<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 1, 1999 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)
TEXAS 74-1790172
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
5803 GLENMONT DRIVE
HOUSTON, TEXAS 77081-1701
(Address of Principal Executive Offices) (Zip Code)
(713) 592-7200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]. No [ ].
The number of shares of common stock of the Registrant, par value $.01 per
share, outstanding at June 11, 1999 was 39,708,690. In addition, there were
2,162,874 Exchangeable Shares outstanding at June 11, 1999.
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<PAGE> 2
REPORT INDEX
<TABLE>
<CAPTION>
PART AND ITEM NO. PAGE NO.
- ----------------- --------
<S> <C>
PART I - Financial Information
Item 1 - Financial Statements
General Information...................................................................... 1
Consolidated Balance Sheets as of May 2, 1998 (unaudited), May 1, 1999 (unaudited)
and January 30, 1999................................................................... 2
Consolidated Statements of Earnings for the Three Months Ended May 2, 1998 (unaudited)
and May 1, 1999 (unaudited)............................................................ 3
Consolidated Statements of Cash Flows for the Three Months Ended May 2, 1998
(unaudited) and May 1, 1999 (unaudited)............................................... 4
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................................... 5
Item 3 - Qualitative and Quantitative Disclosures about Market Risk...................... 11
PART II - Other Information
Item 6 - Exhibits and Reports on Form 8-K................................................ 12
</TABLE>
<PAGE> 3
PART I, FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
GENERAL INFORMATION
The consolidated financial statements herein include the accounts of The
Men's Wearhouse, Inc. and its wholly owned subsidiaries ("the Company") and have
been prepared without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). As applicable under such
regulations, certain information and footnote disclosures have been condensed or
omitted. The Company believes that the presentation and disclosures herein are
adequate to make the information not misleading, and the financial statements
reflect all elimination entries and normal adjustments which are necessary for a
fair statement of the results for the three months ended May 2, 1998 and May 1,
1999.
On February 10, 1999, the Company combined with Moores Retail Group Inc.
("Moores"), hereinafter included in references to the Company, in a transaction
accounted for as a pooling of interests. In accordance with the pooling of
interest method of accounting permitted by Accounting Principles Board Opinion
No. 16 "Business Combinations", all prior period consolidated financial
statements presented have been restated to include the accounts of Moores. In
addition, the combined financial results presented include adjustments made to
conform the accounting policies of Moores to those of the Company.
Operating results for interim periods are not necessarily indicative of the
results for full years. It is suggested that these consolidated financial
statements be read in conjunction with the consolidated financial statements for
the year ended January 30, 1999 and the related notes thereto included in the
Company's 1998 Annual Report on Form 10-K filed with the SEC.
1
<PAGE> 4
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
May 2, May 1, January 30,
1998 1999 1999
--------- --------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 33,346 $ 26,312 $ 19,651
Inventories 272,315 300,695 271,946
Other current assets 16,166 17,546 17,632
--------- --------- ---------
Total current assets 321,827 344,553 309,229
--------- --------- ---------
PROPERTY AND EQUIPMENT, NET 98,156 120,108 118,185
OTHER ASSETS 54,777 47,009 46,135
--------- --------- ---------
Total assets $ 474,760 $ 511,670 $ 473,549
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 79,415 $ 88,152 $ 66,161
Accrued expenses 30,786 32,856 34,676
Revolver and current portion of long-term debt 11,412 2,574 2,484
Income taxes payable 5,808 6,145 7,700
--------- --------- ---------
Total current liabilities 127,421 129,727 111,021
LONG-TERM DEBT 107,865 64,521 56,326
OTHER LIABILITIES 7,143 9,059 8,439
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock -- -- --
Common stock 221 350 349
Capital in excess of par 113,342 153,355 151,391
Retained earnings 118,974 154,882 147,251
Currency translation adjustment (130) (149) (233)
--------- --------- ---------
232,407 308,438 298,758
Less:
Treasury stock, at cost (76) (75) (995)
--------- --------- ---------
Total shareholders' equity 232,331 308,363 297,763
--------- --------- ---------
Total liabilities and shareholders' equity $ 474,760 $ 511,670 $ 473,549
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE> 5
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Quarter Ended
-----------------------
May 2, May 1,
1998 1999
--------- ---------
<S> <C> <C>
Net sales $ 199,521 $ 222,183
Cost of goods sold, including buying and
occupancy costs 125,119 137,921
--------- ---------
Gross margin 74,402 84,262
Selling, general and administrative expenses 60,186 67,444
Transaction costs -- 5,552
Duplicative store closing costs -- 2,933
--------- ---------
Operating income 14,216 8,333
Interest expense, net 2,244 896
--------- ---------
Earnings before income taxes 11,972 7,437
Provision for income taxes 5,168 5,025
--------- ---------
Earnings before extraordinary item 6,804 2,412
Extraordinary item, net of tax -- 2,912
--------- ---------
Net earnings (loss) $ 6,804 $ (500)
========= =========
Net earnings (loss) per basic share:
Earnings before extraordinary item $ 0.19 $ 0.07
Extraordinary item -- (0.08)
--------- ---------
Net earnings (loss) $ 0.19 $ (0.01)
========= =========
Net earnings (loss) per diluted share:
Earnings before extraordinary item $ 0.19 $ 0.07
Extraordinary item -- (0.08)
--------- ---------
Net earnings (loss) $ 0.19 $ (0.01)
========= =========
Weighted average shares outstanding:
Basic 35,665 37,394
========= =========
Diluted 38,873 38,100
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 6
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Quarter Ended
----------------------
May 2, May 1,
1998 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 6,804 $ (500)
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities:
Extraordinary item, net of tax -- 2,912
Depreciation and amortization 6,110 6,743
Stock option compensation expense -- 889
Loss on disposal of property and equipment -- 1,503
Increase in inventories (35,181) (27,395)
Decrease in other assets 1,341 856
Increase in accounts payable and accrued expenses 15,328 23,587
Decrease in income taxes payable (5,298) (77)
Decrease in other liabilities (471) (549)
-------- --------
Net cash provided by (used in) operating activities (11,367) 7,969
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (12,990) (8,944)
Investment in trademark, tradenames and other intangibles (6,497) (188)
-------- --------
Net cash used in investing activities (19,487) (9,132)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings 4,773 64,849
Principal payments on bank debt (720) (57,375)
Deferred financing costs -- (429)
Exercise of stock options 480 882
Option shares relinquished for tax obligations (270) (230)
-------- --------
Net cash provided by financing activities 4,263 7,697
-------- --------
Effect of exchange rate changes on cash and cash equivalents -- 127
-------- --------
INCREASE (DECREASE) IN CASH (26,591) 6,661
CASH, beginning of period 59,937 19,651
-------- --------
CASH, end of period $ 33,346 $ 26,312
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 7
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES--
The Consolidated Financial Statements include the accounts of The Men's
Wearhouse, Inc. and its subsidiaries (the "Company"). There have been no
significant changes in the accounting policies of the Company during the periods
presented. For a description of these policies, see Note 1 of Notes to
Consolidated Financial Statements in the Company's Annual Report on Form 10-K
for the year ended January 30, 1999.
2. EARNINGS PER SHARE--
Basic earnings per share ("EPS") is computed using the weighted average
number of common shares outstanding during the period and net earnings (loss).
Diluted EPS gives effect to the potential dilution which would have occurred if
additional shares were issued for stock options exercised under the treasury
stock method and, in fiscal 1998, conversion of the convertible debt ("Notes"),
with fiscal 1998 net earnings (loss) adjusted for interest expense associated
with the Notes. The following table reconciles the earnings and shares used in
the basic and diluted EPS computations (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
---------------------
MAY 2, MAY 1,
1998 1999
-------- --------
<S> <C> <C>
Basic EPS
Earnings before extraordinary item $ 6,804 $ 2,412
Extraordinary item, net of tax -- (2,912)
-------- --------
Net earnings (loss) 6,804 (500)
======== ========
Weighted average number of common shares outstanding 35,665 37,394
======== ========
Basic EPS:
Earnings before extraordinary item $ 0.19 $ 0.07
Extraordinary item, net of tax -- (0.08)
-------- --------
Net earnings (loss) $ 0.19 $ (0.01)
======== ========
Diluted EPS
Earnings before extraordinary item $ 6,804 $ 2,412
Interest on Notes, net of taxes 486 --
-------- --------
As adjusted net earnings $ 7,290 $ 2,412
Extraordinary item, net of tax -- (2,912)
-------- --------
As adjusted net earnings (loss) $ 7,290 $ (500)
======== ========
Weighted average number of common shares outstanding 35,665 37,394
Assumed exercise of stock options 680 706
Assumed conversion of Notes 2,528 --
-------- --------
As adjusted shares 38,873 38,100
======== ========
Diluted EPS:
Earnings before extraordinary item $ 0.19 $ 0.07
Extraordinary item, net of tax -- (0.08)
-------- --------
Net earnings (loss) $ 0.19 $ (0.01)
======== ========
</TABLE>
5
<PAGE> 8
3. COMPREHENSIVE INCOME AND SUPPLEMENTAL CASH FLOWS --
The Company's comprehensive income, which encompasses net income and
currency translation adjustments, is as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
---------------------
MAY 2, MAY 1,
1998 1999
------ ------
<S> <C> <C>
Net earnings (loss) $6,804 $ (500)
Currency translation adjustments,
net of tax 58 84
------ ------
Comprehensive income (loss) $6,862 $ (416)
====== ======
</TABLE>
The Company paid cash during the first quarter of 1998 of $3.1 million for
interest and $10.2 million for taxes, compared with $0.8 million for interest
and $6.7 million for taxes during the first quarter of 1999.
4. MOORES COMBINATION --
On February 10, 1999, the Company combined with Moores Retail Group Inc.
("Moores"), a privately owned Canadian corporation, in exchange for securities
("Exchangeable Shares") exchangeable for 2.5 million shares of the Company's
common stock. The Exchangeable Shares have substantially identical economic and
legal rights as, and will ultimately be exchanged on a one-on-one basis for,
shares of the Company's common stock. The Exchangeable Shares were issued to the
shareholders and option holders of Moores in exchange for all of the outstanding
shares of capital stock and options of Moores because of Canadian tax law
considerations. All Exchangeable Shares must be converted into common stock of
the Company within five years and are reflected as common stock outstanding for
financial reporting purposes by the Company. The combination with Moores has
been accounted for as a pooling of interests.
In conjunction with the combination with Moores, the Company recorded
transaction costs of $5.6 million and duplicative stores closing costs of $2.9
million. The transaction costs consisted primarily of investment banking fees,
professional fees and contract termination payments, while the duplicative store
closing costs consisted primarily of lease termination payments and the
write-off of fixed assets associated with the closing of duplicate stores sites
in existing markets. In addition, the Company recorded an extraordinary charge
of $2.9 million, net of a $1.4 million tax benefit, related to the write-off of
deferred financing costs and prepayment penalties for the refinancing of
approximately US$57 million of Moores' indebtedness.
No supplemental disclosure of the separate results of the combined
companies for the ten days of fiscal 1999 prior to the combination is presented
as such results are not material.
5. SUBSEQUENT EVENT --
On June 1, 1999, the Company merged with K&G Men's Center, Inc. ("K&G"), a
superstore retailer of men's apparel and accessories operating 34 stores in 16
states, with K&G becoming a wholly owned subsidiary of the Company. The Company
issued approximately 4.4 million shares of the its common stock to K&G
shareholders based on an exchange ratio of 0.43 of a share of the Company's
common stock for each share of K&G common stock outstanding. In addition, the
Company converted the outstanding options to purchase K&G common stock, whether
vested or unvested, into 0.2 million options to purchase the Company's common
stock based on the exchange ratio of 0.43. The merger will be accounted for as a
pooling of interests.
In connection with the closing of the K&G transaction, the Company's
management is evaluating the operations of K&G and the Company with regard to
duplicate facilities within existing markets. The Company expects to close
approximately five stores as a result of this process and to replace SuitMax
signage in connection with adopting K&G's store branding. Management estimates
that the cost of these store closing and the write-off of abandoned signage will
be approximately $3.0 million before income taxes.
On June 11, 1999, the Company filed a report on Form 8-K related to the
closing of the K&G merger. The Form 8-K contains historical financial
information for K&G as well as pro forma financial information for the merger of
the Company and K&G.
6
<PAGE> 9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
For supplemental information, it is suggested that "Management's Discussion
and Analysis of Financial Condition and Results of Operations" be read in
conjunction with the corresponding section included in the Company's Annual
Report on Form 10-K for the year ended January 30, 1999. References herein to
years are to the Company's 52-week or 53-week fiscal year which ends on the
Saturday nearest January 31 in the following calendar year. For example,
references to "1999" mean the fiscal year ending January 29, 2000.
In large part, changes in net sales and operating results are impacted by
the number of stores operating during the fiscal period. The following table
presents information with respect to stores in operation during each of the
respective fiscal periods.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED YEAR ENDED
--------------------- -----------
MAY 2, MAY 1, JANUARY 30,
1998 1999 1999
------- ------- -----------
<S> <C> <C> <C>
Stores open at beginning of period 501 546 501
Opened 13 13 57
Acquired 4 -- 4
Closed (3) (6) (16)
---- ---- ----
Stores open at end of period 515 553 546
==== ==== ====
Stores open at end of period consist of:
U.S. --
Men's Wearhouse 374 420 411
SuitMax/Suit Warehouse 12 16 16
C&R and Moores 24 6 12
---- ---- ----
410 442 439
Canada-- Moores 105 111 107
---- ---- ----
515 553 546
==== ==== ====
</TABLE>
RESULTS OF OPERATIONS
The Company's net sales increased $22.7 million, or 11.4%, to $222.2 million
for the quarter ended May 1, 1999 due primarily to sales resulting from the
increased number of stores and increased sales at existing stores. Sales from
U.S. stores represented 87.8% of total sales in the first quarter of 1999,
compared with 86.3% of total sales in the first quarter of 1998. 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 5.0% for the U.S. stores from the same prior year
quarter, while comparable store sales for the Canadian stores decreased 6.5%
from the same prior year quarter.
Gross margin increased to $84.3 million in the first quarter of 1999 which
was a 13.3% increase from the same prior year quarter. As a percentage of sales,
gross margin increased from 37.3% in the first quarter of 1998 to 37.9% in the
first quarter of 1999. This increase in gross margin predominantly resulted from
a decrease in product costs as a percentage of sales offset, in part, by higher
occupancy and alteration costs as a percentage of sales.
Selling, general and administrative ("SG&A") expenses increased as a
percentage of sales from 30.2% for the quarter ended May 2, 1998 to 30.4% for
the quarter ended May 1, 1999, and SG&A expenditures increased by $7.3 million
to $67.4 million. On an absolute dollar basis, the principal components of SG&A
expenses increased primarily due to the Company's growth. Advertising expense
was consistent at 6.8% of net sales, store salaries increased from 11.3% to
11.6% of net sales and other SG&A expenses decreased slightly from 12.1% to
12.0% of net sales.
7
<PAGE> 10
As a result of the February 10, 1999 pooling of interest combination of the
Company and Moores Retail Group Inc., non-recurring transaction costs of $5.6
million were charged to operations in the first quarter of 1999. These costs
consisted primarily of investment banking fees, professional fees and contract
termination payments. An additional $2.9 million was charged to operations for
non-recurring duplicative store closing costs, which consisted primarily of
lease termination payments and the write-off of fixed assets associated with the
closing of duplicate store sites in existing markets.
Interest expense, net of interest income, decreased from $2.2 million in the
first quarter of 1998 to $0.9 million in the first quarter of 1999. Weighted
average borrowings outstanding decreased $55.4 million from the prior year to
$63.5 million in the first quarter of 1999, and the weighted average interest
rate on outstanding indebtedness decreased from 9.4% to 6.9%. The weighted
average borrowings outstanding decreased primarily as a result of the redemption
of the 5 1/4% Convertible Subordinated Notes in the third quarter of 1998. The
decrease in the weighted average interest rate was due primarily to the
refinancing of debt concurrent with the Moores combination.
The Company's effective income tax rate decreased from 43.2% for the quarter
ended May 2, 1998 to 41.2% (before the effect of transaction costs which are
mostly not deductible for income tax purposes) for the quarter ended May 1,
1999. The effective tax rate for the first quarter of 1999 was higher than the
statutory U.S. federal rate of 35% primarily due to the effect of state income
taxes, Canadian earnings which are taxed at a higher statutory rate and the
nondeductibility of a portion of meal and entertainment expenses.
The Company's earnings before extraordinary item, as reported and after the
effect of non-recurring charges, were as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
---------------------
MAY 2, MAY 1,
1998 1999
------ ------
<S> <C> <C>
Earnings before extraordinary item, as reported $6,804 $2,412
Transaction costs, net of tax benefit of $332 -- 5,220
Duplicative store closing costs, net of tax benefit of $1,197 -- 1,736
------ ------
Earnings before extraordinary item and non-recurring charges $6,804 $9,368
====== ======
Basic and diluted earnings per share before extraordinary
item, as reported $ 0.19 $ 0.07
====== ======
Basic and diluted earnings per share before extraordinary
item and non-recurring charges $ 0.19 $ 0.25
====== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $8.0 million in the first
quarter of 1999 compared with net cash used in operating activities of $11.4
million in the first quarter of 1998. These amounts primarily represent net
earnings before extraordinary item plus depreciation, amortization and other
non-cash charges and increases in current liabilities, offset by increases in
inventories. Inventories increased $27.4 million and $35.2 million for the
quarters ended May 1, 1999 and May 2, 1998, respectively. The increase for the
first quarter of 1999 primarily resulted from seasonal inventory buildup and the
addition of inventory for new and/or acquired stores and stores expected to be
opened in the following quarter.
Working capital was $214.8 million at May 1, 1999, which is up from $198.2
million at January 30, 1999 and $194.4 million at May 2, 1998. 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.
8
<PAGE> 11
Cash used in investing activities was $9.1 million and $19.5 million in the
first three months of 1999 and 1998, respectively. For the three months ended
May 1, 1999, cash used in investing activities was primarily comprised of
capital expenditures of $8.9 million relating primarily to stores opened,
remodeled or relocated during the quarter or under construction at the
end of the quarter.
In February 1999, the Company amended and restated its revolving credit
agreement with a group of banks (the "Credit Agreement"). This agreement
provides for borrowing of up to $125 million through February 5, 2004. Advances
under the Credit Agreement bear interest at a rate per annum equal to, at the
Company's option, the agent's prime rate or the reserve adjusted LIBOR rate plus
an interest rate margin varying between .75% to 1.25%. The Credit Agreement
provides for fees applicable to unused commitments of .125% to .225%. As of May
1, 1999, there was no indebtedness outstanding under the Credit Agreement.
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, fixed charge and current ratios. 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
Agreement 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 February 1999, the Company also entered into two new Canadian credit
facilities in conjunction with the combination with Moores. These facilities
include a revolving credit agreement which provides for borrowings up to Can$30
million (US$20 million) through February 5, 2004 and a term credit agreement
which provides for borrowings of Can$75 million (US$50 million) to be repaid in
quarterly installments of Can$0.9 million (US$0.6 million) beginning May 5,
1999; remaining unpaid principal is payable on February 5, 2004. Covenants and
interest rates are substantially similar to those contained in the Company's
Credit Agreement. Borrowings under these agreements of US$64.8 million at
May 1, 1999 were used to repay approximately US$57 million in outstanding
indebtedness of Moores and to fund operating and transaction costs and other
requirements of Moores.
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
(primarily the Italian lira). 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 net assets.
YEAR 2000
The statements included in this section are intended to be and are
designated "Year 2000 Readiness Disclosure" statements within the meaning of the
Year 2000 Information and Readiness Disclosure Act.
Due to the dramatic changes in the state of the art of 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 U.S. information
technology by acquiring products that are generally available and field tested
and are designed to increase the efficiency and the future productivity of its
operations. The Company has benefited significantly from investments in
technology in the past, and it is anticipated that these modifications will
further increase the benefit that it derives from technology, both in the near
term and in the future. 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 $20.0 million and $25.0 million
including past and future expenditures. The amounts of expenditures related
specifically to Year 2000 date conversion compliance are not
9
<PAGE> 12
separable from this amount. The Company expects that all of its business systems
will be Year 2000 compliant by mid-1999, and does not anticipate that the cost
will have a material effect on its 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 it 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.
As part of its assessment of the Year 2000 issue, the Company has completed
an inventory of its hardware and software systems, including the embedded
systems in its buildings, property and equipment. The Company is presently in
the process of implementing converted and replacement systems for all of its
non-compliant hardware and software systems to ensure that the operations of
such systems will not be materially adversely affected by the Year 2000 date
change. The Company estimates that its efforts to make all internal systems Year
2000 compliant are approximately 90% complete.
To date, the Company has made expenditures of approximately $500,000 related
to its telephone and security systems specifically to address the Year 2000
issue. The Company does not anticipate that it will incur significant additional
expenditures to address the Year 2000 issue beyond those associated with the
updating and upgrading of the information systems discussed above.
The Company has requested and has received written responses from all of its
significant U.S. vendors and suppliers confirming that they will be Year 2000
compliant. Of the 50 current vendors and suppliers with whom the Company
exchanges information by some form of electronic transfer, 42 have indicated
that they have tested their systems and found them to be Year 2000 compliant and
8 have indicated that they are in the process of completing their conversion
and/or testing. The Company will continue to monitor these vendors and
suppliers, as well as any new vendors or suppliers.
The Company, through Moores, has also been in the process of updating and
upgrading its Canadian information systems to be Year 2000 compliant. Moores has
converted or reprogrammed its payroll, accounting and merchandising systems to
ensure that the operation of such systems will not be materially adversely
affected by the Year 2000 date change. With respect to its point of sale system,
Moores has completed the installation in its stores of new equipment and
software that is Year 2000 compliant. Moores has also completed the process of
evaluating the machinery and embedded technology involved in its manufacturing
operations and has determined that the manufacturing technology is Year 2000
compliant. Moores total costs related to Year 2000 compliance are not expected
to exceed Can$500,000.
Moores has requested and is in the process of receiving written responses
from its vendors and suppliers confirming that the vendor or supplier is Year
2000 compliant. Moores will continue to monitor these vendors and suppliers, as
well as those that have not provided written assurance. Moores expects to use
alternate sources to replace those vendors and suppliers who do not provide
written assurance of their Year 2000 readiness.
Assuming no general failure of utilities to provide basic services over
large geographic areas or of the banking systems generally to conduct business
substantially as usual, or of the credit card systems to confirm credit
generally, the Company believes that, at the store level, the worst case
scenario would require the processing of credit approvals by telephone and the
ordering and allocation of inventory by telephone. While each of these scenarios
would increase the cost of doing business and may result in the loss of some
sales, the Company does not believe that either of these situations would have a
material adverse effect on its results of operations.
If the Company is unable to purchase or receive inventory, or is unable to
arrange for the manufacture of acquired piece goods into tailored clothing, such
failure, depending on how extensive, could have a material adverse effect on its
operations. However, no vendor or supplier accounts for more than 10% of the
inventory the Company purchases and in most cases alternative suppliers are
available.
The Company anticipates that it will increase inventory for approximately
one month prior to the Year 2000 to insure that it has adequate inventory to
cover possible disruptions associated with the Year 2000 date change.
At the manufacturing level, if all suppliers were unable to supply the
fabric needs of the manufacturing operations, then, given this worst case
scenario, one to two months of production could be lost. However, no one
supplier accounts for more than 14% of the fabric used and this supplier has
provided a written response that it is Year 2000 compliant. Moores
10
<PAGE> 13
anticipates that if any one supplier is unable to provide fabric, an alternate
source could be found to meet production needs. If there is a significant
disruption in the supply chain due to the Year 2000 issue and the amount of
fabric available from suppliers is limited, it may be difficult to obtain the
fabric necessary to meet the demands of the manufacturing operations and
available fabric may experience a significant increase in cost.
The Company has not developed a contingency plan at present. However, it
will adopt such a plan, if necessary, in mid-1999 to address any unresolved
issues or risks that may exist at that time.
ITEM 3 -QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant quantitative or qualitative changes during
the first quarter of 1999 in the Company's market risk sensitive instruments.
FORWARD-LOOKING STATEMENTS
Certain statements made herein and in other public filings and releases by
the Company contain "forward-looking" information (as defined in the Private
Securities Litigation Reform Act of 1995) that involve risk and uncertainty.
These forward-looking statements may include, but are not limited to, future
capital expenditures, acquisitions (including the amount and nature thereof),
future sales, earnings, margins, costs, number and costs of store openings,
demand for men's clothing, market trends in the retail men's clothing business,
currency fluctuations, inflation and various economic and business trends.
Forward-looking statements may be made by management orally or in writing,
including but not limited to, this Management's Discussion and Analysis of
Financial Condition and Results of Operations section and other sections of the
Company's filings with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 and the Securities Act of 1933.
Actual results and trends in the future may differ materially depending on a
variety of factors including, but not limited to, domestic and international
economic activity and inflation, the Company's successful execution of internal
operating plans and new store and new market expansion plans, performance issues
with key suppliers, 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.
11
<PAGE> 14
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
EXHIBIT
NUMBER EXHIBIT INDEX
------- -------------
2.1 -- Combination Agreement dated November 18, 1998, by and
between The Men's Wearhouse, Inc., Golden Moores Company,
Moores Retail Group Inc. and the Shareholders of Moores
Retail Group Inc. signatory thereto. (incorporated by
reference from Exhibit 2.1 to the Company's Registration
Statement on Form S-3 (Registration No. 333-69979)).
2.2 -- Agreement and Plan of Merger dated March 3, 1999, by and
between The Men's Wearhouse, Inc., TMW Combination
Company and K&G Men's Center, Inc. (incorporated by
reference from Exhibit 2.2 to the Company's Annual Report
on Form 10-K for the fiscal year ended January 30, 1999).
2.3 -- Amendment No. 1 to Agreement and Plan of Merger dated
March 30, 1999 by and between The Men's Wearhouse, Inc.,
TMW Combination Company and K&G Men's Center, Inc.
(incorporated by reference from Exhibit 2.3 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 30, 1999).
4.1 -- Registration Rights Agreement dated as of November 18,
1998, by and among The Men's Wearhouse, Inc. and Marpro
Holdings, Inc., MGB Limited Partnership, Capital
D'Amerique CDPQ Inc., Cerberus International, Ltd., Ultra
Cerberus Fund, Ltd., Styx International Ltd., The Long
Horizons Overseas Fund Ltd., The Long Horizons Fund, L.P.
and Styx Partners, L.P. (incorporated by reference from
Exhibit 4.13 to the Company's Registration Statement on
Form S-3 (Registration No. 333-69979)).
4.2 -- Support Agreement dated February 10, 1999, between The
Men's Wearhouse, Inc., Golden Moores Company, Moores
Retail Group Inc. and Marpro Holdings, Inc., MGB Limited
Partnership, Capital D'Amerique CDPQ Inc., Cerberus
International, Ltd., Ultra Cerberus Fund, Ltd., Styx
International Ltd., The Long Horizons Overseas Fund Ltd.,
The Long Horizons Fund, L.P. and Styx Partners, L.P.
(incorporated by reference from Exhibit 4.2 to the
Company's Current Report on Form 8-K (Registration No.
333-72549)).
4.3 -- Revolving Credit Agreement dated as of February 5, 1999,
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 2.2 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 30, 1999).
4.4 -- Term Credit Agreement dated as of February 5, 1999, by
and among the Company, certain subsidiaries of the
Company and NationsBank of Texas N.A. and the Banks
listed therein, including form of Term Note.
(incorporated by reference from Exhibit 4.14 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 30, 1999).
4.5 -- Revolving Credit Agreement dated as of February 10, 1999,
by and among the Company, certain subsidiaries of the
Company and Bank of America Canada and the Banks listed
therein, including form of Revolving Note. (incorporated
by reference from Exhibit 4.15 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 30,
1999).
9.1 -- Voting Trust Agreement dated February 10, 1999, by and
between The Men's Wearhouse, Inc., Golden Moores Company,
Moores Retail Group Inc. and The Trust Company of Bank of
Montreal (incorporated by reference from Exhibit 9.1 to
the Company's Current Report on Form 8-K (Registration
No. 333-72579)).
10.1 -- Amended and Restated Employment Agreement dated as of
June 1, 1999, by and between K&G Men's Center, Inc. and
Stephen H. Greenspan (incorporated by reference from
Exhibit 10.1 of the Company's Current Report on Form 8-K
dated June 11, 1999).
27.1 -- Financial Data Schedule. (Filed herewith).
27.2 -- Restated Financial Data Schedule for the first, second
and third quarters in fiscal years 1997 and 1998 and for
fiscal years 1997 and 1998. (Filed herewith).
12
<PAGE> 15
(b) Reports on Form 8-K.
On February 25, 1999, the Company filed a report on Form 8-K related to the
February 10, 1999 closing of the Moores combination. Moores consolidated
financial statements, including a consolidated balance sheet as of January 31,
1998 and October 31, 1998, a consolidated statement of income and comprehensive
income, a consolidated statement of stockholders' equity and a consolidated
statement of cash flows, each for the year ended January 31, 1998 and for the
nine months ended October 31, 1997 and October 31, 1998, as well as pro forma
financial statements including a combined balance sheet as of October 31, 1998
and combined statements of earnings for the years ended January 31, 1998 and for
the nine months ended November 1, 1997 and October 31, 1998, were included in
this current report on Form 8-K.
On March 5, 1999, the Company filed a current report on Form 8-K related to
the signing of the merger agreement with K&G.
On April 26, 1999, the Company filed a report on Form 8-K pursuant to the
terms of the combination agreement with Moores. The Company's consolidated
statements of earnings for each of the two month periods ended April 4, 1998 and
April 3, 1999, as well as pro forma statements of earnings for each of the same
periods excluding one-time transaction costs, duplicative store closing costs
and extraordinary charges associated with Moores, were included in this current
report on Form 8-K.
On June 11, 1999, the Company filed a report on Form 8-K related to the June
1, 1999 closing of the K&G merger. K&G consolidated financial statements,
including a consolidated balance sheet as of February 1, 1998 and January 31,
1999, a consolidated statement of operations, a consolidated statement of
stockholders' equity and a consolidated statement of cash flows, each for the
year ended February 2, 1997, February 1, 1998 and January 31, 1999, as well as
pro forma financial statements including a combined balance sheet as of January
30, 1999 and combined statements of earnings for the years ended February 1,
1997, January 31, 1998 and January 30, 1999, were included in this current
report on Form 8-K.
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, The Men's Wearhouse, Inc., has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: June 15, 1999 THE MEN'S WEARHOUSE, INC.
By /s/ DAVID H. EDWAB
-----------------------------------------------
David H. Edwab
President
By /s/ GARY G. CKODRE
-----------------------------------------------
Gary G. Ckodre
Vice President - Finance and Principal Financial
and Accounting Officer
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT INDEX
------- -------------
<S> <C> <C>
27.1 -- Financial Data Schedule. (Filed herewith).
27.2 -- Restated Financial Data Schedule for the first, second
and third quarters in fiscal years 1997 and 1998 and for
fiscal years 1997 and 1998. (Filed herewith).
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> MAY-01-1999
<CASH> 26,312
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 300,695
<CURRENT-ASSETS> 344,553
<PP&E> 212,219
<DEPRECIATION> 92,111
<TOTAL-ASSETS> 511,670
<CURRENT-LIABILITIES> 129,727
<BONDS> 64,521
0
0
<COMMON> 350
<OTHER-SE> 308,013
<TOTAL-LIABILITY-AND-EQUITY> 511,670
<SALES> 222,183
<TOTAL-REVENUES> 222,183
<CGS> 137,921
<TOTAL-COSTS> 137,921
<OTHER-EXPENSES> 75,929
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 896
<INCOME-PRETAX> 7,437
<INCOME-TAX> 5,025
<INCOME-CONTINUING> 2,412
<DISCONTINUED> 0
<EXTRAORDINARY> 2,912
<CHANGES> 0
<NET-INCOME> (500)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE HISTORICAL RESULTS OF MOORES FOR FISCAL 1998 HAVE NOT BEEN COMBINED WITH THE
COMPANY'S FISCAL 1996 HISTORICAL RESULTS AS MOORES COMMENCED OPERATIONS ON
DECEMBER 23, 1996 AND ITS REPORTED NET LOSS OF $0.1 MILLION FOR THE 40 DAY
PERIOD FROM DECEMBER 23, 1996 TO JANUARY 31, 1997 IS NOT SIGNIFICANT.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 3-MOS 6-MOS
<FISCAL-YEAR-END> JAN-31-1998 JAN-30-1999 JAN-31-1998 JAN-31-1998
<PERIOD-START> FEB-02-1997 FEB-01-1998 FEB-02-1997 FEB-02-1997
<PERIOD-END> JAN-31-1998 JAN-30-1999 MAY-03-1997 AUG-02-1997
<CASH> 59,937 19,651 26,908 27,913
<SECURITIES> 0 0 0 0
<RECEIVABLES> 0 0 0 0
<ALLOWANCES> 0 0 0 0
<INVENTORY> 236,574 271,946 218,810 240,261
<CURRENT-ASSETS> 313,518 309,229 259,316 281,682
<PP&E> 156,690 203,967 138,997 144,810
<DEPRECIATION> 66,391 85,782 56,442 60,652
<TOTAL-ASSETS> 452,440 473,549 390,403 416,469
<CURRENT-LIABILITIES> 114,167 111,021 107,359 94,452
<BONDS> 107,595 0 110,009 111,735
0 0 0 0
0 0 0 0
<COMMON> 221 349 210 220
<OTHER-SE> 223,319 297,414 165,376 202,568
<TOTAL-LIABILITY-AND-EQUITY> 452,440 473,549 390,403 416,469
<SALES> 762,524 898,597 154,749 323,448
<TOTAL-REVENUES> 762,524 898,597 154,749 323,448
<CGS> 471,288 549,670 98,231 202,640
<TOTAL-COSTS> 471,288 549,670 98,231 202,640
<OTHER-EXPENSES> 226,359 263,216 47,692 97,367
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 9,800 9,025 2,303 4,800
<INCOME-PRETAX> 55,297 76,686 6,523 18,641
<INCOME-TAX> 24,348 32,773 2,765 7,980
<INCOME-CONTINUING> 30,951 43,913 3,758 10,681
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 701 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 30,951 43,212 3,758 10,681
<EPS-BASIC> 0.89 1.19 0.11 0.31
<EPS-DILUTED> 0.87 1.15 0.11 0.31
[ARTICLE] 5
[LEGEND]
THE HISTORICAL RESULTS OF MOORES FOR FISCAL 1998 HAVE NOT BEEN COMBINED WITH THE
COMPANY'S FISCAL 1996 HISTORICAL RESULTS AS MOORES COMMENCED OPERATIONS ON
DECEMBER 23, 1996 AND ITS REPORTED NET LOSS OF $0.1 MILLION FOR THE 40 DAY
PERIOD FROM DECEMBER 23, 1996 TO JANUARY 31, 1997 IS NOT SIGNIFICANT.
[/LEGEND]
[RESTATED]
[MULTIPLIER] 1,000
<S> <C> <C> <C> <C>
[PERIOD-TYPE] 9-MOS 3-MOS 6-MOS 9-MOS
[FISCAL-YEAR-END] JAN-31-1998 JAN-30-1999 JAN-30-1999 JAN-30-1999
[PERIOD-START] FEB-02-1997 FEB-01-1998 FEB-01-1998 FEB-01-1998
[PERIOD-END] NOV-01-1997 MAY-02-1998 AUG-01-1998 OCT-31-1998
[CASH] 23,996 33,346 7,983 7,606
[SECURITIES] 0 0 0 0
[RECEIVABLES] 0 0 0 0
[ALLOWANCES] 0 0 0 0
[INVENTORY] 269,435 272,315 280,349 313,697
[CURRENT-ASSETS] 307,170 321,827 304,202 337,956
[PP&E] 152,976 170,070 177,863 188,810
[DEPRECIATION] 64,829 71,914 74,992 79,946
[TOTAL-ASSETS] 444,014 474,760 459,258 494,612
[CURRENT-LIABILITIES] 117,123 127,421 105,938 125,598
[BONDS] 109,908 107,865 104,215 77,422
[PREFERRED-MANDATORY] 0 0 0 0
[PREFERRED] 0 0 0 0
[COMMON] 221 221 222 348
[OTHER-SE] 209,200 232,110 241,608 283,891
[TOTAL-LIABILITY-AND-EQUITY] 444,014 474,760 459,258 494,612
[SALES] 503,289 199,521 395,831 599,132
[TOTAL-REVENUES] 503,269 199,521 395,831 599,132
[CGS] 314,233 125,199 244,734 370,434
[TOTAL-COSTS] 314,233 125,119 244,734 370,434
[OTHER-EXPENSES] 151,692 60,186 118,494 179,773
[LOSS-PROVISION] 0 0 0 0
[INTEREST-EXPENSE] 7,302 2,244 4,570 8,984
[INCOME-PRETAX] 30,042 11,972 28,033 41,941
[INCOME-TAX] 13,040 5,168 12,141 18,135
[INCOME-CONTINUING] 17,002 6,804 15,892 23,806
[DISCONTINUED] 0 0 0 0
[EXTRAORDINARY] 0 0 0 701
[CHANGES] 0 0 0 0
[NET-INCOME] 17,002 6,804 15,892 23,105
[EPS-BASIC] 0.49 0.19 0.45 0.64
[EPS-DILUTED] 0.49 0.19 0.43 0.62
</TABLE>
