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 May 4, 2013

 

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 June 3, 2013 was 50,314,765 excluding 22,557,877 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

 

1

 

 

 

Condensed Consolidated Balance Sheets as of May 4, 2013 (unaudited), April 28, 2012 (unaudited), and February 2, 2013

 

2

 

 

 

Condensed Consolidated Statements of Earnings for the Quarter Ended May 4, 2013 (unaudited) and April 28, 2012 (unaudited)

 

3

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Quarter Ended May 4, 2013 (unaudited) and April 28, 2012 (unaudited)

 

4

 

 

 

Condensed Consolidated Statements of Cash Flows for the Quarter Ended May 4, 2013 (unaudited) and April 28, 2012 (unaudited)

 

5

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

6

 

 

 

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

 

21

 

 

 

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

 

30

 

 

 

Item 4 — Controls and Procedures

 

30

 

 

 

PART II — Other Information

 

 

 

 

 

Item 1 — Legal Proceedings

 

30

 

 

 

Item 1A — Risk Factors

 

30

 

 

 

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

 

31

 

 

 

Item 6 — Exhibits

 

32

 

 

 

SIGNATURES

 

33

 



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 sales, earnings, margins, costs, number and costs of store openings, future capital expenditures, acquisitions, 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 successful 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 February 2, 2013 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 (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 statement of the results for the quarters ended May 4, 2013 and April 28, 2012.

 

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 February 2, 2013 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.

 

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Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

May 4,
2013

 

April 28,
2012

 

February 2,
2013

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

155,099

 

$

118,716

 

$

156,063

 

Accounts receivable, net

 

64,468

 

69,249

 

63,010

 

Inventories

 

598,916

 

606,522

 

556,531

 

Other current assets

 

66,544

 

66,392

 

79,549

 

 

 

 

 

 

 

 

 

Total current assets

 

885,027

 

860,879

 

855,153

 

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net

 

390,077

 

367,628

 

389,118

 

 

 

 

 

 

 

 

 

TUXEDO RENTAL PRODUCT, net

 

144,089

 

112,368

 

126,825

 

GOODWILL

 

87,313

 

89,230

 

87,835

 

INTANGIBLE ASSETS, net

 

31,357

 

33,961

 

32,442

 

OTHER ASSETS

 

6,318

 

4,745

 

4,974

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

1,544,181

 

$

1,468,811

 

$

1,496,347

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable

 

$

161,533

 

$

159,058

 

$

123,983

 

Accrued expenses and other current liabilities

 

185,133

 

179,172

 

164,344

 

Income taxes payable

 

6,366

 

967

 

5,856

 

 

 

 

 

 

 

 

 

Total current liabilities

 

353,032

 

339,197

 

294,183

 

 

 

 

 

 

 

 

 

DEFERRED TAXES AND OTHER LIABILITIES

 

92,099

 

100,935

 

92,929

 

 

 

 

 

 

 

 

 

Total liabilities

 

445,131

 

440,132

 

387,112

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 3 and Note 13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EQUITY:

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

Common stock

 

728

 

721

 

725

 

Capital in excess of par

 

388,497

 

368,025

 

386,254

 

Retained earnings

 

1,214,087

 

1,113,130

 

1,190,246

 

Accumulated other comprehensive income

 

33,824

 

44,647

 

36,924

 

Treasury stock, at cost

 

(550,815

)

(510,615

)

(517,894

)

 

 

 

 

 

 

 

 

Total equity attributable to common shareholders

 

1,086,321

 

1,015,908

 

1,096,255

 

 

 

 

 

 

 

 

 

Non-controlling interest

 

12,729

 

12,771

 

12,980

 

 

 

 

 

 

 

 

 

Total equity

 

1,099,050

 

1,028,679

 

1,109,235

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

 

$

1,544,181

 

$

1,468,811

 

$

1,496,347

 

 

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 Quarter Ended

 

 

 

May 4,
 2013

 

April 28,
 2012

 

Net sales:

 

 

 

 

 

Retail clothing product

 

$

423,737

 

$

420,469

 

Tuxedo rental services

 

98,482

 

78,489

 

Alteration and other services

 

37,962

 

37,734

 

Total retail sales

 

560,181

 

536,692

 

Corporate apparel clothing product sales

 

56,355

 

49,882

 

Total net sales

 

616,536

 

586,574

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

Retail clothing product

 

185,483

 

188,606

 

Tuxedo rental services

 

14,498

 

11,013

 

Alteration and other services

 

28,418

 

27,558

 

Occupancy costs

 

71,274

 

68,698

 

Total retail cost of sales

 

299,673

 

295,875

 

Corporate apparel clothing product cost of sales

 

38,943

 

36,650

 

Total cost of sales

 

338,616

 

332,525

 

 

 

 

 

 

 

Gross margin:

 

 

 

 

 

Retail clothing product

 

238,254

 

231,863

 

Tuxedo rental services

 

83,984

 

67,476

 

Alteration and other services

 

9,544

 

10,176

 

Occupancy costs

 

(71,274

)

(68,698

)

Total retail gross margin

 

260,508

 

240,817

 

Corporate apparel clothing product gross margin

 

17,412

 

13,232

 

Total gross margin

 

277,920

 

254,049

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

225,367

 

213,102

 

 

 

 

 

 

 

Operating income

 

52,553

 

40,947

 

 

 

 

 

 

 

Interest income

 

121

 

128

 

Interest expense

 

(344

)

(433

)

Earnings before income taxes

 

52,330

 

40,642

 

Provision for income taxes

 

19,374

 

14,062

 

Net earnings including non-controlling interest

 

32,956

 

26,580

 

Net loss attributable to non-controlling interest

 

135

 

304

 

 

 

 

 

 

 

Net earnings attributable to common shareholders

 

$

33,091

 

$

26,884

 

 

 

 

 

 

 

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

 

 

 

 

 

Basic

 

$

0.65

 

$

0.52

 

Diluted

 

$

0.65

 

$

0.52

 

 

 

 

 

 

 

Weighted-average common shares outstanding (Note 2):

 

 

 

 

 

Basic

 

50,607

 

50,932

 

Diluted

 

50,788

 

51,237

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.18

 

$

0.18

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

For the Quarter Ended

 

 

 

May 4,
 2013

 

April 28,
 2012

 

 

 

 

 

 

 

Net earnings including non-controlling interest

 

$

32,956

 

$

26,580

 

 

 

 

 

 

 

Currency translation adjustments, net of tax

 

(3,216

)

8,142

 

 

 

 

 

 

 

Comprehensive income including non-controlling interest

 

29,740

 

34,722

 

 

 

 

 

 

 

Comprehensive (income) loss attributable to non-controlling interest:

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

135

 

304

 

Currency translation adjustments, net of tax

 

116

 

(416

)

 

 

 

 

 

 

Amounts attributable to non-controlling interest

 

251

 

(112

)

 

 

 

 

 

 

Comprehensive income attributable to common shareholders

 

$

29,991

 

$

34,610

 

 

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 CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

For the Quarter Ended

 

 

 

May 4,
2013

 

April 28,
2012

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net earnings including non-controlling interest

 

$

32,956

 

$

26,580

 

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

 

 

 

 

 

Depreciation and amortization

 

21,355

 

20,681

 

Tuxedo rental product amortization

 

7,328

 

5,988

 

Loss on disposition of assets

 

412

 

1,081

 

Share-based compensation

 

4,498

 

4,117

 

Excess tax benefits from share-based plans

 

(199

)

(1,960

)

Deferred tax provision

 

4,455

 

8,430

 

Deferred rent expense and other

 

1,173

 

276

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(1,846

)

(11,161

)

Inventories

 

(43,710

)

(30,059

)

Tuxedo rental product

 

(24,787

)

(18,157

)

Other assets

 

7,666

 

(2,433

)

Accounts payable, accrued expenses and other current liabilities

 

61,381

 

60,335

 

Income taxes payable

 

294

 

(445

)

Other liabilities

 

(310

)

2,047

 

 

 

 

 

 

 

Net cash provided by operating activities

 

70,666

 

65,320

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(25,127

)

(30,664

)

Proceeds from sales of property and equipment

 

38

 

8

 

 

 

 

 

 

 

Net cash used in investing activities

 

(25,089

)

(30,656

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from issuance of common stock

 

1,359

 

3,233

 

Cash dividends paid

 

(9,263

)

(9,357

)

Deferred financing costs

 

(1,771

)

 

Tax payments related to vested deferred stock units

 

(3,310

)

(4,017

)

Excess tax benefits from share-based plans

 

199

 

1,960

 

Repurchases of common stock

 

(33,009

)

(33,866

)

 

 

 

 

 

 

Net cash used in financing activities

 

(45,795

)

(42,047

)

 

 

 

 

 

 

Effect of exchange rate changes

 

(746

)

793

 

 

 

 

 

 

 

DECREASE IN CASH AND CASH EQUIVALENTS

 

(964

)

(6,590

)

Balance at beginning of period

 

156,063

 

125,306

 

 

 

 

 

 

 

Balance at end of period

 

$

155,099

 

$

118,716

 

 

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 February 2, 2013.

 

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.

 

Recent Accounting Pronouncements — In February 2013, the Financial Accounting Standards Board (“FASB”) issued updated guidance regarding the reporting of amounts reclassified out of accumulated other comprehensive income.  The update requires disclosure of amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present, either on the face of the statement of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts not reclassified in their entirety to net income, entities are required to cross-reference to other disclosures that provide additional detail about those amounts.  As this update only affects disclosure requirements its adoption at the beginning of fiscal 2013 had no impact on our financial position, results of operations or cash flows.

 

In July 2012, the 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 a qualitative assessment, that it is more likely than not that 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 adoption of this update at the beginning of our 2013 fiscal year had no impact on our financial position, results of operations or cash flows but may change the way we perform our testing of indefinite-lived intangible assets for impairment.

 

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Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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 Quarter Ended

 

 

 

May 4,
2013

 

April 28,
2012

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

Total net earnings attributable to common shareholders

 

$

33,091

 

$

26,884

 

Net earnings allocated to participating securities

 

(312

)

(426

)

Net earnings attributable to common shareholders

 

$

32,779

 

$

26,458

 

Denominator

 

 

 

 

 

Basic weighted-average common shares outstanding

 

50,607

 

50,932

 

Effect of dilutive securities:

 

 

 

 

 

Stock options and equity-based compensation

 

181

 

305

 

Diluted weighted-average common shares outstanding

 

50,788

 

51,237

 

Net earnings per common share attributable to common shareholders:

 

 

 

 

 

Basic

 

$

0.65

 

$

0.52

 

Diluted

 

$

0.65

 

$

0.52

 

 

For the quarters ended May 4, 2013 and April 28, 2012, 0.3 million and 0.2 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share attributable to common shareholders, respectively.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

3.  Debt

 

On April 12, 2013, we entered into a Third Amended and Restated Credit Agreement (the “Credit Agreement”), with a group of banks to amend and restate our existing credit facility, which provided the Company with a revolving credit facility that was scheduled to mature on January 26, 2016.

 

The Credit Agreement provides for a total senior revolving credit facility of $300.0 million, with possible future increases to $450.0 million under an expansion feature, and which matures on April 12, 2018.  In addition, the Credit Agreement provides for a $100.0 million term loan, available in a single advance during the 120 day period after the closing date.  If drawn, the term loan will be repaid over five years, with 10% payable annually in quarterly installments and the remainder due at maturity.  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) CDOR 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 of up to 2.50%.  The Credit Agreement also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.75% to 2.50%, and a fee on unused commitments which ranges from 0.35% to 0.50%.  As of May 4, 2013, 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 May 4, 2013.

 

We utilize letters of credit primarily to secure inventory purchases and as collateral for workers compensation claims.  At May 4, 2013, letters of credit totaling approximately $21.3 million were issued and outstanding.  Borrowings available under our Credit Agreement at May 4, 2013 were $278.7 million.

 

4.  Supplemental Cash Flows

 

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

 

 

 

For the Quarter Ended

 

 

 

May 4, 
2013

 

April 28, 
2012

 

Cash paid during the quarter for:

 

 

 

 

 

Interest

 

$

199

 

$

328

 

Income taxes, net

 

$

9,795

 

$

6,786

 

 

 

 

 

 

 

Schedule of noncash investing and financing activities:

 

 

 

 

 

Additional capital in excess of par resulting from tax benefit (deficiency) related to share-based plans

 

$

(319

)

$

1,960

 

Cash dividends declared

 

$

9,247

 

$

9,271

 

 

We had unpaid capital expenditure purchases accrued in accounts payable, accrued expenses and other current liabilities of approximately $11.5 million and $11.0 million at May 4, 2013 and April 28, 2012, 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):

 

 

 

May 4,
2013

 

April 28,
2012

 

February 2,
2013

 

 

 

 

 

 

 

 

 

Prepaid expenses

 

$

34,464

 

$

34,657

 

$

35,403

 

Current deferred tax assets

 

21,200

 

22,396

 

26,607

 

Taxes receivable

 

3,169

 

2,233

 

8,040

 

Other

 

7,711

 

7,106

 

9,499

 

 

 

 

 

 

 

 

 

Total other current assets

 

$

66,544

 

$

66,392

 

$

79,549

 

 

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

 

 

 

May 4,
2013

 

April 28,
2012

 

February 2,
2013

 

Accrued salary, bonus, sabbatical, vacation and other benefits

 

$

42,846

 

$

39,198

 

$

55,555

 

Customer deposits, prepayments and refunds payable

 

50,667

 

51,889

 

20,276

 

Sales, value added, payroll, property and other taxes payable

 

26,981

 

30,661

 

23,801

 

Accrued workers compensation and medical costs

 

19,294

 

17,533

 

19,146

 

Unredeemed gift certificates

 

14,069

 

13,343

 

15,535

 

Cash dividends declared

 

9,247

 

9,271

 

9,260

 

Loyalty program reward certificates

 

7,178

 

6,735

 

6,930

 

Other

 

14,851

 

10,542

 

13,841

 

 

 

 

 

 

 

 

 

Total accrued expenses and other current liabilities

 

$

185,133

 

$

179,172

 

$

164,344

 

 

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

 

 

 

May 4,
2013

 

April 28,
2012

 

February 2,
2013

 

Deferred rent and landlord incentives

 

$

53,501

 

$

51,446

 

$

52,814

 

Non-current deferred and other income tax liabilities

 

37,440

 

37,618

 

38,810

 

Other

 

1,158

 

11,871

 

1,305

 

 

 

 

 

 

 

 

 

Total deferred taxes and other liabilities

 

$

92,099

 

$

100,935

 

$

92,929

 

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

6.  Equity and Non-Controlling Interest

 

A reconciliation of the total carrying amount of the Company’s equity accounts for the quarter ended May 4, 2013 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

 

Non-
Controlling

Interest

 

Total Equity

 

BALANCES — February 2, 2013

 

$

725

 

$

386,254

 

$

1,190,246

 

$

36,924

 

$

(517,894

)

$

1,096,255

 

$

12,980

 

$

1,109,235

 

Net earnings (loss)

 

 

 

33,091

 

 

 

33,091

 

(135

)

32,956

 

Other comprehensive loss

 

 

 

 

(3,100

)

 

(3,100

)

(116

)

(3,216

)

Cash dividends

 

 

 

(9,250

)

 

 

(9,250

)

 

(9,250

)

Share-based compensation

 

 

4,498

 

 

 

 

4,498

 

 

4,498

 

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

 

3

 

1,356

 

 

 

 

1,359

 

 

1,359

 

Tax payments related to vested deferred stock units

 

 

(3,310

)

 

 

 

(3,310

)

 

(3,310

)

Tax deficiency related to share-based plans

 

 

(319

)

 

 

 

(319

)

 

(319

)

Treasury stock reissued

 

 

18

 

 

 

88

 

106

 

 

106

 

Repurchases of common stock

 

 

 

 

 

(33,009

)

(33,009

)

 

(33,009

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES — May 4, 2013

 

$

728

 

$

388,497

 

$

1,214,087

 

$

33,824

 

$

(550,815

)

$

1,086,321

 

$

12,729

 

$

1,099,050

 

 

A reconciliation of the total carrying amount of the Company’s equity accounts for the quarter ended April 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

 

Non-
Controlling

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)

 

 

 

26,884

 

 

 

26,884

 

(304

)

26,580

 

Other comprehensive income

 

 

 

 

7,726

 

 

7,726

 

416

 

8,142

 

Cash dividends

 

 

 

(9,289

)

 

 

(9,289

)

 

(9,289

)

Share-based compensation

 

 

4,117

 

 

 

 

4,117

 

 

4,117

 

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

 

3

 

3,230

 

 

 

 

3,233

 

 

3,233

 

Tax payments related to vested deferred stock units

 

 

(4,017

)

 

 

 

(4,017

)

 

(4,017

)

Tax benefit related to share-based plans

 

 

1,960

 

 

 

 

1,960

 

 

1,960

 

Repurchases of common stock

 

 

 

 

 

(33,866

)

(33,866

)

 

(33,866

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES — April 28, 2012

 

$

721

 

$

368,025

 

$

1,113,130

 

$

44,647

 

$

(510,615

)

$

1,015,908

 

$

12,771

 

$

1,028,679

 

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

7.  Treasury Stock

 

In March 2013, the Board of Directors (the “Board”) approved a $200.0 million share repurchase program for our common stock.  This approval amended and increased the Company’s existing $150.0 million share repurchase program authorized by the Board in January 2011, which had a remaining authorization of $45.2 million at the time of amendment.

 

During the first quarter of 2012, 861,484 shares at a cost of $33.6 million were repurchased at an average price per share of $39.01 under the Board’s January 2011 authorization.   During the first quarter of 2013, 989,182 shares at a cost of $32.8 million were repurchased at an average price per share of $33.21 under the Board’s March 2013 authorization.  At May 4, 2013, the remaining balance available under the Board’s March 2013 authorization was $167.2 million.

 

During the first quarter of 2013 and 2012, 5,378 shares and 7,041 shares, respectively, at a cost of $0.2 million and $0.3 million, respectively, were repurchased at an average price per share of $30.03 and $37.28, respectively, in private transactions to satisfy tax withholding obligations arising upon the vesting of certain restricted stock.

 

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

 

 

 

For the Quarter Ended

 

 

 

May 4,
2013

 

April 28,
2012

 

 

 

 

 

 

 

Shares repurchased

 

994,560

 

868,525

 

Total costs

 

$

33,009

 

$

33,866

 

Average price per share

 

$

33.19

 

$

38.99

 

 

In February 2013, 3,666 treasury shares of our common stock were reissued pursuant to a two-year service agreement with an unrelated third party.  The fair value of the common stock issued was approximately $0.1 million.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

8.  Share-Based Compensation Plans

 

For a discussion of our share-based compensation plans refer to Note 9 in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2013.

 

We account for share-based awards in accordance with the authoritative guidance 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 quarters ended May 4, 2013 and April 28, 2012 was $4.5 million and $4.1 million, respectively.

 

Non-Vested Deferred Stock Units and Restricted Stock Shares

 

The following table summarizes the activity of time-based and performance-based deferred stock units for the quarter ended May 4, 2013:

 

 

 

Shares

 

Weighted-Average
Grant-Date
 Fair Value

 

 

 

Time-
Based

 

Performance-
Based

 

Time-
Based

 

Performance-
Based

 

Non-Vested at February 2, 2013

 

471,369

 

 

$

36.22

 

$

 

Granted

 

449,595

 

97,668

 

33.09

 

33.09

 

Vested (1)

 

(292,430

)

 

38.97

 

 

Forfeited

 

(1,244

)

 

40.13

 

 

Non-Vested at May 4, 2013

 

627,290

 

97,668

 

$

32.69

 

$

33.09

 

 


(1) Includes 95,660 shares relinquished for tax payments related to vested deferred stock units for the quarter ended May 4, 2013.

 

On April 3, 2013, our Board approved a change in the form of award agreements to be issued for grants of deferred stock units (“DSUs”) to participants under the Company’s 2004 Long-Term Incentive Plan.  As revised, the award agreements provide that dividend equivalents, if any, will be accrued during the vesting period for such DSU awards and paid out only upon vesting of the underlying DSUs.  As such, grants of DSU awards on or after April 3, 2013 earn dividends throughout the vesting period which are subject to the same vesting terms as the underlying share award.  Grants of DSUs generally vest over a period from one to three years.  DSU awards granted prior to April 3, 2013 are entitled to receive non-forfeitable dividend equivalents, if any, when and if paid to shareholders of record at the payment date.  Included in the non-vested time-based awards as of May 4, 2013 are 177,695 deferred stock units granted prior to April 3, 2013.

 

The performance-based DSUs represent a contingent right to receive one share of common stock and generally vest in one-third tranches over a three year period, subject to the Company’s achievement of a performance target during an applicable performance period.  Any unvested performance-based DSUs at the end of the performance period are rolled over and become eligible to vest in subsequent performance periods.  Any performance-based DSUs that are unvested at the end of all vesting periods will lapse and be forfeited as of such time.  The performance-based DSUs earn dividends throughout the vesting period and are subject to the same vesting terms as the underlying performance-based awards.

 

The following table summarizes the activity of restricted stock for the quarter ended May 4, 2013:

 

 

 

Shares

 

Weighted-
Average
Grant-Date
Fair Value

 

Non-Vested at February 2, 2013

 

99,847

 

$

28.55

 

Granted

 

5,166

 

33.89

 

Vested

 

(23,938

)

29.76

 

Forfeited

 

 

 

Non-Vested at May 4, 2013

 

81,075

 

$

28.53

 

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Restricted stock awards receive non-forfeitable dividends, if any, when and if paid to shareholders of record at the payment date.

 

As of May 4, 2013, we have unrecognized compensation expense related to non-vested deferred stock units and shares of restricted stock of approximately $22.7 million, which is expected to be recognized over a weighted-average period of 1.5 years.

 

Stock Options

 

The following table summarizes the activity of stock options for the quarter ended May 4, 2013:

 

 

 

Shares

 

Weighted-
Average
Exercise
Price

 

Outstanding at February 2, 2013

 

1,024,768

 

$

25.54

 

Granted

 

19,080

 

33.09

 

Exercised

 

(34,250

)

19.14

 

Forfeited

 

(5,000

)

22.72

 

Expired

 

(5

)

7.97

 

Outstanding at May 4, 2013

 

1,004,593

 

$

25.91

 

Exercisable at May 4, 2013

 

651,409

 

$

24.80

 

 

The weighted-average grant date fair value of the 19,080 stock options granted during the quarter ended May 4, 2013 was $13.10 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 quarter ended May 4, 2013.

 

 

 

For the
Quarter
Ended

 

 

 

May 4,
2013

 

 

 

 

 

Risk-free interest rate

 

0.76

%

Expected lives

 

5.0 years

 

Dividend yield

 

2.20

%

Expected volatility

 

55.00

%

 

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 May 4, 2013, we have unrecognized compensation expense related to non-vested stock options of approximately $3.6 million which is expected to be recognized over a weighted-average period of 2.1 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.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

During the quarter ended May 4, 2013, employees purchased 26,873 shares under the ESDP, which had a weighted-average share price of $26.16 per share.  As of May 4, 2013, 821,575 shares were reserved for future issuance under the ESDP.

 

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 quarter ended May 4, 2013 are as follows (in thousands):

 

 

 

Retail

 

Corporate
Apparel

 

Total

 

Balance at February 2, 2013

 

$

59,995

 

$

27,840

 

$

87,835

 

Translation adjustment

 

(291

)

(231

)

(522

)

Balance at May 4, 2013

 

$

59,704

 

$

27,609

 

$

87,313

 

 

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 quarter of fiscal 2013.

 

Intangible Assets

 

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

 

 

 

May 4,
2013

 

April 28,
2012

 

February 2,
2013

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

Carrying amount:

 

 

 

 

 

 

 

Trademarks, tradenames, and other intangibles

 

$

14,477

 

$

12,533

 

$

14,502

 

Customer relationships

 

31,818

 

33,225

 

32,098

 

Total carrying amount

 

46,295

 

45,758

 

46,600

 

Accumulated amortization:

 

 

 

 

 

 

 

Trademarks, tradenames, and other intangibles

 

(8,821

)

(8,259

)

(8,663

)

Customer relationships

 

(7,362

)

(4,838

)

(6,751

)

Total accumulated amortization

 

(16,183

)

(13,097

)

(15,414

)

Total amortizable intangible assets, net

 

30,112

 

32,661

 

31,186

 

Infinite-lived intangible assets:

 

 

 

 

 

 

 

Trademarks

 

1,245

 

1,300

 

1,256

 

Total intangible assets, net

 

$

31,357

 

$

33,961

 

$

32,442

 

 

The pretax amortization expense associated with intangible assets subject to amortization totaled approximately $0.8 million for the quarters ended May 4, 2013 and April 28, 2012, respectively, and approximately $3.3 million for the year ended February 2, 2013.  Pretax amortization associated with intangible assets subject to amortization at May 4, 2013 is estimated to be $2.5 million for the remainder of fiscal year 2013, $3.2 million for each of the fiscal years 2014, 2015 and 2016 and $3.1 million for fiscal year 2017.

 

14



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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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 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 quarter ended May 4, 2013 or April 28, 2012, respectively, or during the year ended February 2, 2013.

 

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 May 4, 2013-

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

20,059

 

$

 

$

 

$

20,059

 

Derivative financial instruments

 

$

 

$

138

 

$

 

$

138

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

 

$

11

 

$

 

$

11

 

 

 

 

 

 

 

 

 

 

 

At February 2, 2013-

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

20,054

 

$

 

$

 

$

20,054

 

Derivative financial instruments

 

$

 

$

215

 

$

 

$

215

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

 

$

17

 

$

 

$

17

 

 

 

 

 

 

 

 

 

 

 

At April 28, 2012-

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

20,027

 

$

 

$

 

$

20,027

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

 

$

548

 

$

 

$

548

 

 

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.

 

15



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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.  No impairment charges were recorded for the carrying value of long-lived assets during the first quarter of 2013 or 2012.

 

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 May 4, 2013, April 28, 2012 and February 2, 2013, 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 May 4, 2013, February 2, 2013 and April 28, 2012 (in thousands):

 

 

 

Asset Derivatives

 

Liability Derivatives

 

 

 

Balance Sheet
Location

 

Fair Value

 

Balance Sheet
Location

 

Fair Value

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At May 4, 2013- Foreign exchange forward contracts

 

Other current assets

 

$

138

 

Accrued expenses and other current liabilities

 

$

11

 

 

 

 

 

 

 

 

 

 

 

At February 2, 2013- Foreign exchange forward contracts

 

Other current assets

 

$

215

 

Accrued expenses and other current liabilities

 

$

17

 

 

 

 

 

 

 

 

 

 

 

At April 28, 2012- Foreign exchange forward contracts

 

Other current assets

 

$

 

Accrued expenses and other current liabilities

 

$

548

 

 

At May 4, 2013, we had four contracts to purchase Euros for an aggregate notional amount of US$0.5 million maturing in various increments at various dates through September 2013, eight contracts to purchase United States dollars (“USD”) for an aggregate notional amount of Canadian dollars (“CAD”) $2.0 million maturing in various increments at various dates through August 2013 and 14 contracts to purchase USD for an aggregate notional amount of pounds Sterling (“GBP”) £11.7 million maturing in various increments at various dates through October 2013.  For the quarter ended May 4, 2013, we recognized a net pre-tax gain of $0.7 million in cost of sales in the condensed consolidated statement of earnings for our derivative financial instruments not designated as cash flow hedges.

 

At February 2, 2013, we had four contracts maturing in varying increments to purchase Euros for an aggregate notional amount of US$1.2 million maturing at various dates through May 2013, 10 contracts maturing in varying increments to purchase USD for an aggregate notional amount of CAD $4.1 million maturing at various dates through May 2013 and 16 contracts maturing in varying increments to purchase USD for an aggregate notional amount of GBP £14.0 million maturing at various dates through June 2013.

 

At April 28, 2012, we had 12 contracts to purchase Euros for an aggregate notional amount of US$1.4 million maturing in various increments at various dates through August 2012, 11 contracts to purchase USD for an aggregate notional amount of CAD $5.0 million maturing in various increments at various dates through August 2012 and 15 contracts to purchase USD for an aggregate notional amount of GBP £10.9 million maturing in various increments at various dates through August 2012.  For the quarter ended April 28, 2012, we recognized a net pre-tax loss of $0.8 million in cost of sales in the condensed consolidated statement of earnings for our derivative financial instruments not designated as cash flow hedges.

 

We had no derivative financial instruments with credit-risk-related contingent features underlying the agreements as of May 4, 2013, February 2, 2013 or April 28, 2012, respectively.

 

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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, Moores Clothing for Men (“Moores”) and K&G.  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 include suits, suit separates, sport coats, slacks, sportswear, outerwear, dress shirts, shoes and accessories for men.  Ladies’ career apparel, sportswear and accessories, including shoes, and children’s apparel is offered at most of our K&G stores and 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 (“U.S.”) and Dimensions, Alexandra and Yaffy 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 non-controlling 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 Quarter Ended

 

 

 

May 4, 2013

 

April 28, 2012

 

Net sales:

 

 

 

 

 

MW (1) 

 

$

401,835

 

$

371,468

 

Moores

 

53,771

 

55,478

 

K&G

 

97,340

 

103,092

 

MW Cleaners

 

7,235

 

6,654

 

Total retail segment

 

560,181

 

536,692

 

 

 

 

 

 

 

Twin Hill

 

7,959

 

7,065

 

Dimensions and Alexandra (UK)

 

48,396

 

42,817

 

Total corporate apparel segment

 

56,355

 

49,882

 

 

 

 

 

 

 

Total net sales

 

$

616,536

 

$

586,574

 

 


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

 

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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 Quarter Ended

 

 

 

May 4, 2013

 

April 28, 2012

 

Net sales:

 

 

 

 

 

Men’s tailored clothing product

 

$

234,844

 

$

230,280

 

Men’s non-tailored clothing product

 

166,773

 

166,888

 

Ladies’ clothing product

 

22,120

 

23,301

 

Total retail clothing product

 

423,737

 

420,469

 

 

 

 

 

 

 

Tuxedo rental services

 

98,482

 

78,489

 

 

 

 

 

 

 

Alteration services

 

30,727

 

31,080

 

Retail dry cleaning services

 

7,235

 

6,654

 

Total alteration and other services

 

37,962

 

37,734

 

 

 

 

 

 

 

Corporate apparel clothing product

 

56,355

 

49,882

 

 

 

 

 

 

 

Total net sales

 

$

616,536

 

$

586,574

 

 

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

 

 

 

For the Quarter Ended

 

 

 

May 4, 2013

 

April 28, 2012

 

Operating income (loss):

 

 

 

 

 

Retail

 

$

51,470

 

$

43,367

 

Corporate apparel

 

1,083

 

(2,420

)

Operating income

 

52,553

 

40,947

 

Interest income

 

121

 

128

 

Interest expense

 

(344

)

(433

)

Earnings before income taxes

 

$

52,330

 

$

40,642

 

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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.

 

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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 February 2, 2013.  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 “2013” mean the 52-week fiscal year ending February 1, 2014.

 

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, Moores Clothing for Men (“Moores”), K&G and the Internet at www.menswearhouse.com and www.kgstores.com.  Our stores are located throughout the United States (“U.S.”) and Canada and carry a wide selection of exclusive and non-exclusive merchandise brands.  In addition, we offer our customers a variety of services, including alterations and our loyalty program.  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 of the Company.  MW Cleaners conducts retail dry cleaning, laundry and heirlooming 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 U.S. and Dimensions, Alexandra and Yaffy in the United Kingdom (“UK”).  These operations provide corporate clothing uniforms and workwear to workforces through multiple channels including managed corporate accounts, catalogs and the Internet.

 

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.

 

In March 2013, we announced that we engaged Jefferies & Co. to assist us in evaluating strategic alternatives for our K&G operations.  We believe our core strengths lie primarily in our service culture and specialty men’s apparel retailing, and that we will be better able to focus our efforts on these core operations by taking this action.

 

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Overview

 

Highlights of the Company’s performance for the quarter ended May 4, 2013 compared to the quarter ended April 28, 2012 are presented below, followed by a more comprehensive discussion under “Results of Operations”:

 

·                  Revenues for the first quarter of 2013 increased by $30.0 million or 5.1% to $616.5 million compared to revenues of $586.6 million in the first quarter of 2012.

·                  Gross margin for the first quarter of 2013 increased by $23.9 million or 9.4% to $277.9 million compared to $254.0 million in the first quarter of 2012.  Gross margin as a percentage of total net sales for the first quarter of 2013 was 45.1% compared to 43.3% for the first quarter of 2012.

·                  Selling, general and administrative (“SG&A”) expenses for the first quarter of 2013 increased 5.8% to $225.4 million compared to SG&A expenses of $213.1 million in the first quarter of 2012 and increased 0.3% as a percentage of total net sales as compared to the first quarter of 2012.

·                  Net earnings attributable to common shareholders for the first quarter of 2013 increased by $6.2 million or 23.1% to $33.1 million compared to $26.9 million for the first quarter of 2012.

·                  Diluted earnings per common share attributable to common shareholders increased 25.0% to $0.65 per share for the first quarter of 2013 compared to $0.52 per share for the first quarter of fiscal 2012.

·                  Net cash provided by our operating activities for the first quarter of 2013 was $70.7 million compared to $65.3 million for the first quarter of 2012.  We held cash and cash equivalent balances of $155.1 million at May 4, 2013, $156.1 million at February 2, 2013 and $118.7 million at April 28, 2012.

·                  During the first quarter of 2013, we paid cash dividends of $9.3 million.

·                  During the first quarter of 2013, we repurchased 994,560 shares of our common stock for $33.0 million.

 

Store data

 

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

 

 

 

For the Quarter
Ended

 

For the Year
Ended

 

 

 

May 4,
2013

 

April 28,
2012

 

February 2,
2013

 

 

 

 

 

 

 

 

 

Stores open at beginning of period:

 

1,143

 

1,166

 

1,166

 

Opened

 

6

 

4

 

37

 

Closed

 

(8

)

(8

)

(60

)

Stores open at end of period

 

1,141

 

1,162

 

1,143

 

 

 

 

 

 

 

 

 

Stores open at end of period:

 

 

 

 

 

 

 

Men’s Wearhouse

 

644

 

611

 

638

 

Men’s Wearhouse & Tux

 

281

 

336

 

288

 

Moores

 

120

 

117

 

120

 

K&G

 

96

 

98

 

97

 

 

 

1,141

 

1,162

 

1,143

 

 

During the first quarter of 2013, we opened six Men’s Wearhouse stores and closed eight stores (one K&G store due to substandard performance and seven Men’s Wearhouse & Tux stores: two due to lease expiration and five due to substandard performance).

 

Seasonality

 

Our sales and net earnings are subject to seasonal fluctuations.  In most years, a greater portion of our net retail clothing sales have been generated during the fourth quarter of each year when holiday season shopping peaks.  In addition, our tuxedo rental revenues are heavily concentrated in the second and third quarters while the fourth quarter is considered the seasonal low point.  With respect to corporate apparel sales and operating results, seasonal fluctuations are not significant but customer decisions to rebrand or revise their corporate wear programs can cause significant variations in period results.  Because of these fluctuations in our sales, results for any quarter are not necessarily indicative of the results that may be achieved for the full year.  Additionally, U.S. and global economic conditions that impact consumer confidence and the level of consumer discretionary spending also impact our operating results.

 

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Table of Contents

 

Results of Operations

 

For the Quarter Ended May 4, 2013 compared to the Quarter Ended April 28, 2012

 

The following table sets forth the Company’s results of operations expressed as a percentage of net sales for the periods indicated:

 

 

 

For the Quarter
Ended 
(1)

 

 

 

May 4,

 

April 28,

 

 

 

2013

 

2012

 

Net sales:

 

 

 

 

 

Retail clothing product

 

68.7

%

71.7

%

Tuxedo rental services

 

16.0

 

13.4

 

Alteration and other services

 

6.2

 

6.4

 

Total retail sales

 

90.9

 

91.5

 

Corporate apparel clothing product sales

 

9.1

 

8.5

 

Total net sales

 

100.0

%

100.0

%

Cost of sales (2):

 

 

 

 

 

Retail clothing product

 

43.8

 

44.9

 

Tuxedo rental services

 

14.7

 

14.0

 

Alteration and other services

 

74.9

 

73.0

 

Occupancy costs

 

12.7

 

12.8

 

Total retail cost of sales

 

53.5

 

55.1

 

Corporate apparel clothing product cost of sales

 

69.1

 

73.5

 

Total cost of sales

 

54.9

 

56.7

 

Gross margin (2):

 

 

 

 

 

Retail clothing product

 

56.2

 

55.1

 

Tuxedo rental services

 

85.3

 

86.0

 

Alteration and other services

 

25.1

 

27.0

 

Occupancy costs

 

(12.7

)

(12.8

)

Total retail gross margin

 

46.5

 

44.9

 

Corporate apparel clothing product gross margin

 

30.9

 

26.5

 

Total gross margin

 

45.1

 

43.3

 

Selling, general and administrative expenses

 

36.6

 

36.3

 

Operating income

 

8.5

 

7.0

 

Interest income

 

0.0

 

0.0

 

Interest expense

 

(0.1

)

(0.1

)

Earnings before income taxes

 

8.5

 

6.9

 

Provision for income taxes

 

3.1

 

2.4

 

Net earnings including non-controlling interest

 

5.3

 

4.5

 

Net loss attributable to non-controlling interest

 

0.0

 

0.1

 

Net earnings attributable to common shareholders

 

5.4

%

4.6

%

 


(1)             Percentage line items may not sum to totals due to the effect of rounding.

(2)             Calculated as a percentage of related sales.

 

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Table of Contents

 

The Company’s total net sales increased $30.0 million, or 5.1%, to $616.5 million for the first quarter of 2013 as compared to the first quarter of 2012.

 

Total retail sales increased $23.5 million, or 4.4%, to $560.2 million for the first quarter of 2013 as compared to the first quarter of 2012 due mainly to a $20.0 million increase in tuxedo rental services revenues and a $3.3 million increase in retail clothing product revenues.  These increases are attributable to the following:

 

(in millions)

 

Amount Attributed to

 

$

5.8

 

1.6% increase in comparable sales at Men’s Wearhouse/Men’s Wearhouse and Tux.

 

(3.8

)

7.0% decrease in comparable sales at Moores.

 

(6.6

)

6.7% decrease in comparable sales at K&G.

 

 19.1

 

Increase in net sales not included in comparable sales.

 

14.1

 

Increase from net sales of stores opened in 2012, relocated stores and expanded stores not yet included in comparable sales.

 

(5.4

)

Decrease in net sales resulting from closed stores.

 

0.3

 

Other.

 

$

23.5

 

Increase in total retail sales.

 

 

Comparable sales exclude 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 and include e-commerce net sales, beginning in fiscal 2013.  Because fiscal 2012 was a 53 week fiscal year, comparable sales for the 52 weeks of fiscal 2013 are calculated using the trailing (or comparable) 52 weeks of fiscal 2012.  This “calendar shift” resulted in $19.1 million of the total retail sales increase for the first quarter of 2013 being excluded from the comparable sales changes shown in the table above.  If comparable sales for the first quarter of 2013 are calculated by comparison to the 13 weeks included in the first quarter of 2012 (rather than the trailing 13 weeks), comparable sales increase by 7.1% at Men’s Wearhouse/Men’s Wearhouse and Tux and decrease by 2.8% at Moores and 5.3% at K&G.  The increase at Men’s Wearhouse/Men’s Wearhouse and Tux resulted from increased average unit retails (net selling prices) for clothing product that more than offset decreases in units sold per transaction and average transactions per store.  In addition, tuxedo rental service revenues increased due to increased rental rates as well as increased unit rentals and sales of tuxedo accessories caused mainly by the Easter holiday shift allowing for an earlier prom season.  The decrease at Moores was driven by decreased average transactions per store for clothing product and decreased units sold per transaction.  The decrease at K&G was driven by decreased average transactions per store and decreased units sold per transaction that more than offset an increase in average unit retails.

 

Total corporate apparel clothing product sales increased $6.5 million.  UK corporate apparel sales increased $5.6 million due mainly to a higher level of customer-directed new uniform rollouts in the first quarter of 2013 as compared to the first quarter of 2012.  U.S. corporate apparel sales increased $0.9 million, due primarily to increased catalog sales.

 

The Company’s gross margin was as follows:

 

 

 

For the Quarter Ended

 

 

 

May 4,

 

April 28,

 

 

 

2013

 

2012

 

Gross margin (in thousands)

 

$

277,920

 

$

254,049

 

 

 

 

 

 

 

Gross margin as a percentage of related sales:

 

 

 

 

 

Retail gross margin:

 

 

 

 

 

Clothing product

 

56.2

%

55.1

%

Tuxedo rental services

 

85.3

%

86.0

%

Alteration and other services

 

25.1

%

27.0

%

Occupancy costs

 

(12.7

)%

(12.8

)%

Total retail gross margin

 

46.5

%

44.9

%

 

 

 

 

 

 

Corporate apparel clothing product gross margin

 

30.9

%

26.5

%

 

 

 

 

 

 

Total gross margin

 

45.1

%

43.3

%

 

Buying and distribution costs are included in determining our retail and corporate apparel clothing product gross margins.  Our gross margin may not be comparable to other specialty retailers, as some companies exclude costs related to their distribution network from cost of goods sold while others, like us, include all or a portion of such costs in cost of goods sold and exclude them from SG&A expenses.  Tuxedo distribution costs are not included in determining our tuxedo rental services gross margin but are included in SG&A expenses.

 

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Table of Contents

 

In the retail segment, total gross margin as a percentage of related sales increased from 44.9% in the first quarter of 2012 to 46.5% in the first quarter of 2013.  On an absolute dollar basis, total retail segment gross margin increased $19.7 million or 8.2% from the same prior year quarter to $260.5 million in the first quarter of 2013.  Retail clothing product gross margin increased from 55.1% in the first quarter of 2012 to 56.2% in the first quarter of 2013 due primarily to increased average unit retails.  The tuxedo rental services gross margin decreased from 86.0% in the first quarter of 2012 to 85.3% in the first quarter of 2013 primarily due to increased royalty expenses.  Occupancy costs, which are relatively constant on a per store basis and includes store related rent, common area maintenance, utilities, repairs and maintenance, security, property taxes and depreciation, decreased slightly from 12.8% in the first quarter of 2012 to 12.7% in the first quarter of 2013 due to cost leverage from increased retail sales.  On an absolute dollar basis, occupancy costs increased $2.6 million primarily due to higher rent and depreciation expense.

 

In the corporate apparel segment, total gross margin as a percentage of related sales increased from 26.5% in the first quarter of 2012 to 30.9% in the first quarter of 2013 mainly as a result of a favorable sales mix and foreign currency gains recognized on our derivative financial instruments not designated as cash flow hedges associated with our UK-based operations.  On an absolute dollar basis, corporate apparel gross margin increased $4.2 million.

 

SG&A expenses increased to $225.4 million in the first quarter of 2013 from $213.1 million in the first quarter of 2012, an increase of $12.3 million or 5.8%.  As a percentage of total net sales, these expenses increased from 36.3% in the first quarter of 2012 to 36.6% in the first quarter of 2013.  The components of this 0.3% net increase in SG&A expenses as a percentage of total net sales and the related absolute dollar changes were as follows:

 

%

 

Attributed to

 

0.2

 

Increase in advertising expense as a percentage of total net sales from 3.3% in the first quarter of 2012 to 3.5% in the first quarter of 2013. On an absolute dollar basis, advertising expense increased $2.1 million.

 

(0.4

)

Decrease in store salaries as a percentage of total net sales from 13.1% in the first quarter of 2012 to 12.7% in the first quarter of 2013. Store salaries on an absolute dollar basis increased $1.2 million primarily due to increased store sales support salaries and increased commissions associated with increased retail sales.

 

0.5

 

Increase in other SG&A expenses as a percentage of total net sales from 19.9% in the first quarter of 2012 to 20.4% in the first quarter of 2013. On an absolute dollar basis, other SG&A expenses increased $9.0 million primarily due to increased non-store payroll-related costs, including increased medical benefit costs.

 

0.3

%

Total

 

 

In the retail segment, SG&A expenses as a percentage of related net sales increased from 36.8% in the first quarter of 2012 to 37.3% in the first quarter of 2013.  On an absolute dollar basis, retail segment SG&A expenses increased $11.6 million primarily due to increased advertising expense and store and non-store payroll-related costs, including increased medical benefit costs.

 

In the corporate apparel segment, SG&A expenses as a percentage of related net sales decreased from 31.4% in the first quarter of 2012 to 29.0% in the first quarter of 2013.  On an absolute dollar basis, corporate apparel segment SG&A expenses increased $0.7 million primarily due to foreign currency translation losses associated with our UK operations.

 

Our effective income tax rate was 37.0% for the first quarter of 2013 and 34.6% for the first quarter of 2012.  The effective tax rate for the first quarter of 2013 was higher than the statutory U.S. federal rate of 35% due to tax rate effects from state income taxes, offset partially by lower foreign statutory tax rates imposed on our foreign operations.  The effective tax rate for the first quarter of 2012 was lower than the statutory U.S. federal rate of 35% due to the favorable tax rate effects from net permanent book-to-tax adjustments and lower foreign statutory tax rates imposed on our foreign operations, offset partially by the effect of state income taxes.

 

These factors resulted in net earnings attributable to common shareholders of $33.1 million or 5.4% of net sales for the first quarter of 2013, compared with net earnings of $26.9 million or 4.6% of net sales for the first quarter of 2012.

 

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Table of Contents

 

Liquidity and Capital Resources

 

At May 4, 2013, February 2, 2013 and April 28, 2012, cash and cash equivalents totaled $155.1 million, $156.1 million and $118.7 million, respectively, and working capital was $532.0 million, $561.0 million and $521.7 million, respectively.  Our primary sources of working capital are cash flows from operations and borrowings under our Credit Agreement (as defined below).  The $29.0 million decrease in working capital at May 4, 2013 compared to February 2, 2013 was due mainly to purchases of treasury stock made during the first quarter of 2013.

 

Credit Facilities

 

On April 12, 2013, we entered into a Third Amended and Restated Credit Agreement (the “Credit Agreement”), with a group of banks to amend and restate our existing credit facility, which provided the Company with a revolving credit facility that was scheduled to mature on January 26, 2016.

 

The Credit Agreement provides for a total senior revolving credit facility of $300.0 million, with possible future increases to $450.0 million under an expansion feature, and which matures on April 12, 2018.  In addition, the Credit Agreement provides for a $100.0 million term loan, available in a single advance during the 120 day period after the closing date.  If drawn, the term loan will be repaid over five years, with 10% payable annually in quarterly installments and the remainder due at maturity.  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) CDOR 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 of up to 2.50%.  The Credit Agreement also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.75% to 2.50%, and a fee on unused commitments which ranges from 0.35% to 0.50%.  As of May 4, 2013, 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 May 4, 2013.

 

We utilize letters of credit primarily to secure inventory purchases and as collateral for workers compensation claims.  At May 4, 2013, letters of credit totaling approximately $21.3 million were issued and outstanding.   Borrowings available under our Credit Agreement at May 4, 2013were $278.7 million.

 

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Cash flow activities

 

Operating activities — Our primary source of operating cash flow is from sales to our customers.  Our primary uses of cash include clothing product inventory and tuxedo rental product purchases, personnel related expenses, occupancy costs, advertising costs and income tax payments.  Our operating activities provided net cash of $70.7 million in the first quarter of 2013, due mainly to net earnings, adjusted for non-cash charges, an increase in accounts payable, accrued expenses and other current liabilities and a decrease in other assets, offset by increases in inventories and tuxedo rental product.

 

·                  Inventories increased primarily due to our usual inventory replenishment following the holiday shopping season.

·                  Tuxedo rental product increased from purchases of new Vera Wang product offerings and replenishment product to support the continued growth of our tuxedo rental business.

·                  The decrease in other assets is primarily due to the timing and amounts of required tax payments.

·                  The increase in accounts payable, accrued expenses and other current liabilities was primarily due to the timing of vendor payments for inventory an