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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 November 3, 2001 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 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)
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 December 14, 2001 was 42,347,260, excluding 1,365,364
shares classified as Treasury Stock.
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REPORT INDEX
PART AND ITEM NO. PAGE NO.
----------------- --------
PART I - Financial Information
Item 1 - Financial Statements
General Information...................................................................... 1
Consolidated Balance Sheets as of October 28, 2000 (unaudited), November 3, 2001 2
(unaudited) and February 3, 2001.......................................................
Consolidated Statements of Earnings for the Three and Nine Months Ended October 28,
2000 (unaudited) and November 3, 2001 (unaudited)...................................... 3
Consolidated Statements of Cash Flows for the Nine Months Ended October 28, 2000
(unaudited) and November 3, 2001 (unaudited)........................................... 4
Notes to the Consolidated Financial Statements........................................... 5
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................................... 7
Item 3 - Qualitative and Quantitative Disclosures about Market Risk...................... 11
PART II - Other Information
Item 1 - Legal Proceedings............................................................... 12
Item 6 - Exhibits and Reports on Form 8-K................................................ 13
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 nine months ended October 28, 2000
and November 3, 2001.
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 February 3, 2001 and the related notes thereto included in the
Company's 2000 Annual Report on Form 10-K filed with the SEC.
1
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
OCTOBER 28, NOVEMBER 3, FEBRUARY 3,
ASSETS 2000 2001 2001
--------------- --------------- ---------------
CURRENT ASSETS:
Cash.......................................................... $ 7,648 $ 9,439 $ 84,426
Inventories................................................... 403,023 436,794 355,284
Other current assets.......................................... 36,130 35,205 29,371
--------------- --------------- ---------------
Total current assets....................................... 446,801 481,438 469,081
--------------- --------------- ---------------
PROPERTY AND EQUIPMENT, net..................................... 170,896 211,219 185,917
OTHER ASSETS, net............................................... 50,564 54,615 52,736
--------------- --------------- ---------------
TOTAL................................................. $ 668,261 $ 747,272 $ 707,734
=============== =============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.............................................. $ 103,405 $ 94,501 $ 77,502
Accrued expenses.............................................. 40,247 36,762 49,894
Current portion of long-term debt............................. 2,454 2,356 2,508
Income taxes payable.......................................... 13,328 4,654 20,593
--------------- --------------- ---------------
Total current liabilities.................................. 159,434 138,273 150,497
LONG-TERM DEBT.................................................. 42,347 93,287 42,645
OTHER LIABILITIES............................................... 13,767 22,517 19,605
--------------- --------------- ---------------
Total liabilities.......................................... 215,548 254,077 212,747
--------------- --------------- ---------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock............................................... -- -- --
Common stock.................................................. 418 423 422
Capital in excess of par...................................... 186,224 191,545 189,656
Retained earnings............................................. 273,592 338,821 311,852
Accumulated other comprehensive loss.......................... (894) (3,235) (316)
---------------- ---------------- ----------------
Total...................................................... 459,340 527,554 501,614
Treasury stock, at cost....................................... (6,627) (34,359) (6,627)
---------------- ---------------- ----------------
Total shareholders' equity................................. 452,713 493,195 494,987
--------------- --------------- ---------------
TOTAL................................................. $ 668,261 $ 747,272 $ 707,734
=============== =============== ===============
See Notes to Consolidated Financial Statements.
2
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
------------------------ ------------------------
OCTOBER 28, NOVEMBER 3, OCTOBER 28, NOVEMBER 3,
2000 2001 2000 2001
----------- ----------- ----------- -----------
Net sales .............................................. $304,198 $285,608 $886,579 $887,412
Cost of goods sold, including buying and occupancy
costs ............................................... 189,018 188,536 556,434 570,357
-------- -------- -------- --------
Gross margin ........................................... 115,180 97,072 330,145 317,055
Selling, general and administrative expenses ........... 86,210 89,411 252,122 270,642
-------- -------- -------- --------
Operating income ....................................... 28,970 7,661 78,023 46,413
Interest expense, net .................................. 711 1,132 946 2,180
-------- -------- -------- --------
Earnings before income taxes ........................... 28,259 6,529 77,077 44,233
Provision for income taxes ............................. 11,251 2,552 30,676 17,264
-------- -------- -------- --------
Net earnings ........................................... $ 17,008 $ 3,977 $ 46,401 $ 26,969
======== ======== ======== ========
Net earnings per share:
Basic ................................................ $ 0.41 $ 0.10 $ 1.11 $ 0.66
======== ======== ======== ========
Diluted .............................................. $ 0.40 $ 0.10 $ 1.10 $ 0.65
======== ======== ======== ========
Weighted average shares outstanding:
Basic ................................................ 41,768 40,962 41,744 41,001
======== ======== ======== ========
Diluted .............................................. 42,614 41,325 42,365 41,498
======== ======== ======== ========
See Notes to Consolidated Financial Statements.
3
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED
-----------------------------
OCTOBER 28, NOVEMBER 3,
2000 2001
------------ ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................................ $ 46,401 $ 26,969
--------- ---------
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization............................ 24,919 30,308
Deferred tax provision (benefit)......................... (978) 3,061
Increase in inventories.................................. (85,332) (84,358)
Increase in other assets................................. (12,751) (11,995)
Increase in accounts payable and accrued expenses........ 17,431 6,733
Increase (decrease) in income taxes payable.............. 3,155 (15,596)
Increase in other liabilities............................ 1,480 1,212
--------- ---------
Net cash used in operating activities............... (5,675) (43,666)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net................................... (55,814) (54,123)
Investment in trademarks, tradenames and other assets....... (1,805) (663)
--------- ---------
Net cash used in investing activities............... (57,619) (54,786)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock...................... 3,634 1,832
Long-term borrowings........................................ -- 55,000
Principal payments on long-term debt........................ (1,904) (1,818)
Tax payments related to options exercised................... (575) --
Purchase of treasury stock.................................. (7,871) (30,409)
--------- ---------
Net cash provided by (used in) financing activities. (6,716) 24,605
--------- ---------
Effect of exchange rate changes on cash....................... (140) (1,140)
--------- ---------
DECREASE IN CASH.............................................. (70,150) (74,987)
CASH:
Beginning of period......................................... 77,798 84,426
--------- ---------
End of period............................................... $ 7,648 $ 9,439
========= =========
See Notes to Consolidated Financial Statements.
4
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES--
Basis of Presentation - The consolidated financial statements include the
accounts of The Men's Wearhouse, Inc. and its subsidiaries (the "Company").
Except for those discussed below, 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
February 3, 2001. Certain October 28, 2000 balances have been reclassified to
conform to classifications used in the current year.
Accounting Change - The Company adopted Statement of Financial Accounting
Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"), as amended, on February 4, 2001. In accordance with the transition
provisions of SFAS 133, the Company recorded a cumulative loss adjustment of
$0.5 million ($0.3 million, net of tax) in accumulated other comprehensive loss
related primarily to the unrealized losses on foreign currency forward exchange
contracts, which were designated as cash-flow hedging instruments.
Recent Accounting Pronouncements - In June 2001, the Financial Accounting
Standards Board ("FASB") issued two new pronouncements: Statement of Financial
Accounting Standards No. 141, "Business Combinations" ("SFAS 141"), and No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 is effective as
follows: a) use of the pooling-of-interest method is prohibited for business
combinations initiated after June 30, 2001 and b) the provisions of SFAS 141
apply to all business combinations accounted for by the purchase method that are
completed after June 30, 2001 (that is, the date of the acquisition is July 2001
or later). SFAS 142, which discontinues the practice of amortizing goodwill and
requires periodic reviews for impairment, is effective for fiscal years
beginning after December 15, 2001. The Company is currently evaluating the
provisions of SFAS 141 and SFAS 142 and has not adopted such provisions in its
November 3, 2001 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. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
The Company's policy is to enter into foreign currency forward exchange
contracts to minimize foreign currency exposure related to forecasted purchases
of certain inventories. Under SFAS 133, such contracts have been designated as
and accounted for as cash flow hedges. The settlement terms of the forward
contracts, including amount, currency and maturity, correspond with payment
terms for the merchandise inventories. As a result, there is no hedge
ineffectiveness to be reflected in earnings. At November 3, 2001, the Company
had 29 contracts maturing in varying increments to purchase an aggregate
notional amount of $23.3 million in foreign currency, maturing at various dates
through January 2003.
The changes in the fair value of the foreign currency forward exchange
contracts are matched to inventory purchases by period and are recognized in
earnings as such inventory is sold. The Company expects to recognize in earnings
through November 2, 2002 approximately $0.4 million, net of tax, of existing net
losses presently deferred in accumulated other comprehensive loss.
5
4. COMPREHENSIVE INCOME AND SUPPLEMENTAL CASH FLOWS
The Company's comprehensive income, which encompasses net earnings,
currency translation adjustments, cumulative effect of accounting change and
changes in derivative fair values, is as follows (in thousands):
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
------------------------------ ------------------------------
OCTOBER 28, NOVEMBER 3, OCTOBER 28, NOVEMBER 3,
2000 2001 2000 2001
------------- ------------- ------------- -------------
Net earnings $ 17,008 $ 3,977 $ 46,401 $ 26,969
Cumulative effect of accounting change, net of tax -- -- -- (331)
Change in derivative fair value, net of tax -- 372 -- (70)
Currency translation adjustments, net of tax (660) (1,885) (953) (2,518)
------------ ------------ ------------ ------------
Comprehensive income $ 16,348 $ 2,464 $ 45,448 $ 24,050
=========== =========== =========== ===========
The Company paid cash during the first three quarters of 2000 of $2.5
million for interest and $29.2 million for taxes, compared with $2.7 million for
interest and $30.5 million for taxes during the first three quarters of 2001.
The Company had non-cash investing and financing activities resulting from the
issuance of treasury stock to the employee stock ownership plan of $2.5 million
and $2.5 million in the first three quarters of 2000 and 2001, respectively, and
from the tax benefit recognized upon exercise of stock options of $0.6 million
and $0.2 million, respectively.
6
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 February 3, 2001. 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 "2001" mean the 52-week fiscal year ending February 2, 2002.
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.
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED YEAR ENDED
---------------------------- --------------------------- -----------
OCTOBER 28, NOVEMBER 3, OCTOBER 28, NOVEMBER 3, FEBRUARY 3,
2000 2001 2000 2001 2001
----------- ----------- ----------- ----------- -----------
Stores open at beginning of period 623 663 614 651 614
Opened 15 8 26 21 39
Acquired -- -- 1 -- 1
Closed -- -- (3) (1) (3)
--- --- --- --- ---
Stores open at end of period 638 671 638 671 651
=== === === === ===
Stores open at end of period:
U.S. --
Men's Wearhouse 464 487 464 487 473
K&G/Suit Warehouse 61 71 61 71 65
--- -- --- --- ---
525 558 525 558 538
Canada -- Moores 113 113 113 113 113
--- --- --- --- ---
638 671 638 671 651
=== === === === ===
RESULTS OF OPERATIONS
Three Months Ended October 28, 2000 and November 3, 2001
The Company's net sales were $285.6 million for the quarter ended November
3, 2001, an $18.6 million or 6.1% decrease from the same prior year period. This
decrease was due primarily to decreased sales in stores open prior to fiscal
year 2000, offset partially by sales resulting from the increased number of
stores open during fiscal year 2001. 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) decreased
14.4% for the U.S. stores from the same prior year quarter, while comparable
store sales for the Canadian stores decreased 1.9% from the same prior year
quarter. The decrease in comparable sales for the U.S. stores was due mainly to
the declining U.S. economy, which entered a recession in March 2001. Sales of
men's tailored apparel are particularly affected since buying patterns for men
are considered to be more discretionary than those in other apparel areas. The
negative effect of the terrorist events of September 11, 2001 on retail and
numerous other business sectors also contributed to the decline.
Gross margin decreased 15.7% over the same prior year quarter to $97.1
million in the third quarter of 2001. As a percentage of sales, gross margin
decreased from 37.9% in the third quarter of 2000 to 34.0% in the third quarter
of 2001. This decrease in gross margin predominantly resulted from an increase
in occupancy cost as a percentage of sales and a larger percentage of the sales
mix being contributed by our lower margin K&G brand.
Selling, general and administrative ("SG&A") expenses increased as a
percentage of sales from 28.3% for the quarter ended October 28, 2000 to 31.3%
for the quarter ended November 3, 2001, and SG&A expenditures increased by
7
$3.2 million or 3.7% to $89.4 million. On an absolute dollar basis, the
principal components of SG&A expenses increased primarily due to the Company's
growth in number of stores and increased infrastructure support costs. As a
percentage of net sales, advertising expense increased from 5.0% to 5.3%, store
salaries increased from 11.4% to 12.0% and other SG&A expenses increased from
12.0% to 14.1%.
Interest expense, net of interest income, increased from $0.7 million in the
third quarter of 2000 to $1.1 million in the third quarter of 2001. Weighted
average borrowings outstanding increased from $48.6 million in the third quarter
of 2000 to $88.1 million in the third quarter of 2001, and the weighted average
interest rate on outstanding indebtedness decreased from 7.5% to 5.6%. The
increase in the weighted average borrowings was due primarily to increased
borrowings under the Company's credit facilities. The decrease in the weighted
average interest rate was due primarily to decreases in the LIBOR rate. See
"Liquidity and Capital Resources" discussion herein.
The Company's effective income tax rate decreased from 39.8% for the third
quarter of 2000 to 39% for the third quarter of 2001. The effective tax rate was
higher than the statutory U.S. federal rate of 35% primarily due to the effect
of state income taxes.
Nine Months Ended October 28, 2000 and November 3, 2001
The Company's net sales were $887.4 million for the nine months ended
November 3, 2001, a $0.8 million or 0.1% increase over the same prior year
period. This minor increase was due primarily to sales resulting from the
increased number of stores, offset by decreased sales in U.S. stores open prior
to fiscal year 2000. Comparable store sales decreased 8.2% for the U.S. stores
from the same prior year period, while comparable store sales for the Canadian
stores increased 5.2% from the same prior year period. The decrease in
comparable sales for the U.S. stores was due mainly to the declining U.S.
economy, which entered a recession in March 2001. Sales of men's tailored
apparel are particularly affected since buying patterns for men are considered
to be more discretionary than those in other apparel areas. The negative effect
of the terrorist events of September 11, 2001 on retail and numerous other
business sectors also contributed to the decline.
Gross margin decreased 4.0% over the same prior year period to $317.1
million for the first nine months of 2001. As a percentage of sales, gross
margin decreased from 37.2% for the first three quarters of 2000 to 35.7% in the
first three quarters of 2001. This decrease in gross margin percentage
predominantly resulted from an increase in occupancy cost as a percentage of
sales and a larger percentage of the sales mix being contributed by our lower
margin K&G brand.
SG&A expenses increased as a percentage of sales from 28.4% for the first
nine months of 2000 to 30.5% for the first nine months of 2001, and SG&A
expenditures increased by $18.5 million or 7.3% to $270.6 million. On an
absolute dollar basis, the principal components of SG&A expenses increased
primarily due to the Company's growth in number of stores and increased
infrastructure support costs. Advertising expense decreased from 5.3% to 5.0% of
net sales, while store salaries increased from 11.3% to 11.8% of net sales and
other SG&A expenses increased from 11.9% to 13.7% of net sales.
Interest expense, net of interest income, increased from $0.9 million for
the first nine months of 2000 to $2.2 million in the first nine months of 2001.
Weighted average borrowings outstanding increased from $51.3 million in the
prior year to $65.4 million in the first three quarters of 2001, and the
weighted average interest rate on outstanding indebtedness decreased from 6.9%
to 6.0%. The increase in the weighted average borrowings was due primarily to
increased borrowings under the Company's credit facilities. The decrease in the
weighted average interest rate was due primarily to decreases in the LIBOR rate.
See "Liquidity and Capital Resources" discussion herein.
The Company's effective income tax rate decreased from 39.8% for the nine
months ended October 28, 2000 to 39% for the nine months ended November 3, 2001.
The effective tax rate was higher than the statutory U.S. federal rate of 35%
primarily due to the effect of state income taxes.
8
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $343.2 million at November 3, 2001, which is up from
$318.6 million at February 3, 2001 and $287.4 million at October 28, 2000.
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.
Net cash used in operating activities was $5.7 million in the first nine
months of 2000 compared with $43.7 million in the first nine months of 2001.
These amounts primarily represent net earnings plus depreciation and
amortization and increases in accounts payable, offset by increases in
inventories and other assets and, in 2001, a decrease in income taxes payable.
Inventories increased $85.3 million and $84.4 million for the three quarters
ended October 28, 2000 and November 3, 2001, respectively, due to seasonal
inventory buildup and the addition of inventory for new stores and stores
expected to be opened in the following quarter. Other assets increased primarily
due to increased investment in tuxedo rental merchandise associated with the
expansion of this business, while income taxes payable decreased mainly due to
reduced earnings.
Cash used in investing activities was $57.6 million and $54.8 million for
the first three quarters of 2000 and 2001, 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.
The Company has a revolving credit agreement with a group of banks (the
"Credit Agreement") that provides for borrowings 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 a varying interest rate margin. The Credit
Agreement also provides for fees applicable to unused commitments. In addition,
the Company has two Canadian credit facilities which 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 under which the Company
borrowed Can$75 million (US$50 million) in February 1999. The term credit
borrowing is payable in quarterly installments of Can$0.9 million (US$0.6
million) beginning in May 1999, with the remaining unpaid principal payable on
February 5, 2004. Covenants and interest rates are substantially similar to
those contained in the Company's Credit Agreement. As of November 3, 2001, there
was $40.6 million outstanding under the term credit agreement and $55.0 million
outstanding under the revolving credit agreement.
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.
Net cash used in financing activities was $6.7 million for the first three
quarters of 2000, due mainly to purchases of treasury stock. Net cash provided
by financing activities was $24.6 million for the first three quarters of 2001,
due mainly to borrowings on the revolving credit agreement, offset by purchases
of treasury stock. In January 2000, 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 or in private transactions, depending on market price and other
considerations. On January 31, 2001, the Board of Directors authorized an
expansion of the stock repurchase program for up to an additional 2,000,000
shares of the Company's common stock. During the first three quarters of 2000
and 2001, the Company repurchased 335,000 and 1,185,000 shares of its common
stock under this program at a cost of $7.9 million and $30.4 million,
respectively.
In December 2000, the Company issued two option contracts under which the
contract counterparties had the option to require the Company to purchase an
agreed-upon number of shares of its common stock at a specific strike price per
share on March 15, 2001 and on June 12, 2001. The Company received premiums, in
aggregate, of $0.5 million for issuing these contracts. Both option contracts
expired unexercised.
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.
9
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 six
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.
10
ITEM 3 -QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to exposure from fluctuations in U.S. dollar/Euro
exchange rates and the Canadian dollar/Euro exchange rates. The Company utilizes
foreign currency forward exchange contracts to limit exposure to changes in
currency exchange rates (see Note 3 to the Company's Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial Information
and Results of Operations - Liquidity and Capital Resources"). At November 3,
2001, the Company had 29 contracts maturing in varying increments to purchase an
aggregate notional amount of $23.3 million in foreign currency, maturing at
various dates through January 2003. Unrealized pretax losses on these forward
contracts totaled approximately $0.7 million at November 3, 2001. A hypothetical
10% change in applicable November 3, 2001 forward rates could increase or
decrease this pretax loss by $2.3 million related to these positions. However,
it should be noted that any change in the value of these contracts, whether real
or hypothetical, would be significantly offset by an inverse change in the value
of the underlying hedged item.
Moores conducts its business in Canadian dollars. The exchange rate
between Canadian dollars and U.S. dollars has fluctuated over the last ten
years. If the value of the Canadian dollar against the U.S. dollar weakens, then
the revenues and earnings of 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.
11
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On May 11, 2001, a lawsuit was filed against the Company in the
Superior Court of California for the County of San Diego, Cause No. GIC
767223 (the "Suit"). The Suit, which was brought as a purported class
action, alleges several causes of action, each based on the factual
allegation that the Company advertised and sold men's slacks at a
marked price that was exclusive of a hemming fee for the pants. The
Suit seeks: (i) permanent and preliminary injunctions against
advertising slacks at prices which do not include hemming; (ii)
restitution of all funds allegedly acquired by means of any act or
practice declared by the Court to be unlawful or fraudulent or to
constitute unfair competition under certain California statutes, (iii)
prejudgment interest; (iv) compensatory and punitive damages; (v)
attorney's fees; and (vi) costs of suit. The Company believes that the
Suit is without merit and the allegations are contrary to customary and
well recognized and accepted practices in the sale of men's tailored
clothing. The complaint in the Suit was subsequently amended to add
causes of action based upon the Company's alleged "claims that [it]
sell[s] the same garments as department stores at 20% to 30% less." The
Company believes that such added causes of action are also without
merit. The Company intends to vigorously defend the Suit.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
None.
(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: December 18, 2001 THE MEN'S WEARHOUSE, INC.
By /s/ NEILL P. DAVIS
------------------------------------
Neill P. Davis
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
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