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 August 3, 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

(Do not check if a smaller reporting company)

 

Smaller reporting company o

 

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 September 2, 2013 was 47,795,084 excluding 23,055,266 shares classified as Treasury Stock.

 

 

 


 


Table of Contents

 

REPORT INDEX

 

Part and Item No.

 

Page No.

 

 

 

PART I — Financial Information

 

 

 

 

 

Item 1 — Condensed Consolidated Financial Statements

 

 

 

 

 

General Information

 

2

 

 

 

Condensed Consolidated Balance Sheets as of August 3, 2013 (unaudited), July 28, 2012 (unaudited) and February 2, 2013

 

3

 

 

 

Condensed Consolidated Statements of Earnings for the Three and Six Months Ended August 3, 2013 (unaudited) and July 28, 2012 (unaudited)

 

4

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended August 3, 2013 (unaudited) and July 28, 2012 (unaudited)

 

5

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended August 3, 2013 (unaudited) and July 28, 2012 (unaudited)

 

6

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

7

 

 

 

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

 

21

 

 

 

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

 

37

 

 

 

Item 4 — Controls and Procedures

 

37

 

 

 

PART II — Other Information

 

 

 

 

 

Item 1 — Legal Proceedings

 

37

 

 

 

Item 1A — Risk Factors

 

37

 

 

 

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

 

38

 

 

 

Item 6 — Exhibits

 

39

 

 

 

SIGNATURES

 

39

 

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Table of Contents

 

Forward-Looking and Cautionary Statements

 

Certain statements made in this Quarterly Report on Form 10-Q and in other public filings and press releases by the Company (as defined below) contain “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995) that involves risk and uncertainty.  These forward-looking statements may include, but are not limited to, references to 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 three and six months ended August 3, 2013 and July 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.

 

2


 


Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

August 3,
2013

 

July 28,
2012

 

February 2,
2013

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

32,488

 

$

106,399

 

$

156,063

 

Accounts receivable, net

 

56,083

 

69,622

 

63,010

 

Inventories

 

599,811

 

577,078

 

556,531

 

Other current assets

 

71,835

 

70,786

 

79,549

 

 

 

 

 

 

 

 

 

Total current assets

 

760,217

 

823,885

 

855,153

 

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net

 

397,129

 

383,015

 

389,118

 

 

 

 

 

 

 

 

 

TUXEDO RENTAL PRODUCT, net

 

144,171

 

116,586

 

126,825

 

GOODWILL

 

76,510

 

87,672

 

87,835

 

INTANGIBLE ASSETS, net

 

30,022

 

32,093

 

32,442

 

OTHER ASSETS

 

6,485

 

4,748

 

4,974

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

1,414,534

 

$

1,447,999

 

$

1,496,347

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable

 

$

136,629

 

$

119,433

 

$

123,983

 

Accrued expenses and other current liabilities

 

172,446

 

161,850

 

164,344

 

Income taxes payable

 

3,554

 

728

 

5,856

 

 

 

 

 

 

 

 

 

Total current liabilities

 

312,629

 

282,011

 

294,183

 

 

 

 

 

 

 

 

 

DEFERRED TAXES AND OTHER LIABILITIES

 

86,836

 

98,401

 

92,929

 

 

 

 

 

 

 

 

 

Total liabilities

 

399,465

 

380,412

 

387,112

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 3 and Note 13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EQUITY:

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

Common stock

 

708

 

722

 

725

 

Capital in excess of par

 

382,519

 

372,601

 

386,254

 

Retained earnings

 

1,162,933

 

1,163,324

 

1,190,246

 

Accumulated other comprehensive income

 

26,234

 

36,302

 

36,924

 

Treasury stock, at cost

 

(569,860

)

(517,894

)

(517,894

)

 

 

 

 

 

 

 

 

Total equity attributable to common shareholders

 

1,002,534

 

1,055,055

 

1,096,255

 

 

 

 

 

 

 

 

 

Non-controlling interest

 

12,535

 

12,532

 

12,980

 

 

 

 

 

 

 

 

 

Total equity

 

1,015,069

 

1,067,587

 

1,109,235

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

 

$

1,414,534

 

$

1,447,999

 

$

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 Three Months Ended

 

For the Six Months Ended

 

 

 

August 3,
2013

 

July 28,
2012

 

August 3,
2013

 

July 28,
2012

 

Net sales:

 

 

 

 

 

 

 

 

 

Retail clothing product

 

$

408,683

 

$

413,024

 

$

832,420

 

$

833,493

 

Tuxedo rental services

 

147,701

 

154,124

 

246,183

 

232,613

 

Alteration and other services

 

37,056

 

37,540

 

75,018

 

75,274

 

Total retail sales

 

593,440

 

604,688

 

1,153,621

 

1,141,380

 

Corporate apparel clothing product sales

 

53,815

 

57,614

 

110,170

 

107,496

 

Total net sales

 

647,255

 

662,302

 

1,263,791

 

1,248,876

 

 

 

 

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

 

 

 

 

Retail clothing product

 

177,578

 

184,038

 

363,061

 

372,644

 

Tuxedo rental services

 

22,578

 

21,235

 

37,076

 

32,248

 

Alteration and other services

 

28,926

 

28,145

 

57,344

 

55,703

 

Occupancy costs

 

72,791

 

69,367

 

144,065

 

138,065

 

Total retail cost of sales

 

301,873

 

302,785

 

601,546

 

598,660

 

Corporate apparel clothing product cost of sales

 

36,588

 

39,260

 

75,531

 

75,910

 

Total cost of sales

 

338,461

 

342,045

 

677,077

 

674,570

 

 

 

 

 

 

 

 

 

 

 

Gross margin:

 

 

 

 

 

 

 

 

 

Retail clothing product

 

231,105

 

228,986

 

469,359

 

460,849

 

Tuxedo rental services

 

125,123

 

132,889

 

209,107

 

200,365

 

Alteration and other services

 

8,130

 

9,395

 

17,674

 

19,571

 

Occupancy costs

 

(72,791

)

(69,367

)

(144,065

)

(138,065

)

Total retail gross margin

 

291,567

 

301,903

 

552,075

 

542,720

 

Corporate apparel clothing product gross margin

 

17,227

 

18,354

 

34,639

 

31,586

 

Total gross margin

 

308,794

 

320,257

 

586,714

 

574,306

 

 

 

 

 

 

 

 

 

 

 

Goodwill impairment charge

 

9,501

 

 

9,501

 

 

Selling, general and administrative expenses

 

232,505

 

228,667

 

457,872

 

441,769

 

Operating income

 

66,788

 

91,590

 

119,341

 

132,537

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

181

 

143

 

302

 

271

 

Interest expense

 

(540

)

(508

)

(884

)

(941

)

Earnings before income taxes

 

66,429

 

91,225

 

118,759

 

131,867

 

Provision for income taxes

 

23,451

 

31,655

 

42,825

 

45,717

 

 

 

 

 

 

 

 

 

 

 

Net earnings including non-controlling interest

 

42,978

 

59,570

 

75,934

 

86,150

 

Net (earnings) loss attributable to non-controlling interest

 

(35

)

(177

)

100

 

127

 

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to common shareholders

 

$

42,943

 

$

59,393

 

$

76,034

 

$

86,277

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Basic

 

$

0.86

 

$

1.16

 

$

1.50

 

$

1.68

 

Diluted

 

$

0.85

 

$

1.15

 

$

1.50

 

$

1.67

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding (Note 2):

 

 

 

 

 

 

 

 

 

Basic

 

49,843

 

50,711

 

50,225

 

50,822

 

Diluted

 

50,133

 

50,932

 

50,460

 

51,084

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.18

 

$

0.18

 

$

0.36

 

$

0.36

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

August 3,
2013

 

July 28,
2012

 

August 3,
2013

 

July 28,
2012

 

 

 

 

 

 

 

 

 

 

 

Net earnings including non-controlling interest

 

$

42,978

 

$

59,570

 

$

75,934

 

$

86,150

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments, net of tax

 

(7,819

)

(8,761

)

(11,035

)

(619

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income including non-controlling interest

 

35,159

 

50,809

 

64,899

 

85,531

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Net (earnings) loss

 

(35

)

(177

)

100

 

127

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments, net of tax

 

229

 

416

 

345

 

 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to non-controlling interest

 

194

 

239

 

445

 

127

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to common shareholders

 

$

35,353

 

$

51,048

 

$

65,344

 

$

85,658

 

 

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 Six Months Ended

 

 

 

August 3,
2013

 

July 28,
2012

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net earnings including non-controlling interest

 

$

75,934

 

$

86,150

 

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

 

 

 

 

 

Depreciation and amortization

 

43,450

 

41,775

 

Tuxedo rental product amortization

 

19,004

 

17,956

 

Loss on disposition of assets

 

1,001

 

1,434

 

Goodwill impairment charge

 

9,501

 

 

Asset impairment charges

 

46

 

122

 

Share-based compensation

 

9,069

 

8,322

 

Excess tax benefits from share-based plans

 

(1,114

)

(2,039

)

Deferred tax (benefit) provision

 

(5,301

)

4,740

 

Deferred rent expense and other

 

1,923

 

211

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

5,663

 

(13,006

)

Inventories

 

(47,956

)

(4,831

)

Tuxedo rental product

 

(37,224

)

(34,789

)

Other assets

 

6,585

 

(6,816

)

Accounts payable, accrued expenses and other current liabilities

 

23,061

 

8,379

 

Income taxes payable

 

(1,488

)

(505

)

Other liabilities

 

(912

)

1,329

 

 

 

 

 

 

 

Net cash provided by operating activities

 

101,242

 

108,432

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(52,261

)

(68,846

)

Proceeds from sales of property and equipment

 

191

 

14

 

 

 

 

 

 

 

Net cash used in investing activities

 

(52,070

)

(68,832

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from issuance of common stock

 

5,409

 

3,939

 

Cash dividends paid

 

(18,350

)

(18,613

)

Deferred financing costs

 

(1,776

)

 

Tax payments related to vested deferred stock units

 

(3,865

)

(4,421

)

Excess tax benefits from share-based plans

 

1,114

 

2,039

 

Repurchases of common stock

 

(152,129

)

(41,296

)

 

 

 

 

 

 

Net cash used in financing activities

 

(169,597

)

(58,352

)

 

 

 

 

 

 

Effect of exchange rate changes

 

(3,150

)

(155

)

 

 

 

 

 

 

DECREASE IN CASH AND CASH EQUIVALENTS

 

(123,575

)

(18,907

)

Balance at beginning of period

 

156,063

 

125,306

 

 

 

 

 

 

 

Balance at end of period

 

$

32,488

 

$

106,399

 

 

See Notes to Condensed Consolidated Financial Statements.

 

6


 


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 Three Months
Ended

 

For the Six Months
Ended

 

 

 

August 3,
2013

 

July 28,
2012

 

August 3,
2013

 

July 28,
2012

 

 

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

Total net earnings attributable to common shareholders

 

$

42,943

 

$

59,393

 

$

76,034

 

$

86,277

 

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

 

(139

)

(624

)

(474

)

(1,101

)

Net earnings attributable to common shareholders

 

$

42,804

 

$

58,769

 

$

75,560

 

$

85,176

 

Denominator

 

 

 

 

 

 

 

 

 

Basic weighted-average common shares outstanding

 

49,843

 

50,711

 

50,225

 

50,822

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Stock options and equity-based compensation

 

290

 

221

 

235

 

262

 

Diluted weighted-average common shares outstanding

 

50,133

 

50,932

 

50,460

 

51,084

 

Net earnings per common share attributable to common shareholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.86

 

$

1.16

 

$

1.50

 

$

1.68

 

Diluted

 

$

0.85

 

$

1.15

 

$

1.50

 

$

1.67

 

 

For the three and six months ended August 3, 2013, 0.2 million and 0.3 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively.  For the three and six months ended July 28, 2012, 0.4 million and 0.3 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

3.  Debt

 

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 us 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, 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.  On August 6, 2013, we borrowed $100.0 million under the term loan provision of our Credit Agreement which will be repaid over five years, with 10% payable annually in quarterly installments and the remainder due at maturity (see Note 14).  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 August 3, 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 August 3, 2013.

 

We utilize letters of credit primarily to secure inventory purchases and as collateral for workers compensation claims.  At August 3, 2013, letters of credit totaling approximately $21.5 million were issued and outstanding.   Borrowings available under our Credit Agreement at August 3, 2013 were $278.5 million.

 

4.  Supplemental Cash Flows

 

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

 

 

 

For the Six Months Ended

 

 

 

August 3,
2013

 

July 28,
2012

 

Cash paid for:

 

 

 

 

 

Interest

 

$

301

 

$

734

 

Income taxes, net

 

$

43,209

 

$

43,429

 

 

 

 

 

 

 

Schedule of noncash investing and financing activities:

 

 

 

 

 

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

 

$

607

 

$

2,004

 

Cash dividends declared

 

$

9,279

 

$

9,214

 

 

We had unpaid capital expenditure purchases included in accounts payable, accrued expenses and other current liabilities of approximately $14.5 million and $7.9 million at August 3, 2013 and July 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):

 

 

 

August 3,
 2013

 

July 28,
 2012

 

February 2,
 2013

 

 

 

 

 

 

 

 

 

Prepaid expenses

 

$

35,731

 

$

35,533

 

$

35,403

 

Current deferred tax asset

 

25,463

 

22,311

 

26,607

 

Tax receivable

 

1,437

 

3,363

 

8,040

 

Other

 

9,204

 

9,579

 

9,499

 

 

 

 

 

 

 

 

 

Total other current assets

 

$

71,835

 

$

70,786

 

$

79,549

 

 

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

 

 

 

August 3,
2013

 

July 28,
2012

 

February 2,
2013

 

Accrued salary, bonus, sabbatical, vacation and other benefits

 

$

44,188

 

$

40,702

 

$

55,555

 

Customer deposits, prepayments and refunds payable

 

37,363

 

38,392

 

20,276

 

Accrued workers compensation and medical costs

 

21,742

 

17,884

 

19,146

 

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

 

19,929

 

23,497

 

23,801

 

Unredeemed gift certificates

 

13,387

 

12,833

 

15,535

 

Cash dividends declared

 

9,279

 

9,214

 

9,260

 

Loyalty program reward certificates

 

7,085

 

7,045

 

6,930

 

Accrued royalties

 

7,041

 

3,294

 

1,890

 

Other

 

12,432

 

8,989

 

11,951

 

 

 

 

 

 

 

 

 

Total accrued expenses and other current liabilities

 

$

172,446

 

$

161,850

 

$

164,344

 

 

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

 

 

 

August 3,
2013

 

July 28,
2012

 

February 2,
2013

 

Deferred rent and landlord incentives

 

$

53,615

 

$

50,805

 

$

52,814

 

Non-current deferred and other income tax liabilities

 

32,159

 

34,011

 

38,810

 

Other

 

1,062

 

13,585

 

1,305

 

 

 

 

 

 

 

 

 

Total deferred taxes and other liabilities

 

$

86,836

 

$

98,401

 

$

92,929

 

 

10



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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 our equity accounts for the six months ended August 3, 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)

 

 

 

76,034

 

 

 

76,034

 

(100

)

75,934

 

Other comprehensive loss

 

 

 

 

(10,690

)

 

(10,690

)

(345

)

(11,035

)

Cash dividends

 

 

 

(18,369

)

 

 

(18,369

)

 

(18,369

)

Share-based compensation

 

 

9,069

 

 

 

 

9,069

 

 

9,069

 

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

 

5

 

5,404

 

 

 

 

5,409

 

 

5,409

 

Tax payments related to vested deferred stock units

 

 

(3,865

)

 

 

 

(3,865

)

 

(3,865

)

Tax benefit related to share-based plans

 

 

607

 

 

 

 

607

 

 

607

 

Treasury stock reissued

 

 

50

 

 

 

163

 

213

 

 

213

 

Repurchases of common stock

 

(22

)

(15,000

)

(84,978

)

 

(52,129

)

(152,129

)

 

(152,129

)

BALANCES — August 3, 2013

 

$

708

 

$

382,519

 

$

1,162,933

 

$

26,234

 

$

(569,860

)

$

1,002,534

 

$

12,535

 

$

1,015,069

 

 

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

 

 

 

Common
Stock

 

Capital
in Excess
of Par

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Income

 

Treasury
Stock, at
Cost

 

Total Equity
Attributable to
Common
Shareholders

 

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)

 

 

 

86,277

 

 

 

86,277

 

(127

)

86,150

 

Other comprehensive income

 

 

 

 

(619

)

 

(619

)

 

(619

)

Cash dividends

 

 

 

(18,488

)

 

 

(18,488

)

 

(18,488

)

Share-based compensation

 

 

8,322

 

 

 

 

8,322

 

 

8,322

 

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

 

4

 

3,935

 

 

 

 

3,939

 

 

3,939

 

Tax payments related to vested deferred stock units

 

 

(4,421

)

 

 

 

(4,421

)

 

(4,421

)

Tax benefit related to share-based plans

 

 

2,004

 

 

 

 

2,004

 

 

2,004

 

Treasury stock reissued

 

 

26

 

 

 

151

 

177

 

 

177

 

Repurchases of common stock

 

 

 

 

 

(41,296

)

(41,296

)

 

(41,296

)

BALANCES — July 28, 2012

 

$

722

 

$

372,601

 

$

1,163,324

 

$

36,302

 

$

(517,894

)

$

1,055,055

 

$

12,532

 

$

1,067,587

 

 

11


 


Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

7.  Share Repurchases and Reissuances

 

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 replaced our 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.

 

In July 2013, we entered into an accelerated share repurchase agreement (“ASR Agreement”) with J.P. Morgan Securities LLC (“JP Morgan”), as agent for JPMorgan Chase Bank, National Association, London Branch, to purchase $100.0 million of our common stock.  We paid $100.0 million to JPMorgan and received an initial delivery of 2,197,518 shares (which is approximately 85% of the number of shares expected to be repurchased in connection with this transaction), and reduced our shares outstanding as of August 3, 2013.  The value of the initial shares received on the date of purchase was approximately $85.0 million, reflecting a $38.68 price per share which was recorded as a retirement of the shares for purposes of calculating earnings per share.  In accordance with authoritative guidance, we recorded the remaining $15.0 million as a forward contract indexed to our common stock within capital in excess of par.  The specific final number of shares to be repurchased by JPMorgan will generally be based on the volume-weighted average share price of our common stock during the calculation period of the ASR Agreement which is expected to be completed no later than the fourth quarter of 2013.  In the unlikely event we are required to deliver value to JPMorgan at the end of the purchase period, we, at our option, may elect to settle in shares or cash.

 

In addition to the ASR Agreement, during the first six months of fiscal 2013, 1,489,318 shares at a cost of $52.0 million were repurchased in open market transactions at an average price per share of $34.89 under the Board’s March 2013 authorization.  At August 3, 2013, the remaining balance available under the Board’s March 2013 authorization was $48.0 million, which has been reduced by the entire $100.0 million payment under the ASR Agreement.

 

During the first six months of fiscal 2012, 1,121,484 shares at a cost of $41.0 million were repurchased at an average price per share of $36.59 under the January 2011 authorization.

 

During the six months ended August 3, 2013 and July 28, 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 Six Months Ended

 

 

 

August 3,
2013

 

July 28,
2012

 

 

 

 

 

 

 

Shares repurchased

 

3,692,214

 

1,128,525

 

Total costs

 

$

152,129

 

$

41,296

 

Average price per share

 

$

37.14

 

$

36.59

 

 

Shares purchased pursuant to the ASR Agreement are presented in the above table in the periods in which they are received.  The total costs includes the entire $100.0 million payment, however, the average price per share calculation excludes the $15.0 million recorded as a forward contract.

 

As of August 3, 2013 and July 28, 2012, 6,735 treasury shares and 6,295 treasury shares, respectively, of our common stock were reissued pursuant to a two-year services agreement with an unrelated third party.  The fair value of the common stock issued during the six months ended August 3, 2013 and July 28, 2012 was approximately $0.2 million, respectively.

 

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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 our 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 three and six months ended August 3, 2013 was $4.6 million and $9.1 million, respectively.  Share-based compensation expense recognized for the three and six months ended July 28, 2012 was $4.2 million and $8.3 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 six months ended August 3, 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)

 

(325,763

)

 

38.19

 

 

Forfeited

 

(22,778

)

(15,110

)

32.39

 

33.09

 

Non-Vested at August 3, 2013

 

572,423

 

82,558

 

$

32.80

 

$

33.09

 

 


(1) Includes 110,740 shares relinquished for tax payments related to vested deferred stock units for the six months ended August 3, 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 our 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 of 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 August 3, 2013 are 142,762 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 our 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 six months ended August 3, 2013:

 

 

 

Shares

 

Weighted-
Average
Grant-Date
Fair Value

 

Non-Vested at February 2, 2013

 

99,847

 

$

28.55

 

Granted

 

11,971

 

37.59

 

Vested

 

(32,695

)

29.44

 

Forfeited

 

 

 

Non-Vested at August 3, 2013

 

79,123

 

$

29.54

 

 

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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 August 3, 2013, we have unrecognized compensation expense related to non-vested deferred stock units and shares of restricted stock of approximately $18.0 million, which is expected to be recognized over a weighted-average period of 1.4 years.

 

Stock Options

 

The following table summarizes the activity of stock options for the six months ended August 3, 2013:

 

 

 

Shares

 

Weighted-
Average
Exercise
Price

 

Outstanding at February 2, 2013

 

1,024,768

 

$

25.54

 

Granted

 

19,080

 

33.09

 

Exercised

 

(210,977

)

18.78

 

Forfeited

 

(25,012

)

19.58

 

Expired

 

(5

)

7.97

 

Outstanding at August 3, 2013

 

807,854

 

$

27.67

 

Exercisable at August 3, 2013

 

496,348

 

$

26.80

 

 

The weighted-average grant date fair value of the 19,080 stock options granted during the six months ended August 3, 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 six months ended August 3, 2013.

 

 

 

For the Six
Months Ended

 

 

 

August 3,
 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 August 3, 2013, we have unrecognized compensation expense related to non-vested stock options of approximately $3.1 million which is expected to be recognized over a weighted-average period of 2.1 years.

 

Employee Stock Discount 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.

 

14



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

During the six months ended August 3, 2013, employees purchased 53,245 shares under the ESDP, which had a weighted-average share price of $27.19 per share.  As of August 3, 2013, 795,203 shares were reserved for future issuance under the ESDP.

 

9.  Goodwill and Other Intangible Assets

 

Goodwill

 

Goodwill allocated to our reportable segments and changes in the net carrying amount of goodwill for the six months ended August 3, 2013 are as follows (in thousands):

 

 

 

Retail

 

Corporate
Apparel

 

Total

 

Balance at February 2, 2013

 

$

59,995

 

$

27,840

 

$

87,835

 

Impairment charge

 

(9,501

)

 

(9,501

)

Translation adjustment

 

(1,118

)

(706

)

(1,824

)

Balance at August 3, 2013

 

$

49,376

 

$

27,134

 

$

76,510

 

 

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.  During the second quarter of fiscal 2013, based on estimates provided to us by market participants during our review of strategic alternatives for the K&G brand, we concluded that the carrying value of the K&G brand exceeded its fair value.  Based on further analysis, it was determined that the entire carrying value of K&G’s goodwill was impaired resulting in a non-cash goodwill impairment charge of $9.5 million.

 

Intangible Assets

 

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

 

 

 

August 3,
2013

 

July 28,
2012

 

February 2,
2013

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

Carrying amount:

 

 

 

 

 

 

 

Trademarks, tradenames, and other intangibles

 

$

14,423

 

$

12,432

 

$

14,502

 

Customer relationships

 

31,244

 

32,138

 

32,098

 

Total carrying amount

 

45,667

 

44,570

 

46,600

 

Accumulated amortization:

 

 

 

 

 

 

 

Trademarks, tradenames, and other intangibles

 

(8,981

)

(8,379

)

(8,663

)

Customer relationships

 

(7,886

)

(5,356

)

(6,751

)

Total accumulated amortization

 

(16,867

)

(13,735

)

(15,414

)

Total amortizable intangible assets, net

 

28,800

 

30,835

 

31,186

 

Infinite-lived intangible assets:

 

 

 

 

 

 

 

Trademarks

 

1,222

 

1,258

 

1,256

 

Total intangible assets, net

 

$

30,022

 

$

32,093

 

$

32,442

 

 

The pretax amortization expense associated with intangible assets subject to amortization totaled approximately $0.8 million for the three months ended August 3, 2013 and July 28, 2012, respectively.  The pretax amortization expense associated with intangible assets subject to amortization totaled approximately $1.6 million for the six months ended August 3, 2013 and July 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 August 3, 2013 is estimated to be $1.6 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.

 

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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 six months ended August 3, 2013 or July 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 August 3, 2013-

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

 

$

271

 

$

 

$

271

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

 

$

15

 

$

 

$

15

 

 

 

 

 

 

 

 

 

 

 

At February 2, 2013-

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

20,054

 

$

 

$

 

$

20,054

 

Derivative financial instruments

 

$

 

$

215

 

$

 

$

215

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

 

$

17

 

$

 

$

17

 

 

 

 

 

 

 

 

 

 

 

At July 28, 2012-

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

20,036

 

$

 

$

 

$

20,036

 

Derivative financial instruments

 

$

 

$

43

 

$

 

$

43

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

 

$

47

 

$

 

$

47

 

 

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

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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.

 

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

 

Long-lived assets, such as property and equipment, goodwill and identifiable intangibles, are periodically evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the asset carrying amount exceeds its fair value, an impairment charge is recognized in the amount by which the carrying amount exceeds the fair value of the asset.  The fair values of long-lived assets held-for-use are based on our own judgments about the assumptions that market participants would use in pricing the asset and on observable market data, when available.  We classify these measurements as Level 3 within the fair value hierarchy.   For the three and six months ended August 3, 2013, we recorded charges for the impairment of long-lived assets of approximately $0.1 million which is included within selling, general and administrative (“SG&A”) expenses in our condensed consolidated statement of earnings.  The asset impairment charges reduced the carrying amounts of the applicable long-lived assets, primarily leasehold improvements for certain Men’s Wearhouse and Tux stores, to their fair values of zero as of August 3, 2013. For the three and six months ended July 28, 2012, we recorded charges for the impairment of long-lived assets of $0.1 million which is included within SG&A expenses in our condensed consolidated statement of earnings.  The asset impairment charges reduced the carrying amounts of the applicable long-lived assets, primarily leasehold improvements for certain Men’s Wearhouse and Tux stores, to their fair values of zero as of July 28, 2012.

 

During the second quarter of fiscal 2013, we recorded a goodwill impairment charge related to our K&G brand totaling $9.5 million. We estimated the fair value of the K&G brand based on estimates provided to us by market participants which we classified as Level 2 within the fair value hierarchy.

 

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 August 3, 2013, July 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.  We have 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.

 

17


 


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 August 3, 2013, February 2, 2013 and July 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 August 3, 2013- Foreign exchange forward contracts

 

Other current assets

 

$

271

 

Accrued expenses and other current liabilities

 

$

15

 

 

 

 

 

 

 

 

 

 

 

At February 2, 2013- Foreign exchange forward contracts

 

Other current assets

 

$

215

 

Accrued expenses and other current liabilities

 

$

17

 

 

 

 

 

 

 

 

 

 

 

At July 28, 2012- Foreign exchange forward contracts

 

Other current assets

 

$

43

 

Accrued expenses and other current liabilities

 

$

47

 

 

At August 3, 2013, we had 10 contracts to purchase Euros for an aggregate notional amount of US$0.8 million maturing in various increments at various dates through January 2014, 11 contracts to purchase United States dollars (“USD”) for an aggregate notional amount of Canadian dollars (“CAD”) $1.6 million maturing in various increments at various dates through November 2013 and 32 contracts to purchase USD for an aggregate notional amount of pounds Sterling (“GBP”) £10.1 million maturing in various increments at various dates through December 2013.  For the three and six months ended August 3, 2013, we recognized net pre-tax gains of $0.5 million and $1.2 million, respectively, in cost of sales in the condensed consolidated statement of earnings for our derivative financial instruments not designated as cash flow hedges.

 

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

 

We had no derivative financial instruments with credit-risk-related contingent features underlying the agreements as of August 3, 2013, February 2, 2013 or July 28, 2012, respectively.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

12.  Segment Reporting

 

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 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 our revenues or expenses.  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 United Kingdom (“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 Three Months Ended

 

For the Six Months Ended

 

Net sales:

 

August 3, 2013

 

July 28, 2012

 

August 3, 2013

 

July 28, 2012

 

MW (1) 

 

$

426,597

 

$

429,513

 

$

828,432

 

$

800,981

 

Moores

 

74,544

 

78,361

 

128,315

 

133,839

 

K&G

 

84,860

 

89,995

 

182,200

 

193,087

 

MW Cleaners

 

7,439

 

6,819

 

14,674

 

13,473

 

Total retail segment

 

593,440

 

604,688

 

1,153,621

 

1,141,380

 

 

 

 

 

 

 

 

 

 

 

Twin Hill

 

9,977

 

6,218

 

17,936

 

13,283

 

Dimensions and Alexandra (UK)

 

43,838

 

51,396

 

92,234

 

94,213

 

Total corporate apparel segment

 

53,815

 

57,614

 

110,170

 

107,496

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

647,255

 

$

662,302

 

$

1,263,791

 

$

1,248,876

 

 


(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 us (in thousands):

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

Net sales:

 

August 3, 2013

 

July 28, 2012

 

August 3, 2013

 

July 28, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Men’s tailored clothing product

 

$

226,479

 

$

227,664

 

$

461,323

 

$

457,944

 

Men’s non-tailored clothing product

 

164,305

 

165,836

 

331,078

 

332,724

 

Ladies’ clothing product

 

17,899

 

19,524

 

40,019

 

42,825

 

Total retail clothing product

 

408,683

 

413,024

 

832,420

 

833,493

 

 

 

 

 

 

 

 

 

 

 

Tuxedo rental services

 

147,701

 

154,124

 

246,183

 

232,613

 

 

 

 

 

 

 

 

 

 

 

Alteration services

 

29,617

 

30,721

 

60,344

 

61,801

 

Retail dry cleaning services

 

7,439

 

6,819

 

14,674

 

13,473

 

Total alteration and other services

 

37,056

 

37,540

 

75,018

 

75,274

 

 

 

 

 

 

 

 

 

 

 

Corporate apparel clothing product

 

53,815

 

57,614

 

110,170

 

107,496

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

647,255

 

$

662,302

 

$

1,263,791

 

$

1,248,876

 

 

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

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

Operating income (loss):

 

August 3, 2013

 

July 28, 2012

 

August 3, 2013

 

July 28, 2012

 

Retail

 

$

65,088

 

$

89,399

 

$

116,558

 

$

132,766

 

Corporate apparel

 

1,700

 

2,191

 

2,783

 

(229

)

Operating income

 

66,788

 

91,590

 

119,341

 

132,537

 

Interest income

 

181

 

143

 

302

 

271

 

Interest expense

 

(540

)

(508

)

(884

)

(941

)

Earnings before income taxes

 

$

66,429

 

$

91,225

 

$

118,759

 

$

131,867

 

 

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.

 

14.  Subsequent Events

 

In July 2013, we signed a definitive agreement to acquire JA Holding, Inc. (“JA Holding”), the parent company of the American clothing brand, Joseph Abboud®, for approximately $97.5 million in cash consideration, subject to certain adjustments.  The transaction closed on August 6, 2013.

 

On August 6, 2013, we borrowed $100.0 million under the term loan provision of our Credit Agreement to fund the acquisition of JA Holding.  The rate on the term loan is based on the monthly LIBOR rate plus 1.75%.  In conjunction with the loan, we also entered into an interest rate swap for $100.0 million, in which the variable rate payments due under the term loan will be exchanged for a fixed rate of 1.27%, resulting in a combined interest rate of 3.02%.  The interest rate swap qualifies for hedge accounting treatment under authoritative guidance which will result in changes in the fair value of the swap being recorded as an adjustment to comprehensive income within equity.

 

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Table of Contents

 

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

General

 

For supplemental information, it is suggested that “Management’s Discussion and Analysis of Financial Condition and Results of Operations” be read in conjunction with the corresponding section included in our Annual Report on Form 10-K for the year ended 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.

 

We conduct our 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 our revenues or expenses.  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.  During the second quarter of fiscal 2013, based on estimates provided to us by market participants during our review of strategic alternatives for the K&G brand, we concluded that the carrying value of the K&G brand exceeded its fair value.  Based on further analysis, it was determined that the entire carrying value of K&G’s goodwill was impaired resulting in a non-cash goodwill impairment charge of $9.5 million.

 

In July 2013, we signed a definitive agreement to acquire JA Holding, Inc. (“JA Holding”), the parent company of the American clothing brand, Joseph Abboud®, for approximately $97.5 million in cash consideration, subject to certain adjustments.  The transaction closed on August 6, 2013.  We believe this transaction will accelerate our strategy of offering exclusive brands with broad appeal at attractive prices and will enhance shareholder value.

 

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Table of Contents

 

Overview

 

Highlights of our performance for the quarter ended August 3, 2013 compared to the quarter ended July 28, 2012 are presented below, followed by a more comprehensive discussion under “Results of Operations”:

 

·                  Revenues for the second quarter of 2013 decreased by $15.0 million or 2.3%, to $647.3 million compared to revenues of $662.3 million in the second quarter of 2012.

·                  Gross margin for the second quarter of 2013 decreased by $11.5 million or 3.6%, to $308.8 million compared to $320.3 million in the second quarter of 2012.  Gross margin as a percentage of total net sales for the second quarter of 2013 was 47.7% compared to 48.4% for the second quarter of 2012.

·                  During the second quarter of fiscal 2013, we recorded a non-cash goodwill impairment charge of $9.5 million.

·                  Selling, general and administrative (“SG&A”) expenses for the second quarter of 2013 increased 1.7%, to $232.5 million compared to SG&A expenses of $228.7 million in the second quarter of 2012 and increased 1.4% as a percentage of total net sales as compared to the second quarter of 2012.

·                  Net earnings attributable to common shareholders for the second quarter of 2013 decreased by $16.5 million or 27.7%, to $42.9 million compared to $59.4 million for the second quarter of 2012.

·                  Diluted earnings per common share attributable to common shareholders decreased 26.1% to $0.85 per share for the second quarter of 2013 compared to $1.15 per share for the second quarter of fiscal 2012.

 

Highlights of our performance for the six months ended August 3, 2013 compared to the six months ended July 28, 2012 are presented below, followed by a more comprehensive discussion under “Results of Operations”:

 

·                  Revenues for the first six months of 2013 increased by $14.9 million or 1.2%, to $1,263.8 million compared to revenues of $1,248.9 million in the first six months of 2013.

·                  Gross margin for the first six months of 2013 increased by $12.4 million or 2.2%, to $586.7 million compared to $574.3 million in the first six months of 2012.  Gross margin as a percentage of total net sales for the first six months of 2013 was 46.4% compared to 46.0% for the first six months of 2012.

·                  During the first six months of fiscal 2013, we recorded a non-cash goodwill impairment charge of $9.5 million.

·                  SG&A expenses for the first six months of 2013 increased 3.7%, to $457.9 million compared to SG&A expenses of $441.8 million in the first six months of 2012 and increased 0.8% as a percentage of total net sales as compared to the first six months of 2012.

·                  Net earnings attributable to common shareholders for the first six months of 2013 decreased by $10.2 million or 11.9%, to $76.0 million compared to $86.3 million for the first six months of 2012.

·                  Diluted earnings per common share attributable to common shareholders decreased 10.2% to $1.50 per share for the first six months of 2013 compared to $1.67 per share for the first six months of fiscal 2012.

·                  Net cash provided by our operating activities for the first six months of 2013 was $101.2 million compared to $108.4 million for the first six months of 2012.  We held cash and cash equivalent balances of $32.5 million at August 3, 2013, $156.1 million at February 2, 2013 and $106.4 million at July 28, 2012.

·                  During the first six months of 2013, we paid cash dividends of $18.4 million.

·                  During the first six months of 2013, we repurchased 3,692,214 shares of our common stock for $152.1 million.  These totals do not include additional shares that will be retired upon the completion of our accelerated share repurchase agreement (“ASR Agreement”).

 

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Table of Contents

 

Store data

 

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

 

 

 

For the Three Months
Ended

 

For the Six Months
Ended

 

For the Year
Ended