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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-20036
THE MEN'S WEARHOUSE, INC.
(Exact Name of Registrant as Specified in its Charter)
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TEXAS 74-1790172
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
5803 GLENMONT DRIVE 77081
HOUSTON, TEXAS (Zip Code)
(Address of Principal Executive Offices)
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(713) 592-7200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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NONE
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
5 1/4% CONVERTIBLE SUBORDINATED NOTES DUE 2003
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]. No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the closing price of shares of Common Stock on the
Nasdaq National Market System on April 24, 1998, was approximately $943.8
million.
The number of shares of Common Stock of the Registrant outstanding on April
24, 1998 was 22,143,073, excluding 11,923 shares classified as Treasury Stock.
DOCUMENTS INCORPORATED BY REFERENCE
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DOCUMENT INCORPORATED AS TO
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Notice and Proxy Statement for the Annual Part III: Items 10, 11, 12 and 13
Meeting of
Shareholders scheduled to be held June 24, 1998.
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FORM 10-K REPORT INDEX
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10-K PART PAGE
AND ITEM NO. NO.
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 7
Item 3. Legal Proceedings........................................... 8
Item 4. Submission of Matters to a Vote of Security Holders......... 8
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters....................................... 9
Item 6. Selected Financial Data..................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
Item 8. Financial Statements and Supplementary Data................. 18
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 31
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 31
Item 11. Executive Compensation...................................... 31
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 31
Item 13. Certain Relationships and Related Transactions.............. 31
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 31
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PART I
ITEM 1. BUSINESS
GENERAL
The Men's Wearhouse commenced operations in 1973 as a partnership and was
incorporated as The Men's Wearhouse, Inc. under the laws of Texas in May 1974.
Its principal executive offices are located at 5803 Glenmont Drive, Houston,
Texas 77081 (telephone number 713/592-7200), and at 40650 Encyclopedia Circle,
Fremont, California 94538 (telephone number 510/657-9821).
As used herein, the term "Men's Wearhouse" refers to The Men's Wearhouse,
Inc. and its wholly owned subsidiaries, exclusive of Value Priced Clothing, Inc.
and its wholly owned subsidiary, Value Priced Clothing II, Inc. (collectively
referred to as "VPC"), and the term the "Company" refers to The Men's Wearhouse,
Inc. and its wholly owned subsidiaries including VPC. Additionally, the
terminology a "Men's Wearhouse store" or a "traditional store" refers to a
traditional Men's Wearhouse store, while a "VPC store" refers to stores operated
by VPC under the names "C&R ", "NAL" and "Suit Warehouse".
THE COMPANY
The Company is one of the largest off-price specialty retailers of men's
tailored business attire in the United States. As of January 31, 1998, the
Company operated 396 stores in 37 states, with approximately 37% of its
locations in Texas and California.
The Company operates its stores in the following formats:
MEN'S WEARHOUSE. Men's Wearhouse targets middle and upper middle
income men with a strategy of providing value to its customers by offering
quality merchandise at consistent, everyday low prices with a superior
level of customer service. Men's Wearhouse stores offer a broad selection
of designer, brand name and private label merchandise at prices it believes
are typically 20% to 30% below the regular retail prices of traditional
department and specialty store prices. The price of suits generally ranges
from $199 to $499. The Company considers its merchandise, which includes
suits, sport coats, slacks, outerwear, dress shirts, shoes and accessories,
conservative. By concentrating on tailored business attire, a category of
men's clothing characterized by infrequent and more predictable fashion
changes, the Company believes it is not as exposed to trends typical of
more fashion-forward apparel retailers, where markdowns and promotional
pricing are more prevalent. At January 31, 1998, the Company operated 371
Men's Wearhouse stores in 37 states and the District of Columbia.
VALUE PRICED CLOTHING. The Company launched VPC in late 1996 to
address the market for a more price sensitive customer. The Company
believes that a large portion of customers in the men's tailored clothing
market is motivated by low prices rather than superior service. VPC offers
a selection of brand names and private label merchandise that the Company
believes is typically 30% to 50% below the regular retail prices of
traditional department store and specialty store prices. The price of suits
generally ranges from $99 to $199. At January 31, 1998, the Company
operated 25 VPC stores in four states.
STORE OPERATIONS AND EXPANSION
The Company's expansion strategy includes opening additional traditional
stores in new and existing markets and increasing its net sales and
profitability in its existing markets. In general terms, a market is defined as
a geographic area served by a common group of television stations. On a limited
basis, the Company has acquired store locations, inventories, customer lists,
trademarks and tradenames from existing local menswear retailers in both new and
existing markets, and may do so in the future. At present, the Company plans to
open approximately 50 new traditional stores during 1998 and to continue its
expansion in subsequent years.
The Company has focused on acquiring and growing its VPC store format and
has completed three acquisitions between January 1997 and February 1998. Those
acquisitions included: (i) the January 1997
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acquisition of C&R Clothiers ("C&R"), a privately held retailer of 17 men's
tailored clothing stores in Southern California, (ii) the May 1997 acquisition
of Walter Pye's Men's Shops, Inc. ("NAL") which operated four stores in the
greater Houston area and one in each of San Antonio, Texas and New Orleans,
Louisiana and (iii) the February 1998 acquisition of T.H.C., Inc. ("Suit
Warehouse") operating four stores in metropolitan Detroit.
The Company, through VPC, has begun a process to integrate and develop
these acquired operations over the next eight to twelve months to achieve a
singular store format and focus. This process will include a move toward a
common average store size, ranging from 10,000 to 15,000 square feet, with hours
of operation from Friday through Sunday only in most markets. In conjunction
with this effort, the Company expects to utilize a common format and name to
build brand awareness with targeted customers. To achieve this singular focus
and format, the Company intends to open a limited number of new VPC stores,
convert some existing stores to this format, close some nonconforming stores and
consider acquisition opportunities.
As a result of the consolidation of the men's tailored clothing industry,
the Company has been and expects to continue to be presented with significant
opportunities for growth within its industry. Such opportunities may include,
but are not limited to, increased direct sourcing of merchandise, including
possible ventures with apparel manufacturers, acquisitions of menswear retailers
and the acquisition or licensing of designer or nationally recognized brand
labels.
MERCHANDISING
Men's Wearhouse stores offer a broad selection of designer, brand name and
private label men's business attire, including a consistent stock of core items
(such as navy blazers, tuxedos and basic suits) and considers its merchandise
conservative. Although basic styles are emphasized, each season's merchandise
does reflect current fabric and color trends, and a small percentage of
inventory, accessories in particular, is usually more fashion oriented. The
broad merchandise selection creates increased sales opportunities by permitting
a customer to purchase substantially all of his tailored wardrobe and accessory
requirements, including shoes, at a Men's Wearhouse store. Within its tailored
clothing, Men's Wearhouse offers an assortment of styles from a variety of
manufacturers and maintains a broad selection of fabrics and colors. The Company
believes that the depth of selection it offers at Men's Wearhouse provides it
with an advantage over most of its competitors.
In 1995, Men's Wearhouse expanded its inventory mix to include "business
casual" merchandise designed to meet increased demand for such product resulting
from the trend toward more relaxed dress codes in the workplace. The added
merchandise consists of tailored and non-tailored clothing that complements the
existing product mix and provides opportunity for enhanced sales without
significant inventory risk. The expanded inventory includes, among other things,
more sport coats, casual slacks, knits and woven sports shirts, sweaters and
casual shoes.
The Company believes its Men's Wearhouse stores differ from most other
off-price retailers in that the Company does not purchase significant quantities
of merchandise overruns or close-outs. Men's Wearhouse stores provide
recognizable quality merchandise at consistent prices that assist the customer
in identifying the value available at Men's Wearhouse. The Company believes that
the merchandise at Men's Wearhouse stores is generally offered 20% to 30% below
traditional department and specialty store regular prices. Men's Wearhouse
affixes a ticket to each item, which displays Men's Wearhouse selling price
alongside the price the Company regards as the regular retail price of the item.
At the check-out counter, the customer's receipt reflects the savings from what
the Company considers the regular retail price.
By targeting men's tailored business attire, a category of men's clothing
characterized by infrequent and more predictable fashion changes, the Company
believes it is not as exposed to trends typical of more fashion-forward apparel
retailers. This allows Men's Wearhouse stores to carry basic merchandise over to
the following season and reduces the need for markdowns; for example, a navy
blazer or gray business suit may be carried over to the next season. Men's
Wearhouse has a once-a-year sale that commences the day after Christmas and runs
through the month of January, during which prices on many items are reduced 20%
to 50% off the everyday low prices. This sale reduces stock at year-end and
prepares for the arrival of the new season's merchandise.
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During 1995, 1996 and 1997, 74%, 72% and 71%, respectively, of the
Company's net sales were attributable to tailored clothing (suits, sport coats
and slacks), and 26%, 28% and 29%, respectively, were attributable to
accessories and other items.
Customers may pay for merchandise with cash, check or nationally recognized
credit cards.
CUSTOMER SERVICE AND MARKETING
Men's Wearhouse sales personnel are trained as clothing consultants to
provide customers with assistance and advice on their apparel needs, including
product style, color coordination, fabric and garment fit. Clothing consultants
attend an intensive training program at the Company's training facility in
Fremont, California, which is further supplemented with weekly store meetings,
periodic merchandise meetings, and frequent interaction with multi-unit managers
and merchandise managers.
Men's Wearhouse encourages its clothing consultants to be friendly and
knowledgeable and to promptly greet each customer entering the store. The
consultants are encouraged to offer guidance to the customer at each stage of
the decision-making process, making every effort to earn the customer's
confidence and to create a professional relationship that will continue beyond
the initial visit. Clothing consultants are also encouraged to contact customers
after the purchase or pick-up of tailored clothing to determine whether
customers are satisfied with their purchases and, if necessary, to take
corrective action. Store personnel have full authority to respond to customer
complaints and reasonable requests, including the approval of returns,
exchanges, refunds, re-alterations and other special requests, all of which the
Company believes helps promote customer satisfaction and loyalty.
Each Men's Wearhouse store provides on-site tailoring services to
facilitate timely alterations at a reasonable cost to customers. Tailored
clothing purchased at a Men's Wearhouse store will be pressed and re-altered (if
the alterations were performed at a Men's Wearhouse store) free of charge for
the life of the garment.
Because management believes that men prefer direct and easy store access,
the Company attempts to locate Men's Wearhouse stores in neighborhood strip and
specialty retail centers or in freestanding buildings to enable customers to
park near the entrance of the store.
The Company's annual advertising expenditures, which were $27.4 million,
$31.0 million and $38.0 million in 1995, 1996 and 1997, respectively, are
significant. However, the Company believes that once it attracts prospective
customers, the experience of shopping in its stores will be the primary factor
encouraging subsequent visits. Men's Wearhouse advertises principally on
television and radio, which it considers the most effective means of attracting
and reaching potential customers, and its advertising campaign is designed to
reinforce its image of providing value and customer service. "I guarantee it" is
a long standing phrase associated with Men's Wearhouse and its advertising
campaign. In the advertisements, the Company's Chief Executive Officer and
co-founder guarantees customer satisfaction with the apparel purchased, the
quality of tailoring and the total shopping experience.
PURCHASING AND DISTRIBUTION
The Company purchases merchandise from approximately 200 vendors. In 1997,
one vendor accounted for approximately 10% of purchases; however, management
does not believe that the loss of such vendor or any other vendor would
significantly impact the Company. While the Company has no material long-term
contracts with its vendors, the Company believes that it has developed an
excellent relationship with its vendors, which is supported by consistent
purchasing practices.
The Company believes it obtains favorable buying opportunities relative to
many of its competitors. The Company does not request cooperative advertising
support from manufacturers, which reduces the manufacturers' costs of doing
business and enables them to offer lower prices to the Company. Further, the
Company believes it obtains better discounts by entering into purchase
arrangements that provide for limited return policies, although the Company
always retains the right to return goods that are damaged upon receipt or
determined to be improperly manufactured. Finally, volume purchasing of
specifically planned quantities
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purchased well in advance of the season enables more efficient production runs
by manufacturers, who, in turn, are provided the opportunity to pass some of the
cost savings back to the Company.
During 1993, the Company expanded its inventory sourcing capabilities by
implementing a direct sourcing program. Under this program, the Company
purchases fabric from mills and contracts with certain factories for the
assembly of the end product (suits, sport coats, slacks, shirts or shoes). Such
arrangements for fabric and assembly have been with both domestic and foreign
mills and factories. Previous purchases from such mills and factories had been
through other suppliers. Product acquired during 1995, 1996 and 1997 through the
direct sourcing program represented approximately 20%, 28% and 31%,
respectively, of total inventory purchases, and the Company expects that
purchases through such program will represent approximately 35% of total
purchases in 1998.
To protect against currency exchange risks associated with certain firmly
committed and certain other probable, but not firmly committed inventory
transactions denominated in a foreign currency, the Company enters into forward
exchange contracts. In addition, many of the purchases from foreign vendors are
financed by letters of credit.
In 1995, the Company entered into license agreements with a limited number
of parties under which the Company is entitled to use designer labels, such as
"Vito Rufolo", and nationally recognized brand labels such as "Botany" and
"Botany 500", in return for royalties paid to the licensor based on the costs of
the relevant product. These license agreements generally limit the use of the
individual label to products of a specific nature (such as men's suits, men's
formal wear or men's shirts). The labels licensed under these agreements will
continue to be used in connection with a portion of the purchases under the
direct sourcing program described above, as well as purchases from other
vendors. The Company monitors the performance of these licensed labels compared
to their cost and may elect to selectively terminate any license. During 1996,
the Company purchased several trademarks, including "Cricketeer," "Joseph &
Feiss International," "Baracuta," and "Country Britches," which will be used
similarly to the Company's licensed labels. Because of the continued
consolidation in the men's tailored clothing industry, the Company may be
presented with opportunities to acquire or license other designer or nationally
recognized brand labels.
All merchandise is received into the Company's central warehouse located in
Houston, Texas, except for merchandise intended for the VPC stores which is
principally received at VPC's Culver City, California distribution center. Once
received, merchandise is arranged by size. The computer generates bar-coded
garment tags and labels and recommends distribution of the merchandise on the
basis of each store's past performance with similar merchandise and existing
inventory levels. This distribution is reviewed by a member of the merchandise
staff and any necessary changes are made. Merchandise for a store is picked and
then moved to the appropriate staging area for shipping. In addition to the
central distribution center in Houston, the Company has additional space within
certain Men's Wearhouse stores in the majority of its markets, which function as
redistribution facilities for their respective areas. The Company's executive
offices in Fremont, California also serve as a redistribution facility for the
San Francisco Bay area.
The Company leases and operates 23 long-haul tractors and 45 trailers,
which, together with common carriers, ship merchandise from the vendors to the
Company's distribution facilities and from the distribution facilities to
centrally located stores within each market. The Company also leases 47 smaller
van-like trucks, which are used to ship merchandise locally or within a given
geographic region.
MANAGEMENT INFORMATION AND TELECOMMUNICATION SYSTEMS
The Company has aggressively pursued the implementation of technology which
provides the opportunity for competitive advantage, and which leverages human
resources. By implementing a sophisticated management information system, and by
integrating it with a highly functional telecommunication system, the Company
has effectively managed the operation of its business and its inventory while
experiencing substantial growth.
The Company's inventory control systems, including purchase order
management, automatic replenishment of basic items, and real-time point of sale,
have contributed to enhanced performance and profitability
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and to achieving inventory shrinkage rates that are consistently below industry
averages. The use of Electronic Data Interchange with several suppliers combined
with the use of data warehousing and decision support technologies have
substantially leveraged the efforts of the merchandising team, allowing them to
reallocate time from simple and repetitive tasks to those requiring more
analytical skills.
The Company's voice mail system has enhanced internal communication
capabilities. In addition, it has provided an actively used channel for
improving customer service, and has contributed to the Company's advertising
efforts, giving the Company access to unsolicited customer testimonials.
Due to the dramatic changes in state of the art information technology,
both in general and with regard to the retail industry, in mid-1997, the Company
commenced an enterprise-wide project to upgrade its information technology,
which is designed to increase the efficiency and the future productivity of its
operations. In completing these modifications, the Company expects to achieve
Year 2000 date conversion compliance. Capital expenditures related to the
project are anticipated to be between approximately $12.0 million and $20.0
million. The amount of expenditures related specifically to Year 2000 date
conversion compliance are not separable from this amount.
The Company employs technology in several other areas of its operations and
intends to continue its pursuit of technologies which will favorably impact
performance and/or the delivery of customer service.
COMPETITION
The Company believes that the unit demand for men's tailored clothing has
declined. The Company's primary competitors include specialty men's clothing
stores, traditional department stores, off-price retailers and
manufacturer-owned and independently-owned outlet stores. Over the past several
years market conditions have resulted in consolidation of the industry. The
Company believes that the principal competitive factors in the men's tailored
clothing market are merchandise assortment, quality, price, garment fit,
merchandise presentation, store location and customer service. The Company
attempts to distinguish itself from its competitors by providing what it
believes are the best features of each competing shopping alternative.
The Company believes that strong vendor relationships, its direct sourcing
program and the buying power of the Company are the principal factors enabling
it to obtain quality merchandise at attractive prices. The Company believes that
its vendors rely on the Company's predictable payment record and on the
Company's history of honoring all promises, including the Company's promise not
to advertise names of labeled and unlabeled designer merchandise, when
requested. Certain of the Company's competitors (principally department stores)
are larger and have substantially greater financial, marketing and other
resources than the Company and there can be no assurance that the Company will
be able to compete successfully with them in the future.
SEASONALITY
Like most retailers, the Company's business is subject to seasonal
fluctuations. Historically, over 30% of the Company's net sales and
approximately 50% of its net earnings have been generated during the fourth
quarter of each year. Because of the seasonality of the Company's business,
results for any quarter are not necessarily indicative of the results that may
be achieved for the full year. See Note 9 of Notes to Consolidated Financial
Statements.
TRADEMARKS AND SERVICE MARKS
The Company is the owner in the United States of the trademark and service
mark "The Men's Wearhouse(R)", and of federal registrations therefor expiring in
2009 and 2002, respectively, subject to renewal. The Company has also been
granted registrations for that trademark and service mark in 36 states
(including Texas and California) of the 37 states, plus the District of
Columbia, in which it does business and has used those marks. Applications for
the most recent states entered are in process. The Company's rights in the "The
Men's Wearhouse" mark are a significant part of the Company's business, as the
mark has become well
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known through the Company's television and radio advertising campaigns.
Accordingly, the Company intends to maintain its mark and the related
registrations.
The Company is also the owner in the United States of the servicemarks
"C&R", "C&R Clothiers", "Walter Pye's" and "NAL". Such marks are used to
identify the retail store services of and are the tradenames utilized by the
retail clothing stores operated by VPC.
In addition to The Men's Wearhouse, C&R Clothiers and NAL
trademarks/service marks, the Company owns or licenses other trademarks/service
marks used in the business, principally in connection with the labeling of
product purchased through the direct sourcing program.
EMPLOYEES
At January 31, 1998, the Company had approximately 6,000 employees, of whom
approximately 5,000 were full-time and approximately 1,000 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. The Company has no
collective bargaining agreements.
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ITEM 2. PROPERTIES
As of January 31, 1998, the Company operated 396 stores in 37 states and
the District of Columbia. The following table sets forth the location, by state,
of these Company stores:
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MEN'S
WEARHOUSE VPC
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California.................................................. 83 17
Texas....................................................... 42 6
Florida..................................................... 24 --
Michigan.................................................... 18 --
Illinois.................................................... 17 --
Ohio........................................................ 15 --
Washington.................................................. 13 --
Georgia..................................................... 11 1
Virginia.................................................... 11 --
Pennsylvania................................................ 10 --
Colorado.................................................... 9 --
Massachusetts............................................... 9 --
Minnesota................................................... 9 --
North Carolina.............................................. 9 --
Indiana..................................................... 8 --
Maryland.................................................... 8 --
Tennessee................................................... 8 --
Arizona..................................................... 7 --
Missouri.................................................... 7 --
Oregon...................................................... 6 --
Wisconsin................................................... 6 --
Connecticut................................................. 5 --
Utah........................................................ 5 --
South Carolina.............................................. 4 --
Alabama..................................................... 3 --
Kentucky.................................................... 3 --
Louisiana................................................... 3 1
Nevada...................................................... 3 --
Oklahoma.................................................... 3 --
Kansas...................................................... 2 --
Nebraska.................................................... 2 --
New Hampshire............................................... 2 --
District of Columbia........................................ 1 --
Idaho....................................................... 1 --
Iowa........................................................ 1 --
Mississippi................................................. 1 --
New Jersey.................................................. 1 --
New Mexico.................................................. 1 --
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Total..................................................... 371 25
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Men's Wearhouse stores vary in size from approximately 2,800 to 10,800
total square feet (average square footage at January 31, 1998 was 4,779 square
feet). Men's Wearhouse stores are primarily located in middle and upper middle
income neighborhood strip and specialty retail shopping centers. The Company
believes its customers generally prefer to limit the amount of time they spend
shopping for men's tailored clothing and seek easily accessible store sites.
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Men's Wearhouse stores are designed to further the Company's strategy of
facilitating sales while making the shopping experience pleasurable. Men's
Wearhouse attempts to create a specialty store atmosphere through effective
merchandise presentation and sizing, attractive in-store signs and efficient
check-out procedures. Most of the traditional 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.
VPC stores vary in size from approximately 5,000 to 30,700 total square
feet (average square footage at January 31, 1998 was 9,809 square feet).
The Company owns the building that houses one of its stores in Dallas,
Texas, and leases the underlying land from certain principal shareholders of the
Company. The Company leases the remainder of its 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 and maintenance expenses,
property taxes, utilities, center promotions and insurance. In certain markets,
the Company leases between 1,000 and 5,000 additional square feet in a Men's
Wearhouse store to be utilized as a redistribution facility in a geographic
area.
The Company purchased land and began construction of two stores in Seattle,
Washington and Memphis, Tennessee in 1996. During 1997, the Company sold and
leased back these properties on terms similar to those discussed in the
preceding paragraph. There was no gain or loss resulting from any of these
transactions. The Company may, on a limited basis, enter into similar
transactions in the future.
The Company owns a 240,000 square foot facility situated on approximately
seven acres of land in Houston, Texas which serves as its principal office,
warehouse and distribution facility. Approximately 40,000 square feet of this
facility is used as office space for the Company's financial, information
technology and merchandising departments with the remaining 200,000 square feet
serving as a warehouse and distribution center. During 1996, the Company
purchased a six-acre tract lot adjacent to its Houston facility to be used for
warehouse and distribution facility expansion. Construction began on the
facility in 1997 and is anticipated to be completed with the facility put into
service in June 1998. The facility will contain approximately 150,000 square
feet comprised of approximately 9,000 square feet of office space with the
remaining 141,000 serving as a warehouse and distribution center.
The Company's executive offices are housed in a 35,500 square foot facility
owned by the Company, which serves as an office, training and redistribution
facility.
The Company also leases a building, situated on one acre in Houston, Texas
and used as a supply depot, from certain principal shareholders of the Company.
The lease term on this facility runs until August 31, 2005, and is on terms that
the Company believes are no less favorable than could be obtained from an
independent third party.
During 1997, the Company closed and sold its 12,000 square foot Houston,
Texas outlet store due to its proximity to one of the stores acquired from NAL.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various routine legal proceedings, including
ongoing litigation, incidental to the conduct of its business. Management
believes that none of these matters will have a material adverse effect on the
financial condition or results of operations of the Company.
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 31, 1998.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock is traded on the Nasdaq under the symbol "SUIT." The
following table sets forth, on a per share basis for the periods indicated, the
high and low sale prices per share for the Common Stock for the two most recent
fiscal years as reported by Nasdaq.
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HIGH LOW
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FISCAL YEAR 1996
First quarter ended May 4, 1996........................... $38.50 $25.50
Second quarter ended August 3, 1996....................... 37.00 17.00
Third quarter ended November 2, 1996...................... 27.00 18.25
Fourth quarter ended February 1, 1997..................... 28.50 16.25
FISCAL YEAR 1997
First quarter ended May 3, 1997........................... $31.00 $23.00
Second quarter ended August 2, 1997....................... 37.63 25.13
Third quarter ended November 1, 1997...................... 41.25 33.50
Fourth quarter ended January 31, 1998..................... 39.75 30.00
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On April 24, 1998, there were approximately 313 holders of record and
approximately 3,900 beneficial holders of the Company's Common Stock.
The Company has not paid dividends on its Common Stock and for the
foreseeable future intends to retain all its earnings for the future operation
and expansion of its business. The Company's Credit Agreement prohibits the
payment of cash dividends. See Note 4 of Notes to Consolidated Financial
Statements.
9
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
The following selected statement of earnings and balance sheet information
for the fiscal years indicated has been derived from the Company's audited
consolidated financial statements. The Company's consolidated financial
statements as of February 1, 1997 and January 31, 1998 and for each of the three
years in the period ended January 31, 1998 were audited by Deloitte & Touche
LLP, independent auditors, whose report thereon appears elsewhere herein. 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's 52- or 53-week fiscal year, which ends on the
Saturday nearest January 31 in the following calendar year. For example,
references to "1997" mean the fiscal year ended January 31, 1998. All fiscal
years for which financial information is included herein had 52 weeks, except
1995 which had 53 weeks.
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT
PER SHARE AND PER SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales............................. $240,394 $317,127 $406,343 $483,547 $631,110
Gross margin.......................... 91,766 121,878 157,615 188,366 242,593
Operating income...................... 15,818 22,375 30,606 38,134 51,530
Net earnings.......................... 8,739 12,108 16,508 21,143 28,883
Basic earnings per share of common
stock(1)(7)........................ $ 0.49 $ 0.64 $ 0.83 $ 1.01 $ 1.34
Diluted earnings per share of common
stock(1)(7)........................ $ 0.48 $ 0.63 $ 0.82 $ 1.01 $ 1.31
Weighted average shares
outstanding(1)(7).................. 17,768 18,811 19,881 20,903 21,562
Weighted average shares outstanding
plus dilutive potential common
shares(1)(7)....................... 18,138 19,163 20,226 22,734 23,589
OPERATING INFORMATION:
Percentage increase in comparable
store sales(2)..................... 17.2% 8.4% 6.8% 3.9% 8.5%
Average square footage -- all
stores(3).......................... 4,539 4,553 4,687 4,863 5,097
Average sales per square foot of
selling space(4)................... $ 404 $ 406 $ 416 $ 413 $ 420
Number of stores:
Open at beginning of the period....... 143 183 231 278 345
Opened................................ 40 48 48 50 50
Acquired.............................. -- -- -- 17 6
Closed................................ -- -- (1) -- (5)
-------- -------- -------- -------- --------
Open at end of the period............. 183 231 278 345 396
Capital expenditures(5)................. $ 11,461 $ 23,736 $ 22,538 $ 26,222 $ 27,380
</TABLE>
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, FEBRUARY 3, FEBRUARY 1, JANUARY 31,
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Working capital..................... $ 42,689 $ 68,078 $ 88,798 $136,837 $182,561
Total assets........................ 112,176 160,494 204,105 295,478 379,415
Long-term debt and capital
leases(6)........................ 10,790 24,575 4,250 57,500 57,500
Shareholders' equity................ 57,867 84,944 136,961 159,129 220,048
</TABLE>
10
<PAGE> 13
- ---------------
(1) Adjusted to give effect to a 50% stock dividend effected on August 6, 1993
and a 50% stock dividend effected on November 15, 1995.
(2) Comparable store sales data is calculated by excluding the net sales of a
store for any month of one period if the store was not open throughout the
same month of the prior period.
(3) 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.
(4) 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.
(5) Excludes additions to capital lease property in 1993.
(6) January 31, 1998 and February 1, 1997 balances represent the 5 1/4%
Convertible Subordinated Notes Due 2003 (see Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources).
(7) Earnings per share amounts have been restated to reflect adjustments
necessary for proper presentation under Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" (see Note 2 of Notes to Consolidated
Financial Statements).
11
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Men's Wearhouse opened its first store in Houston, Texas in August 1973,
growing to 143 stores by the end of 1992 and 396 stores by January 31, 1998.
This growth has resulted in significant increases in net sales and has also
contributed to increased net earnings for the Company.
Generally, new Men's Wearhouse stores contribute toward covering corporate
overhead and other indirect costs within three months of opening, depending
primarily upon the month within which the store is opened. See "Item 1.
Business -- Seasonality." In determining store contribution, the Company
considers net sales, cost of sales and other direct store costs, but excludes
buying costs, corporate overhead, depreciation and amortization, financing costs
and advertising. Expansion is generally continued within a market as long as
management believes it will provide profitable incremental sales volume.
The Company currently intends to continue its expansion in new and existing
markets and plans to open approximately 50 new traditional stores and a limited
number of new VPC stores in 1998. The average cost (excluding telecommunications
and point-of-sale equipment and inventory) of opening a new store is expected to
be approximately $275,000 to $300,000 for a traditional store in 1998.
In addition to increases in net sales resulting from new stores and
acquisitions, the Company has experienced comparable store sales increases in
each of the past five years, including an 8.5% increase for 1997.
The Company has closed only six stores in the five years ended January 31,
1998. Generally, in determining whether to close a store, the Company considers
the store's historical and projected performance and the continued desirability
of the store's location. Store performance is continually monitored and,
occasionally, as neighborhoods and shopping areas change, management may
determine that it is in the best interest of the Company to close or relocate a
store. In 1995, the Company closed one store in California due to substandard
performance and the opening of a store at a more attractive alternative
location. In 1997, the Company closed two traditional stores in California and
two traditional stores in Texas due to substandard performance and/or the
proximity of a newly opened store. Also in 1997, after the acquisition of NAL,
the Company closed one of its outlet centers due to the proximity of an acquired
store.
The following table sets forth the Company's results of operations
expressed as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold, including buying and occupancy costs.... 61.2 61.0 61.6
----- ----- -----
Gross margin................................................ 38.8 39.0 38.4
Selling, general and administrative expenses................ 31.3 31.1 30.3
----- ----- -----
Operating income............................................ 7.5 7.9 8.1
Interest expense............................................ 0.6 0.4 0.3
----- ----- -----
Earnings before income taxes................................ 6.9 7.5 7.8
Income taxes................................................ 2.8 3.1 3.2
----- ----- -----
Net earnings................................................ 4.1% 4.4% 4.6%
===== ===== =====
</TABLE>
12
<PAGE> 15
RESULTS OF OPERATIONS
1997 Compared with 1996
The following table presents a breakdown of 1996 and 1997 net sales of the
Company by stores open in each of these periods:
<TABLE>
<CAPTION>
NET SALES
----------------------------
STORES 1996 1997 INCREASE
- ------ ------ ------ --------
(IN MILLIONS)
<S> <C> <C> <C>
56 stores opened or acquired in 1997(1).................. $ -- $ 46.6 $ 46.6
67 stores opened or acquired in 1996(2).................. 36.8 103.2 66.4
Stores opened before 1996................................ 446.7 481.3 34.6
------ ------ ------
Total.......................................... $483.5 $631.1 $147.6
====== ====== ======
</TABLE>
- ---------------
(1) Sales include $10.6 million attributable to the six NAL stores acquired in
May 1997, with the remaining $36.0 million attributable to the 50 Men's
Wearhouse stores opened in 1997.
(2) Sales include $0.9 million and $23.4 million for 1996 and 1997,
respectively, attributable to the 17 C&R stores acquired in 1996, with the
remaining $35.9 million and $79.8 million for 1996 and 1997, respectively,
attributable to the 50 Men's Wearhouse stores opened in 1996.
The Company's net sales increased $147.6 million, or 30.5%, to $631.1
million for 1997 due primarily to sales resulting from the increased number of
stores and increased sales at existing stores. 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
8.5% from 1996. The comparable store sales increase for 1997 does not include
sales from the VPC stores. Acquired VPC stores accounted for $33.1 million of
the sales increase for 1997.
Gross margin increased $54.2 million, or 28.8%, to $242.6 million in 1997.
As a percentage of sales, gross margin decreased from 39.0% in 1996 to 38.4% in
1997. This decline in gross margin predominantly resulted from the operations of
VPC stores, which have a lower product margin than traditional Men's Wearhouse
stores; however, this decline was partially offset by an increase in the gross
margin percentage for the traditional Men's Wearhouse stores, primarily due to a
decrease in occupancy costs and product costs as a percentage of sales.
Selling, general and administrative ("SG&A") expenses decreased, as a
percentage of sales, from 31.1% in 1996 to 30.3% in 1997, while SG&A
expenditures increased by $40.8 million to $191.1 million. On an absolute dollar
basis, the principal components of SG&A expenses increased primarily due to the
Company's growth. The decrease in SG&A expenses as a percentage of sales was
related primarily to the operations of VPC stores, which have lower operating
costs than traditional stores, and the impact of traditional store comparable
sales increases. Advertising expense decreased from 6.4% to 6.0% of net sales
and store salaries decreased from 12.4% to 12.1% of net sales; other SG&A
expenses decreased from 12.3% to 12.2% of net sales.
Interest expense, net of interest income, increased from $2.1 million in
1996 to $2.4 million in 1997. Weighted average borrowings outstanding increased
$3.1 million from the prior year to $57.7 million in 1997, while the weighted
average interest rates on outstanding indebtedness increased from 6.2% to 6.3%.
Interest expense associated with the 5 1/4% Convertible Subordinated Notes (the
"Notes") was offset by interest income of $1.3 million in 1997 and $1.2 million
in 1996 resulting from the investment of excess cash.
The Company's effective income tax rate for the year ended January 31, 1998
was 41.3% and remained unchanged from the prior year. The effective tax rate was
higher than the statutory federal rate of 35% primarily due to the effect of
state income taxes and the nondeductibility of a portion of meal and
entertainment expenses. This, combined with the factors discussed above,
resulted in 1997 net earnings of $28.9 million, or 4.6%, of net sales, compared
with 1996 net earnings of $21.1 million, or 4.4% of net sales.
13
<PAGE> 16
1996 Compared with 1995
The following table presents a breakdown of 1995 and 1996 net sales of the
Company by stores open in each of these periods:
<TABLE>
<CAPTION>
NET SALES
----------------------------
STORES 1995 1996 INCREASE
- ------ ------ ------ --------
(IN MILLIONS)
<S> <C> <C> <C>
67 stores opened or acquired in 1996(1).................. $ -- $ 36.8 $36.8
48 stores opened in 1995................................. 30.8 65.9 35.1
Stores opened before 1995................................ 375.5 380.8 5.3
------ ------ -----
Total.......................................... $406.3 $483.5 $77.2
====== ====== =====
</TABLE>
- ---------------
(1) Sales include $0.9 million attributed to the 17 C&R stores acquired on
January 17, 1997, with the remaining $35.9 million being attributable to the
50 Men's Wearhouse stores opened in 1996.
Net sales in 1996 increased $77.2 million, or 19.0%, compared with 1995
primarily due to the increased number of stores and increased sales at existing
stores. Comparable store sales increased 3.9% from 1995. The comparable store
sales increase for 1996 does not include sales from the VPC stores.
Gross margin increased by $30.8 million in 1996, and increased as a
percentage of sales from 38.8% in 1995 to 39.0% in 1996. The improvement in
gross margin as a percentage of sales resulted from a decrease in product costs
and alteration costs as a percentage of sales, partially offset by an increase
in occupancy costs as a percentage of sales, principally due to an increase in
the average square footage per store.
The Company's SG&A expenses increased by $23.2 million between 1995 and
1996. All the principal components of SG&A expenses increased primarily due to
the Company's growth. As a percentage of net sales, SG&A expenses decreased from
31.3% to 31.1%. Advertising expense decreased from 6.7% to 6.4% of net sales and
store salaries decreased from 13.0% to 12.4% of net sales, while other SG&A
expenses increased from 11.5% to 12.3% of net sales.
Interest expense, net of interest income, decreased from $2.5 million in
1995 to $2.1 million in 1996. Weighted average borrowings outstanding increased
from $31.6 million in 1995 to $54.6 million in 1996, while the weighted average
interest rates on outstanding indebtedness decreased from 8.3% to 6.2%. The
effective interest rate includes commitment fees paid pursuant to the then
existing credit agreement under which indebtedness was outstanding for only a
portion of the first quarter of 1996. Interest expense associated with the
5 1/4% Convertible Subordinated Notes was offset by interest income of $1.2
million resulting from the investment of excess cash from the sale of Notes in
short-term securities in 1996.
The Company's 1996 effective tax rate of 41.3% was relatively unchanged
from the 41.2% effective rate for 1995. This, combined with the factors
discussed above, resulted in 1996 net earnings of $21.1 million, or 4.4% of net
sales, as compared to 1995 net earnings of $16.5 million, or 4.1% of net sales.
LIQUIDITY AND CAPITAL RESOURCES
In August 1995, the Company issued 1,725,000 shares of Common Stock for net
proceeds of $34.7 million. The Company used the proceeds from such offering to
reduce indebtedness under its revolving credit facilities. In July 1997, the
Company issued 1,000,000 shares of Common Stock for net proceeds of $30.0
million. The Company used the proceeds from such offering to fund its continued
expansion and upgrade its information technology infrastructure. The remaining
cash has been invested in short-term securities and will be used to fund the
Company's continued expansion and to upgrade its information technology, with
any remaining proceeds used to minimize indebtedness under the Company's credit
agreement.
In March 1996, the Company issued $57.5 million of 5 1/4% Convertible
Subordinated Notes due 2003. The Notes are convertible into Common Stock at a
conversion price of $34.125 per share. A portion of the net
14
<PAGE> 17
proceeds from the Notes was used to repay outstanding indebtedness under the
then existing credit agreement and the balance has been invested in new stores,
the acquisition of C&R and Walter Pye's, licenses, trademarks, short-term
interest bearing securities or otherwise used to minimize borrowings under the
then existing credit agreement. Interest on the Notes is payable semi-annually
on March 1 and September 1 of each year.
In June 1997, the Company entered into a new revolving credit agreement
with its bank group (the "Credit Agreement") which replaced a previously
existing credit facility. The Credit Agreement provides for borrowing of up to
$125 million through April 30, 2002. As of January 31, 1998, there was no
indebtedness outstanding under the Credit Agreement.
Advances under the Credit Agreement bear interest at a rate per annum equal
to, at the Company's option, (i) the agent's prime rate or (ii) the reserve
adjusted LIBOR rate plus an interest rate margin varying between .875% to
1.375%. The Credit Agreement provides for fees applicable to unused commitments
of .125% to .275%.
The Credit Agreement contains certain restrictive and financial covenants,
including the requirement to maintain a minimum amount of Consolidated Net Worth
(as defined). The Company is also required to maintain certain debt to cash
flow, cash flow coverage and current ratios and must keep its average store
inventories below certain specified amounts. In addition, the Credit Agreement
limits additional indebtedness, creation of liens, Restrictive Payments (as
defined) and Investments (as defined). The Credit Agreement also prohibits
payment of cash dividends on the Common Stock of the Company. The Credit
Agreements permits, with certain limitations, the Company to merge or
consolidate with another company, sell or dispose of its property, make
acquisitions, issue options or enter into transactions with affiliates. The
Company is in compliance with the covenants in the Credit Agreement.
The Company's primary sources of working capital are cash flow from
operations, proceeds from the sale of the Notes discussed above, and borrowings
under the Credit Agreement. The Company had working capital of $88.8 million,
$136.8 million and $182.6 million at the end of 1995, 1996 and 1997,
respectively. Historically, the Company's working capital has been at its lowest
level in January and February, and has increased through November as inventory
buildup is financed with both short-term and long-term borrowings in preparation
for the fourth quarter selling season. In 1995, as inventories were reduced by
sales in December and January, working capital was also reduced as the net
proceeds from these sales were used to reduce outstanding long-term borrowings
under the then existing credit agreement. In 1996 and 1997 cash generated by
December and January sales resulted in larger cash balances as no amount has
been outstanding under credit agreements with banks after the sale of the Notes
in March 1996.
Net cash provided by operating activities amounted to $9.4 million, $19.8,
and $28.9 in 1995, 1996, and 1997, respectively. These amounts primarily
represent net earnings plus depreciation and amortization and increases in
current liabilities, offset by increases in inventories and other current
assets. The increase in inventories of $28.6 million in 1995, $27.3 million in
1996 and $39.3 million in 1997 resulted from the addition of inventory for new
and acquired stores and stores expected to be opened shortly after the year-end,
backstocking and the purchase of fabric used in the direct sourcing of
inventory.
Capital expenditures totaled $22.5 million, $26.2 million and $27.4 million
in 1995, 1996 and 1997, respectively. The following table details capital
expenditures (in millions):
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
New store construction...................................... $11.1 $13.6 $ 9.1
Information technology...................................... 5.0 5.5 5.9
Distribution facilities..................................... -- 0.7 4.2
Relocation and remodeling of existing stores................ 3.7 3.9 5.0
Other....................................................... 2.7 2.5 3.2
----- ----- -----
Total............................................. $22.5 $26.2 $27.4
===== ===== =====
</TABLE>
15
<PAGE> 18
Property additions relating to new stores include stores in various stages
of completion at the end of the fiscal year (two stores at the end of 1995,
eight stores at the end of 1996 and three stores at the end of 1997). New store
construction costs is net of $1.2 million and $2.8 million in 1996 and 1997,
respectively, related to proceeds from sale and lease back transactions.
The Company acquired certain assets in connection with various transactions
including, but not limited to, trademarks, tradenames, customer lists,
non-compete agreements and license agreements, for $12.0 million in 1996 and
$4.6 million in 1997.
Net cash provided by financing activities amounted to $14.4 million, $50.0
million and $28.8 million in 1995, 1996 and 1997, respectively. Cash provided by
financing activities includes the net proceeds of the public offering of Common
Stock of $34.7 million in 1995, proceeds from the sale of Notes of $55.5 million
in 1996 (net of $2.0 million in related costs), and the net proceeds of the
public offering of Common Stock of $30.0 million in 1997, as well as borrowings
under the Company's revolving credit facilities in 1995 and 1996. Cash used in
financing activities is principally comprised of repayments of amounts
outstanding under the Company's revolving credit facilities in 1995 and 1996.
The Company's primary cash requirements are to finance working capital
increases and fund capital expenditure requirements anticipated to be between
approximately $35.0 million and $40.0 million for 1998. This amount includes the
anticipated costs of opening approximately 50 new traditional stores and a
limited number of new VPC stores in 1998 at an expected average cost per store
of approximately $275,000 to $300,000 for a traditional store (excluding
telecommunications and point-of-sale equipment and inventory). The balance of
the capital expenditures for 1998 will be used for telecommunications,
point-of-sale and other computer equipment, for store remodeling and expansion
and for warehouse expansion. The Company anticipates that each of the
approximately 50 new traditional stores will require, on average, an initial
inventory costing approximately $500,000 (subject to the same seasonal patterns
affecting inventory at all stores), which will be funded by the Company's
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 and recent financial difficulties of significant menswear
retailers may present the Company with opportunities to acquire retail chains
significantly larger than the Company's past acquisitions. Any such acquisitions
may be undertaken as an alternative to opening new stores. The Company has
recently received, and from time to time in the past has received, inquiries
concerning its interest in possible acquisitions and has requested information
with respect thereto. The Company may use cash on hand, together with its cash
flow from operations, borrowings under the Credit Agreement and issues of equity
securities, to take advantage of significant acquisition opportunities.
The Company anticipates that its existing cash and cash flow from
operations, supplemented by borrowings under the Credit Agreement, will be
sufficient to fund its planned store openings, other capital expenditures and
operating cash requirements for at least the next 12 months.
In connection with the Company's direct sourcing program, the Company may
enter into purchase commitments that are denominated in a foreign currency. The
Company generally enters into forward exchange contracts to reduce the risk of
currency fluctuations related to such commitments. The majority of the forward
exchange contracts are with one financial institution. Therefore, the Company is
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. The Company may also be exposed to market risk as a
result of changes in foreign exchange rates. This market risk should be
substantially offset by changes in the valuation of the underlying transactions
being hedged.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" ("SFAS 130") and Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") both of which are effective for fiscal years beginning after December 15,
1997. SFAS 130 establishes standards for the reporting and display of
comprehensive
16
<PAGE> 19
income and its components. SFAS 131 establishes standards for reporting
information about operating segments and related disclosures about products and
services, geographic areas and major customers. These statements have no effect
on the Company's 1997 financial disclosure; however, management is evaluating
what, if any, additional disclosures may be required when these statements are
implemented.
YEAR 2000
In mid-1997, the Company commenced an enterprise-wide project to upgrade
its information technology, which is designed to increase the efficiency and the
future productivity of its operations. In completing these modifications, the
Company expects to achieve Year 2000 date conversion compliance. Capital
expenditures related to the project are anticipated to be between approximately
$12.0 million and $20.0 million. The amount of expenditures related specifically
to Year 2000 date conversion compliance are not separable from this amount. The
Company expects that all of its business systems will be Year 2000 compliant by
mid-1999. The Company does not anticipate that the cost will have a material
effect on the Company's consolidated financial position or results of operations
in any given year. However, no assurances can be given that the Company will be
able to completely identify or address all Year 2000 compliance issues, or that
third parties with whom the Company does business will not experience system
failures as a result of the Year 2000 issue, nor can the Company fully predict
the consequences of noncompliance.
FORWARD-LOOKING STATEMENTS
Certain statements made herein and in other public filings and releases by
the Company contain "forward-looking" information (as defined in the Private
Securities Litigation Reform Act of 1995) that involve risk and uncertainty.
These forward-looking statements may include, but are not limited to, future
sales, earnings, margins, costs, number and costs of store openings, demand for
men's clothing, market trends in the retail men's clothing business, currency
fluctuations, inflation and various economic and business trends.
Forward-looking statements may be made by management orally or in writing,
including but not limited to, this Management's Discussion and Analysis of
Financial Condition and Results of Operations section and other sections of the
Company's filings with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 and the Securities Act of 1933.
Actual results and trends in the future may differ materially depending on
a variety of factors including, but not limited to, domestic economic activity
and inflation, the Company's successful execution of internal operating plans
and new store and new market expansion plans, performance issues with key
suppliers, foreign currency fluctuations, government export and import policies
and legal proceedings. Future results will also be dependent upon the ability of
the Company to continue to identify and complete successful expansions and
penetrations into existing and new markets and its ability to integrate such
expansions with the Company's existing operations.
17
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
The Men's Wearhouse, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheets of The Men's
Wearhouse, Inc. and its subsidiaries (the "Company") as of February 1, 1997 and
January 31, 1998, and the related consolidated statements of earnings,
shareholders' equity, and cash flows for each of the three years in the period
ended January 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Company and its
subsidiaries as of February 1, 1997 and January 31, 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended January 31, 1998 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Houston, Texas
March 3, 1998
18
<PAGE> 21
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
ASSETS
<TABLE>
<CAPTION>
FEBRUARY 1, JANUARY 31,
1997 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 34,113 $ 59,883
Inventories............................................... 164,140 203,390
Other current assets...................................... 10,051 14,297
-------- --------
Total current assets................................... 208,304 277,570
-------- --------
PROPERTY AND EQUIPMENT:
Land...................................................... 3,231 2,447
Buildings................................................. 7,978 11,631
Leasehold improvements.................................... 43,518 52,386
Furniture, fixtures and equipment......................... 56,324 67,036
-------- --------
111,051 133,500
Less accumulated depreciation and amortization............ (40,029) (52,234)
-------- --------
Net property and equipment............................. 71,022 81,266
-------- --------
OTHER ASSETS, NET........................................... 16,152 20,579
-------- --------
TOTAL............................................. $295,478 $379,415
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 38,089 $ 51,817
Accrued expenses.......................................... 24,742 33,408
Income taxes payable...................................... 8,194 9,765
Other current liabilities................................. 442 19
-------- --------
Total current liabilities.............................. 71,467 95,009
LONG-TERM DEBT.............................................. 57,500 57,500
OTHER LIABILITIES........................................... 7,382 6,858
-------- --------
Total liabilities...................................... 136,349 159,367
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000,000 shares
authorized, none issued................................ -- --
Common stock, $.01 par value, 50,000,000 shares
authorized, 21,012,750 and 22,131,068 shares issued.... 210 221
Capital in excess of par.................................. 78,182 109,969
Retained earnings......................................... 81,316 110,199
-------- --------
Total.................................................. 159,708 220,389
Treasury stock, 91,294 and 53,735 shares at cost.......... (579) (341)
-------- --------
Total shareholders' equity............................. 159,129 220,048
-------- --------
TOTAL............................................. $295,478 $379,415
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE> 22
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED FEBRUARY 3, 1996,
FEBRUARY 1, 1997 AND JANUARY 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. $406,343 $483,547 $631,110
Cost of goods sold, including buying and occupancy costs... 248,728 295,181 388,517
-------- -------- --------
Gross margin............................................... 157,615 188,366 242,593
Selling, general and administrative expenses............... 127,009 150,232 191,063
-------- -------- --------
Operating income........................................... 30,606 38,134 51,530
Interest expense (net of interest income of $93, $1,237 and
$1,275, respectively).................................... 2,518 2,146 2,366
-------- -------- --------
Earnings before income taxes............................... 28,088 35,988 49,164
Provision for income taxes................................. 11,580 14,845 20,281
-------- -------- --------
Net earnings............................................... $ 16,508 $ 21,143 $ 28,883
======== ======== ========
Net earnings per share:
Basic.................................................... $ .83 $ 1.01 $ 1.34
======== ======== ========
Diluted.................................................. $ .82 $ 1.01 $ 1.31
======== ======== ========
Weighted average shares outstanding:
Basic.................................................... 19,881 20,903 21,562
======== ======== ========
Diluted.................................................. 20,226 22,734 23,589
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE> 23
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 3, 1996,
FEBRUARY 1, 1997 AND JANUARY 31, 1998
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
CAPITAL
COMMON IN EXCESS RETAINED TREASURY
STOCK OF PAR EARNINGS STOCK TOTAL
------ --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE -- January 28, 1995............ $128 $ 42,084 $ 43,665 $(933) $ 84,944
Net earnings......................... -- -- 16,508 -- 16,508
Common stock issued in public
Offering -- 1,725,000 shares...... 11 34,657 -- -- 34,668
Stock dividend -- 50%................ 69 (69) -- -- --
Common stock issued upon exercise of
stock options -- 118,319 shares... 1 456 -- -- 457
Common stock withheld to satisfy tax
Withholding liabilities of
Optionees -- 42,356 shares...... -- (692) -- -- (692)
Tax benefit recognized upon exercise
of stock options.................. -- 576 -- -- 576
Treasury stock issued to profit
sharing plan -- 33,708 shares..... -- 287 -- 213 500
---- -------- -------- ----- --------
BALANCE -- February 3, 1996............ 209 77,299 60,173 (720) 136,961
Net earnings......................... -- -- 21,143 -- 21,143
Common stock issued upon exercise of
stock options -- 123,058 shares... 1 713 -- -- 714
Common stock withheld to satisfy tax
Withholding liabilities of
Optionees -- 43,538 shares...... -- (1,415) -- -- (1,415)
Tax benefit recognized upon exercise
of stock options.................. -- 1,101 -- -- 1,101
Treasury stock issued to profit
sharing plan -- 22,124 shares..... -- 484 -- 141 625
---- -------- -------- ----- --------
BALANCE -- February 1, 1997............ 210 78,182 81,316 (579) 159,129
Net earnings......................... -- -- 28,883 -- 28,883
Common stock issued in public
Offering -- 1,000,000 shares...... 10 29,951 -- -- 29,961
Common stock issued upon exercise of
stock options -- 102,353 shares... 1 1,409 -- -- 1,410
Common stock withheld to satisfy tax
Withholding liabilities of
Optionees -- 56,587 shares........ -- (1,949) -- -- (1,949)
Tax benefit recognized upon exercise
of stock options.................. -- 1,614 -- -- 1,614
Treasury stock issued to profit
sharing plan -- 37,559 shares..... -- 762 -- 238 1,000
---- -------- -------- ----- --------
BALANCE -- January 31, 1998............ $221 $109,969 $110,199 $(341) $220,048
==== ======== ======== ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE> 24
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 3, 1996,
FEBRUARY 1, 1997 AND JANUARY 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................ $ 16,508 $ 21,143 $ 28,883
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization........................ 9,436 12,563 16,802
Deferred tax provision (benefit)..................... 381 (1,093) (3,562)
Increase in inventories.............................. (28,609) (27,343) (39,250)
(Increase) decrease in other current assets.......... 425 (3,083) (1,207)
Increase in accounts payable and accrued expenses.... 7,836 13,138 24,089
Increase in income taxes payable..................... 2,742 4,019 3,185
Increase (decrease) in other liabilities............. 717 455 (2)
-------- -------- --------
Net cash provided by operating activities....... 9,436 19,799 28,938
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................... (22,538) (26,222) (27,380)
Investment in trademarks, tradenames and other
intangibles.......................................... -- (11,972) (4,557)
-------- -------- --------
Net cash used in investing activities........... (22,538) (38,194) (31,937)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................. 35,125 714 31,371
Bank borrowings......................................... 46,820 18,750 --
Principal payments on bank debt......................... (66,070) (23,000) --
Net proceeds from debt offering......................... -- 55,500 --
Principal payments under capital lease obligations...... (763) (588) (423)
Payments of deferred loan costs......................... -- -- (230)
Tax payments related to options exercised............... (692) (1,415) (1,949)
-------- -------- --------
Net cash provided by financing activities....... 14,420 49,961 28,769
-------- -------- --------
INCREASE IN CASH.......................................... 1,318 31,566 25,770
CASH:
Beginning of period..................................... 1,229 2,547 34,113
-------- -------- --------
End of period........................................... $ 2,547 $ 34,113 $ 59,883
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................. $ 2,788 $ 2,145 $ 2,877
======== ======== ========
Income taxes......................................... $ 8,474 $ 11,919 $ 20,657
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Additional paid in capital resulting from tax benefit
recognized upon exercise of stock options............ $ 576 $ 1,101 $ 1,614
======== ======== ========
Treasury stock contributed to profit sharing plan....... $ 500 $ 625 $ 1,000
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE> 25
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business -- The Men's Wearhouse, Inc. (the "Company") is
an off-price specialty retailer of men's tailored business attire. The Company
follows the standard fiscal year of the retail industry, which is a 52-53 week
period ending on the Saturday closest to January 31. Fiscal year 1995 ended on
February 3, 1996, fiscal year 1996 ended on February 1, 1997, and fiscal year
1997 ended on January 31, 1998. Each of these fiscal years included 52 weeks,
except for 1995 which was a 53 week year.
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries.
Intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles 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.
Cash and Cash Equivalents -- For purposes of the statement of cash flows,
the Company considers all highly liquid investments with maturities of three
months or less as cash equivalents.
Inventories -- Inventories are valued at the lower of cost or market, with
cost determined on the retail first-in, first-out (FIFO) method.
Property and Equipment -- Property and equipment are stated at cost. Normal
repairs and maintenance costs are charged to earnings as incurred and additions
and major improvements are capitalized. The cost of assets retired or otherwise
disposed of and the related allowances for depreciation are eliminated from the
accounts in the year of disposal and the resulting gain or loss is credited or
charged to earnings. The Company computes depreciation using the straight-line
method. The estimated useful lives used in computing depreciation generally
range from 20 to 25 years for buildings, three to eight years for furniture,
fixtures and equipment and eight years for leasehold improvements.
New Store Costs -- Promotion and other costs associated with the opening of
new stores are expensed as incurred.
Stock Based Compensation -- As permitted by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"), the Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, no compensation expense
has been recognized for the Company's employee stock option plans. The
disclosures required by SFAS No. 123 are included in Note 6.
Derivative Financial Instruments -- The Company enters 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. Gains and losses associated with these contracts are accounted
for as part of the underlying inventory purchase transactions.
2. EARNINGS PER SHARE
During 1997, the Company adopted SFAS No. 128, "Earnings per Share." The
statement requires a dual presentation of basic and diluted earnings per share
("EPS") data and restatement of all prior period EPS. 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
23
<PAGE> 26
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares were issued for (i) stock options exercised under the treasury stock
method and (ii) conversion of the convertible debt, with net earnings adjusted
for interest expense associated with the convertible debt. The following table
reconciles the earnings and shares used in the basic and diluted EPS
computations (adjusted to give effect to a 50% stock dividend effected on
November 15, 1995) (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Basic EPS:
Net earnings.......................................... $16,508 $21,143 $28,883
======= ======= =======
Weighted average number of common shares
outstanding......................................... 19,881 20,903 21,562
======= ======= =======
Basic EPS............................................. $ 0.83 $ 1.01 $ 1.34
======= ======= =======
Diluted EPS:
Net earnings.......................................... $16,508 $21,143 $28,883
Interest on Notes, net of taxes....................... -- 1,777 1,943
------- ------- -------
As adjusted........................................... $16,508 $22,920 $30,826
======= ======= =======
Weighted average number of common shares
outstanding......................................... 19,881 20,903 21,562
Assumed exercise of stock options..................... 345 290 342
Assumed conversion of Notes........................... -- 1,541 1,685
------- ------- -------
As adjusted........................................... 20,226 22,734 23,589
======= ======= =======
Diluted EPS........................................... $ 0.82 $ 1.01 $ 1.31
======= ======= =======
</TABLE>
3. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 1, JANUARY 31,
1997 1998
----------- -----------
<S> <C> <C>
Sales, payroll and property tax payable..................... $ 4,275 $ 6,567
Accrued salary, bonus and vacation.......................... 7,047 9,773
Other....................................................... 13,420 17,068
------- -------
Total............................................. $24,742 $33,408
======= =======
</TABLE>
4. LONG-TERM DEBT
In June 1997, the Company entered into a new revolving credit agreement
with its bank group ("the Credit Agreement"). The Credit Agreement provides for
borrowing of up to $125 million through April 30, 2002 and replaced a previously
existing credit facility for $100 million. As of January 31, 1998, there was no
indebtedness outstanding under the Credit Agreement.
Advances under the Credit Agreement bear interest at a rate per annum equal
to, at the Company's option, (i) the agent's prime rate or (ii) the reserve
adjusted LIBOR rate plus an interest rate margin varying between .875% to
1.375%. The Credit Agreement provides for fees applicable to unused commitments
of .125% to .275%. Total commitment fees related to the Credit Agreement were
$0.1 million in 1995, 1996 and 1997.
The Credit Agreement contains certain restrictive and financial covenants,
including the requirement to maintain a minimum amount of Consolidated Net Worth
(as defined). The Company is also required to maintain certain debt to cash
flow, cash flow coverage and current ratios and must keep its average store
24
<PAGE> 27
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
inventories below certain specified amounts. In addition, the Credit Agreement
limits additional indebtedness, creation of liens, Restrictive Payments (as
defined) and Investments (as defined). The Credit Agreement also prohibits
payment of cash dividends on the Common Stock of the Company. The Credit
Agreements permits, with certain limitations, the Company to merge or
consolidate with another company, sell or dispose of its property, make
acquisitions, issue options or enter into transactions with affiliates. The
Company is in compliance with the covenants in the Credit Agreement.
In March 1996, the Company sold $57.5 million of 5 1/4% Convertible
Subordinated Notes due 2003 (the "Notes"). The Notes are convertible at any time
through March 1, 2003, unless previously redeemed into Common Stock at a
conversion price of $34.125 per share. A portion of the net proceeds from the
Notes was used to repay outstanding indebtedness under the then existing credit
agreement and the remainder was invested in new stores, the acquisition of C&R
and Walter Pye's, licenses, trademarks and short-term interest bearing
securities. Interest on the Notes is payable semi-annually on March 1 and
September 1 of each year. The Notes are redeemable at the option of the Company,
in whole or in part, on or after March 1, 1998 initially at 103.5% of the face
amount and thereafter at prices declining to 100% at maturity. As of January 31,
1998, the fair value of the Notes was $68.4 million based on the quoted market
price.
5. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current tax expense:
Federal............................................. $ 9,266 $13,410 $19,881
State............................................... 1,933 2,528 3,962
Deferred tax expense (benefit):
Current............................................. (1,007) (1,750) (3,039)
Noncurrent.......................................... 1,388 657 (523)
------- ------- -------
Total....................................... $11,580 $14,845 $20,281
======= ======= =======
</TABLE>
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate...................................... 35% 35% 35%
State income taxes, net of federal benefit.................. 4 5 5
Other....................................................... 2 1 1
-- -- --
41% 41% 41%
== == ==
</TABLE>
At February 1, 1997, the Company had net deferred tax assets of $1.2
million with $3.5 million classified as other current assets and $2.3 million
classified as other liabilities (noncurrent). At January 31, 1998, the Company
had net deferred tax assets of $4.8 million with $6.5 million classified as
other current assets and $1.7 million classified as other liabilities
(noncurrent). No valuation allowance was required for the deferred
25
<PAGE> 28
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tax assets. Total deferred tax assets and liabilities and the related temporary
differences as of February 1, 1997 and January 31, 1998 were as follows (in
thousands):
<TABLE>
<CAPTION>
FEBRUARY 1, JANUARY 31,
1997 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accrued rent and other expenses........................... $3,400 $4,775
Accrued compensation...................................... 683 1,148
Accrued markdowns......................................... 1,356 2,511
Other..................................................... 557 502
------ ------
5,996 8,936
------ ------
Deferred tax liabilities:
Capitalized inventory costs............................... (1,225) (1,193)
Property and equipment capitalization..................... (3,103) (2,461)
Other..................................................... (449) (501)
------ ------
(4,777) (4,155)
------ ------
Net deferred tax assets..................................... $1,219 $4,781
====== ======
</TABLE>
6. CAPITAL STOCK, STOCK OPTIONS AND BENEFIT PLANS
In August 1995 and July 1997, the Company sold 1,725,000 shares and
1,000,000 shares of Common Stock, respectively, with net proceeds to the Company
of $34.7 million and $30.0 million, respectively. In addition, the Company
effected a 50% stock dividend in November 1995. All share and per share amounts
reflected in the financial statements give retroactive effect to the stock
dividend.
The Company has adopted the 1992 Stock Option Plan ("1992 Plan") which, as
amended, provides for the grant of options to purchase up to 714,338 shares of
the Company's common stock to full-time key employees (excluding certain
officers), the 1996 Stock Option Plan ("1996 Plan") which provides for the grant
of options to purchase up to 750,000 shares of the Company's common stock to
full-time key employees (excluding certain officers), and the 1998 Key Employee
Stock Option Plan ("1998 Plan") which provides for the grant of options to
purchase up to 500,000 shares of the Company's Common Stock to full-time key
employees (excluding certain officers). Each of the plans will expire at the end
of ten years and no option may be granted pursuant to the plans after the
expiration date. In fiscal 1992, the Company also adopted a Non-Employee
Director Stock Option Plan ("Director Plan") which, as amended, provides for the
grant of options to purchase up to 45,000 shares of the Company's common stock
to non-employee directors of the Company. Options granted under these plans must
be exercised within ten years of the date of grant.
Generally, options granted under the 1992 Plan, 1996 Plan and 1998 Plan
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 and may not be issued at a price less
than 50% of the fair market value of the Company's stock on 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. 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 the Company's stock on the
date of grant.
In connection with an employment agreement entered into in January 1991
with an officer of the Company, that officer was granted options to acquire
531,135 shares of common stock of the Company at a price of $2.35 per share.
Among other things, the employment agreement provides that upon the exercise of
any of these options, the Company will pay the officer an amount which, after
the payment of income taxes by the officer on such amount, will equal the $2.35
per share purchase price for the shares purchased upon exercise of the options.
The Company recognized compensation expense as the options vested. The officer
26
<PAGE> 29
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exercised 73,769 options in 1995, 73,768 options in 1996 and 73,769 options in
1997. As of January 31, 1998, all stock options granted in connection with this
employment agreement have been exercised.
The following table is a summary of the Company's stock option activity:
<TABLE>
<CAPTION>
SHARES WEIGHTED
UNDER AVERAGE OPTIONS
OPTION EXERCISE PRICE EXERCISABLE
--------- -------------- -----------
<S> <C> <C> <C>
Options outstanding, January 28, 1995............... 686,840 $ 8.35 129,300
====== =======
Granted........................................... 133,675 21.85
Exercised......................................... (118,319) 3.97
Forfeited......................................... (7,650) 13.48
---------
Options outstanding, February 3, 1996............... 694,546 $11.64 318,352
====== =======
Granted........................................... 362,000 23.67
Exercised......................................... (123,058) 5.24
Forfeited......................................... (3,025) 17.79
---------
Options outstanding, February 1, 1997............... 930,463 $17.15 346,288
====== =======
Granted........................................... 427,250 31.68
Exercised......................................... (176,122) 7.48
Forfeited......................................... (5,403) 21.40
---------
Options outstanding, January 31, 1998............... 1,176,188 $23.85 346,907
========= ====== =======
</TABLE>
Grants of stock options outstanding as of January 31, 1998 are summarized
as follows:
<TABLE>
<CAPTION>
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
- ----------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 5.78 to 14.83 265,941 5.9 years 12.45 209,441 12.72
14.83 to 26.63 522,997 8.6 years 23.42 137,466 23.34
26.63 to 36.38 387,250 9.9 years 32.28 -- --
--------- ------ ------- ------
$ 5.78 to 36.38 1,176,188 $23.85 346,907 $16.93
========= ====== ======= ======
</TABLE>
As of January 31, 1998, 647,507 options were available for grant under
existing plans and 1,823,695 shares of common stock were reserved for future
issuance, of which 500,000 shares pertain to the 1998 Plan.
The difference between the option price and the fair market value of the
Company's common stock on the dates that options for 118,319, 123,058 and
176,122 shares of common stock were exercised during 1995, 1996 and 1997,
respectively, resulted in a tax benefit to the Company of $0.6 million in 1995,
$1.1 million in 1996 and $1.6 million in 1997, which has been recognized as
additional capital in excess of par. In addition, the Company withheld 42,356
shares, 43,538 shares and 56,587 shares, respectively, of such common stock for
withholding payments made to satisfy the optionees' income tax liabilities
resulting from the exercises.
27
<PAGE> 30
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has adopted the disclosure-only provisions of SFAS No. 123 and
continues to apply APB Opinion 25 and related Interpretations in accounting for
the stock option plans. Accordingly, no compensation cost has been recognized in
the accompanying consolidated financial statements for the stock option plans.
Had the Company elected to apply the accounting standards of SFAS No. 123, the
Company's net earnings and net earnings per share would have approximated the
pro forma amounts indicated below (in thousands, except per share data):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Net earnings
As reported....................................... $16,508 $21,143 $28,883
Pro forma......................................... $16,127 $20,586 $27,885
Earnings per share
As reported:
Basic........................................... $ 0.83 $ 1.01 $ 1.34
Diluted......................................... $ 0.82 $ 1.01 $ 1.31
Pro forma:
Basic........................................... $ 0.81 $ 0.98 $ 1.29
Diluted......................................... $ 0.80 $ 0.98 $ 1.26
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model which resulted in a weighted-average fair
value of $4.28, $7.72 and $10.24 for grants made during fiscal 1995, 1996 and
1997, respectively. The following assumptions were used for option grants in
1995, 1996 and 1997, respectively; expected volatility of 49.84%, 50.91% and
52.15% risk-free interest rates (U.S. Treasury five year notes) of 6.37%, 6.21%
and 6.00% and an expected life of five years.
The Company has a profit sharing plan, in the form of an employee stock
plan, which covers all eligible employees, and an employee tax-deferred savings
plan. Contributions to the profit sharing plan are made at the discretion of the
Board of Directors. During 1995, 1996 and 1997, contributions charged to
operations were $0.6 million, $1.0 million and $1.5 million, respectively. The
Company also has an Employee Stock Purchase Plan which allows employees to
authorize after-tax payroll deductions to be used for the purchase of the
Company's common stock in the open market. The Company makes no contributions to
this plan but pays all brokerage, service and other costs incurred.
7. COMMITMENTS AND CONTINGENCIES
Lease commitments
The Company leases retail business locations, office and warehouse
facilities, computer equipment and automotive equipment under operating leases
expiring in various years through 2015. Rent expense for fiscal 1995, 1996 and
1997 was $21.7 million, $26.9 million and $35.2 million, respectively, and
includes contingent rentals of $0.4 million, $0.3 million and $0.3 million,
respectively.
28
<PAGE> 31
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum future rental payments under noncancelable operating leases as of
January 31, 1998 for each of the next five years and in the aggregate are as
follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- --------
<S> <C>
1998...................................................... $ 36,995
1999...................................................... 33,538
2000...................................................... 28,937
2001...................................................... 25,696
2002...................................................... 22,387
Thereafter................................................ 68,706
--------
Total................................................... $216,259
========
</TABLE>
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.
Legal matters
The Company is a defendant in various lawsuits and subject to various
claims and proceedings encountered in the normal conduct of its business. In the
opinion of management, any uninsured losses that might arise from these lawsuits
and proceedings would not have a material adverse effect on the business or
consolidated financial position or results of operations of the Company.
Currency contracts
The Company routinely enters into inventory purchase commitments that are
denominated in a foreign currency. To protect against currency exchange risks
associated with certain firmly committed and certain other probable, but not
firmly committed inventory transactions, the Company enters into foreign
currency forward exchange contracts. At January 31, 1998, the Company held
forward exchange contracts with notional amounts totaling $20.9 million. All
such contracts expire within 24 months. Gains and losses associated with these
contracts are accounted for as part of the underlying inventory purchase
transactions. 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 cost using the spot rate at year end. At January 31, 1998, the
contracts outstanding had a fair value of $1.2 million less than their notional
value.
The majority of the forward exchange contracts are with one financial
institution. Therefore, the Company is 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. The Company may also be
exposed to market risk as a result of changes in foreign exchange rates. This
market risk should be substantially offset by changes in the valuation of the
underlying transactions being hedged.
8. ACQUISITIONS
In January 1997, the Company acquired 17 men's tailored clothing stores,
including inventory, operating in southern California and entered into a lease
for a distribution facility for those stores. In May 1997, the Company acquired
six men's tailored clothing stores, including inventory, operating in Texas and
Louisiana. In February 1998, the Company acquired four stores, including
inventory, operating in Detroit, Michigan. Also acquired were trademarks,
tradenames and other intangible assets associated with these businesses. The
29
<PAGE> 32
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company operates these stores as a separate division selling men's tailored
apparel to the more price sensitive clothing customer.
9. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's 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
1996 and 1997 fiscal years are presented below (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
FISCAL YEAR 1996
QUARTERS ENDED
------------------------------------------------------------------
MAY 4, 1996 AUGUST 3, 1996 NOVEMBER 2, 1996 FEBRUARY 1, 1997
----------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net sales........................ $103,697 $ 98,885 $110,276 $170,689
Gross margin..................... 38,962 38,962 42,505 67,937
Net earnings..................... 3,109 4,009 3,744 10,281
Basic earnings per share*........ $ 0.15 $ 0.19 $ 0.18 $ 0.49
Diluted earnings per share*...... $ 0.15 $ 0.19 $ 0.18 $ 0.47
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1997
QUARTERS ENDED
------------------------------------------------------------------
JANUARY 31,
MAY 3, 1997 AUGUST 2, 1997 NOVEMBER 1, 1997 1998
----------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net sales........................ $130,621 $133,935 $146,311 $220,243
Gross margin..................... 48,433 51,191 55,139 87,830
Net earnings..................... 4,016 5,356 5,569 13,942
Basic earnings per share*........ $ 0.19 $ 0.25 $ 0.25 $ 0.63
Diluted earnings per share*...... $ 0.19 $ 0.25 $ 0.25 $ 0.60
</TABLE>
- ---------------
* EPS are restated to reflect the application of SFAS 128. See Note 2.
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.
30
<PAGE> 33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference
from the Company's Proxy Statement for its Annual Meeting of Shareholders to be
held June 24, 1998.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
from the Company's Proxy Statement for its Annual Meeting of Shareholders to be
held June 24, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference
from the Company's Proxy Statement for its Annual Meeting of Shareholders to be
held June 24, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference
from the Company's Proxy Statement for its Annual Meeting of Shareholders to be
held June 24, 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS.
The following consolidated financial statements of the Company are included
in Part II, Item 8.
<TABLE>
<S> <C>
Independent Auditors' Report......................
Consolidated Balance Sheets as of February 1, 1997
and January 31, 1998..............................
Consolidated Statements of Earnings for the years
ended February 3, 1996, February 1, 1997 and
January 31, 1998..................................
Consolidated Statements of Shareholders' Equity
for the years ended February 3, 1996, February 1,
1997 and January 31, 1998.........................
Consolidated Statements of Cash Flows for the
years ended February 3, 1996, February 1, 1997 and
January 31, 1998..................................
Notes to Consolidated Financial Statements........
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
All such schedules are omitted because they are not applicable or because
the required information is included in the Consolidated Financial Statements or
Notes thereto.
31
<PAGE> 34
3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT INDEX
------- -------------
<C> <S>
3.1 -- Restated Articles of Incorporation (incorporated by
reference from Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 30, 1994).
3.2 -- By-laws, as amended (incorporated by reference from
Exhibit 3.2 to the Company's Annual Report of Form 10-K
for the fiscal year ended February 1, 1997).
4.1 -- Restated Articles of Incorporation (included as Exhibit
3.1).
4.2 -- By-laws (included as Exhibit 3.2).
4.3 -- Form of Common Stock certificate (incorporated by
reference from Exhibit 4.3 to the Company's Registration
Statement on Form S-1 (Registration No. 33-45949)).
*4.4 -- Employment Agreement dated as of January 31, 1991, by and
between The Company and David H. Edwab, including the
First Amendment thereto dated as of September 30, 1991
(incorporated by reference from Exhibit 4.4 to the
Company's Registration Statement on Form S-1
(Registration No. 33-45949)).
*4.5 -- Second Amendment effective as of January 1, 1993, to
Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab (incorporated by
reference from Exhibit 4.5 to the Company's Registration
Statement on Form S-1 (Registration No. 33-60516)).
*4.6 -- Second [sic] Amendment dated as of April 12, 1994, to
Employment Agreement dated as of January 31, 1991
(incorporated by reference to Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1995).
*4.7 -- Option Issuance Agreement dated as of September 30, 1991,
by and between the Company and David H. Edwab
(incorporated by reference from Exhibit 4.5 to the
Company's Registration Statement on Form S-1
(Registration No. 33-45949)).
*4.8 -- First Amendment to Option Issuance Agreement dated April
22, 1992, but effective as of September 30, 1991
(incorporated by reference from Exhibit 4.7 to the
Company's Registration Statement on Form S-8
(Registration No. 33-48109)).
*4.9 -- Second Amendment to Option Issuance Agreement dated
effective as of January 1, 1993 (incorporated by
reference from Exhibit 4.8 to the Company's Registration
Statement on Form S-1 (Registration No. 33-60516)).
*4.10 -- First [sic] Amendment to Option Issuance Agreement dated
as of April 12, 1994 (incorporated by reference to
Exhibit 4.10 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1995).
4.11 -- Indenture dated March 1, 1996, between the Company and
Texas Commerce Bank National Association, as trustee
including Form of Note (incorporated by reference from
Exhibit 4.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended May 4, 1996).
4.12 -- Revolving Credit Agreement dated as of June 2, 1997, by
and among The Company and NationsBank of Texas N.A. and
the Banks listed therein, including form of Revolving
Note (incorporated by reference from Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended May 3, 1997).
*10.1 -- Employment Agreement dated as of January 31, 1991,
including the First Amendment thereto dated as of
September 30, 1991 by and between the Company and David
H. Edwab (included as Exhibit 4.4).
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT INDEX
------- -------------
<C> <S>
*10.2 -- Second Amendment effective as of January 1, 1993, to
Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab (included as
Exhibit 4.5).
*10.3 -- Second [sic] Amendment dated as of April 12, 1994, to
Employment Agreement dated as of January 31, 1991
(incorporated by reference to Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1995).
*10.4 -- Option Issuance Agreement dated as of September 30, 1991,
by and between the Company and David H. Edwab (included
as Exhibit 4.7).
*10.5 -- First Amendment to Option Issuance Agreement dated April
22, 1992, but effective as of September 30, 1991
(included as Exhibit 4.8).
*10.6 -- Second Amendment to Option Issuance Agreement dated
effective as of January 1, 1993 (included as Exhibit
4.9).
*10.7 -- First [sic] Amendment to Option Issuance Agreement dated
as of April 12, 1994 (incorporated by reference to
Exhibit 4.10 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1995).
*10.8 -- 1992 Stock Option Plan (incorporated by reference from
Exhibit 10.5 to the Company's Registration Statement on
Form S-1 (Registration No. 33-45949)).
*10.9 -- First Amendment to 1992 Stock Option Plan (incorporated
by Reference from Exhibit 10.9 to the Company's
Registration Statement on Form S-1 (Registration No.
33-60516)).
*10.10 -- Non-Employee Director Stock Option Plan (incorporated by
reference from Exhibit 10.7 to the Company's Registration
Statement on Form S-1 (Registration No. 33-45949)).
*10.11 -- First Amendment to Non-Employee Director Stock Option
Plan (incorporated by reference from Exhibit 10.16 to the
Company's Registration Statement on Form S-1
(Registration No. 33-45949)).
10.12 -- Commercial Lease dated September 1, 1995, by and between
the Company and Zig Zag, A Joint Venture (incorporated by
reference from Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended May 4, 1996).
10.13 -- Commercial Lease dated April 5, 1989, by and between the
Company and Preston Road Partnership (incorporated by
reference from Exhibit 10.10 to the Company's
Registration Statement on Form S-1 (Registration No.
33-45949)).
*10.14 -- 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 on
Form S-1 (Registration No. 33-45949)).
*10.15 -- 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 on Form
10-K for the fiscal year ended January 28, 1995).
*10.16 -- 1996 Stock Option Plan (incorporated by reference from
Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the Quarter ended August 3, 1996).
*10.17 -- Second Amendment to Non-Employee Director Stock Option
Plan (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended August 3, 1996).
</TABLE>
33
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT INDEX
------- -------------
<C> <S>
10.18 -- 1998 Key Employee Stock Option Plan.
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Deloitte & Touche LLP, independent auditors.
27.1 -- Financial Data Schedule for fiscal 1997.
27.2 -- Restated Financial Data Schedule for first, second and
third quarter in fiscal year 1996 and for fiscal years
1996 and 1995.
27.3 -- Restated Financial Data Schedule for first, second and
third quarter in fiscal year 1997.
</TABLE>
- ---------------
* Management Compensation or Incentive Plan
As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant
has not filed with this Annual Report on Form 10-K certain instruments defining
the rights of holders of long-term debt of the Registrant and its subsidiaries
because the total amount of securities authorized under any of such instruments
does not exceed 10% of the total assets of the Registrant and its subsidiaries
on a consolidated basis. The Registrant agrees to furnish a copy of any such
agreements to the Securities and Exchange Commission upon request.
The Company will furnish a copy of any exhibit described above to any
beneficial holder of its securities upon receipt of a written request therefor,
provided that such request sets forth a good faith representation that, as of
the record date for the Company's 1998 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.
(B) REPORTS ON FORM 8-K.
There were no reports filed by the Company on Form 8-K during the fourth
quarter period ended January 31, 1998.
34
<PAGE> 37
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 24, 1998
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GEORGE ZIMMER Chairman of the Board, Chief April 24, 1998
- ----------------------------------------------------- Executive Officer and Director
George Zimmer
/s/ DAVID EDWAB President and Director April 24, 1998
- -----------------------------------------------------
David Edwab
/s/ GARY G. CKODRE Vice President -- Finance and April 24, 1998
- ----------------------------------------------------- Principal Financial and
Gary G. Ckodre Accounting Officer
/s/ RICHARD E. GOLDMAN Executive Vice President and April 24, 1998
- ----------------------------------------------------- Director
Richard E. Goldman
/s/ ROBERT E. ZIMMER Senior Vice President -- Real April 24, 1998
- ----------------------------------------------------- Estate and Director
Robert E. Zimmer
/s/ JAMES E. ZIMMER Senior Vice President -- April 24, 1998
- ----------------------------------------------------- Merchandising and Director
James E. Zimmer
/s/ HARRY M. LEVY Senior Vice April 24, 1998
- ----------------------------------------------------- President -- Planning and
Harry M. Levy Systems, Chief Information
Officer and Director
/s/ RINALDO BRUTOCO Director April 24, 1998
- -----------------------------------------------------
Rinaldo Brutoco
/s/ MICHAEL L. RAY Director April 24, 1998
- -----------------------------------------------------
Michael L. Ray
/s/ SHELDON I. STEIN Director April 24, 1998
- -----------------------------------------------------
Sheldon I. Stein
</TABLE>
35
<PAGE> 38
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Restated Articles of Incorporation (incorporated by
reference from Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 30, 1994).
3.2 -- By-laws, as amended (incorporated by reference from
Exhibit 3.2 to the Company's Annual Report of Form 10-K
for the fiscal year ended February 1, 1997).
4.1 -- Restated Articles of Incorporation (included as Exhibit
3.1).
4.2 -- By-laws (included as Exhibit 3.2).
4.3 -- Form of Common Stock certificate (incorporated by
reference from Exhibit 4.3 to the Company's Registration
Statement on Form S-1 (Registration No. 33-45949)).
*4.4 -- Employment Agreement dated as of January 31, 1991, by and
between The Company and David H. Edwab, including the
First Amendment thereto dated as of September 30, 1991
(incorporated by reference from Exhibit 4.4 to the
Company's Registration Statement on Form S-1
(Registration No. 33-45949)).
*4.5 -- Second Amendment effective as of January 1, 1993, to
Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab (incorporated by
reference from Exhibit 4.5 to the Company's Registration
Statement on Form S-1 (Registration No. 33-60516)).
*4.6 -- Second [sic] Amendment dated as of April 12, 1994, to
Employment Agreement dated as of January 31, 1991
(incorporated by reference to Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1995).
*4.7 -- Option Issuance Agreement dated as of September 30, 1991,
by and between the Company and David H. Edwab
(incorporated by reference from Exhibit 4.5 to the
Company's Registration Statement on Form S-1
(Registration No. 33-45949)).
*4.8 -- First Amendment to Option Issuance Agreement dated April
22, 1992, but effective as of September 30, 1991
(incorporated by reference from Exhibit 4.7 to the
Company's Registration Statement on Form S-8
(Registration No. 33-48109)).
*4.9 -- Second Amendment to Option Issuance Agreement dated
effective as of January 1, 1993 (incorporated by
reference from Exhibit 4.8 to the Company's Registration
Statement on Form S-1 (Registration No. 33-60516)).
*4.10 -- First [sic] Amendment to Option Issuance Agreement dated
as of April 12, 1994 (incorporated by reference to
Exhibit 4.10 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1995).
4.11 -- Indenture dated March 1, 1996, between the Company and
Texas Commerce Bank National Association, as trustee
including Form of Note (incorporated by reference from
Exhibit 4.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended May 4, 1996).
4.12 -- Revolving Credit Agreement dated as of June 2, 1997, by
and among The Company and NationsBank of Texas N.A. and
the Banks listed therein, including form of Revolving
Note (incorporated by reference from Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended May 3, 1997).
*10.1 -- Employment Agreement dated as of January 31, 1991,
including the First Amendment thereto dated as of
September 30, 1991 by and between the Company and David
H. Edwab (included as Exhibit 4.4).
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*10.2 -- Second Amendment effective as of January 1, 1993, to
Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab (included as
Exhibit 4.5).
*10.3 -- Second [sic] Amendment dated as of April 12, 1994, to
Employment Agreement dated as of January 31, 1991
(incorporated by reference to Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1995).
*10.4 -- Option Issuance Agreement dated as of September 30, 1991,
by and between the Company and David H. Edwab (included
as Exhibit 4.7).
*10.5 -- First Amendment to Option Issuance Agreement dated April
22, 1992, but effective as of September 30, 1991
(included as Exhibit 4.8).
*10.6 -- Second Amendment to Option Issuance Agreement dated
effective as of January 1, 1993 (included as Exhibit
4.9).
*10.7 -- First [sic] Amendment to Option Issuance Agreement dated
as of April 12, 1994 (incorporated by reference to
Exhibit 4.10 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1995).
*10.8 -- 1992 Stock Option Plan (incorporated by reference from
Exhibit 10.5 to the Company's Registration Statement on
Form S-1 (Registration No. 33-45949)).
*10.9 -- First Amendment to 1992 Stock Option Plan (incorporated
by Reference from Exhibit 10.9 to the Company's
Registration Statement on Form S-1 (Registration No.
33-60516)).
*10.10 -- Non-Employee Director Stock Option Plan (incorporated by
reference from Exhibit 10.7 to the Company's Registration
Statement on Form S-1 (Registration No. 33-45949)).
*10.11 -- First Amendment to Non-Employee Director Stock Option
Plan (incorporated by reference from Exhibit 10.16 to the
Company's Registration Statement on Form S-1
(Registration No. 33-45949)).
10.12 -- Commercial Lease dated September 1, 1995, by and between
the Company and Zig Zag, A Joint Venture (incorporated by
reference from Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended May 4, 1996).
10.13 -- Commercial Lease dated April 5, 1989, by and between the
Company and Preston Road Partnership (incorporated by
reference from Exhibit 10.10 to the Company's
Registration Statement on Form S-1 (Registration No.
33-45949)).
*10.14 -- 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 on
Form S-1 (Registration No. 33-45949)).
*10.15 -- 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 on Form
10-K for the fiscal year ended January 28, 1995).
*10.16 -- 1996 Stock Option Plan (incorporated by reference from
Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the Quarter ended August 3, 1996).
*10.17 -- Second Amendment to Non-Employee Director Stock Option
Plan (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended August 3, 1996).
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.18 -- 1998 Key Employee Stock Option Plan.
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Deloitte & Touche LLP, independent auditors.
27.1 -- Financial Data Schedule for fiscal 1997.
27.2 -- Restated Financial Data Schedule for first, second and
third quarter in fiscal year 1996 and for fiscal years
1996 and 1995.
27.3 -- Restated Financial Data Schedule for first, second and
third quarter in fiscal year 1997.
</TABLE>
- ---------------
* Management Compensation or Incentive Plan
<PAGE> 1
EXHIBIT 10.18
THE MEN'S WEARHOUSE, INC.
1998 KEY EMPLOYEE STOCK OPTION PLAN
<PAGE> 2
THE MEN'S WEARHOUSE, INC.
1998 KEY EMPLOYEE STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section
-------
<S> <C>
ARTICLE I - PLAN
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1
Effective Date of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
ARTICLE II - DEFINITIONS
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6
Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7
Fair Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8
Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9
Option Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.10
Optionee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.11
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.12
Retire or Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.13
Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.14
ARTICLE III - ELIGIBILITY
ARTICLE IV - GENERAL PROVISIONS RELATING TO ALL OPTIONS
Authority to Grant Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1
Dedicated Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2
Non-Transferability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3
Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4
Changes in the Company's Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5
No Rights as Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6
Written Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7
Forfeiture for Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8
ARTICLE V - VARIABLE PROVISIONS RELATING TO SPECIFIC OPTIONS
Option Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1
Duration of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2
Amount Exercisable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3
Exercise of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4
Substitution Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI - ADMINISTRATION
ARTICLE VII - AMENDMENT OR TERMINATION OF PLAN
ARTICLE VIII - MISCELLANEOUS
No Employment Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1
Tax Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2
Indemnification of the Committee and the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . 8.3
Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.4
Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5
Other Compensation Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.6
Other Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.7
Arbitration of Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.8
Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.9
</TABLE>
<PAGE> 4
ARTICLE I
PLAN
1.1 PURPOSE. This 1998 Key Employee Stock Option Plan (the
"Plan") of The Men's Wearhouse, Inc. (the "Company") is a plan for key
employees of the Company and its Affiliates and is intended to advance the best
interests of the Company, its Affiliates, and its stockholders by providing
those persons who are not executive officers but have substantial
responsibility for the management and growth of the Company and its Affiliates
with additional incentives and an opportunity to obtain or increase their
proprietary interest in the Company, thereby encouraging them to continue in
the employ of the Company or any of its Affiliates.
1.2 EFFECTIVE DATE OF PLAN. This Plan is effective February 15,
1998.
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<PAGE> 5
ARTICLE II
DEFINITIONS
The words and phrases defined in this Article shall have the meaning
set out in these definitions throughout this Plan, unless the context in which
any such word or phrase appears reasonably requires a broader, narrower, or
different meaning.
2.1 "AFFILIATE" means any parent corporation and any subsidiary
corporation, or any entity that is affiliated with the Company within the
meaning of Section 414 of the Code. The term "parent corporation" shall mean
any corporation (other than the Company) in an unbroken chain of corporations
ending with the Company if, at the time of the action or transaction, each of
the corporations other than the Company owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the other
corporations in the chain. The term "subsidiary corporation" shall mean any
corporation (other than the Company) in an unbroken chain of corporations
beginning with the Company if, at the time of the granting of the Option, each
of the corporations other than the last corporation in the unbroken chain owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in the chain.
2.2 "BOARD OF DIRECTORS" means the board of directors of the
Company.
2.3 "CODE" means the Internal Revenue Code of 1986, as amended.
2.4 "COMMITTEE" means the committee designated by the Board of
Directors.
2.5 "COMPANY" means The Men's Wearhouse, Inc., a Texas
corporation.
2.6 "DISABILITY" means a mental or physical disability which, in
the opinion of a physician selected by the Committee, shall prevent the
Employee from earning a reasonable livelihood with the Company or any Affiliate
and which can be expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than 12 months and which:
(a) was not contracted, suffered or incurred while the Employee was engaged in,
or did not result from having engaged in, a felonious criminal enterprise; (b)
did not result from alcoholism or addiction to narcotics; and (c) did not
result from an injury incurred while a member of the Armed Forces of the United
States for which the Employee receives a military pension.
2.7 "EMPLOYEE" means a person employed by the Company or any
Affiliate.
2.8 "FAIR MARKET VALUE" of the stock as of any particular date
means, if the stock is traded on a stock exchange, the closing sale price of
the stock on that date as reported on the principal securities exchange on
which the stock is traded, if the stock is traded in the over-the-counter
market, the average between the high bid and low asked price on that date as
reported in such over-the-counter market, provided that (a) if the stock is not
so traded, (b) if no closing price or bid and asked prices for the stock was so
reported on that date or (c) if, in the discretion of the Committee, another
means of determining fair market value of a share of stock at such date shall
be
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<PAGE> 6
necessary or advisable, the Committee may provide for another means for
determining such fair market value.
2.9 "OPTION" means a nonqualified option granted under this Plan
to purchase shares of Stock.
2.10 "OPTION AGREEMENT" means the written agreement which sets out
the terms of an Option.
2.11 "OPTIONEE" means a person who is granted an Option under this
Plan.
2.12 "PLAN" means The Men's Wearhouse, Inc. 1998 Key Employee Stock
Option Plan, as set out in this document and as it may be amended from time to
time.
2.13 "RETIRE" or "RETIREMENT" means retirement in accordance with
the terms of a retirement plan that is qualified under Section 401(a) of the
Code and maintained by the Company or an Affiliate in which the Employee is a
participant.
2.14 "STOCK" means the common stock of the Company, $.01 par value
(or such other par value as may be designated by act of the Company's
stockholders).
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<PAGE> 7
ARTICLE III
ELIGIBILITY
The individuals who shall be eligible to receive Options shall be
those key Employees, who are not executive officers of the Company or an
Affiliate, as the Committee shall determine from time to time.
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<PAGE> 8
ARTICLE IV
GENERAL PROVISIONS RELATING TO OPTIONS
4.1 AUTHORITY TO GRANT OPTIONS. The Committee may grant Options
to those individuals as it shall from time to time determine under the terms
and conditions of this Plan. The number of shares of Stock to be covered by
any Option shall be determined by the Committee.
4.2 DEDICATED SHARES. The total number of shares of Stock with
respect to which Options may be granted under the Plan shall be 500,000 shares.
The shares may be treasury shares or authorized but unissued shares. The
number of shares stated in this Section 4.2 shall be subject to adjustment in
accordance with the provisions of Section 4.5. If any outstanding Option
expires or terminates for any reason or any Option is surrendered, the shares
of Stock allocable to the unexercised portion of that Option may again be
subject to an Option under the Plan.
4.3 NON-TRANSFERABILITY. Except as expressly provided otherwise
in an Optionee's Option Agreement, Options shall not be transferable by the
Optionee otherwise than by will or under the laws of descent and distribution,
and shall be exercisable, during the Optionee's lifetime, only by him.
4.4 REQUIREMENTS OF LAW. The Company shall not be required to
sell or issue any Stock under any Option if issuing that Stock would constitute
or result in a violation by the Optionee or the Company of any provision of any
law, statute, or regulation of any governmental authority. Specifically, in
connection with any applicable statute or regulation relating to the
registration of securities, upon exercise of any Option, the Company shall not
be required to issue any Stock unless the Committee has received evidence
satisfactory to it to the effect that the holder of that Option will not
transfer the Stock except in accordance with applicable law, including receipt
of an opinion of counsel satisfactory to the Company to the effect that any
proposed transfer complies with applicable law. The determination by the
Committee on this matter shall be final, binding and conclusive. The Company
may, but shall in no event be obligated to, register any Stock covered by this
Plan pursuant to applicable securities laws of any country or any political
subdivision. In the event the Stock issuable on exercise of an Option is not
registered, the Company may imprint on the certificate evidencing the Stock any
legend that counsel for the Company considers necessary or advisable to comply
with applicable law. The Company shall not be obligated to take any other
affirmative action in order to cause the exercise of an Option and the issuance
of shares thereunder, to comply with any law or regulation of any governmental
authority.
4.5 CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or
any issue of bonds, debentures, preferred or prior preference stock ahead of or
affect the Stock or the rights thereof, or the dissolution or liquidation of
the Company, or any sale or transfer of all or any
IV-1
<PAGE> 9
part of the assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
If the Company shall effect a subdivision or consolidation of shares
or other capital adjustment, the payment of a Stock dividend, or other increase
or reduction of the number of shares of the Common Stock outstanding, without
receiving consideration therefor in money, services, or property, then (a) the
number, class and per share price of shares of Stock subject to outstanding
Options hereunder shall be appropriately adjusted in such a manner as to
entitle an Optionee to receive, upon exercise of an Option, for the same
aggregate cash consideration, the same total number and class or classes of
shares he would have held after such adjustment if he had exercised his Option
in full immediately prior to the event requiring the adjustment; and (b) the
number and class of shares then reserved for issuance under the Plan shall be
adjusted by substituting for the total number and class of shares of Stock then
received, the number and class or classes of shares of Stock that would have
been received by the owner of an equal number of outstanding shares of Stock as
the result of the event requiring the adjustment.
After the merger of one or more corporations into the Company, after
any consolidation of the Company and one or more corporations, or after any
other corporate transaction described in Section 424(a) of the Code in which
the Company shall be the surviving corporation, each Optionee, at no additional
cost, shall be entitled to receive, upon any exercise of his Option, in lieu of
the number of shares as to which the Option shall then be so exercised, the
number and class of shares of Stock or other securities to which the Optionee
would have been entitled pursuant to the terms of the agreement of merger or
consolidation if at the time of such merger or consolidation such Optionee had
been a holder of record of a number of shares of Stock equal to the number of
shares as to which the Option shall then be so exercised. Comparable rights
shall accrue to each Optionee in the event of successive mergers or
consolidations of the character described above.
After a merger of the Company into one or more corporations, after a
consolidation of the Company and one or more corporations, or after any other
corporate transaction described in Section 424(a) of the Code in which the
Company is not the surviving corporation, each Optionee shall, at no additional
cost, be entitled to have his then existing Option assumed or have a new Option
substituted for the existing Option by the surviving corporation to the
transaction which is then employing him, or a parent or subsidiary of such
corporation, on a basis where the excess of the aggregate Fair Market Value of
the shares subject to the Option immediately after the substitution or
assumption over the aggregate Option Price of such Option is equal to the
excess of the aggregate Fair Market Value of all shares subject to the Option
immediately before such substitution or assumption over the aggregate Option
Price of such shares.
If a corporate transaction described in Section 424(a) of the Code
that involves the Company is to take place and there is to be no surviving
corporation while an Option remains in whole or in part unexercised, it shall
be canceled by the Board of Directors as of the effective date of any such
corporate transaction but before that date each Optionee shall be provided with
a notice of such cancellation and shall have the
IV-2
<PAGE> 10
right to exercise such Option in full (without regard to any vesting
limitations set forth in, or imposed pursuant to, preceding provisions of this
Plan or the Option Agreement) to the extent it is then still unexercised during
a 30-day period preceding the effective date of such corporate transaction.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Stock then
subject to outstanding Options.
4.6 NO RIGHTS AS STOCKHOLDER. No Optionee shall have any rights
as a stockholder with respect to Stock covered by his Option until the date a
Stock certificate is issued for the Stock.
4.7 WRITTEN AGREEMENT. Each Option shall be embodied in a written
Option Agreement which shall be subject to the terms and conditions of this
Plan and shall be signed by the Optionee and by a member of the Committee on
behalf of the Committee and the Company. Each Option Agreement shall state
that the Option embodied therein is not intended to satisfy the requirements of
section 422 of the Code. The Option Agreement may contain any other provisions
that the Committee in its discretion shall deem advisable which are not
inconsistent with the terms of this Plan.
4.8 FORFEITURE FOR CAUSE. Notwithstanding any other provision of
this Plan, if the Committee finds by a majority vote, that the Optionee, before
or after termination of his employment with the Company or any Affiliate (a)
committed a fraud, embezzlement, theft, felony or an act of dishonesty in the
course of his employment by the Company which conduct damaged the Company or
(b) disclosed trade secrets of the Company, then any outstanding Options which
have not been exercised by the individual and any Options which have not yet
vested will be forfeited. The decision of the Committee as to the cause of an
Optionee discharge, the damage done to the Company and the extent of the
individual's competitive activity will be final. No decision of the Committee,
however, will affect the finality of the discharge of the individual by the
Company or Affiliate.
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<PAGE> 11
ARTICLE V
VARIABLE PROVISIONS RELATING TO SPECIFIC OPTIONS
5.1 OPTION PRICE. The price at which Stock may be purchased under
an Option ("Option Price") shall be specified in an Optionee's Option
Agreement.
5.2 DURATION OF OPTIONS. No Option shall be exercisable after
expiration of 10 years from the date the Option is granted; and the Committee
in its discretion may provide that such Option shall be exercisable throughout
such 10-year period or during any lesser period of time commencing on or after
the date of grant of such Option and ending upon or before the expiration of
such 10-year period. In its discretion, the Company may also include in the
Option Agreement such terms and conditions upon which the Option may cease to
be exercisable either in whole or in part. An Option may terminate prior to
the normal expiration date as specified below.
(a) General Rule for Severance of Employment. Except as
may be otherwise expressly provided herein, all Options shall
terminate on the earlier of the date of the expiration of the Option
or one day less than one month after the date of the severance of the
employment relationship between the Company and all Affiliates and the
Optionee, whether with or without cause, for any reason other than the
death, Disability or, Retirement of the Optionee, during which period
the Optionee shall be entitled to exercise the Option in respect of
the number of shares that the Optionee would have been entitled to
purchase had the Optionee exercised the Option on the date of such
severance of employment. Whether authorized leave of absence, or
absence on military or government service, shall constitute severance
of the employment relationship between the Company and all Affiliates
and the Optionee, shall be determined by the Committee at the time
thereof.
(b) Disability, Death, or Retirement of an Optionee. In
the event of the severance because of the Disability of the holder of
any Option while in the employ of the Company and before the date of
expiration of such Option, such Option shall terminate on the earlier
of such date of expiration or one year following the date of such
severance because of Disability, during which period the Optionee
shall be entitled to exercise the Option in respect to the number of
shares that the Optionee would have been entitled to purchase had the
Optionee exercised the Option on the date of such severance because of
permanent Disability under the then established rules of the Company
or as determined by the Committee. In the event of the death of the
holder of any Option while in the employ of the Company and before the
date of expiration of such Option, such Option shall terminate on the
earlier of such date of expiration or one year following the date of
death. After the death of the Optionee, his executors, administrators
or any person or persons to whom his Option may be transferred by will
or by the laws of descent and distribution, shall have the right, at
any time prior to the termination of the Option to exercise the
Option, in respect to the number of shares that the Optionee
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<PAGE> 12
would have been entitled to exercise if he had exercised the Option on
the day of his death while in employment. In addition, in the event
of the holder of any Option shall be retired in good standing from the
employ of the Company for reasons of age under the then-established
rules of the Company before the date of expiration of such Option,
such Option shall terminate on the earlier of such date of expiration
or one year following the date of such retirement, and, if such
Optionee should die within the one-year period, any rights he may have
had to exercise the Option shall be exercisable by his executor or
administrator or the person or persons to whom the Option shall have
been transferred by his will or laws of descent or distribution, as
appropriate, for the remainder of the one-year period.
Notwithstanding the foregoing provisions of this Section, the
Committee may provide for a different Option termination date in the Option
Agreement with respect to any Option.
5.3 AMOUNT EXERCISABLE. Each Option may be exercised from time to
time, in whole or in part, in the manner and subject to the conditions the
Committee, in its sole discretion, may provide in the Option Agreement, as long
as the Option is valid and outstanding. The usual form of agreement granting
an Option shall, subject to any limitation on exercise contained in the
Agreement which is not inconsistent with this Plan, contain the following terms
of exercise:
(a) No Option granted under this Plan may be exercised
until an Optionee has completed one year of continuous employment with
the Company or any Affiliate following the date of grant;
(b) Beginning on the day after the first anniversary of
the date of grant, an Option may be exercised up to 1/3 of the shares
subject to the Option;
(c) After the expiration of each succeeding anniversary
date of the date of grant, the Option may be exercised up to an
additional 1/3 of the shares subject to the Option, so that after the
expiration of the third anniversary of the date of grant, the Option
shall be exercisable in full; and
(d) To the extent not exercised, installments shall be
cumulative and may be exercised in whole or in part until the Option
expires on the tenth anniversary of the date of the grant.
However, the Committee, in its discretion, may change the terms of
exercise so that any Option may be exercised so long as it is valid and
outstanding from time to time in part or as a whole in such manner and subject
to such conditions as it may set. In addition, the Committee, in its
discretion, may accelerate the time in which any outstanding Option may be
exercised. But, in no event shall any Option be exercisable after the tenth
anniversary of the date of the grant.
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<PAGE> 13
5.4 EXERCISE OF OPTIONS. Each Option shall be exercised by the
delivery of written notice to the Committee stating (a) that such Optionee
wishes to exercise such Option on the date such notice is so delivered, (b) the
number of shares of Stock with respect to which the Option is to be exercised
and (c) the address to which the certificate representing such shares of Stock
should be mailed. In order to be effective, such written notice shall be
accompanied by (a) payment of the Option Price of such shares of stock and (b)
payment of an amount of money necessary to satisfy any withholding tax
liability that may result from the exercise of such Option. Each such payment
shall be made by (a) cashier's check drawn on a national banking association
and payable to the order of the Company in United States dollars or (b) any
other form of payment which is acceptable to the Committee.
If, at the time of receipt by the Company of such written notice, (a)
the Company has unrestricted surplus in an amount not less than the Option
Price of such shares of Stock, (b) all accrued cumulative preferential
dividends and other current preferential dividends on all outstanding shares of
preferred stock of the Company have been fully paid, (c) the acquisition by the
Company of its own shares of Stock for the purpose of enabling such Optionee to
exercise such Option is otherwise permitted by applicable law, does not require
any vote or consent of any stockholder of the Company and does not violate the
terms of any agreement to which the Company is a party or by which it is bound
and (d) there shall have been adopted, and there shall be in full force and
effect, a resolution of the Board of Directors of the Company authorizing the
acquisition by the Company of its own shares of Stock for such purpose, that
such Optionee may deliver to the Company, in payment of the Option Price of the
shares of Stock with respect to which such Option is exercised, (x)
certificates registered in the name of such Optionee that represent a number of
shares of stock legally and beneficially owned by such Optionee (free of all
liens, claims and encumbrances of every kind) and having a Fair Market Value on
the date of receipt by the Company of such written notice that is not greater
than the Option Price of the shares of Stock with respect to which such Option
is to be exercised, such certificates to be accompanied by stock powers duly
endorsed in blank by the record holder of the shares of stock represented by
such certificates, with the signature of such record holder guaranteed by a
national banking association, and (y) if the Option Price of the shares of
Stock with respect to which such Option is to be exercised exceeds such Fair
Market Value, a cashier's check drawn on a national banking association and
payable to the order of the Company, in an amount, in United States dollars,
equal to the amount of such excess. Notwithstanding the provisions of the
immediately preceding sentence, the Committee, in its sole discretion, may
refuse to accept shares of stock in payment of the Option Price of the shares
of Stock with respect to which such Option is to be exercised and, in that
event, any certificates representing shares of stock that were received by the
Company with such written notice shall be returned to such Optionee, together
with notice by the Company to such Optionee of the refusal of the Committee to
accept such shares of stock. If at the expiration of seven business days after
the delivery to such Optionee of such written notice from the Company, such
Optionee shall not have delivered to the Company a cashier's check drawn on a
national banking association and payable to the order of the Company in an
amount, in United States dollars, equal to the Option Price of the shares of
Stock with respect to which such Option is to be exercised, such written notice
from the Optionee to the Company shall be ineffective to exercise such Option.
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<PAGE> 14
As promptly as practicable after receipt by the Company of (a) such
written notification from the Optionee, (b) payment, in the form required by
the foregoing provisions of this Section 5.4, of an amount of money necessary
to satisfy any withholding tax liability that may result from the exercise of
such Option, the Company shall deliver to the Optionee certificates for the
number of shares with respect to which the Option has been exercised, issued in
the Optionee's name. Delivery of the shares shall be deemed effected for all
purposes when a stock transfer agent of the Company shall have deposited the
certificates in the United States mail, addressed to the Optionee, at the
address specified by the Optionee.
At any time when an Optionee is required to pay to the Company an
amount to be withheld under applicable income tax laws in connection with a
distribution of Stock upon the exercise of an Option, the Optionee may satisfy
this obligation in whole or in part by electing, at the time of exercise, to
have the Company withhold from the distribution of shares otherwise issuable
upon exercise of the Option a number of shares of Stock having value equal to
the amount required to be withheld. The value of the shares to be withheld
shall be based on the Fair Market Value of the Stock on the date of the
exercise.
5.5 SUBSTITUTION OPTIONS. Options may be granted under this Plan
from time to time in substitution for stock options held by employees of other
corporations who are about to become Employees of or affiliated with the
Company or any Affiliate as the result of a merger or consolidation of the
employing corporation with the Company or any Affiliate, or the acquisition by
the Company or any Affiliate of the assets of the employing corporation, or the
acquisition by the Company or any Affiliate of stock of the employing
corporation as the result of which it becomes an Affiliate of the Company. The
terms and conditions of the substitute Options granted may vary from the terms
and conditions set out in this Plan to the extent the Committee, at the time of
grant, may deem appropriate to conform, in whole or in part, to the provisions
of the stock options in substitution for which they are granted.
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<PAGE> 15
ARTICLE VI
ADMINISTRATION
This Plan shall be administered by the Committee. All questions of
interpretation and application of this Plan and Options shall be subject to the
determination of the Committee. A majority of the members of the Committee
shall constitute a quorum. All determinations of the Committee shall be made
by a majority of its members. Any decision or determination reduced to writing
and signed by a majority of the members shall be as effective as if it had been
made by a majority vote at a meeting properly called and held. In carrying out
its authority under this Plan, the Committee shall have full and final
authority and discretion, including but not limited to the following rights,
powers and authorities, to:
(a) determine the persons to whom and the time or times
at which Options will be made,
(b) determine the number of shares and the purchase price
of Stock covered in each Option, subject to the terms of the Plan,
(c) determine the terms, provisions and conditions of
each Option, which need not be identical,
(d) accelerate the time at which any outstanding Option
may be exercised,
(e) define the effect, if any, on an Option of the death,
Disability, or Retirement of the Optionee,
(f) prescribe, amend and rescind rules and regulations
relating to administration of this Plan, and
(g) make all other determinations and take all other
actions deemed necessary, appropriate, or advisable for the proper
administration of this Plan.
The actions of the Committee in exercising all of the rights, powers, and
authorities set out in this Article and all other Articles of this Plan, when
performed in good faith and in its sole judgment, shall be final, conclusive
and binding on all parties.
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ARTICLE VII
AMENDMENT OR TERMINATION OF PLAN
The Board of Directors of the Company may amend, terminate or suspend
this Plan at any time, in its sole and absolute discretion.
VII-1
<PAGE> 17
ARTICLE VIII
MISCELLANEOUS
8.1 NO EMPLOYMENT OBLIGATION. The granting of any Option shall
not constitute an employment contract, express or implied, nor impose upon the
Company or any Affiliate any obligation to employ or continue to employ any
Optionee. The right of the Company or any Affiliate to terminate the
employment of any person shall not be diminished or affected by reason of the
fact that an Option has been granted to him.
8.2 TAX WITHHOLDING. The Company or any Affiliate shall be
entitled to deduct from other compensation payable to each Optionee any sums
required by federal, state, or local tax law to be withheld with respect to the
grant or exercise of an Option. In the alternative, the Company may require
the Optionee (or other person exercising the Option) to pay the sum directly to
the Company or an Affiliate. If the Optionee (or other person exercising the
Option) is required to pay the sum directly, payment in cash or by check of
such sums for taxes shall be made on the date of exercise. The Company shall
have no obligation upon exercise of any Option until payment has been received,
unless withholding (or offset against a cash payment) as of or prior to the
date of exercise is sufficient to cover all sums due with respect to that
exercise. The Company and its Affiliates shall not be obligated to advise an
Optionee of the existence of the tax or the amount which the Company or
Affiliate will be required to withhold.
8.3 INDEMNIFICATION OF THE COMMITTEE AND THE BOARD OF DIRECTORS.
With respect to administration of this Plan, the Company shall indemnify each
present and future member of the Committee and the Board of Directors against,
and each member of the Committee and the Board of Directors shall be entitled
without further act on his part to indemnity from the Company for, all expenses
(including attorney's fees, the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of any action, suit, or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
and/or the Board of Directors, whether or not he continues to be a member of
the Committee and/or the Board of Directors at the time of incurring the
expenses--including, without limitation, matters as to which he shall be
finally adjudged in any action, suit or proceeding to have been found to have
been negligent in the performance of his duty as a member of the Committee or
of the Board of Directors. However, this indemnity shall not include any
expenses incurred by any member of the Committee and/or the Board of Directors
in respect of matters as to which he shall be finally adjudged in any action,
suit or proceeding to have been guilty of gross negligence or willful
misconduct in the performance of his duty as a member of the Committee or the
Board of Directors. In addition, no right of indemnification under this Plan
shall be available to or enforceable by any member of the Committee or the
Board of Directors unless, within 60 days after institution of any action, suit
or proceeding, he shall have offered the Company, in writing, the opportunity
to handle and defend same at its own expense. This right of indemnification
shall inure to the benefit of the heirs, executors or administrators of each
member of the Committee and
VIII-1
<PAGE> 18
the Board of Directors and shall be in addition to all other rights to which a
member of the Committee and the Board of Directors may be entitled as a matter
of law, contract, or otherwise.
8.4 GENDER. If the context requires, words of one gender when
used in this Plan shall include the other and words used in the singular or
plural shall include the other.
8.5 HEADINGS. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of this Plan and shall
not be used in construing the terms of this Plan.
8.6 OTHER COMPENSATION PLANS. The adoption of this Plan shall not
affect any other stock option, incentive or other compensation or benefit plans
in effect for the Company or any Affiliate, nor shall this Plan preclude the
Company from establishing any other forms of incentive or other compensation
for Employees of the Company or any Affiliate.
8.7 OTHER OPTIONS. The grant of an Option shall not confer upon
an Optionee the right to receive any future or other Options under this Plan,
whether or not Options may be granted to similarly situated Optionees, or the
right to receive future Options upon the same terms or conditions as previously
granted.
8.8 ARBITRATION OF DISPUTES. Any controversy arising out of or
relating to the Plan or an Option Agreement shall be resolved by arbitration
conducted in accordance with the terms of the Plan. No arbitration proceedings
may be commenced unless the issue has previously been submitted to the
Committee and the Committee has had at least 30 days to consider and act on the
issue. Nothing in this Section 8.8 shall be construed to, in any way, limit
the scope and effect of Article 6. In any arbitration proceeding full effect
shall be given to the rights, powers, and authorities of the Committee under
the provisions of the Plan. The arbitration shall be final and binding on the
parties.
8.9 GOVERNING LAW. The provisions of this Plan shall be
construed, administered, and governed under the laws of the State of Texas.
VIII-2
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
OF
THE MEN'S WEARHOUSE, INC.
TMW Texas Retail L.P.
TMW Texas Limited, Inc.
TMW Texas General, Inc.
TMW Licensing Company, Inc.
TMW Licensing I, Inc.
TMW Licensing II, Inc.
TMW Washington Distribution, Inc.
Value Priced Clothing, Inc.
Value Prices Clothing II, Inc.
Value Priced Liquidators, Inc.
The Men's Wearhouse Nevada, Inc.
Renwick Technologies, Inc.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-01564 on Form S-3, Registration Statement No. 33-48108, Registration
Statement No. 33-48109, Post-Effective Amendment No. 1 to Registration
Statement No. 33-48110, Post-Effective Amendment No. 1 to Registration
Statement No. 33-48111, Registration Statement No. 33-61792, Registration
Statement No. 333-21109, Registration Statement No. 333-21121 and Registration
Statement No. 33-74692 of The Men's Wearhouse, Inc. on Form S-8 of our report
dated March 3, 1998 appearing in this Annual Report on Form 10-K of The Men's
Wearhouse, Inc. for the year ended January 31, 1998.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
April 24, 1998
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