<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 July 29, 2000 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 September 8, 2000 was 41,785,142. In addition, there were
256,855 Exchangeable Shares outstanding at September 8, 2000.
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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 July 31, 1999 (unaudited), July 29, 2000
(unaudited) and January 29, 2000....................................................... 2
Consolidated Statements of Earnings for the Three and Six Months Ended July 31,
1999 (unaudited) and July 29, 2000 (unaudited)......................................... 3
Consolidated Statements of Cash Flows for the Six Months Ended July 31, 1999
(unaudited) and July 29, 2000 (unaudited).............................................. 4
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................................... 6
Item 3 - Qualitative and Quantitative Disclosures about Market Risk...................... 10
PART II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders............................. 11
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 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 and six months ended July 31, 1999 and
July 29, 2000.
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 29, 2000 and the related notes thereto included in the
Company's 1999 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>
JULY 31, JULY 29, JANUARY 29,
ASSETS 1999 2000 2000
--------- --------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash ............................................ $ 5,239 $ 27,437 $ 77,798
Inventories ..................................... 338,166 362,219 319,940
Other current assets ............................ 27,920 22,429 25,727
--------- --------- ---------
Total current assets ......................... 371,325 412,085 423,465
--------- --------- ---------
PROPERTY AND EQUIPMENT, NET ....................... 126,558 152,886 138,426
OTHER ASSETS, Net ................................. 47,126 51,560 49,304
--------- --------- ---------
TOTAL ................................... $ 545,009 $ 616,531 $ 611,195
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................ $ 73,251 $ 79,901 $ 76,420
Accrued expenses ................................ 34,530 38,598 53,301
Current portion of long-term debt ............... 2,263 2,537 2,594
Income taxes payable ............................ 2,490 3,078 10,899
--------- --------- ---------
Total current liabilities .................... 112,534 124,114 143,214
LONG-TERM DEBT .................................... 58,388 45,753 46,697
OTHER LIABILITIES ................................. 9,418 12,537 12,311
--------- --------- ---------
Total liabilities ............................ 180,340 182,404 202,222
--------- --------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock ................................. -- -- --
Common stock .................................... 397 414 409
Capital in excess of par ........................ 181,837 183,990 182,662
Retained earnings ............................... 183,734 256,584 227,191
Accumulated comprehensive (loss) income ......... (193) (234) 59
--------- --------- ---------
Total ........................................ 365,775 440,754 410,321
Treasury stock, at cost ......................... (1,106) (6,627) (1,348)
--------- --------- ---------
Total shareholders' equity ................... 364,669 434,127 408,973
--------- --------- ---------
TOTAL ................................... $ 545,009 $ 616,531 $ 611,195
========= ========= =========
</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 THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
-------------------------- ------------------------
JULY 31, JULY 29, JULY 31, JULY 29,
1999 2000 1999 2000
----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Net sales .................................................. $ 256,567 $ 294,505 $ 515,431 $ 582,381
Cost of goods sold, including buying and occupancy costs ... 163,273 183,853 330,702 367,416
--------- --------- --------- ---------
Gross margin ............................................... 93,294 110,652 184,729 214,965
Selling, general and administrative expenses ............... 70,706 83,829 143,310 165,912
Combination expenses:
Transaction costs ....................................... 2,155 -- 7,707 --
Duplicate facility costs ................................ 3,137 -- 6,070 --
Merger related litigation costs ......................... 930 -- 930 --
--------- --------- --------- ---------
Operating income ........................................... 16,366 26,823 26,712 49,053
Interest expense, net ...................................... 587 297 1,259 235
--------- --------- --------- ---------
Earnings before income taxes ............................... 15,779 26,526 25,453 48,818
Provision for income taxes ................................. 7,029 10,561 12,953 19,425
--------- --------- --------- ---------
Earnings before extraordinary item ......................... 8,750 15,965 12,500 29,393
Extraordinary item, net of tax ............................. -- -- 2,912 --
--------- --------- --------- ---------
Net earnings ............................................... $ 8,750 $ 15,965 $ 9,588 $ 29,393
========= ========= ========= =========
Net earnings per basic share:
Earnings before extraordinary item ....................... $ 0.21 $ 0.38 $ 0.30 $ 0.70
Extraordinary item, net of tax ........................... -- -- (0.07) --
--------- --------- --------- ---------
$ 0.21 $ 0.38 $ 0.23 $ 0.70
========= ========= ========= =========
Net earnings per diluted share:
Earnings before extraordinary item ....................... $ 0.21 $ 0.38 $ 0.29 $ 0.70
Extraordinary item, net of tax ........................... -- -- (0.07) --
--------- --------- --------- ---------
$ 0.21 $ 0.38 $ 0.22 $ 0.70
========= ========= ========= =========
Weighted average shares outstanding:
Basic .................................................... 41,872 41,696 41,838 41,731
========= ========= ========= =========
Diluted .................................................. 42,507 42,098 42,523 42,240
========= ========= ========= =========
</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 SIX MONTHS ENDED
------------------------
JULY 31, JULY 29,
1999 2000
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ............................................................ $ 9,588 $ 29,393
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Extraordinary item, net of tax ....................................... 2,912 --
Depreciation and amortization ........................................ 14,312 16,482
Deferred tax provision (benefit) ..................................... -- (298)
Stock option compensation expense .................................... 889 --
Duplicate facility cost .............................................. 3,417 --
Increase in inventories .............................................. (35,522) (43,127)
(Increase) decrease in other assets .................................. (2,184) 811
Increase (decrease) in accounts payable and accrued expenses ......... 3,085 (8,382)
Decrease in income taxes payable ..................................... (5,408) (7,590)
Increase in other liabilities ........................................ 42 241
-------- --------
Net cash used in operating activities ........................... (8,869) (12,470)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net ............................................... (19,308) (29,663)
Investment in trademarks, tradenames and other assets ................... (238) (1,686)
Maturities of short-term securities ..................................... 3,680 --
Purchase of short-term securities ....................................... (2,500) --
Purchase of minority interests .......................................... (1,400) --
-------- --------
Net cash used in investing activities ........................... (19,766) (31,349)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and other equity instruments ..... 1,387 1,433
Bank borrowings ......................................................... 62,077 1,349
Principal payments on long-term debt .................................... (58,660) (1,275)
Deferred financing and merger costs ..................................... (623) --
Tax payments related to options exercised ............................... (304) (145)
Purchase of treasury stock .............................................. (1,032) (7,871)
-------- --------
Net cash provided by (used in) financing activities ............. 2,845 (6,509)
-------- --------
Effect of exchange rate changes on cash ................................... 17 (33)
-------- --------
DECREASE IN CASH .......................................................... (25,773) (50,361)
CASH:
Beginning of period ..................................................... 31,012 77,798
-------- --------
End of period ........................................................... $ 5,239 $ 27,437
======== ========
</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 29, 2000.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." SAB
101 summarizes certain of the SEC's views in applying generally accepted
accounting principles to revenue recognition in financial statements. SAB 101,
as amended, is effective beginning in the fourth quarter of 2000. Management
currently believes that this new accounting pronouncement should not have any
material effect on the Company's consolidated financial statements.
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. 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.
3. COMPREHENSIVE INCOME AND SUPPLEMENTAL CASH FLOWS
The Company's comprehensive income, which encompasses net earnings and
currency translation adjustments, is as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
-------------------------- ------------------------
JULY 31, JULY 29, JULY 31, JULY 29,
1999 2000 1999 2000
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Net earnings $ 8,750 $ 15,965 $ 9,588 $ 29,393
Currency translation adjustments, net of tax (44) -- 40 (293)
-------- -------- -------- --------
Comprehensive income $ 8,706 $ 15,965 $ 9,628 $ 29,100
======== ======== ======== ========
</TABLE>
The Company paid cash during the first two quarters of 1999 of $2.3 million
for interest and $20.1 million for taxes, compared with $1.7 million for
interest and $27.5 million for taxes during the first two quarters of 2000. The
Company had non-cash investing and financing activities resulting from the
issuance of treasury stock to the employee stock ownership plan of $2.0 million
and $2.5 million in the first two quarters of 1999 and 2000, respectively, and
from the tax benefit recognized upon exercise of stock options of $0.3 million
and $0.1 million, respectively.
5
<PAGE> 8
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 29, 2000. 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 "2000" mean the 53-week fiscal year ending February 3, 2001.
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 THREE MONTHS ENDED FOR THE SIX MONTHS ENDED YEAR ENDED
-------------------------- ------------------------ -----------
JULY 31, JULY 29, JULY 31, JULY 29, JANUARY 29,
1999 2000 1999 2000 2000
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Stores open at beginning of period 584 617 579 614 579
Opened 10 6 23 12 54
Closed (5) -- (13) (3) (19)
-------- -------- -------- -------- --------
Stores open at end of period 589 623 589 623 614
======== ======== ======== ======== ========
Stores open at end of period:
U.S. --
Men's Wearhouse 426 455 426 455 450
K&G/SuitMax/Suit Warehouse 52 55 52 55 51
-------- -------- -------- -------- --------
478 510 478 510 501
Canada -- Moores 111 113 111 113 113
-------- -------- -------- -------- --------
589 623 589 623 614
======== ======== ======== ======== ========
</TABLE>
RESULTS OF OPERATIONS
Three Months Ended July 31, 1999 and July 29, 2000
The Company's net sales were $294.5 million for the quarter ended July 29,
2000, a $37.9 million or 14.8% increase over the same prior year period. This
increase was due primarily to sales resulting from the increased number of
stores and increased sales at existing stores. Sales from U.S. stores
represented 86.9% of total sales in the second quarter of 2000, compared with
88.0% of total sales in the second quarter of 1999. 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 6.1% for the U.S. stores from the same prior year quarter, while
comparable store sales for the Canadian stores increased 24.1% from the same
prior year quarter.
Gross margin increased 18.6% over the same prior year quarter to $110.7
million in the second quarter of 2000. As a percentage of sales, gross margin
increased from 36.4% in the second quarter of 1999 to 37.6% in the second
quarter of 2000. This increase in gross margin predominantly resulted from a
decrease in product, occupancy and alteration costs as a percentage of sales.
Selling, general and administrative ("SG&A") expenses increased as a
percentage of sales from 27.6% for the quarter ended July 31, 1999 to 28.5% for
the quarter ended July 29, 2000, and SG&A expenditures increased by $13.1
million to $83.8 million. On an absolute dollar basis, the principal components
of SG&A expenses increased primarily due to the Company's growth. Advertising
expense remained at 5.3% of net sales, while store salaries increased from 11.2%
to 11.4% of net sales and other SG&A expenses increased from 11.1% to 11.7% of
net sales.
6
<PAGE> 9
As a result of the June 1, 1999 pooling of interest combination of the
Company and K&G Men's Center, Inc., non-recurring transaction costs of $2.2
million were charged to operations in the second quarter of 1999. These costs
consisted primarily of professional fees and contract termination payments. An
additional $3.1 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. Non-recurring litigation costs of $0.9 million in
connection with the settlement of a lawsuit filed by a former employee of K&G
related to his employment relationship with K&G were charged to earnings during
the second quarter of 1999.
Interest expense, net of interest income, decreased from $0.6 million in
the second quarter of 1999 to $0.3 million in the second quarter of 2000.
Weighted average borrowings outstanding decreased from $63.2 million in the
prior year to $51.4 million in the second quarter of 2000, and the weighted
average interest rate on outstanding indebtedness increased from 6.4% to 7.3%.
The decrease in the weighted average borrowings was due primarily to reduced
borrowings under the Company's credit facilities. The increase in the weighted
average interest rate was due primarily to increases in the LIBOR rate.
The Company's effective income tax rate decreased from 44.5% for the second
quarter of 1999 to 39.8% for the second quarter of 2000. The effective tax rate
was higher than the statutory U.S. federal rate of 35% primarily due to the
effect of state income taxes, the nondeductibility of a portion of meal and
entertainment expenses and, in 1999, nondeductible transaction costs.
The Company's earnings before extraordinary item, as reported and excluding
the effect of non-recurring charges, were as follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------
JULY 31, JULY 29,
1999 2000
---------- ----------
<S> <C> <C>
Earnings before extraordinary item, as reported $ 8,750 $ 15,965
Transaction costs, net of tax benefit of $299 1,856 --
Duplicative store closing costs, net of tax benefit of $1,276 1,861 --
Litigation costs, net of tax benefit of $372 558 --
---------- ----------
Earnings before extraordinary item and non-recurring charges $ 13,025 $ 15,965
========== ==========
Diluted earnings per share before extraordinary
item, as reported $ 0.21 $ 0.38
========== ==========
Diluted earnings per share before extraordinary
item and non-recurring charges $ 0.31 $ 0.38
========== ==========
</TABLE>
Six Months Ended July 31, 1999 and July 29, 2000
The Company's net sales were $582.4 million for the six months ended July
29, 2000, a $67.0 million or 13.0% increase over the same prior year period.
This increase was due primarily to sales resulting from the increased number of
stores and increased sales at existing stores. Sales from U.S. stores
represented 88.7% of total sales in the first two quarters of 2000, compared
with 88.8% of total sales in the same period of 1999. 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 5.7% for the U.S. stores from the same prior year period, while
comparable store sales for the Canadian stores increased 10.1% from the same
prior year period.
Gross margin increased 16.4% over the same prior year period to $215.0
million for the first six months of 2000. As a percentage of sales, gross margin
increased from 35.8% for the first two quarters of 1999 to 36.9% in the first
two quarters of 2000. This increase in gross margin predominantly resulted from
a decrease in product, occupancy and alteration costs as a percentage of sales.
7
<PAGE> 10
Selling, general and administrative ("SG&A") expenses increased as a
percentage of sales from 27.8% for the first six months of 1999 to 28.5% for the
first six months of 2000, and SG&A expenditures increased by $22.6 million to
$165.9 million. On an absolute dollar basis, the principal components of SG&A
expenses increased primarily due to the Company's growth. Advertising expense
decreased from 5.8% to 5.5% of net sales, while store salaries increased from
10.8% to 11.2% of net sales and other SG&A expenses increased from 11.2% to
11.9% of net sales.
As a result of the Moores and K&G combinations, the Company recorded
transaction costs of $7.7 million, duplicative stores closing costs of $6.1
million and litigation costs of $0.9 million in the first six months of 1999.
The transaction costs were composed 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 store sites
in existing markets. The litigation charge resulted from the settlement of a
lawsuit filed by a former K&G employee related to his employment relationship
with K&G. 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.
Interest expense, net of interest income, decreased from $1.3 million for
the first six months of 1999 to $0.2 million in the first six months of 2000.
Weighted average borrowings outstanding decreased from $63.4 million in the
prior year to $52.6 million in the first two quarters of 2000, and the weighted
average interest rate on outstanding indebtedness increased from 6.6% to 7.0%.
The decrease in the weighted average borrowings was due primarily to reduced
borrowings under the Company's credit facilities. The increase in the weighted
average interest rate was due primarily to increases in the LIBOR rate.
The Company's effective income tax rate decreased from 50.9% for the six
months ended July 31, 1999 to 39.8% for the six months ended July 29, 2000. The
effective tax rate was higher than the statutory U.S. federal rate of 35%
primarily due to the effect of state income taxes, the nondeductibility of a
portion of meal and entertainment expenses and, in 1999, nondeductible
transaction costs.
The Company's earnings before extraordinary item, as reported and excluding
the effect of non-recurring charges, were as follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
-------------------------
JULY 31, JULY 29,
1999 2000
---------- ----------
<S> <C> <C>
Earnings before extraordinary item, as reported $ 12,500 $ 29,393
Transaction costs, net of tax benefit of $633 7,074 --
Duplicative store closing costs, net of tax benefit of $2,471 3,599 --
Litigation costs, net of tax benefit of $372 558 --
---------- ----------
Earnings before extraordinary item and non-recurring charges $ 23,731 $ 29,393
========== ==========
Diluted earnings per share before extraordinary
item, as reported $ 0.29 $ 0.70
========== ==========
Diluted earnings per share before extraordinary
item and non-recurring charges $ 0.56 $ 0.70
========== ==========
</TABLE>
8
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $12.5 million in the first six
months of 2000 compared with $8.9 million in the first six months of 1999. These
amounts primarily represent net earnings before extraordinary items plus
depreciation, amortization and other non-cash charges, offset by increases in
inventories. Inventories increased $43.1 million and $35.5 million for the two
quarters ended July 29, 2000 and July 31, 1999, respectively, due to seasonal
inventory buildup and the addition of inventory for new stores and stores
expected to be opened in the following quarter.
Working capital was $288.0 million at July 29, 2000, which is up from
$280.3 million at January 29, 2000 and $258.8 million at July 31, 1999.
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 long-term borrowings in preparation for the fourth quarter selling
season.
Cash used in investing activities was $31.3 million and $19.8 million for
the first two quarters of 2000 and 1999, respectively. Cash used in investing
activities was primarily comprised of capital expenditures relating primarily to
stores opened, remodeled or relocated during the period or under construction at
the end of the period and infrastructure technology investments.
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%. In
addition, the Company 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 in May
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 outstanding under these agreements were used to
repay approximately US$57 million in outstanding indebtedness of Moores and to
fund operating and other requirements of Moores. As of July 29, 2000, there was
$48.3 million outstanding under these credit agreements.
The Credit Agreement contains certain restrictive and financial covenants,
including the requirement to maintain a minimum level of net worth and certain
financial ratios. The Credit Agreement also prohibits payment of cash dividends
on the common stock of the Company. The Company is in compliance with the
covenants in the Credit Agreement.
In the fourth quarter of 1999, the Board of Directors authorized a stock
repurchase program for up to 1,000,000 shares of the Company's common stock.
Under this authorization, the Company may purchase shares from time to time in
the open market, depending on market price and other considerations. During the
first two quarters of 2000, the Company purchased 335,000 shares of its common
stock at a cost of $7.9 million. In addition, on July 25, 2000, the Company
issued an option contract that gives the contract counterparty the option to
require the Company to purchase 250,000 shares of its common stock at a strike
price of approximately $22.72 per share on October 25, 2000. The Company
received a premium of $0.4 million for issuing the contract. As of July 29,
2000, the market value of the Company's common stock exceeded the contract
strike price.
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 Euro). 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 four
financial institutions. Therefore, the Company is exposed to credit risk in the
event of nonperformance by these parties. However, due to the creditworthiness
of these major financial institutions, full performance is anticipated. 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.
9
<PAGE> 12
ITEM 3 -QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to exposure from fluctuations in U.S. dollar/Euro
exchange rates. The Company utilizes foreign currency forward exchange
contracts to limit exposure to changes in currency exchange rates (see
"Management's Discussion and Analysis of Financial Information and Results of
Operations - Liquidity and Capital Resources"). At July 29, 2000 the Company had
23 contracts maturing in varying increments to purchase an aggregate notional
amount of $22.6 million in foreign currency. These forward contracts do not
extend beyond December 2001. Unrealized pretax losses on these forward contracts
totaled approximately $2.2 million at July 29, 2000.
Moores conducts its business in Canadian dollars. The exchange rate between
Canadian dollars and U.S. dollars has fluctuated over the last ten years. If the
value of the Canadian dollar against the U.S. dollar weakens, then the revenues
and earnings of the Company's Canadian operations will be reduced when they are
translated to U.S. dollars and the value of the Company's Canadian net assets in
U.S. dollars may decline.
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, severe weather, 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.
10
<PAGE> 13
PART II
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 21, 2000, the Company held its annual meeting of stockholders. At
the meeting, the stockholders voted on the following matters:
1. To elect ten directors of the Company to hold office until the next
Annual Meeting of Shareholders or until their respective successors
are duly elected and qualified.
2. To amend the Company's 1996 Stock Option Plan to increase the total
number of shares of the Company's Common Stock with respect to which
options may be granted under the plan from 1,125,000 shares to
1,850,000 shares.
3. To amend the Company's 1992 Non-Employee Director Stock Option Plan to
increase the total number of shares of the Company's Common Stock with
respect to which options may be granted under the plan from 67,500
shares to 117,500 shares.
4. To ratify the appointment by the Board of Directors of the firm
Deloitte & Touche LLP as independent auditors for the Company for
2000.
All proposals received the affirmative vote required for approval. The
number of votes cast for, against and withheld, as well as the number of
abstentions, as to each matter were as follows:
<TABLE>
<CAPTION>
Proposal Votes For Votes Withheld
-------- --------- --------------
<S> <C> <C>
1. Election of Directors
George Zimmer 35,997,100 2,706,632
Robert E. Zimmer 37,205,858 1,497,874
James E. Zimmer 32,894,622 5,809,110
Richard E. Goldman 37,510,008 1,193,724
David H. Edwab 37,510,181 1,193,551
Harry M. Levy 37,510,358 1,193,374
Rinaldo Brutoco 37,508,640 1,195,092
Michael L. Ray 37,509,883 1,193,849
Sheldon I. Stein 37,508,942 1,194,790
Stephen H Greenspan 37,508,577 1,195,155
</TABLE>
<TABLE>
<CAPTION>
Affirmative Votes Negative Votes Abstentions
----------------- -------------- -----------
<S> <C> <C> <C>
2. Amendment of 1996
Stock Option Plan 34,963,649 3,719,359 20,724
3. Amendment of 1992
Non-Employee Director Stock
Option Plan 37,265,531 1,408,586 29,614
4. Ratification of
Auditors 38,656,197 37,020 10,514
</TABLE>
11
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
EXHIBIT
NUMBER EXHIBIT INDEX
10.1 -- Third Amendment to The Men's Wearhouse, Inc. 1992
Non-Employee Director Stock Option Plan (filed
herewith).
10.2 -- Second Amendment [sic] to The Men's Wearhouse, Inc.
1996 Stock Option Plan (filed herewith).
10.3 -- Amendment No. 1 to the Limited Liability Company
Agreement of Chelsea Market Systems, L.L.C. dated as of
July 31, 2000, between and among Renwick Technologies,
Inc. and Harry M. Levy (filed herewith).
27.1 -- Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K.
None.
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: September 12, 2000 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
12
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.1 -- Third Amendment to The Men's Wearhouse, Inc. 1992 Non-Employee
Director Stock Option Plan (filed herewith).
10.2 -- Second Amendment [sic] to The Men's Wearhouse, Inc. 1996 Stock
Option Plan (filed herewith).
10.3 -- Amendment No. 1 to the Limited Liability Company Agreement of
Chelsea Market Systems, L.L.C. dated as of July 31, 2000, between
and among Renwick Technologies, Inc. and Harry M. Levy (filed
herewith).
27.1 -- Financial Data Schedule (filed herewith).
</TABLE>
