-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N5BkhtnaSiDPFyNuYwpji3ta5kG0ZSBPde5aEFASX8jX2BDOdSLshK0imc+GZxGu YSzMKVyzyG8MZBYeOH+X3Q== 0000950129-97-001807.txt : 19970502 0000950129-97-001807.hdr.sgml : 19970502 ACCESSION NUMBER: 0000950129-97-001807 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970201 FILED AS OF DATE: 19970501 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MENS WEARHOUSE INC CENTRAL INDEX KEY: 0000884217 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-APPAREL & ACCESSORY STORES [5600] IRS NUMBER: 741790172 STATE OF INCORPORATION: TX FISCAL YEAR END: 0202 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20036 FILM NUMBER: 97593791 BUSINESS ADDRESS: STREET 1: 5803 GLENMONT DR CITY: HOUSTON STATE: TX ZIP: 77081 BUSINESS PHONE: 7132957200 MAIL ADDRESS: STREET 1: 5083 GLENMONT DR CITY: HOUSTON STATE: TX ZIP: 77081 10-K 1 THE MEN'S WEARHOUSE, INC. - 02/01/97 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-20036 THE MEN'S WEARHOUSE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 74-1790172 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 5803 GLENMONT DRIVE 77081 HOUSTON, TEXAS (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(713) 295-7200 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ------------------------ NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $.01 Par Value 5 1/4% Convertible Subordinated Notes Due 2003 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the registrant's knowledge, in the Proxy Statement or information statements incorporated by reference in Part III of this Form 10-K or any amendment hereto. [ ] The aggregate market value of the outstanding Common Stock of the registrant held by non-affiliates of the registrant as of April 16, 1996, based on the closing sale price of the Common Stock on the Nasdaq National Market System on said date, was $318,872,684. There were 21,063,872 shares of Common Stock of the registrant outstanding as of April 16, 1996, not including 53,735 shares classified as Treasury Stock. DOCUMENTS INCORPORATED BY REFERENCE The information called for by Items 10, 11, 12 and 13 of Part III will be included in the registrant's definitive proxy statement to be filed pursuant to Regulation 14A and is incorporated herein by reference. ================================================================================ 2 PART I ITEM 1. BUSINESS. The Men's Wearhouse commenced operations in 1973 as a partnership and was incorporated as The Men's Wearhouse, Inc. under the laws of Texas in May 1974. Its principal executive offices are located at 5803 Glenmont Drive, Houston, Texas 77081 (telephone number 713/295-7200), and at 40650 Encyclopedia Circle, Fremont, California 94538 (telephone number 510/657-9821). The Company is one of the country's largest off-price specialty retailers of men's tailored business attire. The Company opened its first store in Houston, Texas in 1973 and, as of February 1, 1997, operated 345 stores in 33 states, with approximately 42% of its locations in Texas and California. During fiscal 1996, the Company opened 50 new stores, entered 10 new markets and on January 17, 1997, through VPC, acquired 17 additional stores operating under the name "C&R Clothiers", as described more fully under "Recent Developments". As used herein, the term "The Men's Wearhouse" refers to The Men's Wearhouse, Inc. and its wholly-owned subsidiaries, exclusive of Value Priced Clothing, Inc. ("VPC"), and the term the "Company" refers to The Men's Wearhouse, Inc. and its wholly-owned subsidiaries including VPC. Additionally, the terminology a "Men's Wearhouse store" refers to the Company's traditional stores while a "C&R store" refers to the 17 stores operating under VPC. The Men's Wearhouse continues to target middle and upper middle income men with a strategy of providing value to its customers by offering quality merchandise at consistent, everyday low prices with a superior level of customer service. With the late 1996 acquisition of the C&R stores, the Company has broadened its potential market as VPC targets a more price sensitive customer. The price of suits generally range from $199 to $499 at the traditional Men's Wearhouse stores. VPC generally prices suits from $99 to $199. The Company believes that a large portion of the men's tailored clothing market is motivated by low prices rather than superior service. The Men's Wearhouse stores offer a broad selection of designer, brand name and private label merchandise at prices it believes are typically 20% to 30% below the regular retail prices of traditional department and specialty store prices. VPC offers a selection of brand names and private label merchandise the Company believes are typically 30% to 50% below the regular retail prices of traditional department and specialty store prices. The Company considers its merchandise, which includes suits, sport coats, slacks, outerwear, dress shirts, shoes and accessories, conservative. By concentrating on tailored business attire, a category of men's clothing characterized by infrequent and more predictable fashion changes, the Company believes it is not as exposed to trends typical of more fashion-forward apparel retailers, where markdowns and promotional pricing are more prevalent. The Company's expansion strategy includes opening additional stores in existing markets, opening stores in new markets and increasing its net sales and profitability in its existing markets. In general terms, a market is defined as a geographic area served by a common group of television stations. The Company anticipates that the addition of new stores will be the primary source of its future growth. On a limited basis, the Company has acquired store locations, inventories, customer lists, trademarks and tradenames from existing local menswear retailers in both new and existing markets, and may do so in the future. At present, the Company plans to open approximately 50 new stores during 1997, approximately one-half of which will be in new markets, and to continue its expansion in subsequent years. As a result of the continuing consolidation of the men's tailored clothing industry, the Company has been and expects to continue to be presented with more significant opportunities within its industry. Such opportunities may include, but are not limited to, increased direct sourcing of merchandise, including possible ventures with apparel manufacturers, acquisitions of menswear retailers and the acquisition or licensing of designer or nationally recognized brand labels. Recent financial difficulties of significant menswear retailers 2 3 may present the Company with opportunities to acquire retail chains significantly larger than the Company's past acquisitions. Any such acquisitions may be undertaken as an alternative to opening new stores. RECENT DEVELOPMENTS In November 1996, VPC was organized as a wholly-owned subsidiary of the Company for the purpose of acquiring assets of C&R Clothiers, Inc. ("C&R"), a privately-held retailer of men's tailored clothing stores operating in Southern California. On January 17, 1997, VPC acquired 17 C&R stores in Southern California and C&R's existing inventory and entered into a lease for C&R's distribution center in Culver City, California. The C&R acquisition served to launch a new division selling men's apparel, targeting the more price sensitive clothing customer. During March 1997, the Company, through its wholly-owned subsidiary Value Priced Liquidators, Inc., formed a joint venture with Buxbaum, Ginsberg & Associates and entered into an asset purchase and license agreement to acquire and liquidate certain of the assets of Kuppenheimer's Men's Clothiers, a chain of 42 men's clothing stores. The joint venture is acting as agent with respect to Kuppenheimer's going-out-of-business sale under such agreement. Under the agreement, the Company acquired the rights to the trade name, customer lists, labels, and other proprietary data as well as certain property and equipment which has been or will be sold for cash or used in its continuing operations. Although the Company had an option to assume any and all leases related to the 42 Kuppenheimer stores, on April 18, 1997 it elected not to take all but two of such leases. MERCHANDISING The Men's Wearhouse offers a broad selection of designer, brand name and private label men's business attire, including a consistent stock of basic items (such as navy blazers, tuxedos and navy and gray suits) and considers its merchandise conservative. Although basic styles are emphasized, each season's merchandise does reflect current fabric and color trends, and a small percentage of inventory, accessories in particular, is usually more fashion oriented. The Company's broad merchandise selection creates increased sales opportunities by permitting a customer to purchase substantially all of his tailored wardrobe and accessory requirements, including shoes, at a Men's Wearhouse store. Within its tailored clothing, The Men's Wearhouse offers an assortment of styles from a variety of manufacturers and maintains a broad selection of fabrics and colors. The Company believes that the depth of selection it offers at The Men's Wearhouse provides it with an advantage over most of its competitors. In 1995, The Men's Wearhouse expanded its inventory mix to include "business casual" merchandise designed to meet increased demand for such product resulting from the trend toward more relaxed dress codes in the workplace. The added merchandise consists of tailored and nontailored clothing which complements the existing product mix and provides opportunity for enhanced sales without significant inventory risk. The expanded inventory includes, among other things, more sports coats, casual slacks, knits and woven sports shirts, sweaters and casual shoes. The Men's Wearhouse believes it differs from most other off-price retailers in that it does not purchase significant quantities of merchandise overruns or close-outs. The Company provides recognizable quality merchandise at consistent prices that assist the customer in identifying the value available at The Men's Wearhouse. The Men's Wearhouse believes its merchandise is generally offered 20% to 30% below traditional department and specialty store prices. The The Men's Wearhouse affixes a ticket to each item, which displays The Men's Wearhouse selling price alongside the price the Company regards as the regular retail price of the item. At the check-out counter, the customer's receipt reflects the savings from what the Company considers the regular retail price. By targeting men's tailored business attire, a category of men's clothing characterized by infrequent and more predictable fashion changes, the Company believes it is not as exposed to trends typical of more fashion-forward apparel retailers. This allows the Company to carry basic merchandise over to the following season and reduces the need for markdowns; for example, a navy blazer or gray business suit may be carried over to the next season. The Men's Wearhouse has a once-a-year sale after Christmas that has typically lasted until 3 4 the fourth week in January, during which prices on many items are reduced 20% to 50% off the everyday low prices. This sale reduces stock at year-end and prepares for the arrival of the new season's merchandise. Management believes the Company's three outlet stores assist in the reduction of merchandise the Company desires to move out of The Men's Wearhouse stores to make room for new merchandise without using promotional methods in its traditional stores. The Company may also, on a limited basis, use the VPC stores to assist in the reduction of merchandise it desires to move out of The Men's Wearhouse stores. During 1994, 1995 and 1996, 77%, 74% and 72%, respectively, of the Company's net sales were attributable to tailored clothing (suits, sport coats and slacks), and 23%, 26% and 28%, respectively, were attributable to accessories and other items. Customers may pay for merchandise with cash, check or nationally recognized credit cards. Credit card sales were 65% of net sales in 1994, 67% in 1995 and 68% in 1996. CUSTOMER SERVICE AND MARKETING The Men's Wearhouse sales personnel are trained as clothing consultants to provide customers with assistance and advice on their apparel needs, including product style, color coordination, fabric and garment fit. Clothing consultants attend an intensive training program at the Company's training facility in Fremont, California, which is further supplemented with weekly store meetings, periodic merchandise meetings, and frequent interaction with multi-unit managers and merchandise managers. The Company encourages its clothing consultants to be friendly and knowledgeable and to promptly greet each customer entering the store. The consultants are encouraged to offer guidance to the customer at each stage of the decision-making process, making every effort to earn the customer's confidence and to create a professional relationship that will continue beyond the initial visit. Clothing consultants are also encouraged to contact customers after the purchase or pick-up of tailored clothing to determine whether customers are satisfied with their purchases and, if necessary, to take corrective action. Store personnel have full authority to respond to customer complaints and reasonable requests, including the approval of returns, exchanges, refunds, re-alterations and other special requests, all of which the Company believes helps promote customer satisfaction and loyalty. Each of The Men's Wearhouse stores provides on-site tailoring services to facilitate timely alterations at a reasonable cost to customers. Tailored clothing purchased at a Men's Wearhouse store will be pressed and re-altered (if the alterations were performed at a Men's Wearhouse store) free of charge for the life of the garment. Because management believes that men prefer direct and easy store access, the Company attempts to locate its stores in neighborhood strip and specialty retail centers or in free standing buildings to enable customers to park near the entrance of the store. The Company's annual advertising expenditures, which were $23.2 million, $27.4 million and $31.0 million in 1994, 1995 and 1996, respectively, are significant. However, the Company believes that once it attracts prospective customers, the experience of shopping in its stores will be the primary factor encouraging subsequent visits. The Company advertises principally on television and radio, which it considers the most effective means of attracting and reaching potential customers, and its advertising campaign is designed to reinforce its image of providing value and customer service. "I guarantee it" is a long standing phrase associated with The Men's Wearhouse and its advertising campaign. In the advertisements, the Company's Chief Executive Officer and co-founder guarantees customer satisfaction with the apparel purchased, the quality of tailoring and the total shopping experience. PURCHASING AND DISTRIBUTION The Company purchases merchandise from approximately 180 vendors. In 1996, no vendor accounted for 10% or more of purchases. Management does not believe that the loss of any vendor would significantly impact the Company. The buying staff is led by the Chief Operating Officer of the Company. While the Company has 4 5 no material long-term contracts with its vendors, the Company believes that it has developed an excellent relationship with its vendors, which is supported by consistent purchasing practices. The Company believes it obtains favorable buying opportunities relative to many of its competitors. The Company does not request cooperative advertising support from manufacturers, which reduces the manufacturers' costs of doing business and enables them to offer lower prices to the Company. Further, the Company believes it obtains better discounts by entering into purchase arrangements that provide for limited return policies, although the Company always retains the right to return goods that are damaged upon receipt or determined to be improperly manufactured. Finally, volume purchasing of specifically planned quantities enables more efficient production runs by manufacturers, who, in turn, are provided the opportunity to pass some of the cost savings back to the Company. During 1993, the Company expanded its inventory sourcing capabilities by implementing a direct sourcing program. Under this program, the Company purchases fabric from mills and contracts with certain factories for the assembly of the end product (suits, sport coats or slacks). Such arrangements for fabric and assembly have been with both domestic and foreign mills and factories. Previous purchases from such mills and factories had been through other suppliers. Product acquired during 1994, 1995 and 1996 through the direct sourcing program represented approximately 10%, 20% and 28%, respectively, of total inventory purchases, and the Company expects that purchases through such program will represent between approximately 25% to 30% of total purchases in 1997. To protect against currency exchange risks associated with certain firmly committed and certain other probable, but not firmly committed inventory transactions denominated in a foreign currency, the Company enters into forward exchange contracts. In addition, many of the purchases from foreign vendors are financed by letters of credit. In 1995, the Company entered into license agreements with a limited number of parties under which the Company is entitled to use designer labels, such as "Pierre Balmain" and "Vito Rufolo", and nationally recognized brand labels such as "Botany" and "Botany 500", in return for royalties paid to the licensor based on the costs of the relevant product. These license agreements generally limit the use of the individual label to products of a specific nature (such as men's suits, men's formal wear or men's shirts). The labels licensed under these agreements will continue to be used in connection with a portion of the purchases under the direct sourcing program described above, as well as purchases from other vendors. During 1996, the Company purchased several trademarks from Hugo Boss. These marks include "Cricketeer," "Joseph & Feiss International," "Baracuda," and "Country Britches," among others, and will be used similarly to the Company's licensed labels. The Company monitors the performance of these licensed labels compared to their cost and may elect to selectively terminate any license. Because of the continued consolidation in the men's tailored clothing industry, the Company may be presented with opportunities to acquire or license other designer or nationally recognized brand labels. All merchandise is received into the Company's central warehouse located in Houston, Texas, except for merchandise intended for the C&R stores which is principally received at VPC's Culver City, California distribution center. Once received, merchandise is arranged by size. The computer generates bar-coded garment tags and labels and recommends distribution of the merchandise on the basis of each store's past performance with similar merchandise and existing inventory levels. This distribution is reviewed by a member of the merchandise staff and any necessary changes are made. Merchandise for a store is picked and then moved to the appropriate staging area for shipping. In addition to the central warehouse in Houston, the Company leases additional space within Men's Wearhouse stores in the majority of its markets, which operate as redistribution facilities for their respective areas. The Company's executive offices in Fremont, California also serve as a redistribution facility for the San Francisco Bay area. The Company leases and operates 19 long-haul tractors and 30 trailers, which, together with common carriers, ship merchandise from the vendors to the Company's distribution facilities and from the distribution facilities to centrally located stores within each market. The Company also leases 46 smaller van-like trucks, which are used to ship merchandise locally or within a given geographic region. 5 6 MANAGEMENT INFORMATION AND TELECOMMUNICATION SYSTEMS The Company has aggressively pursued the implementation of technology which provides the opportunity for competitive advantage, and which leverages human resources. By implementing a sophisticated management information system, and by integrating it with a highly functional telecommunication system, the Company has effectively managed the operation of its business and its inventory while experiencing substantial growth. The Company's inventory control systems, including purchase order management, automatic replenishment of basic items, and real-time point of sale, have contributed to enhanced performance and profitability and to achieving inventory shrinkage rates that are consistently below industry averages. Electronic Data Interchange (EDI) with several suppliers and use of data warehousing and decision support technologies have substantially leveraged the efforts of the merchandising team, allowing them to reallocate time from simple and repetitive tasks to those requiring more analytical skills. The Company has developed and is now using an "expert" system to assist in the distribution of incoming merchandise. This system uses rules for distribution decisions which reflect the decision making process of the senior product managers. In addition, in 1996 the Company negotiated a comprehensive telecommunications arrangement with a major telecommunications vendor that allowed the Company to transition its data network to a more modern, flexible, and reliable frame relay environment, while simultaneously reducing operating costs. The Company's voice mail system has not only enhanced internal communication capabilities, it has also provided an actively used channel for improving customer service and it has contributed to the Company's advertising efforts, giving the Company access to unsolicited customer testimonials. The Company employs technology in several other areas of its operations and intends to continue its pursuit of technologies which favorably impact performance and/or the delivery of customer service. COMPETITION The Company believes that the unit demand for men's tailored clothing has declined. The Company's primary competitors include specialty men's clothing stores, traditional department stores, off-price retailers and manufacturer-owned and independently-owned outlet stores. Over the past several years market conditions have resulted in consolidation of the industry. Management believes that the principal competitive factors in the men's tailored clothing market are merchandise assortment, quality, price, garment fit, merchandise presentation, store location and customer service. The Company attempts to distinguish itself from its competitors by providing what it believes are the best features of each competing shopping alternative. Management believes that strong vendor relationships, its direct sourcing program and the buying power of the Company are the principal factors enabling it to obtain quality merchandise at attractive prices. The Company believes that its vendors rely on the Company's predictable payment record and on the Company's history of honoring all promises, including the Company's promise not to advertise names of labeled and unlabeled designer merchandise, when requested. Certain of the Company's competitors (principally department stores) are larger and have substantially greater financial, marketing and other resources than the Company and there can be no assurance that the Company will be able to compete successfully with them in the future. SEASONALITY Like most retailers, the Company's business is subject to seasonal fluctuations. Historically, over 30% of the Company's net sales and approximately 50% of its net earnings have been generated during the fourth quarter of each year. Because of the seasonality of the Company's business, results for any quarter are not necessarily indicative of the results that may be achieved for the full year. See Note 8 of Notes to Consolidated Financial Statements. 6 7 TRADEMARKS AND SERVICE MARKS The Company is the owner in the United States of the trademark and service mark The Men's Wearhouse(R), and of federal registrations therefor expiring in 2009 and 2002, respectively, subject to renewal. The Company has also been granted registrations for that trademark and service mark in 28 states (including Texas and California) of the 33 states in which it does business and has used those marks. Applications for the most recent states entered are in process. The Company's rights in the "The Men's Wearhouse" mark are a significant part of the Company's business, as the mark has become well known through the Company's television and radio advertising campaigns. Accordingly, the Company intends to maintain its mark and the related registrations. The Company is also the owner in the United States of the servicemarks "C&R" and "C&R Clothiers" and the owner in the State of California of the servicemark "C&R Clothiers". Federal applications for the registration of the servicemarks have been filed by the Company. The State of California has issued a registration for the servicemark "C&R Clothiers". Such marks are used to identify the retail store services of and is the tradename utilized by the retail clothing stores operated by VPC. In addition to The Men's Wearhouse and C&R Clothiers trademarks/service marks, the Company owns or licenses other trademarks/service marks used in the business, principally in connection with the labeling of product purchased through the direct sourcing program. EMPLOYEES At February 1, 1997, the Company had approximately 4,900 employees, of whom approximately 4,200 were full-time employees and approximately 700 were part-time employees. Seasonality affects the number of part-time employees as well as the number of hours worked by full-time and part-time personnel. The Company has no collective bargaining agreements. 7 8 ITEM 2. PROPERTIES. As of February 1, 1997, the Company operated 345 stores in 33 states. The following table sets forth the location, by state, of these Company stores, 17 of which operate as C&R stores in California: California.................................................. 101 Texas (including two outlet stores)......................... 45 Florida..................................................... 21 Michigan.................................................... 18 Illinois.................................................... 16 Ohio........................................................ 12 Washington.................................................. 12 Georgia (including one outlet store)........................ 11 Colorado.................................................... 9 North Carolina.............................................. 9 Massachusetts............................................... 7 Minnesota................................................... 7 Indiana..................................................... 6 Maryland.................................................... 6 Missouri.................................................... 6 Pennsylvania................................................ 6 Tennessee................................................... 6 Arizona..................................................... 5 Oregon...................................................... 5 Wisconsin................................................... 5 South Carolina.............................................. 4 Utah........................................................ 4 Virginia.................................................... 4 Louisiana................................................... 3 Nevada...................................................... 3 Oklahoma.................................................... 3 Alabama..................................................... 2 Connecticut................................................. 2 Kansas...................................................... 2 New Hampshire............................................... 2 Idaho....................................................... 1 Kentucky.................................................... 1 New Mexico.................................................. 1
The Men's Wearhouse stores vary in size from approximately 2,800 to 9,600 total square feet (average square footage at February 1, 1997 was 4,683 square feet), excluding the three outlet stores. The C&R stores vary in size from approximately 5,000 to 9,508 total square feet (average square footage at February 1, 1997 was 6,632 square feet). The Men's Wearhouse stores are primarily located in middle and upper middle income neighborhood strip and specialty retail shopping centers. The Company believes its customers generally prefer to limit the amount of time they spend shopping for men's tailored clothing and seek easily accessible store sites. The Men's Wearhouse stores are designed to further the Company's strategy of facilitating sales while making the shopping experience pleasurable. Each store is staffed with clothing consultants and sales associates and has a tailoring facility with at least one tailor. The Men's Wearhouse attempts to create a specialty store atmosphere through effective merchandise presentation and sizing, attractive in-store signs and efficient check-out procedures. Most of the stores have similar floor plans and merchandise presentation to facilitate the shopping experience and sales process. 8 9 Designer, brand name and private label garments are intermixed, and emphasis is placed on the fit of the garment rather than on a particular label or manufacturer. The Company owns its Houston, Texas outlet store, which comprises approximately 12,000 square feet. The Company also owns the building that houses one of its stores in Dallas, Texas, and leases the underlying land from certain principal shareholders of the Company. The Company leases all of its other stores on terms generally from five to ten years with renewal options at higher fixed rates in most cases. Leases typically provide for percentage rent over sales break points. Additionally, most leases provide for a base rent as well as "triple net charges", including but not limited to common area and maintenance expenses, property taxes, utilities, center promotions and insurance. In certain markets, the Company leases between 1,000 and 3,000 additional square feet in a Men's Wearhouse store to be utilized as a redistribution facility in a geographic area. The Company purchased land and constructed a store thereon in 1995. During 1996, the Company sold and leased back this property on terms similar to those discussed in the preceding paragraph. There was no gain or loss resulting from this transaction. The Company may, on a limited basis, enter into similar transactions in the future. In July 1995, the Company moved its executive offices in Fremont, California to a new 35,500 square foot facility owned by the Company, which serves as an office, training and redistribution facility. The Company owns its principal office, warehouse and distribution facility which is situated on approximately seven acres of land in Houston, Texas. In late 1994, a 120,000 square foot expansion (a three story building on a 50,000 square foot foundation) of this facility was completed, increasing the facility to an aggregate of 240,000 square feet. Approximately 40,000 square feet of this facility is used as office space for the Company's accounting, treasury, management information systems and merchandising departments with the remaining 200,000 square feet serving as a warehouse and distribution center. The Company also leases a building, situated on one acre in Houston, Texas and used as a supply depot, from certain principal shareholders of the Company. The lease term on this facility runs until August 31, 2005, and is on terms that the Company believes are no less favorable than could be obtained from an independent third party. During 1996 the Company purchased a six acre corner lot across the street from its Houston distribution center and plans to use this for future warehouse and distribution facility expansion. The Company is currently evaluating the nature and timing of such expansion. Additionally, the Company purchased land and began construction of two stores in Seattle, Washington and Memphis, Tennessee to be opened in fiscal 1997. The Company will seek to enter into sale-and-leaseback transactions with respect to these two stores. ITEM 3. LEGAL PROCEEDINGS. The Company is involved in various routine legal proceedings, including ongoing litigation, incidental to the conduct of its business. Management believes that none of these matters will have a material adverse effect on the financial condition or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year ended February 1, 1997. 9 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Common Stock is quoted on the Nasdaq National Market under the symbol "SUIT". The following table sets forth, on a per share basis for the periods indicated, the high and low sale prices for the Common Stock as reported by NASDAQ. The prices set forth below for periods prior to November 16, 1995 have been adjusted to give retroactive effect to the 50% stock dividend paid on that date.
HIGH LOW ------ ------ FISCAL YEAR ENDED FEBRUARY 3, 1996 First Quarter............................................. $17.09 $12.83 Second Quarter............................................ 23.83 15.50 Third Quarter............................................. 28.83 19.17 Fourth Quarter............................................ 30.25 20.75 FISCAL YEAR ENDED FEBRUARY 1, 1997 First Quarter............................................. $38.50 $25.50 Second Quarter............................................ 37.00 17.00 Third Quarter............................................. 27.00 18.25 Fourth Quarter............................................ 28.50 16.25
On April 16, 1997, there were approximately 280 record holders and approximately 3,700 beneficial holders of Common Stock. The Company has not paid any dividends on its Common Stock and for the foreseeable future intends to retain all its earnings for the future operation and expansion of its business. The Company's Credit Agreement prohibits the payment of cash dividends on the Common Stock. See Note 3 of Notes to Consolidated Financial Statements. 10 11 ITEM 6. SELECTED FINANCIAL DATA. The following selected statement of earnings and balance sheet information for the fiscal years indicated has been derived from the Company's audited consolidated financial statements. The Company's consolidated financial statements as of February 3, 1996 and February 1, 1997 and for each of the three years in the period ended February 1, 1997 were audited by Deloitte & Touche LLP , independent auditors, whose report thereon appears elsewhere herein. The information set forth below should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto of the Company included elsewhere herein. References herein to years are to the Company's 52- or 53-week fiscal year, which ends on the Saturday nearest January 31 in the following calendar year. For example, references to "1996" mean the fiscal year ended February 1, 1997. All fiscal years for which financial information is included herein had 52 weeks, except for 1995 which had 53 weeks.
YEAR ---------------------------------------------------- 1992 1993 1994 1995 1996 -------- -------- -------- -------- -------- (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AND PER SQUARE FOOT DATA) STATEMENT OF EARNINGS INFORMATION: Net sales................................... $169,977 $240,394 $317,127 $406,343 $483,547 Gross margin................................ 63,976 91,766 121,878 157,615 188,366 Operating income............................ 10,803 15,818 22,375 30,606 38,134 Net earnings................................ 5,870 8,739 12,108 16,508 21,143 Net earnings per share of common stock(1)... $ 0.35 $ 0.48 $ 0.63 $ 0.82 $ 1.00 Weighted average shares outstanding(1)(2)... 16,532 18,138 19,163 20,226 21,193 OPERATING INFORMATION: Percentage increase in comparable store sales(3)................................. 6.2% 17.2% 8.4% 6.8% 3.9% Average square footage -- all stores(4)..... 4,287 4,374 4,426 4,583 4,780 Average sales per square foot of selling space(5)................................. $ 381 $ 409 $ 419 $ 425 $ 420 Number of stores: Open at beginning of the period.......... 113 143 183 231 278 Opened during the period................. 31 40 48 48 50 C&R acquired during the period........... -- -- -- -- 17 Closed during the period................. 1 -- -- 1 -- -------- -------- -------- -------- -------- Open at end of the period................ 143 183 231 278 345 Capital expenditures(6)..................... $ 9,345 $ 11,461 $ 23,736 $ 22,538 $ 26,222
JAN. 30, JAN. 29, JAN. 28, FEB. 3, FEB. 1, 1993 1994 1995 1996 1997 -------- -------- -------- -------- -------- BALANCE SHEET INFORMATION: Working capital............................. $ 28,289 $ 42,689 $ 68,078 $ 88,798 $136,837 Total assets................................ 78,745 112,176 160,494 204,105 295,478 Long-term debt and capital leases(7)........ 8,909 10,790 24,575 4,250 57,500 Shareholders' equity........................ 38,448 57,867 84,944 136,961 159,129
- --------------- (1) Adjusted to give effect to a 2.5541-for-one stock split effected on March 23, 1992, a 50% stock dividend effected on August 6, 1993, and a 50% stock dividend effected on November 15, 1995. (2) Includes common shares and common share equivalents, in thousands. (3) Comparable store sales data is calculated by excluding the net sales of a store for any month of one period if the store was not open throughout the same month of the prior period. (4) Average square footage -- all stores is calculated by dividing the total square footage for all stores (excluding the Company's outlet stores) open at the end of the period by the number of stores open at the end of such period. Excluding the 17 C&R stores acquired on January 17, 1997, the average square footage per store at the end of 1996 was 4,683. (5) Average sales per square foot of selling space is calculated by dividing total selling square footage for all stores (excluding the Company's outlet stores) open the entire year into total sales for those stores. Selling square footage does not include space for tailoring operations and storage. (6) Excludes additions to capital lease property. (7) February 1, 1997 balance represents the 5 1/4% Convertible Subordinated Notes Due 2003 (see Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources). 11 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL The Men's Wearhouse opened its first store in Houston, Texas in August 1973, growing to 25 stores by the end of 1985 and 345 stores by February 1, 1997. The Company's most significant growth has occurred since 1991. This growth has resulted in significant increases in net sales and has also contributed to increased net earnings for the Company. On average, new Men's Wearhouse stores contribute toward covering corporate overhead and other indirect costs within three months of opening, depending primarily upon the month within which the store is opened. See "Item 1. Business -- Seasonality". In determining store contribution, the Company considers net sales, cost of sales and other direct store costs, but excludes buying costs, corporate overhead, depreciation and amortization, financing costs and advertising. Expansion is generally continued within a market as long as management believes it will provide profitable incremental sales volume. The Company presently intends to continue its expansion in existing and new markets and plans to open approximately 50 new stores in 1997. The Company anticipates that approximately one-half of these new stores will be in new markets. The average cost (excluding telecommunications and point-of-sale equipment and inventory) of opening a new store was approximately $250,000 in 1996 and is expected to be between approximately $240,000 and $250,000 in 1997. Prior to 1996, the average cost (excluding telecommunications and point-of-sale equipment and inventory) of opening a new store was approximately $235,000. The increase in 1996 resulted primarily from an increase in the average square footage per new store. In addition to increases in net sales resulting from new stores, the Company has experienced comparable store sales increases in each of the past five years, including a 3.9% increase for 1996. The Company closed only two stores in the five years ended February 1, 1997. One store was closed in 1992 at the end of its lease term due to declining sales and deteriorating neighborhood conditions. In March 1995, the Company closed another store due to substandard performance and the opening of a store at a more attractive alternative location. In general, in determining whether to close a store, the Company considers such store's historical and projected performance and the continued desirability of the store's location. Store performance is continually monitored and, from time to time, as neighborhoods and shopping areas change, management may determine that it is in the best interest of the Company to close or relocate a store. In March 1997, the Company closed one store in Houston, Texas due to its proximity to a new Men's Wearhouse store opened in this market. The following table sets forth the Company's results of operations expressed as a percentage of net sales for the periods indicated:
YEAR ----------------------- 1994 1995 1996 ----- ----- ----- Net sales................................................... 100.0% 100.0% 100.0% Cost of goods sold, including buying and occupancy costs.... 61.6 61.2 61.0 ----- ----- ----- Gross margin................................................ 38.4 38.8 39.0 Selling, general and administrative expenses................ 31.4 31.3 31.1 ----- ----- ----- Operating income............................................ 7.0 7.5 7.9 Interest expense............................................ .5 .6 .4 ----- ----- ----- Earnings before income taxes................................ 6.5 6.9 7.5 Income taxes................................................ 2.7 2.8 3.1 ----- ----- ----- Net earnings................................................ 3.8% 4.1% 4.4% ===== ===== =====
12 13 RESULTS OF OPERATIONS 1996 Compared to 1995 The following table presents a breakdown of 1995 and 1996 net sales of the Company by stores open in each of these periods:
NET SALES ---------------------------- STORES 1995 1996 INCREASE ------ ------ ------ -------- (IN MILLIONS) 50 stores opened in 1996*................................ $ -- $ 36.8 $ 36.8 48 stores opened in 1995................................. 30.8 65.9 35.1 Stores opened before 1995................................ 375.5 380.8 5.3 ------ ------ ------ Total.......................................... $406.3 $483.5 $ 77.2 ====== ====== ======
- --------------- * Sales include $900,000 attributed to the 17 C&R stores acquired on January 17, 1997, with the remaining $35.9 million being attributable to the 50 The Men's Wearhouse stores opened in 1996. Net sales in 1996 increased $77.2 million, or 19.0%, compared to 1995 primarily due to the increased number of stores and increased sales at existing stores. Comparable store sales (which are calculated by excluding the net sales of a store for any month of one period if the store was not open throughout the same month of the prior period) increased 3.9% from 1995. The comparable store sales increase for 1996 does not include sales from the C&R stores. Since the C&R stores were not acquired until January 17, 1997, these stores will not be included in the comparable store sales comparison until February 1998. Gross margin increased by $30.8 million in 1996, and increased as a percentage of sales from 38.8% in 1995 to 39.0% in 1996. The improvement in gross margin as a percentage of sales resulted from a decrease in product costs and alteration costs as a percentage of sales, partially offset by an increase in occupancy costs as a percentage of sales, principally due to an increase in the average square footage per store. Selling, general and administrative expenses increased by $23.2 million between 1995 and 1996. All the principal components of selling, general and administrative expenses increased primarily due to the Company's growth. As a percentage of net sales, selling, general and administrative expenses decreased from 31.3% to 31.1%. Advertising expense decreased from 6.7% to 6.4% of net sales and store salaries decreased from 13.0% to 12.4% of net sales, while other selling, general and administrative expenses increased from 11.5% to 12.3% of net sales. Interest expense, net of interest income, decreased from $2.5 million in 1995 to $2.1 million in 1996. Weighted average borrowings outstanding increased from $31.6 million in 1995 to $54.6 million in 1996, while the weighted average interest rates on outstanding indebtedness decreased from 8.3% to 6.2%. The effective interest rate includes commitment fees paid pursuant to the Credit Agreement (see Liquidity and Capital Resources) under which indebtedness was outstanding for only a portion of the first quarter of 1996. Interest expense associated with the 5 1/4% Convertible Subordinated Notes (the "Notes") was offset by interest income of $1.2 million resulting from the investment of excess cash from the sale of Notes in short-term securities in 1996 (see Liquidity and Capital Resources). The Company's 1996 effective tax rate of 41.3% was relatively unchanged from the 41.2% effective rate for 1995. This, combined with the factors discussed above, resulted in 1996 net earnings of $21.1 million, or 4.4% of net sales, as compared to 1995 net earnings of $16.5 million, or 4.1% of net sales. 13 14 1995 Compared to 1994 The following table presents a breakdown of 1995 and 1994 net sales of the Company by stores open in each of these periods.
NET SALES ---------------------------- STORES 1994 1995 INCREASE ------ ------ ------ -------- (IN MILLIONS) 48 stores opened in 1995................................. $ -- $ 30.8 $30.8 48 stores opened in 1994................................. 28.6 64.8 36.2 Stores opened before 1994................................ 288.5 310.7 22.2 ------ ------ ----- Total.......................................... $317.1 $406.3 $89.2 ====== ====== =====
Net sales in 1995 increased $89.2 million, or 28.1%, compared to 1994 primarily due to the increased number of stores and increased sales at existing stores. Sales also increased as a result of the additional week in 1995, a 53-week year. Comparable store sales (which are calculated by excluding the net sales of a store for any month of one period if the store was not open throughout the same month of the prior period) increased 6.8% from 1994. Comparable store sales increases were experienced in all major markets. Gross margin increased by $35.7 million in 1995, and increased as a percentage of sales from 38.4% in 1994 to 38.8% in 1995. The improvement in gross margin as a percentage of sales resulted from a decrease in product costs and alteration costs as a percentage of sales, partially offset by an increase in occupancy costs as a percentage of sales. Selling, general and administrative expenses increased by $27.5 million between 1994 and 1995. All the principal components of selling, general and administrative expenses increased primarily due to the Company's growth. As a percentage of net sales, selling, general and administrative expenses decreased from 31.4% to 31.3%. Advertising expense decreased from 7.3% to 6.7% of net sales and store salaries increased from 12.4% to 13.0% of net sales, while other selling, general and administrative expenses decreased from 11.7% to 11.5% of net sales. The decrease in other selling, general and administrative expenses as a percent of net sales resulted from sales growth exceeding the increase in other selling, general and administrative costs as such costs are not a direct function of sales. Interest expense of $2.5 million in 1995 was relatively unchanged, as a percent of net sales, from expense of $1.8 million in 1994. Weighted average borrowings outstanding, including obligations under capital leases, increased 32.3% and weighted average interest rates applicable to those borrowings increased from 7.4% to 8.3%. Weighted average borrowings increased as a result of the continuation of the Company's expansion program despite the application of net proceeds of $34.7 million from the Company's public offering in August 1995 to repay indebtedness. Weighted average interest rates increased as a result of the increase in variable rates applicable to the Company's bank debt. The Company's 1995 effective tax rate of 41.2% was relatively unchanged from the 41.3% effective rate for 1994. This, combined with the factors discussed above, resulted in 1995 net earnings of $16.5 million, or 4.1% of net sales, as compared to 1994 net earnings of $12.1 million, or 3.8% of net sales. LIQUIDITY AND CAPITAL RESOURCES In April 1992, the Company completed an initial public offering of 3,375,000 shares of Common Stock at $5.78 per share, of which 2,531,250 shares were sold by the Company for net proceeds of $12.7 million. In April 1993, May 1994 and August 1995 the Company issued an aggregate of 3,958,125 shares of Common Stock for net proceeds of $59.6 million. The Company used the proceeds from such offerings to reduce indebtedness under its revolving credit facilities. In March 1996, the Company issued $57.5 million of 5 1/4% Convertible Subordinated Notes due 2003. The Notes are convertible into Common Stock at a conversion price of $34.125 per share. A portion of the net proceeds from the Notes was used to repay outstanding indebtedness under the Credit Agreement and the 14 15 balance has been invested in new stores, the acquisition of C&R, licenses, trademarks, short-term interest bearing securities or otherwise used to minimize borrowings under the Credit Agreement. Interest on the Notes is payable semi-annually on March 1 and September 1 of each year. In March 1995, the Company entered into a second amended and restated Credit Agreement with its bank group that became effective on June 30, 1995. The Credit Agreement provides for borrowings under two separate revolving facilities of up to $100 million through June 30, 1998 and may be extended for a maximum of two years subject to approval of all of the banks. The first facility allows the Company to borrow up to $75 million and the second facility, which can be activated and deactivated at the discretion of the Company, allows the Company to borrow up to $25 million. On June 30, 1998 (subject to extension as discussed above), the Company may convert all amounts then outstanding under the revolving facilities to a term loan that is payable in equal quarterly principal installments (based on a five-year amortization schedule) and matures at the end of three years (June 30, 2003, assuming extensions). As of February 1, 1997, the Company had no indebtedness outstanding under the Credit Agreement. Advances under the Credit Agreement bear interest at a rate per annum equal to, at the Company's option, (i) the bank's prime rate or (ii) the reserve adjusted LIBOR rate plus an interest rate margin varying between 1.00% to 1.50%. The Credit Agreement provides for facility fees applicable to commitments under each facility of (i) .125% with respect to the first facility and (ii) .1875% with respect to the second facility during periods in which it is activated or .0625% with respect to periods in which it is not activated. The Credit Agreement contains certain restrictive and financial covenants, including a requirement to maintain a minimum amount of Consolidated Tangible Net Worth (as defined in the Credit Agreement). The Credit Agreement also specifies that for 30-day periods that include the last day of each fiscal year during the revolving period, amounts drawn under the revolving credit facility cannot exceed $60 million. The Company is also required to maintain certain debt to equity, cash flow and current ratios and must keep its average store inventories below certain specified amounts. In addition, the Company is prohibited, subject to certain exceptions, from incurring additional indebtedness (including capital leases) or creating liens, making certain Restricted Payments (as defined in the Credit Agreement), making Investments (as defined in the Credit Agreement) and paying dividends on the Common Stock, other than in shares of Common Stock. The Credit Agreement also permits but has certain limitations regarding the Company's ability to merge or consolidate with another company, sell or dispose of its property, make acquisitions, issue options or enter into transactions with affiliates. The Company is in compliance with the covenants in the Credit Agreement. The Company is currently in negotiations with its bank group seeking to amend its Credit Agreement to, among other things, (i) extend the expiration date, (ii) increase the amount of the revolving facilities and (iii) modify certain financial covenants and restrictions, particularly those relating to business acquisitions. The Company's primary sources of working capital are cash flow from operations, proceeds from the sale of the Notes discussed above, and borrowings under the Credit Agreement. The Company had working capital of $68.1 million, $88.8 million and $136.8 million at the end of 1994, 1995 and 1996, respectively. Historically, the Company's working capital has been at its lowest level in January and February, and has increased through November as inventory buildup is financed with both short-term and long-term borrowings in preparation for the fourth quarter selling season. In 1994 and 1995, as inventories were reduced by sales in December and January, working capital was also reduced as the net proceeds from these sales were used to reduce outstanding long-term borrowings under the Credit Agreement. In 1996 cash generated by December and January sales resulted in larger cash balances as no amount was outstanding under the Credit Agreement after the sale of Notes in March 1996. Net cash used in operating activities was $4.6 million in 1994. Net cash provided by operating activities amounted to $9.4 million in 1995 and $19.8 in 1996. These amounts primarily represent net earnings plus depreciation and amortization and changes in non-current other liabilities, offset by increases in inventories and other non-cash working capital. The increase in inventories of $30.3 million in 1994, $28.6 million in 1995 and $27.3 million in 1996 resulted from the addition of inventory for new stores opened and stores expected to be opened shortly after the year-end, backstocking and the purchase of fabric used in the direct sourcing of inventory. 15 16 Capital expenditures amounted to $23.7 million, $22.5 million and $26.2 million in 1994, 1995 and 1996, respectively. These property additions were principally related to (i) the construction of new stores, including fixtures and tailoring and other equipment (1994 -- $9.2 million, 1995 -- $10.5 million and 1996 -- $13.5 million), (ii) the remodeling and equipping of existing stores, including the addition of tailoring and other equipment (1994 -- $1.6 million, 1995 -- $3.7 million and 1996 -- $3.9 million), (iii) the addition of leaseholds and equipment for the warehouse and office facilities (1994 -- $2.0 million, 1995 -- $0.5 million and 1996 -- $0.4 million), (iv) the addition of point-of-sale, telecommunications, and computer equipment (1994 -- $4.4 million, 1995 -- $5.0 million and 1996 -- $5.5 million) and (v) the purchase of land and buildings (1994 -- $5.7 million, which includes $3.7 million for the acquisition and expansion of the Houston distribution center, $1.3 million for the construction of an office, training and redistribution center in Fremont, California and $0.7 million for the purchase of land for 1995 new store locations, 1995 -- $2.8 million, which includes $1.9 million for the completion of the Fremont, California facility and $0.6 million for the construction of new stores associated with the land purchased in 1994 for such purpose and 1996 -- $2.9 million, which includes $1.9 million for the purchase of land and construction thereon for 1997 new store locations, $0.7 million for the purchase of land in Houston for future warehouse and distribution facility expansion, and $0.3 million for land and building improvements), and (vi) other expenditures of $0.8 million in 1994. Property additions relating to new stores include stores in various stages of completion at the end of the fiscal year (three stores at the end of 1994, two stores at the end of 1995 and eight stores at the end of 1996). In addition, the Company acquired several assets in connection with various transactions in 1996 for approximately $12.0 million. Such assets include, but are not limited to, trademarks, tradenames, customer lists, non-compete agreements and license agreements. Net cash provided by financing activities amounted to $28.0 million, $14.4 million and $50.0 million in 1994, 1995 and 1996, respectively. Cash provided by financing activities includes the net proceeds of public offerings of Common Stock of $14.5 million and $34.7 million in 1994 and 1995, respectively, proceeds from sale of Notes of $55.5 million in 1996 (net of $2.0 million in related costs), as well as borrowings under the Company's revolving credit facilities. Cash used in financing activities is principally comprised of repayments of amounts outstanding under the Company's revolving credit facilities. The Company's primary cash requirements are to finance working capital increases for its peak selling season and fund capital expenditure requirements anticipated to be between approximately $22 million and $27 million for 1997. This amount includes the anticipated costs of opening approximately 50 new stores in 1997 at an expected average cost per store of between approximately $240,000 to $250,000 (excluding telecommunications and point-of-sale equipment and inventory). The balance of the capital expenditures for 1997 will be used for telecommunications, point-of-sale and other computer equipment, for store remodeling and expansion, warehousing and distribution and real estate. The Company anticipates that each of the approximately 50 new stores will require, on average, an initial inventory costing approximately $500,000 (subject to the same seasonal patterns affecting inventory at all stores), which will be funded by the Company's revolving credit facility, trade credit and cash from operations. The actual amount of future capital expenditures and inventory purchases will depend in part on the number of new stores opened and the terms on which new stores are leased. Additionally, the continuing consolidation of the men's tailored clothing industry and recent financial difficulties of significant menswear retailers may present the Company with opportunities to acquire retail chains significantly larger than the Company's past acquisitions. Any such acquisitions may be undertaken as an alternative to opening new stores. The Company has recently received, and from time to time in the past has received, inquiries concerning its interest in possible acquisitions and has requested information with respect thereto. The Company may use cash on hand, together with its cash flow from operations and borrowings under the Credit Agreement, to take advantage of significant acquisition opportunities. The Company anticipates that its existing cash and cash flow from operations, supplemented by borrowings under the Credit Agreement, will be sufficient to fund its planned store openings, other capital expenditures and operating cash requirements for at least the next 12 months. In connection with the Company's direct sourcing program, the Company may enter into purchase commitments that are denominated in a foreign currency. The Company generally enters into forward 16 17 exchange contracts to reduce the risk of currency fluctuations related to such commitments. The majority of the forward exchange contracts are with one financial institution. Therefore, the Company is exposed to credit risk in the event of nonperformance by this party. However, due to the creditworthiness of this major financial institution, full performance is anticipated. The Company may also be exposed to market risk as a result of changes in foreign exchange rates. This market risk should be substantially offset by changes in the valuation of the underlying transactions being hedged. IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share" (SFAS 128), in February 1997. SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods; earlier application is permitted. This statement establishes standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. SFAS 128 simplifies the standards for computing earnings per share previously found in APB Opinion No. 15 and makes them comparable to international EPS standards. It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS pursuant to Opinion 15. FORWARD-LOOKING STATEMENTS Certain statements made herein and in other public filings and releases by the Company contain "forward-looking" information (as defined in the Private Securities Litigation Reform Act of 1995) that involve risk and uncertainty. These forward-looking statements may include, but are not limited to, future sales, earnings, margins, costs, number and costs of store openings, demand for men's clothing, market trends in the retail men's clothing business, currency fluctuations, inflation and various economic and business trends. Forward-looking statements may be made by management orally or in writing, including but not limited to, this Management's Discussion and Analysis of Financial Condition and Results of Operations section and other sections of the Company's filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934 and the Securities Act of 1933. Actual results and trends in the future may differ materially depending on a variety of factors including, but not limited to, domestic economic activity and inflation, the Company's successful execution of internal operating plans and new store and new market expansion plans, performance issues with key suppliers, foreign currency fluctuations, government export and import policies and legal proceedings. Future results will also be dependent upon the ability of the Company to continue to identify and complete successful expansions and penetrations into existing and new markets and its ability to integrate such expansions with the Company's existing operations. 17 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders The Men's Wearhouse, Inc. Houston, Texas We have audited the accompanying consolidated balance sheets of The Men's Wearhouse, Inc. and its subsidiaries (the "Company") as of February 3, 1996 and February 1, 1997, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three years in the period ended February 1, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company and its subsidiaries as of February 3, 1996 and February 1, 1997, and the results of their operations and their cash flows for each of the three years in the period ended February 1, 1997 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Houston, Texas March 5, 1997 18 19 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
FEBRUARY 3, FEBRUARY 1, 1996 1997 ------------ ------------ CURRENT ASSETS: Cash...................................................... $ 2,547,000 $ 34,113,000 Inventories............................................... 136,797,000 164,140,000 Other current assets...................................... 5,663,000 10,051,000 ------------ ------------ Total current assets................................... 145,007,000 208,304,000 ------------ ------------ PROPERTY AND EQUIPMENT: Land...................................................... 1,861,000 3,231,000 Buildings................................................. 7,645,000 7,978,000 Leasehold improvements.................................... 30,888,000 43,518,000 Furniture, fixtures and equipment......................... 45,998,000 56,324,000 ------------ ------------ 86,392,000 111,051,000 Less accumulated depreciation and amortization............ (29,247,000) (40,029,000) ------------ ------------ Net property and equipment............................. 57,145,000 71,022,000 ------------ ------------ OTHER ASSETS................................................ 1,953,000 16,152,000 ------------ ------------ TOTAL............................................. $204,105,000 $295,478,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable.......................................... $ 33,810,000 $ 38,089,000 Accrued expenses.......................................... 16,507,000 24,742,000 Income taxes payable...................................... 5,276,000 8,194,000 Other current liabilities................................. 616,000 442,000 ------------ ------------ Total current liabilities.............................. 56,209,000 71,467,000 LONG-TERM DEBT.............................................. 4,250,000 57,500,000 OTHER LIABILITIES........................................... 6,685,000 7,382,000 ------------ ------------ Total liabilities...................................... 67,144,000 136,349,000 ------------ ------------ COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued................................ -- -- Common stock, $.01 par value, 50,000,000 shares authorized, 20,933,230 and 21,012,750 shares issued.... 209,000 210,000 Capital in excess of par.................................. 77,299,000 78,182,000 Retained earnings......................................... 60,173,000 81,316,000 ------------ ------------ Total.................................................. 137,681,000 159,708,000 Treasury common stock, 113,418 and 91,294 shares at cost................................................... (720,000) (579,000) ------------ ------------ Total shareholders' equity............................. 136,961,000 159,129,000 ------------ ------------ TOTAL............................................. $204,105,000 $295,478,000 ============ ============
See notes to consolidated financial statements. 19 20 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS ENDED JANUARY 28, 1995, FEBRUARY 3, 1996 AND FEBRUARY 1, 1997
FISCAL YEAR -------------------------------------------- 1994 1995 1996 ------------ ------------ ------------ Net sales........................................ $317,127,000 $406,343,000 $483,547,000 Cost of goods sold including buying and occupancy costs.......................................... 195,249,000 248,728,000 295,181,000 ------------ ------------ ------------ Gross margin..................................... 121,878,000 157,615,000 188,366,000 Selling, general and administrative expenses..... 99,503,000 127,009,000 150,232,000 ------------ ------------ ------------ Operating income................................. 22,375,000 30,606,000 38,134,000 Interest expense (net of interest income of $43,000, $93,000 and $1,237,000, respectively).................................. 1,764,000 2,518,000 2,146,000 ------------ ------------ ------------ Earnings before income taxes..................... 20,611,000 28,088,000 35,988,000 Provision for income taxes....................... 8,503,000 11,580,000 14,845,000 ------------ ------------ ------------ Net earnings..................................... $ 12,108,000 $ 16,508,000 $ 21,143,000 ============ ============ ============ Net earnings per share of common stock........... $ .63 $ .82 $ 1.00 ============ ============ ============ Weighted average number of common and common equivalent shares outstanding.................. 19,163,000 20,226,000 21,193,000 ============ ============ ============
See notes to consolidated financial statements. 20 21 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED JANUARY 28, 1995, FEBRUARY 3, 1996 AND FEBRUARY 1, 1997
CAPITAL COMMON IN EXCESS RETAINED TREASURY STOCK OF PAR EARNINGS STOCK TOTAL -------- ----------- ----------- ----------- ------------ BALANCE -- January 29, 1994................ $122,000 $27,253,000 $31,557,000 $(1,065,000) $ 57,867,000 Net earnings............................. -- -- 12,108,000 -- 12,108,000 Common stock issued in public offering -- 810,000 shares......................... 5,000 14,495,000 -- -- 14,500,000 Common stock issued upon exercise of stock options -- 56,637 shares......... 1,000 192,000 -- -- 193,000 Common stock withheld to satisfy tax withholding liabilities of optionees -- 21,321 shares............. -- (398,000) -- -- (398,000) Tax benefit recognized upon exercise of stock options.......................... -- 309,000 -- -- 309,000 Treasury stock issued to profit sharing plan -- 20,756 shares.................. -- 233,000 -- 132,000 365,000 -------- ----------- ----------- ----------- ------------ BALANCE -- January 28, 1995................ 128,000 42,084,000 43,665,000 (933,000) 84,944,000 Net earnings............................. -- -- 16,508,000 -- 16,508,000 Common stock issued in public offering -- 1,725,000 shares....................... 11,000 34,657,000 -- -- 34,668,000 Stock dividend -- 50%.................... 69,000 (69,000) -- -- -- Common stock issued upon exercise of stock options -- 118,319 shares........ 1,000 456,000 -- -- 457,000 Common stock withheld to satisfy tax withholding liabilities of optionees -- 42,356 shares............. -- (692,000) -- -- (692,000) Tax benefit recognized upon exercise of stock options.......................... -- 576,000 -- -- 576,000 Treasury stock issued to profit sharing plan -- 33,708 shares.................. -- 287,000 -- 213,000 500,000 -------- ----------- ----------- ----------- ------------ BALANCE -- February 3, 1996................ 209,000 77,299,000 60,173,000 (720,000) 136,961,000 Net earnings............................. -- -- 21,143,000 -- 21,143,000 Common stock issued upon exercise of stock options -- 123,058 shares........ 1,000 713,000 -- -- 714,000 Common stock withheld to satisfy tax withholding liabilities of optionees -- 43,538 shares............. -- (1,415,000) -- -- (1,415,000) Tax benefit recognized upon exercise of stock options.......................... -- 1,101,000 -- -- 1,101,000 Treasury stock issued to profit sharing plan -- 22,124 shares.................. -- 484,000 -- 141,000 625,000 -------- ----------- ----------- ----------- ------------ BALANCE -- February 1, 1997................ $210,000 $78,182,000 $81,316,000 $ (579,000) $159,129,000 ======== =========== =========== =========== ============
See notes to consolidated financial statements. 21 22 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JANUARY 28, 1995, FEBRUARY 3, 1996 AND FEBRUARY 1, 1997
1994 1995 1996 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings...................................... $ 12,108,000 $ 16,508,000 $ 21,143,000 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization.................. 7,088,000 9,436,000 12,563,000 Deferred tax provision (benefit)............... (300,000) 381,000 (1,093,000) Increase in inventories........................ (30,268,000) (28,609,000) (27,343,000) (Increase) decrease in other current assets.... (1,419,000) 425,000 (3,083,000) Increase in accounts payable and accrued expenses..................................... 7,616,000 7,836,000 13,138,000 Increase (decrease) in income taxes payable.... (232,000) 2,742,000 4,019,000 Increase in other liabilities.................. 797,000 717,000 455,000 ------------ ------------ ------------ Net cash provided by (used in) operating activities.............................. (4,610,000) 9,436,000 19,799,000 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures.............................. (23,736,000) (22,538,000) (26,222,000) Investment in trademarks, tradenames and other intangibles.................................... -- -- (11,972,000) ------------ ------------ ------------ Net cash used in investing activities.............................. (23,736,000) (22,538,000) (38,194,000) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock............ 14,693,000 35,125,000 714,000 Bank borrowings................................... 43,750,000 46,820,000 18,750,000 Principal payments on bank debt................... (29,250,000) (66,070,000) (23,000,000) Net proceeds from debt offering................... -- -- 55,500,000 Principal payments under capital lease obligations.................................... (826,000) (763,000) (588,000) Tax payments related to options exercised......... (398,000) (692,000) (1,415,000) ------------ ------------ ------------ Net cash provided by financing activities.............................. 27,969,000 14,420,000 49,961,000 ------------ ------------ ------------ INCREASE (DECREASE) IN CASH......................... (377,000) 1,318,000 31,566,000 CASH: Beginning of period............................... 1,606,000 1,229,000 2,547,000 ------------ ------------ ------------ End of period..................................... $ 1,229,000 $ 2,547,000 $ 34,113,000 ============ ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest.......................................... $ 1,570,000 $ 2,788,000 $ 2,145,000 ============ ============ ============ Income taxes...................................... $ 9,249,000 $ 8,474,000 $ 11,919,000 ============ ============ ============ SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Additional paid in capital resulting from tax benefit recognized upon exercise of stock options........................................ $ 309,000 $ 576,000 $ 1,101,000 ============ ============ ============ Treasury stock contributed to profit sharing plan........................................... $ 365,000 $ 500,000 $ 625,000 ============ ============ ============
See notes to consolidated financial statements. 22 23 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Business -- The Men's Wearhouse, Inc. (the Company) is an off-price specialty retailer of men's tailored business attire. The Company follows the standard fiscal year of the retail industry, which is a 52-53 week period ending on the Saturday closest to January 31. Fiscal year 1994 ended on January 28, 1995, fiscal year 1995 ended on February 3, 1996, and fiscal year 1996 ended on February 1, 1997; each of these fiscal years included 52 weeks, except for 1995 which was a 53 week year. Principles of Consolidation -- The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions are eliminated in consolidation. Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents -- For purposes of the statement of cash flows, the Company considers all highly liquid investments with maturities of three months or less as cash equivalents. Inventories -- Inventories are valued at the lower of cost or market, with cost determined on the retail first-in, first-out (FIFO) method. Property and Equipment -- Property and equipment are stated at cost. Normal repairs and maintenance costs are charged to earnings as incurred and additions and major improvements are capitalized. The cost of assets retired or otherwise disposed of and the related allowances for depreciation are eliminated from the accounts in the year of disposal and the resulting gain or loss is credited or charged to earnings. The Company provides for depreciation by the straight-line method over the estimated useful lives of the assets as follows: Leasehold improvements...................................... 8 years Furniture, fixtures and equipment........................... 3-8 years Buildings................................................... 20-25 years
New Store Costs -- Promotion and other costs associated with the opening of new stores are expensed as incurred. Stock Based Compensation -- As permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), the Company continues to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, no compensation expense has been recognized for the Company's employee stock option plans. The disclosure only provisions of SFAS No. 123 have been included in Note 5 of Notes to Consolidated Financial Statements. Derivative Financial Instruments -- The Company enters into foreign currency forward exchange contracts to hedge against foreign exchange risks associated with certain firmly committed, and certain other probable, but not firmly committed inventory purchase transactions that are denominated in a foreign currency. Gains and losses associated with these contracts are accounted for as part of the underlying inventory purchase transactions. Earnings per Share -- Net earnings per share of common stock are based on the weighted average number of shares of common stock and common stock equivalents outstanding during each fiscal period. Common stock options are the only common stock equivalents and have been included in the computation of 23 24 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) net earnings per share based on the number of shares issuable upon exercise of the options granted less the number of common shares that are assumed to be purchased at their estimated fair value. As discussed in Note 5, in 1994 and 1995, the Company sold shares of common stock and in 1995 declared a stock split effected as a 50% stock dividend. The weighted average number of shares outstanding consider the shares sold from the date of closing of each transaction. All applicable share and per share data in the consolidated financial statements and related notes give retroactive effect to the stock split. 2. ACCRUED EXPENSES Accrued expenses consist of the following:
FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- Sales, payroll and property tax payable................... $ 3,492,000 $ 4,275,000 Accrued salary, bonus and vacation........................ 6,201,000 7,047,000 Other..................................................... 6,814,000 13,420,000 ----------- ----------- Total........................................... $16,507,000 $24,742,000 =========== ===========
3. LONG-TERM DEBT The Company entered into a second amended and restated Credit Agreement with its bank group that became effective on June 30, 1995. The Credit Agreement provides for borrowings under two separate revolving facilities of up to $100 million through June 30, 1998 and may be extended for a maximum of two years subject to approval of all of the banks. The first facility allows the Company to borrow up to $75 million and the second facility, which can be activated and deactivated at the discretion of the Company, allows the Company to borrow up to $25 million. On June 30, 1998 (subject to extension as discussed above), the Company may convert all amounts then outstanding under the revolvers to a term loan that is payable in equal quarterly principal installments (based on a five-year amortization schedule) and matures at the end of three years (June 30, 2003, assuming extensions). As of February 1, 1997, there were no borrowings under the Credit Agreement and letters of credit with an aggregate undrawn balance of $3.4 million issued on the Company's behalf were outstanding. As of February 3, 1996, borrowings were $4,250,000 with interest at 8.25%. Advances under the Credit Agreement bear interest at a rate per annum equal to, at the Company's option, (i) the bank's prime rate or (ii) the reserve adjusted LIBOR rate plus an interest rate margin varying between 1.00% to 1.50%. The Credit Agreement provides for facility fees applicable to commitments under each facility of (i) .125% with respect to the first facility and (ii) .1875% with respect to the second facility during periods in which it is activated or .0625% with respect to periods in which it is not activated. Total commitment fees related to the Credit Agreement were $86,000 in 1994, $101,000 in 1995 and $133,000 in 1996. The Credit Agreement contains certain restrictive and financial covenants, including a requirement to maintain a minimum amount of Consolidated Tangible Net Worth (as defined in the Credit Agreement). The Credit Agreement also specifies that for 30-day periods that include the last day of each fiscal year during the revolving period, amounts drawn under the revolving credit facility cannot exceed $60 million. The Company is also required to maintain certain debt to equity, cash flow and current ratios and must keep its average store inventories below certain specified amounts. In addition, the Company is prohibited, subject to certain exceptions, from incurring additional indebtedness (including capital leases) or creating liens, making certain Restricted Payments (as defined in the Credit Agreement), making Investments (as defined in the Credit Agreement) and paying dividends on the Common Stock, other than in shares of Common Stock. The Credit Agreement also permits but has certain limitations regarding the Company's ability to merge or consolidate 24 25 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) with another company, sell or dispose of its property, make acquisitions, issue options or enter into transactions with affiliates. As of February 1, 1997 the Company was in compliance with the covenants in the Credit Agreement. In March 1996, the Company sold $57.5 million of 5 1/4% Convertible Subordinated Notes (the "Notes") due 2003. A portion of the net proceeds from the Notes was used to repay outstanding indebtedness under the Credit Agreement. The Notes are convertible at any time through March 1, 2003, unless previously redeemed into Common Stock at a conversion price of $34.125 per share. Interest on the Notes is payable semi-annually on March 1 and September 1 of each year. The Notes are redeemable at the option of the Company, in whole or in part, on or after March 1, 1998 initially at 103.5% of the face amount and thereafter at prices declining to 100% at maturity. As of February 1, 1997, the quoted market price for the Notes was 103 3/4. 4. INCOME TAXES The provision for income taxes consists of the following:
FISCAL YEAR ---------------------------------------- 1994 1995 1996 ---------- ----------- ----------- Current tax expense: Federal.................................... $7,346,000 $ 9,266,000 $13,410,000 State...................................... 1,457,000 1,933,000 2,528,000 Deferred tax expense (benefit): Current.................................... (646,000) (1,007,000) (1,750,000) Noncurrent................................. 346,000 1,388,000 657,000 ---------- ----------- ----------- Total.............................. $8,503,000 $11,580,000 $14,845,000 ========== =========== ===========
A reconciliation of the statutory federal income tax rate to the Company's effective tax rate is as follows:
FISCAL YEAR -------------------- 1994 1995 1996 ---- ---- ---- Statutory rate.............................................. 35% 35% 35% State income taxes, net of federal benefit.................. 5 4 5 Other....................................................... 1 2 1 -- -- -- 41% 41% 41% == == ==
25 26 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At February 3, 1996, the Company had net deferred tax assets of $126,000 with $1,726,000 classified as other current assets and $1,600,000 classified as other liabilities (noncurrent). At February 1, 1997, the Company had net deferred tax assets of $1,219,000 with $3,476,000 classified as other current assets and $2,257,000 classified as other liabilities (noncurrent). No valuation allowance was required for the deferred tax assets. Total deferred tax assets and liabilities and the related temporary differences as of February 3, 1996 and February 1, 1997 were as follows:
FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- Deferred tax assets: Accrued rent and other expenses................. $ 1,929,000 $ 3,400,000 Accrued compensation............................ 992,000 683,000 Accrued markdowns............................... 985,000 1,356,000 Other........................................... 475,000 557,000 ----------- ----------- 4,381,000 5,996,000 ----------- ----------- Deferred tax liabilities: Capitalized inventory costs..................... (1,121,000) (1,225,000) Property and equipment capitalization........... (2,519,000) (3,103,000) Different inventory cost method for tax......... (270,000) -- Other........................................... (345,000) (449,000) ----------- ----------- (4,255,000) (4,777,000) ----------- ----------- Net deferred tax assets........................... $ 126,000 $ 1,219,000 =========== ===========
5. CAPITAL STOCK, STOCK OPTIONS AND BENEFIT PLANS In April 1994 and August 1995 the Company sold 810,000 shares and 1,725,000 shares of common stock, respectively, with net proceeds to the Company of $14,500,000 and $34,668,000, respectively. In addition the Board of Directors took action to cause a 3-for-2 stock split in November 1995 effected in the form of a 50% stock dividend. In connection with an employment agreement entered into in January 1991 with an officer, that officer was granted options on February 25, 1991, to acquire 531,135 shares of common stock of the Company at a price of $2.35 per share. Among other things, the employment agreement provides that upon the exercise of any of these options, the Company will pay the officer an amount which, after the payment of income taxes by the officer on such amount, will equal the $2.35 per share purchase price for the shares purchased upon exercise of the options. The Company recognizes compensation expense as the options vest. The officer exercised 44,262 options in 1994, 73,769 options in 1995 and 73,768 options in 1996. On February 3, 1997 the officer exercised 73,769 options that vested on January 31, 1997. In 1992, the Company adopted the 1992 Stock Option Plan (1992 Plan) which, as amended, provides for the grant of options to purchase up to 714,338 shares of the Company's common stock to full-time key employees (excluding certain officers). In 1996, the Company adopted the 1996 Stock Option Plan (1996 Plan), which provides for the grant of options to purchase up to 750,000 shares of the Company's common stock to full-time key employees (excluding certain officers) of the Company. The 1996 Plan will expire at the end of ten years and no option may be granted pursuant to the 1996 Plan after the expiration date. The Company also adopted a Non-Employee Director Stock Option Plan (Director Plan) which, as amended, provides for the grant of options to purchase up to 45,000 shares of the Company's common stock to non-employee directors of the Company. Options granted under these plans must be exercised within ten years of the date of grant. Generally, options granted under the 1992 Plan and the 1996 Plan will vest at the rate of 1/3 of the shares covered by the grant on each of the first three anniversaries of the date of grant and may not be 26 27 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) issued at a price less than 50% of the fair market value of the Company's stock on the date of grant. However, approximately 68% of the options for the 355,250 shares granted on January 6, 1997 under the 1996 Plan will vest annually in equal increments over a period from four to ten years. Options granted under the Director Plan vest one year after the date of grant and will be issued at a price equal to the fair market value of the Company's stock on the date of grant. The following table is a summary of the Company's stock option activity:
SHARES UNDER WEIGHTED AVERAGE OPTIONS OPTION EXERCISE PRICE EXERCISABLE ------------ ---------------- ----------- Balance, January 29, 1994................... 646,089 $ 6.85 79,163 ======= ======= Granted................................... 107,025 14.93 Exercised................................. (56,637) 3.40 Forfeited................................. (9,637) 8.75 -------- Balance, January 28, 1995................... 686,840 $ 8.35 129,300 ======= ======= Granted................................... 133,675 21.85 Exercised................................. (118,319) 3.97 Forfeited................................. (7,650) 13.48 -------- Balance, February 3, 1996................... 694,546 $11.64 318,352 ======= ======= Granted................................... 362,000 23.67 Exercised................................. (123,058) 5.24 Forfeited................................. (3,025) 17.79 -------- Balance, February 1, 1997................... 930,463 $17.15 346,288 ======== ======= =======
Grants of stock options outstanding as of February 1, 1997 are summarized as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------- ----------------------- WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- REMAINING AVERAGE AVERAGE RANGE OF EXERCISE CONTRACTUAL EXERCISE EXERCISE PRICES TOTAL LIFE PRICE TOTAL PRICE - ----------------- ----------- ----------- --------- ----------- --------- $ 2.35 to 8.00 219,311 5.2 years $ 5.83 185,561 $ 5.43 8.0001 to 14.83 217,477 7.4 years 14.83 151,227 14.83 14.8334 to 26.63 493,675 9.6 years 23.20 9,500 21.57 ------- ------ ------- ------ $ 2.35 to 26.63 930,463 $17.15 346,288 $ 9.98 ======= ====== ======= ======
As of February 1, 1997, 549,354 options were available for grant under existing plans and 1,479,817 shares of common stock were reserved for future issuance, of which 750,000 shares pertain to the 1996 Plan. The difference between the option price and the fair market value of the Company's common stock on the dates that options for 56,637, 118,319 and 123,058 shares of common stock were exercised during 1994, 1995 and 1996, respectively, resulted in a tax benefit to the Company of $309,000 in 1994, $576,000 in 1995 and $1,101,000 in 1996, which has been recognized as additional capital in excess of par. In addition, the Company withheld 21,321 shares, 42,356 shares and 43,538 shares, respectively, of such common stock for withholding payments made to satisfy the optionees' income tax liabilities resulting from the exercises. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation cost for the Company's stock option plans been 27 28 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) determined based on the fair value at the grant date consistent with the provisions of SFAS No. 123, the Company's pro forma net earnings and earnings per share would have been $11,844,000 and $0.62 per share, $16,127,000 and $0.80 per share and $20,586,000 and $0.97 per share for 1994, 1995, and 1996, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants:
1994 1995 1996 ----- ----- ----- Dividend yield.............................................. NA NA NA Expected volatility......................................... 49.83% 49.84% 50.91% Risk-free interest rate (U.S. Treasury 5 year notes)........ 6.34% 6.37% 6.21% Expected lives (years)...................................... 5 5 5
The Company has a profit sharing plan, in the form of an employee stock plan, which covers all eligible employees, and an employee tax-deferred savings plan. Contributions to the profit sharing plan are made at the discretion of the Board of Directors. During 1994, 1995 and 1996, contributions charged to operations were $500,000, $625,000 and $1,000,000, respectively. The Company also has an Employee Stock Purchase Plan which allows employees to authorize after-tax payroll deductions to be used for the purchase of the Company's common stock in the open market. The Company makes no contributions to this plan but pays all brokerage, service and other costs incurred. 6. COMMITMENTS AND CONTINGENCIES The Company leases retail business locations, office and warehouse facilities, computer equipment and automotive equipment under operating leases expiring in various years through 2015. Rent expense for fiscal 1994, 1995 and 1996 was $16,840,000, $21,712,000 and $26,905,000, respectively, and includes contingent rentals of $465,000, $354,000 and $335,000, respectively. Minimum future rental payments under noncancelable operating leases as of February 1, 1997 for each of the next five years and in the aggregate are as follows:
FISCAL YEAR AMOUNT ----------- ------------ 1997........................................................ $ 32,611,000 1998........................................................ 30,464,000 1999........................................................ 26,497,000 2000........................................................ 21,963,000 2001........................................................ 19,163,000 Thereafter.................................................. 60,792,000 ------------ Total........................................ $191,490,000 ============
Leases on retail business locations specify minimum rentals plus common area maintenance charges and possible additional rentals based upon percentages of sales. Most of the retail business location leases provide for renewal options at rates specified in the leases. In the normal course of business, these leases are generally renewed or replaced by other leases. The Company is a defendant in various lawsuits and subject to various claims and proceedings encountered in the normal conduct of its business. In the opinion of management, any uninsured losses that might arise from these lawsuits and proceedings would not have a material adverse effect on the business or consolidated financial position of the Company. The Company routinely enters into inventory purchase commitments that are denominated in a foreign currency. To protect against currency exchange risks associated with certain firmly committed and certain 28 29 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) other probable, but not firmly committed inventory transactions, the Company enters into foreign currency forward exchange contracts. At February 1, 1997, the Company held forward exchange contracts with notional amounts totaling $17.6 million. All such contracts expire within 24 months. Gains and losses associated with these contracts are accounted for as part of the underlying inventory purchase transactions. The fair value of the forward exchange contracts is estimated by comparing the cost (U.S. dollars) of the foreign currency to be purchased under the contracts using the exchange rates obtained under the contracts (adjusted for forward points) to the cost using the spot rate at year-end. At February 1, 1997, the contracts outstanding had a fair value of $0.3 million in excess of their notional value. The majority of the forward exchange contracts are with one financial institution. Therefore, the Company is exposed to credit risk in the event of nonperformance by this party. However, due to the creditworthiness of this major financial institution, full performance is anticipated. The Company may also be exposed to market risk as a result of changes in foreign exchange rates. This market risk should be substantially offset by changes in the valuation of the underlying transactions being hedged. 7. ACQUISITIONS In November 1996, Value Priced Clothing ("VPC") was organized under the laws of California as a wholly-owned subsidiary of the Company for the purpose of acquiring assets of C&R Clothiers, Inc. ("C&R"), a privately-held retailer of men's tailored clothing operating stores in Southern California. In January, 1997, the Company and VPC entered into an asset purchase agreement with C&R and other parties for approximately $12 million. Under the agreement, VPC acquired 17 C&R stores in Southern California and C&R's existing inventory and entered into a lease for C&R's distribution center in Culver City, California. The new chain will be used to attract the more price-sensitive clothing customer. Additionally, the Company acquired various trademarks, tradenames and other intangibles aggregating $12.0 million during 1996. 8. QUARTERLY RESULTS OF OPERATIONS (Unaudited) The Company's consolidated results of operations by quarter for the 1995 and 1996 fiscal years are presented below. These quarterly results of operations reflect all adjustments, consisting only of normal, recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented.
1995 ------------------------------------------------------------------ FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER ------------- -------------- ------------- -------------- Net sales......................... $ 81,355,000 $85,714,000 $ 92,864,000 $146,410,000 Gross margin...................... 30,436,000 33,640,000 35,514,000 58,025,000 Net earnings...................... 2,026,000 2,951,000 3,046,000 8,485,000 Net earnings per share of common stock.................... $ 0.11 $ 0.15 $ 0.15 $ 0.40
1996 ------------------------------------------------------------------ FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER ------------- -------------- ------------- -------------- Net sales......................... $103,697,000 $98,885,000 $110,276,000 $170,689,000 Gross margin...................... 38,962,000 38,962,000 42,505,000 67,937,000 Net earnings...................... 3,109,000 4,009,000 3,744,000 10,281,000 Net earnings per share of common stock.................... $ 0.15 $ 0.19 $ 0.18 $ 0.49
29 30 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE MATTERS. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this item is incorporated by reference from the Company's Proxy Statement for its Annual Meeting of Shareholders to be held on June 18, 1997. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is incorporated by reference from the Company's Proxy Statement for its Annual Meeting of Shareholders to be held on June 18, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is incorporated by reference from the Company's Proxy Statement for its Annual Meeting of Shareholders to be held on June 18, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is incorporated by reference from the Company's Proxy Statement for its Annual Meeting of Shareholders to be held on June 18, 1997. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (A) 1. FINANCIAL STATEMENTS The following consolidated financial statements of The Men's Wearhouse, Inc. and its subsidiaries are included in Part II, Item 8.
Independent Auditors' Report................................ 18 Consolidated Balance Sheets -- February 3, 1996 and February 1, 1997................................................... 19 Consolidated Statements of Earnings -- Years ended January 28, 1995, February 3, 1996 and February 1, 1997........... 20 Consolidated Statements of Shareholders' Equity -- Years ended January 28, 1995, February 3, 1996 and February 1, 1997...................................................... 21 Consolidated Statements of Cash Flows -- Years ended January 28, 1995, February 3, 1996 and February 1, 1997........... 22 Notes to Consolidated Financial Statements.................. 23
2. FINANCIAL STATEMENT SCHEDULES All such schedules are omitted because they are not applicable or because the required information is included in the Consolidated Financial Statements or Notes thereto. 30 31 3. EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 -- Restated Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended July 30, 1994). 3.2 -- By-laws, as amended. 4.1 -- Restated Articles of Incorporation (included as Exhibit 3.1). 4.2 -- By-laws (included as Exhibit 3.2). 4.3 -- Form of Common Stock certificate (incorporated by reference from Exhibit 4.3 to the Registrant's Registration Statement on Form S-1 (Registration No. 33- 45949)). *4.4 -- Employment Agreement dated as of January 31, 1991, by and between the Company and David H. Edwab, including the First Amendment thereto dated as of September 30, 1991 (incorporated by reference from Exhibit 4.4 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-45949)). *4.5 -- Second Amendment effective as of January 1, 1993, to Employment Agreement dated as of January 31, 1991, by and between the Company and David H. Edwab (incorporated by reference from Exhibit 4.5 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-60516)). *4.6 -- Second [sic] Amendment dated as of April 12, 1994, to Employment Agreement dated as of January 31, 1991 (incorporated by reference to Exhibit 4.6 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995). *4.7 -- Option Issuance Agreement dated as of September 30, 1991, by and between the Company and David H. Edwab (incorporated by reference from Exhibit 4.5 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-45949)). *4.8 -- First Amendment to Option Issuance Agreement dated April 22, 1992, but effective as of September 30, 1991 (incorporated by reference from Exhibit 4.7 to the Registrant's Registration Statement on Form S-8 (Registration No. 33-48109)). *4.9 -- Second Amendment to Option Issuance Agreement dated effective as of January 1, 1993 (incorporated by reference from Exhibit 4.8 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-60516)). *4.10 -- First [sic] Amendment to Option Issuance Agreement dated as of April 12, 1994 (incorporated by reference to Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995). 4.11 -- Indenture dated March 1, 1996, between the Company and Texas Commerce Bank National Association, as trustee including Form of Note (incorporated by reference from Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended May 4, 1996). *10.1 -- Employment Agreement dated as of January 31, 1991, including the First Amendment thereto dated as of September 30, 1991 by and between the Company and David H. Edwab (included as Exhibit 4.4). *10.2 -- Second Amendment effective as of January 1, 1993, to Employment Agreement dated as of January 31, 1991, by and between the Company and David H. Edwab (included as Exhibit 4.5).
31 32
EXHIBIT NUMBER DESCRIPTION ------- ----------- *10.3 -- Second [sic] Amendment dated as of April 12, 1994, to Employment Agreement dated as of January 31, 1991 (incorporated by reference to Exhibit 4.6 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995). *10.4 -- Option Issuance Agreement dated as of September 30, 1991, by and between the Company and David H. Edwab (included as Exhibit 4.7). *10.5 -- First Amendment to Option Issuance Agreement dated April 22, 1992, but effective as of September 30, 1991 (included as Exhibit 4.8). *10.6 -- Second Amendment to Option Issuance Agreement dated effective as of January 1, 1993 (included as Exhibit 4.9). *10.7 -- First [sic] Amendment to Option Issuance Agreement dated as of April 12, 1994 (incorporated by reference to Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995). *10.8 -- 1992 Stock Option Plan (incorporated by reference from Exhibit 10.5 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-45949)). *10.9 -- First Amendment to 1992 Stock Option Plan (incorporated by reference from Exhibit 10.9 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-60516)). *10.10 -- Non-Employee Director Stock Option Plan (incorporated by reference from Exhibit 10.7 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-45949)). *10.11 -- First Amendment to Non-Employee Director Stock Option Plan (incorporated by reference from Exhibit 10.16 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-45949)). 10.12 -- Commercial Lease dated September 1, 1995, by and between the Company and Zig Zag, A Joint Venture (incorporated by reference from Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended May 4, 1996). 10.13 -- Commercial Lease dated April 5, 1989, by and between the Company and Preston Road Partnership (incorporated by reference from Exhibit 10.10 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-45949)). *10.14 -- Stock Agreement dated as of March 23, 1992, between the Company and George Zimmer (incorporated by reference from Exhibit 10.13 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-45949)). *10.15 -- Split-Dollar Agreement and related Split-Dollar Collateral Assignment dated November 25, 1994 between the Company, George Zimmer and David Edwab, Co-Trustee of the Zimmer 1994 Irrevocable Trust (incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995). 10.16 -- Second Amended and Restated Credit Agreement dated as of March 14, 1995, by and among the Company, NationsBank N.A. of Texas, N.A., as Agent, and NationsBank of Texas, N.A., Union Bank and Wells Fargo Bank, N.A. (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995).
32 33
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.17 -- First Amendment to Second Amended and Restated Credit Agreement dated as of August 5, 1996, by and among the Company, NationsBank N.A. of Texas, N.A., as Agent, and NationsBank of Texas, N.A., Union Bank and Wells Fargo Bank, N.A. (incorporated by reference from Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended August 3, 1996). 10.18 -- Second Amendment to Second Amended and Restated Credit Agreement dated as of November 8, 1996, by and among the Company, NationsBank N.A. of Texas, N.A., as Agent, and NationsBank of Texas, N.A., Union Bank and Wells Fargo Bank, N.A. *10.19 -- 1996 Stock Option Plan (incorporated by reference from Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended August 3, 1996). *10.20 -- Second Amendment to Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended August 3, 1996). 10.21 -- Indenture dated March 1, 1996, between the Company and Texas Commerce Bank National Association, as trustee (included as exhibit 4.12). 11.1 -- Statement of Computation of Net Earnings Per Share. 21.1 -- Subsidiaries of the Company. 23.1 -- Consent of Deloitte & Touche LLP , independent auditors. 27.1 -- Financial Data Schedule.
- --------------- * Management Compensation or Incentive Plan As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant has not filed with this Annual Report on Form 10-K certain instruments defining the rights of holders of long-term debt of the Registrant and its subsidiaries because the total amount of securities authorized under any of such instruments does not exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant agrees to furnish a copy of any such agreements to the Securities and Exchange Commission upon request. The Company will furnish a copy of any exhibit described above to any beneficial holder of its securities upon receipt of a written request therefor, provided that such request sets forth a good faith representation that, as of the record date for the Company's 1996 Annual Meeting of Shareholders, such beneficial holder is entitled to vote at such meeting, and provided further that such holder pays to the Company a fee compensating the Company for its reasonable expenses in furnishing such exhibits. (B) REPORTS ON FORM 8-K. There were no reports filed by the Company on Form 8-K during the fourth quarter period ended February 1, 1997. 33 34 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE MEN'S WEARHOUSE, INC. By /s/ GEORGE ZIMMER ----------------------------------- George Zimmer Chairman of the Board and Chief Executive Officer Dated: April 29, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ GEORGE ZIMMER Chairman of the Board, Chief April 29, 1997 - ----------------------------------------------------- Executive Officer and Director George Zimmer /s/ DAVID EDWAB President, Treasurer and Director April 29, 1997 - ----------------------------------------------------- David Edwab /s/ GARY G. CKODRE Vice President -- Finance and April 29, 1997 - ----------------------------------------------------- Principal Financial and Accounting Gary G. Ckodre Officer /s/ RICHARD E. GOLDMAN Executive Vice President and April 29, 1997 - ----------------------------------------------------- Director Richard E. Goldman /s/ ROBERT E. ZIMMER Senior Vice President -- Real April 29, 1997 - ----------------------------------------------------- Estate and Director Robert E. Zimmer /s/ JAMES E. ZIMMER Senior Vice President -- April 29, 1997 - ----------------------------------------------------- Merchandising and Director James E. Zimmer /s/ HARRY M. LEVY Senior Vice President -- Planning April 29, 1997 - ----------------------------------------------------- and Systems, Chief Information Harry M. Levy Officer and Director /s/ RINALDO BRUTOCO Director April 29, 1997 - ----------------------------------------------------- Rinaldo Brutoco /s/ MICHAEL L. RAY Director April 29, 1997 - ----------------------------------------------------- Michael L. Ray /s/ SHELDON I. STEIN Director April 29, 1997 - ----------------------------------------------------- Sheldon I. Stein
34 35 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 -- Restated Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended July 30, 1994). 3.2 -- By-laws, as amended. 4.1 -- Restated Articles of Incorporation (included as Exhibit 3.1). 4.2 -- By-laws (included as Exhibit 3.2). 4.3 -- Form of Common Stock certificate (incorporated by reference from Exhibit 4.3 to the Registrant's Registration Statement on Form S-1 (Registration No. 33- 45949)). *4.4 -- Employment Agreement dated as of January 31, 1991, by and between the Company and David H. Edwab, including the First Amendment thereto dated as of September 30, 1991 (incorporated by reference from Exhibit 4.4 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-45949)). *4.5 -- Second Amendment effective as of January 1, 1993, to Employment Agreement dated as of January 31, 1991, by and between the Company and David H. Edwab (incorporated by reference from Exhibit 4.5 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-60516)). *4.6 -- Second [sic] Amendment dated as of April 12, 1994, to Employment Agreement dated as of January 31, 1991 (incorporated by reference to Exhibit 4.6 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995). *4.7 -- Option Issuance Agreement dated as of September 30, 1991, by and between the Company and David H. Edwab (incorporated by reference from Exhibit 4.5 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-45949)). *4.8 -- First Amendment to Option Issuance Agreement dated April 22, 1992, but effective as of September 30, 1991 (incorporated by reference from Exhibit 4.7 to the Registrant's Registration Statement on Form S-8 (Registration No. 33-48109)). *4.9 -- Second Amendment to Option Issuance Agreement dated effective as of January 1, 1993 (incorporated by reference from Exhibit 4.8 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-60516)). *4.10 -- First [sic] Amendment to Option Issuance Agreement dated as of April 12, 1994 (incorporated by reference to Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995). 4.11 -- Indenture dated March 1, 1996, between the Company and Texas Commerce Bank National Association, as trustee including Form of Note (incorporated by reference from Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended May 4, 1996). *10.1 -- Employment Agreement dated as of January 31, 1991, including the First Amendment thereto dated as of September 30, 1991 by and between the Company and David H. Edwab (included as Exhibit 4.4). *10.2 -- Second Amendment effective as of January 1, 1993, to Employment Agreement dated as of January 31, 1991, by and between the Company and David H. Edwab (included as Exhibit 4.5).
36
EXHIBIT NUMBER DESCRIPTION ------- ----------- *10.3 -- Second [sic] Amendment dated as of April 12, 1994, to Employment Agreement dated as of January 31, 1991 (incorporated by reference to Exhibit 4.6 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995). *10.4 -- Option Issuance Agreement dated as of September 30, 1991, by and between the Company and David H. Edwab (included as Exhibit 4.7). *10.5 -- First Amendment to Option Issuance Agreement dated April 22, 1992, but effective as of September 30, 1991 (included as Exhibit 4.8). *10.6 -- Second Amendment to Option Issuance Agreement dated effective as of January 1, 1993 (included as Exhibit 4.9). *10.7 -- First [sic] Amendment to Option Issuance Agreement dated as of April 12, 1994 (incorporated by reference to Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995). *10.8 -- 1992 Stock Option Plan (incorporated by reference from Exhibit 10.5 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-45949)). *10.9 -- First Amendment to 1992 Stock Option Plan (incorporated by reference from Exhibit 10.9 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-60516)). *10.10 -- Non-Employee Director Stock Option Plan (incorporated by reference from Exhibit 10.7 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-45949)). *10.11 -- First Amendment to Non-Employee Director Stock Option Plan (incorporated by reference from Exhibit 10.16 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-45949)). 10.12 -- Commercial Lease dated September 1, 1995, by and between the Company and Zig Zag, A Joint Venture (incorporated by reference from Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended May 4, 1996). 10.13 -- Commercial Lease dated April 5, 1989, by and between the Company and Preston Road Partnership (incorporated by reference from Exhibit 10.10 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-45949)). *10.14 -- Stock Agreement dated as of March 23, 1992, between the Company and George Zimmer (incorporated by reference from Exhibit 10.13 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-45949)). *10.15 -- Split-Dollar Agreement and related Split-Dollar Collateral Assignment dated November 25, 1994 between the Company, George Zimmer and David Edwab, Co-Trustee of the Zimmer 1994 Irrevocable Trust (incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995). 10.16 -- Second Amended and Restated Credit Agreement dated as of March 14, 1995, by and among the Company, NationsBank N.A. of Texas, N.A., as Agent, and NationsBank of Texas, N.A., Union Bank and Wells Fargo Bank, N.A. (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995).
37
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.17 -- First Amendment to Second Amended and Restated Credit Agreement dated as of August 5, 1996, by and among the Company, NationsBank N.A. of Texas, N.A., as Agent, and NationsBank of Texas, N.A., Union Bank and Wells Fargo Bank, N.A. (incorporated by reference from Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended August 3, 1996). 10.18 -- Second Amendment to Second Amended and Restated Credit Agreement dated as of November 8, 1996, by and among the Company, NationsBank N.A. of Texas, N.A., as Agent, and NationsBank of Texas, N.A., Union Bank and Wells Fargo Bank, N.A. *10.19 -- 1996 Stock Option Plan (incorporated by reference from Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended August 3, 1996). *10.20 -- Second Amendment to Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended August 3, 1996). 10.21 -- Indenture dated March 1, 1996, between the Company and Texas Commerce Bank National Association, as trustee (included as exhibit 4.12). 11.1 -- Statement of Computation of Net Earnings Per Share. 21.1 -- Subsidiaries of the Company. 23.1 -- Consent of Deloitte & Touche LLP , independent auditors. 27.1 -- Financial Data Schedule.
- --------------- * Management Compensation or Incentive Plan EX-3.2 2 BY-LAWS, AS AMENDED 1 EXHIBIT 3.2 THE MEN'S WEARHOUSE, INC. - - - - - - - BYLAWS (AS AMENDED AND RESTATED EFFECTIVE FEBRUARY 3, 1997) ARTICLE I OFFICES SECTION 1.01. PRINCIPAL PLACE OF BUSINESS. The principal place of business of the corporation shall be located in Houston, Texas, and the office of its transfer agent or registrar shall be located in Glendale, California. SECTION 1.02. OTHER OFFICES. The corporation may also have offices at such other places both within and without the State of Texas as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF SHAREHOLDERS SECTION 2.01. TIME AND PLACE OF MEETINGS. Meetings of shareholders for any purpose may be held at such time and place within or without the State of Texas as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. SECTION 2.02. ANNUAL MEETING. The annual meeting of shareholders shall be held annually at such date and time as shall be designated from time to time by the board of directors and stated in the notice of meeting. SECTION 2.03. SPECIAL MEETINGS. Special meetings of the shareholders for any purpose or purposes may be called by the chairman of the board or the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of shareholders owning at least ten percent of all the shares entitled to vote at the meetings. A request for a special meeting shall state the purpose or purposes of the proposed meeting, and business transacted at any special meeting of shareholders shall be limited to the purposes stated in the notice. SECTION 2.04. NOTICE OF MEETING. Written notice stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which 2 the meeting is called, shall be delivered not less than ten nor more than sixty days before the date of the meeting, either personally or by mail, by or at the direction of the chairman of the board, the president, the secretary, or the officer or persons calling the meeting, to each shareholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his address as it appears on the stock transfer books of the corporation. SECTION 2.05. QUORUM. The holders of a majority of the shares issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business except as otherwise provided by statute or by the articles of incorporation. If, however, a quorum shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. After an adjournment, at any reconvened meeting any business may be transacted that might have been transacted if the meeting had been held in accordance with the original notice thereof, provided a quorum shall be present or represented thereat. SECTION 2.06. VOTE REQUIRED. With respect to any matter, other than the election of directors or a matter for which a different vote is required by law or the articles of incorporation, the affirmative vote of the holders of a majority of the shares entitled to vote on that matter and represented in person or by proxy at a meeting of shareholders at which a quorum is present, shall decide such matter. Unless otherwise required by law or by the articles of incorporation, directors shall be elected by a plurality of the votes cast by the holders of shares entitled to vote in the election of directors at a meeting of shareholders at which a quorum is present. SECTION 2.07. VOTING; PROXIES. Each outstanding share having voting power shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders. Any shareholder may vote either in person or by proxy executed in writing by the shareholder. A telegram, telex, cablegram or similar transmission by the shareholder, or a photographic, photostatic, facsimile or similar reproduction of a writing executed by the shareholder shall be treated as an execution in writing for purposes of this Section 2.07. SECTION 2.08. ACTION WITHOUT MEETING. Any action required to, or which may, be taken at any annual or special meeting of shareholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken shall be signed by the holder or holders of all the shares entitled to vote with respect to the action that is the subject of the consent. -2- 3 ARTICLE III DIRECTORS SECTION 3.01. POWERS. The powers of the corporation shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, the board of directors. SECTION 3.02. NUMBER, ELECTION AND TERM. The number of directors that shall constitute the whole board of directors shall be not less than one. Such number of directors shall from time to time be fixed and determined by resolution adopted by the directors or the shareholders and shall be set forth in the notice of any meeting of shareholders held for the purpose of electing directors. The directors shall be elected at the annual meeting of shareholders, except as provided in Section 3.03 of these bylaws, and each director elected shall hold office until his successor shall be elected and qualify. Directors need not be residents of Texas or shareholders of the corporation. SECTION 3.03. VACANCIES. Any vacancy occurring in the board of directors may be filled by a majority of the remaining directors though less than a quorum of the board of directors. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. SECTION 3.04. CHANGE IN NUMBER. The number of directors may be increased or decreased from time to time as provided in these bylaws but no decrease shall have the effect of shortening the term of any incumbent director. Any directorship to be filled by reason of an increase in the number of directors may be filled by election at an annual or special meeting of shareholders or may be filled by the board of directors for a term of office continuing only until the next election of one or more directors by the shareholders; provided, however, that the board of directors may not fill more than two such directorships during the period between any two successive annual meetings of shareholders. SECTION 3.05. REMOVAL. Any director may be removed for cause at any special meeting of shareholders duly called and held for such purpose. At any meeting of shareholders called expressly for the purpose of removing a director or directors, such director or directors may be removed only for cause by a vote of a majority of the shares of stock of the corporation then entitled to vote at an election of directors. SECTION 3.06. PLACE OF MEETINGS. Meetings of the board of directors, regular or special, may be held either within or without the State of Texas. SECTION 3.07. REGULAR MEETINGS. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the shareholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event that the shareholders fail to fix the time and place of such first meeting, it shall be held without notice immediately following the -3- 4 annual meeting of shareholders, and at the same place, unless by the unanimous consent of the directors then elected and serving such time or place shall be changed. SECTION 3.08. NOTICE OF REGULAR MEETINGS. Regular meetings of the board of directors may be held upon such notice, or without notice, and at such time and at such place as shall from time to time be determined by the board. SECTION 3.09. SPECIAL MEETINGS. Special meetings of the board of directors may be called by the chairman of the board of directors or the president and shall be called by the secretary on the written request of two directors. Notice of each special meeting of the board of directors shall be given to each director at least two days before the date of the meeting. SECTION 3.10. WAIVER AND REQUIREMENTS OF NOTICE. Attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Except as may be otherwise provided by law or by the articles of incorporation or by these bylaws, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. SECTION 3.11. QUORUM; VOTE REQUIRED. At all meetings of the board of directors a majority of the directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, unless otherwise specifically provided by law, the articles of incorporation or these bylaws. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. SECTION 3.12. COMMITTEES. The board of directors, by resolution passed by a majority of the full board, may from time to time designate a member or members of the board to constitute committees that shall in each case consist of one or more directors and may designate one or more of its members as alternate members of any committee, who may, subject to any limitations imposed by the board of directors, replace absent or disqualified members at any meeting of that committee. Any such committee shall have and may exercise such powers as the board may determine and specify in the respective resolutions appointing them. A majority of all the members of any such committee may determine its action and fix the time and place of its meetings, unless the board of directors shall otherwise provide. The board of directors shall have power at any time to change the number, subject as aforesaid, and members of any such committee, to fill vacancies and to discharge any such committee. SECTION 3.13. ACTION WITHOUT MEETING. Any action required or permitted to be taken at a meeting of the board of directors or any committee may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the members of the board of directors or committee, as the case may be. -4- 5 SECTION 3.14. COMPENSATION. By resolution of the board of directors, the directors may be paid their expenses, if any, of attendance at each meeting of the board of directors, or a meeting of a committee thereof, and may be paid a fixed sum for attendance at each meeting of the board of directors, or a meeting of a committee thereof, or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. ARTICLE IV NOTICES SECTION 4.01. FORM OF NOTICE; DELIVERY. Any notice to directors or shareholders shall be in writing and shall be delivered personally or mailed to the directors or shareholders at their respective addresses appearing on the books of the corporation. Notice by mail shall be deemed to be given at the time when the same shall be deposited in the United States mail, postage prepaid. Notice to directors may also be given by telegram, telex, cablegram, facsimile or other similar transmission. SECTION 4.02. WAIVER. Whenever any notice is required to be given under the provisions of the statutes or of the articles of incorporation or of these bylaws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE V OFFICERS SECTION 5.01. OFFICERS. The officers of the corporation shall be elected by the board of directors and shall consist of a chairman of the board, a president and a secretary and may consist of a chief operating officer, one or more vice presidents, a treasurer, an assistant treasurer and an assistant secretary, who need not be members of the board of directors. Two or more offices may be held by the same person. SECTION 5.02. ADDITIONAL OFFICERS. The board of directors may appoint such other officers and assistant officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall have such authority and exercise such powers and perform such duties as shall be determined from time to time by the board by resolution not inconsistent with these bylaws. SECTION 5.03. COMPENSATION. The salaries and terms of employment of the chairman of the board, the president and the chief operating officer, if any, of the corporation shall be fixed by the board of directors. The board of directors shall have the power to cause the corporation to enter into contracts for the employment and compensation of officers for such terms as the board deems advisable. SECTION 5.04. TERM; REMOVAL; VACANCIES. The officers of the corporation shall hold office until their successors are elected or appointed and qualify, or until their -5- 6 death or until their resignation or removal from office. Any officer elected or appointed by the board of directors may be removed at any time by the board, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Any vacancy occurring in any office of the corporation by death, resignation, removal or otherwise shall be filled by the board of directors. SECTION 5.05. CHIEF EXECUTIVE OFFICER. The chairman of the board shall be the chief executive officer of the corporation, unless the board of directors designates the president as the chief executive officer of the corporation. The chief executive officer shall preside at all meetings of shareholders, shall have general and active management of the business of the corporation, and shall see that all resolutions of the board of directors are carried into effect. The board of directors may change the designation of chief executive officer at any time, but no such change shall constitute removal of any person from the office of chairman of the board or president, as the case may be. If the chairman of the board shall be chief executive officer, then in the absence or disability of the chairman of the board, the president shall perform the duties and have the authority of the chief executive officer. If the president shall have been last designated as chief executive officer, then in the absence or disability of the president, the chairman of the board shall perform the duties and have the authority of the chief executive officer. SECTION 5.06. CHAIRMAN OF THE BOARD. The chairman of the board, if one is elected, shall preside at all meetings of the board of directors and shall have such other powers and duties as may from time to time be prescribed by the board of directors, upon written directions given to him pursuant to resolutions duly adopted by the board of directors. The chairman of the board shall be the chief executive officer of the corporation, except as set forth in Section 5.05 of these bylaws SECTION 5.07. VICE CHAIRMAN OF THE BOARD. The vice chairman of the board, if one is elected, shall, in the absence or disability of the chairman of the board, perform the duties and have the authority and exercise the powers of the chairman of the board. He shall perform such other duties and have such other authority and powers as the board of directors may from time to time prescribe or as the chairman of the board may from time to time delegate. SECTION 5.08. PRESIDENT. The president shall have general supervision over strategic planning and implementation, administration and the accounting and finance operations of the corporation, and shall see that all resolutions of the board of directors are carried into effect. The president shall be the principal executive officer of the corporation for purposes of all filings by the corporation with the Securities and Exchange Commission. Unless the board of directors shall have designated a particular vice president of the corporation as principal financial officer, the president shall also be the principal financial officer of the corporation for purposes of all filings by the corporation with the Securities and Exchange Commission. The president shall have such other duties as may be determined from time to time by resolution of the board of directors not inconsistent with these bylaws. If the president shall have been last designated as chief executive officer, he also shall have the authority and perform the -6- 7 duties appertaining to that designation, as specified in Section 5.05 of these bylaws. The president, in the absence or incapacity of the chief operating officer, shall also perform the duties of that office. SECTION 5.08A. CHIEF OPERATING OFFICER. The chief operating officer of the corporation, if one is elected, shall report to the chief executive officer and the president of the corporation and shall have general supervision of the day-to-day operation of retail activities of the corporation and shall perform such duties, and shall have such other authority and powers, as the president, the chief executive officer or the board of directors may from time to time prescribe. The chief operating officer, with the approval of either the chief executive officer or the president, shall have authority to execute instruments, documents, agreements and contracts, in the name of the corporation, to the same extent as the president or any vice president of the corporation. SECTION 5.09. VICE PRESIDENTS. The vice presidents in the order of their seniority, unless otherwise determined by the board of directors, shall, in the absence or disability of the president, perform the duties and have the authority and exercise the powers of the president. They shall perform such other duties and have such other authority and powers as the board of directors may from time to time prescribe or as the chairman of the board or the president may from time to time delegate. The board of directors may, at the time of election of any vice president of the corporation, designate such vice president a "senior vice president" or "executive vice president" of the corporation or designate such vice president by reference to a principal business function, such as "finance" or "administration". SECTION 5.10. SECRETARY. The secretary shall attend all meetings of the board of directors and all meetings of shareholders and record all of the proceedings of the meetings of the board of directors and of the shareholders in a minute book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or president, under whose supervision he shall be. He shall keep in safe custody the seal of the corporation and, when authorized by the board of directors, shall affix the same to any instrument requiring it and, when so affixed, it shall be attested by his signature or by the signature of an assistant secretary or of the treasurer. The secretary shall perform such other duties and have such other powers as the board of directors may from time to time prescribe or as the chairman of the board or the president may from time to time delegate. SECTION 5.11. ASSISTANT SECRETARIES. The assistant secretaries in the order of their seniority, unless otherwise determined by the board of directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary. They shall perform such other duties and have such other powers as the board of directors may from time to time prescribe or as the chairman of the board or the president may from time to time delegate. -7- 8 SECTION 5.12. TREASURER. The treasurer, if one is elected, shall have custody of the corporate funds and securities and shall keep full and accurate accounts and records of receipts, disbursements and other transactions in books belonging to the corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated from time to time by the board of directors. The treasurer shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render the president and the board of directors, at its regular meetings, or when the president or board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. The treasurer shall perform such other duties and have such other powers as the board of directors may from time to time prescribe or as the chairman of the board or the president may from time to time delegate. If required by the board of directors, the treasurer shall give the corporation a bond of such type, character and amount as the board of directors may require. SECTION 5.13. ASSISTANT TREASURERS. The assistant treasurers in the order of their seniority, unless otherwise determined by the board of directors, shall, in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer. They shall perform such other duties and have such other powers as the board of directors may from time to time prescribe or the chairman of the board or the president may from time to time delegate. ARTICLE VI CERTIFICATES REPRESENTING SHARES SECTION 6.01. CERTIFICATES. The shares of the corporation shall be represented by certificates signed by the president or a vice president and the secretary or an assistant secretary of the corporation, and may be sealed with the seal of the corporation or a facsimile thereof. SECTION 6.02. FACSIMILE SIGNATURES. The signatures of the president or a vice president and the secretary or an assistant secretary upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the corporation or an employee of the corporation. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of its issue. SECTION 6.03. LOST CERTIFICATES. The board of directors may direct a new certificate to be issued in place of any certificate theretofore issued by the corporation alleged to have been lost or destroyed. When authorizing such issue of a new certificate, the board of directors, in its discretion and as a condition precedent to the issuance thereof, may prescribe such terms and conditions as it deems expedient and may require such indemnities as it deems adequate to protect the corporation from any -8- 9 claim that may be made against it with respect to any such certificate alleged to have been lost or destroyed. SECTION 6.04. TRANSFERS. Upon surrender to the corporation or the transfer agent of the corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, a new certificate shall be issued to the person entitled thereto and the old certificate canceled and the transaction recorded upon the transfer records of the corporation. SECTION 6.05. FIXING RECORD DATES. For the purpose of determining shareholders (i) entitled to notice of or to vote at any meeting of shareholders, or, after an adjournment thereof, at any reconvened meeting, (ii) entitled to receive a distribution (other than a distribution involving a purchase or redemption by the corporation of any of its own shares) or a share dividend or (iii) for any other proper purpose (other than determining shareholders entitled to consent to action by shareholders proposed to be taken without a meeting of shareholders), the board of directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than sixty days and, in the case of a meeting of shareholders, not less than ten days, prior to the date on which the particular action requiring such determination of shareholders, is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive a distribution (other than a distribution involving a purchase or redemption by the corporation of any of its own shares) or a share dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the board of directors declaring such distribution or share dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section 6.05, such determination shall apply to any adjournment thereof. The stock transfer books shall not be closed for the foregoing or any other purpose. SECTION 6.06. FIXING RECORD DATES FOR CONSENTS TO ACTION. Unless a record date shall have previously been fixed or determined, whenever action by shareholders is proposed to be taken by consent in writing without a meeting of shareholders, the board of directors may fix a record date for the purpose of determining shareholders entitled to consent to that action which record date shall not precede, and shall not be more than ten days after, the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date has been fixed by the board of directors and prior action of the board of directors is not required by law, the record date for determining shareholders entitled to consent to action in writing without a meeting shall be the first date on which a signed written consent setting forth the action taken proposed to be taken is delivered to the corporation in the manner required by Section 2.08 of these bylaws. If no record date shall have been fixed by the board of directors and prior action of the board of directors is required by law, the record date for determining shareholders entitled to consent to action in writing without a meeting shall be at the close of business on the date on which the board of directors adopts a resolution taking such prior action. -9- 10 SECTION 6.07. REGISTERED SHAREHOLDERS. Except as otherwise required by law, the corporation shall be entitled to regard the person in whose name any shares are registered in the share transfer records at any particular time as the owner of those shares at that time for purposes of voting those shares, receiving distributions, share dividends or notices in respect thereof, transferring those shares, exercising rights of dissent with respect to those shares, exercising or waiving any preemptive right with respect to those shares, entering into agreements with respect to those shares or giving proxies with respect to those shares. Except as otherwise required by law, neither the corporation nor any of its officers, directors, employees or agents shall be liable for regarding that person as the owner of those shares at that time for those purposes, regardless of whether that person does not possess a certificate for those shares. SECTION 6.08. LIST OF SHAREHOLDERS. The officer or agent having charge of the transfer books for shares shall make, at least ten days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting, arranged in alphabetical order, with the address of each and the number of shares held by each, which list, for a period of ten days prior to such meeting, shall be kept on file at the registered office or principal place of business of the corporation and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original share ledger or transfer book, or a duplicate thereof, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share ledger or transfer book or to vote at any meeting of the shareholders. ARTICLE VII GENERAL PROVISIONS SECTION 7.01. DISTRIBUTIONS AND SHARE DIVIDENDS. Subject to the provisions of the articles of incorporation relating thereto, if any, distributions and share dividends may be declared by the board of directors, in its discretion, at any regular or special meeting, pursuant to law. Subject to any provisions of the articles of incorporation, distributions may be made by the transfer of money or other property (except the corporation's own shares or rights to acquire such shares) or by the issuance of indebtedness of the corporation, and share dividends may be paid in the corporation's own authorized but unissued shares or in treasury shares. SECTION 7.02. RESERVE FUNDS. Before payment of any distribution or share dividend, there may be set aside out of any funds of the corporation available for distributions or share dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund for meeting contingencies, or for equalizing distributions or share dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. -10- 11 SECTION 7.03. CHECKS. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. SECTION 7.04. FISCAL YEAR. The fiscal year of the corporation shall end on the last Saturday nearest to January 31 of each year. SECTION 7.05. SEAL. The corporate seal shall be in such form as may be prescribed by the board of directors. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced. SECTION 7.06. BOOKS AND RECORDS. The corporation shall keep books and records of account and shall keep minutes of the proceedings of its shareholders, its board of directors and each committee of its board of directors. The corporation shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of the original issuance of shares issued by the corporation and a record of each transfer of those shares that have been presented to the corporation for registration of transfer. Such records shall contain the names and addresses of all past and current shareholders of the corporation and the number and class of shares issued by the corporation shares held by each of them. Any books, records and minutes may be in written form or in any other form capable of being converted into written form within a reasonable time. SECTION 7.07. INVALID PROVISIONS. If any provision of these bylaws is held to be illegal, invalid, or unenforceable under present or future laws, such provision shall be fully severable; these bylaws shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision there shall be added automatically as a part of these bylaws a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable. SECTION 7.08. HEADINGS. The headings used in these bylaws are for reference purposes only and do not affect in any way the meaning or interpretation of these bylaws. ARTICLE VIII INDEMNIFICATION OF DIRECTORS AND OFFICERS Article 2.02-1 of the Texas Business Corporation Act (the "Article") permits the corporation to indemnify its present and former directors and officers to the extent and under the circumstances set forth therein. In addition, in some instances, indemnification is required by the Article. The corporation hereby elects to and does hereby indemnify all such persons to the fullest extent permitted or required by the Article promptly upon request of any such person making a request for indemnity -11- 12 hereunder. Such obligation to so indemnify and to so make such determinations may be specifically enforced by resort to any court of competent jurisdiction. Further, the corporation shall pay or reimburse the reasonable expenses of such persons covered hereby in advance of the final disposition of any proceeding to the fullest extent permitted by the Article and subject to the conditions thereof. A person's right to request, or entitlement to claim, indemnification, payment or reimbursement pursuant to this Article VIII shall not be deemed exclusive of any other right to request, or entitlement to claim, indemnification, payment or reimbursement pursuant to any contract of insurance or any other law, contract, arrangement or understanding. ARTICLE IX AMENDMENTS These bylaws may be altered, amended, or repealed or new bylaws may be adopted by the affirmative vote of a majority of the whole board of directors at any regular or special meeting; provided, that these bylaws may not be altered, amended, or repealed so as to be inconsistent with law or any provision of the articles of incorporation. -12- EX-10.18 3 AMEND.#2-SECOND AMENDED & RESTATED CREDIT AGREEMNT 1 EXHIBIT 10.18 SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of November 8, 1996 ("Amendment"), by and among THE MEN'S WEARHOUSE, INC., a Texas corporation ("Borrower"), the banks listed on the signature pages hereof (each individually a "Bank" and collectively the "Banks"), and NATIONSBANK OF TEXAS, N.A. (in its individual capacity, "NationsBank") as Agent (in its capacity as Agent, the "Agent") for the Banks to the Second Amended and Restated Credit Agreement, dated as of March 14, 1995 (as amended, "Second Restated Credit Agreement"), by and among the Borrower, the Bank and the Agent. Terms used herein and not otherwise defined shall have the meanings assigned to them in the Second Restated Credit Agreement; WHEREAS, the Borrower, the Banks and the Agent are parties to the Second Restated Credit Agreement; WHEREAS, the Borrower proposes to form a new Subsidiary, Value Priced Clothing, Inc., a corporation to be incorporated under the laws of the State of California ("NewCo"), to be directly and wholly-owned by the Borrower; WHEREAS, the Borrower proposes to make an initial loan of $9,000,000 to NewCo (the "Loan") and make an initial $8,500,000 capital contribution to NewCo (the "Investment"); WHEREAS, it is proposed that NewCo shall use the proceeds of the Loan and the Investment to purchase certain assets of C&R Clothiers, Inc. (the "Acquisition") as well as make other Investments; and WHEREAS, the Borrower, the Banks and the Agent desire to amend certain provisions of the Second Restated Credit Agreement in connection with the Acquisition; NOW, THEREFORE, in consideration of the premises and consideration of the mutual promises set forth herein and other good valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Section 8.02 of the Second Restated Credit Agreement is hereby amended to include the following new Subsection: (i) Unsecured Debt of Value Priced Clothing, Inc. to the Borrower, provided that the terms and provisions thereof shall be subject to Section 8.08. 1 2 2. Section 8.05 of the Second Restated Credit Agreement is hereby amended to include the following new Subsection: (i) capital contributions, loans and advances from the Borrower to Value Priced Clothing, Inc. (provided that the terms and provisions of any such loans and advances shall be subject to Section 8.08). 3. This Amendment shall become effective as of the date hereof subject to the condition precedent that the Agent shall have received the following in sufficient copies for each Bank: (a) this Amendment, duly executed by the parties hereto; (b) a Guaranty in the form required by Section 7.07, dated as of the date hereof, duly executed by NewCo; (c) a Certificate of the Secretary of NewCo, dated as of the date hereof certifying (1) the names and true signatures of the officers of NewCo authorized to sign each Loan Document to which NewCo is a party and the notices and other documents to be delivered by NewCo pursuant to any such Loan Document; (2) the By-laws and Articles of Incorporation of NewCo as in effect on the date of such certification; and (3) the resolutions of the Board of Directors of NewCo approving and authorizing the execution, delivery and performance by NewCo of each Loan Document to which NewCo is a party, the notices and other documents to be delivered by NewCo pursuant to any such Loan Document, and the transactions contemplated thereunder; and (d) Certificates of appropriate officials as to the existence and good standing of NewCo in its jurisdiction of incorporation and any and all other jurisdictions which require NewCo to be qualified therein and where the failure to be so qualified would have a Material Adverse Effect. 4. In order to induce the Agent and each Bank to enter into this Amendment, the Borrower represents and warrants that as of the date hereof, and after giving effect to the Acquisition and the terms and conditions hereof: (a) the representations and warranties contained in Article IV of the Second Restated Credit Agreement are, and shall be, true and correct at and as of such dates; and 2 3 (b) no Default or Event of Default exists, or will exist, at and as of such dates. 5. The Second Restated Credit Agreement as amended hereby is hereby ratified and confirmed in all respects. Any reference to the Second Restated Credit Agreement in any Loan Document shall be deemed to be a reference to the Second Restated Credit Agreement as amended hereby. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Agent or any Bank under the Second Restated Credit Agreement or any other Loan Document nor constitute a waiver of any provision of the Second Restated Credit Agreement or any other Loan Document. 6. This Amendment is a Loan Document, and all provisions in the Second Restated Credit Agreement pertaining to Loan Documents apply hereto. 7. This Amendment may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same agreement. 8. This Amendment shall be governed by and construed in accordance with the laws of the State of Texas and any applicable laws of the United States of America in all respects, including construction, validity and performance. IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the day and year first above written. THE MEN'S WEARHOUSE, INC. By: /s/ GARY G. CKODRE ---------------------------------- Name: Gary G. Ckodre Title: Vice President NATIONSBANK OF TEXAS, N.A., Agent By: /s/ RICHARD L. NICHOLS, JR. ---------------------------------- Name: Richard L. Nichols, Jr. Title: Vice President 3 4 NATIONS BANK OF TEXAS, N.A., in its individual capacity By: /s/ RICHARD L. NICHOLS, JR. ---------------------------------- Name: Richard L. Nichols, Jr. Title: Vice President UNION BANK By: /s/ RUSSELL A. COLOMBO ---------------------------------- Name: Russell A. Colombo Title: Vice President WELLS FARGO BANK, N.A. By: /s/ VALERIE B. CARLSON ---------------------------------- Name: Valerie B. Carlson Title: Vice President The undersigned Guarantors of indebtedness of the Borrower under the Second Restated Credit Agreement hereby acknowledge the execution and delivery of this Third Amendment to Second Amended and Restated Credit Agreement. TMW TEXAS RETAIL L.P. By: TMW Texas General, Inc., its general partner By: /s/ GARY G. CKODRE ---------------------------------- Name: Gary G. Ckodre Title: Assistant Treasurer 4 5 TMW TEXAS LIMITED, INC. By: /s/ GARY G. CKODRE ---------------------------------- Name: Gary G. Ckodre Title: Assistant Treasurer TMW TEXAS GENERAL, INC. By: /s/ GARY G. CKODRE ---------------------------------- Name: Gary G. Ckodre Title: Assistant Treasurer 5 EX-11.1 4 STATEMENT OF COMPUTATION OF NET EARNINGS PER SHARE 1 EXHIBIT 11.1 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES STATEMENT OF COMPUTATION OF NET EARNINGS PER SHARE
1994 1995 1996 ----------- ----------- ----------- Shares outstanding - beginning of period 18,119,000 18,985,000 20,820,000 Shares issued during period - weighted average: Public offerings 645,000 821,000 - Options exercised 30,000 61,000 65,000 Contribution to Employee Stock Plan 16,000 28,000 18,000 Common stock equivalents - weighted average: Shares issuable upon exercise of stock options granted (treasury stock method) 353,000 331,000 290,000 ----------- ----------- ----------- Weighted average number of common and common equivalent shares 19,163,000 20,226,000 21,193,000 =========== =========== =========== Net earnings applicable to common stock $12,108,000 $16,508,000 $21,143,000 =========== =========== =========== Primary and fully diluted earnings per share $ .63 $ .82 $ 1.00 =========== =========== ===========
Note: The number of shares shown above have been retroactively adjusted to reflect the effect of the 50% stock dividend effected on November 15, 1995. EX-21.1 5 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21.1 SUBSIDIARIES OF THE MEN'S WEARHOUSE, INC. TMW Texas Retail L.P. TMW Texas Limited, Inc. TMW Texas General, Inc. Value Priced Clothing, Inc. Value Priced Clothing II, Inc. Value Priced Liquidators, Inc. The Men's Wearhouse Nevada, Inc. EX-23.1 6 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-01564 on Form S-3, Registration Statement No. 33-48108, Registration Statement No. 33-48109, Post-Effective Amendment No. 1 to Registration Statement No. 33-48110, Post-Effective Amendment No. 1 to Registration Statement No. 33-48111, Registration Statement No. 33-61792, Registration Statement No. 333-21109, Registration Statement No. 333-21121 and Registration Statement No. 33-74692 of The Men's Wearhouse, Inc. on Form S-8 of our report dated March 5, 1997 appearing in this Annual Report on Form 10-K of The Men's Wearhouse, Inc. for the year ended February 1, 1997. /s/ DELOITTE & TOUCHE LLP Houston, Texas May 1, 1997 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 12-MOS FEB-01-1997 FEB-04-1996 FEB-01-1997 34,113 0 0 0 164,140 208,304 111,051 40,029 295,478 71,467 57,500 0 0 210 158,919 295,478 483,547 483,547 295,181 295,181 150,232 0 2,146 35,988 14,845 21,143 0 0 0 21,143 1.00 0
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