65% of stores having between 4,500 and 6,500 square feet). Men’s Wearhouse and 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.
Men’s Wearhouse and Moores stores are designed to further our strategy of facilitating sales while making the shopping experience pleasurable. We attempt to create a specialty store atmosphere through effective merchandise presentation and sizing, attractive in-store signs and efficient checkout procedures. Most of these stores have similar floor plans and merchandise presentation to facilitate the shopping experience and sales process. Designer, brand name and private label garments are intermixed, and emphasis is placed on the fit of the garment rather than on a particular label or manufacturer. Each store is staffed with clothing consultants and sales associates and has a tailoring facility with at least one tailor. Each store is also staffed with an operations manager or other tuxedo rental specialist to facilitate the tuxedo rental process and enhance the customer’s experience in our store.
K&G stores vary in size from approximately 5,400 to 50,00042,000 total square feet (average square footage at January 28, 2006February 3, 2007 was 23,83423,204 square feet with 47%52% of stores having between 15,000 and 25,000 square feet). K&G stores are “destination” stores located primarily in low-cost warehouses and 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 prototype men’s and ladies’ superstore with fitting rooms and convenient check-out, customer service and tailoring areas. K&G stores are organized to convey the impression of a dominant assortment of first-quality merchandise and to project a no-frills, value-oriented warehouse atmosphere. Each element of store layout and merchandise presentation is designed to reinforce K&G’s strategy of providing a large selection and assortment in each category. We seek to make K&G stores “customer friendly” by utilizing store signage and grouping merchandise by categories and sizes, with brand name and private label merchandise intermixed. To provide our customers with a greater sense of consistency and purchase opportunities, in September 2004 we extended our hours of operation at our K&G stores from four to seven days a week. Prior to September 1, 2004, our K&G stores were open for business on Thursdays, Fridays, Saturdays and Sundays only, except for a limited number of Monday holidays and an expanded schedule for certain holiday periods when the stores were open every day. Each store is typically staffed with a manager, assistant manager and other employees who serve as customer service and sales personnel and cashiers. Each store also has a tailoring facility with at least one tailor.
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 1,000 and 19,00030,300 additional square feet as a part of a Men’s Wearhouse store or in a separate hub warehouse unit to be utilized as a redistribution facility in that geographic area. We also lease a 51,600 square foot facility near Seattle, Washington that functions primarily as a warehouse and distribution facility for our tuxedo rental business in the northwestern U.S.
We own a46-acre site in Houston, Texas on which we have developed our principal U.S. warehouse and distribution facilities. The first phaseThis site is the location of development, an approximately 385,0001,080,000 square foot facility to supportthat supports our retail merchandise program, our tuxedo rental program and our flat-packed merchandise, became operational during 2001. In early 2003, we implemented an in-house tuxedo dry cleaning plantoperations. We also plan to construct a new 25,000 square foot building on this site in 2007 to serve as part of the facility. In late 2003, we completed phase two of our development, an addition of approximately 242,000 square feet primarily to support the tuxedo rental program. In late 2004, we completed phase three of our development, an additional 300,000 square feet to accommodate the centralization of our warehouse and distribution program for K&G. In 2005, we developed an additional 150,000 square feet in order to further accommodate the growth in our tuxedo rental program and improve our current and future operations. computer data center.
We also own a 240,000 square foot facility situated on approximately seven acres of land in Houston, Texas which serves as an office, warehouse and distribution facility. Approximately 65,000 square feet of this facility is currently used as office space for our financial, information technology and constructionother departments with the remaining 175,000 square feet serving as a warehouse and distribution center.
In 2006, we entered into a ten year building lease agreement for approximately 206,000 rentable square feet. This new building is located in Houston, Texas and will serve as office space for our financial, information
11
technology and other departments allowing us to support future growth. Our existing office space will be converted to warehouse and storage space, where appropriate. Our move to the new office building is expected to occur during the third quarter of 2007.
We also own a 150,000 square foot facility, situated on an adjacent six acres to the 240,000 square foot facility, comprised of approximately 9,000 square feet of office space and 141,000 square feet serving as a warehouse and distribution center.
11
Our executive offices in Fremont, California are housed in a 35,500 square foot facility that we own. This facility serves as an office and training facility. We also lease 27,345approximately 25,000 square feet of additional office space in four other locations.
K&G leases a 100,000 square foot facility in Atlanta, Georgia which serves as an office, distribution and store facility. Approximately 35,000 square feet of this facility is used as office space for financial, information technology and merchandising personnel, 23,000 square feet is used as a distribution center for store fixtures and supplies and the remaining 42,000 square feet is used as a store.
Moores leases a 36,700 square foot facility in Toronto, Ontario, comprised of approximately 16,900 square feet of office space and 19,800 square feet utilized for warehousing and distribution. In January 2005,addition, Moores purchasedowns a building innear Toronto of approximately 131,000 square feet whichthat is utilized as its new tuxedo distribution center. This tuxedo distribution center began operations in the first quarter of fiscal 2005.
| Item 3. | Legal Proceedings |
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. | Submission of Matters to a Vote of Security Holders |
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended January 28, 2006.February 3, 2007.
12
PART II
| Item 5. | Market for the Company’s 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:Exchange and the quarterly dividends declared on each share of common stock:
| High | Low | |||||||
Fiscal Year 2004 | ||||||||
First quarter ended May 1, 2004(1) | $ | 18.76 | $ | 15.22 | ||||
Second quarter ended July 31, 2004(1) | 18.17 | 15.27 | ||||||
Third quarter ended October 30, 2004(1) | 21.29 | 16.59 | ||||||
Fourth quarter ended January 29, 2005(1) | 23.01 | 20.10 | ||||||
Fiscal Year 2005 | ||||||||
First quarter ended April 30, 2005(1) | $ | 29.37 | $ | 21.67 | ||||
Second quarter ended July 30, 2005(1) | 37.44 | 27.33 | ||||||
| Third quarter ended October 29, 2005 | 36.91 | 22.75 | ||||||
| Fourth quarter ended January 28, 2006 | 34.85 | 23.67 | ||||||
| High | Low | Dividend | ||||||||||
Fiscal Year 2005 | ||||||||||||
| First quarter ended April 30, 2005 | $ | 29.37 | $ | 21.67 | $ | — | ||||||
| Second quarter ended July 30, 2005 | 37.44 | 27.33 | — | |||||||||
| Third quarter ended October 29, 2005 | 36.91 | 22.75 | — | |||||||||
| Fourth quarter ended January 28, 2006 | 34.85 | 23.67 | 0.05 | |||||||||
Fiscal Year 2006 | ||||||||||||
| First quarter ended April 29, 2006 | $ | 37.30 | $ | 30.20 | $ | 0.05 | ||||||
| Second quarter ended July 29, 2006 | 36.45 | 29.81 | 0.05 | |||||||||
| Third quarter ended October 28, 2006 | 41.75 | 30.03 | 0.05 | |||||||||
| Fourth quarter ended February 3, 2007 | 44.56 | 36.89 | 0.05 | |||||||||
On April 7, 2006,March 30, 2007, there were approximately 1,500 holders of record and approximately 6,4007,400 beneficial holders of our common stock.
Issuer Purchases of Equity Securities
During fiscal year 2006, we had remaining under our May 2005 authorization. Norepurchased 1,134,000 shares of our common stock were repurchasedat an average price of $35.53 for an aggregate cost of approximately $40.3 million. The following table presents information with respect to purchases of common stock of the Company made during the fourth quarter of fiscal 2005.ended February 3, 2007 as defined byRule 10b-18(a)(3) under the Exchange Act:
| (c) | ||||||||||||||||
| Total | (d) | |||||||||||||||
| Number of | Approximate | |||||||||||||||
| Shares | Dollar Value of | |||||||||||||||
| Purchased | Shares that | |||||||||||||||
| as Part of | May Yet Be | |||||||||||||||
| (a) | (b) | Publicly | Purchased | |||||||||||||
| Total Number | Average | Announced | Under the | |||||||||||||
| of Shares | Price Paid | Plans or | Plans or | |||||||||||||
Period | Purchased | Per Share | Programs | Programs | ||||||||||||
| (In thousands) | ||||||||||||||||
| October 29, 2006 through November 25, 2006 | 231,800 | $ | 37.89 | 231,800 | $ | 79,706 | ||||||||||
| November 26, 2006 through December 30, 2006 | 532,800 | $ | 37.53 | 532,800 | $ | 59,711 | ||||||||||
| December 31, 2006 through February 3, 2007 | — | — | — | $ | 59,711 | |||||||||||
| Total | 764,600 | $ | 37.64 | 764,600 | $ | 59,711 | ||||||||||
13
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 Company’s 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 February 2, 2002 and that all dividends paid by those companies included in the indices were reinvested.
| February 2, | February 1, | January 31, | January 29, | January 28, | February 3, | |||||||||||||||||||
| 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | |||||||||||||||||||
Measurement Period (Fiscal Year Covered) | ||||||||||||||||||||||||
| Company | $ | 100.00 | $ | 64.09 | $ | 106.54 | $ | 148.44 | $ | 237.69 | $ | 302.38 | ||||||||||||
| Dow Jones US Apparel Retailers | 100.00 | 82.32 | 113.54 | 124.77 | 146.39 | 173.67 | ||||||||||||||||||
| NYSE Composite Index | 100.00 | 86.76 | 115.94 | 140.29 | 160.04 | 193.37 | ||||||||||||||||||
The foregoing graph is based on historical data and is not necessarily indicative of future performance.
14
| 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 “Management’s 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 Company’s52-week or53-week fiscal year, which ends on the Saturday nearest January 31 in the following calendar year. For example, references to “2005”“2006” mean the fiscal year ended January 28, 2006.February 3, 2007. All fiscal years for which financial information is included herein had 52 weeks, except 2006 which had 53 weeks.
| 2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||||||||||||||||||||||
| (Dollars and shares in thousands, except | 2002 | 2003 | 2004 | 2005 | 2006 | |||||||||||||||||||||||||||||||||||
| per share and per square foot data) | (Dollars and shares in thousands, except per share and per square foot data) | |||||||||||||||||||||||||||||||||||||||
Statement of Earnings Data: | ||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 1,273,154 | $ | 1,295,049 | $ | 1,392,680 | $ | 1,546,679 | $ | 1,724,898 | $ | 1,295,049 | $ | 1,392,680 | $ | 1,546,679 | $ | 1,724,898 | $ | 1,882,064 | ||||||||||||||||||||
| Gross margin | 450,049 | 454,239 | 513,446 | 603,004 | 697,135 | 454,239 | 513,446 | 603,004 | 697,135 | 815,705 | ||||||||||||||||||||||||||||||
| Operating income | 72,779 | 69,300 | 81,783 | 118,088 | 165,296 | 69,300 | 81,783 | 118,088 | 165,296 | 223,938 | ||||||||||||||||||||||||||||||
| Net earnings | 42,628 | 42,355 | 49,734 | 71,356 | 103,903 | 42,355 | 49,734 | 71,356 | 103,903 | 148,575 | ||||||||||||||||||||||||||||||
Per Common Share Data(1): | ||||||||||||||||||||||||||||||||||||||||
Per Common Share Data: | ||||||||||||||||||||||||||||||||||||||||
| Basic net earnings per share | $ | 0.69 | $ | 0.70 | $ | 0.85 | $ | 1.32 | $ | 1.93 | $ | 0.70 | $ | 0.85 | $ | 1.32 | $ | 1.93 | $ | 2.80 | ||||||||||||||||||||
| Diluted net earnings per share | $ | 0.69 | $ | 0.69 | $ | 0.84 | $ | 1.29 | $ | 1.88 | $ | 0.69 | $ | 0.84 | $ | 1.29 | $ | 1.88 | $ | 2.71 | ||||||||||||||||||||
| Weighted average common shares outstanding | 61,496 | 60,885 | 58,184 | 54,044 | 53,753 | 60,885 | 58,184 | 54,044 | 53,753 | 53,111 | ||||||||||||||||||||||||||||||
| Weighted average shares outstanding plus dilutive potential common shares | 62,169 | 61,316 | 58,943 | 55,220 | 55,365 | 61,316 | 58,943 | 55,220 | 55,365 | 54,749 | ||||||||||||||||||||||||||||||
Operating Information: | ||||||||||||||||||||||||||||||||||||||||
Percentage increase/(decrease) in comparable US store sales(2) | (10.2 | )% | (3.1 | )% | 6.1 | % | 7.3 | % | 8.4 | % | ||||||||||||||||||||||||||||||
Percentage increase/(decrease) in comparable Canadian store sales(2) | 4.2 | % | (2.1 | )% | (5.1 | )% | 7.1 | % | 2.7 | % | ||||||||||||||||||||||||||||||
Average square footage — all stores(3) | 7,046 | 7,174 | 7,411 | 7,497 | 7,593 | |||||||||||||||||||||||||||||||||||
Average sales per square foot of selling space(4) | $ | 336 | $ | 319 | $ | 338 | $ | 368 | $ | 391 | ||||||||||||||||||||||||||||||
Number of retail apparel stores(5): | ||||||||||||||||||||||||||||||||||||||||
| Percentage increase/(decrease) in | ||||||||||||||||||||||||||||||||||||||||
comparable store sales(1): | ||||||||||||||||||||||||||||||||||||||||
| Men’s Wearhouse | (3.3 | )% | 7.9 | % | 8.2 | % | 6.2 | % | 3.1 | % | ||||||||||||||||||||||||||||||
| K&G | (2.3 | )% | (0.3 | )% | 3.9 | % | 16.4 | % | (1.8 | )% | ||||||||||||||||||||||||||||||
| Moores | (2.1 | )% | (5.1 | )% | 7.1 | % | 2.7 | % | 8.7 | % | ||||||||||||||||||||||||||||||
Average square footage — all stores(2) | 7,174 | 7,411 | 7,497 | 7,593 | 7,838 | |||||||||||||||||||||||||||||||||||
Average sales per square foot of selling space(3) | $ | 319 | $ | 338 | $ | 368 | $ | 391 | $ | 397 | ||||||||||||||||||||||||||||||
Number of retail apparel stores(4): | ||||||||||||||||||||||||||||||||||||||||
| Open at beginning of the period | 651 | 680 | 689 | 693 | 707 | 680 | 689 | 693 | 707 | 719 | ||||||||||||||||||||||||||||||
| Opened | 32 | 16 | 13 | 20 | 18 | 16 | 13 | 20 | 18 | 35 | ||||||||||||||||||||||||||||||
| Closed | (3 | ) | (7 | ) | (9 | ) | (6 | ) | (6 | ) | (7 | ) | (9 | ) | (6 | ) | (6 | ) | (2 | ) | ||||||||||||||||||||
| Open at end of the period | 680 | 689 | 693 | 707 | 719 | 689 | 693 | 707 | 719 | 752 | ||||||||||||||||||||||||||||||
Cash Flow Information: | ||||||||||||||||||||||||||||||||||||||||
| Capital expenditures | $ | 67,169 | $ | 47,380 | $ | 49,663 | $ | 85,392 | $ | 66,499 | $ | 47,380 | $ | 49,663 | $ | 85,392 | $ | 66,499 | $ | 72,904 | ||||||||||||||||||||
| Depreciation and amortization | 43,877 | 46,885 | 50,993 | 53,319 | 61,874 | 46,885 | 50,993 | 53,319 | 61,874 | 61,387 | ||||||||||||||||||||||||||||||
| Purchase of treasury stock | 30,409 | 28,058 | 109,186 | 11,186 | 90,280 | 28,058 | 109,186 | 11,186 | 90,280 | 40,289 | ||||||||||||||||||||||||||||||
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| February 2, | February 1, | January 31, | January 29, | January 28, | February 1, | January 31, | January 29, | January 28, | February 3, | |||||||||||||||||||||||||||||||
| 2002 | 2003 | 2004 | 2005 | 2006 | 2003 | 2004 | 2005 | 2006 | 2007 | |||||||||||||||||||||||||||||||
Balance Sheet Information: | ||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 38,644 | $ | 84,924 | $ | 132,146 | $ | 165,008 | $ | 200,226 | $ | 84,924 | $ | 132,146 | $ | 165,008 | $ | 200,226 | $ | 179,694 | ||||||||||||||||||||
| Working capital | 303,539 | 326,060 | 357,045 | 388,229 | 491,527 | 326,060 | 357,045 | 388,229 | 491,527 | 454,691 | ||||||||||||||||||||||||||||||
| Total assets | 728,976 | 780,104 | 878,127 | 993,322 | 1,123,274 | 780,104 | 878,127 | 993,322 | 1,123,274 | 1,096,952 | ||||||||||||||||||||||||||||||
| Long-term debt | 37,740 | 38,709 | 131,000 | 130,000 | 205,251 | 38,709 | 131,000 | 130,000 | 205,251 | 72,967 | ||||||||||||||||||||||||||||||
| Shareholders’ equity | 504,809 | 526,585 | 487,792 | 568,848 | 627,533 | 526,585 | 487,792 | 568,848 | 627,533 | 753,772 | ||||||||||||||||||||||||||||||
Cash dividends declared per share | — | — | — | — | 0.05 | — | — | — | 0.05 | 0.20 | ||||||||||||||||||||||||||||||
| (1) | ||
| 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. | ||
| Average square footage — all stores 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. | ||
| Average 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. For 2006, the calculation excludes total sales for the 53rd week. | ||
| Retail apparel stores include stores operating under our Men’s Wearhouse, K&G and Moores brands. | ||
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| Item 7. | Management’s Discussion |
General
The Men’s Wearhouse opened its first store in Houston, Texas in August 1973, and we are now one of the largest specialty retailers of men’s suits in the United States and Canada. At January 28, 2006,February 3, 2007, we operated 719752 retail apparel stores with 603636 stores in the United States and 116 stores in Canada. Our U.S. stores are primarily operated under the brand names of Men’s Wearhouse (526(543 stores) and K&G (77(93 stores) in 4445 states and the District of Columbia. Our Canadian stores are operated under the brand name of Moores Clothing for Men in ten provinces. For 2005,2006, we had revenues of $1.882 billion and net earnings of $148.6 million, compared to revenues of $1.725 billion and net earnings of $103.9 million compared toin 2005 and revenues of $1.547 billion and net earnings of $71.4 million in 2004 and revenues of $1.393 billion and net earnings of $49.7 million in 2003.2004. The more significant factors impacting these results are addressed in the “Results of Operations” discussion below.
Under the Men’s Wearhouse and Moores brands, which contributed approximately 77% of our revenues, we target middle and upper-middle income men by offering quality merchandise at everyday low prices. Because we concentrate on men’s“wear-to-work” business attire which is characterized by infrequent and more predictable fashion changes, we believe we are not as exposed to trends typical of more fashion-forward apparel retailers, where significant markdowns and promotional pricing are more common. In addition, because this inventory mix includes “business casual” merchandise, we are able to meet demand for such products resulting from the trend over the past decade toward more relaxed dress codes in the workplace. We also strive to provide a superior level of customer service by training our sales personnel as clothing consultants and offeringon-site tailoring services in each of our stores. We believe that the quality, value, selection and service we provide to our Men’s Wearhouse and Moores customers have been significant factors in enabling us to consistently gain market share within both the U.S. and Canadian markets for men’s tailored apparel.
In addition, we have expanded our customer base and leveraged our existing infrastructure by completing the rollout ofoffering our tuxedo rental program toin nearly all of our Men’s Wearhouse stores in early 2002 and toin all of our Moores stores during the first quarter of fiscal 2004.stores. As a percentage of total revenues, tuxedo rentals have grown from 3.7% in 2003 to 5.0% in 2004 andto 5.6% in 2005.2005 and 6.3% in 2006. These revenues are expected to continue to increase in 20062007 as the program continues to mature.mature and as we complete our acquisition of After Hours Formalwear, Inc. (discussed below) and integrate it into our operations.
Under the K&G brand, we target the more price sensitive customer with a value-oriented superstore approach. K&G’s merchandising strategy emphasizes broad assortments of men’s apparel across all major categories, including tailored clothing, casual sportswear, dress furnishings, footwear and accessories. In addition, 5273 of the 7793 K&G stores operating at January 28, 2006February 3, 2007 offer ladies’ career apparel that is also targeted to the more price sensitive customer. Although K&G employees assist customers with merchandise selection, including correct sizing, the stores are designed to allow customers to select and purchase apparel by themselves. Each store also provideson-site tailoring services.
We opened 13 stores in 2003, 20 stores in 2004, and 18 stores in 2005 and 35 stores in 2006 under our Men’s Wearhouse, K&G and Moores brands. Expansion is generally continued within a market as long as management believes it will provide profitable incremental sales volume. In 2006,2007, we plan to open approximately 21 new Men’s Wearhouse stores and 15 new K&G stores and to expandand/or relocate approximately 1826 existing Men’s Wearhouse stores and sevenfour existing K&G stores. The average cost (excluding telecommunications andpoint-of-sale equipment and inventory) of opening a new store is expected to be approximately $0.4 million in 2006.2007. Although we believe that our ability to increase the number of Men’s Wearhouse stores in the U.S. above 600 will be limited, we believe that additional growth opportunities exist through improving and diversifying the merchandise mix, relocating stores, expanding our K&G brand and adding complementary products and services.
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We have closed 2114 stores in the three years ended January 28, 2006.February 3, 2007. Generally, in determining whether to close a store, we consider the store’s historical and projected performance and the continued desirability of the store’s location. In determining store contribution, we consider net sales, cost of sales and other direct store costs, but
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exclude buying costs, corporate overhead, depreciation and amortization, financing costs and advertising. Store performance is continually monitored and, occasionally, as regions and shopping areas change, we may determine that it is in our best interest to close or relocate a store. In 2003, nine stores were closed due to substandard performance. In 2004, six stores were closed due to substandard performance or lease expiration. In 2005, four stores were closed due to substandard performance or lease expiration and two stores were closed due to demographic changes in the areasand/or the proximity of a newly opened store. In 2006, two stores were closed due to lease expiration. We plan to close fourtwo stores in 2006.2007.
During fiscal year 2004, we opened six new casual clothing/sportswear concept stores (dba “Eddie Rodriguez”) in order to test an expanded, more fashion-oriented merchandise concept for men and women. In March 2005, it was determined that no further investments would be made into these test concept stores and, as of June 30, 2005, all six of the stores had been closed. Net operating losses from these stores reduced diluted earnings per share by $0.05 and $0.11 for fiscal 2004 and 2005, respectively.
During the fourth quarter of fiscal 2004, we opened two test bridal stores (dba “Bride & Joy”) in the San Francisco Bay Area in order to test additional opportunities in the bridal industry. A decision was made to exit the test of these bridal stores and both locations were closed by the end of the third quarter of fiscal 2006.
On November 16, 2006, we entered into a definitive stock purchase agreement with Federated Department Stores, Inc. and David’s Bridal, Inc. to acquire After Hours Formalwear, Inc. (“After Hours”) for a cash consideration of $100.0 million, subject to certain adjustments. After Hours is the largest men’s formalwear chain in the United States and operates 507 stores in 35 states under After Hours Formalwear and Mr. Tux store fronts. After Hours has an exclusive relationship with David’s Bridal, Inc., the nation’s largest bridal retailer with 269 stores and an online offering. That exclusivity will remain effective after the acquisition and will be extended to Men’s Wearhouse and Moores store brands. The acquisition is conditioned upon, among other things, the termination or expiration of the waiting period under theHart-Scott-Rodino Antitrust Improvements Act of 1976 and other customary closing conditions. On March 23, 2007, we announced that the Federal Trade Commission had terminated its review and that we expect to close the acquisition on or before April 9, 2007.
Critical Accounting 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 the circumstances. However, since 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 critical accounting policies to be appropriate and our estimates and assumptions reasonable. We believe our critical accounting policies and our most significant estimates are those that relate to inventories and long-lived assets, including goodwill, our estimated liabilities for the self-insured portions of our workers’ compensation and employee health benefit costs, our income taxes, and our operating lease accounting.
Our inventory is carried at the lower of cost or market. Cost is determined on the average cost method for approximately 78%73% of our inventory and on the retail inventory method for the remaining 22%27%. Our inventory cost also includes estimated procurement 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
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could be required. In addition, procurement and distribution costs are allocated to inventory based on the ratio of annual product purchases to average inventory cost. If this ratio were to change significantly, it could materially affect the amount of procurement and distribution costs included in cost of sales.
We make judgments about the carrying value of long-lived assets, such as property and equipment and amortizable intangibles, and the recoverability of goodwill whenever events or changes in circumstances indicate that another-than-temporary impairment in the remaining value of the assets recorded on our balance sheet may exist. We test goodwill for impairment annually in the fourth quarter of each year or more frequently if circumstances dictate. To estimate the fair value of long-lived assets, including goodwill, we make various assumptions about the future prospects for the brand that the asset relates to and typically estimate future cash flows to be generated by these brands. Based on these assumptions and estimates, we determine whether we need to take an impairment charge to reduce the value of the asset stated on our balance sheet to reflect its estimated fair value. Assumptions and estimates about future values and remaining useful lives are complex and often subjective. They can be affected by a variety of factors, including external factors, such as industry and economic trends, and internal factors, such as changes in our business strategy and our internal forecasts. Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, different assumptions and estimates
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could materially impact our reported financial results. In 2003 and 2004, respectively, we recorded a pretax impairment chargescharge of $2.5 million and $2.2 million respectively, related to certain technology assets. No impairment charges were recorded in 2005.2005 and 2006.
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 with respect to workers’ compensation. 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.
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 that 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.
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. 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. We capitalizePrior to fiscal 2006, we capitalized rent amounts allocated to the construction period for leased properties as leasehold improvements (see “Impact of Recently Issued Accounting Pronouncements” discussion herein regardingimprovements. In fiscal 2006, we adopted Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”)No. FAS 13-1 (“FSP13-1”), “Accounting for Rental Costs Incurred during a Construction Period”)Period,” which requires that rental costs associated with ground or building operating leases that are incurred during a construction period be recognized as rental expense (see Note 1 of Notes to Consolidated Financial Statements for further discussion regarding FSP13-1). 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.
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Results of Operations
The following table sets forth the Company’s results of operations expressed as a percentage of net sales for the periods indicated:
| Fiscal Year | Fiscal Year | |||||||||||||||||||||||
| 2003 | 2004 | 2005 | 2004 | 2005 | 2006 | |||||||||||||||||||
| Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||
| Cost of goods sold, including buying, distribution and occupancy costs | 63.1 | 61.0 | 59.6 | |||||||||||||||||||||
| Cost of goods sold, including buying and distribution costs | 49.8 | 48.7 | 45.6 | |||||||||||||||||||||
| Occupancy costs | 11.2 | 10.9 | 11.1 | |||||||||||||||||||||
| Gross margin | 36.9 | 39.0 | 40.4 | 39.0 | 40.4 | 43.3 | ||||||||||||||||||
| Selling, general and administrative expenses | 31.0 | 31.4 | 30.8 | 31.4 | 30.8 | 31.4 | ||||||||||||||||||
| Operating income | 5.9 | 7.6 | 9.6 | 7.6 | 9.6 | 11.9 | ||||||||||||||||||
| Interest income | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.5 | ) | ||||||||||||
| Interest expense | 0.3 | 0.4 | 0.3 | 0.4 | 0.3 | 0.5 | ||||||||||||||||||
| Earnings before income taxes | 5.7 | 7.3 | 9.4 | 7.3 | 9.4 | 11.9 | ||||||||||||||||||
| Provision for income taxes | 2.1 | 2.7 | 3.4 | 2.7 | 3.4 | 4.0 | ||||||||||||||||||
| Net earnings | 3.6 | % | 4.6 | % | 6.0 | % | 4.6 | % | 6.0 | % | 7.9 | % | ||||||||||||
2006 Compared with 2005
The Company’s net sales increased $157.2 million, or 9.1%, to $1.882 billion for 2006 due mainly to a $113.8 million increase in clothing product sales, a $17.5 million increase in alteration service revenues and a $23.3 million increase in tuxedo rental revenues. The components of this $157.2 million increase in net sales are as follows:
(In millions) | Amount Attributed to | |||
| $ | 43.3 | 1.9% and 8.7% increase in comparable sales for US and Canadian stores, respectively, in 2006 compared to 2005. | ||
| 38.8 | Net sales from 35 new stores opened in 2006. | |||
| 31.7 | Impact of 53rd week in 2006. | |||
| 21.5 | Increase from net sales of stores opened in 2005, relocated stores and expanded stores not included in comparable sales. | |||
| 19.3 | Increase from alteration and other sales. | |||
| (8.9 | ) | Closed stores in 2005 and 2006. | ||
| 11.5 | Effect of exchange rate changes. | |||
| $ | 157.2 | Total | ||
Our Men’s Wearhouse 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 3.1%, while our K&G comparable store sales decreased 1.8%. Our Men’s Wearhouse comparable store sales increased due to a slight increase in traffic levels and continued growth in our tuxedo rental business. The decrease in K&G comparable store sales was due mainly to a decrease in traffic levels. In Canada, comparable store sales increased 8.7% primarily as a result of improvement in the clothing average ticket, increased traffic and continued growth in our tuxedo rental business. As a percentage of total revenues, combined U.S. and Canadian tuxedo rental revenues increased from 5.6% in fiscal 2005 to 6.3% in fiscal 2006.
Gross margin increased $118.6 million, or 17.0%, to $815.7 million in 2006. As a percentage of sales, gross margin increased from 40.4% in 2005 to 43.3% in 2006. This increase in gross margin percentage resulted mainly from improvements in merchandise margins related to lower product costs and continued growth in our tuxedo rental business, which carries a significantly higher incremental gross margin impact than our traditional businesses. This increase in the gross margin percentage was partially offset by an increase in occupancy cost, which is relatively constant on a per store basis and includes store related rent, common area maintenance, utilities, repairs
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and maintenance, security, property taxes and depreciation, from 2005 to 2006. On an absolute dollar basis, occupancy costs increased by 11.6% from 2005 to 2006 due mainly to our increased store count and renewals of existing leases at higher rates.
Selling, general and administrative (“SG&A”) expenses increased to $591.8 million in fiscal 2006 from $531.8 million in fiscal 2005, an increase of $60.0 million or 11.3%. As a percentage of sales, these expenses increased from 30.8% in 2005 to 31.4% in 2006. The components of this 0.6% net increase in SG&A expenses as a percentage of net sales are as follows:
| % | Attributed to | |||
| 0.1% | Increase in store salaries as a percentage of sales from 12.7% in 2005 to 12.8% in 2006. Store salaries on an absolute dollar basis increased $22.4 million primarily due to increased commissions associated with higher sales and increased base salaries. | |||
| 0.5% | Increase in other SG&A expenses as a percentage of sales from 14.6% in 2005 to 15.1% in 2006. On an absolute dollar basis, other SG&A expenses increased $31.8 million primarily as a result of continued growth in our tuxedo rental business, increased base salaries and benefits and stock based compensation recorded in connection with the adoption of SFAS 123R. These increases were offset in part by the absence in the current year of costs associated with the closure of our R&D casual clothing/sportswear concept stores incurred in fiscal 2005. | |||
| 0.6% | Total | |||
Interest expense increased from $5.9 million in 2005 to $9.2 million in 2006 while interest income increased from $3.3 million in 2005 to $9.8 million in 2006. Weighted average borrowings outstanding increased from $130.8 million in the prior year to $202.1 million in 2006, and the weighted average interest rate on outstanding indebtedness remained constant at 3.3%. The increase in weighted average borrowings is due to Canadian term loan borrowings of US$75.0 million in January 2006 that were used to fund the repatriation of foreign earnings from our Canadian subsidiaries under the American Jobs Creation Act of 2004. This increase was offset slightly by our election to redeem our $130 million 3.125% Convertible Senior Notes due 2023 (“Notes”) in the fourth quarter of 2006. For additional information regarding the redemption of our Notes, refer to Note 3 of Notes to Consolidated Financial Statements and the “Liquidity and Capital Resources” discussion herein. The increase in interest income primarily resulted from increases in our average cash and short-term investment balances and higher interest rates.
Our effective income tax rate decreased from 36.1% in 2005 to 33.8% in 2006 due primarily to favorable developments on certain outstanding income tax matters and an increase in the amount of tax exempt interest income for the current fiscal year. Excluding the adjustments to tax reserves associated with the favorable developments on certain outstanding income tax matters, our effective tax rate would have been 36.1% for fiscal 2006.
These factors resulted in 2006 net earnings of $148.6 million or 7.9% of net sales, compared with 2005 net earnings of $103.9 million or 6.0% of net sales.
2005 Compared with 2004
The Company’s net sales increased $178.2 million, or 11.5%, to $1.725 billion for 2005 due mainly to a $149.4$146.3 million increase in clothing andproduct sales, a $7.0 million increase in alteration salesservice revenues and an $18.7 million increase in tuxedo rental revenues. The components of this $178.2 million increase in net sales are as follows:
(In millions) | (In millions) | Amount Attributed to | (In millions) | Amount Attributed to | ||||
| $ | 108.3 | 8.4% and 2.7% increase in comparable sales for US and Canadian stores, respectively, in 2005 compared to 2004. | 108.3 | 8.4% and 2.7% increase in comparable sales for US and Canadian stores, respectively, in 2005 compared to 2004. | ||||
| 18.8 | Net sales from 18 new stores opened in 2005. | 18.8 | Net sales from 18 new stores opened in 2005. | |||||
| 26.6 | Increase from net sales of 20 new stores opened in 2004, relocated stores and expanded stores not included in comparable sales. | 26.6 | Increase from net sales of stores opened in 2004, relocated stores and expanded stores not included in comparable sales. | |||||
| 27.6 | Increase from other sales. | 15.7 | Increase from other sales. | |||||
| (3.1 | ) | 6 closed stores in 2005 and 6 closed stores in 2004. | (3.1 | ) | Closed stores in 2005 and in 2004. | |||
| 11.9 | Effect of exchange rate changes. | |||||||
| $ | 178.2 | Total | 178.2 | Total | ||||
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Our U.S. 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 8.4% due mainly to increased store traffic levels at our traditional Men’s Wearhouse stores and at our K&G stores where the hours of operation were extended from four days to seven days a week beginning September 1, 2004. Improvement was experienced in nearly all product categories at both our Men’s Wearhouse and K&G stores and in our tuxedo rental revenues. We have also experienced an improved customer response at our K&G stores as a result of a comparative advertising campaign. In Canada, comparable store sales increased 2.7% primarily as a result of improved retail sales in suits and shirts and continued growth in our tuxedo rental business.
Gross margin increased $94.1 million, or 15.6%, to $697.1 million in 2005. As a percentage of sales, gross margin increased from 39.0% in 2004 to 40.4% in 2005. This increase in gross margin percentage resulted mainly from higher initialmark-ups and from continued growth in our tuxedo rental business, which carries a significantly higher incremental gross margin impact than our clothing sales. The gross margin percentage was also increased as 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 as a percentage of sales from 2004 to 2005. However, on an absolute dollar basis, occupancy costs increased by 7.8% from 2004 to 2005 due mainly to higher rent expense from our increased store count and renewals of existing leases at higher rates and increased depreciation.
Selling, general and administrative (“SG&A”) expenses increased to $531.8 million in fiscal 2005 from $484.9 million in fiscal 2004, an increase of $46.9 million or 9.7%. As a percentage of sales, these expenses decreased from 31.4% in 2004 to 30.8% in 2005. The components of this 0.6% net decrease in SG&A expenses as a percentage of net sales were as follows:
| % | Attributed to | |||
| (0.4%) | Decrease in advertising expenses as a percentage of sales from 3.9% in 2004 to 3.5% in 2005. On an absolute dollar basis, advertising expense increased $1.1 million. | |||
| (0.1%) | Decrease in store salaries as a percentage of sales from 12.8% in 2004 to 12.7% in 2005 primarily due to leveraging of these costs from higher sales. Store salaries on an absolute dollar basis increased $20.6 million primarily due to increased commissions associated with higher sales and increased base salaries. | |||
| (0.1%) | Decrease in other SG&A expenses as a percentage of sales from 14.7% in 2004 to 14.6% in 2005, primarily due to leveraging fixed general and administrative costs from higher sales. On an absolute dollar basis, other SG&A expenses increased $25.2 million primarily as a result of continued growth in our tuxedo rental business and costs associated with the closure of our six R&D casual clothing/sportswear concept stores, offset in part by the absence in the current year of a $2.2 million asset impairment charge incurred in fiscal 2004. | |||
| (0.6%) | Total | |||
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Interest expense remained constant at $5.9 million in 2005 while interest income increased from $1.5 million in 2004 to $3.3 million in 2005. Weighted average borrowings outstanding decreased slightly from $130.9 million in the prior year to $130.8 million in 2005, and the weighted average interest rate on outstanding indebtedness decreased from 3.4% to 3.3%. The increase in interest income primarily relates to increases in our average cash and short-term investment balances and in higher interest rates. See Note 3 of Notes to Consolidated Financial Statements and “Liquidity and Capital Resources” discussion herein.
Our effective income tax rate decreased from 37.3% in 2004 to 36.1% in 2005 due primarily to (i) a $2.3 million reduction in previously recorded tax accruals due to developments associated with certain tax audits, (ii) a $2.0 million reduction in previously recorded tax accruals associated with favorable developments on certain outstanding income tax matters and (iii) an increase in the amount of tax exempt interest income for the current fiscal year. These reductions were partially offset by additional tax expenses of $3.9 million resulting from the repatriation of foreign earnings from our Canadian subsidiaries in the fourth quarter of 2005 under the provisions of the American Jobs Creation Act of 2004. Refer to Note 4 of Notes to Consolidated Financial Statements for additional information regarding our income tax provision and the repatriation of foreign earnings.
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These factors resulted in 2005 net earnings of $103.9 million or 6.0% of net sales, compared with 2004 net earnings of $71.4 million or 4.6% of net sales.
| Net Sales | ||||||||||||
| Increase/ | ||||||||||||
Stores | 2003 | 2004 | (Decrease) | |||||||||
| Stores opened in 2004 | $ | — | $ | 18.3 | $ | 18.3 | ||||||
| Stores opened in 2003 | 12.0 | 34.9 | 22.9 | |||||||||
| Stores opened before 2003 | 1,376.7 | 1,479.6 | 102.9 | |||||||||
| 1,388.7 | 1,532.8 | 144.1 | ||||||||||
| Other | 4.0 | 13.9 | 9.9 | |||||||||
| Total | $ | 1,392.7 | $ | 1,546.7 | $ | 154.0 | ||||||
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Liquidity and Capital Resources
On June 13, 2005, we effected athree-for-two stock split by paying a 50% stock dividend to shareholders of record as of May 31, 2005. All share and per share information included in the accompanying consolidated financial statements and related notes have been restated to reflect the stock split.
On December 21, 2005, we entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with a group of banks to amend and restate our existingrevolving credit facility. On February 2, 2007, we entered into an Agreement and Amendment to the Credit Agreement effective as of January 31, 2007 (the “Amendment”). The Amendment (i) extends the maturity date of the revolving credit facility that was scheduled to mature on July 7, 2009. Theunder the Credit Agreement provides us with a $100.0 millionto February 11, 2012 and (ii) increases the total senior secured revolving credit facility thatunder the Credit Agreement from $100.0 million to $200.0 million, which can be expanded to $150.0$250.0 million upon additional lender commitments and includes a sublimit for the issuance of letters of credit. In addition, thecommitments. The Credit Agreement providesalso provided our Canadian subsidiaries with a senior secured term loans in the aggregate equivalent of US$75.0 million. The proceeds of the Canadian term loan were used to fund the repatriation of US$74.7 million of Canadian earnings in January 2006 under the American Jobs Creation Act of 2004. The revolving credit facility and the Canadian term loan maturematures on February 10, 2011. The Credit Agreement is secured by the stock of certain of the Company’s subsidiaries. The Credit Agreement has several borrowing and interest rate options including the following indices: (i) an alternate base rate (equal to the greater of the prime rate or the federal funds rate plus 0.5%) or (ii) LIBO rate or (iii) CDO rate. Advances under the Credit Agreement bear interest at a rate per annum using the applicable indices plus a varying interest rate margin up to 1.125%. The Credit Agreement also provides for fees applicable to unused commitments ranging from 0.100% to 0.175%. The effective interest rate for the Canadian term loan was 4.4%5.0% at January 28, 2006.February 3, 2007. As of January 28, 2006,February 3, 2007, there were no
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borrowings outstanding under the revolving credit facility and there was US$75.373.0 million outstanding under the Canadian term loan.
The Credit Agreement contains certain restrictive and financial covenants, including the requirement to maintain certain financial ratios. The restrictive provisions in the Credit Agreement have been modified to afford us with greater operating flexibility than was provided for in our previous existing facility and to 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 28, 2006.February 3, 2007.
On October 21, 2003, we issued $130.0 million of 3.125% Convertible Senior Notes due 2023 (“Notes”) in a private placement. Interest on the Notes iswas payable semi-annually on April 15 and October 15 of each year, beginning on April 15, 2004. The Notes willwere scheduled to mature on October 15, 2023. However, holders may require us to purchase all or part of the Notes, for cash, at a purchase price of 100% of the principal amount per Note plus accrued and unpaid interest on October 15, 2008, October 15, 2013 and October 15, 2018 or upon a designated event. Beginning on October 15, 2008, we will pay additional contingent interest on the Notes if the average trading price of the Notes is above a specified level during a specified period. In addition, we may redeem all or a portion of the Notes on or after October 20, 2008 at 100% of the principal amount of the Notes plus any accrued and unpaid interest, contingent interest and additional amounts, if any. We also havehad the right to redeem the Notes between October 20, 2006 and October 19, 2008 if the price of our common stock reachesreached certain levels.
During certain periods, the Notes arewere convertible by holders into shares of our common stock at a conversion rate of 34.978035.1309 shares of common stock per $1,000 principal amount of Notes, which iswas equivalent to a conversion price of $28.59$28.47 per share of common stock (subject to adjustment in certain events), under the following circumstances: (1) if the closing sale price of our common stock issuable upon conversion exceedsexceeded 120% of the conversion price under specified conditions; (2) if we callcalled the Notes for redemption; or (3) upon the occurrence of specified corporate transactions. Upon conversion of the Notes, in lieu of delivering common stock we may,could, at our election, deliver cash or a combination of cash and common stock. However, on January 28, 2005, we entered into a supplemental indenture relating to the Notes and irrevocably elected to settle the principal amount at issuance of such Notes in 100% cash when they become convertible and are surrendered by the holders thereof. The Notes arewere general senior unsecured obligations, ranking on parity in right of payment with all our existing and future unsecured senior indebtedness and our other general unsecured obligations, and senior in right of payment with all our future subordinated indebtedness. The Notes arewere effectively subordinated to all of our senior secured indebtedness and all indebtedness and liabilities of our subsidiaries.
On November 16, 2006, we issued a press release announcing that, as a result of the closing sale price of the Company’s common stock exceeding 140% of the conversion price for the requisite number of days during the requisite period, we had elected to redeem the full $130.0 million aggregate principal amount of the Notes. Holders of the Notes had the right to convert their notes at any time prior to two business days immediately preceding the
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redemption date. As indicated above, we had irrevocably elected to settle the principal amount at issuance of the Notes in cash when and if surrendered for conversion. Under the terms governing the Notes, holders of approximately $127.0 million principal amount of the Notes exercised their conversion right in lieu of having their notes redeemed and we exercised our right to pay cash for the principal amount of the Notes converted in lieu of issuing common stock. The market value of the common stock to be issued upon conversion that exceeded the principal amount was paid by delivering common stock. As a result, we paid approximately $127.0 million in cash and issued 1,222,364 shares of the Company’s common stock pursuant to the requested conversions. The remaining $3.0 million principal amount of the Notes was redeemed on December 15, 2006 with such payment and accrued and unpaid interest being made in cash. Notes converted into common stock prior to the redemption date were not entitled to receive accrued and unpaid interest. In connection with the conversion and redemption of the Notes, we paid approximately $130.1 million in cash, issued 1,222,364 shares of the Company’s common stock and wrote-off approximately $1.3 million of unamortized deferred financing costs.
We utilize letters of credit primarily for inventory purchases. At February 3, 2007, letters of credit totaling approximately $19.0 million were issued and outstanding.
A quarterly cash dividend of $0.05 per share was paid for each of the first quarter ended April 29, 2006, the second quarter ended July 29, 2006, the third quarter ended October 28, 2006 and the fourth quarter ended February 3, 2007. Cash dividends paid were approximately $10.8 million for the fiscal year ended February 3, 2007. In January 25, 2006,2007, our Board of Directors declared our firsta quarterly cash dividend of $0.05 per share of our common stock payable on March 31, 2006 (the “Payment Date”)30, 2007 to shareholders of record on March 21, 2006 (the “Record Date”).20, 2007. The dividend payout wasis approximately $2.7 million.million and is included in accrued expenses as of February 3, 2007.
Our primary sources of working capital are cash flow from operations and, if necessary, borrowings under the Credit Agreement. We had working capital of $357.0 million, $388.2 million, $491.5 million and $491.5$454.7 million at the end of 2003, 2004, 2005 and 2005,2006, respectively. Historically, our working capital has been at its lowest level in January and February, and has
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increased through November as inventory buildup occurs in preparation for the fourth quarter selling season. The $103.3$36.8 million increasedecrease in working capital at January 28, 2006February 3, 2007 compared to January 29, 200528, 2006 resulted from the following:
(In millions) | (In millions) | Amount Attributed to | (In millions) | Amount Attributed to | ||||
| $ | 98.0 | Increase in cash and short-term investments, due primarily to Canadian term loan borrowings of approximately US$75.0 million and increased net earnings. | (83.3 | ) | Decrease in cash and short-term investments, due primarily to the redemption of our 3.125% Convertible Senior Notes due 2023, purchases of treasury stock and cash dividends paid. | |||
| 10.4 | Increase in inventories due to square footage growth of 2.9%. | 33.8 | Increase in inventories due to square footage growth of 8.9%. | |||||
| 7.1 | Decrease in accounts payable due to amount and timing of 2005 payables as compared to the same items for 2004. | 23.7 | Decrease in accounts payable due to amount and timing of 2006 payables as compared to the same items for 2005. | |||||
| (9.0 | ) | Increase in accrued expenses due to increased accruals for bonuses, unredeemed gift certificates and dividend payable. | (5.6 | ) | Increase in accrued expenses due to increased accruals for payroll, medical claims, vacation, unredeemed gift certificates and contributions to our employee stock option plan. | |||
| (3.2 | ) | Other items. | (5.4 | ) | Other items. | |||
| $ | 103.3 | Total | (36.8 | ) | Total | |||
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Our operating activities provided net cash of $119.7 million in 2003, $130.0 million in 2004, and $154.6 million in 2005 and $160.8 million in 2006 mainly because cash provided by net earnings, as adjusted for non-cash charges and, in 2004, increases in payables and accrued expenses (2003 and 2004) and increases in income taxes payable (2003 and 2005) more than offset cash used for increases in other assetsinventories, tuxedo rental product and, inventories.in 2006, decreases in payables and accrued expenses. Inventories increased in each of the years due mainly to increased selling square footage and increased sales. In 2003 and 2004, we were also returning to our normal buying patterns as a result of lower planned inventory purchases through most of 2002. The increase in accounts payable and accrued expensestuxedo rental product in each of $35.5 million and $28.1 million in 2003 and 2004, respectively, wasthe years is due to purchases to support the higher inventory purchases as well as higher bonuses earned as a result of increased sales and,continued growth in 2003, higher insurance costs.our tuxedo rental business. In 2004, the increase in accounts payable and accrued expenses was also due to higher bonuses earned as a result of increased sales, the expansion of our Men’s Wearhouse customer loyalty program and increased customer purchases of gift cards. Other assets increasedIn 2006, the decrease in each of the years primarily due to increased investment in tuxedo rental product. Income taxesaccounts payable increased in 2003 and 2005accrued expenses was due mainly to increased earnings and the timing of required taxvendor payments.
Our investing activities used net cash of $55.8$96.9 million and $96.9$129.4 million in 20032004 and 2004,2005, respectively, due mainly to capital expenditures of $49.7$85.4 million and $85.4$66.5 million in 20032004 and 2004, respectively.2005, respectively, and in 2005 net purchases of short-term investments of $62.8 million. In 2005,2006, our investing activities used net cash of $129.4$11.6 million due mainly to capital expenditures of $66.5$72.9 million, andoffset by net purchasesproceeds of short-term investments of $62.8 million. Short-term investments consist of auction rate securities which represent funds available for current operations. These securities have stated maturities beyond three months but are priced and traded as short-term instruments due to the liquidity provided through the interest rate mechanism of 7 to 35 days. As of January 28, 2006,February 3, 2007, we held no short-term investments of $62.8 million.investments. Our capital expenditures relate 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 2003 and 2004, our cash used by investing activities also included $4.5 million and $11.0 million respectively, for net assets acquired for 13 and 11 respectively, retail dry cleaning and laundry facilities operating in the Houston, Texas area.
The following table details our capital expenditures (in millions):
| 2003 | 2004 | 2005 | 2004 | 2005 | 2006 | |||||||||||||||||||
| New store construction | $ | 8.1 | $ | 14.3 | $ | 13.4 | $ | 14.3 | $ | 13.4 | $ | 19.0 | ||||||||||||
| Relocation and remodeling of existing stores | 15.8 | 18.9 | 30.3 | 18.9 | 30.3 | 29.2 | ||||||||||||||||||
| Information technology | 11.5 | 10.7 | 10.6 | 10.7 | 10.6 | 8.8 | ||||||||||||||||||
| Distribution facilities | 12.2 | 30.5 | 11.1 | 30.5 | 11.1 | 13.5 | ||||||||||||||||||
| Other | 2.1 | 11.0 | 1.1 | 11.0 | 1.1 | 2.4 | ||||||||||||||||||
| Total | $ | 49.7 | $ | 85.4 | $ | 66.5 | $ | 85.4 | $ | 66.5 | $ | 72.9 | ||||||||||||
Property additions relating to new retail apparel stores include stores in various stages of completion at the end of the fiscal year (eight stores at the end of 2003, eight stores at the end of 2004, and 12 stores at the end of 2005)2005 and one store at the end of 2006). In addition, our expenditures for the relocation and remodeling of existing retail apparel stores continue to increase as we update our store base. Capital expenditures in 2004 included approximately $10.0 million for the centralization
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in Houston, Texas of our warehouse and distribution program for our K&G stores and approximately $13.0 million related to our Canadian operations for the purchase of a new tuxedo distribution center in Toronto, Ontario and for the construction of a new warehouse and distribution center in Montreal, Quebec.
We used net cash in financing activities of $19.7$1.6 million in 20032004 due mainly to purchases of treasury stock and the repayment of outstanding indebtedness, offset partially by proceeds received from the issuance of the Notes in October 2003 and proceeds from the issuance of our common stock for options exercised. The treasury stock purchases were made under stock repurchase programs authorized by our Board of Directors in January 2000, January 2001, November 2002 and September 2003. Under the first three authorized programs, we repurchased 1,585,650 shares of our common stock during fiscal 2003, at a cost of $24.1 million. The average price per share of our common stock repurchased under these programs was $15.20 during fiscal 2003. In September 2003, the Board of Directors authorized a program for the repurchase of up to $100.0 million of our common stock in the open market or in private transactions. This authorization superceded the approximately $1.0 million we had remaining under the Board’s November 2002 authorization. As of January 31, 2004, we had repurchased under this program 2,108,100 shares at a cost of $42.4 million in private transactions and 2,570,100 shares at a cost of $42.6 million in open market transactions. Under all authorized programs during fiscal 2003, we repurchased 6,263,850 shares of our common stock at a cost of $109.2 million, with an average repurchase price of $17.43 per share. As of January 29, 2005, we had repurchased under the September 2003 program 2,108,100 shares at a cost of $42.4 million in private transactions and 3,054,600 shares at a cost of $51.4 million in open market transactions, for a total of 5,162,700 shares at an average price per share of $18.17.
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January 28, 2006, a total ofwe had repurchased under the June 2004 program 1,652,850 shares at a cost of $43.0 million were repurchased in open market transactions under this program at an average price per share of $26.00.
In 2005, net cash provided by financing activitiesactivites was $5.1 million due mainly to borrowings under our Credit Agreement used to fund the repatriation of $US74.7 million of foreign earnings from our Canadian subsidiaries and proceeds from the issuance of our common stock for options exercised, offset by purchases of treasury stock. In May 2005, the Board of Directors approved a replenishment of our share repurchase program to $50.0 million by authorizing $43.0 million to be added to the remaining $7.0 million under the June 2004 authorization program. As of January 28, 2006, a total of 1,696,000 shares at a cost of $49.8 million were repurchased in open market transactions under this program at an average price per share of $29.36. On January 25, 2006, the Board of Directors authorized a new $100.0 million share repurchase program of our common stock. This authorization superceded the approximately $0.2 million we had remaining under the May 2005 authorization. No shares have beenwere repurchased under this program as of January 28, 2006. The remaining balance available under the January 2006 authorization at January 28, 2006 is $100.0 million.
During 2005, a total of 3,199,750 shares at a cost of $90.3 million were repurchased in open market transactions under all authorized stock repurchase programs at an average price per share of $28.21.
In 2006, our financing activities used net cash of $168.2 million due mainly to redemption of our 3.125% Convertible Senior Notes due 2023, purchases of treasury stock and cash dividends paid, offset partially by proceeds from the issuance of our common stock in connection with the exercise of stock options. During 2006, a total of 1,134,000 shares at a cost of $40.3 million were repurchased in open market transaction under the January 2006 authorization at an average price per share of $35.53. The remaining balance available under the January 2006 authorization at February 3, 2007 is $59.7 million.
The following table summarizes our share repurchases over the last three fiscal years:
| 2003 | 2004 | 2005 | 2004 | 2005 | 2006 | |||||||||||||||||||
| Shares repurchased (in thousands) | 6,263.9 | 633.6 | 3,199.8 | 633.6 | 3,199.8 | 1,134.0 | ||||||||||||||||||
| Total costs (in millions) | $ | 109.2 | $ | 11.2 | $ | 90.3 | $ | 11.2 | $ | 90.3 | $ | 40.3 | ||||||||||||
| Average price per share | $ | 17.43 | $ | 17.65 | $ | 28.21 | $ | 17.65 | $ | 28.21 | $ | 35.53 | ||||||||||||
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anticipated costs of opening approximately 21 new Men’s Wearhouse stores and 15 new K&G stores in 20062007 at an expected average cost per store of approximately $0.4 million (excluding telecommunications andpoint-of-sale equipment and inventory). and the cost of our new office and data center facilities. The balance of the capital expenditures for 20062007 will be used for telecommunications,point-of-sale and other computer equipment and systems, store relocations, remodeling and expansion and investment in complimentary services and concepts. The Company anticipates that each of the 21 new Men’s Wearhouse stores and each of the 15 new K&G stores will require, on average, an initial inventory costing approximately $0.4 million and $1.6$1.5 million, respectively (subject to the seasonal patterns that affect inventory at all stores), which will be funded by our revolving credit facility, trade credit and cash from operations. 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. Additionally, the continuing consolidation of the men’s tailored clothing industry may present us with opportunities to acquire retail chains significantly 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 revolving credit facility and issuances of equity securities, to take advantage of significant acquisition opportunities.
On August 16, 2004, we purchased a store (land and building, which we had been leasing) in Dallas, Texas for $1.0 million from 8239 Preston Road, Inc., a Texas corporation of which George Zimmer, Chairman of the Board and CEO of the Company, James E. Zimmer, Senior Vice President-Merchandising of the Company, and Richard Goldman, a former officer and director of the Company, each owned 20% of the outstanding common stock, and Laurie Zimmer, sister of George and James E. Zimmer, owned 40% of the outstanding common stock.
On August 20, 2004, we purchased a 1980 Gulfstream III aircraft from Regal Aviation L.L.C. (“Regal Aviation”) for $5.0 million. Regal Aviation operates a private air charter service and is a limited liability company of
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which George Zimmer owns 99%. In addition, on August 20, 2004, we entered into a leasing arrangement with Regal Aviation under which Regal Aviation operates, manages and markets the aircraft as well as provides the appropriate flight personnel and services. The aircraft is utilized to provide air transportation from time to time for George Zimmer and is leased to third parties for charter. On August 31, 2006, Regal Aviation sold substantially all of its assets to an unrelated third party who now provides to us those services previously provided by Regal Aviation.
On October 15, 2004, we purchased a warehouse facility located in Houston, Texas (the “Facility”) from Zig Zag for $0.7 million. Zig Zag is a Texas joint venture, in which Richard E. Goldman, George Zimmer and James E. Zimmer were the sole and equal joint venturers. Prior to the purchase of the Facility, we leased the Facility from Zig Zag.
Based on the results of recent appraisals and review of the terms of other Regal Aviation leasing arrangements with unrelated third parties, we believe that the terms of the aircraft purchase and leasing agreements and the terms of the store purchase and the Facility purchase were comparable to what would have been available to us from unaffiliated third parties at the time such agreements were entered into.
We anticipate that our existing cash and cash flow from operations, supplemented by borrowings under our Credit Agreement, will be sufficient to fund the After Hours Formalwear, Inc. acquisition, planned store openings, other capital expenditures and operating cash requirements for at least the next 12 months.
As substantially all of our cash is held by three financial institutions, we are exposed to risk of loss in the event of failure of any of these parties. However, due to the creditworthiness of these three financial institutions, we anticipate full performance and access to our deposits and liquid investments.
In connection with our direct sourcing program, we may enter into purchase commitments that are denominated in a foreign currency (primarily the Euro). We generally enter into forward exchange contracts to reduce the risk of currency fluctuations related to such commitments. As these forward exchange contracts are with one financial institution, we are exposed to credit risk in the event of nonperformance by this party. However, due to the creditworthiness of this major financial institution, full performance is anticipated. We may also be exposed to market risk as a result of changes in foreign exchange rates. This market risk should be substantially offset by changes in the valuation of the underlying transactions.
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Contractual Obligations
As of January 28, 2006,February 3, 2007, the Company is obligated to make cash payments in connection with its long-term debt, noncancelable capital and operating leases purchase obligations and other contractual obligations in the amounts listed below. In addition, we utilize letters of credit primarily for inventory purchases. At January 28, 2006,February 3, 2007, letters of credit totaling approximately $15.4$19.0 million were issued and outstanding.
| Payments Due by Period | Payments Due by Period | |||||||||||||||||||||||||||||||||||||||||||
| <1 | 1-3 | 3-5 | > 5 | <1 | 1-3 | 3-5 | > 5 | |||||||||||||||||||||||||||||||||||||
(In millions) | Total | Year | Years | Years | Years | Total | Year | Years | Years | Years | ||||||||||||||||||||||||||||||||||
Contractual obligations | ||||||||||||||||||||||||||||||||||||||||||||
Long-term debt(a) | $ | 205.3 | $ | — | $ | — | $ | — | $ | 205.3 | $ | 73.0 | $ | — | $ | — | $ | 73.0 | $ | — | ||||||||||||||||||||||||
Capital lease obligations(b) | 3.2 | 0.9 | 1.3 | 0.7 | 0.3 | 4.5 | 1.1 | 1.7 | 1.1 | 0.6 | ||||||||||||||||||||||||||||||||||
Operating lease base rentals(b) | 521.0 | 104.6 | 179.6 | 127.5 | 109.3 | 590.2 | 113.9 | 198.3 | 134.3 | 143.7 | ||||||||||||||||||||||||||||||||||
Purchase obligations(c) | 1.2 | 1.2 | — | — | — | |||||||||||||||||||||||||||||||||||||||
Other contractual obligations(d) | 33.0 | 12.3 | 20.7 | — | — | |||||||||||||||||||||||||||||||||||||||
Other contractual obligations(c) | 31.1 | 31.1 | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Total contractual obligations | $ | 763.7 | $ | 119.0 | $ | 201.6 | $ | 128.2 | $ | 314.9 | $ | 698.8 | $ | 146.1 | $ | 200.0 | $ | 208.4 | $ | 144.3 | ||||||||||||||||||||||||
| (a) | Long-term debt includes our | |
| (b) | 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 10 of Notes to Consolidated Financial Statements for more information. | |
| (c) | ||
| Other contractual obligations consist primarily of manufacturing contracts to purchase inventory. |
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In March 2007, we entered into a three year transportation agreement, commencing April 2, 2007, with Ryder Integrated Logistics, Inc., to execute shipments from vendors to our distribution facilities in Houston, Texas, and from the distribution facilities to regional transportation hubs or stores within a regional service area. The transportation agreement terminated leasing agreements we had in place as of the end of fiscal 2006 for our long-haul tractors and trailers. As a result, our total future lease commitments will be reduced by approximately $0.3 million for operating leases and approximately $3.1 million for capital lease obligations. The transportation agreement will increase our other contractual obligations by approximately $1.5 million in fiscal 2007, $1.4 million in fiscal 2008, $1.2 million in fiscal 2009 and $0.2 million in fiscal 2010.
Off-Balance Sheet Arrangements
Other than the noncancelable operating leases, forward exchange contracts, 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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Impact of Recently Issued Accounting Pronouncements
In November 2004,June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a Company’s financial statements in accordance with FASB No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Differences between the amounts recognized in the statements of Financial Accounting Standards financial position prior to the adoption of FIN 48 and the amounts reported after adoption are to be accounted for as an adjustment to the beginning balance of retained earnings. FIN 48 is effective as of the beginning of fiscal years that begin after December 15, 2006. We will adopt FIN 48 in the first quarter of fiscal 2007. We are currently evaluating the impact that the adoption of FIN 48 will have on our financial position, results of operations and cash flows.
In June 2006, the EITF ratified its conclusion on EITF IssueNo. 151, “Inventory Costs — an Amendment of Accounting Research Bulletin (“ARB”)06-02 “Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43, Chapter 4”” “Accounting for Compensated Absences” (“SFAS No. 151”EITF06-02”). SFAS No. 151 amends ARB No. 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current period charges. It also EITF06-02 requires that allocation of fixed production overheads tocompensation expense associated with a sabbatical leave, or other similar benefit arrangement, be accrued over the costs of conversion be based onrequisite service period during which an employee earns the normal capacity of the production facilities. SFAS No. 151benefit. EITF06-02 is effective for fiscal years beginning after JuneDecember 15, 2005.2006 and should be recognized as either a change in accounting principle through a cumulative effect adjustment to retained earnings as of the beginning of the year of adoption or a change in accounting principle through retrospective application to all prior periods. We do not expectwill adopt EITF06-02 in the first quarter of fiscal 2007. We are currently evaluating the impact that the adoption of SFAS EITF06-02 will have on our financial position, results of operations and cash flows.
In June 2006, the EITF ratified its conclusion on EITFNo. 15106-03, “How Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation),” (“EITF06-03”). EITF06-03 concluded that the presentation of taxes assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer such as sales, use, value added and certain excise taxes is an accounting policy decision that should be disclosed in a Company’s financial statements. Additionally, companies that record such taxes on a gross basis should disclose the amounts of those taxes in interim and annual financial statements for each period for which an income statement is presented if those amounts are significant. EITF06-03 is effective for fiscal years beginning after December 15, 2006. The adoption of EITF06-03 will have a material impactno effect on our financial position, results of operations or cash flows.
In December 2004,September 2006, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”157, “Fair Value Measurements” (“SFAS 157”). SFAS No. 123R requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. This Statement establishes thestatement defines fair value, methodestablishes a framework for measurement and requires all entities to apply thisusing fair value method in accounting for share-based payment transactions.to measure assets and liabilities, and expands disclosures about fair value measurements. The amount of compensation cost willstatement applies whenever other statements require or permit assets or liabilities to be measured based on the grant-dateat fair value of the instrument issued and will be recognized over the vesting period.value. SFAS No. 123R replaces SFAS 123 and supersedes APB No. 25. The provisions of SFAS No. 123R are157 is effective for the first fiscal yearyears beginning after JuneNovember 15, 2005 for all awards granted or modified after that date and for those awards granted prior to that date that have not vested.
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In March 2005,September 2006, the FASBSEC issued FASB InterpretationStaff Accounting Bulletin (“SAB”) No. 47, “Accounting for Conditional Asset Retirement Obligations”108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements” (“FIN 47”SAB 108”). FIN 47 clarifies that, which provides interpretive guidance regarding the term “conditional” as usedconsideration given to prior year misstatements when determining materiality in SFAS No. 143, “Accounting for Asset Retirement Obligations,” refers to a legal obligation to perform an asset retirement activity even if the timingand/or settlement are conditional on a future event that may or may not be within the control of an entity. Accordingly, the entity must record a liability for the conditional asset retirement obligation if the fair value of the obligation can be reasonably estimated. FIN 47current year financial statements. SAB 108 is effective no later than the end of thefor fiscal yearyears ending after DecemberNovember 15, 2005.2006. The adoption of FIN 47SAB 108 did not have a material impact on our financial position, results of operations orand cash flows.
In May 2005,February 2007, the FASB issued StatementSFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections — A Replacement of APB Opinion No. 20 and FASB Statement No. 3”115,” (“SFAS No. 154”159”). SFAS No. 154 requires retrospective application159 provides companies with an option to prior periods’measure certain financial statements forinstruments and other items at fair value with changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change.fair value reported in earnings. SFAS No. 154159 is effective for accounting changes and corrections of errors made in fiscal years beginning after DecemberNovember 15, 2005. The2007. We are currently evaluating the impact that the adoption of SFAS No. 154 is not expected to159 will have a material impact on our financial position, results of operations orand cash flows.
Inflation
The impact of inflation on the Company has been minimal.
28
| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
We are subject to exposure from fluctuations in U.S. dollar/Euro exchange rates. As further described in Note 8 of Notes to Consolidated Financial Statements and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”, we utilize foreign currency forward exchange contracts to limit exposure to changes in currency exchange rates. At February 3, 2007, we had no contracts outstanding. At January 28, 2006, we had three contracts maturing in varying increments to purchase an aggregate notional amount of $1.2 million in foreign currency, maturing at various dates through April 2006. At January 29, 2005, we had 24 contracts maturing in varying increments to purchase an aggregate notional amount of $9.0 million in foreign currency, maturing at various dates through December 2005. Unrealized pretax gains on these forward contracts totaled approximately $0.6 million at January 29, 2005. Unrealized pretax losses on these forward contracts totaled approximately $32 thousand at January 28, 2006. A hypothetical 10% change in applicable January 28, 2006 forward rates would increase or decrease this pretax loss by approximately $0.1 million related to these positions. However, it should be noted that any change in the value of these contracts, whether real or hypothetical, would be significantly offset by an inverse change in the value of the underlying hedged item.
Moores conducts its business in Canadian dollars. The exchange rate between Canadian dollars and U.S. dollars has fluctuated over the last ten years. If the value of the Canadian dollar against the U.S. dollar weakens, then the revenues and earnings of 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.
We are also subject to market risk from our Canadian term loan of US$75.373.0 million at January 28, 2006,February 3, 2007, which bears interest at CDOR plus an applicable margin (see Note 3 of Notes to Consolidated Financial Statements). An increase in market interest rates would increase our interest expense and our cash requirements for interest payments. For example, an average increase of 0.5% in the variable interest rate would increase our interest expense and payments by approximately $0.4 million.
29
| Item 8. | Financial Statements and Supplementary Data |
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined inRule 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 28, 2006,February 3, 2007, our internal control over financial reporting is effective based on those criteria.
Management’s assessment of the effectiveness of our internal control over financial reporting as of January 28, 2006February 3, 2007 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 which appears on page 31 of this Annual Report onForm 10-K.
30
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
The Men’s Wearhouse, Inc.
Houston, Texas
We have audited management’s assessment, included in the accompanying “Management’s Report on Internal Control Over Financial Reporting”, that The Men’s Wearhouse, Inc. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of January 28, 2006,February 3, 2007, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s 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, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s 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 company’s 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 company’s 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, management’s assessment that the Company maintained effective internal control over financial reporting as of January 28, 2006,February 3, 2007, is fairly stated, in all material respects, based on the criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 28, 2006,February 3, 2007, based on the criteria established inInternal Control — Integrated Frameworkissued 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 schedulesschedule as of and for the year ended January 28, 2006February 3, 2007 of the Company and our report dated April 11, 20062, 2007 expressed an unqualified opinion on those financial statements and financial statement schedules.schedule.
/s/ Deloitte & Touche LLP
Houston, Texas
April 11, 20062, 2007
31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
The Men’s Wearhouse, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheets of The Men’s Wearhouse, Inc. and subsidiaries (the “Company”) as of February 3, 2007 and January 28, 2006, and January 29, 2005, and the related consolidated statements of earnings, shareholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended January 28, 2006.February 3, 2007. Our audits also included the financial statement schedulesschedule listed in the Index at Item 15. These financial statements and financial statement schedulesschedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedulesschedule 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 Men’s Wearhouse Inc. and subsidiaries as of February 3, 2007 and January 28, 2006, and January 29, 2005, and the results of their operations and their cash flows for each of the three years in the period ended January 28, 2006,February 3, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules,schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presentpresents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of January 28, 2006,February 3, 2007, based on the criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 11, 20062, 2007 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ Deloitte & Touche LLP
Houston, Texas
April 11, 20062, 2007
32
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except shares)
| January 29, | January 28, | January 28, | February 3, | |||||||||||||
| 2005 | 2006 | 2006 | 2007 | |||||||||||||
ASSETS | ASSETS | ASSETS | ||||||||||||||
| CURRENT ASSETS: | ||||||||||||||||
| Cash and cash equivalents | $ | 165,008 | $ | 200,226 | $ | 200,226 | $ | 179,694 | ||||||||
| Short-term investments | — | 62,775 | 62,775 | — | ||||||||||||
| Accounts receivable, net | 20,844 | 19,276 | 16,837 | 17,018 | ||||||||||||
| Inventories | 406,225 | 416,603 | 416,603 | 448,586 | ||||||||||||
| Other current assets | 34,920 | 30,732 | 33,171 | 35,531 | ||||||||||||
| Total current assets | 626,997 | 729,612 | 729,612 | 680,829 | ||||||||||||
| PROPERTY AND EQUIPMENT, AT COST: | ||||||||||||||||
| Land | 8,878 | 9,122 | 9,122 | 9,093 | ||||||||||||
| Buildings | 50,511 | 54,515 | 54,515 | 63,477 | ||||||||||||
| Leasehold improvements | 219,250 | 244,300 | 244,300 | 264,276 | ||||||||||||
| Furniture, fixtures and equipment | 275,822 | 304,020 | 304,020 | 332,494 | ||||||||||||
| 554,461 | 611,957 | 611,957 | 669,340 | |||||||||||||
| Less accumulated depreciation and amortization | (294,393 | ) | (342,371 | ) | (342,371 | ) | (379,700 | ) | ||||||||
| Net property and equipment | 260,068 | 269,586 | 269,586 | 289,640 | ||||||||||||
| TUXEDO RENTAL PRODUCT, net | 52,561 | 57,565 | ||||||||||||||
| GOODWILL | 55,824 | 57,601 | 57,601 | 56,867 | ||||||||||||
| OTHER ASSETS, net | 50,433 | 66,475 | 13,914 | 12,051 | ||||||||||||
| TOTAL | $ | 993,322 | $ | 1,123,274 | $ | 1,123,274 | $ | 1,096,952 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | LIABILITIES AND SHAREHOLDERS’ EQUITY | LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||
| CURRENT LIABILITIES: | ||||||||||||||||
| Accounts payable | $ | 132,212 | $ | 125,064 | $ | 125,064 | $ | 111,213 | ||||||||
| Accrued expenses | 82,923 | 91,935 | 91,935 | 95,249 | ||||||||||||
| Income taxes payable | 23,633 | 21,086 | 21,086 | 19,676 | ||||||||||||
| Total current liabilities | 238,768 | 238,085 | 238,085 | 226,138 | ||||||||||||
| LONG-TERM DEBT | 130,000 | 205,251 | 205,251 | 72,967 | ||||||||||||
| DEFERRED TAXES AND OTHER LIABILITIES | 55,706 | 52,405 | 52,405 | 44,075 | ||||||||||||
| Total liabilities | 424,474 | 495,741 | 495,741 | 343,180 | ||||||||||||
| COMMITMENTS AND CONTINGENCIES (Note 3 and Note 10) | ||||||||||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||||||||||
| Preferred stock, $.01 par value, 2,000,000 shares authorized, no shares issued | — | — | — | — | ||||||||||||
| Common stock, $.01 par value, 100,000,000 shares authorized, 65,389,951 and 67,237,824 shares issued | 436 | 671 | ||||||||||||||
| Common stock, $.01 par value, 100,000,000 shares authorized, 67,237,824 and 69,154,241 shares issued | 671 | 691 | ||||||||||||||
| Capital in excess of par | 218,327 | 255,214 | 255,214 | 286,120 | ||||||||||||
| Retained earnings | 513,430 | 614,680 | 614,680 | 752,361 | ||||||||||||
| Accumulated other comprehensive income | 17,477 | 26,878 | 26,878 | 23,496 | ||||||||||||
| Total | 749,670 | 897,443 | 897,443 | 1,062,668 | ||||||||||||
| Treasury stock, 11,037,119 and 14,169,241 shares at cost | (180,822 | ) | (269,910 | ) | ||||||||||||
| Treasury stock, 14,169,241 and 15,234,677 shares at cost | (269,910 | ) | (308,896 | ) | ||||||||||||
| Total shareholders’ equity | 568,848 | 627,533 | 627,533 | 753,772 | ||||||||||||
| TOTAL | $ | 993,322 | $ | 1,123,274 | $ | 1,123,274 | $ | 1,096,952 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
33
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the Years Ended
January31, 2004, January 29, 2005, and January 28, 2006 and February 3, 2007
(In thousands, except per share amounts)
For the Years Ended
January
(In thousands, except per share amounts)
| Fiscal Year | Fiscal Year | |||||||||||||||||||||||
| 2003 | 2004 | 2005 | 2004 | 2005 | 2006 | |||||||||||||||||||
| Net sales | $ | 1,392,680 | $ | 1,546,679 | $ | 1,724,898 | ||||||||||||||||||
| Cost of goods sold, including buying, distribution and occupancy costs | 879,234 | 943,675 | 1,027,763 | |||||||||||||||||||||
| Net sales: | ||||||||||||||||||||||||
| Clothing product | $ | 1,381,241 | $ | 1,527,526 | $ | 1,641,300 | ||||||||||||||||||
| Tuxedo rental, alteration and other services | 165,438 | 197,372 | 240,764 | |||||||||||||||||||||
| Total net sales | 1,546,679 | 1,724,898 | 1,882,064 | |||||||||||||||||||||
| Cost of sales: | ||||||||||||||||||||||||
| Clothing product, including buying and distribution costs | 685,412 | 737,149 | 742,769 | |||||||||||||||||||||
| Tuxedo rental, alteration and other services | 84,660 | 103,527 | 114,779 | |||||||||||||||||||||
| Occupancy costs | 173,603 | 187,087 | 208,811 | |||||||||||||||||||||
| Total cost of sales | 943,675 | 1,027,763 | 1,066,359 | |||||||||||||||||||||
| Gross margin | 513,446 | 603,004 | 697,135 | 603,004 | 697,135 | 815,705 | ||||||||||||||||||
| Selling, general and administrative expenses | 431,663 | 484,916 | 531,839 | 484,916 | 531,839 | 591,767 | ||||||||||||||||||
| Operating income | 81,783 | 118,088 | 165,296 | 118,088 | 165,296 | 223,938 | ||||||||||||||||||
| Interest income | (1,495 | ) | (1,526 | ) | (3,280 | ) | (1,526 | ) | (3,280 | ) | (9,786 | ) | ||||||||||||
| Interest expense | 4,006 | 5,899 | 5,888 | 5,899 | 5,888 | 9,216 | ||||||||||||||||||
| Earnings before income taxes | 79,272 | 113,715 | 162,688 | 113,715 | 162,688 | 224,508 | ||||||||||||||||||
| Provision for income taxes | 29,538 | 42,359 | 58,785 | 42,359 | 58,785 | 75,933 | ||||||||||||||||||
| Net earnings | $ | 49,734 | $ | 71,356 | $ | 103,903 | $ | 71,356 | $ | 103,903 | $ | 148,575 | ||||||||||||
| Net earnings per share: | ||||||||||||||||||||||||
| Basic | $ | 0.85 | $ | 1.32 | $ | 1.93 | $ | 1.32 | $ | 1.93 | $ | 2.80 | ||||||||||||
| Diluted | $ | 0.84 | $ | 1.29 | $ | 1.88 | $ | 1.29 | $ | 1.88 | $ | 2.71 | ||||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||||||||
| Basic | 58,184 | 54,044 | 53,753 | 54,044 | 53,753 | 53,111 | ||||||||||||||||||
| Diluted | 58,943 | 55,220 | 55,365 | 55,220 | 55,365 | 54,749 | ||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
34
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME
For the Years Ended
January31, 2004, January 29, 2005, and January 28, 2006 and February 3, 2007
(In thousands, except shares)
COMPREHENSIVE INCOME
For the Years Ended
January
(In thousands, except shares)
| Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||
| Capital | Other | Capital | Other | |||||||||||||||||||||||||||||||||||||||||||||
| Common | in Excess | Retained | Comprehensive | Treasury | Common | in Excess | Retained | Comprehensive | Treasury | |||||||||||||||||||||||||||||||||||||||
| Stock | of Par | Earnings | Income | Stock | Total | Stock | of Par | Earnings | Income | Stock | Total | |||||||||||||||||||||||||||||||||||||
| BALANCE — February 1, 2003 | $ | 426 | $ | 196,146 | $ | 392,340 | $ | 90 | $ | (62,417 | ) | $ | 526,585 | |||||||||||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | 49,734 | — | — | 49,734 | ||||||||||||||||||||||||||||||||||||||||||
| Translation adjustment | — | — | — | 9,708 | — | 9,708 | ||||||||||||||||||||||||||||||||||||||||||
| Change in derivative fair value | — | — | — | 559 | — | 559 | ||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | 60,001 | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued to stock discount plan — 72,293 shares | 1 | 742 | — | — | — | 743 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued upon exercise of stock options — 632,162 shares | 4 | 7,573 | — | — | — | 7,577 | ||||||||||||||||||||||||||||||||||||||||||
| Tax benefit recognized upon exercise of stock options | — | 1,572 | — | — | — | 1,572 | ||||||||||||||||||||||||||||||||||||||||||
| Treasury stock issued to profit sharing plan — 62,762 shares | — | (397 | ) | — | — | 897 | 500 | |||||||||||||||||||||||||||||||||||||||||
| Treasury stock purchased — 6,263,850 shares | — | — | — | — | (109,186 | ) | (109,186 | ) | ||||||||||||||||||||||||||||||||||||||||
| BALANCE — January 31, 2004 | 431 | 205,636 | 442,074 | 10,357 | (170,706 | ) | 487,792 | $ | 431 | $ | 205,636 | $ | 442,074 | $ | 10,357 | $ | (170,706 | ) | $ | 487,792 | ||||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | 71,356 | — | — | 71,356 | — | — | 71,356 | — | — | 71,356 | ||||||||||||||||||||||||||||||||||||
| Translation adjustment | — | — | — | 7,371 | — | 7,371 | — | — | — | 7,371 | — | 7,371 | ||||||||||||||||||||||||||||||||||||
| Change in derivative fair value | — | — | — | (251 | ) | — | (251 | ) | — | — | — | (251 | ) | — | (251 | ) | ||||||||||||||||||||||||||||||||
| Total comprehensive income | 78,476 | 78,476 | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued to stock discount plan — 73,817 shares | — | 1,120 | — | — | — | 1,120 | — | 1,120 | — | — | — | 1,120 | ||||||||||||||||||||||||||||||||||||
| Common stock issued upon exercise of stock options — 734,342 shares | 5 | 9,751 | — | — | — | 9,756 | 5 | 9,751 | — | — | — | 9,756 | ||||||||||||||||||||||||||||||||||||
| Tax benefit recognized upon exercise of stock options | — | 1,768 | — | — | — | 1,768 | ||||||||||||||||||||||||||||||||||||||||||
| Tax benefit related to stock-based plans | — | 1,768 | — | — | — | 1,768 | ||||||||||||||||||||||||||||||||||||||||||
| Amortization of deferred compensation | — | 122 | — | — | — | 122 | — | 122 | — | — | — | 122 | ||||||||||||||||||||||||||||||||||||
| Treasury stock issued to profit sharing plan — 65,616 shares | — | (70 | ) | — | — | 1,070 | 1,000 | — | (70 | ) | — | — | 1,070 | 1,000 | ||||||||||||||||||||||||||||||||||
| Treasury stock purchased — 633,600 shares | — | — | — | — | (11,186 | ) | (11,186 | ) | ||||||||||||||||||||||||||||||||||||||||
| Treasury stock purchased — 633,600 Shares | — | — | — | — | (11,186 | ) | (11,186 | ) | ||||||||||||||||||||||||||||||||||||||||
| BALANCE — January 29, 2005 | 436 | 218,327 | 513,430 | 17,477 | (180,822 | ) | 568,848 | 436 | 218,327 | 513,430 | 17,477 | (180,822 | ) | 568,848 | ||||||||||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | 103,903 | — | — | 103,903 | — | — | 103,903 | — | — | 103,903 | ||||||||||||||||||||||||||||||||||||
| Translation adjustment | — | — | — | 9,826 | — | 9,826 | — | — | — | 9,826 | — | 9,826 | ||||||||||||||||||||||||||||||||||||
| Change in derivative fair value | — | — | — | (425 | ) | — | (425 | ) | — | — | — | (425 | ) | — | (425 | ) | ||||||||||||||||||||||||||||||||
| Total comprehensive income | 113,304 | 113,304 | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock dividend — 50% | 223 | (223 | ) | — | — | — | — | 223 | (223 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Cash dividends declared — $0.05 per share | — | — | (2,653 | ) | — | — | (2,653 | ) | — | — | (2,653 | ) | — | — | (2,653 | ) | ||||||||||||||||||||||||||||||||
| Common stock issued to stock discount plan — 65,596 shares | — | 1,427 | — | — | — | 1,427 | — | 1,427 | — | — | — | 1,427 | ||||||||||||||||||||||||||||||||||||
| Common stock issued upon exercise of stock options — 1,667,477 shares | 12 | 22,823 | — | — | — | 22,835 | 12 | 22,823 | — | — | — | 22,835 | ||||||||||||||||||||||||||||||||||||
| Tax benefit recognized upon exercise of stock options | — | 9,646 | — | — | — | 9,646 | ||||||||||||||||||||||||||||||||||||||||||
| Tax benefit related to stock-based plans | — | 9,646 | — | — | — | 9,646 | ||||||||||||||||||||||||||||||||||||||||||
| Amortization of deferred compensation | — | 2,906 | — | — | — | 2,906 | — | 2,906 | — | — | — | 2,906 | ||||||||||||||||||||||||||||||||||||
| Treasury stock issued to profit sharing plan — 67,628 shares | — | 308 | — | — | 1,192 | 1,500 | — | 308 | — | — | 1,192 | 1,500 | ||||||||||||||||||||||||||||||||||||
| Treasury stock purchased — 3,199,750 Shares | — | — | — | — | (90,280 | ) | (90,280 | ) | — | — | — | — | (90,280 | ) | (90,280 | ) | ||||||||||||||||||||||||||||||||
| BALANCE — January 28, 2006 | $ | 671 | $ | 255,214 | $ | 614,680 | $ | 26,878 | $ | (269,910 | ) | $ | 627,533 | 671 | 255,214 | 614,680 | 26,878 | (269,910 | ) | 627,533 | ||||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | 148,575 | — | — | 148,575 | ||||||||||||||||||||||||||||||||||||||||||
| Translation adjustment | — | — | — | (3,401 | ) | — | (3,401 | ) | ||||||||||||||||||||||||||||||||||||||||
| Change in derivative fair value | — | — | — | 19 | — | 19 | ||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | 145,193 | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends paid — $0.20 per share | — | — | (8,177 | ) | — | — | (8,177 | ) | ||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared — $0.05 per share | — | — | (2,717 | ) | — | — | (2,717 | ) | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | 6,965 | — | — | — | 6,965 | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of debt to common stock — 1,222,364 shares | 12 | (12 | ) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued to stock discount plan — 62,543 shares | 1 | 1,728 | — | — | — | 1,729 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued upon exercise of stock options — 573,689 shares | 6 | 9,088 | — | — | — | 9,094 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued upon vesting of restricted stock and deferred stock units — 57,821 shares | 1 | (1 | ) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Tax payments related to vested deferred stock units | — | (677 | ) | — | — | — | (677 | ) | ||||||||||||||||||||||||||||||||||||||||
| Tax benefit related to stock-based plans | — | 4,800 | — | — | — | 4,800 | ||||||||||||||||||||||||||||||||||||||||||
| Tax benefit related to conversion of debt to common stock | — | 8,318 | — | — | — | 8,318 | ||||||||||||||||||||||||||||||||||||||||||
| Treasury stock issued to profit sharing plan — 68,564 shares | — | 697 | — | — | 1,303 | 2,000 | ||||||||||||||||||||||||||||||||||||||||||
| Treasury stock purchased — 1,134,000 shares | — | — | — | — | (40,289 | ) | (40,289 | ) | ||||||||||||||||||||||||||||||||||||||||
| BALANCE — February 3, 2007 | $ | 691 | $ | 286,120 | $ | 752,361 | $ | 23,496 | $ | (308,896 | ) | $ | 753,772 | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
35
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES
| Fiscal Year | Fiscal Year | |||||||||||||||||||||||
| 2003 | 2004 | 2005 | 2004 | 2005 | 2006 | |||||||||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||||||||
| Net earnings | $ | 49,734 | $ | 71,356 | $ | 103,903 | $ | 71,356 | $ | 103,903 | $ | 148,575 | ||||||||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||||||||||||||
| Depreciation and amortization | 50,993 | 53,319 | 61,874 | 53,319 | 61,874 | 61,387 | ||||||||||||||||||
| Deferred compensation and rent expense | (1,670 | ) | (1,373 | ) | 234 | |||||||||||||||||||
| Gain on sale of assets | (4,381 | ) | — | — | ||||||||||||||||||||
| Tuxedo rental product amortization | 8,863 | 15,341 | 16,858 | |||||||||||||||||||||
| Loss on disposition of assets | — | — | 1,365 | |||||||||||||||||||||
| Loss on impairment of assets | 2,515 | 2,169 | — | 2,169 | — | — | ||||||||||||||||||
| Deferred tax provision | 342 | 5,222 | 2,983 | |||||||||||||||||||||
| (Increase) decrease in accounts receivable | 2,809 | (2,579 | ) | 1,660 | ||||||||||||||||||||
| Write-off of deferred financing costs | — | — | 1,263 | |||||||||||||||||||||
| Deferred rent expense | (1,495 | ) | (2,672 | ) | 2,021 | |||||||||||||||||||
| Stock-based compensation | 122 | 2,906 | 6,965 | |||||||||||||||||||||
| Deferred tax provision (benefit) | 5,222 | 2,983 | (1,470 | ) | ||||||||||||||||||||
| Increase in accounts receivable | (1,116 | ) | (209 | ) | (223 | ) | ||||||||||||||||||
| Increase in inventories | (21,624 | ) | (13,709 | ) | (5,994 | ) | (13,709 | ) | (5,994 | ) | (33,844 | ) | ||||||||||||
| Increase in other assets | (8,570 | ) | (12,419 | ) | (16,477 | ) | ||||||||||||||||||
| Increase in tuxedo rental product | (19,834 | ) | (30,555 | ) | (22,346 | ) | ||||||||||||||||||
| (Increase) decrease in other assets | (2,911 | ) | 606 | (3,374 | ) | |||||||||||||||||||
| Increase (decrease) in accounts payable and accrued expenses | 35,491 | 28,060 | (725 | ) | 28,060 | (725 | ) | (18,112 | ) | |||||||||||||||
| Increase (decrease) in income taxes payable | 14,076 | (903 | ) | 6,987 | (903 | ) | 6,987 | 448 | ||||||||||||||||
| Increase in other liabilities | 15 | 836 | 116 | 836 | 116 | 1,281 | ||||||||||||||||||
| Net cash provided by operating activities | 119,730 | 129,979 | 154,561 | 129,979 | 154,561 | 160,794 | ||||||||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||||||
| Capital expenditures | (49,663 | ) | (85,392 | ) | (66,499 | ) | (85,392 | ) | (66,499 | ) | (72,904 | ) | ||||||||||||
| Net assets acquired | (4,500 | ) | (11,000 | ) | — | (11,000 | ) | — | — | |||||||||||||||
Purchases ofavailable-for-sale investments | — | — | (106,850 | ) | — | (106,850 | ) | (279,120 | ) | |||||||||||||||
Proceeds from sales ofavailable-for-sale investments | — | — | 44,075 | — | 44,075 | 341,895 | ||||||||||||||||||
| Investment in trademarks, tradenames and other assets | (1,644 | ) | (556 | ) | (141 | ) | (556 | ) | (141 | ) | (1,506 | ) | ||||||||||||
| Net cash used in investing activities | (55,807 | ) | (96,948 | ) | (129,415 | ) | (96,948 | ) | (129,415 | ) | (11,635 | ) | ||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||||||
| Proceeds from issuance of common stock | 8,320 | 10,876 | 24,262 | 10,876 | 24,262 | 10,823 | ||||||||||||||||||
| Proceeds from issuance of debt | 130,000 | — | — | |||||||||||||||||||||
| Bank borrowings | — | — | 71,695 | — | 71,695 | — | ||||||||||||||||||
| Principal payments on debt | (44,931 | ) | (1,000 | ) | — | (1,000 | ) | — | (130,000 | ) | ||||||||||||||
| Deferred financing costs | (3,916 | ) | (276 | ) | (556 | ) | (276 | ) | (556 | ) | (330 | ) | ||||||||||||
| Cash dividends paid | — | — | (10,830 | ) | ||||||||||||||||||||
| Tax payments related to vested deferred stock units | — | — | (677 | ) | ||||||||||||||||||||
| Excess tax benefits from stock-based compensation | — | — | 3,059 | |||||||||||||||||||||
| Purchase of treasury stock | (109,186 | ) | (11,186 | ) | (90,280 | ) | (11,186 | ) | (90,280 | ) | (40,289 | ) | ||||||||||||
| Net cash provided by (used in) financing activities | (19,713 | ) | (1,586 | ) | 5,121 | (1,586 | ) | 5,121 | (168,244 | ) | ||||||||||||||
| Effect of exchange rate changes | 3,012 | 1,417 | 4,951 | 1,417 | 4,951 | (1,447 | ) | |||||||||||||||||
| INCREASE IN CASH AND CASH EQUIVALENTS | 47,222 | 32,862 | 35,218 | |||||||||||||||||||||
| INCREASE ( DECREASE) IN CASH AND CASH EQUIVALENTS | 32,862 | 35,218 | (20,532 | ) | ||||||||||||||||||||
| Balance at beginning of period | 84,924 | 132,146 | 165,008 | 132,146 | 165,008 | 200,226 | ||||||||||||||||||
| Balance at end of period | $ | 132,146 | $ | 165,008 | $ | 200,226 | $ | 165,008 | $ | 200,226 | $ | 179,694 | ||||||||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||||||||||||||||||
| Cash paid during the year for: | ||||||||||||||||||||||||
| Interest | $ | 2,091 | $ | 4,671 | $ | 4,600 | $ | 4,671 | $ | 4,600 | $ | 8,117 | ||||||||||||
| Income taxes | $ | 15,863 | $ | 38,820 | $ | 50,105 | $ | 38,820 | $ | 50,105 | $ | 75,501 | ||||||||||||
| SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||||||||||||||
| Cash dividends declared | $ | — | $ | — | $ | 2,653 | $ | — | $ | 2,653 | $ | 2,717 | ||||||||||||
| Additional capital in excess of par resulting from tax benefit recognized upon exercise of stock options | $ | 1,572 | $ | 1,768 | $ | 9,646 | ||||||||||||||||||
| Additional capital in excess of par resulting from tax benefit related to stock-based plans | $ | 1,768 | $ | 9,646 | $ | 4,800 | ||||||||||||||||||
| Additional capital in excess of par resulting from tax benefit related to conversion of debt to common stock | $ | — | $ | — | $ | 8,318 | ||||||||||||||||||
| Treasury stock contributed to employee stock plan | $ | 500 | $ | 1,000 | $ | 1,500 | $ | 1,000 | $ | 1,500 | $ | 2,000 | ||||||||||||
| Note payable issued as partial consideration for assets acquired | $ | 1,000 | $ | — | $ | — | ||||||||||||||||||
| Capital expenditure purchases accrued in accounts payable and accrued expenses | $ | — | $ | — | $ | 10,220 | ||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
36
THE MEN’SMENS’S WEARHOUSE, INC. AND SUBSIDIARIES
For the Years Ended
January 31, 2004, January 29, 2005, and January 28, 2006 and February 3, 2007
| 1. | Summary of Significant Accounting Policies |
Organization and Business — The Men’s Wearhouse, Inc. and its subsidiaries (the “Company”) is a specialty retailer of menswear. We operate throughout the United States primarily under the brand names of Men’s Wearhouse and K&G and under the brand name of Moores in Canada. We follow the standard fiscal year of the retail industry, which is a52-week or53-week period ending on the Saturday closest to January 31. Fiscal year 2003 ended on January 31, 2004, fiscal year 2004 ended on January 29, 2005, and fiscal year 2005 ended on January 28, 2006.2006 and fiscal year 2006 ended on February 3, 2007. Fiscal years 2003, 2004 and 2005 included 52 weeks and fiscal 2006 included 53 weeks.
Certain previously reported amounts have been reclassified to conform to the current period presentation. Stock-based compensation and tuxedo rental product assets and amortization have been reclassified on the consolidated statement of cash flows for fiscal year 2004 and 2005 to conform to the current period’s presentation. Approximately $2.4 million has been reclassified from accounts receivable to other current assets on the consolidated balance sheet for the period ended January 29, 2006 to conform to the current period’s presentation. In addition, tuxedo rental product assets have been reclassified from other assets on the consolidated balance sheet as of January 29, 2006.
During fiscal year 2004, we opened six new casual clothing/sportswear concept stores in order to test an expanded, more fashion-oriented merchandise concept for men and women. In March 2005, it was determined that no further investments would be made into these test concept stores and, as of June 30, 2005, all six of the stores had been closed. Net operating losses from these stores reduced diluted earnings per share by $0.05 and $0.11 for fiscal 2004 and 2005, respectively.
Principles of Consolidation — The consolidated financial statements include the accounts of The Men’s Wearhouse, Inc. and its wholly owned or controlled 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 “Critical Accounting Estimates” under Item 7 elsewhere herein, are those relating to inventories and long-lived assets, including goodwill, 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. As substantially all of our cash is held by three financial institutions, we are exposed to risk of loss in the event of failure of any of these parties. However, due to the creditworthiness of these three financial institutions, we anticipate full performance and access to our deposits and liquid investments.
Short-term Investments — Short-term investments consist of Auction Rate Securities (“ARS”), which represent funds available for current operations. In accordance with the Statement of Financial Accounting Standards No. 115 “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS No. 115”), these short-term investments are classified asavailable-for-sale and are carried at cost, or par value which approximates the fair market value. These securities have stated maturities beyond three months but are priced and traded as short-term instruments due to the liquidity provided through the interest rate mechanism of 7 to 35 days.
37
THE MENS’S 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 $0.4$0.3 million and $0.3$0.2 million in fiscal 20042005 and 2005,2006, respectively. Collectibility is reviewed regularly and the allowance is adjusted as necessary.
Inventories — Inventories are valued at the lower of cost or market, with cost determined on the average cost method and the retail cost method. Inventory cost includes buying and distribution costs (merchandising, freight, hangers and warehousing costs) associated with ending inventory.
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
37
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 ten25 years.
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. An estimate for lost and damaged rental product is also charged to cost of sales. Tuxedo rental product is amortized to expense generally over a two to three year period. Amortization expense was $8.9 million, $15.3 million and $16.9 million for fiscal 2004, 2005 and 2006, respectively.
Goodwill and Other Assets — Intangible assets are initially recorded at their fair values. Identifiable intangible assets with finite useful lives are amortized to expense over the estimated useful life of the asset. Trademarks, tradenames and other intangibles are amortized over estimated useful lives of 3 to 17 years using the straight-line method. Identifiable intangible assets with an indefinite useful life, including goodwill, are evaluated annually in the fourth quarter, or more frequently if circumstances dictate, for impairment by comparison of their carrying amounts with the fair value of the individual assets. No impairment was identified in fiscal 2003, 2004, 2005 or 2005.2006.
Impairment of Long-Lived Assets — We evaluate the carrying value of long-lived assets, such as property and equipment and amortizable intangibles, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined, based on estimated undiscounted future cash flows, that an impairment has occurred, a loss is recognized currently for the impairment.
Fair Value of Financial Instruments — As of January 29, 200528, 2006 and January 28, 2006,February 3, 2007, management estimates that the fair value of cash and cash equivalents, receivables, accounts payable and accrued expenses are carried at amounts that reasonably approximate their fair value. See Note 3 for the fair values of our long-term debt.
Revenue Recognition — RevenueClothing 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. Proceeds from the sale of gift cards are recorded as a liability and are recognized as revenues when the cards are redeemed. We do not recognize revenue from unredeemed gift cards as these amounts are reflected as a liability until escheated in accordance with applicable laws.
Loyalty Program — We maintain a customer loyalty program in our Men’s Wearhouse and Moores stores in which customers receive points for purchases. Points are equivalent to dollars spent on aone-to-one basis, excluding any U.S. sales tax dollars. Upon reaching 500 points, customers are issued a $50 rewards certificate which they may redeem for purchases at our Men’s Wearhouse 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
38
THE MENS’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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. We capitalizePrior to fiscal 2006, we capitalized rent amounts allocated to the construction
38
period for leased properties as leasehold improvements (see “Recently Issuedimprovements. In fiscal 2006, we adopted Financial Accounting Pronouncements” below for a discussion regarding FASBStandards Board (“FASB”) Staff Position (“FSP”)No. FAS 13-1 (“FSP13-1”), “Accounting for Rental Costs Incurred during a Construction Period”). Period,” which requires that rental costs associated with ground or building operating leases that are incurred during a construction period be recognized as rental expense. The impact of the adoption of FSP13-1 for fiscal 2006 was approximately $2.2 million of additional 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.
Advertising — Advertising costs are expensed as incurred or, in the case of media production costs, when the commercial first airs. Advertising expenses were $62.9 million, $60.5 million, $61.5 million and $61.5$67.3 million in fiscal 2003, 2004, 2005 and 2005,2006, 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.
Stock-Based Compensation — As permitted byOn January 29, 2006, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 “Accounting(revised 2004), “Share-Based Payment” (“SFAS 123R”), which requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. This Statement establishes the fair value method for Stock-Based Compensation” (“SFAS No. 123”)measurement and Statementrequires all entities to apply this fair value method in accounting for share-based payment transactions. The amount of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation — Transitioncompensation cost is measured based on the grant-date fair value of the instrument issued and Disclosure -an Amendmentis recognized over the vesting period.
Prior to the adoption of SFAS No. 123” (“SFAS No. 148”),123R, we accountaccounted for stock-based compensationshare-based awards to employees and directors using the intrinsic value method prescribed in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) as allowed under SFAS No. 25”123, “Accounting for Stock-Based Compensation” (“SFAS 123”). SFAS 123R replaces SFAS 123 and supersedes APB 25. We adopted SFAS 123R using the modified prospective transition method; therefore, results from prior periods have adoptednot been restated. Under this transition method, stock-based compensation expense recognized in fiscal 2006 includes: (i) compensation expense for share-based payment awards granted prior to, but not yet vested at, January 29, 2006, based on the disclosure-onlygrant date fair value
39
THE MENS’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
estimated in accordance with the original provisions of SFAS No.123; and (ii) compensation expense for the share-based payment awards granted subsequent to January 29, 2006, based on the grant-date fair values estimated in accordance with the provisions of SFAS 123R. Stock-based compensation expense recognized under SFAS 123R for fiscal 2006 was $7.0 million, which primarily related to stock options and deferred stock units. Stock-based compensation expense for fiscal 2004 and 2005 was $0.1 million and $2.9 million, respectively, which primarily related to deferred stock units.
SFAS 123R requires companies to estimate the fair value of share-based payments on the grant-date using an option pricing model. Under SFAS 123, as amended bywe used the Black-Scholes option pricing model for valuation of share-based awards for our pro forma information. Upon adoption of SFAS No. 148, and123R, we elected to continue to apply APB No. 25 and related interpretationsuse the Black-Scholes option pricing model for valuing awards. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period.
Prior to the adoption of SFAS 123R, we presented all tax benefits resulting from the exercise of stock-based compensation awards as operating cash flows in accounting for the stock option plans and the employee stock purchase plan. Refer to “Recently Issued Accounting Pronouncements” below for a discussion ofConsolidated Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“Cash Flows. SFAS No. 123R”).123R requires the benefits of tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. For fiscal 2006, excess tax benefits realized from the exercise of stock-based compensation awards was $3.1 million. The exercise of stock-based compensation awards resulted in a tax benefit to us of $1.8 million, $9.6 million and $4.8 million for fiscal 2004, 2005 and 2006, respectively, which has been recognized as capital in excess of par.
Had we elected to apply the accounting standards of SFAS No. 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (“SFAS 148”) in 2004 and 2005, our net earnings and net earnings per share would have been approximately the pro forma amounts indicated below (in thousands, except per share data):
| Fiscal Year | ||||||||||||
| 2003 | 2004 | 2005 | ||||||||||
| Net earnings, as reported | $ | 49,734 | $ | 71,356 | $ | 103,903 | ||||||
| Add: Stock-based compensation, net of tax included in reported net earnings | — | 77 | 1,894 | |||||||||
| Deduct: Stock-based compensation, net of tax determined under fair-value based method | (2,460 | ) | (3,017 | ) | (4,663 | ) | ||||||
| Pro forma net earnings | $ | 47,274 | $ | 68,416 | $ | 101,134 | ||||||
| Net earnings per share: | ||||||||||||
| As reported: | ||||||||||||
| Basic | $ | 0.85 | $ | 1.32 | $ | 1.93 | ||||||
| Diluted | $ | 0.84 | $ | 1.29 | $ | 1.88 | ||||||
| Pro forma: | ||||||||||||
| Basic | $ | 0.81 | $ | 1.27 | $ | 1.88 | ||||||
| Diluted | $ | 0.80 | $ | 1.24 | $ | 1.83 | ||||||
39
| Fiscal Year | ||||||||||||
| 2003 | 2004 | 2005 | ||||||||||
| Risk-free interest rates | 3.14% | 3.55% | 4.09% | |||||||||
| Expected lives | 6 years | 6 years | 6 years | |||||||||
| Dividend yield | 0% | 0% | 0% | |||||||||
| Expected volatility | 54.75% | 50.93% | 48.24% | |||||||||
| Fiscal Year | ||||||||
| 2004 | 2005 | |||||||
| Net earnings, as reported | $ | 71,356 | $ | 103,903 | ||||
| Add: Stock-based compensation, net of tax included in reported net earnings | 77 | 1,894 | ||||||
| Deduct: Stock-based compensation, net of tax determined under fair-value based method | (3,017 | ) | (4,663 | ) | ||||
| Pro forma net earnings | $ | 68,416 | $ | 101,134 | ||||
| Net earnings per share: | ||||||||
| As reported: | ||||||||
| Basic | $ | 1.32 | $ | 1.93 | ||||
| Diluted | $ | 1.29 | $ | 1.88 | ||||
| Pro forma: | ||||||||
| Basic | $ | 1.27 | $ | 1.88 | ||||
| Diluted | $ | 1.24 | $ | 1.83 | ||||
Stock Dividend — On June 13, 2005, we effected athree-for-two stock split by paying a 50% stock dividend to shareholders of record as of May 31, 2005. All share and per share information included in the accompanying consolidated financial statements and related notes have been restated to reflect the stock split.
Derivative Financial Instruments — We enter into foreign currency forward exchange contracts to hedge against foreign exchange risks associated with certain firmly committed, and certain other probable, but not firmly committed, inventory purchase transactions that are denominated in a foreign currency (primarily the Euro). Gains and losses associated with these contracts are accounted for as part of the underlying inventory purchase
40
THE MENS’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
transactions. These contracts have been accounted for in accordance with Statement of Financial Accounting Standards No. 133 “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”), as amended. The disclosures required by SFAS No. 133 are included in Note 8.
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. Shareholders’ 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 shareholders’ equity.
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.
Segment Information — We consider our business as one operating segment based on the similar economic characteristics of our three brands. Revenues of Canadian retail operations were $154.7 million, $174.9 million, $193.5 million and $193.5$228.5 million for fiscal 2003, 2004, 2005 and 2005,2006, respectively. Long-lived assets of our Canadian operations were $63.1$81.8 million and $81.8$77.2 million as of the end of fiscal 20042005 and 2005,2006, respectively.
40
Accounting for Conditional Asset Retirement Obligations — In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”). FIN 47 clarifies that the term “conditional” as used in SFAS No. 143, “Accounting for Asset Retirement Obligations,” refers to a legal obligation to perform an asset retirement activity even if the timingand/or settlement are conditional on a future event that may or may not be within the control of an entity. Accordingly, the entity must record a liability for the conditional asset retirement obligation if the fair value of the
41
obligation can be reasonably estimated. FIN 47 is effective no later than the end of the fiscal year ending after December 15, 2005. The adoption of FIN 47 did not have a material impact on our financial position, results of operations or cash flows.
Accounting Changes and Error Corrections — In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections — A Replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS No. 154”). SFAS No. 154 requires retrospective application to prior periods’ financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 isdid not expected to have a material impact on our financial position, results of operations or cash flows.
41
THE MENS’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Determining the Amortization Period of Leasehold Improvements — In June 2005, the Emerging Issues Task Force (“EITF”) reached a consensus on IssueNo. 05-06, “Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination” (“EITF(“EITF 05-06”). The guidance requires that leasehold improvements acquired in a business combination or purchased subsequent to the inception of a lease be amortized over the lesser of the useful life of the assets or a term that includes renewals that are reasonably assured at the date of the business combination or purchase. The guidance is effective for periods beginning after June 29, 2005. The adoption of EITFEITF 05-06 isdid not expected to have a material impact on our financial position, results of operations or cash flows.
Recently Issued Accounting Prouncements — In October 2005,June 2006, the FASB issued FSPFASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a Company’s financial statements in accordance with FASB No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Differences between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts reported after adoption are to be accounted for as an adjustment to the beginning balance of retained earnings. FIN 48 is effective as of the beginning of fiscal years that begin after December 15, 2006. We will adopt FIN 48 in the first quarter of fiscal 2007. We are currently evaluating the impact that the adoption of FIN 48 will have on our financial position, results of operations and cash flows.
In June 2006, the EITF ratified its conclusion on EITF IssueNo. FAS 13-1 (“FSP13-1”),06-02 “Accounting for Rental Costs Incurred during a Construction Period,Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43,” which“Accounting for Compensated Absences” (“EITF06-02”). EITF06-02 requires that rental costscompensation expense associated with grounda sabbatical leave, or building operating leases that are incurredother similar benefit arrangement, be accrued over the requisite service period during a construction period be recognized as rental expense. As permitted under existing generally accepted accounting principles, we capitalize rental costs incurred duringwhich an employee earns the construction period. This FSPbenefit. EITF06-02 is effective for reporting periodsfiscal years beginning after December 15, 2005, with early2006 and should be recognized as either a change in accounting principle through a cumulative effect adjustment to retained earnings as of the beginning of the year of adoption permitted.or a change in accounting principle through retrospective application to all prior periods. We will adopt FSPEITF13-106-02 atin the beginningfirst quarter of fiscal 2006, at which time we will cease capitalizing rent expense on those leases with properties under construction.2007. We estimateare currently evaluating the impact that the adoption of FSPEITF13-106-02 will resulthave on our financial position, results of operations and cash flows.
In June 2006, the EITF ratified its conclusion on EITFNo. 06-03, “How Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in additional expensesthe Income Statement (That Is, Gross versus Net Presentation),” (“EITF06-03”). EITF06-03 concluded that the presentation of $2.0 milliontaxes assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer such as sales, use, value added and certain excise taxes is an accounting policy decision that should be disclosed in a Company’s financial statements. Additionally, companies that record such taxes on a gross basis should disclose the amounts of those taxes in interim and annual financial statements for each period for which an income statement is presented if those amounts are significant. EITF06-03 is effective for fiscal years beginning after December 15, 2006. The adoption of EITF06-03 will have no effect on our financial position, results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). This statement defines fair value, establishes a framework for using fair value to $3.0 millionmeasure assets and liabilities, and expands disclosures about fair value measurements. The statement applies whenever other statements require or permit assets or liabilities to be measured at fair value. SFAS 157 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact that the adoption of SFAS 157 will have on our financial position, results of operations and cash flows.
In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), which provides interpretive guidance regarding the consideration given to prior year misstatements when determining materiality in current year financial statements. SAB 108 is effective for fiscal years ending after
42
THE MENS’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
November 15, 2006. The adoption of SAB 108 did not have a material impact on our financial position, results of operations and cash flows.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115,” (“SFAS 159”). SFAS 159 provides companies with an option to measure certain financial instruments and other items at fair value with changes in fair value reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact that the adoption of SFAS 159 will have on our financial position, results of operations and cash flows.
| 2. | Earnings Per Share |
Basic EPS is computed using the weighted average number of common shares outstanding during the period and net earnings. Diluted EPS gives effect to the potential dilution which would have occurred if additional shares were issued for stock options exercised under the treasury stock method, as well as the potential dilution that could occur if our contingent convertible debt or other contracts to issue common stock were converted or exercised. Our convertible debt was redeemed, at our election during the fourth quarter of 2006. Refer to Note 3 of Notes to Consolidated Financial Statements. The following table reconciles basic and diluted weighted average common shares outstanding and the related net earnings per share (in thousands, except per share amounts):
| Fiscal Year | Fiscal Year | |||||||||||||||||||||||
| 2003 | 2004 | 2005 | 2004 | 2005 | 2006 | |||||||||||||||||||
| Net earnings | $ | 49,734 | $ | 71,356 | $ | 103,903 | $ | 71,356 | $ | 103,903 | $ | 148,575 | ||||||||||||
| Basic weighted average common shares outstanding | 58,184 | 54,044 | 53,753 | 54,044 | 53,753 | 53,111 | ||||||||||||||||||
| Effect of dilutive securities: | ||||||||||||||||||||||||
| Convertible notes | — | — | 266 | — | 266 | 855 | ||||||||||||||||||
| Stock options and equity-based compensation | 759 | 1,176 | 1,346 | 1,176 | 1,346 | 783 | ||||||||||||||||||
| Diluted weighted average common shares outstanding | 58,943 | 55,220 | 55,365 | 55,220 | 55,365 | 54,749 | ||||||||||||||||||
| Net earnings per share: | ||||||||||||||||||||||||
| Basic | $ | 0.85 | $ | 1.32 | $ | 1.93 | $ | 1.32 | $ | 1.93 | $ | 2.80 | ||||||||||||
| Diluted | $ | 0.84 | $ | 1.29 | $ | 1.88 | $ | 1.29 | $ | 1.88 | $ | 2.71 | ||||||||||||
42
| 3. | Long-Term Debt |
On December 21, 2005, we entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with a group of banks to amend and restate our existingrevolving credit facility. On February 2, 2007, we entered into an Agreement and Amendment to the Credit Agreement effective as of January 31, 2007 (the “Amendment”). The Amendment (i) extends the maturity date of the revolving credit facility that was scheduled to mature on July 7, 2009. Theunder the Credit Agreement provides us with a $100.0 millionto February 11, 2012 and (ii) increases the total senior secured revolving credit facility thatunder the Credit Agreement from $100.0 million to $200.0 million, which can be expanded to $150.0$250.0 million upon additional lender commitments and includes a sublimit for the issuance of letters of credit. In addition, thecommitments. The Credit Agreement providesalso provided our Canadian subsidiaries with a senior secured term loans in the aggregate equivalent of US$75.0 million. The proceeds of the Canadian term loan were used to fund the repatriation of US$74.7 million of Canadian earnings in January 2006 under the American Jobs Creation Act of 2004. The revolving credit facility and the Canadian term loan maturematures on February 10, 2011. The Credit Agreement is secured by the stock of certain of the Company’s subsidiaries. The Credit Agreement has several borrowing and interest rate options including the following indices: (i) an alternate base rate (equal to the greater of the prime rate or the federal funds rate plus 0.5%) or (ii) LIBO rate or (iii) CDO rate. Advances under the Credit Agreement bear interest at a rate per annum using the applicable indices plus a varying interest rate margin up to 1.125%. The Credit Agreement also provides for fees applicable to unused commitments ranging from 0.100% to 0.175%. The effective interest rate for
43
THE MENS’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the Canadian term loan was 4.4%5.0% at January 28, 2006.February 3, 2007. As of January 28, 2006,February 3, 2007, there were no borrowings outstanding under the revolving credit facility and there was US$75.373.0 million outstanding under the Canadian term loan.
The Credit Agreement contains certain restrictive and financial covenants, including the requirement to maintain certain financial ratios. The restrictive provisions in the Credit Agreement have been modified to afford us with greater operating flexibility than was provided for in our previous existing facility and to 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 28, 2006.February 3, 2007.
On October 21, 2003, we issued $130.0 million of 3.125% Convertible Senior Notes due 2023 (“Notes”) in a private placement. Interest on the Notes iswas payable semi-annually on April 15 and October 15 of each year, beginning on April 15, 2004. The Notes willwere scheduled to mature on October 15, 2023. However, holders may require us to purchase all or part of the Notes, for cash, at a purchase price of 100% of the principal amount per Note plus accrued and unpaid interest on October 15, 2008, October 15, 2013 and October 15, 2018 or upon a designated event. Beginning on October 15, 2008, we will pay additional contingent interest on the Notes if the average trading price of the Notes is above a specified level during a specified period. In addition, we may redeem all or a portion of the Notes on or after October 20, 2008 at 100% of the principal amount of the Notes plus any accrued and unpaid interest, contingent interest and additional amounts, if any. We also havehad the right to redeem the Notes between October 20, 2006 and October 19, 2008 if the price of our common stock reachesreached certain levels.
During certain periods, the Notes arewere convertible by holders into shares of our common stock at a conversion rate of 34.978035.1309 shares of common stock per $1,000 principal amount of Notes, which iswas equivalent to a conversion price of $28.59$28.47 per share of common stock (subject to adjustment in certain events), under the following circumstances: (1) if the closing sale price of our common stock issuable upon conversion exceedsexceeded 120% of the conversion price under specified conditions; (2) if we callcalled the Notes for redemption; or (3) upon the occurrence of specified corporate transactions. Upon conversion of the Notes, in lieu of delivering common stock we may,could, at our election, deliver cash or a combination of cash and common stock. However, on January 28, 2005, we entered into a supplemental indenture relating to the Notes and irrevocably elected to settle the principal amount at issuance of such Notes in 100% cash when they become convertible and are surrendered by the holders thereof. The Notes arewere general senior unsecured obligations, ranking on parity in right of payment with all our existing and future unsecured senior indebtedness and our other general unsecured obligations, and senior in right of payment with all our future subordinated indebtedness. The Notes arewere effectively subordinated to all of our senior secured indebtedness and all indebtedness and liabilities of our subsidiaries. See Note 11 regarding
On November 16, 2006, we issued a subsequent eventpress release announcing that, affectsas a result of the conversion rate and conversionclosing sale price of the Company’s common stock exceeding 140% of the conversion price for the requisite number of days during the requisite period, we had elected to redeem the full $130.0 million aggregate principal amount of the Notes. Holders of the Notes had the right to convert their notes at any time prior to two business days immediately preceding the redemption date. As indicated above, we had irrevocably elected to settle the principal amount at issuance of the Notes in cash when and if surrendered for conversion. Under the terms governing the Notes, holders of approximately $127.0 million principal amount of the Notes exercised their conversion right in lieu of having their notes redeemed and we exercised our right to pay cash for the principal amount of the Notes converted in lieu of issuing common stock. The market value of the common stock to be issued upon conversion that exceeded the principal amount was paid by delivering common stock. As a result, we paid approximately $127.0 million in cash and issued 1,222,364 shares of the Company’s common stock pursuant to the requested conversions. The remaining $3.0 million principal amount of the Notes was redeemed on December 15, 2006 with such payment and accrued and unpaid interest being made in cash. Notes converted into common stock prior to the redemption date were not entitled to receive accrued and unpaid interest. In connection with the conversion and redemption of the Notes, we paid approximately $130.1 million in cash, issued 1,222,364 shares of the Company’s common stock and wrote-off approximately $1.3 million of unamortized deferred financing costs.
We utilize letters of credit primarily to secure inventory purchases. At February 3, 2007, letters of credit totaling approximately $19.0 million were issued and outstanding.
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THE MEN’SMENS’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| 4. | Income Taxes |
The provision for income taxes consists of the following (in thousands):
| Fiscal Year | Fiscal Year | |||||||||||||||||||||||
| 2003 | 2004 | 2005 | 2004 | 2005 | 2006 | |||||||||||||||||||
| Current tax expense: | ||||||||||||||||||||||||
| Federal | $ | 17,889 | $ | 27,067 | $ | 46,050 | $ | 27,067 | $ | 46,050 | $ | 61,487 | ||||||||||||
| State | 1,081 | 2,078 | 3,567 | 2,078 | 3,567 | 5,447 | ||||||||||||||||||
| Foreign | 10,226 | 7,992 | 6,185 | 7,992 | 6,185 | 10,469 | ||||||||||||||||||
| Deferred tax expense (benefit): | ||||||||||||||||||||||||
| Federal and state | 3,098 | 3,333 | 1,206 | 3,333 | 1,206 | (1,804 | ) | |||||||||||||||||
| Foreign | (2,756 | ) | 1,889 | 1,777 | 1,889 | 1,777 | 334 | |||||||||||||||||
| Total | $ | 29,538 | $ | 42,359 | $ | 58,785 | $ | 42,359 | $ | 58,785 | $ | 75,933 | ||||||||||||
No provision for U.S. income taxes or Canadian withholding taxes has been made on the cumulative undistributed earnings of Moores (approximately $68.4$94.5 million at January 28, 2006)February 3, 2007). The potential deferred tax liability associated with these earnings, net of foreign tax credits associated with the earnings, is estimated to be $3.2$13.0 million.
In December 2004, the FASB issued FSPNo. FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004”. The Jobs Creation Act provides a one-time 85% dividends received deduction for certain foreign earnings that are repatriated under a plan for reinvestment in the United States, provided certain criteria are met. During the fourth quarter of 2005, we repatriated US$74.7 million of foreign earnings from our Canadian subsidiaries under the provisions of the Jobs Creation Act. As a result of this repatriation, we recorded an additional $3.9 million in income tax expenses, which reduced our 2005 diluted earnings per share by $0.07. The 2005 income tax provision also includes a $2.3 million reduction of previously recorded tax accruals due to developments associated with certain tax audits and a $2.0 million reduction in previously recorded tax accruals associated with favorable developments on certain outstanding income tax matters. The 2006 income tax provision includes a $5.2 million reduction of previously recorded tax accruals due to favorable developments associated with certain tax audits.
In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a Company’s financial statements in accordance with FASB No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Differences between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts reported after adoption are to be accounted for as an adjustment to the beginning balance of retained earnings. FIN 48 is effective as of the beginning of fiscal years that begin after December 15, 2006. We will adopt FIN 48 in the first quarter of fiscal 2007. We are currently evaluating the impact that the adoption of FIN 48 will have on our financial position, results of operations and cash flows.
4445
THE MEN’SMENS’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A reconciliation of the statutory federal income tax rate to our effective tax rate is as follows:
| Fiscal Year | Fiscal Year | |||||||||||||||||||||||
| 2003 | 2004 | 2005 | 2004 | 2005 | 2006 | |||||||||||||||||||
| Federal statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | ||||||||||||
| State income taxes, net of federal benefit | 2.3 | 1.7 | 2.7 | 1.7 | 2.7 | 2.7 | ||||||||||||||||||
| Taxes from earnings repatriation under the Jobs Creation Act | — | — | 2.4 | — | 2.4 | — | ||||||||||||||||||
| Reversal of tax accruals | — | — | (2.7 | ) | — | (2.7 | ) | (2.3 | ) | |||||||||||||||
| Foreign tax rate differential and other | — | 0.6 | (1.3 | ) | 0.6 | (1.3 | ) | (1.6 | ) | |||||||||||||||
| 37.3 | % | 37.3 | % | 36.1 | % | 37.3 | % | 36.1 | % | 33.8 | % | |||||||||||||
Total deferred tax assets and liabilities and the related temporary differences as of January 29, 200528, 2006 and January 28, 2006February 3, 2007 were as follows (in thousands):
| January 29, | January 28, | January 28, | February 3, | |||||||||||||
| 2005 | 2006 | 2006 | 2007 | |||||||||||||
| Deferred tax assets: | ||||||||||||||||
| Accrued rent and other expenses | $ | 10,750 | $ | 14,912 | $ | 14,912 | $ | 17,207 | ||||||||
| Accrued compensation | 2,969 | 4,185 | 4,185 | 5,831 | ||||||||||||
| Accrued inventory markdowns | 1,283 | 1,387 | 1,387 | 1,766 | ||||||||||||
| Deferred intercompany profits | 3,212 | 4,196 | 4,196 | 4,889 | ||||||||||||
| Unused state operating loss carryforwards | 1,294 | 491 | 491 | — | ||||||||||||
| Unused foreign tax credits | 665 | — | — | 222 | ||||||||||||
| Other | 178 | 322 | 322 | — | ||||||||||||
| 20,351 | 25,493 | 25,493 | 29,915 | |||||||||||||
| Deferred tax liabilities: | ||||||||||||||||
| Capitalized inventory costs | (4,044 | ) | (6,336 | ) | (6,336 | ) | (7,631 | ) | ||||||||
| Property and equipment | (20,751 | ) | (23,041 | ) | (23,041 | ) | (21,108 | ) | ||||||||
| Intangibles | (2,499 | ) | (3,265 | ) | (3,265 | ) | (4,157 | ) | ||||||||
| Deferred interest | (3,182 | ) | (5,911 | ) | (5,911 | ) | — | |||||||||
| Other | — | (226 | ) | |||||||||||||
| (30,476 | ) | (38,553 | ) | (38,553 | ) | (33,122 | ) | |||||||||
| Net deferred tax liabilities | $ | (10,125 | ) | $ | (13,060 | ) | $ | (13,060 | ) | $ | (3,207 | ) | ||||
4546
THE MEN’SMENS’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| 5. | Other Assets and Accrued Expenses |
Other assets consist of the following (in thousands):
| January 29, | January 28, | January 28, | February 3, | |||||||||||||
| 2005 | 2006 | 2006 | 2007 | |||||||||||||
| Trademarks, tradenames and other intangibles | $ | 9,733 | $ | 9,733 | $ | 9,733 | $ | 9,316 | ||||||||
| Accumulated amortization | (3,307 | ) | (4,261 | ) | (4,261 | ) | (4,418 | ) | ||||||||
| 6,426 | 5,472 | 5,472 | 4,898 | |||||||||||||
| Tuxedo rental assets, deposits and other | 44,007 | 61,003 | ||||||||||||||
| Deposits and other | 8,442 | 7,153 | ||||||||||||||
| Total | $ | 50,433 | $ | 66,475 | ||||||||||||
| Total other assets | $ | 13,914 | $ | 12,051 | ||||||||||||
| Accrued expenses consist of the following (in thousands): | ||||||||||||||||
| Accrued salary, bonus and vacation | $ | 27,967 | $ | 29,707 | $ | 29,707 | $ | 31,323 | ||||||||
| Sales, payroll and property taxes payable | 11,826 | 12,343 | 12,343 | 14,581 | ||||||||||||
| Unredeemed gift certificates | 16,062 | 19,404 | 19,404 | 19,791 | ||||||||||||
| Accrued workers compensation and medical costs | 8,252 | 8,873 | 8,873 | 9,387 | ||||||||||||
| Other | 18,816 | 21,608 | 21,608 | 20,167 | ||||||||||||
| Total | $ | 82,923 | $ | 91,935 | $ | 91,935 | $ | 95,249 | ||||||||
6. Capital Stock, Stock Options and Benefit Plans
Dividends
On June 13, 2005, we effected athree-for-two stock split by paying a 50% stock dividend to shareholders of record as of May 31, 2005. All share and
Cash dividends paid were approximately $10.8 million during the fiscal year ended February 3, 2007. The quarterly cash dividends per share information included in the accompanying consolidated financial statements and related notes have been restated to reflect the stock split.for fiscal 2006 are presented below:
| First quarter ended April 29, 2006 | $ | 0.05 | ||
| Second quarter ended July 29, 2006 | $ | 0.05 | ||
| Third quarter ended October 28, 2006 | $ | 0.05 | ||
| Fourth quarter ended February 3, 2007 | $ | 0.05 |
In March 2007, our Board of Directors declared a quarterly cash dividend of $0.06 per share payable on July 6, 2007 to shareholders of record at the close of business on June 27, 2007.
Stock Repurchase Program
In September 2003, the Board of Directors authorized a program for the repurchase of up to $100.0 million of our common stock in the open market or in private transactions. This authorization superceded the approximately $1.0 million we had remaining under the Board’s November 2002 authorization. As of January 31, 2004, we had repurchased under this program 2,108,100 shares at a cost of $42.4 million in private transactions and 2,570,100 shares at a cost of $42.6 million in open market transactions. Under all authorized programs during fiscal 2003, we repurchased 6,263,850 shares of our common stock at a cost of $109.2 million, with an average repurchase price of $17.43 per share. As of January 29, 2005, we had repurchased under the September 2003 program 2,108,100 shares at a cost of $42.4 million in private transactions and 3,054,600 shares at a cost of $51.4 million in open market transactions, for a total of 5,162,700 shares at an average price per share of $18.17. During fiscal 2004, a total of 484,500 shares at a cost of $8.7 million were repurchased under this program at an average price per share of $17.96.
4647
THE MEN’SMENS’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In June 2004, the Board of Directors authorized a program for the repurchase of up to $50.0 million of our common stock in the open market or in private transactions. This authorization superceded the approximately $6.2 million we had remaining under the September 2003 authorization. As of January 29, 2005, a total of 149,100 shares at a cost of $2.5 million were repurchased in open market transactions under this program at an average price per share of $16.66.
In May 2005, the Board of Directors approved a replenishment of our share repurchase program to $50.0 million by authorizing $43.0 million to be added to the remaining $7.0 million under the June 2004 authorization program. As of January 28, 2006, a total of 1,696,000 shares at a cost of $49.8 million were repurchased in open market transactions under this program at an average price per share of $29.36. On January 25, 2006, the Board of Directors authorized a new $100.0 million share repurchase program of our common stock. This authorization superceded the approximately $0.2 million we had remaining under the May 2005 authorization. No shares have beenwere repurchased under this program as of January 28, 2006. The remaining balance available
During fiscal 2005, a total of 3,199,750 shares at a cost of $90.3 million were repurchased in open market transactions under the January 2006 authorizationall authorized programs at January 28, 2006 is $100.0 million.an average price per share of $28.21.
The following table shows activity under ourthe January 2006 treasury stock repurchase program during fiscal 20052006 (in thousands, except share data and average price per share):
| Average | ||||||||||||
| Price Per | ||||||||||||
| Shares | Cost | Share | ||||||||||
| Repurchases under the June 2004 program in open market transactions | 1,503,750 | $ | 40,490 | $ | 26.93 | |||||||
| Repurchases under the May 2005 program in open market transactions | 1,696,000 | 49,790 | 29.36 | |||||||||
| Total shares repurchased during fiscal 2005 | 3,199,750 | $ | 90,280 | $ | 28.21 | |||||||
| Average | ||||||||||||
| Price Per | ||||||||||||
| Shares | Cost | Share | ||||||||||
| Repurchases under the program in open market transactions | 1,134,000 | $ | 40,289 | $ | 35.53 | |||||||
| Total shares repurchased during fiscal 2006 | 1,134,000 | $ | 40,289 | $ | 35.53 | |||||||
The remaining balance available under the January 2006 authorization at February 3, 2007 is $59.7 million.
A reconciliation of our treasury shares for the past three fiscal years is provided below:
| Treasury | ||||
| Shares | ||||
| Balance, January 31, 2004 | 10,469,135 | |||
| Treasury stock issued to profit sharing plan | (65,616 | ) | ||
| Purchases of treasury stock | 633,600 | |||
| Balance, January 29, 2005 | 11,037,119 | |||
| Treasury stock issued to profit sharing plan | (67,628 | ) | ||
| Purchases of treasury stock | 3,199,750 | |||
| Balance, January 28, 2006 | 14,169,241 | |||
| Treasury stock issued to profit sharing plan | (68,564 | ) | ||
| Purchases of treasury stock | 1,134,000 | |||
| Balance, February 3, 2007 | 15,234,677 | |||
48
THE MENS’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 the company shareholders. There was no issued preferred stock as of January 29, 200528, 2006 and January 28, 2006.February 3, 2007.
47
Stock Plans
We have adopted the 1992 Stock Option Plan (“1992 Plan”) which, as amended, provides for the grant of options to purchase up to 1,607,261 shares of our common stock to full-time key employees (excluding certain officers); 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 there of) 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 which provides for an aggregate of up to 900,000 shares of our common stock (or the fair market value there of) 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. The 1992 Plan expired in February 2002 and eachEach of the other plans will expire at the end of ten years following the effective date of such plan; no awards may be granted pursuant to the plans after the expiration date. The 1996 Plan will expire March 29, 2014, ten years following its amended and restated effective date. In fiscal 1992, we also 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 Director Plan’s termination date was extended to February 23, 2012. Options granted under these plans must be exercised within ten years of the date of grant.
Generally, options granted pursuant to the employee plans vest at the rate of 1/3 of the shares covered by the grant on each of the first three anniversaries of the date of grant. However, a significant portion of 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 stock appreciation rights, restricted stock, deferred stock units or performance based awards will be determined by the Compensation Committee of the Company’s Board of Directors. Options granted under the Director Plan vest one year after the date of grant and are issued at a price equal to the fair market value of our stock on the date of grant; provided, however, that the committee who administers the Director Plan may elect to grant stock appreciation rights, having such terms and conditions as the committee determines, in lieu of any option grant. Restricted stock awards granted under the Director Plan vest one year after the date of grant. Grants of deferred stock units generally vest over a three year period; however, certain grants vest annually at varying increments over a period up to seven years.
As of February 3, 2007, 1,652,034 shares were available for grant under existing plans and 3,599,752 shares of common stock were reserved for future issuance.
4849
THE MEN’SMENS’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stock Options
The following table is a summary of our stock option activity:
| Shares Under | Weighted Average | Options | Shares Under | Weighted-Average | Options | |||||||||||||||||||
| Option | Exercise Price | Exercisable | Option | Exercise Price | Exercisable | |||||||||||||||||||
| Options outstanding, February 1, 2003 | 4,505,681 | $ | 14.06 | 2,696,751 | ||||||||||||||||||||
| Granted | 912,188 | $ | 11.48 | |||||||||||||||||||||
| Exercised | (632,162 | ) | $ | 11.99 | ||||||||||||||||||||
| Forfeited | (113,300 | ) | $ | 13.82 | ||||||||||||||||||||
| Options outstanding, January 31, 2004 | 4,672,407 | $ | 13.84 | 2,166,741 | 4,672,407 | $ | 13.84 | 2,166,741 | ||||||||||||||||
| Granted | 367,500 | $ | 19.52 | 367,500 | $ | 19.52 | ||||||||||||||||||
| Exercised | (734,342 | ) | $ | 13.28 | (734,342 | ) | $ | 13.28 | ||||||||||||||||
| Forfeited | (172,783 | ) | $ | 12.29 | (172,783 | ) | $ | 12.29 | ||||||||||||||||
| Options outstanding, January 29, 2005 | 4,132,782 | $ | 14.51 | 2,021,213 | 4,132,782 | $ | 14.51 | 2,021,213 | ||||||||||||||||
| Granted | 21,000 | $ | 31.54 | 21,000 | $ | 31.54 | ||||||||||||||||||
| Exercised | (1,667,477 | ) | $ | 13.69 | (1,667,477 | ) | $ | 13.69 | ||||||||||||||||
| Forfeited | (479,760 | ) | $ | 14.17 | (479,760 | ) | $ | 14.17 | ||||||||||||||||
| Options outstanding, January 28, 2006 | 2,006,545 | $ | 15.58 | 935,516 | 2,006,545 | $ | 15.58 | 935,516 | ||||||||||||||||
| Granted | 16,500 | $ | 41.68 | |||||||||||||||||||||
| Exercised | (573,689 | ) | $ | 15.86 | ||||||||||||||||||||
| Forfeited | (15,340 | ) | $ | 11.85 | ||||||||||||||||||||
| Options outstanding, February 3, 2007 | 1,434,016 | $ | 15.81 | 669,772 | ||||||||||||||||||||
Grants of stock options outstanding as of January 28, 2006February 3, 2007 are summarized as follows:
| Options Outstanding | Options Exercisable | |||||||||||||||||||
| Weighted- | ||||||||||||||||||||
| Average | Weighted- | Weighted- | ||||||||||||||||||
| Remaining | Average | Average | ||||||||||||||||||
| Range of | Number | Contractual | Exercise | Number | Exercise | |||||||||||||||
Exercise Prices | Outstanding | Life | Price | Exercisable | Price | |||||||||||||||
| $ 7.97 to 10.00 | 214,526 | 6.9 Years | $ | 8.52 | 54,027 | $ | 8.55 | |||||||||||||
| 10.00 to 18.00 | 1,464,668 | 5.4 Years | 14.77 | 781,385 | 14.77 | |||||||||||||||
| 18.00 to 21.50 | 92,497 | 7.1 Years | 20.64 | 28,750 | 20.14 | |||||||||||||||
| 21.50 to 34.64 | 234,854 | 6.9 Years | 25.13 | 71,354 | 29.53 | |||||||||||||||
| $ 7.97 to 34.64 | 2,006,545 | 5.9 Years | $ | 15.58 | 935,516 | $ | 15.70 | |||||||||||||
| Options Outstanding | ||||||||||||||||||||||||||||
| Weighted- | Options Exercisable | |||||||||||||||||||||||||||
| Average | Weighted- | Aggregate | Weighted- | Aggregate | ||||||||||||||||||||||||
| Remaining | Average | Intrinsic | Average | Intrinsic | ||||||||||||||||||||||||
| Range of | Number | Contractual | Exercise | Value | Number | Exercise | Value | |||||||||||||||||||||
Exercise Prices | Outstanding | Life | Price | (000’s) | Exercisable | Price | (000’s) | |||||||||||||||||||||
| $ 7.97 to 12.00 | 232,234 | 6.1 Years | $ | 9.55 | $ | 7,959 | 82,983 | $ | 9.29 | $ | 2,866 | |||||||||||||||||
| 12.00 to 15.00 | 536,447 | 5.2 Years | 14.36 | 15,801 | 267,195 | 14.37 | 7,869 | |||||||||||||||||||||
| 15.00 to 20.00 | 420,489 | 4.1 Years | 16.22 | 11,604 | 281,742 | 16.31 | 7,752 | |||||||||||||||||||||
| 20.00 to 25.00 | 197,994 | 7.7 Years | 21.62 | 4,396 | 18,000 | 21.58 | 400 | |||||||||||||||||||||
| 25.00 to 43.82 | 46,852 | 5.7 Years | 35.25 | 402 | 19,852 | 32.98 | 215 | |||||||||||||||||||||
| $ 7.97 to 43.82 | 1,434,016 | 5.4 Years | $ | 15.81 | $ | 40,162 | 669,772 | $ | 15.30 | $ | 19,102 | |||||||||||||||||
| Fiscal Year | ||||||||||||
| 2004 | 2005 | 2006 | ||||||||||
| Risk-free interest rates | 3.55 | % | 4.09 | % | 4.74 | % | ||||||
| Expected lives | 6 years | 6 years | 5 years | |||||||||
| Dividend yield | 0 | % | 0 | % | 0.58 | % | ||||||
| Expected volatility | 50.93 | % | 48.24 | % | 42.68 | % | ||||||
50
THE MENS’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The difference betweenexpected volatility is based on historical volatility of our common stock. The risk-free interest rate is based on the optionU.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 and the fair market value of our common stock onat the dates thattime of declaration. The total intrinsic value of options for 632,162, 734,342 and 1,667,477 shares of common stock were exercised during fiscal 2003, 2004, 2005 and 2005, respectively, resulted in a tax benefit to us of $1.62006 was $5.3 million, $1.8$26.2 million and $9.6$12.4 million, respectively,respectively. As of February 3, 2007, we have unrecognized compensation expense related to nonvested stock options of approximately $3.4 million which has beenis expected to be recognized as capital in excessover a weighted average period of par.2.5 years.
Restricted Stock and Deferred Stock Units
The following table is a summary of our restricted stock and deferred stock unit activity:
| Weighted- | ||||||||
| Average | ||||||||
| Grant-Date | ||||||||
Nonvested Shares | Shares | Fair Value | ||||||
| Nonvested at January 31, 2004 | 6,000 | $ | 15.53 | |||||
| Granted | 12,000 | $ | 20.62 | |||||
| Vested | (6,000 | ) | $ | 15.53 | ||||
| Forfeited | — | $ | — | |||||
| Nonvested at January 29, 2005 | 12,000 | $ | 20.62 | |||||
| Granted | 530,960 | $ | 28.33 | |||||
| Vested | (12,000 | ) | $ | 20.62 | ||||
| Forfeited | (18,072 | ) | $ | 27.77 | ||||
| Nonvested at January 28, 2006 | 512,888 | $ | 28.35 | |||||
| Granted | 92,252 | $ | 36.14 | |||||
| Vested(1) | (76,985 | ) | $ | 28.69 | ||||
| Forfeited | (14,453 | ) | $ | 28.16 | ||||
| Nonvested at February 3, 2007 | 513,702 | $ | 28.69 | |||||
| (1) | Includes 19,164 shares relinquished for tax payments related to the vested deferred stock units. |
During fiscal 2004, 2005 and 2006, 12,000, 530,960, and 92,252 restricted and deferred stock units, respectively, were granted at a weighted-average grant date fair value of $20.62, $28.33, and $36.14, respectively. As of February 3, 2007, we have unrecognized compensation expense related to nonvested restricted stock and deferred stock units of approximately $9.2 million which is expected to be recognized over a weighted average period of 2.1 years. The total fair value of shares vested during fiscal 2004, 2005 and 2006 was $0.1 million, $0.4 million and $2.8 million, respectively. At February 3, 2007, there were total nonvested shares of 513,702, including 105,800 nonvested restricted shares.
51
THE MENS’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A reconciliation of the nonvested restricted shares is provided below:
Nonvested Restricted Shares | Shares | |||
| Nonvested at January 31, 2004 | 6,000 | |||
| Granted | 12,000 | |||
| Vested | (6,000 | ) | ||
| Forfeited | — | |||
| Nonvested at January 29, 2005 | 12,000 | |||
| Granted | 105,800 | |||
| Vested | (12,000 | ) | ||
| Forfeited | — | |||
| Nonvested at January 28, 2006 | 105,800 | |||
| Granted | 9,000 | |||
| Vested | (9,000 | ) | ||
| Forfeited | — | |||
| Nonvested at February 3, 2007 | 105,800 | |||
During fiscal 2003, 2004, 2005 and 2005, 6,000,2006, 12,000, 9,000 and 9,000 restricted stock shares, respectively, were granted to our outside directors under the Director Plan at an average grant price of $15.53, $20.62, $34.64 and $34.64$43.82 per share, respectively.
49
On November 11, 2005, we entered into a Second Amended and Restated Employment Agreement (“Agreement”) with David H. Edwab, Vice Chairman of the Company. Simultaneously with the execution of this Agreement, we granted to Mr. Edwab 96,800 shares of restricted stock under the 1996 Long-Term Incentive Plan at a grant price per share of $30.00, which shall vest in equal numbers over a five-year period beginning on February 6, 2007. In exchange for the issuance of the restricted shares, options to purchase 165,000 shares of our common stock which were held by Mr. Edwab were cancelled.
Employee Profit Sharing and Stock Purchase Plans
We have a profit sharing plan, in the form of an employee stock ownership plan, which covers all eligible employees,is a stock bonus plan, and an employee tax-deferred savings plan, which is a profit sharing plan. Both plans cover all eligible employees. Contributions to the profit sharingemployee stock ownership plan are made at the discretion of the Board of Directors. Employer matching contributions to the profit sharing plan are made based on a formula set by the Board of Directors from time to time. During fiscal 2003, 2004, 2005 and 2005,2006, contributions charged to operations were $1.7 million, $2.2 million, $2.9 million and $2.9$3.5 million, respectively, for the plans.
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 on the first day of the offering period or the fair market value on the last day of the offering period. We make no contributions to this plan but pay all brokerage, service and other costs incurred. Effective for offering periods beginning July 1, 2002, the plan was amended so that a participant may not purchase more than 125 shares during any calendar quarter.
52
THE MENS’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 | ||||||||||||
| 2004 | 2005 | 2006 | ||||||||||
| Risk-free interest rates | 1.50 | % | 3.33 | % | 4.77 | % | ||||||
| Expected lives | 0.25 | 0.25 | 0.25 | |||||||||
| Dividend yield | 0 | % | 0 | % | 0.58 | % | ||||||
| Expected volatility | 32.28 | % | 31.43 | % | 39.07 | % | ||||||
During fiscal 2003, 2004, 2005 and 2005,2006, employees purchased 72,293, 73,817, 65,596 and 65,59662,543 shares, respectively, under the ESDP, the weighted-average fair value of which was $10.27, $15.18, $21.76 and $21.76$27.64 per share, respectively. We recognized approximately $0.7 million of stock-based compensation expense related to the ESDP for fiscal 2006. As of January 28, 2006, 1,593,159February 3, 2007, 1,530,616 shares were reserved for future issuance under the ESDP.
| 7. | Goodwill and Other Intangible Assets |
Changes in the net carrying amount of goodwill for the years ended January 29, 200528, 2006 and January 28, 2006February 3, 2007 are as follows (in thousands):
| Balance, January 31, 2004 | $ | 43,867 | ||||||
| Goodwill of acquired business | 10,538 | |||||||
| Translation adjustment | 1,419 | |||||||
| Balance, January 29, 2005 | 55,824 | $ | 55,824 | |||||
| Translation adjustment | 1,777 | 1,777 | ||||||
| Balance, January 28, 2006 | $ | 57,601 | 57,601 | |||||
| Translation adjustment | (734 | ) | ||||||
| Balance, February 3, 2007 | $ | 56,867 | ||||||
50
The gross carrying amount and accumulated amortization of our other intangibles, which are included in other assets in the accompanying balance sheet, are as follows (in thousands):
| January 29, | January 28, | January 28, | February 3, | |||||||||||||
| 2005 | 2006 | 2006 | 2007 | |||||||||||||
| Trademarks, tradenames and other intangibles | $ | 9,733 | $ | 9,733 | $ | 9,733 | $ | 9,316 | ||||||||
| Accumulated amortization | (3,307 | ) | (4,261 | ) | (4,261 | ) | (4,418 | ) | ||||||||
| Net total | $ | 6,426 | $ | 5,472 | $ | 5,472 | $ | 4,898 | ||||||||
The pretax amortization expense associated with intangible assets totaled approximately $737,000, $857,000, $954,000 and $954,000$897,000 for fiscal 2003, 2004, 2005 and 2005,2006, respectively. Pretax amortization expense associated with intangible assets at January 28, 2006February 3, 2007 is estimated to be approximately $771,000 for the fiscal year 2006, $678,000$811,000 for each of the fiscal years 2007 and 2008, $661,000$794,000 for the fiscal year 2009, and $628,000$551,000 for the fiscal year 2010.2010 and $497,000 for the fiscal year 2011.
| 8. | Accounting for Derivative Instruments and Hedging |
In connection with our direct sourcing program, we may enter into purchase commitments that are denominated in a foreign currency (primarily the Euro). Our practices include entering into foreign currency forward exchange contracts to minimize foreign currency exposure related to forecasted purchases of certain inventories. Under SFAS No. 133, such contracts have been designated as and accounted for as cash flow hedges. The settlement terms of the forward contracts, including amount, currency and maturity, correspond with payment terms for the merchandise inventories. Any ineffective portion (arising from the change in the difference between the spot rate and the forward rate) of a hedge is reported in earnings immediately. At January 28, 2006, we had three contracts maturing in varying increments to purchase an aggregate notional amount of $1.2 million in foreign currency, maturing at various dates through April 2006. At January 29, 2005,February 3, 2007, we had 24no contracts maturing in varying increments to purchase an aggregate notional amount of $9.0 million in foreign currency, maturing at various dates through December 2005.outstanding. During fiscal
53
THE MENS’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2005 and 2006, no pre-tax hedge ineffectiveness was recognized. During fiscal 2004, and 2005, we recognized an insignificant amount of$60 thousand pre-tax hedge ineffectiveness.ineffectiveness was recognized.
The changes in the fair value of the foreign currency forward exchange contracts are matched to inventory purchases by period and are recognized in earnings as such inventory is sold. The fair value of the forward exchange contracts is estimated 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 year-end. We expect to recognize in earnings through April 2006 an immaterial amount of existing net losses presently deferred in accumulated other comprehensive income.
| 9. | Related Party Transactions |
On August 16, 2004, we purchased a store (land and building, which we had been leasing) in Dallas, Texas for $1.0 million from 8239 Preston Road, Inc., a Texas corporation of which George Zimmer, Chairman of the Board and CEO of the Company, James E. Zimmer, Senior Vice President-Merchandising of the Company, and Richard Goldman, a former officer and director of the Company, each owned 20% of the outstanding common stock, and Laurie Zimmer, sister of George and James E. Zimmer, owned 40% of the outstanding common stock.
On August 20, 2004, we purchased a 1980 Gulfstream III aircraft from Regal Aviation L.L.C. (“Regal Aviation”) for $5.0 million. Regal Aviation operates a private air charter service and is a limited liability company of which George Zimmer owns 99%. In addition, on August 20, 2004, we entered into a leasing arrangement with Regal Aviation under which Regal Aviation operates, manages and markets the aircraft as well as provides the appropriate flight personnel and services. The aircraft is utilized to provide air transportation from time to time for George Zimmer and is leased to third parties for charter. On August 31, 2006, Regal Aviation sold substantially all of its assets to an unrelated third party who now provides us those services previously provided by Regal Aviation.
On October 15, 2004, we purchased a warehouse facility located in Houston, Texas (the “Facility”) from Zig Zag for $0.7 million. Zig Zag is a Texas joint venture, in which Richard E. Goldman, George Zimmer and
51
James E. Zimmer were the sole and equal joint venturers. Prior to the purchase of the Facility, we leased the Facility from Zig Zag.
Based on the results of recent appraisals and review of the terms of other Regal Aviation leasing arrangements with unrelated third parties, we believe that the terms of the aircraft purchase and leasing agreements and the terms of the store purchase and the Facility purchase were comparable to what would have been available to us from unaffiliated third parties at the time such agreements were entered into.
54
THE MENS’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| 10. | 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 2003, 2004, 2005 and 20052006 was $90.0 million, $95.7 million, $101.4 million and $101.4$112.9 million, respectively, and includes contingent rentals of $0.8 million, $0.6 million $0.8 million and $0.6$0.7 million, respectively. Minimum future rental payments under noncancelable capital and operating leases as of January 28, 2006February 3, 2007 for each of the next five years and in the aggregate are as follows (in thousands):
| Operating | Capital | Operating | Capital | |||||||||||||
Fiscal Year | Leases | Leases | Leases | Leases | ||||||||||||
| 2006 | $ | 104,589 | $ | 878 | ||||||||||||
| 2007 | 95,289 | 744 | $ | 113,917 | $ | 1,079 | ||||||||||
| 2008 | 84,316 | 601 | 105,529 | 943 | ||||||||||||
| 2009 | 71,721 | 440 | 92,773 | 784 | ||||||||||||
| 2010 | 55,811 | 268 | 76,426 | 611 | ||||||||||||
| 2011 | 57,847 | 430 | ||||||||||||||
| Thereafter | 109,346 | 278 | 143,725 | 627 | ||||||||||||
| Total | $ | 521,072 | 3,209 | $ | 590,217 | 4,474 | ||||||||||
| Amounts representing interest | (710 | ) | (1,127 | ) | ||||||||||||
| Capital lease obligations | $ | 2,499 | $ | 3,347 | ||||||||||||
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.
At February 3, 2007, the gross capitalized balance and the accumulated depreciation balance of our capital lease assets was $5.2 million and $2.1 million, respectively, resulting in a net capitalized value of $3.1 million. At January 28, 2006, the gross capitalized balance and the accumulated depreciation balance of our capital lease assets was $4.2 million and $2.0 million, respectively, resulting in a net capitalized value of $2.2 million. At January 29, 2005, the gross capitalized balance and the accumulated depreciation balance of our capital lease assets was $3.6 million and $2.2 million, respectively, resulting in a net capitalized value of $1.4 million. These assets are included in furniture, fixtures and equipment on the balance sheet. The deferred liability balance of these capital lease assets is included in deferred taxes and other liabilities on the balance sheet.
In March 2007, we entered into a three year transportation agreement, commencing April 2, 2007, with Ryder Integrated Logistics, Inc., to execute shipments from vendors to our distribution facilities in Houston, Texas, and from the distribution facilities to regional transportation hubs or stores within a regional service area. The transportation agreement terminated leasing agreements we had in place as of the end of fiscal 2006 for our long-haul tractors and trailers. As a result, our total future lease commitments will be reduced by approximately $0.3 million for operating leases and approximately $3.1 million for capital lease obligations.
Legal matters
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.
5255
THE MEN’SMENS’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| 11. |
| Fiscal Year | ||||||||||||
| 2004 | 2005 | 2006 | ||||||||||
| Net sales: | ||||||||||||
| Men’s tailored clothing product | $ | 746,812 | $ | 809,601 | $ | 859,777 | ||||||
| Men’s non-tailored clothing product | 580,621 | 644,836 | 705,734 | |||||||||
| Other clothing product | 53,808 | 73,089 | 75,789 | |||||||||
| Total clothing product | 1,381,241 | 1,527,526 | 1,641,300 | |||||||||
| Tuxedo rental | 77,488 | 96,196 | 119,487 | |||||||||
| Alteration services | 77,776 | 84,824 | 102,277 | |||||||||
| Retail dry cleaning services | 10,174 | 16,352 | 19,000 | |||||||||
| Total tuxedo rental, alteration and other services | 165,438 | 197,372 | 240,764 | |||||||||
| Total net sales | $ | 1,546,679 | $ | 1,724,898 | $ | 1,882,064 | ||||||
| Net sales by brand: | ||||||||||||
| MW | $ | 1,043,473 | $ | 1,129,043 | $ | 1,216,226 | ||||||
| K&G | 314,948 | 384,216 | 418,291 | |||||||||
| Moores | 174,906 | 193,496 | 228,547 | |||||||||
| Other | 13,352 | 18,143 | 19,000 | |||||||||
| $ | 1,546,679 | $ | 1,724,898 | $ | 1,882,064 | |||||||
| 12. | Pending Acquisitions |
On November 16, 2006, we entered into a definitive stock purchase agreement with Federated Department Stores, Inc. and David’s Bridal, Inc. to acquire After Hours Formalwear, Inc. (“After Hours”) for a cash consideration of $100.0 million, subject to certain adjustments. After Hours is the largest men’s formalwear chain in the United States and operates 507 stores in 35 states under After Hours Formalwear and Mr. Tux store fronts. After Hours has an exclusive relationship with David’s Bridal, Inc., the nation’s largest bridal retailer with 269 stores and an online offering. That exclusivity will remain effective after the acquisition and will be extended to Men’s Wearhouse and Moores store brands. The acquisition is conditioned upon, among other things, the termination or expiration of the waiting period under theHart-Scott-Rodino Antitrust Improvements Act of 1976 and other customary closing conditions. On March 23, 2007, we announced that the Federal Trade Commision had terminated its review and that we expect to close the acquisition on or before April 9, 2007.
56
THE MENS’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| 13. | 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 20042005 and 20052006 fiscal years are presented below (in thousands, except per share amounts):
| Fiscal 2004 Quarters Ended | Fiscal 2005 Quarters Ended | |||||||||||||||||||||||||||||||
| May 1, | July 31, | October 30, | January 29, | April 30, | July 30, | October 29, | January 28, | |||||||||||||||||||||||||
| 2004 | 2004 | 2004 | 2005 | 2005 | 2005 | 2005 | 2006 | |||||||||||||||||||||||||
| Net sales | $ | 360,729 | $ | 369,480 | $ | 357,795 | $ | 458,675 | $ | 411,649 | $ | 423,576 | $ | 392,695 | $ | 496,978 | ||||||||||||||||
| Gross margin | 137,810 | 145,456 | 139,356 | 180,382 | 165,783 | 168,296 | 157,829 | 205,227 | ||||||||||||||||||||||||
| Net earnings | $ | 15,055 | $ | 18,380 | $ | 12,878 | $ | 25,043 | $ | 22,704 | $ | 24,386 | $ | 24,079 | $ | 32,734 | ||||||||||||||||
| Net earnings per share: | ||||||||||||||||||||||||||||||||
| Basic | $ | 0.28 | $ | 0.34 | $ | 0.24 | $ | 0.46 | $ | 0.42 | $ | 0.45 | $ | 0.45 | $ | 0.62 | ||||||||||||||||
| Diluted | $ | 0.27 | $ | 0.33 | $ | 0.23 | $ | 0.45 | $ | 0.41 | $ | 0.43 | $ | 0.44 | $ | 0.60 | ||||||||||||||||
| Fiscal 2005 Quarters Ended | Fiscal 2006 Quarters Ended | |||||||||||||||||||||||||||||||
| April 30, | July 30, | October 29, | January 28, | April 29, | July 29, | October 28, | February 3, | |||||||||||||||||||||||||
| 2005 | 2005 | 2005 | 2006 | 2006 | 2006 | 2006 | 2007 | |||||||||||||||||||||||||
| Net sales | $ | 411,649 | $ | 423,576 | $ | 392,695 | $ | 496,978 | $ | 434,564 | $ | 460,587 | $ | 430,068 | $ | 556,845 | ||||||||||||||||
| Gross margin | 165,783 | 168,296 | 157,829 | 205,227 | 182,829 | 199,123 | 185,378 | 248,375 | ||||||||||||||||||||||||
| Net earnings | $ | 22,704 | $ | 24,386 | $ | 24,079 | $ | 32,734 | $ | 28,856 | $ | 35,621 | $ | 31,774 | $ | 52,324 | ||||||||||||||||
| Net earnings per share: | ||||||||||||||||||||||||||||||||
| Basic | $ | 0.42 | $ | 0.45 | $ | 0.45 | $ | 0.62 | $ | 0.54 | $ | 0.67 | $ | 0.60 | $ | 0.99 | ||||||||||||||||
| Diluted | $ | 0.41 | $ | 0.43 | $ | 0.44 | $ | 0.60 | $ | 0.53 | $ | 0.65 | $ | 0.58 | $ | 0.95 | ||||||||||||||||
Due to the method of calculating weighted average common shares outstanding, the sum of the quarterly per share amounts may not equal earnings per share for the respective years.
5357
| 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
Our management, with the participation of the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures (as defined inRules 13a-15(e) and15d-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, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports filed or submitted under the Exchange Act, within the time periods specified in the SEC’s rules and forms.
Internal Control over Financial Reporting
Management’s Report on Internal Control Over Financial Reporting and the Attestation Report of the Registered Public Accounting Firm thereon appear on pages 3130 and 32,31, respectively, of this Annual Report onForm 10-K. There were no changes in our internal control over financial reporting that occurred during the fourth quarter of fiscal 20052006 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| Item 9B. | Other Information |
None
PART III
| Item 10. | Directors and Executive Officers of the Company |
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 21, 2006.13, 2007.
The Company has adopted a Code of Ethics for Senior Management which applies to the Company’s 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 Company’s website,www.menswearhouse.comwww.tmw.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 21, 2006.13, 2007.
5458
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The following table sets forth certain equity compensation plan information for the Company as of January 28, 2006.February 3, 2007.
| Number of | Weighted- | Number of Securities | Number of | Weighted- | Number of Securities | |||||||||||||||||||
| Securities to be | Average | Remaining Available for | Securities to be | Average | Remaining Available for | |||||||||||||||||||
| Issued Upon | Exercise | Future Issuance Under | Issued Upon | Exercise | Future Issuance Under | |||||||||||||||||||
| Exercise of | Price of | Equity Compensation | Exercise of | Price of | Equity Compensation | |||||||||||||||||||
| Outstanding | Outstanding | Plans (Excluding | Outstanding | Outstanding | Plans (Excluding | |||||||||||||||||||
| Options | Options | securities in column (a)) | Options | Options | Securities in Column (a)) | |||||||||||||||||||
Plan Category | (a) | (b) | (c) | (a) | (b) | (c) | ||||||||||||||||||
| Equity Compensation Plans Approved by Security Holders | 1,346,603 | 10.04 | 1,496,106 | 1,190,208 | 9.40 | 1,413,696 | ||||||||||||||||||
Equity Compensation Plans Not Approved by Security Holders(1) | 1,172,830 | 15.13 | 237,772 | |||||||||||||||||||||
| Equity Compensation Plans Not Approved by Security Holders(1) | 757,510 | 15.16 | 238,338 | |||||||||||||||||||||
| Total | 2,519,433 | 12.41 | 1,733,878 | 1,947,343 | 11.65 | 1,652,034 | ||||||||||||||||||
| (1) | The Company has adopted the 1998 Key Employee Stock Option Plan (the “1998 Plan”) which, as amended, provides for the grant of options to purchase up to 3,150,000 shares of the Company’s common stock to full-time key employees (excluding executive officers), of which | |
| In connection with the merger with K&G Men’s Center, Inc. in June 1999, the Company granted substitute options to certain holders of options to purchase shares of common stock of K&G Men’s Center, Inc. who were not eligible to participate in the Company’s stock option plans at a weighted-average exercise price of $32.26. Of the 93,201 shares initially reserved for issuance pursuant to such options, options covering 8,707 shares remain unexercised at this time. | ||
| In connection with other acquisitions, the Company entered into employment or consulting arrangements with certain key individuals at the acquired companies and issued to them options to purchase 33,750 shares at an exercise price of $16.17 and 48,000 shares at an exercise price of $10.65, of which 21,000 shares remain unexercised. |
The additional information required by Item 12 is incorporated herein by reference from the Company’s Proxy Statement for its Annual Meeting of Shareholders to be held June 21, 2006.13, 2007.
| Item 13. | Certain Relationships and Related Transactions |
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 21, 2006.13, 2007.
| 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 21, 2006.13, 2007.
5559
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:
Management’s Report on Internal Control over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of January 29, 200528, 2006 and January 28, 2006February 3, 2007
Consolidated Statements of Earnings for the years ended January 31, 2004, January 29, 2005, and January 28, 2006 and February 3, 2007
Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the years ended January 31, 2004, January 29, 2005, and January 28, 2006 and February 3, 2007
Consolidated Statements of Cash Flows for the years ended January 31, 2004, January 29, 2005, and January 28, 2006 and February 3, 2007
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule II — Valuation and Qualifying Accounts
The Men’s Wearhouse, Inc.
(In thousands)
| Balance at | Charged to | Charged to | Deductions | Balance at | Balance at | Charged to | Charged to | Deductions | Balance at | |||||||||||||||||||||||||||||||||||||||
| Beginning | Costs and | Other | from | Translation | End of | Beginning | Costs and | Other | from | Translation | End of | |||||||||||||||||||||||||||||||||||||
| of Period | Expenses | Accounts(4) | Reserve(2) | Adjustment | Period | of Period | Expenses | Accounts(5) | Reserve(3) | Adjustment | Period | |||||||||||||||||||||||||||||||||||||
Allowance for uncollectible accounts(1): | ||||||||||||||||||||||||||||||||||||||||||||||||
| Year ended January 31, 2004 | $ | 441 | $ | 360 | $ | — | $ | (411 | ) | $ | 3 | $ | 393 | |||||||||||||||||||||||||||||||||||
Allowance for uncollectible accounts(1)(2): | ||||||||||||||||||||||||||||||||||||||||||||||||
| Year ended January 29, 2005 | 393 | 300 | — | (289 | ) | 1 | 405 | $ | 333 | $ | 323 | $ | — | $ | (289 | ) | $ | 1 | $ | 368 | ||||||||||||||||||||||||||||
| Year ended January 28, 2006 | 405 | 145 | — | (276 | ) | 2 | 276 | 368 | 162 | — | (276 | ) | 2 | 256 | ||||||||||||||||||||||||||||||||||
Allowance for sales returns(1)(3): | ||||||||||||||||||||||||||||||||||||||||||||||||
| Year ended January 31, 2004 | $ | 325 | $ | (53 | ) | $ | 92 | $ | — | $ | — | $ | 364 | |||||||||||||||||||||||||||||||||||
| Year ended February 3, 2007 | 256 | 153 | — | (173 | ) | (1 | ) | 235 | ||||||||||||||||||||||||||||||||||||||||
Allowance for sales returns(1)(4): | ||||||||||||||||||||||||||||||||||||||||||||||||
| Year ended January 29, 2005 | 364 | (96 | ) | 158 | — | — | 426 | $ | 364 | $ | (96 | ) | $ | 158 | $ | — | $ | — | $ | 426 | ||||||||||||||||||||||||||||
| Year ended January 28, 2006 | 426 | (67 | ) | 39 | — | — | 398 | 426 | (67 | ) | 39 | — | — | 398 | ||||||||||||||||||||||||||||||||||
| Year ended February 3, 2007 | 398 | 23 | 100 | — | — | 521 | ||||||||||||||||||||||||||||||||||||||||||
Inventory reserves(1): | ||||||||||||||||||||||||||||||||||||||||||||||||
| Year ended January 31, 2004 | $ | 7,134 | $ | (588 | ) | $ | — | $ | — | $ | 311 | $ | 6,857 | |||||||||||||||||||||||||||||||||||
| Year ended January 29, 2005 | 6,857 | 48 | — | — | 192 | 7,097 | $ | 6,857 | $ | 48 | $ | — | $ | — | $ | 192 | $ | 7,097 | ||||||||||||||||||||||||||||||
| Year ended January 28, 2006 | 7,097 | 449 | — | — | 298 | 7,844 | 7,097 | 449 | — | — | 298 | 7,844 | ||||||||||||||||||||||||||||||||||||
| Year ended February 3, 2007 | 7,844 | (153 | ) | — | — | (120 | ) | 7,571 | ||||||||||||||||||||||||||||||||||||||||
| (1) | The allowance for uncollectible accounts, the allowance for sales returns and the inventory reserves are evaluated at the end of each fiscal quarter and adjusted based on the evaluation. |
| (2) | The allowance for uncollectible accounts relates to third-party credit card providers and other trade receivables. As referred to in Note 1 of the Notes to Consolidated Financial Statements, certain previously reported amounts have been reclassified to conform to the current period presentation. (See Note 1 of the Notes to Consolidated Financial Statements for additional information). | |
| (3) | Consists primarily of write-offs of bad debt. | |
| Allowance for sales returns is included in accrued expenses. | ||
| Deducted from net sales. |
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.
5660
3. Exhibits
| Exhibit | Exhibit | Exhibit | ||||||||||
Number | Number | Exhibit | Number | Exhibit | ||||||||
| 3 | .1 | — | Restated Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Company’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 30, 1994). | 2 | .1 | — | Stock Purchase Agreement dated November 16, 2006, by and among Federated Department Stores, Inc., David’s Bridal, Inc. and The Men’s Wearhouse, Inc. (incorporated by reference from Exhibit 2.1 to the Company’s Current Report onForm 8-K filed with the Commission on November 17, 2006). | |||||
| 3 | .1 | — | Restated Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Company’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 30, 1994). | |||||||||
| 3 | .2 | — | By-laws, as amended (incorporated by reference from Exhibit 3.2 to the Company’s Annual Report onForm 10-K for the fiscal year ended February 1, 1997). | |||||||||
| 3 | .2 | — | By-laws, as amended (incorporated by reference from Exhibit 3.2 to the Company’s Annual Report onForm 10-K for the fiscal year ended February 1, 1997). | 3 | .3 | — | Articles of Amendment to the Restated Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Company’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 31, 1999). | |||||
| 4 | .1 | — | Restated Articles of Incorporation (included as Exhibit 3.1). | |||||||||
| 4 | .2 | — | By-laws (included as Exhibit 3.2). | |||||||||
| 3 | .3 | — | Articles of Amendment to the Restated Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Company’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 31, 1999). | 4 | .3 | — | Form of Common Stock certificate (incorporated by reference from Exhibit 4.3 to the Company’s Registration Statement onForm S-1 (RegistrationNo. 33-45949)). | |||||
| 4 | .4 | — | Articles of Amendment to the Restated Articles of Incorporation (included as Exhibit 3.3). | |||||||||
| 4 | .5 | — | Amended and Restated Credit Agreement, dated as of December 21, 2005, by and among The Men’s Wearhouse, Inc., Moores The Suit People Inc., Golden Brand Clothing (Canada) Ltd., the financial institutions from time to time parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and JPMorgan Chase Bank, N.A. as Canadian Agent. (incorporated by reference from Exhibit 10.1 to the Company’s Current Report onForm 8-K filed with the Commission on December 27, 2005). | |||||||||
| 4 | .1 | — | Restated Articles of Incorporation (included as Exhibit 3.1). | 4 | .6 | — | Term Sheet Agreement dated as of January 29, 2003 evidencing the uncommitted CAN$10 million facility of National City Bank, Canada Branch to Golden Brand Clothing (Canada) Ltd. (incorporated by reference from Exhibit 4.7 to the Company’s Annual Report onForm 10-K for the fiscal year ended February 1, 2003). | |||||
| 4 | .7 | — | Agreement and Amendment to Amended and Restated Credit Agreement effective as of January 31, 2007, by and among the Company, Moores The Suit People Inc., Golden Brand Clothing (Canada) Ltd., the financial institutions from time to time party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference from Exhibit 4.1 to the Company’s Current Report onForm 8-K filed with the Commission on February 7, 2007) | |||||||||
| *10 | .1 | — | 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 Company’s Current Report onForm 8-K filed with the Commission on March 18, 2005). | |||||||||
| 4 | .2 | — | By-laws (included as Exhibit 3.2). | *10 | .2 | — | Stock Agreement dated as of March 23, 1992, between the Company and George Zimmer (incorporated by reference from Exhibit 10.13 to the Company’s Registration Statement onForm S-1 (RegistrationNo. 33-45949)). | |||||
| *10 | .3 | — | Split-Dollar Agreement and related Split-Dollar Collateral Assignment dated November 25, 1994 between the Company, George Zimmer and David Edwab, Co-Trustee of the Zimmer 1994 Irrevocable Trust (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report onForm 10-K for the fiscal year ended January 28, 1995). | |||||||||
| *10 | .4 | — | 1996 Long-Term Incentive Plan (As Amended and Restated Effective March 29, 2004), including 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 Company’s Current Report onForm 8-K filed with the Commission on March 18, 2005). | |||||||||
| 4 | .3 | — | Form of Common Stock certificate (incorporated by reference from Exhibit 4.3 to the Company’s Registration Statement onForm S-1 (RegistrationNo. 33-45949)). | *10 | .5 | — | 1998 Key Employee Stock Option Plan (incorporated by reference from Exhibit 10.18 to the Company’s Annual Report onForm 10-K for the fiscal year ended January 31, 1998). | |||||
| *10 | .6 | — | First Amendment to 1998 Key Employee Stock Option Plan (incorporated by reference from Exhibit 4.1 to the Company’s Registration Statement onForm S-8 (registrationNo. 333-80033)). | |||||||||
| *10 | .7 | �� | Second Amendment to 1998 Key Employee Stock Option Plan (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report onForm 10-K for the fiscal year ended January 29, 2000). | |||||||||
| 4 | .4 | — | Articles of Amendment to the Restated Articles of Incorporation (included as Exhibit 3.3). | |||||||||
| 4 | .5 | — | Amended and Restated Credit Agreement, dated as of December 21, 2005, by and among The Men’s Wearhouse, Inc., Moores The Suit People Inc., Golden Brand Clothing (Canada) Ltd., the financial institutions from time to time parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and JPMorgan Chase Bank, N.A. as Canadian Agent. (incorporated by reference from Exhibit 10.1 to the Company’s Current Report onForm 8-K filed with the Commission on December 27, 2005). | |||||||||
| 4 | .6 | — | Term Sheet Agreement dated as of January 29, 2003 evidencing the uncommitted CAN$10 million facility of National City Bank, Canada Branch to Golden Brand Clothing (Canada) Ltd. (incorporated by reference from Exhibit 4.7 to the Company’s Annual Report onForm 10-K for the fiscal year ended February 1, 2003). | |||||||||
| 4 | .7 | — | Indenture (including form of note) dated October 21, 2003 among the Company and JPMorgan Chase Bank, as trustee, relating to the Company’s 3.125% Convertible Senior Notes due 2023 (incorporated by reference from Exhibit 4.1 to the Company’s Quarterly Report onForm 10-Q for the fiscal quarter ended November 1, 2003). | |||||||||
| 4 | .8 | — | Registration Rights Agreement dated October 21, 2003 among the Company and Bear Stearns & Co. Inc., Wachovia Capital Markets, LLC, J.P. Morgan Securities Inc., Fleet Securities, Inc. (incorporated by reference from Exhibit 4.2 to the Company’s Quarterly Report onForm 10-Q for the fiscal quarter ended November 1, 2003). | |||||||||
| 4 | .9 | — | Supplemental Indenture dated January 28, 2005, by and between the Company and JPMorgan Chase Bank, National Association (incorporated by reference from Exhibit 4.1 to the Company’s Current Report onForm 8-K filed with the Commission on January 28, 2005). | |||||||||
| *10 | .1 | — | 1992 Stock Option Plan (incorporated by reference from Exhibit 10.5 to the Company’s Registration Statement onForm S-1 (RegistrationNo. 33-45949)). | |||||||||
| *10 | .2 | — | First Amendment to 1992 Stock Option Plan (incorporated by Reference from Exhibit 10.9 to the Company’s Registration Statement onForm S-1 (RegistrationNo. 33-60516)). | |||||||||
| *10 | .3 | — | 1992 Non-Employee Director Stock Option Plan (As Amended and Restated Effective January 1, 2004), including the forms of stock option agreement and restricted stock award agreement (incorporated by reference from Exhibit 10.1 to the Company’s Current Report onForm 8-K filed with the Commission on March 18, 2005). | |||||||||
| *10 | .4 | — | Stock Agreement dated as of March 23, 1992, between the Company and George Zimmer (incorporated by reference from Exhibit 10.13 to the Company’s Registration Statement onForm S-1 (RegistrationNo. 33-45949)). | |||||||||
| *10 | .5 | — | Split-Dollar Agreement and related Split-Dollar Collateral Assignment dated November 25, 1994 between the Company, George Zimmer and David Edwab, Co-Trustee of the Zimmer 1994 Irrevocable Trust (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report onForm 10-K for the fiscal year ended January 28, 1995). | |||||||||
| *10 | .6 | — | 1996 Long-Term Incentive Plan (As Amended and Restated Effective March 29, 2004), including the forms of stock option agreement, restricted stock award agreement and deferred stock unit award agreement (incorporated by reference from Exhibit 10.2 to the Company’s Current Report onForm 8-K filed with the Commission on March 18, 2005). | |||||||||
5761
| Exhibit | Exhibit | Exhibit | ||||||||||
Number | Number | Exhibit | Number | Exhibit | ||||||||
| *10 | .7 | — | 1998 Key Employee Stock Option Plan (incorporated by reference from Exhibit 10.18 to the Company’s Annual Report onForm 10-K for the fiscal year ended January 31, 1998). | *10 | .8 | — | 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 Company’s Annual Report onForm 10-K for the fiscal year ended February 2, 2002). | |||||
| *10 | .9 | — | 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 Company’s Annual Report onForm 10-K for the fiscal year ended February 2, 2002). | |||||||||
| *10 | .10 | — | 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 Company’s Annual Report onForm 10-K for the fiscal year ended February 2, 2002). | |||||||||
| *10 | .8 | — | First Amendment to 1998 Key Employee Stock Option Plan (incorporated by reference from Exhibit 4.1 to the Company’s Registration Statement onForm S-8 (registrationNo.333-80033)). | *10 | .11 | — | Second Amended and Restated Employment Agreement effective as of October 1, 2005, by and between the Company and David H. Edwab (incorporated by reference from Exhibit 10.1 to the Company’s Current Report onForm 8-K filed with the Commission on November 14, 2005). | |||||
| *10 | .12 | — | 2004 Long-Term Incentive Plan (incorporated by reference from Exhibit 10.1 to the Company’s Annual Report onForm 10-K for the fiscal year ended January 29, 2005). | |||||||||
| *10 | .13 | — | Split-Dollar Agreement dated as of June 21, 2006, by and between The Men’s Wearhouse, Inc. and George Zimmer (incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 29, 2006). | |||||||||
| *10 | .9 | — | Second Amendment to 1998 Key Employee Stock Option Plan (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report onForm 10-K for the fiscal year ended January 29, 2000). | 10 | .14 | — | Employee Stock Ownership Plan, Amendment and Restatement Effective December 31, 2006 (filed herewith). | |||||
| 21 | .1 | — | Subsidiaries of the Company (filed herewith). | |||||||||
| 23 | .1 | — | Consent of Deloitte & Touche LLP, independent auditors (filed herewith). | |||||||||
| *10 | .10 | — | 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 Company’s Annual Report onForm 10-K for the fiscal year ended February 2, 2002). | 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). | |||||||||
| *10 | .11 | — | 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 Company’s Annual Report onForm 10-K for the fiscal year ended February 2, 2002). | 32 | .2 | — | Certification of Annual Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith). | |||||
| *10 | .12 | — | 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 Company’s Annual Report onForm 10-K for the fiscal year ended February 2, 2002). | |||||||||
| *10 | .13 | — | Second Amended and Restated Employment Agreement effective as of October 1, 2005, by and between the Company and David H. Edwab (incorporated by reference from Exhibit 10.1 to the Company’s Current Report onForm 8-K filed with the Commission on November 14, 2005). | |||||||||
| 10 | .14 | — | Aircraft Lease Agreement dated August 20, 2004, by and between Regal Aviation LLC and MW Sky LLC (incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 31, 2004). | |||||||||
| *10 | .15 | — | 2004 Long-Term Incentive Plan (incorporated by reference from Exhibit 10.1 to the Company’s Annual Report onForm 10-K for the fiscal year ended January 29, 2005). | |||||||||
| 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). | |||||||||
| * | 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 Company’s 20062007 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.
5862
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 Men’s Wearhouse, Inc.
| By | /s/ George Zimmer |
George Zimmer
Chairman of the Board and
Chief Executive Officer
Dated: April 13, 20064, 2007
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 capacity and on the dates indicated.
Signature | Title | Date | ||||
/s/ George Zimmer George Zimmer | Chairman of the Board, Chief Executive Officer and Director | April | ||||
/s/ Neill P. Davis Neill P. Davis | Executive Vice President, Chief Financial Officer, Treasurer and Principal Financial Officer | April | ||||
/s/ Diana M. Wilson Diana M. Wilson | Senior Vice President, Chief Accounting Officer and Principal Accounting Officer | April | ||||
/s/ David H. Edwab David H. Edwab | Vice Chairman of the Board and Director | April | ||||
/s/ Rinaldo S. Brutoco Rinaldo S. Brutoco | Director | April | ||||
/s/ Michael L. Ray Michael L. Ray | Director | April | ||||
/s/ Sheldon I. Stein Sheldon I. Stein | Director | April | ||||
/s/ Kathleen Mason Kathleen Mason | Director | April | ||||
/s/ | Director | April | ||||
/s/ William B. Sechrest William B. Sechrest | Director | April 4, 2007 | ||||
5963
Exhibit Index
| Exhibit | Exhibit | Exhibit | ||||||||||
Number | Number | Exhibit | Number | Exhibit | ||||||||
| 3 | .1 | — | Restated Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Company’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 30, 1994). | 2 | .1 | — | Stock Purchase Agreement dated November 16, 2006, by and among Federated Department Stores, Inc., David’s Bridal, Inc. and The Men’s Wearhouse, Inc. (incorporated by reference from Exhibit 2.1 to the Company’s Current Report onForm 8-K filed with the Commission on November 17, 2006). | |||||
| 3 | .1 | — | Restated Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Company’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 30, 1994). | |||||||||
| 3 | .2 | — | By-laws, as amended (incorporated by reference from Exhibit 3.2 to the Company’s Annual Report onForm 10-K for the fiscal year ended February 1, 1997). | |||||||||
| 3 | .2 | — | By-laws, as amended (incorporated by reference from Exhibit 3.2 to the Company’s Annual Report onForm 10-K for the fiscal year ended February 1, 1997). | 3 | .3 | — | Articles of Amendment to the Restated Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Company’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 31, 1999). | |||||
| 4 | .1 | — | Restated Articles of Incorporation (included as Exhibit 3.1). | |||||||||
| 4 | .2 | — | By-laws (included as Exhibit 3.2). | |||||||||
| 3 | .3 | — | Articles of Amendment to the Restated Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Company’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 31, 1999). | 4 | .3 | — | Form of Common Stock certificate (incorporated by reference from Exhibit 4.3 to the Company’s Registration Statement onForm S-1 (RegistrationNo. 33-45949)). | |||||
| 4 | .4 | — | Articles of Amendment to the Restated Articles of Incorporation (included as Exhibit 3.3). | |||||||||
| 4 | .5 | — | Amended and Restated Credit Agreement, dated as of December 21, 2005, by and among The Men’s Wearhouse, Inc., Moores The Suit People Inc., Golden Brand Clothing (Canada) Ltd., the financial institutions from time to time parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and JPMorgan Chase Bank, N.A. as Canadian Agent. (incorporated by reference from Exhibit 10.1 to the Company’s Current Report onForm 8-K filed with the Commission on December 27, 2005). | |||||||||
| 4 | .1 | — | Restated Articles of Incorporation (included as Exhibit 3.1). | 4 | .6 | — | Term Sheet Agreement dated as of January 29, 2003 evidencing the uncommitted CAN$10 million facility of National City Bank, Canada Branch to Golden Brand Clothing (Canada) Ltd. (incorporated by reference from Exhibit 4.7 to the Company’s Annual Report onForm 10-K for the fiscal year ended February 1, 2003). | |||||
| 4 | .7 | — | Agreement and Amendment to Amended and Restated Credit Agreement effective as of January 31, 2007, by and among the Company, Moores The Suit People Inc., Golden Brand Clothing (Canada) Ltd., the financial institutions from time to time party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference from Exhibit 4.1 to the Company’s Current Report onForm 8-K filed with the Commission on February 7, 2007). | |||||||||
| *10 | .1 | — | 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 Company’s Current Report onForm 8-K filed with the Commission on March 18, 2005). | |||||||||
| 4 | .2 | — | By-laws (included as Exhibit 3.2). | *10 | .2 | — | Stock Agreement dated as of March 23, 1992, between the Company and George Zimmer (incorporated by reference from Exhibit 10.13 to the Company’s Registration Statement onForm S-1 (RegistrationNo. 33-45949)). | |||||
| *10 | .3 | — | Split-Dollar Agreement and related Split-Dollar Collateral Assignment dated November 25, 1994 between the Company, George Zimmer and David Edwab, Co-Trustee of the Zimmer 1994 Irrevocable Trust (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report onForm 10-K for the fiscal year ended January 28, 1995). | |||||||||
| *10 | .4 | — | 1996 Long-Term Incentive Plan (As Amended and Restated Effective March 29, 2004), including 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 Company’s Current Report onForm 8-K filed with the Commission on March 18, 2005). | |||||||||
| 4 | .3 | — | Form of Common Stock certificate (incorporated by reference from Exhibit 4.3 to the Company’s Registration Statement onForm S-1 (RegistrationNo. 33-45949)). | *10 | .5 | — | 1998 Key Employee Stock Option Plan (incorporated by reference from Exhibit 10.18 to the Company’s Annual Report onForm 10-K for the fiscal year ended January 31, 1998). | |||||
| *10 | .6 | — | First Amendment to 1998 Key Employee Stock Option Plan (incorporated by reference from Exhibit 4.1 to the Company’s Registration Statement onForm S-8 (registrationNo. 333-80033)). | |||||||||
| *10 | .7 | — | Second Amendment to 1998 Key Employee Stock Option Plan (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report onForm 10-K for the fiscal year ended January 29, 2000). | |||||||||
| 4 | .4 | — | Articles of Amendment to the Restated Articles of Incorporation (included as Exhibit 3.3). | |||||||||
| 4 | .5 | — | Amended and Restated Credit Agreement, dated as of December 21, 2005, by and among The Men’s Wearhouse, Inc., Moores The Suit People Inc., Golden Brand Clothing (Canada) Ltd., the financial institutions from time to time parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and JPMorgan Chase Bank, N.A. as Canadian Agent. (incorporated by reference from Exhibit 10.1 to the Company’s Current Report onForm 8-K filed with the Commission on December 27, 2005). | |||||||||
| 4 | .6 | — | Term Sheet Agreement dated as of January 29, 2003 evidencing the uncommitted CAN$10 million facility of National City Bank, Canada Branch to Golden Brand Clothing (Canada) Ltd. (incorporated by reference from Exhibit 4.7 to the Company’s Annual Report onForm 10-K for the fiscal year ended February 1, 2003). | |||||||||
| 4 | .7 | — | Indenture (including form of note) dated October 21, 2003 among the Company and JPMorgan Chase Bank, as trustee, relating to the Company’s 3.125% Convertible Senior Notes due 2023 (incorporated by reference from Exhibit 4.1 to the Company’s Quarterly Report onForm 10-Q for the fiscal quarter ended November 1, 2003). | |||||||||
| 4 | .8 | — | Registration Rights Agreement dated October 21, 2003 among the Company and Bear Stearns & Co. Inc., Wachovia Capital Markets, LLC, J.P. Morgan Securities Inc., Fleet Securities, Inc. (incorporated by reference from Exhibit 4.2 to the Company’s Quarterly Report onForm 10-Q for the fiscal quarter ended November 1, 2003). | |||||||||
| 4 | .9 | — | Supplemental Indenture dated January 28, 2005, by and between the Company and JPMorgan Chase Bank, National Association (incorporated by reference from Exhibit 4.1 to the Company’s Current Report onForm 8-K filed with the Commission on January 28, 2005). | |||||||||
| *10 | .1 | — | 1992 Stock Option Plan (incorporated by reference from Exhibit 10.5 to the Company’s Registration Statement onForm S-1 (RegistrationNo. 33-45949)). | |||||||||
| *10 | .2 | — | First Amendment to 1992 Stock Option Plan (incorporated by Reference from Exhibit 10.9 to the Company’s Registration Statement onForm S-1 (RegistrationNo. 33-60516)). | |||||||||
| *10 | .3 | — | 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 Company’s Current Report onForm 8-K filed with the Commission on March 18, 2005). | |||||||||
| *10 | .4 | — | Stock Agreement dated as of March 23, 1992, between the Company and George Zimmer (incorporated by reference from Exhibit 10.13 to the Company’s Registration Statement onForm S-1 (RegistrationNo. 33-45949)). | |||||||||
| *10 | .5 | — | Split-Dollar Agreement and related Split-Dollar Collateral Assignment dated November 25, 1994 between the Company, George Zimmer and David Edwab, Co-Trustee of the Zimmer 1994 Irrevocable Trust (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report onForm 10-K for the fiscal year ended January 28, 1995). | |||||||||
| *10 | .6 | — | 1996 Long-Term Incentive Plan (As Amended and Restated Effective March 29, 2004), including 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 Company’s Current Report onForm 8-K filed with the Commission on March 18, 2005). | |||||||||
| Exhibit | Exhibit | Exhibit | ||||||||||
Number | Number | Exhibit | Number | Exhibit | ||||||||
| *10 | .7 | — | 1998 Key Employee Stock Option Plan (incorporated by reference from Exhibit 10.18 to the Company’s Annual Report onForm 10-K for the fiscal year ended January 31, 1998). | *10 | .8 | — | 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 Company’s Annual Report onForm 10-K for the fiscal year ended February 2, 2002). | |||||
| *10 | .9 | — | 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 Company’s Annual Report onForm 10-K for the fiscal year ended February 2, 2002). | |||||||||
| *10 | .10 | — | 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 Company’s Annual Report onForm 10-K for the fiscal year ended February 2, 2002). | |||||||||
| *10 | .8 | — | First Amendment to 1998 Key Employee Stock Option Plan (incorporated by reference from Exhibit 4.1 to the Company’s Registration Statement onForm S-8 (registrationNo. 333-80033)). | *10 | .11 | — | Second Amended and Restated Employment Agreement effective as of October 1, 2005, by and between the Company and David H. Edwab (incorporated by reference from Exhibit 10.1 to the Company’s Current Report onForm 8-K filed with the Commission on November 14, 2005). | |||||
| *10 | .12 | — | 2004 Long-Term Incentive Plan (incorporated by reference from Exhibit 10.1 to the Company’s Annual Report onForm 10-K for the fiscal year ended January 29, 2005). | |||||||||
| *10 | .13 | — | Split-Dollar Agreement dated as of June 21, 2006, by and between The Men’s Wearhouse, Inc. and George Zimmer (incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 29, 2006). | |||||||||
| *10 | .9 | — | Second Amendment to 1998 Key Employee Stock Option Plan (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report onForm 10-K for the fiscal year ended January 29, 2000). | 10 | .14 | — | Employee Stock Ownership Plan, Amendment and Restatement Effective December 31, 2006 (filed herewith). | |||||
| 21 | .1 | — | Subsidiaries of the Company (filed herewith). | |||||||||
| 23 | .1 | — | Consent of Deloitte & Touche LLP, independent auditors (filed herewith). | |||||||||
| *10 | .10 | — | 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 Company’s Annual Report onForm 10-K for the fiscal year ended February 2, 2002). | 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). | |||||||||
| *10 | .11 | — | 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 Company’s Annual Report onForm 10-K for the fiscal year ended February 2, 2002). | 32 | .2 | — | Certification of Annual Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith). | |||||
| *10 | .12 | — | 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 Company’s Annual Report onForm 10-K for the fiscal year ended February 2, 2002). | |||||||||
| *10 | .13 | — | Second Amended and Restated Employment Agreement effective as of October 1, 2005, by and between the Company and David H. Edwab (incorporated by reference from Exhibit 10.1 to the Company’s Current Report onForm 8-K filed with the Commission on November 14, 2005). | |||||||||
| 10 | .14 | — | Aircraft Lease Agreement dated August 20, 2004, by and between Regal Aviation LLC and MW Sky LLC (incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 31, 2004). | |||||||||
| *10 | .15 | — | 2004 Long-Term Incentive Plan (incorporated by reference from Exhibit 10.1 to the Company’s Annual Report onForm 10-K for the fiscal year ended January 29, 2005). | |||||||||
| 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). | |||||||||
| * | Management Compensation or Incentive Plan |