Table of Contents

 

 

 

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 28, 2012

 

or

 

o                   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to                  

 

Commission file number 1-16097

 

THE 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)

 

 

 

6380 Rogerdale

 

 

Houston, Texas

 

77072-1624

(Address of Principal Executive Offices)

 

(Zip Code)

 

(281) 776-7000

(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 o.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x. No o.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o. No x.

 

The number of shares of common stock of the Registrant, par value $.01 per share, outstanding at August 28, 2012 was 50,729,447 excluding 21,570,052 shares classified as Treasury Stock.

 

 

 



Table of Contents

 

REPORT INDEX

 

Part and Item No.

 

Page No.

 

 

 

PART I — Financial Information

 

 

 

 

 

Item 1 — Condensed Consolidated Financial Statements

 

 

 

 

 

General Information

 

2

 

 

 

Condensed Consolidated Balance Sheets as of July 28, 2012 (unaudited), July 30, 2011 (unaudited) and January 28, 2012

 

3

 

 

 

Condensed Consolidated Statements of Earnings for the Three and Six Months Ended July 28, 2012 (unaudited) and July 30, 2011 (unaudited)

 

4

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended July 28, 2012 (unaudited) and July 30, 2011 (unaudited)

 

5

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 28, 2012 (unaudited) and July 30, 2011 (unaudited)

 

6

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

7

 

 

 

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

21

 

 

 

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

 

33

 

 

 

Item 4 — Controls and Procedures

 

33

 

 

 

PART II — Other Information

 

 

 

 

 

Item 1 — Legal Proceedings

 

34

 

 

 

Item 1A — Risk Factors

 

34

 

 

 

Item 2— Unregistered Sales of Equity Securities and Use of Proceeds

 

35

 

 

 

Item 5 — Other Information

 

35

 

 

 

Item 6 — Exhibits

 

36

 

 

 

SIGNATURES

 

36

 

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Table of Contents

 

Forward-Looking and Cautionary Statements

 

Certain statements made in this Quarterly Report on Form 10-Q and in other public filings and press releases by the Company (as defined below) contain “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995) that involves risk and uncertainty.  These forward-looking statements may include, but are not limited to, references to future capital expenditures, acquisitions, sales, earnings, margins, costs, number and costs of store openings, demand for clothing, market trends in the retail and corporate apparel clothing business, currency fluctuations, inflation and various economic and business trends.  Forward-looking statements may be made by management orally or in writing, including, but not limited to, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q and other sections of our filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended and the Securities Act of 1933, as amended.

 

Forward-looking statements are not guarantees of future performance and a variety of factors could cause actual results to differ materially from the anticipated or expected results expressed in or suggested by these forward-looking statements.  Factors that might cause or contribute to such differences include, but are not limited to: actions by governmental entities; domestic and international economic activity and inflation; success, or lack thereof, in executing our internal operating plans and new store and new market expansion plans, including integration of acquisitions; performance issues with key suppliers; disruption in buying trends due to homeland security concerns; severe weather; foreign currency fluctuations; government export and import policies; aggressive advertising or marketing activities of competitors; and legal proceedings.  Future results will also be dependent upon our ability to continue to identify and complete successful expansions and penetrations into existing and new markets and our ability to integrate such expansions with our existing operations.  Refer to “Risk Factors” contained in Part I of our Annual Report on Form 10-K  for the year ended January 28, 2012 for a more complete discussion of these and other factors that might affect our performance and financial results.  These forward-looking statements are intended to convey the Company’s expectations about the future, and speak only as of the date they are made.  We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

 

PART I.  FINANCIAL INFORMATION

ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

GENERAL INFORMATION

 

The condensed consolidated financial statements herein include the accounts of The Men’s Wearhouse, Inc. and its subsidiaries and have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  As applicable under such regulations, certain information and footnote disclosures have been condensed or omitted.  We believe that the presentation and disclosures herein are adequate to make the information not misleading, and the condensed consolidated financial statements reflect all elimination entries and normal recurring adjustments which are necessary for a fair statement of the results for the three and six months ended July 28, 2012 and July 30, 2011.

 

Our business historically has been seasonal in nature, and the operating results of the interim periods presented are not necessarily indicative of the results that may be achieved for the full year.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended January 28, 2012 and the related notes thereto included in the Company’s Annual Report on Form 10-K for the year then ended filed with the SEC.

 

Unless the context otherwise requires, “Company”, “we”, “us” and “our” refer to The Men’s Wearhouse, Inc. and its  subsidiaries.

 

2



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

July 28,
2012

 

July 30,
2011

 

January 28,
2012

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

106,399

 

$

162,301

 

$

125,306

 

Accounts receivable, net

 

69,622

 

65,289

 

56,669

 

Inventories

 

577,078

 

547,899

 

572,502

 

Other current assets

 

70,786

 

66,087

 

70,906

 

 

 

 

 

 

 

 

 

Total current assets

 

823,885

 

841,576

 

825,383

 

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net

 

383,015

 

337,517

 

355,717

 

 

 

 

 

 

 

 

 

TUXEDO RENTAL PRODUCT, net

 

116,586

 

88,786

 

99,814

 

GOODWILL

 

87,672

 

90,251

 

87,782

 

INTANGIBLE ASSETS, net

 

32,093

 

36,839

 

33,711

 

OTHER ASSETS

 

4,748

 

10,424

 

3,545

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

1,447,999

 

$

1,405,393

 

$

1,405,952

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable

 

$

119,433

 

$

130,068

 

$

123,445

 

Accrued expenses and other current liabilities

 

161,850

 

151,754

 

154,395

 

Income taxes payable

 

728

 

23,994

 

3,435

 

 

 

 

 

 

 

 

 

Total current liabilities

 

282,011

 

305,816

 

281,275

 

 

 

 

 

 

 

 

 

DEFERRED TAXES AND OTHER LIABILITIES

 

98,401

 

71,864

 

92,858

 

 

 

 

 

 

 

 

 

Total liabilities

 

380,412

 

377,680

 

374,133

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 3 and Note 13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EQUITY:

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

Common stock

 

722

 

715

 

718

 

Capital in excess of par

 

372,601

 

351,181

 

362,735

 

Retained earnings

 

1,163,324

 

1,074,942

 

1,095,535

 

Accumulated other comprehensive income

 

36,302

 

49,327

 

36,921

 

Treasury stock, at cost

 

(517,894

)

(461,760

)

(476,749

)

 

 

 

 

 

 

 

 

Total equity attributable to common shareholders

 

1,055,055

 

1,014,405

 

1,019,160

 

 

 

 

 

 

 

 

 

Noncontrolling interest

 

12,532

 

13,308

 

12,659

 

 

 

 

 

 

 

 

 

Total equity

 

1,067,587

 

1,027,713

 

1,031,819

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

 

$

1,447,999

 

$

1,405,393

 

$

1,405,952

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

July 28,
2012

 

July 30,
2011

 

July 28,
2012

 

July 30,
2011

 

Net sales:

 

 

 

 

 

 

 

 

 

Retail clothing product

 

$

413,024

 

$

401,789

 

$

833,493

 

$

812,050

 

Tuxedo rental services

 

154,124

 

148,267

 

232,613

 

221,408

 

Alteration and other services

 

37,540

 

35,978

 

75,274

 

73,287

 

Total retail sales

 

604,688

 

586,034

 

1,141,380

 

1,106,745

 

Corporate apparel clothing product sales

 

57,614

 

69,495

 

107,496

 

129,168

 

Total net sales

 

662,302

 

655,529

 

1,248,876

 

1,235,913

 

 

 

 

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

 

 

 

 

Retail clothing product

 

184,038

 

178,896

 

372,644

 

366,269

 

Tuxedo rental services

 

21,235

 

20,162

 

32,248

 

29,969

 

Alteration and other services

 

28,145

 

27,382

 

55,703

 

53,683

 

Occupancy costs

 

69,367

 

68,410

 

138,065

 

135,581

 

Total retail cost of sales

 

302,785

 

294,850

 

598,660

 

585,502

 

Corporate apparel clothing product cost of sales

 

39,260

 

51,434

 

75,910

 

94,533

 

Total cost of sales

 

342,045

 

346,284

 

674,570

 

680,035

 

 

 

 

 

 

 

 

 

 

 

Gross margin:

 

 

 

 

 

 

 

 

 

Retail clothing product

 

228,986

 

222,893

 

460,849

 

445,781

 

Tuxedo rental services

 

132,889

 

128,105

 

200,365

 

191,439

 

Alteration and other services

 

9,395

 

8,596

 

19,571

 

19,604

 

Occupancy costs

 

(69,367

)

(68,410

)

(138,065

)

(135,581

)

Total retail gross margin

 

301,903

 

291,184

 

542,720

 

521,243

 

Corporate apparel clothing product gross margin

 

18,354

 

18,061

 

31,586

 

34,635

 

Total gross margin

 

320,257

 

309,245

 

574,306

 

555,878

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

228,667

 

220,227

 

441,769

 

423,223

 

Operating income

 

91,590

 

89,018

 

132,537

 

132,655

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

143

 

114

 

271

 

158

 

Interest expense

 

(508

)

(343

)

(941

)

(655

)

Earnings before income taxes

 

91,225

 

88,789

 

131,867

 

132,158

 

Provision for income taxes

 

31,655

 

31,519

 

45,717

 

47,696

 

 

 

 

 

 

 

 

 

 

 

Net earnings including noncontrolling interest

 

59,570

 

57,270

 

86,150

 

84,462

 

Net (earnings) loss attributable to noncontrolling interest

 

(177

)

(192

)

127

 

41

 

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to common shareholders.

 

$

59,393

 

$

57,078

 

$

86,277

 

$

84,503

 

 

 

 

 

 

 

 

 

 

 

Net earnings per common share attributable to common shareholders (Note 2):

 

 

 

 

 

 

 

 

 

Basic

 

$

1.16

 

$

1.09

 

$

1.68

 

$

1.62

 

Diluted

 

$

1.15

 

$

1.09

 

$

1.67

 

$

1.61

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (Note 2):

 

 

 

 

 

 

 

 

 

Basic

 

50,711

 

51,489

 

50,822

 

51,703

 

Diluted

 

50,932

 

51,792

 

51,084

 

51,994

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.18

 

$

0.12

 

$

0.36

 

$

0.24

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

July 28,
2012

 

July 30,
2011

 

July 28,
2012

 

July 30,
 2011

 

 

 

 

 

 

 

 

 

 

 

Net earnings including noncontrolling interest

 

$

59,570

 

$

57,270

 

$

86,150

 

$

84,462

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments, net of tax

 

(8,761

)

(3,697

)

(619

)

11,410

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income including noncontrolling interest

 

50,809

 

53,573

 

85,531

 

95,872

 

 

 

 

 

 

 

 

 

 

 

Comprehensive (income) loss attributable to noncontrolling interest:

 

 

 

 

 

 

 

 

 

Net (earnings) loss

 

(177

)

(192

)

127

 

41

 

Currency translation adjustments, net of tax

 

416

 

231

 

 

(449

)

 

 

 

 

 

 

 

 

 

 

Amounts attributable to noncontrolling interest

 

239

 

39

 

127

 

(408

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to common shareholders

 

$

51,048

 

$

53,612

 

$

85,658

 

$

95,464

 

 

See Notes to Condensed Consolidated Financial Statements.

 

5



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

For the Six Months Ended

 

 

 

July 28,
2012

 

July 30,
2011

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net earnings including noncontrolling interest

 

$

86,150

 

$

84,462

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

41,775

 

37,805

 

Tuxedo rental product amortization

 

17,956

 

17,076

 

Loss on disposition of assets

 

1,434

 

666

 

Asset impairment charges

 

122

 

1,030

 

Share-based compensation

 

8,322

 

6,500

 

Excess tax benefits from share-based plans

 

(2,039

)

(1,386

)

Deferred tax provision

 

4,740

 

2,078

 

Deferred rent expense and other

 

211

 

863

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(13,006

)

(3,065

)

Inventories

 

(4,831

)

(56,133

)

Tuxedo rental product

 

(34,789

)

(15,538

)

Other assets

 

(6,816

)

11,055

 

Accounts payable, accrued expenses and other current liabilities

 

8,379

 

14,316

 

Income taxes payable

 

(505

)

22,434

 

Other liabilities

 

1,329

 

(147

)

 

 

 

 

 

 

Net cash provided by operating activities

 

108,432

 

122,016

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(68,846

)

(38,258

)

Proceeds from sales of property and equipment

 

14

 

51

 

 

 

 

 

 

 

Net cash used in investing activities

 

(68,832

)

(38,207

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from issuance of common stock

 

3,939

 

4,552

 

Cash dividends paid

 

(18,613

)

(12,671

)

Tax payments related to vested deferred stock units

 

(4,421

)

(2,955

)

Excess tax benefits from share-based plans

 

2,039

 

1,386

 

Repurchases of common stock

 

(41,296

)

(48,999

)

 

 

 

 

 

 

Net cash used in financing activities

 

(58,352

)

(58,687

)

 

 

 

 

 

 

Effect of exchange rate changes

 

(155

)

808

 

 

 

 

 

 

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

(18,907

)

25,930

 

Balance at beginning of period

 

125,306

 

136,371

 

 

 

 

 

 

 

Balance at end of period

 

$

106,399

 

$

162,301

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.  Significant Accounting Policies

 

Basis of Presentation — The condensed 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.  We believe that the presentation and disclosures herein are adequate to make the information not misleading, and the condensed consolidated financial statements reflect all elimination entries and normal recurring adjustments which are necessary for a fair presentation of the financial position, results of operations and cash flows at the dates and for the periods presented.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended January 28, 2012.

 

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and related disclosures.  Actual amounts could differ from those estimates.

 

Treasury stock — Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock. Gains and losses on the subsequent reissuance of shares are credited or charged to paid-in capital in excess of par value using the average-cost method.

 

Recent Accounting Pronouncements — In July 2012, the Financial Accounting Standards Board (“FASB”) issued updated guidance regarding testing indefinite-lived intangible assets for impairment.  The amendments in this update will allow an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Under these amendments, an entity would not be required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines, based on qualitative assessment, that it is not more likely than not the indefinite-lived intangible asset is impaired. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The amended guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of this update will only impact our testing of indefinite-lived intangible assets for impairment and will have no impact on our financial position, results of operations or cash flows.  We are currently evaluating the impact of this updated guidance on our indefinite-lived intangible assets impairment testing process.

 

In September 2011, the FASB issued updated guidance regarding testing goodwill for impairment.  The updated guidance will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step goodwill impairment test.  Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount.  The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment.  The adoption of this update at the beginning of our 2012 fiscal year had no impact on our financial position, results of operations or cash flows but may change the way we perform our annual goodwill impairment test in the fourth quarter of 2012.

 

In June 2011, the FASB issued updated guidance regarding the presentation of comprehensive income.  The updated guidance allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity.  The update does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.  In December 2011, the FASB issued a “Deferral of the Effective Date for Amendments of the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income.”  This defers only the changes that relate to the presentation of reclassification adjustments on the face of the financial statements where the components of net income and the components of other comprehensive income are presented.  We present comprehensive income in a separate statement to the accompanying financial statements.  The adoption of this update had no impact on our financial position, results of operations or cash flows.

 

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Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

In May 2011, the FASB updated the guidance regarding certain accounting and disclosure requirements related to fair value measurements.  The updated guidance amends U.S. Generally Accepted Accounting Principles (“GAAP”) to create more commonality with International Financial Reporting Standards (“IFRS”) by changing some of the wording used to describe requirements for measuring fair value and for disclosing information about fair value measurements.  The adoption of this update at the beginning of our 2012 fiscal year did not have a material impact on our financial position, results of operations or cash flows.

 

2.  Earnings per Share

 

Basic earnings per common share attributable to common shareholders is determined using the two-class method and is computed by dividing net earnings attributable to common shareholders by the weighted-average common shares outstanding during the period.  Diluted earnings per common share attributable to common shareholders reflects the more dilutive earnings per common share amount calculated using the treasury stock method or the two-class method.

 

The following table sets forth the computation of basic and diluted earnings per common share attributable to common shareholders (in thousands, except per share amounts). Basic and diluted earnings per common share attributable to common shareholders are computed using the actual net earnings available to common shareholders and the actual weighted-average common shares outstanding rather than the rounded numbers presented within our condensed consolidated statement of earnings and the accompanying notes.  As a result, it may not be possible to recalculate earnings per common share attributable to common shareholders in our condensed consolidated statement of earnings and the accompanying notes.

 

 

 

For the Three Months
Ended

 

For the Six Months
Ended

 

 

 

July 28,
2012

 

July 30,
2011

 

July 28,
2012

 

July 30,
2011

 

 

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

Total net earnings attributable to common shareholders

 

$

59,393

 

$

57,078

 

$

86,277

 

$

84,503

 

Net earnings allocated to participating securities (restricted stock and deferred stock units)

 

(624

)

(711

)

(1,101

)

(978

)

Net earnings attributable to common shareholders

 

$

58,769

 

$

56,367

 

$

85,176

 

$

83,525

 

Denominator

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

50,711

 

51,489

 

50,822

 

51,703

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Stock options and equity-based compensation

 

221

 

303

 

262

 

291

 

Diluted weighted average common shares outstanding

 

50,932

 

51,792

 

51,084

 

51,994

 

Net earnings per common share attributable to common shareholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

1.16

 

$

1.09

 

$

1.68

 

$

1.62

 

Diluted

 

$

1.15

 

$

1.09

 

$

1.67

 

$

1.61

 

 

For the three and six months ended July 28, 2012, 0.4 million and 0.3 million anti-dilutive stock options were excluded from the calculation of diluted earnings per common share, respectively.  For the three and six months ended July 30, 2011, 0.3 million and 0.4 million anti-dilutive stock options were excluded from the calculation of diluted earnings per common share, respectively.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

3.  Debt

 

We have a revolving credit facility with a group of banks (the “Credit Agreement”) that provides for a total senior revolving credit facility of $200.0 million, with increases to $300.0 million upon additional lender commitments, that matures on January 26, 2016.  The Credit Agreement is secured by the stock of certain of our subsidiaries.  The Credit Agreement has several borrowing and interest rate options including the following indices:  (i) adjusted LIBO rate, (ii) adjusted EURIBO rate, (iii) CDO rate, (iv) Canadian prime rate or (v) an alternate base rate (equal to the greater of the prime rate, the federal funds rate plus 0.5% or the adjusted LIBO rate for a one month period plus 1.0%).  Advances under the Credit Agreement bear interest at a rate per annum using the applicable indices plus a varying interest rate margin up to 2.75%.  The Credit Agreement also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 2.00% to 2.75%, and a fee on unused commitments which ranges from 0.35% to 0.50%.  As of July 28, 2012, there were no borrowings outstanding under the Credit Agreement.

 

The Credit Agreement contains certain restrictive and financial covenants, including the requirement to maintain certain financial ratios.  The restrictive provisions in the Credit Agreement reflect an overall covenant structure that is generally representative of a commercial loan made to an investment-grade company.  Our debt, however, is not rated and we have not sought, and are not seeking, a rating of our debt.  We were in compliance with the covenants in the Credit Agreement as of July 28, 2012.

 

We utilize letters of credit primarily to secure inventory purchases and as collateral for workers compensation claims.  At July 28, 2012, letters of credit totaling approximately $20.8 million were issued and outstanding.  Borrowings available under our Credit Agreement at July 28, 2012 were $179.2 million.

 

4.  Supplemental Cash Flows

 

Supplemental disclosure of cash flow information is as follows (in thousands):

 

 

 

For the Six Months Ended

 

 

 

July 28,
2012

 

July 30,
2011

 

Cash paid for:

 

 

 

 

 

Interest

 

$

734

 

$

414

 

Income taxes, net

 

$

43,429

 

$

10,512

 

 

 

 

 

 

 

Schedule of noncash investing and financing activities:

 

 

 

 

 

Tax benefit related to share-based plans

 

$

2,004

 

$

1,426

 

Cash dividends declared

 

$

9,214

 

$

6,261

 

 

We had unpaid capital expenditure purchases accrued in accounts payable, accrued expenses and other current liabilities of approximately $7.9 million and $8.1 million at July 28, 2012 and July 30, 2011, respectively. Capital expenditure purchases are recorded as cash outflows from investing activities in the condensed consolidated statement of cash flows in the period they are paid.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

5.  Other Current Assets, Accrued Expenses and Other Current Liabilities and Deferred Taxes and Other Liabilities

 

Other current assets consist of the following (in thousands):

 

 

 

July 28,
2012

 

July 30,
2011

 

January 28,
2012

 

 

 

 

 

 

 

 

 

Prepaid expenses

 

$

35,533

 

$

31,212

 

$

32,266

 

Current deferred tax asset

 

22,311

 

28,551

 

29,392

 

Tax receivable

 

3,363

 

149

 

1,564

 

Other

 

9,579

 

6,175

 

7,684

 

 

 

 

 

 

 

 

 

Total other current assets

 

$

70,786

 

$

66,087

 

$

70,906

 

 

Accrued expenses and other current liabilities consist of the following (in thousands):

 

 

 

July 28,
2012

 

July 30,
2011

 

January 28,
2012

 

 

 

 

 

 

 

 

 

Accrued salary, bonus, sabbatical and vacation

 

$

40,702

 

$

40,009

 

$

61,544

 

Sales, value added, payroll and property taxes payable

 

23,497

 

19,799

 

18,176

 

Accrued workers compensation and medical costs

 

17,884

 

17,292

 

17,590

 

Customer deposits, prepayments and refunds payable

 

38,392

 

36,268

 

17,521

 

Unredeemed gift certificates

 

12,833

 

12,213

 

14,895

 

Loyalty program reward certificates

 

7,045

 

6,728

 

6,537

 

Cash dividends declared

 

9,214

 

6,261

 

9,339

 

Other

 

12,283

 

13,184

 

8,793

 

 

 

 

 

 

 

 

 

Total accrued expenses and other current liabilities

 

$

161,850

 

$

151,754

 

$

154,395

 

 

Deferred taxes and other liabilities consist of the following (in thousands):

 

 

 

July 28,
2012

 

July 30,
2011

 

January 28,
2012

 

Deferred rent and landlord incentives

 

$

50,805

 

$

49,882

 

$

50,953

 

Non-current deferred and other income tax liabilities

 

34,011

 

15,281

 

34,812

 

Other

 

13,585

 

6,701

 

7,093

 

 

 

 

 

 

 

 

 

Total deferred taxes and other liabilities

 

$

98,401

 

$

71,864

 

$

92,858

 

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

6.  Equity and Noncontrolling Interest

 

A reconciliation of the total carrying amount of the Company’s equity accounts for the six months ended July 28, 2012 is as follows (in thousands):

 

 

 

Common
Stock

 

Capital in
Excess of

Par

 

Retained
Earnings

 

Accumulated
Other

Comprehensive
Income

 

Treasury
Stock, at Cost

 

Total
Equity
Attributable to
Common
Shareholders

 

Noncontrolling
Interest

 

Total
Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances — January 28, 2012

 

$

718

 

$

362,735

 

$

1,095,535

 

$

36,921

 

$

(476,749

)

$

1,019,160

 

$

12,659

 

$

1,031,819

 

Net earnings (loss)

 

 

 

86,277

 

 

 

86,277

 

(127

)

86,150

 

Other comprehensive income

 

 

 

 

(619

)

 

(619

)

 

(619

)

Cash dividends

 

 

 

(18,488

)

 

 

(18,488

)

 

(18,488

)

Share-based compensation

 

 

8,322

 

 

 

 

8,322

 

 

8,322

 

Common stock issued under share-based award plans and to stock discount plan

 

4

 

3,935

 

 

 

 

3,939

 

 

3,939

 

Tax payments related to vested deferred stock units

 

 

(4,421

)

 

 

 

(4,421

)

 

(4,421

)

Tax benefit related to share-based plans

 

 

2,004

 

 

 

 

2,004

 

 

2,004

 

Treasury stock reissued

 

 

26

 

 

 

151

 

177

 

 

177

 

Repurchases of common stock

 

 

 

 

 

(41,296

)

(41,296

)

 

(41,296

)

Balances — July 28, 2012

 

$

722

 

$

372,601

 

$

1,163,324

 

$

36,302

 

$

(517,894

)

$

1,055,055

 

$

12,532

 

$

1,067,587

 

 

A reconciliation of the total carrying amount of the Company’s equity accounts for the six months ended July 30, 2011 is as follows (in thousands):

 

 

 

Common
Stock

 

Capital in
Excess of
Par

 

Retained
Earnings

 

Accumulated
Other

Comprehensive
Income

 

Treasury
Stock, at Cost

 

Total
Equity

Attributable to
Common
Shareholders

 

Noncontrolling
Interest

 

Total
Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances — January 29, 2011

 

$

710

 

$

341,663

 

$

1,002,975

 

$

38,366

 

$

(412,761

)

$

970,953

 

$

12,900

 

$

983,853

 

Net earnings (loss)

 

 

 

84,503

 

 

 

84,503

 

(41

)

84,462

 

Other comprehensive income

 

 

 

 

10,961

 

 

10,961

 

449

 

11,410

 

Cash dividends

 

 

 

(12,536

)

 

 

(12,536

)

 

(12,536

)

Share-based compensation

 

 

6,500

 

 

 

 

6,500

 

 

6,500

 

Common stock issued under share-based award plans and to stock discount plan

 

5

 

4,547

 

 

 

 

4,552

 

 

4,552

 

Tax payments related to vested deferred stock units

 

 

(2,955

)

 

 

 

(2,955

)

 

(2,955

)

Tax benefit related to share-based plans

 

 

1,426

 

 

 

 

1,426

 

 

1,426

 

Repurchases of common stock

 

 

 

 

 

(48,999

)

(48,999

)

 

(48,999

)

Balances — July 30, 2011

 

$

715

 

$

351,181

 

$

1,074,942

 

$

49,327

 

$

(461,760

)

$

1,014,405

 

$

13,308

 

$

1,027,713

 

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

7.    Treasury Stock

 

We repurchase shares of our common stock primarily through open market transactions under a $150.0 million share repurchase program authorized by our Board of Directors in January 2011.

 

During the first six months of fiscal 2011, 1,822,340 shares at a cost of $48.8 million were repurchased at an average price per share of $26.78 under the January 2011 authorization.  During the first six months of fiscal 2012, 1,121,484 shares at a cost of $41.0 million were repurchased at an average price per share of $36.59 under the January 2011 authorization.  At July 28, 2012, the remaining balance available under the January 2011 authorization was $45.2 million.

 

During the six months ended July 28, 2012 and July 30, 2011, 7,041 shares and 7,132 shares, respectively, at a cost of $0.3 million and $0.2 million, respectively, were repurchased at an average price per share of $37.28 and $27.77, respectively, in private transactions to satisfy tax withholding obligations arising upon the vesting of certain restricted stock.

 

The following table summarizes our common stock repurchases (in thousands, except share data and average price per share):

 

 

 

For the Six Months Ended

 

 

 

July 28,
2012

 

July 30,
2011

 

 

 

 

 

 

 

Shares repurchased

 

1,128,525

 

1,829,472

 

Total costs

 

$

41,296

 

$

48,999

 

Average price per share

 

$

36.59

 

$

26.78

 

 

In June 2012, 6,295 treasury shares of our common stock were reissued pursuant to a two-year services agreement with an unrelated third party.  The fair value of the common stock issued was approximately $0.2 million.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

8.     Share-Based Compensation Plans

 

We maintain several equity plans under which we may grant stock options, stock appreciation rights, restricted stock, deferred stock units and performance based awards to full-time key employees and non-employee directors.  We account for share-based awards in accordance with the FASB standard regarding share-based payments, which requires the compensation cost resulting from all share-based payment transactions be recognized in the financial statements. The amount of compensation cost is measured based on the grant-date fair value of the instrument issued and is recognized over the vesting period.  Share-based compensation expense recognized for the three and six months ended July 28, 2012 was $4.2 million and $8.3 million, respectively.  Share-based compensation expense recognized for the three and six months ended July 30, 2011 was $3.5 million and $6.5 million, respectively.

 

Stock Options

 

The following table summarizes stock option activity for the six months ended July 28, 2012:

 

 

 

Shares

 

Weighted-
 Average
 Exercise
 Price

 

Outstanding at January 28, 2012

 

1,314,422

 

$

22.61

 

Granted

 

100,349

 

40.13

 

Exercised

 

(143,298

)

18.65

 

Forfeited

 

(7,000

)

22.72

 

Expired

 

(322

)

17.62

 

Outstanding at July 28, 2012

 

1,264,151

 

$

24.45

 

Exercisable at July 28, 2012

 

703,761

 

$

21.76

 

 

The weighted-average grant date fair value of the 100,349 stock options granted during the six months ended July 28, 2012 was $17.21 per share. The following table summarizes the weighted average assumptions used to fair value stock options at the date of grant using the Black-Scholes option pricing model for the six months ended July 28, 2012.

 

 

 

For the Six
Months Ended
July 28,
2012

 

 

 

 

 

Risk-free interest rate

 

1.09

%

Expected lives

 

5.0 years

 

Dividend yield

 

2.07

%

Expected volatility

 

58.67

%

 

The assumptions presented in the table above represent the weighted average of the applicable assumptions used to fair value stock options.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.  The expected lives represents the period of time the options are expected to be outstanding after their grant date.  The dividend yield is based on the average of the annual dividend divided by the market price of our common stock at the time of declaration. Expected volatility is based on historical volatility of our common stock.

 

As of  July 28, 2012, we have unrecognized compensation expense related to nonvested stock options of approximately $5.4 million which is expected to be recognized over a weighted average period of 2.2 years.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Nonvested Deferred Stock Units and Restricted Stock Shares

 

The following table summarizes deferred stock unit activity for the six months ended July 28, 2012:

 

 

 

Shares

 

Weighted-
 Average
 Grant-Date
 Fair Value

 

Nonvested at January 28, 2012

 

539,749

 

$

28.10

 

Granted

 

330,284

 

40.13

 

Vested (1) 

 

(383,588

)

28.00

 

Forfeited

 

(5,894

)

30.24

 

Nonvested at July 28, 2012

 

480,551

 

$

36.43

 

 


(1) Includes 123,566 shares relinquished for tax payments related to vested deferred stock units for the six months ended July 28, 2012.

 

The following table summarizes restricted stock activity for the six months ended July 28, 2012:

 

 

 

Shares

 

Weighted-
 Average
 Grant-Date
 Fair Value

 

Nonvested at January 28, 2012

 

119,081

 

$

28.45

 

Granted

 

10,962

 

31.92

 

Vested

 

(25,632

)

27.80

 

Forfeited

 

 

 

Nonvested at July 28, 2012

 

104,411

 

$

28.98

 

 

As of July 28, 2012, we have unrecognized compensation expense related to nonvested deferred stock units and shares of restricted stock of approximately $15.5 million, which is expected to be recognized over a weighted average period of 1.3 years.

 

Employee Stock Purchase Plan

 

The Employee Stock Discount Plan (“ESDP”) allows employees to authorize after-tax payroll deductions to be used for the purchase of up to 2,137,500 shares of our common stock at 85% of the lesser of the fair market value on the first day of the offering period or the fair market value on the last day of the offering period.  We make no contributions to this plan but pay all brokerage, service and other costs incurred.  The plan, as amended, allows participants to purchase no more than 125 shares during any calendar quarter.

 

During the six months ended July 28, 2012, employees purchased 49,724 shares under the ESDP, which had a weighted-average share price of $25.52 per share.  As of July 28, 2012, 903,378 shares were reserved for future issuance under the ESDP.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

9.     Goodwill and Other Intangible Assets

 

Goodwill

 

Goodwill allocated to the Company’s reportable segments and changes in the net carrying amount of goodwill for the six months ended July 28, 2012 are as follows (in thousands):

 

 

 

Retail

 

Corporate
Apparel

 

Total

 

Balance at January 28, 2012

 

$

59,900

 

$

27,882

 

$

87,782

 

Translation adjustment

 

(102

)

(8

)

(110

)

Balance at July 28, 2012

 

$

59,798

 

$

27,874

 

$

87,672

 

 

Goodwill is evaluated for impairment annually as of our fiscal year end.  A more frequent evaluation is performed if events or circumstances indicate that impairment could have occurred.  Such events or circumstances could include, but are not limited to, new significant negative industry or economic trends, unanticipated changes in the competitive environment, decisions to significantly modify or dispose of operations and a significant sustained decline in the market price of our stock.  No additional impairment evaluation was considered necessary during the first six months of fiscal 2012.

 

Intangible Assets

 

The gross carrying amount and accumulated amortization of our identifiable intangible assets are as follows (in thousands):

 

 

 

July 28,
2012

 

July 30,
2011

 

January 28,
2012

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

Carrying amount:

 

 

 

 

 

 

 

Trademarks, tradenames, and other intangibles

 

$

12,432

 

$

12,779

 

$

12,648

 

Customer relationships

 

32,138

 

33,546

 

32,149

 

Total carrying amount

 

44,570

 

46,325

 

44,797

 

Accumulated amortization:

 

 

 

 

 

 

 

Trademarks, tradenames, and other intangibles

 

(8,379

)

(8,031

)

(8,339

)

Customer relationships

 

(5,356

)

(2,768

)

(4,005

)

Total accumulated amortization

 

(13,735

)

(10,799

)

(12,344

)

Total amortizable intangible assets, net

 

30,835

 

35,526

 

32,453

 

Infinite-lived intangible assets:

 

 

 

 

 

 

 

Trademarks

 

1,258

 

1,313

 

1,258

 

Total intangible assets, net

 

$

32,093

 

$

36,839

 

$

33,711

 

 

The pretax amortization expense associated with intangible assets subject to amortization totaled approximately $0.8 million for the three months ended July 28, 2012 and July 30, 2011, respectively.  The pretax amortization expense associated with intangible assets subject to amortization totaled approximately $1.6 million and $1.7 million for the six months ended July 28, 2012 and July 30, 2011, respectively, and approximately $3.4 million for the year ended January 28, 2012.  Pretax amortization associated with intangible assets subject to amortization at July 28, 2012 is estimated to be $1.7 million for the remainder of fiscal year 2012, $3.2 million for fiscal year 2013 and $3.1 million for each of the fiscal years 2014, 2015 and 2016.

 

10.  Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The authoritative guidance for fair value measurements establishes a three-tier fair value hierarchy, categorizing the inputs used to measure fair value.  The hierarchy can be described as follows:  Level 1 - observable inputs such as quoted prices in active markets; Level 2 - inputs other than the quoted prices in active markets that are

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

observable either directly or indirectly; and Level 3 - unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.  The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

There were no transfers into or out of Level 1 and Level 2 during the three and six months ended July 28, 2012 or July 30, 2011, respectively, or during the year ended January 28, 2012.

 

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

(in thousands)

 

Quoted Prices
 in Active
 Markets for
Identical
Instruments
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Total

 

At July 28, 2012-

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

20,036

 

$

 

$

 

$

20,036

 

Derivative financial instruments

 

$

 

$

43

 

$

 

$

43

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

 

$

47

 

$

 

$

47

 

 

 

 

 

 

 

 

 

 

 

At January 28, 2012-

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

20,017

 

$

 

$

 

$

20,017

 

Derivative financial instruments

 

$

 

$

14

 

$

 

$

14

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

 

$

142

 

$

 

$

142

 

 

 

 

 

 

 

 

 

 

 

At July 30, 2011-

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

40,003

 

$

 

$

 

$

40,003

 

Derivative financial instruments

 

$

 

$

89

 

$

 

$

89

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

 

$

362

 

$

 

$

362

 

 

Cash equivalents consist of money market instruments that have original maturities of three months or less.  The carrying value of cash equivalents approximates fair value due to the highly liquid and short-term nature of these instruments.

 

Derivative financial instruments are comprised of foreign currency forward exchange contracts primarily entered into to minimize our foreign currency exposure related to forecasted purchases of certain inventories denominated in a currency different from the operating entity’s functional currency.  Our derivative financial instruments are recorded in the condensed consolidated balance sheets at fair value based upon observable market inputs.  Derivative financial instruments in an asset position are included within other current assets in the condensed consolidated balance sheets.  Derivative financial instruments in a liability position are included within accrued expenses and other current liabilities in the condensed consolidated balance sheets.  Refer to Note 11 for further information regarding our derivative instruments.

 

16



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Assets and Liabilities that are Measured at Fair Value on a Non-Recurring Basis

 

Long-lived assets, such as property and equipment and identifiable intangibles with finite useful lives, are periodically evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the asset carrying amount exceeds its fair value, an impairment charge is recognized in the amount by which the carrying amount exceeds the fair value of the asset.  The fair values of long-lived assets held-for-use are based on our own judgments about the assumptions that market participants would use in pricing the asset and on observable market data, when available.  We classify these measurements as Level 3 within the fair value hierarchy.  For the three and six months ended July 28, 2012, we recorded charges for the impairment of long-lived assets of $0.1 million which is included within selling, general and administrative (“SG&A”) expenses in our condensed consolidated statement of earnings.  The asset impairment charges reduced the carrying amounts of the applicable long-lived assets, primarily leasehold improvements for certain Men’s Wearhouse and Tux stores, to their fair values of zero as of July 28, 2012.  For the three and six months ended July 30, 2011, we recorded charges for the impairment of long-lived assets of $1.0 million which is included within SG&A expenses in our condensed consolidated statement of earnings.  The asset impairment charges reduced the carrying amounts of the applicable long-lived assets, primarily leasehold improvements for certain Men’s Wearhouse and Tux stores, to their fair values of $0.1 million as of July 30, 2011.

 

Fair Value of Financial Instruments

 

Our financial instruments, other than those presented in the disclosures above, consist of cash, accounts receivable, accounts payable and accrued expenses and other current liabilities.  Management estimates that, as of July 28, 2012, July 30, 2011 and January 28, 2012, the carrying value of cash, accounts receivable, accounts payable and accrued expenses and other current liabilities approximate their fair value due to the highly liquid or short-term nature of these instruments.

 

11.  Derivative Financial Instruments

 

We are exposed to market risk associated with foreign currency exchange rate fluctuations as a result of our direct sourcing programs and our operations in foreign countries.  In connection with our direct sourcing programs, we may enter into merchandise purchase commitments that are denominated in a currency different from the functional currency of the operating entity.  Our risk management policy is to hedge a significant portion of forecasted merchandise purchases for our direct sourcing programs that bear foreign exchange risk using foreign exchange forward contracts.  The Company has not elected to apply hedge accounting to these transactions denominated in a foreign currency.

 

Our derivative financial instruments are recorded in the condensed consolidated balance sheet at fair value determined by comparing the cost of the foreign currency to be purchased under the contracts using the exchange rates obtained under the contracts (adjusted for forward points) to the hypothetical cost using the spot rate at period end.

 

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Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The tables below disclose the fair value of the derivative financial instruments included in the condensed consolidated balance sheets as of July 28, 2012, January 28, 2012 and July 30, 2011 (in thousands):

 

 

 

Asset Derivatives

 

Liability Derivatives

 

 

 

Balance Sheet
Location

 

Fair Value

 

Balance Sheet
Location

 

Fair Value

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

At July 28, 2012-Foreign exchange forward contracts

 

Other current assets

 

$

43

 

Accrued expenses and other current liabilities

 

$

47

 

 

 

 

 

 

 

 

 

 

 

At January 28, 2012-Foreign exchange forward contracts

 

Other current assets

 

$

14

 

Accrued expenses and other current liabilities

 

$

142

 

 

 

 

 

 

 

 

 

 

 

At July 30, 2011-Foreign exchange forward contracts

 

Other current assets

 

$

89

 

Accrued expenses and other current liabilities

 

$

362

 

 

At July 28, 2012, we had 10 contracts to purchase euros for an aggregate notional amount of US$0.9 million maturing in various increments at various dates through December 2012, 13 contracts to purchase United States dollars (“USD”) for an aggregate notional amount of Canadian dollars (“CAD”) $7.3 million maturing in various increments at various dates through December 2012 and 18 contracts to purchase USD for an aggregate notional amount of pounds Sterling (“GBP”) £11.8 million maturing in various increments at various dates through December 2012.  For the three and six months ended July 28, 2012, we recognized a net pre-tax gain of $0.6 million and a pre-tax loss of $0.2 million, respectively, in cost of sales in the condensed consolidated statement of earnings for our derivative financial instruments not designated as cash flow hedges.

 

At January 28, 2012, we had 10 contracts maturing in varying increments to purchase euros for an aggregate notional amount of US$1.7 million maturing at various dates through June 2012, nine contracts maturing in varying increments to purchase USD for an aggregate notional amount of CAD $5.9 million maturing at various dates through June 2012 and 22 contracts maturing in varying increments to purchase USD for an aggregate notional amount of GBP £10.5 million maturing at various dates through May 2012.

 

At July 30, 2011, we had two contracts to purchase euros for an aggregate notional amount of US$1.0 million maturing in various increments at various dates through October 2011, six contracts to purchase USD for an aggregate notional amount of CAD $6.1 million maturing in various increments at various dates through December 2011 and 34 contracts to purchase USD for an aggregate notional amount of GBP £11.9 million maturing in various increments at various dates through November 2011.  For the three and six months ended July 30, 2011, we recognized a net pretax loss of $0.8 million and $1.5 million, respectively, in cost of sales in the condensed consolidated statement of earnings for our derivative financial instruments not designated as hedging instruments.

 

We had no derivative financial instruments with credit-risk-related contingent features underlying the agreements as of July 28, 2012, January 28, 2012 or July 30, 2011, respectively.

 

18



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

12.  Segment Reporting

 

The Company’s operations are conducted in two reportable segments, retail and corporate apparel, based on the way we manage, evaluate and internally report our business activities.

 

The retail segment includes the results from our four retail merchandising brands: Men’s Wearhouse, Men’s Wearhouse and Tux, K&G and Moores Clothing for Men (“Moores”).  These four brands are operating segments that have been aggregated into the retail reportable segment based on their similar economic characteristics, products, production processes, target customers and distribution methods.  MW Cleaners is also aggregated in the retail segment as these operations have not had a significant effect on the revenues or expenses of the Company.  Specialty apparel merchandise offered by our four retail merchandising concepts includes suits, suit separates, sport coats, slacks, sportswear, outerwear, dress shirts, shoes and accessories for men.  Ladies’ career apparel, sportswear, accessories and shoes and children’s apparel is offered at most of our K&G stores.  Tuxedo rentals are offered at our Men’s Wearhouse, Men’s Wearhouse and Tux and Moores retail stores.

 

The corporate apparel segment includes the results from our corporate apparel and uniform operations conducted by Twin Hill in the United States and Dimensions and Alexandra in the UK.  The two corporate apparel and uniform concepts are operating segments that have been aggregated into the reportable corporate apparel segment based on their similar economic characteristics, products, production processes, target customers and distribution methods.  The corporate apparel segment provides corporate clothing uniforms and workwear to workforces.

 

Operating income is the primary measure of profit we use to make decisions on allocating resources to our operating segments and to assess the operating performance of each operating segment.  It is defined as income before interest expense, interest income, income taxes and noncontrolling interest.  Corporate expenses and assets are allocated to the retail segment.

 

Net sales by brand and reportable segment are as follows (in thousands):

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

July 28, 2012

 

July 30, 2011

 

July 28, 2012

 

July 30, 2011

 

Net sales:

 

 

 

 

 

 

 

 

 

MW (1) 

 

$

429,513

 

$

407,025

 

$

800,981

 

$

761,696

 

K&G

 

89,995

 

92,528

 

193,087

 

199,277

 

Moores

 

78,361

 

80,327

 

133,839

 

133,507

 

MW Cleaners

 

6,819

 

6,154

 

13,473

 

12,265

 

Total retail segment

 

604,688

 

586,034

 

1,141,380

 

1,106,745

 

 

 

 

 

 

 

 

 

 

 

Twin Hill

 

6,218

 

6,267

 

13,283

 

11,982

 

Dimensions and Alexandra (UK)

 

51,396

 

63,228

 

94,213

 

117,186

 

Total corporate apparel segment

 

57,614

 

69,495

 

107,496

 

129,168

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

662,302

 

$

655,529

 

$

1,248,876

 

$

1,235,913

 

 


(1)  MW includes Men’s Wearhouse and Men’s Wearhouse and Tux stores.

 

19



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table sets forth supplemental products and services sales information for the Company (in thousands):

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

July 28, 2012

 

July 30, 2011

 

July 28, 2012

 

July 30, 2011

 

Net sales:

 

 

 

 

 

 

 

 

 

Men’s tailored clothing product

 

$

227,664

 

$

224,533

 

$

457,944

 

$

453,736

 

Men’s non-tailored clothing product

 

165,836

 

158,407

 

332,724

 

316,690

 

Ladies’ clothing product

 

19,524

 

18,849

 

42,825

 

41,624

 

Total retail clothing product

 

413,024

 

401,789

 

833,493

 

812,050

 

 

 

 

 

 

 

 

 

 

 

Tuxedo rental services

 

154,124

 

148,267

 

232,613

 

221,408

 

 

 

 

 

 

 

 

 

 

 

Alteration services

 

30,721

 

29,824

 

61,801

 

61,022

 

Retail dry cleaning services

 

6,819

 

6,154

 

13,473

 

12,265

 

Total alteration and other services

 

37,540

 

35,978

 

75,274

 

73,287

 

 

 

 

 

 

 

 

 

 

 

Corporate apparel clothing product

 

57,614

 

69,495

 

107,496

 

129,168

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

662,302

 

$

655,529

 

$

1,248,876

 

$

1,235,913

 

 

Operating income (loss) by reportable segment and the reconciliation to earnings before income taxes is as follows (in thousands):

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

July 28, 2012

 

July 30, 2011

 

July 28, 2012

 

July 30, 2011

 

Operating income (loss):

 

 

 

 

 

 

 

 

 

Retail

 

$

89,399

 

$

88,160

 

$

132,766

 

$

133,057

 

Corporate apparel

 

2,191

 

858

 

(229

)

(402

)

Operating income

 

91,590

 

89,018

 

132,537

 

132,655

 

Interest income

 

143

 

114

 

271

 

158

 

Interest expense

 

(508

)

(343

)

(941

)

(655

)

Earnings before income taxes

 

$

91,225

 

$

88,789

 

$

131,867

 

$

132,158

 

 

13.  Legal Matters

 

We are involved in various routine legal proceedings, including ongoing litigation, incidental to the conduct of our business.  Management does not believe that any of these matters will have a material adverse effect on our financial position, results of operations or cash flows.

 

20



Table of Contents

 

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 our Annual Report on Form 10-K for the year ended January 28, 2012.  References herein to years are to our 52-week or 53-week fiscal year which ends on the Saturday nearest January 31 in the following calendar year.  For example, references to “2012” mean the 53-week fiscal year ending February 2, 2013.

 

Our operations are conducted in two reportable segments, retail and corporate apparel, based on the way we manage, evaluate and internally report our business activities.

 

The Company conducts its retail segment as a specialty apparel retailer offering suits, suit separates, sport coats, slacks, sportswear, outerwear, dress shirts, shoes and accessories for men and tuxedo rentals.  We offer our products and services through multiple brands and channels including The Men’s Wearhouse, Men’s Wearhouse and Tux, K&G, Moores Clothing for Men (“Moores”) and on the internet at www.menswearhouse.com and www.kgstores.com.  Our stores are located throughout the United States and Canada and carry a wide selection of brand name and private label merchandise.  In addition, we offer our customers a variety of services, including alterations and our loyalty program, and most of our K&G stores offer ladies’ career apparel, sportswear, accessories and shoes and children’s apparel.  MW Cleaners is also aggregated in the retail segment as these operations have not had a significant effect on the revenues or expenses.  MW Cleaners conducts retail dry cleaning and laundry operations in the Houston, Texas area.

 

The corporate apparel segment includes the results from our corporate apparel and uniform operations conducted by Twin Hill in the United States and by Dimensions (including the Yaffy brand for police uniforms) and Alexandra in the United Kingdom.  Refer to Note 12 of Notes to Condensed Consolidated Financial Statements for additional information and disclosures regarding our reportable segments and the discussion included in “Results of Operations” below.

 

21



Table of Contents

 

Overview

 

We had revenues of $662.3 million, gross margin of $320.3 million and net earnings attributable to common shareholders of $59.4 million for the quarter ended July 28, 2012, compared to revenues of $655.5 million, gross margin of $309.2 and net earnings attributable to common shareholders of $57.1 million for the quarter ended July 30, 2011.  We had revenues of $1,248.9 million, gross margin of $574.3 million and net earnings attributable to common shareholders of $86.3 million for the six months ended July 28, 2012, compared to revenues of $1,235.9 million, gross margin of $555.9 million and net earnings attributable to common shareholders of $84.5 million for the six months ended July 30, 2011.  We increased our revenues by $6.8 million or 1.0% and our gross margin by $11.0 million or 3.6% for the second quarter of 2012 as compared to the same prior year period.  We increased our revenues by $13.0 million or 1.0% and our gross margin by $18.4 million or 3.3% for the first six months of 2012 as compared to the same prior year period.

 

The following table presents information with respect to retail apparel stores in operation during each of the respective fiscal periods:

 

 

 

For the Three Months
Ended

 

For the Six Months
Ended

 

For the Year
Ended

 

 

 

July 28,
2012

 

July 30,
2011

 

July 28,
2012

 

July 30,
2011

 

January 28,
2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Stores open at beginning of period:

 

1,162

 

1,187

 

1,166

 

1,192

 

1,192

 

Opened

 

4

 

4

 

8

 

7

 

25

 

Closed

 

(13

)

(13

)

(21

)

(21

)

(51

)

Stores open at end of period

 

1,153

 

1,178

 

1,153

 

1,178

 

1,166

 

 

 

 

 

 

 

 

 

 

 

 

 

Stores open at end of period: